Sunday, June 29, 2014

CEO: Alaska prospects improving for oil, LNG

Tim Bradner
Alaska Journal of Commerce

ConocoPhillips CEO Ryan Lance, seen after addressing the Resource Development Council annual luncheon in Anchorage, said he’s increasingly optimistic about prospects for both increased oil production and a large LNG export project in Alaska.

ConocoPhillips CEO Ryan Lance, seen after addressing the Resource Development Council annual luncheon in Anchorage, said he’s increasingly optimistic about prospects for both increased oil production and a large LNG export project in Alaska.

ConocoPhillips CEO Ryan Lance said his company is increasingly optimistic about Alaska’s prospects to boost oil development and about a future natural gas project.

ConocoPhillips has announced $2 billion in new projects since the Legislature passed an oil tax reform bill in 2013 and Lance said the company expects to add 40,000 barrels per day of new North Slope production by 2017.

Lance, who delivered his remarks at the Resource Development Council of Alaska annual luncheon in Anchorage, is no stranger to the state. Half of his 30-year industry career has been here, mostly with ARCO Alaska, now ConocoPhillips. While with ARCO, Lance led the development of the Alpine field on the North Slope, which began producing in 2000.

New oil is badly needed in the Trans-Alaska Pipeline System, which is operating at about 520,000 barrels per day, one fourth of the amount of oil it shipped at peak production.

Oil production has been declining at an average 6 percent annually but new activity on the Slope could reduce that decline this year to about 1.5 percent and zero decline next year if the current trend of new production holds.

The petroleum industry is booming all over the U.S. due mainly to the revolution in shale gas and oil. Texas has tripled its oil production in the last five years and North Dakota has increased its output nine-fold, but Alaska has lost ground, Lance told the RDC.

Alaska adopted a tough new oil tax in 2007 just as shale oil and gas drilling was taking off in the Lower 48.

“The (2007) ACES tax created an adverse investment climate while conditions were favorable in the Lower 48,” he said, so investments for new development went there, not to Alaska.

The passage of an oil tax reform bill, Senate Bill 21, has changed things. Investment is flowing back to the state and the Alaska gas pipeline and LNG project are starting to move forward, Lance said.

“The state’s participation in the project has enhanced the alignment among the parties,” which include the North Slope producing companies, Lance said.

A joint-venture agreement on the gas pipeline deal is expected to be signed before July 1, state officials have said.

Lance told the RDC he sees a continued robust growth in shale gas and oil and North America moving into a dominant position as a global oil supplier as early as 2020. However, other countries are aggressively pursuing development of their own shale resources, he said.

“The geology is the same (for shale development) in most countries but what’s different is what’s on the surface. Most nations don’t have the wonderful infrastructure that we have. But they’ll catch up,” Lance said.

“I’m always asked if the shale plays have staying power, and we’re seeing that they do. There are about 20 shale trends in development today. Most are new areas, like the Permian Basin. Many of these straddle state boundaries and are transforming states that were not traditional oil producers. The political landscape is going to change.”

North America could become a significant LNG supplier to world markets, “but there will likely be limits placed on our (U.S.) LNG exports and Canada has infrastructure issues,” he said.

Given those constraints, North America might be able to supply 40 percent of the expected global growth, Lance said. U.S. gas production will exceed gas demand by 2016. After that the U.S. would be in a position to export gas, he said.

Citing U.S. Energy Information Agency forecasts, Lance said that by 2015, shale gas will contribute 43 percent of U.S. supply, up from 2.5 percent in 2005. By 2020, shale will contribute 52 percent of the nation’s gas, he said.

As for Alaska LNG, Lance said, “Alaska has advantages (for LNG export) because of its location relative to Asia markets and the desire by buyers to diversify supply.”

The state has one small LNG export plant in operation near Nikiski owned and operated by ConocoPhillips, but North Slope producers are pursuing a much larger project capable of exporting 15 million to 18 million tons per year.

It is in potential oil exports that North America could become very influential.

“We were producing 7 million b/d in domestic production just five years ago, and we are now at 10 million b/d,” he said.

In 2013, the U.S. experienced one of the largest annual oil production increases the world has ever seen, up 1.1 million b/d, according to the 2014 BP Statistical Review, which was released June 16.

In his talk, Lance said the U.S. Department of Energy is forecasting 12 million barrels per day by 2020 and some see 14 million b/d as possible, Lance said. Given that trend the U.S. could overtake Saudi Arabia and Russia as the world’s top oil producers.

Saudi Arabia produced an average 11.5 million b/d in 2013 and Russia produced 10.8 million b/d that year, according to the 2014 BP Statistical Review.

“We (the U.S.) will be in a position to be a net exporter by 2020,” he said. “That would have seemed impossible a few years ago.

“What’s important is that the U.S. will have a surplus of light, sweet crude that will exceed the capabilities of our refineries to process that oil. So we’ll need to export that and import heavier crudes more suited to our refineries.”

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