Following North Slope Crude: from the ground to the gas station.
Think of the flow of Alaska crude oil like a tree, with North Slope pipelines as branches feeding into the 800-mile-long trunk that is the trans-Alaska oil pipeline. Now turn that tree upside down, so the North Slope pipelines become roots and the oil-laden tankers departing Valdez become branches. Where do those branches lead?
Our refined crude may end up at gas pumps in the Northwest, California, Nevada or Arizona. It may fuel jets at airports in Seattle, Los Angeles and Portland. It may stay right here, flowing into pickups or F-16s.
It also ends up in some curious places, like that can of soda on your desk. Calcined petroleum coke, used to make aluminum, may be the most valuable product--by weight--made from Alaska North Slope crude oil.
Conversely, the crude used by Alaska's oil refiners these days may not even come from Alaska. North Slope production is declining. Alaska's oil supply from the North Slope peaked at 2.1 million barrels per day in 1988. An average of about 609,000 barrels of oil flowed through the pipeline to Valdez each day in February. Alaska's crude production can't possibly account for the 3 million barrels a day of refining capacity on the West Coast, where most Alaska oil ends up.
Oil companies operating on the Slope, even those refining here in Alaska, make up the difference at the refinery by purchasing crude on world markets. Petroleum products being sold by Alaska producers, even within our state, may come from other countries altogether. The list is long: Canada, Iraq, the Arab Gulf, Mexico, Argentina, Ecuador, Colombia, Angola, Australia, Russia.
"They either buy crude from others or use their crude from other production areas to fill up that 3 million (barrels) a day," says Joyce Lofgren, a petroleum economist with the Alaska tax division. So even though Alaska accounts for about 11 percent of the nation's domestic crude production, we may be driving around with gas made from a little Russian oil.
THE JOURNEY BEGINS
The bulk of Alaska North Slope crude moves from Prudhoe Bay to Valdez via the trans-Alaska oil pipeline. The 48-inch diameter steel pipeline crosses three mountain ranges and more than 34 major rivers or streams. More than 16 billion barrels have moved through the pipeline since oil began flowing in 1977. Estimates put the total value of Alaska's North Slope oil since 1977 at more than $103 billion.
Alyeska Pipeline Service Co. operates the pipeline for a consortium of owners: BP Pipelines (Alaska) Inc. owns nearly half; ConocoPhillips Transportation Alaska Inc. nearly 30 percent; ExxonMobil Pipeline Co. about 20 percent; and Unocal Pipeline Co. and Koch Alaska Pipeline Co. each have a small share.
Four pipelines feed into the transAlaska oil pipeline at Pump Station 1 near Prudhoe Bay carrying crude from major fields, including Prudhoe Bay, Milne Point, Kuparak, Endicott, Lisburne, Northstar and Alpine. Four pump stations help move the crude south. Some of the oil that starts out in the pipeline gets taken off at North Pole, where it's carried to two refineries by a smaller Golden Valley Electric Association pipeline.
Flint Hills takes approximately 35,000 barrels of oil a day, according to a company representative. The company refines the vast majority of that into jet fuel but also produces some gasoline, and makes specialty fuel for the Golden Valley turbines at North Pole.
Petro Star's North Pole Refinery takes 22,000 barrels of crude a day. It produces kerosene, diesel, homeheating oil and jet fuel for residential, commercial, industrial and military customers. Products end up throughout northern and Interior Alaska: Anaktuvuk Pass, Wiseman, Fort Wainwright, Fort Greely, Eielson Air Force Base, Fort Knox gold mine, and the North Slope industrial market.
Both refiners inject a degraded, heavier oil back into the pipeline. They pay a penalty to other shippers under a "quality bank" arrangement, says Kevin Banks, a petroleum market analyst in the state's Division of Oil and Gas.
"If you think about it, the 'goodies' are all sort of in the middle-weight of the oil," Banks says. "What goes back in the pipeline is the heavy stuff and the lighter ends. It needs further refining to make into products."
Additionally, about an eighth of the oil coming down the pipeline belongs to the State of Alaska. That's the state's royalty share of Alaska's crude, as required by state statute.
Once at Valdez, the oil moves to storage tanks at Alyeska's 1,000-acre Valdez Marine Terminal except for the amount taken off by another Petro Star refinery at the pipeline's southern terminus.
Massive storage tanks at Alyeska's Valdez terminal held an average of 4.7 million barrels of oil in the month of February, according to the state tax division. From there, crude is loaded onto tankers for shipment through Prince William Sound and beyond.
Twenty vessels transited Valdez in December, according to Alyeska. BP owns four ships, ConocoPhillips five. Tesoro runs three on the West Coast, two of them rotating through Alaska. ExxonMobil also owns tankers, but the company declined to provide specifics about its Alaska operations.
Alaska's crude generally gets consumed on the West Coast, analysts say. Our oil goes to refineries in the Puget Sound area, to San Francisco Bay, and to the Los Angeles area. It occasionally goes to Hawaii, where Tesoro operates a refinery on Oahu.
One caveat: not all crude owned by North Slope producers will end up at refineries operated by that same producer. Crude traders will sometimes swap cargoes depending on the financials, says Richard Ranger, a senior policy analyst with the American Petroleum Institute.
BP: FROM ALASKA TO ALUMINUM
According to Chuck Coulson, BP's manager for midstream operations, BP refines "virtually" all of its Alaska crude at its two West Coast refineries: Cherry Point in Puget Sound and Carson refinery in L.A. County. BP runs a mix of Alaska North Slope crude and crude from other countries at both facilities.
Cherry Point produces a mix of gasoline, jet fuel and diesel, according to spokesman Michael Abendhoff. Some propane and butane is also produced. The company sells refined product from Cherry Point in Washington state, Abendhoff says. It also runs via pipeline to Oregon, with some ending up in California.
Cherry Point supplies 20 percent of Washington state's gasoline supply and more than half the jet fuel used at Seattle and Portland's airports. It is also the largest supplier of calcined coke to the world's aluminum industry. A company estimate puts the refinery's calcined coke production at 8 percent of the world's calcined coke market, or one sixth of its aluminum cans. Alaska crude accounts for about half the refinery's calcined coke stock, Abendhoff says.
BP's Carson refinery supplies a quarter of L.A.'s gasoline demand, roughly 20 percent of the southern California gasoline market and half the jet fuel used at the LAX airport. A 420-watt cogeneration facility on site, half-owned by BE powers the Southern California Edison electrical grid.
BP also ships finished product--gas, diesel and jet fuel, mostly--from Carson to Arizona and Nevada.
CONOCOPHILLIPS: NORTHWEST MOTOR FUELS
The ConocoPhillips refinery in Ferndale, Wash., currently processes primarily Alaska North Slope crude oil, according to Jeff Callender, a company spokesman. At Ferndale, crude is processed into unleaded gasoline and ultra-low sulfur diesel for primary markets in Washington and Oregon. Additional products are fuel oil to power ocean-going vessels in Puget Sound and sulfur, sold mostly to fertilizer companies. Some propane also goes to local dealers who supply homeowners in more rural areas of the state, Callender says.
ConocoPhillips also delivers to Shell, Tesoro and U.S. Oil refineries, he says. The refinery also receives Canadian crude via pipeline. Conoco also operates refineries in San Francisco and Los Angeles; the San Francisco facility runs some Alaska crude as well.
TESORO: LOCAL REFINERY, WORLD MARKET
Tesoro runs the only major gasoline refinery in Alaska. But the company isn't a North Slope producer. Instead, Tesoro buys crude out of Valdez under contract with the producers. North Slope crude accounts for more than half of Tesoro's crude diet at Nikiski, according to Jim Grossl, oils planning manager. The refinery was originally constructed in 1969 to run on Cook Inlet crude. These days, however, production declines mean only a small percent of Cook Inlet crude is available. The rest comes from foreign sources.
Tesoro makes the majority of the gasoline used in Alaska. The refinery also produces jet fuel, diesel, propane and butane. It exports roughly 30 percent of its products, which are heavier components that can't be refined at Nikiski: heavy vacuum gas oil, used as feed stock for other refineries; and fuel oil that's used in bunker fuel. On the West Coast, Tesoro also operates a refinery at Anacortes, Wash., two in California and one in Hawaii.
Along with shipping oil and refined product out, Tesoro also imports crude. Federal data shows the company brought a little Russian crude into Anchorage for refining at Nikiski in December, for example.
Which seems unusual to a federal energy analyst: "It's a surprise for me," says Jonathan Cogan, with the Energy Information Administration. "I guess you all are running short on crude oil."
Analysts here, however, say Tesoro's situation just underscores the fact that Alaska North Slope crude must compete in a world market of seagoing crude oil. Tesoro is optimizing its crude slate to keep costs down.
Managers at the Nikiski refinery say the company's use of foreign oil boils down to a combination of economics and shipping. According to refinery manager James Tangaro, since Tesoro doesn't "own" any crude, the company purchases from a variety of sources to make sure it can meet Alaska's demand for refined product. With one or two ships calling at Valdez and the ever-changing spot market for crude, sometimes it's more cost-effective and timely to turn to a foreign producer, Tangaro says--Tesoro hopes recent exploration in Cook Inlet signifies a resurgence in the area's declining production, down to 10,000 barrels a day from 250,000. "That would really be nicer for us not to have to worry about bringing ships in from Russia," Tangaro says.
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|Title Annotation:||special section: OIL & GAS|
|Comment:||Following North Slope Crude: from the ground to the gas station.(special section: OIL & GAS)|
|Publication:||Alaska Business Monthly|
|Date:||May 1, 2012|
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