Reduced oil production on the North Slope of Alaska and resulting revenue drops place the long-term viability of the Trans-Alaska Pipeline System (TAPS) in doubt, reported the U.S. Energy Information Administration (EIA) in its Annual Energy Outlook 2012.
The major concern, according to the EIA, is that dwindling pipeline throughput creates a host of operational problems that impose higher maintenance costs that would become economically infeasible should oil prices drop. In one “low oil price” scenario developed by the EIA, North Slope production would cease, and TAPS would be decommissioned as early as 2026.
24 years since peak production
TAPS throughput reached a peak of 2 million barrels per day (bpd) in 1988. By 2010, throughput had dropped to about 600,000 bpd primarily because of depletion of the North Slope’s two largest fields, Prudhoe Bay and Kuparuk River. Recently, Alyeska Pipeline Service Company, which operates TAPS, stated that oil pipeline transportation problems could begin when throughput falls below 550,000 bpd and would become increasingly severe with further declines.
According to Alyeska, throughput declines create a host of problems, including:
- Water dropout from the crude oil, which could cause pipeline corrosion;
- Ice formation in the pipe if the oil temperature drops below freezing;
- Wax precipitation and deposition; and
- Soil heaving.
Alyeska estimates that TAPS’s operational problems could become “considerable” should throughput fall below 350,000 bpd, at which point the feasibility of investing in maintaining TAPS would probably be based on the price of oil. Accommodating low throughput is costly. From 2004 through 2006, Alyeska reconfigured and refurbished TAPS, spending about $400 million to $500 million both to reduce operating expenses and to permit TAPS to operate at lower flow rates, with a potential minimum mechanical throughput rate thought at that time to be about 200,000 bpd. However, as North Slope oil production declined, new concerns about TAPS’s operation under low-flow conditions have emerged.
The EIA adds that throughput at or below 350,000 bpd plus oil production revenues at or below $5 billion per year would cause North Slope fields to be shut down, plugged, and abandoned. The state of Alaska imposes an 18.5 percent royalty rate on oil revenues, which would reduce the $5 billion revenue for the oil industry by nearly $1 billion.
Potential solutions
The EIA says that the TAPS flow issue would be alleviated most readily by discovery and production of large new sources of oil on the North Slope. Potential sources of significant North Slope oil production are located offshore in the Chukchi and Beaufort Seas and onshore in shale and heavy oil deposits. It is also estimated that the Arctic National Wildlife Refuge (ANWR) holds approximately 10 billion barrels of technically recoverable oil resources, but federal oil and gas leasing in the ANWR is prohibited.
Another potential source of new TAPS volumes would be the conversion of North Slope natural gas resources to either methanol or Fischer-Tropsch petroleum products that could be transported to market via TAPS. A final solution, in the absence of new North Slope petroleum supplies could be development of new crude oil transportation facilities such as a small diameter pipeline.
The EIA adds that if the low-oil-price scenario does not occur, the likely future outcome is that North Slope oil production will continue until at least 2035 if not longer.
EIA’s Annual Energy Outlook 2012 is at http://www.eia.gov/forecasts/aeo/IF_all.cfm#alaskan.