Some interesting commentary out this morning from the IEA, in its latest survey of the oil market, pertaining to the situation in Alaska:

---



This summer saw crude volumes through the TransAlaska Pipeline System (TAPS) fall to a record low below 600 kb/d, leading to worries about its economic and technical sustainability. The pipeline, which takes output from the giant Prudhoe Bay oil field on Alaska’s North Slope to the Valdez export terminal in the south of the state, used to pump as much as 2 mb/d at its peak 20 years ago. Besides economics, the fear is that even lower volumes could lead to more frequent and damaging outages – a major issue for oil companies lacking alternative export routes.



Alaskan authorities are mulling technical solutions – fewer pumping stations is one suggestion. But another answer would lie in increasing Alaskan output. September data put North Slope crude production at 650 kb/d and falling – output was over 1 mb/d in 1999 and at around 2 mb/d ten years earlier. But long‐standing hopes to produce more crude in northern Alaska depend on changes to legislation. Three large areas in Alaska lie unexplored and undeveloped – the National Petroleum Reserve in Alaska (NPR‐A), reserved for the US Navy’s use since 1923, the Arctic National Wildlife Refuge (ANWR) and federal waters offshore the north coast. All have been surveyed to some extent, generating estimates of billions of barrels of recoverable crude. Another boost for the pipeline could be natural gas liquids (NGL) from new gas fields being developed – e.g. Exxon’s Point Thompson, though this will likely only start producing in 2014, and overall NGL volumes are unlikely to compensate for declining crude output.





The previous federal administration chose to loosen restrictions on the development of Alaskan Arctic

waters, as well as the Outer Continental Shelf (OCS) – both long out of bounds for oil producers due to

environmental concerns. In principle the Obama administration favours opening up these areas – the US

Department of the Interior estimates that around 85 billion barrels of oil and 12 trillion cubic metres of gas

are yet to be discovered there – but the debate on this issue is highly polarised. For instance, a US court

recently cancelled, on environmental grounds, some licences for blocks offshore Alaska which had been

awarded under the Bush administration.



Lower Alaskan crude output has implications beyond state boundaries. Californian refiners, which have long relied on Alaskan crude to top up declining local output, are having to search further afield. Crude from Latin American producers used to flow north to the Golden State. But competition from East Asia, notably China, is drawing some of this output across the Pacific. One change in oil flows to result from this is the reversal of the Panama Canal pipeline. Originally built to accommodate Alaskan crude heading to the US Gulf of Mexico refining cluster, it was recently converted to bring Atlantic Basin or even more remote crude to the Pacific, including California. First shipments of Colombian crude were pumped in August.

A likely option in the face of declining Alaskan production will be to hike crude imports from Canada. This

northern neighbour has overtaken competitors Saudi Arabia and Mexico in recent years to become the US’s largest source of crude oil, benefiting on proximity and energy security grounds as production has increased. US Midwestern refineries have long taken heavy sour Canadian crude, and pipelines to bring the crude all the way to the US Gulf are under construction. From 2010, Enbridge’s Alberta Clipper pipeline, which will run 1,600 km from Hardisty, Alberta to Superior, Wisconsin, will add 450 kb/d of Canadian crude, later to be expanded to 800 kb/d. With some other changes to the US pipeline network, these barrels will eventually be able to flow south to the US Gulf Coast. Freight and refining economics permitting, some of these may even make it to California.