Alaska North Slope

Alaska North Slope (ANS) crude oil production has been sliding for years — decades really — but that is poised to change in the second half of the 2020s. Two long-planned ANS projects — Pikka and Willow — are slated to start up in 2026 and 2029, respectively. By the early 2030s, these and other projects in the works could return North Slope production to levels not seen since the turn of the century. In today’s RBN blog, we’ll discuss these projects and our new, long-term forecast for ANS oil production — a topic in our upcoming Future of Fuels report. 

The renewed focus on energy security — and the acknowledgment that the world will continue to rely on hydrocarbons for decades to come — may be breathing new life into an often-overlooked U.S. production area: Alaska’s North Slope. The state’s crude oil output is down to its lowest level since before the Trans-Alaska Pipeline System (TAPS) came online in 1977. But now federal regulators are moving toward final approval for ConocoPhillips’s $8 billion Willow project in the National Petroleum Reserve, and Australia’s Santos Ltd. and Spain’s Repsol have taken a final investment decision (FID) on the $2.6 billion first phase of their Pikka project between Willow and Prudhoe Bay. In today’s RBN blog, we discuss recent hydrocarbon-related developments in America’s Last Frontier.

The five refineries in the U.S. Pacific Northwest (PNW) performed better in 2016 than rivals on the East Coast for two main reasons. First, the changing pattern of North American crude supply has worked to their advantage. Faced with the threat of dwindling mainstay crude supplies from Alaska, refiners in Washington State replaced 22% of their slate with North Dakota Bakken crude moved in by rail. They have also enjoyed advantaged access to discounted crude supplies from Western Canada. Second, PNW refiners face less competition for refined product customers than rivals on the East and Gulf coasts, meaning they have a captive market that often translates to higher margins. Today we review performance and prospects for PNW refineries.

Forty years ago, Alaska was seen as the next big thing for U.S. crude oil production––and it was. With the completion of the Trans Alaska Pipeline System in 1977, Alaska North Slope production took off, and by early 1988 it was topping 2 MMb/d and accounting for nearly one-quarter of total U.S. output. But that was the peak; since then, ANS production has fallen steadily, and in August 2016 it averaged only 443 Mb/d, or 5% of the national total. While there is clearly a lot of oil (and natural gas) still in the ground in the North Slope region, developing those resources would be very costly. Today we begin a two-part series on energy production in the 49th state with a look at the oil side of things.

Most of the crude by rail  (CBR) shipments to 4 refineries in Washington State are ex-North Dakota from where rail freight costs are over $10/Bbl. Bakken crude from North Dakota competes at Washington refineries with Alaska North Slope (ANS) shipped down from Valdez, AK. Back in 2012 ANS prices were more than $20/Bbl higher than Bakken crude – easily covering the rail cost. In 2016 so far the ANS premium to Bakken has averaged well below the $10/Bbl freight cost making CBR shipments uneconomic. But as we discuss today - Northwest refiners are still shipping significant volumes of crude from North Dakota.

In 2015 Alaskan crude has enjoyed something of a change in fortunes compared to the past few years – when shale production seemed to threaten its future. Production was up by over 50 Mb/d in the first 4 months of 2015 (according to the Energy Information Administration – EIA). The market share of Alaskan crude in West Coast refineries also crept up by 1% this year compared to 2014 at a time when crude throughput at those refineries increased. Today we discuss the changes and whether they are likely to continue.

During the last week of September, reports surfaced that Alaskan oil producer ConocoPhillips (COP) has recently exported an 800 MBbl cargo of Alaska North Slope (ANS) crude to South Korea. This is the first such export since 2006 and marks a new development in the evolving debate over US crude oil exports that are heavily restricted by regulations that date back to the 1970’s. Today we look at the fundamentals behind COP’s export shipment.

Prices for West Texas Intermediate (WTI) crude at Midland, TX -- close to the Permian Basin production region -- traded at a discount of $7.78/Bbl to WTI at Cushing, OK on Monday of this week (3/10/14), even though the pipeline tariff between the two trading hubs is less than $1/Bbl. Soaring production and tight pipeline capacity out of West Texas mean small changes in the region’s supply balance can cause the discount to blow out - a situation expected to continue at least until the middle of 2014. Today we investigate the probable causes.

This week BP announced plans to spend $1 Billion increasing production at the company’s Prudhoe Bay Alaska field. Years of declining Alaska North Slope (ANS) crude output have threatened state oil revenues and the safe operation of the Trans-Alaskan pipeline system (TAPS) that transports crude to the southern Port of Valdez. A new tax regime offers more upside potential to encourage producers like BP to invest. There is still a market for medium sour crudes like ANS on the US West Coast and in Asia. However Alaskan producers must overcome regulatory hurdles to compete successfully in these markets and competition for their drilling dollars from shale boom plays in the lower 48. Today we review the prospects for an ANS production renaissance.

Alaska North Slope (ANS) crude production has been in decline since 1987. Once producing over 2 MMb/d this prolific field averaged just 520 Mb/d in 2012. At the same time refiners on the West Coast who previously relied on ANS are beginning to get access to domestic shale crude and might be consuming Canadian crude exports from British Columbia in a few years’ time. Today we explain the impact on West Coast crude pricing.