The state Department of Revenue has lowered its outlook for Alaska oil production outlook due to continued weakness is oil markets and cuts in drilling this summer, officials told a state House committee.
The laydown of rigs in the Prudhoe Bay, Kupuruk River and Alpine fields, the three largest of the North Slope producing fields, was done in response to low crude oil prices.
Alaska North Alaska North Slope crude oil averaged $40.49 per barrel in sales on west coast markets on Oct. 12, a drop of 70 cents per barrel from the previous say, the state revenue department estimated.
The department is now estimating average total production for the current state fiscal year, FY 2021, at 468,000 barrels per day, down from 487,000 barrels per day, the earlier estimate. The forecast for Fiscal Year 2022, which begins neat July 1, has been revised down to an average of 438,000 barrels per day compared with 458,000 barrels per day.
The revised forecasts were presented Oct. 2 to the House Finance Committee by state revenue commissioner Linda Mahoney and Dan Stickel, the department’s chief economist.
In a related development, a temporary 25 percent of oil moving through the Trans Alaska Pipeline System ordered Oct. 2 by Alyeska Pipeline Service Co., the pipeline operator, ended Sunday, Oct. 11, Alyeska said.
The order, known as a prorationing, was done to reduce an expected buildup of crude oil inventory at the Valdez Marine Terminal, where Alyeska maintains storage tanks.
The order had the effect of reducing TAPS throughput to about 368,000 barrels per day, down from about 480,000 barrels per day.
Alyeska’s prorationing distributes the reduction equally among four intake points for field pipelines on the slope. The effect is to distribute the cut among major producing fields and companies.
The pipeline company sometimes acts to lower the Valdez inventory based on forecasts of reduced market demand from shippers and refineries. State crude oil inventory data showed 5.1 million barrels of crude oil in storage at Valdez on Oct. 1, the day before the prorationing went into effect. The terminal has about 6.5 million barrels of storage available, which appears to offer a margin of comfort, but Alyeska wanted to reduce oil in storage as a cautionary move.
If the storage tanks fill up Alyeska is forced curtail throughput. Earlier this year Alyeska took a similar action to temporarily reduce throughput and in June ConocoPhillips did a voluntary reduction of 100,000 barrels per day, also temporary, in fields it controls. ConocoPhillips’ action was aimed at taking its oil off the market and keeping it in the oilfield reservoirs at a time of low prices.
On the revised state production forecast petroleum economists said the key factor to watch in estimating North Slope output is when drilling will resume in the larger fields of the slope. The drilling of new production wells is an important part of producers’ strategy in stemming the natural decline of large, mature fields.
At low oil prices the incremental gain in new production isn’t worth the investment in operating the rigs to drill new wells, companies have said. The general expectation is that prices will have to recover to about $50 per barrel for drilling to be resumed.
Another uncertainty is a pending ballot proposition in the November state general election that would increase state production taxes in the three large producing fields. ConocoPhillips has said it will be unable to resume drilling, at least in the near-term, if Alaska voters approve the initiative.
North Slope production has been gradually declining for years. As much as 2.1 million barrels per day was moved through TAPS in the 1970s and most of the 1980s but long-term gradual decline averaging 5 percent yearly began in 1988.
Producers have employed a number of strategies to offset that including new drilling in producing fields and the development of smaller “satellite” fields, absent which the decline would have been 8 percent per year or even higher.