North Slope supply and demand: are producers ready to take the next step?A major producer for more than 30 years, Alaska's North Slope North Slope, Alaska: see Alaska North Slope. oil patch oil patch
1. The petroleum and natural gas industry.
2. An oil-producing region. is well-known within the global natural resource industry.
Vast amounts of North Slope natural gas remain underdeveloped un·der·de·vel·oped
Not adequately or normally developed; immature. , although the possibility of commercialization has increased in recent months. Negotiations continue between the governor's administration and three separate entities each with development proposals that would again place Alaska at the top of the global oil and gas industry for project size and spending. One of the state's three oil producers recently accepted base contractual terms A contractual term is "[a]ny provision forming part of a contract" Each term gives rise to a contractual obligation, breach of which will can give rise to litigation. offered by the governor.
How much commercially producible oil remains, how much gas can be produced and what demand exists for those products are questions that can be challenging to answer. Alaska's oil and gas fields stretch for hundreds of miles across the remote northern coastal plain. Ownership interests vary from field to field and the major producers seem reluctant to publicly comment about the area's gas resources.
ONE DOWN, TWO TO GO
All three of Alaska's major producers cited ongoing negotiations with the State of Alaska as a reason to refrain from saying much about known natural gas reserves on the North Slope, potential gas-prone exploration areas, existing gas production facilities and current demand for the clean-burning fuel. However, in late October, ConocoPhillips Alaska Inc. approved base contract terms offered by Gov. Frank Murkowski Francis Hughes Murkowski (born March 28, 1933) is an American politician and a member of the Republican Party. He was a United States Senator from Alaska from 1981 until 2002 and Governor of Alaska from 2002 until 2006. .
The two remaining major producers, BP Exploration (Alaska) Inc. and ExxonMobil, had not yet, as of press time, reached the same agreement with the state.
In terms of quantity of gas, all three agree that they collectively have identified 35 trillion cubic feet of natural gas beneath or near existing infrastructure on the North Slope, available for sale should a natural gas commercialization project be developed.
"At Prudhoe Bay Prudhoe Bay, inlet of the Beaufort Sea and Arctic Ocean, N Alaska, in the Alaska North Slope region, east of the Colville River delta. In 1968 one of the largest oil reserves in North America was discovered in Prudhoe Bay. , North America's largest oilfield, approximately 24 TCF See Trenton Computer Festival. are known. ConocoPhillips owns nearly 8 TCF of the Prudhoe gas," said ConocoPhillips Alaska spokeswoman Dawn Patience. "Since startup, this gas has been produced with the oil and re-injected into the field to enhance oil recovery in addition to conserving the gas for later commercialization. The re-injection of the produced gas is expected to result in the incremental Additional or increased growth, bulk, quantity, number, or value; enlarged.
Incremental cost is additional or increased cost of an item or service apart from its actual cost. recovery of about 3 billion barrels of oil over the life of the field."
How much more natural gas exists on the North Slope remains to be seen. Without transportation infrastructure, little effort has been previously expended ex·pend
tr.v. ex·pend·ed, ex·pend·ing, ex·pends
1. To lay out; spend: expending tax revenues on government operations. See Synonyms at spend.
2. looking for Looking for
In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. more gas, but that trend has started to change, state analysts say.
"Since 2001, we have seen a new surge in exploration interest with smaller, aggressive companies looking for gas, not just oil, in underexplored areas of Alaska," the state Division of Oil and Gas 2004 report said. "This exploration is driven by increasing demand for energy here in Alaska, as well as across the North American North American
named after North America.
North American blastomycosis
see North American blastomycosis.
North American cattle tick
see boophilusannulatus. continent, coupled with the availability of land and prospects in Alaska.
"Alaska oil and gas will continue to play a fundamental, if not critical, role in meeting the nation's energy needs," the report said.
Alaska's producers also cite a growing demand for oil and gas products globally. In its Statistical Review of World Energy 2005 report, BP's group chief executive noted a global increase in oil consumption during 2004, amounting to 2.5 million barrels of oil per day, more than double the 10-year average rate.
"The surge in demand reduced the level of spare capacity from about 3 million barrels per day Barrels per day (abbreviated BPD, bbl/d, bpd, bd or b/d) is a measurement used to describe the amount of crude oil (measured in barrels) produced or consumed by an entity in one day. in 2003 to as little as 1 million barrels per day by mid-2004," said Lord Browne of Madingley, head of BE "That tightness, combined with concern over the continued conflict in the Middle East and instability in a number of other producing countries, led to the increase in prices that continued beyond the end of the year."
Alaska's producers currently can't do much to help with that global increase in demand for crude oil, despite a call earlier this year by Gov. Frank Murkowski, who in a press release encouraged increased oil production from Alaska in the wake of the hurricane damage to refineries and production facilities on the Gulf Coast.
"We are producing all the oil that we can--there is no spare production capacity," said Daren Beaudo, spokesman for BP Exploration (Alaska). "Higher prices doesn't bring discernible dis·cern·i·ble
Perceptible, as by the faculty of vision or the intellect. See Synonyms at perceptible.
dis·cerni·bly adv. new sources of production online, but has led to an increase in our well workover budgets, which goes toward repair and optimization of poorer producing wells.
"This is incremental production, however, and our general profile is that we are producing as much oil as we can at all times. Outside of routine field variability--scheduled and unscheduled unscheduled
not planned or intended
Adj. 1. unscheduled - not scheduled or not on a regular schedule; "an unscheduled meeting"; "the plane made an unscheduled stop at Gander for refueling" shutdowns; high water content; high temperatures, which means less efficiency for compressors handling associated gas; recently shutting in wells for safety considerations-there isn't much up and down in our production rates," he added.
Jim Bowles, president of ConocoPhillips Alaska, said that his company's production capacity has been "110 percent in the last year," following a presentation in late September at the Fairbanks Chamber of Commerce. "If you're not selling as much oil and gas as you can at $60 per barrel, you're not doing your job," he added.
ADD HEAVY OIL
One of the remaining major untapped oil resources on the North Slope involves development of heavy oil, a technical issue that has previously plagued operators. But technology has helped advance development of this resource.
Both BP and ConocoPhillips announced plans in 2004 to develop heavy oil deposits on the North Slope, the Orion and the West Sak fields.
The Orion viscous viscous /vis·cous/ (vis´kus) sticky or gummy; having a high degree of viscosity.
1. Having relatively high resistance to flow.
2. Viscid. oil reservoir An oil reservoir, petroleum system or petroleum reservoir is often thought of as being an underground "lake" of oil, but it is actually composed of hydrocarbons contained in porous rock formations. in the Schrader Bluff formation is located west of the main Prudhoe Bay field and is 11 miles in length, according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. a company press release. It overlays the existing Borealis reservoir at a depth of about 5,000 feet.
"Orion represents a significant development opportunity, with the potential to recover more than 200 million barrels of 16- to 23-API (American Petroleum Institute The American Petroleum Institute, commonly referred to as API, is the main U.S. trade association for the oil and natural gas industry, representing about 400 corporations involved in production, refinement, distribution, and many other aspects of the industry. ) degree viscous crude," the company said in the press release. "The Orion development benefits from collaboration and technological advancements pioneered at existing North Slope viscous oil developments at S-Pad in the Milne Point Unit, Polaris in the Prudhoe Bay Unit, and West Sak in the Kuparuk River The Kuparak River is a river in Alaska's North Slope. References
1. ^ USGS Geographic Names Information System (GNIS). Kuparak River. Accessed Aug 20, 2007.
BP serves as operator of the field, with production handled through existing Prudhoe Bay processing facilities.
ConocoPhillips also is working on a heavy oil project that began last year at West Sak, touted as the largest-ever heavy oil development program in Alaska. The program, announced in August 2004, will increase West Sak oilfield production to approximately 45,000 barrels per day by 2007, considerably higher than the previous rate of 10,000 barrels per day, according to a joint press release issued by BP and ConocoPhillips.
West Sak is a large, shallow, heavy oil accumulation that overlies much of the Kuparuk field on Alaska's North Slope. ConocoPhillips operates the West Sak field as well as Kuparuk.
NEW FIELDS COMING
The development program announced last year included two drill sites within the Kuparuk River Unit, including the first stand-alone West Sak drill site. Development is expected to cost approximately $500 million, according to the release.
Another increase in production should come from ConocoPhillips' continued development of Alpine-area resources. The company and its partner in Alpine, Anadarko Petroleum, announced late last year plans to develop two satellite drill sites, one on Fiord fiord: see fjord. and one on Nanuq, located within an eight-mile radius from Alpine, according to a company release.
Plans call for drilling about 40 wells, with the first production scheduled for late 2006 and peak production of 35,000 barrels per day in 2008.
Other than Orion, BP only has the Liberty prospect as a possible future development, Beaudo said. "New field development takes years and decisions are not made with short-term pricing in mind."
SHIPPED TO WEST COAST
Most of the existing North Slope crude produced and shipped by BP to the West Coast goes to the company's Cherry Point refinery The Cherry Point Refinery is the largest oil refinery in Washington, located in Ferndale only a few miles south of the Canada-United States border. It is the fourth largest refinery on the West Coast and 28th in the United States. in Washington and to its Carson refinery in California, Beaudo said. "On occasion, cargos are sold into the spot market to other West Coast refineries. No (Alaska North Slope Alaska North Slope or Arctic North Slope, region, N Alaska, sloping from the Brooks Range N to the Arctic Ocean. In 1968 large petroleum reserves were found in the Prudhoe Bay area. crude) has left the West Coast in several years."
ExxonMobil's share of North Slope crude oil, about 190,000 barrels per day, primarily goes to customers on the West Coast, according to the company's Web site. ExxonMobil operates a refinery in Torrance, Calif., where some of that North Slope crude is processed, according to company spokesman Bob Davis
Even though Alaska North Slope crude has a significant sulfur content--slightly more than 1 percent--the medium grade material has been economically processed throughout the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and in Japan, Korea and China, according to ExxonMobil.
More discoveries of North Slope crude oil could easily be placed in today's market, Davis said. "If we could produce more, the demand is there."
ConocoPhillips' share of Alaska crude oil production averaged 298,000 barrels per day in 2004, a decline compared to previous years, according to the company's 2004 annual report.
The company also reported production of 23,000 barrels per day of natural gas liquids in Alaska, of which 14,000 barrels were sold from Prudhoe Bay to Kuparuk for reinjection to enhance oil production, the company said.
At the end of 2004, ConocoPhillips reported 1.5 billion barrels of oil as proven reserves, developed and undeveloped, in Alaska, about half of the company's worldwide total.
ConocoPhillips also reported in 2004 that the Alaska average production costs were $6.30 per barrel of oil equivalent The barrel of oil equivalent (bboe, sometimes BOE) is a unit of energy based on the approximate energy released by burning one barrel of crude oil. The US Internal Revenue Service defines it as equal to 5.8 × 106 BTU .
5. , 40 cents per barrel lower than the reported Lower 48 production costs and $1.50 lower than Canadian production costs.
Depreciation, depletion and amortization costs were reported as $3.34 per barrel in 2004 in Alaska, significantly lower than Lower 48 and Canadian costs.
Production of North Slope crude oil actually began in 1969 at the mammoth-sized Prudhoe Bay field, eight years before completion of the trans-Alaska oil pipeline in 1977, according to the state Division of Oil and Gas.
Initially, oil production was restricted to small quantities used to fuel field operations. After completion of TAPS and the flow of crude south to Valdez, dissolved gas and water were separated from crude and injected back into the reservoir.
A LITTLE HISTORY
Early on in the North Slope's production history, oil companies branched out from the huge resource at Prudhoe Bay and began tapping other fields, according to Division of Oil and Gas records. Crude oil flow began in 1981 from Lisburne and Kuparuk, in 1983 from Meltwater melt·wa·ter
Water that comes from melting snow or ice.
melted snow or ice
Noun 1. , in 1985 from Milne Point, in 1986 from Endicott, in 1989 from Sag Delta North Delta North is a provincial electoral district for the Legislative Assembly of British Columbia, Canada. Demographics
Population, 2001 52,108
Population Change, 1996-2001 1.7%
Area (km²) 20.35
Pop. , in 1990 from Schrader Bluff, in 1993 from North Prudhoe Bay, Point McIntyre and West Beach, in 1994 from Niakut, in 1995 from Sag River, in 1998 from Elder, Midnight Sun, Badami, Tabasco and Tam, in 1999 from Ivishak and Polaris, in 2000 from Aurora and the Colville River Colville River may refer to:
Total North Slope production peaked at slightly more than 2 million barrels of oil per day in 1988, according to a spring 2005 Revenue Sources Book released by the Alaska Department of Natural Resources Many sub-national governments have a Department of Natural Resources or similarly-named organization:
As time passed, the ratio of produced gas and water to oil increased, eventually causing oil production to be limited by the rate that separating plants could process those byproducts. Gas- and water-handling facilities were expanded in the late 1980s and in the 1990s, including the 1999 miscible miscible /mis·ci·ble/ (mis´i-b'l) able to be mixed.
Capable of being and remaining mixed in all proportions. Used of liquids. injectant in·jec·tant
A substance injected, as into the skin. plant "MIX" that adds to the current field's gas-handling facilities, according to Division of Oil and Gas.
A CRYSTAL BALL
By the end of 2003, the North Slope produced 14.4 billion barrels of oil and natural gas liquids, according to the latest available report from Division of Oil and Gas. Current production forecasts by the state call for a level to slightly lowered production level in 2006 through 2008, with daily production remaining above 900,000 barrels per day, or roughly 350 million barrels per year.
State analysts predict that Fiord and Nanuk will add 17,000 barrels per day in 2007 and Liberty and the National Petroleum Reserve-Alaska will add 55,000 barrels per day in 2011, according to the spring 2005 Revenue Sources Book.
"We are also forecasting 10,000 to 20,000 barrels per day from additional known onshore and offshore fields in FY2008 to FY2010," the analysts wrote.
WHAT ABOUT GAS?
Although the fate of commercialization of Alaska's vast North Slope gas resources remains unknown, more history exists for that segment of the industry. Natural gas has been produced on the North Slope longer than crude oil, according to the 2004 report from the Alaska state Division of Oil and Gas.
Gas production on the North Slope began near the coastal Native village of Barrow The Native Village of Barrow Inupiat Traditional Government (previously, Native Village of Barrow) is a U.S. federally recognized Alaska Native Inupiat "tribal entity", as listed by the Bureau of Indian Affairs circa 2003. in the mid-1940s, initially used to fuel a nearby military base. Natural gas production and usage was extended to Barrow barrow, in archaeology
barrow, in archaeology, a burial mound. Earth and stone or timber are the usual construction materials; in parts of SE Asia stone and brick have entirely replaced earth. A barrow built primarily of stone is often called a cairn. after World War II. The East Barrow and Walakpa fields were developed in 1980 to provide gas to Barrow, according to the state report.
Gross gas production on the North Slope in 2000 was 3.2 trillion cubic feet (8.7 billion cubic feet per day), with more than 90 percent of the volume injected into oil producing reservoirs for enhanced crude production. The remaining gas, equal to 297 billion cubic feet in 2003, was consumed locally on the North Slope, according to the state report. Natural gas is used to fuel oilfield equipment, operations and pipeline and pump station operations.
Some natural gas liquids are produced and blended with oil shipped down the trans-Alaska oil pipeline, while other NGLs are shipped from Prudhoe Bay to the Kuparuk River Unit for use in the Large-Scale Enhance Oil Recovery project.