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Tuesday, May 17, 2011

Alaska Production Charts

[Updated February 19, 2012]

Here are a couple of charts that should greatly concern every Alaskan.
First, there's the chart of oil production from the North Slope.


Production taxes on North Slope oil production (from state acreage) provide 90% of state revenues.  All of the production flows through the Trans-Alaskan pipeline.   As production has declined from the peak of over 2 million barrels per day, the oil spends longer in the pipeline.  The oil now spends five times longer in the pipeline than at the peak flow rate, of over 2 million barrels per day.   So the oil, which formerly arrived at about 100 degrees F, now arrives at about 40 degrees F. At about half of the current flow rate the oil will cease to flow.   That will occur in about a decade, unless additional oil is produced, or expensive modifications made to the pipeline.

The second chart is the chart of Cook Inlet and Kenai Peninsula gas production.

Most of the gas fields in Cook Inlet basin were discovered in the 1960s.   Several giant fields have dominated production, and provided for local demand, LNG exports to Japan, and ammonia production for fertilizer (also exported).   The export markets provided economies of scale and seasonal production, which provided low-cost gas to local markets for 40 years.   Now, however, the old fields are near depletion, and within a few years, local markets will need to import LNG from Asia.  Large capital expenditures will be needed for import facilities, and the imported gas will be expensive. Offshore rigs are scheduled to arrive in Cook Inlet this summer (for the first time in about 20 years), but it may be too late to fill the production shortfall.
Here is another view of the forecast production shortfall.

There is some activity that may delay the shortfall, but the production decline is a serious problem for South-Central Alaska.
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Update and New Discoveries, Dec. 7, 2011:
Alaskan North Slope production continues on a slow, but erratic decline.
Monthly data can be found here:
http://doa.alaska.gov/ogc/production/pindex.html

In the 1980s and 90s, the Alaska DNR (Department of Natural Resources) published an outstanding Annual Report, which provided definitive data on production and remaining reserves.   Over the last decade, the report has been produced sporadically, with noticeable errors in the data.  I am hoping for a new report after year-end 2011, with quality data on production and remaining reserves.

In 2011, the DNR published a Gas Production Cost Study, with some updated reserves data.  When new data is available, I will update the production forecast.
http://dog.dnr.alaska.gov/ResourceEvaluation/Documents/Cook_Inlet_Natural_Gas_Production_Cost_Study.pdf
New Cook Inlet Discoveries
Also in 2011, new gas discoveries were announced by three independent companies: Buccaneer, Nordaq, and Escopeta.   Buccaneer's well is a small but helpful discovery, adding 7 to 10 mmcf/d to supply.  Nordaq's disocovery on the northern Kenai Peninsula is promising, and only five miles from an existing pipeline.  However, the pipeline must traverse the Kenai National Wildlife Refuge, which may result in significant delays in bringing the gas to market.  Nordaq's announced plans suggests that the discovery is in the range of 500 BCF (billion cubic feet), and that about 200 BCF could be delivered to market by 2020.  This would fill  about 40% of the expected production shortfall for the rest of the decade.
Escopeta's discovery is offshore, and likely to require a much longer development time, due to the engineering difficulties of Arctic offshore development.
Niether Nordaq nor Escopeta has significant production or development experience, and may encounter difficulties in executed on the development of their discoveries.
It is important to note that neither of the latter discoveries has had a flowing production test or delineation well.  These are not proved reserves, according to SEC (Securities and Exchange Commission) definitions.  It is premature to consider that these have solved the Cook Inlet gas crisis.

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