The End? - Alaska's Crude Oil Production Continues to Decline on Stronger Headwinds

It’s been a challenging few years — some would say decades — for producers in northern Alaska. Crude oil production in the remote, frigid region peaked at just over 2 MMb/d in 1988 and has been falling ever since, dropping to about 450 Mb/d in 2020 and the first few months of 2021. It’s not that Alaska is running out of oil; far from it. Instead, the state’s energy industry has been battered by competition from shale producers in the Lower 48, thwarted by federal policies, and, more recently, ESG-related concerns and the Biden administration’s efforts to put the kibosh on new federal leases. Despite it all, the few producers still active in Alaska hold out hope for a revival. Today, we discuss the many hurdles that northern Alaska producers face.

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As we said in our 2016 blog series about Alaska, the 49th state was seen as the next big thing for U.S. crude oil production in the 1970s –– and that promise soon became reality. With the completion of the 800-mile Trans-Alaska Pipeline System (TAPS) from Prudhoe Bay to Valdez, AK, in 1977, Alaska North Slope production took off, and by 1988, the state not only accounted for one-quarter of total U.S. crude oil output (blue layer in Figure 1), it briefly knocked Texas off its perch as the #1 oil-producing state. Alaskan oil didn’t give the U.S. “energy independence” -– a rallying cry in the Ford, Carter and Reagan years –– but it sure helped. The physical characteristics of the North Slope’s medium sour crude, with a 31.5 API gravity and about 1% sulfur, were (and are) a plus. West Coast refineries were configured to run it, and the crude is marketable in Asia too. Still, Alaska’s production has experienced a long, slow decline that continued in 2020, when it averaged 448 Mb/d, only 4% of the U.S. total and the lowest level since TAPS came online 44 years ago, according to the Energy Information Administration (EIA).

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