Alaska to Drill or Not to Drill

By Gustavo Coronel l August 15, 2011

Oil discoveries in Alaska led to the Trans-Alaska Pipeline System – TAPS

The discovery well in Prudhoe Bay was drilled in 1968. At the time, the field was estimated to hold about 10 billion barrels of recoverable reserves. An 800-mile oil pipeline was planned to move the oil to market from Prudhoe Bay on the North Slope to Valdez in the Gulf of Alaska, where it would be pumped aboard tankers.

Environmental and land property issues were essentially settled and the building permit for the pipeline was issued in 1974. Construction began on March 27, 1975. During peak construction, 20,000 workers and technicians were employed on what was called the largest privately financed construction project in history. It cost $8 billion, including the Valdez terminal, before it was completed in 1977. The first tanker carrying North Slope crude oil left the Valdez terminal on August 1, 1977.

The pipeline is 48 inches in diameter and between 0.462 and 0.562 inches thick. The oil moves at about 5.5 miles per hour and in the early stages of operation it required less than six days to travel from Prudhoe Bay to Valdez. As of 2010, the pipeline had transported about 15 billion barrels of oil, a volume 1.5 times larger than the original estimate of recoverable oil reserves. The operation of the pipeline has been a success, with very few significant problems. The worst leak in the history of the line took place in February 1978 when some 16,000 barrels of oil were lost due to an explosion caused by an unidentified individual.

Future of the pipeline

Unless additional oil reserves are found and developed in the neighboring areas, some observers believe TAPS might only be transporting some 500,000 barrels per day by 2015. Pumping stations would have to be progressively closed down until the pipeline reaches a minimum feasible volume of 200,000 barrels per day sometime after 2020. However, such a prediction does not take into account any possible new production. Others believe the pipeline has a much longer life expectancy.

Among the optimists is Judge Sharon Gleason, of the Alaska courts, who recently rendered an evaluation of the future of the pipeline after carefully reviewing, with the help of experts, the different aspects of the pipeline situation. Judge Gleason said, “First, there is some $550 billion worth of oil still in the ground on the North Slope. These are proven reserves.” The judge went further to say that “even if there were no pipeline in place today, it would be to the economic advantage of the pipeline owners to build a new one, based on the volumes of oil remaining in the ground.”

Second, Judge Gleason found: “TAPS’ physical life is considered virtually unlimited given the execution of appropriate surveillance, maintenance, repair and replacement programs.”

Third, “the pipeline can effectively operate down to 200,000 barrels per day, if heaters are installed at certain points to warm up the oil as it travels south. There was evidence at the trial that the pipeline could even operate at lower production levels”.

Currently, the pipeline is performing significantly below capacity. Arrival of the oil to the port of Valdez is taking much longer and the risks of corrosion, leaks and clogs along the line have increased, due to lower operating temperatures. The only sure cure for the ailments of this engineering wonder is to increase the volumes of oil transported by the 48-inch pipeline.

Modest help seems to be on the way. The Oil and Gas Journal (OGJ) of June 16, 2011 reports that “Linc Energy Ltd., Brisbane,” has acquired a controlling interest in the giant Umiat oil field in the National Petroleum Reserve-Alaska and plans to develop Umiat to produce more than 50,000 b/d via a connecting conduit to the trans-Alaska oil pipeline. Umiat, 140 miles southwest of Prudhoe Bay and 80 miles west of TAPS, is estimated to contain one billion bbl of original oil in place.

The pipeline is only one aspect of the issue

Although important, the future of the pipeline is only a partial aspect of the central issue, this is, U.S. energy policy. In the formulation of this policy Alaska’s role is fundamental, since it possesses substantial remaining oil prospects, including Alaska’s National Petroleum Reserve, ANWR and Cook Inlet. However, these prospects remain largely undeveloped due to the political and environmental conflicts that surround the Hamletian dilemma that has been haunting the nation for some time: “to drill or not to drill,” that is the question!

The Rasmussen Reports national telephone survey of 1,000 Likely Voters conducted June 26-27 indicates that only 19% believe the United States is doing enough to develop its own gas and oil resources while 75% do not think the country is doing enough in this area. 49 percent of voters say, when given the choice, that increasing the supply of oil by finding new sources is a better energy policy than reducing demand by cutting gas and oil consumption.

This clear preference by the American people is not being translated into decisive action at the highest level of government. In his remarks on America’s Energy Security at Georgetown University, President Obama stated on March 30th: “The United States of America cannot afford to bet our long-term prosperity and security on a resource that will eventually run out. Not anymore. Not when the cost to our economy, our country, and our planet is so high. Not when your generation needs us to get this right. It is time to do what we can to secure our energy future. And today, I’m setting a new goal, one that is reasonable, achievable, and necessary. When I was elected to this office, America imported 11 million barrels of oil a day. By a little more than a decade from now, we will have cut that by one-third.” Although this could imply an accelerated development of domestic oil and gas resources, it could also mean severe restrictions placed on demand or the preferential development of alternate sources of energy such as wind, solar, or biofuels. In fact, there appears to be a clear-cut decision in this important matter that was imbedded in the president’s Georgetown speech. America’s energy policy is to depend upon Canada, Mexico and Brazil – sharing American energy technology with Brasilia – while forging an alternative to and diminished development of American hydrocarbons.

President Obama was quite clear and emphatic in his intent to redirect America’s energy policy when he stated: “I set this goal knowing that we’re still going to have to import some oil. It will remain an important part of our energy portfolio for quite some time, until we’ve gotten alternative energy strategies fully in force. And when it comes to the oil we import from other nations, obviously we’ve got to look at neighbors like Canada and Mexico that are stable and steady and reliable sources. We also have to look at other countries like Brazil. Part of the reason I went down there is to talk about energy with the Brazilians. They recently discovered significant new oil reserves, and we can share American technology and know-how with them as they develop these resources.” The potential Alaska developments are only tentatively addressed when he says: “We’re also exploring and assessing new frontiers for oil and gas development from Alaska to the Mid-and South Atlantic.” In terms of time, such a statement does not answer satisfactorily the relative urgency related to the survival of the trans-Alaska oil pipeline. It is encouraging, however, that Shell Exploration has just been “conditionally cleared” to proceed with the most ambitious oil and gas drilling program ever attempted in the U.S. Arctic, a plan that would offer access to a crucial new domestic energy supply in the Beaufort Sea, one of the most environmentally fragile regions on Earth.

Alaska’s remaining oil resources

A study by the University of Alaska commissioned by Shell Oil Co. in 2009 estimates hydrocarbon resources of some 27 billion barrels of oil and 132 trillion cubic feet of natural gas in Alaska’s offshore areas. The study adds that the development of these resources could create an annual average of some 55,000 new jobs in the state.

The same study suggests that development of the Beaufort and Chukchi Sea areas would extend the life of the trans-Alaska oil pipeline for decades.

Economic extrapolations made by the report indicate that some $193 billion could be generated by 2057 as a result of Alaska’s oil and gas offshore development, barring major impediments or delays. However, it adds, “these impediments have stalled exploration efforts since 2007.” The report also mentions the possibility of a major gas pipeline being built, if the development takes place.

The clock is ticking

From exploration to full oilfield development it usually takes between 8-10 years. It took 10 years after the discovery well was drilled, for the first delivery of oil from Prudhoe Bay to reach the market. This must be on the mind of Alaska’s governor, since he is currently pushing a plan to drill in the Beaufort Sea, about three miles off the National Petroleum Reserve – Alaska, bypassing permission from the Federal government. Governor Sean Parnell is a Republican and seems determined to apply pressure on the Obama administration to act.

The stakes are high and include not only the survival of TAPS but also the economic well being of Alaska and, even, the national security of the United States.

Gustavo Coronel, who served on the board of directors of Petróleos de Venezuela (PdVSA), has had a long and distinguished career in the international petroleum industry, including in the USA, Europe, Venezuela and Indonesia. He is an author, public policy expert and contributor to

SFPPR News & Analysis.