Oil & Gas
 
  Alaska’s Oil & Gas Industry

Background

The oil and gas industry has driven much of the growth in Alaska’s economy and has paid for most of the state government’s operations for 40 years. In fact, oil production currently accounts for approximately 93 percent of Alaska’s unrestricted general fund revenues, or $8.86 billion in fiscal year 2012. The general fund pays for almost every state service, including the education system, transportation infrastructure, public health and safety services, and a host of other programs throughout Alaska. In FY 2013, unrestricted revenue from oil production is anticipated to be $6.9 billion and $6.4 billion in FY 2014. Since Statehood, Alaska has received $164 billion in revenues from oil.

According to a special report by the University of Alaska’s Institute for Social and Economic Research (ISER), without oil, the economy in Alaska today would be only half its current size. A third of Alaska’s jobs, 127,000, are oil related and depend on oil production. While the North Slope is producing just a third of the oil it once did, oil will still be the state’s biggest economic engine in the years ahead, ISER noted.

Alaska has produced over 17 billion barrels of oil and in 1988 it accounted for 25 percent of domestic production. North Slope oil fields produced an average of 20 percent of the nation’s domestic production between 1980 and 2000. With the Trans-Alaska Pipeline System (TAPS) now running at two-thirds empty, Alaska’s share of domestic production has fallen to approximately 10 percent and the state has slipped to be the third largest producer in the nation, behind Texas and North Dakota. Daily oil production in FY 2012 fell to 590,000 barrels per day (bpd) and is expected to fall to 563,000 bpd in FY 2013 and 548,000 bpd in FY 2014.

Alaska still has a lot of conventional oil to produce. In fact, there is estimated to be at least 40 billion barrels remaining to be tapped on the North Slope and offshore areas of the Alaska Arctic. This oil has the potential to support the Alaskan economy for generations.

In the near term, oil will come mostly from producing fields onshore, which may have about five billion barrels of conventional oil remaining. There are other known but not yet producing fields on state land that could hold two billion barrels. Federal areas onshore and offshore may contain up to 36 billion barrels of oil.

History

The first major discovery of oil in Alaska was on the Kenai Peninsula at Swanson River in 1957. The U.S. Congress viewed that discovery as the foundation for a secure economic base in Alaska, and Statehood was granted two years later. However, it was the discovery of the giant Prudhoe Bay oil field on Alaska’s North Slope in 1967 that established Alaska as a world-class oil and gas province.

Two years later, the discovery of the nearby Kuparuk field, the second largest in North America after Prudhoe Bay, confirmed Alaska’s position. Four of the ten largest oilfields to date are located on the North Slope. Since these discoveries, a series of major oil and gas fields have been developed along the central North Slope.

The Future

Although production is declining at Prudhoe Bay and Kuparuk, as well as other nearby fields, there is high potential for new discoveries in the Arctic, both onshore and offshore.

A U.S. Department of Energy report estimates the recoverable oil reserves on the North Slope to be 22 billion barrels, including reserves from existing fields, as well as undiscovered resources. Natural gas estimates reach as high as 124 trillion cubic feet (tcf).

A revised 2011 U.S. Geological Survey assessment of the National Petroleum Reserve-Alaska (NPR-A) resulted in an estimate of 900 million barrels of oil and 17.5 tcf of natural gas. An assessment of the 1002 Area of Arctic National Wildlife Refuge (ANWR) gave a mean estimate of 10.4 billion barrels of technically-recoverable oil.

The Alaska Outer Continental Shelf constitutes one of the world’s largest untapped resources potentially reaching as high as 27 billion barrels of oil and 132 trillion cubic feet of natural gas, with the majority being in the Chukchi Sea. In February 2008, the second most successful oil and gas lease sale in the history of the United States took place, covering millions of acres in the Chukchi Sea. The sale raised a record $2.7 billion in revenue.

After more than 35 years of production, the North Slope still has a large amount of the discovered oil and gas in place. The industry is actively pursuing new ways to develop these remaining, more challenging resources such as heavy and viscous oil, light oil from small, more remote fields, and natural gas, including gas hydrates. If the technical and economic hurdles can be overcome, heavy oil development will be important to sustaining Alaska’s oil production long into the future. The size of the resource is significant, but so are the challenges as the oil is thick and sticky, and will require new kinds of wells and processing.

The Ugnu heavy oil deposit beneath Prudhoe Bay is estimated to hold 20 billion barrels of oil in place. Conservative estimates suggest recovery rates of about 10 percent.

The North Slope also holds large known deposits of viscous oil, which is a type of heavy oil but not as thick. In recent years, viscous oil production on the North Slope was about 40,600 pbd. With evolving technology, more production will come from this resource. In addition, the North Slope is rich in source rocks that have the potential to deliver a successful unconventional shale-based oil and natural gas resource play. Alaska’s shale potential is only just emerging as the industry’s focus to date has been on conventional oil and gas production.

New drilling technology has led to major advances in limiting industry’s footprint on the North Slope. Wells that once were spaced about 120 feet apart are now drilled as close as 10 feet. With grind and inject technology, drilling waste is safely reinjected underground into isolated geologic formations, eliminating the need for surface reserve pits.

Improvements in drilling technology have not only reduced the surface footprint, they have greatly expanded the subsurface drillable area. In 1970, a typical drill site utilized 20 acres, reaching a subsurface area of 502 acres or a surrounding area of .08 square miles, or 1 mile out from the drill pad. Modern drill sites can now be limited to six acres, with a subsurface drillable area of 32,170 acres or a surrounding area of 50.3 square miles, or 8 miles out from the pad.

Alaska’s offshore waters and onshore prospects hold the potential to fuel the state’s economy for decades and to play a key role in ensuring America has the energy it needs until alternative sources become available on a large scale.

Facts & Economic Impact

  • Oil production is the reason Alaska is the only state that does not have either a personal income or sales tax.
  • Alaska's oil and gas industry has produced more than 17 billion barrels of oil and 6 billion cubic feet of natural gas, accounting for an average of 20 percent of the entire nation's domestic production (1980 - 2000). Currently, Alaska accounts for approximately 10% of U.S. production. (Alaska Department of Natural Resources)
  • The oil industry continues to be the largest source of unrestricted revenue to the state, accounting for approximately 93 percent, or $8.86 billion, of all unrestricted state revenue in FY 2012. Unrestricted general fund revenues from the oil and gas industry in FY 2013 is expected to reach $6.9 billion and $6.4 billion in FY 2014. (Alaska Department of Revenue)
  • Since the completion of TAPS, petroleum revenues to the State of Alaska have averaged 85 percent of the state's unrestricted general fund. (Alaska Department of Revenue)
  • The Alaska OCS may be one of the largest untapped oil and gas basins in the world. According to the University of Alaska Anchorage, an annual average of 54,700 new jobs would be created and sustained through the year 2057 by its development, with 68,600 during production and 91,500 at peak employment. (University of Alaska Institute of Social and Economic Research)
  • Development of Alaska’s OCS resources would result in a total of $145 billion in new payroll through the year 2057, including $63 billion to employees in Alaska and $82 billion to employees in the Lower 48. (University of Alaska Institute of Social and Economic Research)
  • Oil production in the Arctic OCS would generate $193 billion in government revenue through 2057, with $167 billion to the federal government, $15 billion to the State of Alaska, $4 billion to local Alaska governments, and $6.5 billion to other state governments. (University of Alaska Institute of Social and Economic Research)
  • A third of Alaska jobs – about 127,000 – are oil-related, dependent in some way on oil production or spending of state oil revenue. Close to 20 percent more jobs – 60,000 – can be traced to the spinoff benefits of oil wealth. Altogether, half of Alaska’s jobs – 187,000 – can be traced to oil development. These spinoffs have helped other parts of the economy prosper and add more jobs than they otherwise could have. (University of Alaska Institute of Social and Economic Research)
  • Including direct, indirect and induced employment and wages, the oil and gas industry in Alaska accounted for 44,800 jobs and just under $2.65 billion in annual payroll to Alaska residents in 2010. Primary industry employment totaled 4,487 jobs and $764 million in payroll in 2010. (McDowell Group, 2011 Economic Report)
  • Oil development has resulted in an Alaska population that is twice the size than what it would otherwise be, which creates economics of scale. (University of Alaska Institute of Social and Economic Research)
  • The Alaska Permanent Fund, worth approximately $43.3 billion in December 2012, was created in 1976 to set aside a portion of oil revenues for future generations. The fund has paid out more than $13 billion in dividends to Alaskans. (University of Alaska Institute of Social and Economic Research)
  • Since 1982, a family of four has received over $141,740 in annual dividends from the Permanent Fund. (University of Alaska Institute of Social and Economic Research)
  • Because of the revenues oil production has generated, a family of four enjoyed an estimated value of $22,000 in 2010, including tax relief, Permanent Fund dividends, and enhanced public services. Communities, industries, and local businesses enjoy tax relief, lower costs, economics of scale, better infrastructure, enhanced opportunities, and improved quality of life. (University of Alaska Institute of Social and Economic Research)
  • The oil and gas industry has invested over $50 billion in North Slope and Cook Inlet infrastructure since the 1950s. (Alaska Oil and Gas Association)
  • Over 17 billion barrels of oil have been transported through the 800-mile TAPS. (Alaska Department of Natural Resources, Alaska Department of Revenue)
  • In 1974, the building of TAPS began, the largest construction project in the world. The original estimated cost was $900 million, but when it was completed in 1977, final costs were over $8 billion.
  • The potential Alaska Natural Gas Pipeline Project from the North Slope to tidewater in Southcentral Alaska is estimated to cost between $45 to $60 billion.

Production & Processing

  • Prudhoe Bay remains the largest oil field in North America. Four of the nation’s top ten producing oil fields are located on the North Slope. Alaska ranks third behind Texas and North Dakota in daily oil production.
  • There are more than a dozen producing fields on the North Slope. Cumulative oil production from these fields is over 17 billion barrels. Ultimate production from Prudhoe Bay itself is expected to exceed 13 billion barrels. (Alaska Department of Revenue)
  • Oil production in Alaska has dropped over 70 percent since hitting a peak of 2 millions barrels per day in 1988.
  • The long-term outlook for oil production on the North Slope is one of gradual decline supplemented with smaller field-size oil development with gas field development in or near existing infrastructure. The state expects average daily production in FY 2013 to drop to 563,000 bpd and 548,000 bpd in FY 2014. (Alaska Department of Revenue)
  • Current Alaska production accounts for approximately 10 percent of U.S. domestic production. The State currently estimates Prudhoe Bay contains an additional 2.5 billion barrels of recoverable oil plus another 426 million in reserves from satellite development. New investments and improved technologies may increase future reserve estimates. (Alaska Department of Revenue)
  • New drilling technology has led to major advances in limiting industry’s footprint on the North Slope. Wells that once were spaced about 120 feet apart are now drilled as close as 10 feet. With grind and inject technology, drilling waste is safely reinjected underground into isolated geologic formations, eliminating the need for surface reserve pits. (ConocoPhillips Alaska, Inc.)
  • Improvements in drilling technology have not only reduced the surface footprint, they have greatly expanded the subsurface drillable area. In 1970, a typical drill site utilized 20 acres, reaching a subsurface area of 502 acres or a surrounding area of .08 square miles, or 1 mile out from the drill pad. Modern drill sites can now be limited to six acres, with a subsurface drillable area of 32,170 acres or a surrounding area of 50.3 square miles, or 8 miles out from the pad. (ConocoPhillips Alaska, Inc.)
  • There are 28 producing oil and gas fields on the Kenai Peninsula and offshore Cook Inlet. This area has produced a cumulative total of over 1.3 billion barrels of oil and 7.75 trillion cubic feet of natural gas. The largest oil field, the McArthur River field, is expected to recover 639,000 barrels of oil. The largest gas field, the Kenai field, is ultimately projected to produce 2.427 trillion cubic feet of natural gas. Cook Inlet oil production peaked at 230,000 barrels per day in 1970 to about 10,800 bpd in FY 2012. (Alaska Department of Revenue)
  • Alaska has four refineries that produce gasoline, diesel and jet fuel for Alaska markets. Refineries are located in Nikiski, Valdez and near Fairbanks at North Pole.

Alaska is not competitive

  • Alaska has a lot of oil, but higher taxes have led to less production.
  • Since 2006, oil production taxes in Alaska have risen 350 percent, based on an oil price of $80 a barrel, and even more at $90. North Slope production has since fallen from 716,000 bpd in 2008 to 590,000 in FY 2012.
  • Alaska’s fiscal terms are not competitive with other states that are attracting industry investment. At $115, the effective tax rate in Alaska, including all taxes and royalties, is approximately 85 percent on a barrel of oil. (Alaska Department of Revenue)
  • Because of an oil production tax structure which takes the lion’s share of a company’s upside, there is no significant difference in a producer’s net income between $90 and $125 a barrel, leaving the company little upside at high prices. (ConocoPhillips Alaska, Inc.)
  • Alaska has the highest industry costs and tax rates in the nation. It is not enough for Alaska to be profitable for investors, it also must be competitive. (Alaska Oil and Gas Association)
  • Corporate capital is limited and only the most profitable projects in a company’s portfolio will get funded.
  • Wood MacKenzie, a leading world energy industry research firm, ranked Alaska as one of the least attractive places in North America for investment. Only New York ranked lower than Alaska.
  • As much as $60 billion in new investment may be required to slow the production decline and develop new fields. (Alaska Oil and Gas Association)
  • In ten years, the State of Alaska forecasts that 50 percent of Alaska’s oil will be from “new oil,” which will require large industry investment to bring into the pipe. (Alaska Department of Revenue, Alaska Oil and Gas Association)

Producers & Explorers

BP Exploration (Alaska), Inc.: North Slope
ConocoPhillips Alaska, Inc.: North Slope, OCS
ExxonMobil: North Slope Eni Petroleum: North Slope, OCS
Pioneer Natural Resources Alaska Inc.: North Slope, Cook Inlet
Anadarko Petroleum: North Slope
Shell: OCS
Statoil: OCS
Brooks Range Petroleum: North Slope
Linc Energy (Alaska) Inc.: North Slope, Cook Inlet
Great Bear Petroleum: North Slope
Repsol E&P USA Inc.: North Slope
UltraStar Exploration LLC: North Slope
Doyon Limited: Nenana Basin, Yukon Flats
Hilcorp Alaska LLC: Cook Inlet
Apache Corporation: Cook Inlet
Buccaneer Alaska: Cook Inlet
XTO Energy: Cook Inlet
Cook Inlet Energy LLC: Cook Inlet
Furie Operating Alaska LLC: Cook Inlet
NordAq Energy Inc.: Cook Inlet
Savant Alaska Resources LLC: Cook Inlet
Armstrong Oil and Gas Inc.: Cook Inlet, North Slope
ASRC Exploration: North Slope

Alyeska Pipeline Service Company

Alyeska is responsible for operating and maintaining the Trans-Alaska Pipeline System (TAPS). The company acts as agent for five companies which own the pipeline: BP Pipelines (Alaska), Inc. 46.93%, ConocoPhillips Transportation Alaska, Inc. 28.29%, ExxonMobil Pipeline Company, 20.34%, Unocal Pipeline Company, 1.36%, and Koch Alaska Pipeline Company, LLC, 3.08%. Alyeska directly employs about 800 people with a total of 1,600 direct and indirect employment associated with the pipeline.

The 800-mile, 48-inch pipeline is one of the largest pipeline systems in the world. In what it calls strategic reconfiguration, the company has upgraded the pipeline’s pump stations and control systems to enhance overall pipeline safety and reliability. Alyeska has successfully transported more than 17 billion barrels of oil to market.

The American Petroleum Institute awarded Alyeska its 2008 Distinguished Operator Award, which is among the oil industry’s top honors and is reserved for pipeline operators that demonstrate excellence in safety, environment and integrity.

Alaska Refiners

Flint Hills Resources: North Pole
Petro Star, Inc.: North Pole, Valdez
Tesoro Alaska Company: Nikiski

Web Links

Sources

  • Alaska Department of Natural Resources, Division of Oil & Gas
  • Alaska Department of Revenue
  • Alaska Department of Labor
  • U.S. Department of the Interior
  • U.S. Department of Energy
  • Alaska Oil & Gas Association
  • Alyeska Pipeline Service Company
  • Petroleum News