Monday, May 30, 2011

Parnell and ACES . . . too little, too late?

The Legislature starts its second special session, still without a budget, still without any Alaska’s Clear and Equitable Share (ACES) revisions, and without agreeing to continue coastal zone management. Thus far, a very good reason to file thirteen our entire Legislature in the next two election cycles. Unfortunately, we voters will forget about the State’s issues with the windup to the 2012 Presidential race. There is more news about former Governor Sarah Palin than about the incredible failures on the part of Legislature.

Gov. Parnell has vowed to keep fighting to reduce the rates oil companies pay under the current ACES law. ACES was passed during Gov. Sarah Palin’s unfortunately not brief enough gubernatorial administration. It should be remembered, that our Gov. Sean Parnell was then Gov. Sarah Palin’s Lt. Governor. A first belated step towards ‘independence’ from Palin for Parnell?

Gov. Parnell is a former State legislator who became an oil company lobbyist in Juneau after this tenure in the State Senate and House. That he would try to reduce the impact upon the oil companies is not surprising, but, a bit late.

In case no one has noticed, the oil flowing through the TAPS is declining to the point of no return, meaning that it will no longer be economically viable to move oil down the pipeline because of the declining volume of oil, and the point at which there can be no restart of the pipeline system if there is a shutdown for any reason. The last shut down last winter was a touch and go in terms of restarting the flow of oil. Alyeska’s president Thomas Barrett stated in a public radio interview that Alyeska was very concerned about the ability to restart oil flowing after the shutdown for a broken pipe at Pump Station 1 in January of this year. He went on to say that it was touch and go as to whether or not the pipeline would restart. He further estimated that within the next four to five years at the most, operating levels of 500,000 barrels or less would be reached at which point, Alyeska’s engineers believed that restarting the pipeline after a shut down would not be possible. It was also disclosed that TAPS has suffered up to an 80% deterioration in the walls of the pipe. This would mean a lengthy replacement of pipe in order to extend the life of TAPS, should methods and technology prove that recovery of the heavy oil under Prudhoe can be accomplished in economic quantities.

BP announced a heavy oil R&D recovery project well had demonstrated the viability of recovering heavy oil under the North Slope. There is an estimated 20 billion barrels of heavy crude yet to be recovered from legacy fields at Prudhoe and the surrounding area comprised of heavy oil. BP has been tight lipped about this project, having made only the one press release earlier this year. Heavy crude recovery is the most likely candidate for increasing the flow of oil through TAPS.

Off shore oil is another potential, but only if the Obama Administration figures out that the only way to reduce gasoline prices to the consumer is by increasing the amount of crude available in the market place.

The impact of oil shale recovery will soon be felt in the market place in much the same manner as the impact of shale gas on the natural gas market Outside and in Canada. Already, significant discoveries and returns are turning the Bakken oil shale in North Dakota into developments whose potential may exceed that of Prudhoe Bay in the early days of its development. Recent activity in Texas is proving out the viability of oil shale recovery there, turning depressed areas into boom towns, a welcome change from the impact of an ongoing recession. It is estimated that if the oil shale development continues at the present pace, within the next 20 years Middle East oil will not be needed in the U.S. domestic market.

If car manufacturers would produce vehicles fueled by natural gas for urban areas, that time frame may be halved or reduced even further. In which case, we would no longer have to take in the Wahabbist element from Saudi Arabia that George H. Bush, Bill Clinton and George W. Bush decided the U.S. could absorb to keep Saudi Arabia’s oil flowing. The Bush-Clinton-Bush policy of taking in extremist religious fanatics from Saudi Arabia under the student visa program has been a policy that is a direct threat to our national security.

Gov. Sean Parnell’s desire to reduce the ACES tax rates may be too little too late, just as the delays in deciding upon a reasonable natural gas pipeline option has ended Alaska’s role as a potential major player in either the domestic gas market or the world LNG market. The same can now be said for shale oil.

To the Governor’s credit, at least he is backing a positive option. Whether or not reducing ACES will have any impact upon Alaska’s oil production remains to be seen.

Whether or not there will be sufficient oil production increases within the next five years to keep TAPS in operation is the question. With the shutdown of TAPS, so also ends 90% of the State’s revenues. Alaska will be a far different place within five years of the shutdown of TAPS.