Thursday, September 29, 2011

Slope oil production decline may be accelerating, state data shows

Tim Bradner
Alaska Journal of Commerce

Production from the North Slope may be declining faster than expected. Production declined 7.45 percent for the 12-month period preceding July 1, compared to the previous 12 months, according to preliminary data from the state Department of Revenue.

Average production for the state’s fiscal year 2011, from July 1 2010, to June 30, 2011, was 596,000 barrels per day, the department said.

The long-term average decline in production has been about 6 percent.

The fall in production also exceeded the average for the previous state fiscal year, fiscal 2010 compared with fiscal 2009, declining 6.94 to an average of 644,000 barrels per day fiscal year 2010, down from 694,000 barrels per day in fiscal 2009, according to Cherie Nienhuis, head of the state’s petroleum economics group.

Nienhuis said an unusual event, an emergency shutdown of the Trans-Alaska Pipeline System for several days last January, brought the 2011 production numbers down.

The effect of the January shutdown on the 2011 numbers, “is a tough one to figure out, but we would probably be looking at a decline of 5.5 percent instead of 7.5 percent. However, events like that can happen at any time,” Nienhuis said in an email.

Alyeska Pipeline Service Co. has warned that there may be increasing interruptions in TAPS operations due to higher maintenance and possible unplanned disruptions as throughput through the pipeline continues to decline.

When throughput drops below the 600,000 barrel per day range, there are increasing problems with wax buildup, water dropout from the crude oil, and water accumulation at low points in the pipeline, which can lead to freezing problems in winter, Alyeska President Tom Barrett has said.

The state has estimated that North Slope production will average 610,000 barrels per day in the current fiscal year, 2012, but the estimate will be revised in December, Neenah’s said.

TAPS is now operating at less than one-third of its maximum capacity. From the early 1980s until 1989, the pipeline carried about 2.1 million barrels per day. Production from the Prudhoe Bay field, the largest on the Slope, began a long-term decline in 1989, and in the mid-to-late 1990s production began falling from other fields on the Slope.

The drop in production was temporarily halted in 1999 and 2000 as the Alpine and Northstar fields started production, but then the decline continued.

Smaller fields have been brought into production since then, including the Oooguruk and Nikaitchuq fields, but the additional production has not been enough to offset the continued decline in the older, larger fields.

The drop in production has become a major point of discussion within state government, because Alaska depends on oil royalties and taxes for about 90 percent of its revenue. So far high oil prices have masked the financial effects of declining production, but Gov. Sean Parnell has proposed changes in the state’s oil tax system to stimulate new investment by the industry.

State legislators are resisting the tax change, however, arguing that it is not needed.

The governor has set a goal to increase slope production to 1 million barrels per day within 10 years.

Republished with the permission of the Alaska Journal of Commerce. Tim Bradner can be reached at