Tuesday, May 1, 2012

The oil glut just caught up with Alaska's oil dreams . . .

The shale oil revolution in the lower-48 has finally impacted Alaska.

On April 11, the 940 foot oil tanker Alaskan Explorer returned to Valdez from a two week journey to a refinery in Washington state after delivering almost 1,000,000 barrels of Alaska crude from the North Slope. For the first time since the Trans Alaska Pipeline System (TAPS) began transporting North Slope crude to the Alyeska Pipeline oil terminal at Valdez, 300,000 barrels (12,600,000 gallons) of Alaska North Slope crude oil was being returned to Valdez for the first time. (1 barrel = 42 gallons)

The day the crude oil was returned to Valdez by the Alaska Explorer, the oil storage tanks at Alyeska’s oil terminal were 90% full. The oil storage tanks have not been this full since the start of oil flowing down TAPS. Having to return oil added to the lack of capacity. This is a serious situation with respect to maintaining the oil flow from the North Slope.

One of the major concerns of Alaska’s politicians has been when will North Slope oil production fall to such a level that the TAPS will no longer be able to move the oil? This amount has been estimated to be a little as 300,000 barrels per day to as much as 500,000 barrels per day. If TAPS operations has to be stopped at present levels due to an oil glut in the lower 48, there is a very real possibility that TAPS operations may not be able to be restarted.

Last year, Thomas Barrett, the president of Alyeska Pipeline Company, warned the Legislature that any shut down of TAPS that lasted for more than three days could result in a permanent shut down of TAPS. The automation of TAPS in the 1980s removed the pumps from some of the pump stations, thereby reducing the ability to pressurize the pipeline. Present volumes are marginal with respect to restarting TAPS. The estimate of the shutdown volume was 300,000 barrels per day until 2010, when it was admitted by Barrett that the actual shut down volume could be as much as 500,000 barrels per day.

The reason the oil was returned to Valdez has been the increasing volume of oil produced from the Bakken Shale deposits in North Dakota and from other shale deposits in Texas and Pennsylvania. The same technology that has increased the natural gas reserves of the United States to as much as 200 years at present rates of consumption has now allowed access to oil previously considered unrecoverable.

Another factor is the reduction in the use of gasoline in the U.S. due to higher mileage vehicles. This has led to a decreased demand for crude oil in the face of increased supplies. The U.S. is now exporting refined gasoline in quantities not seen since the 1960s to Central and South America.

The Parnell Administration failed to publically note the return of Alaska crude to Valdez. To have made the public aware that Alaska crude was returned because of an oil glut Outside might have caused a problem for an Administration that has been heavily criticized for its lack of progress on a natural gas pipeline.

One thing is for certain, due to high international demand for crude in Asia, the price of gas is not going down appreciably anytime soon. The domestic price of crude is set by the international market.

The return of Alaska’s oil to Valdez has serious portent for the future of TAPS and for the market for Alaska’s crude. It would truly be ironic for TAPS to have to shut down because there is a glut of oil in the lower-48.