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New study reveals impact to lifting of ANS exports ban.

Following the 1973 oil embargo, the Prudhoe Bay oil field was developed on the North Slope of Alaska. A major pipeline, TAPS, was needed to carry this new production to market. In the beleaguered spirit of the times, the enabling legislation passed by Congress included a provision prohibiting exports of the crude carried by the new line.

The president has now signed a bill to repeal the requirement that Alaskan North Slope (ANS) crude oil production be restricted to U.S. markets. Soon we will see the first shipments of ANS crude oil to Asia, raising the hopes of U.S. oil producers, and the fears of some U.S. refiners. Just as the ANS export ban has affected the development of oil markets for the past 20 years, removing it will change patterns of oil trade. Some pipeline routes that have flourished because of the ban will wither, while unexpected opportunities for growth will arise elsewhere.

Because ANS sellers have an incentive to avoid the high costs of shipping production to distant markets east of the Rockies, prices for ANS on the West Coast are relatively low. Many West Coast oil producers expect ANS exports to result in higher oil prices, which would spur regional production.

Systems to carry ANS crude oil to markets east of the Rockies have been needed. Initially the crude was carried by tanker around South America, since large tankers were too large for the Panama Canal. More recently, the Trans-Panama pipeline was built to provide an economical way to minimize tanker distances while still using VLCC-size tankers from Valdez. Several ambitious new pipeline projects were proposed to carry ANS crude oil across the United States, including ones from the Puget Sound and Los Angeles areas.

These projects failed to gain adequate support, and foundered on permitting and economic grounds. Nevertheless, ANS has been carried from the West Coast on the Four Corners Pipeline and the All-American Pipeline. Through these systems, the crude has found its way to markets in the Midcontinent and Midwest, as tanker transit is more economical for deliveries to the Gulf Coast.

Deliveries of ANS to interior markets by pipeline from the West Coast has served to alleviate pipeline shortages from the Gulf Coast. As low-cost pipeline transportation via the Capline has been Filled, more expensive routes such as the ARCO line have been needed. To the extent that needed supplies could be accessed via All American or Four Corners, throughput of the alternatives to Capline have been avoided.

The decline of ANS production, combined with increased West Coast consumption, has significantly reduced the ANS surplus available to be transferred out of Alaska and the West Coast. Lifting the export ban will cause most, if not all, ANS surplus to be diverted to Asian markets. The combination of higher crude oil value at the destination and lower shipping costs encourages sales into the Asian market.

The timing of Asian shipments will depend on existing contractual arrangements and successful sales efforts in Asia. Since most of the ANTS moves to the Gulf Coast by tanker as spot sales, these volumes can be diverted as soon as alternative markets in Asia are secured. The volume commitments for shipping on Four Corners pipeline and All American pipeline have already been met so the timing for diversion of volumes shipped on those lines is dependent only on contractual agreements with buyers in the Midcontinent and Gulf Coast.

Diversion of ANS to offshore markets will affect operations of several pipelines which ship ANS, while opening new opportunities to supply markets now consuming ANS crude. Four Corners Pipe Line is a subsidiary of ARCO and operates Line 90, which originates at Hynes Station in the Los Angeles area and carries ANS crude oil. Line 90 connects with All American Pipe Line at Cadiz in eastern California and continues to the Four Corners area of Utah, Arizona, Colorado, and New Mexico, where connections are available to continue to Texas and the Midcontinent. Line 90 is likely to suffer a loss of most, if not all, of its current throughput once ANS shipments are diverted from the Midcontinent.

The diversion of ANS supplies to Asian markets will result in a reduction of crude available for shipment eastward out of California on the All American Pipeline. All American ships ANS as well as crude produced on the Outer Continental Shelf (OCS) near Santa Barbara. It also carries a San Joaquin Valley "California Heavy" crude oil blend eastward. The OCS crude deliveries originate on the California coast. California Heavy is accessed through an extensive pipeline system in the San Joaquin Valley. The ANS deliveries are carried to All American via Four Corners Pipe Line's Line 90, as there is no other way for All American to access waterborne crudes for shipment. The diversion of ANS from the Midcontinent is expected to eliminate the ANS shipments.

The Petro Terminal de Panama line will lose most, if not all, of its ANS shipments. Even if ANS continues to move to Hess in the Virgin Islands, the Panama pipeline cannot compete with direct shipments from Valdez in foreign flag VLCCs to St. Croix. Longer term, it may be feasible to reverse the Panama pipeline to move Colombian crude to the West Coast.

The absence of ANS from the Midcontinent market will open opportunities to new crude oil sources. Canadian crudes may be immediate beneficiaries, since several projects already exist to provide enhanced access to U.S. markets. Either the Express Pipeline or further expansion of the Interprovincial Pipe Line would serve to mitigate the loss of ANS crude in the Midcontinent market.
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Title Annotation:Alaskan North Slope oil production
Author:Vautrain, John H.; Manning, Tom
Publication:Pipeline & Gas Journal
Date:Dec 1, 1996
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