NPRA Oil and Gas Reserves History

It might be helpful to understand the current USGS NPRA oil potential predictions in context. Below are some historical projections made by the USGS.

1.9 BBO      USGS 1976

2.1 BBO      USGS 1980

1.48 BBO    December 31, 2000 (EIA, 2001)

9.3 BBO      USGS 2002 NPRA Only

10.6 BBO    USGS 2002 NPRA Entire Area

10.4 BBO    June 30, 2005 (Bird, et al 2005 and AOGCC, 2005)

0.896 BBO  2010 Updated USGS Assessment of the NPRA

What is apparent from the above is that the current 2010 projections are only slightly less than the projections in 2000. The big change came in 2002 when the USGS increased the potential reserves almost 10 fold. The question one might want to ask is what happened between 2000 and 2002 to allow the USGS to increase reserves of the entire NPRA to such a great extent. The assumptions the USGS made in 2002 turned out to be wrong. They have now scaled back to the projections they made in 2000.

The USGS continues to be optimistic on gas. Below are the historical projections made by the USGS on gas. Please note the substantial change in reserves potential predicted in 2002.

6.3 tcf      USGS 1976

8.5 tcf      USGS 1980

59.7 tcf    USGS 2002 NPRA Only

61.4 tcf    USGS 2002 NPRA Entire Area

52.8 tcf    USGS 2010 NPRA

The USGS may be right about the potential for gas reserves in NPRA because there has been very little exploration for gas in the basin, but we will not find out if they are correct about their projections unless there is a major gas pipeline from the north slope to market the gas. No exploration company will explore for gas without the reasonable likelihood of getting that gas to market.

Repost - Resource Potential of the Alaska North Slope

The USGS recently published a 2010 Updated Assessment of Undiscovered Oil and gas Resources of the National Petroleum Reserve in Alaska (NPRA). The report can be found at http://pubs.usgs.gov/fs/2010/3102/pdf/FS10-3102.pdf


In that report the USGS downgraded the oil resource potential of NPRA from 10.560 billion barrels of oil to 0.896 billion barrels of oil. The new total is only about 10 percent of the total oil estimated in their 2002 assessment.  They also slightly downgraded the gas potential of NPRA from 61.352 trillion cubic feet of gas to 52.839 trillion cubic feet of gas.

Earlier this year I wrote an article regarding the resource potential of Alaska’s North Slope. I am reposting it here. What I attempted to show in that article and is apparent from the recent USGS revision is that “optimistic assumptions” about Alaska’s resource potential are exactly that – optimistic assumptions. Present budgets and future budget projections should not be based on the hope that large discoveries of oil and gas will be made in Alaska in the future.

In my next article I will discuss Alaska’s long term outlook in light of the USGS revised projections. I will also discuss some potential options Alaska should consider based on a range of outcomes that may occur in order to protect itself into the future.

Repost - Resource Potential of the Alaska North Slope

The Department of Energy, National Energy Technology Laboratory published a report titled “Alaska North Slope Oil and Gas A Promising Future or an Area in Decline in August 2007. The NETL recently published an Addendum to the Report. The report has often been quoted and used as a basis for projections of future oil and gas potential of Alaska’s North Slope.

The report is helpful in evaluating the prospectivity of certain areas of the North Slope as compared with other areas. For example, onshore state lands between the Colville and the Canning rivers and State Beaufort Sea, (basically all state lands on the North Slope) represent only ten percent (10%) of the future economically recoverable oil potential on the North Slope. Ninety percent (90%) of all future economically recoverable oil potential will be discovered on lands not owned by the state: twenty-one percent (21%) will be discovered in NPRA where the state will receive a production tax but no royalty; forty-seven percent (47%) will be discovered on the federal OCS lands where the state receives no royalty or production tax; and twenty-two percent (22%) will be discovered in ANWR where it is unknown what the state’s revenue percentage will be.

The state fares slightly better in the future economically recoverable gas potential. State onshore lands between the Colville and the Canning rivers and State Beaufort Sea represents almost twenty-five percent (25%) of all future economically recoverable gas potential on the North Slope. Seventy-five percent (75%) of all future economically recoverable gas potential will be discovered on lands not owned by the state: Twenty-two percent (22%) will be discovered in NPRA where the state will receive a production tax but no royalty; fifty-one percent (51%) will be discovered on federal OCS lands where the state receives no royalty or production tax; and a small percentage of gas may be found in ANWR where it is unknown what the state’s revenue percentage will be.

While the relative prospectivity of each area may be important to understand, the reality of what may be found in each area will be quite different. The NETL has modeled the potential for each area, not what they project will be discovered in each area. Figure 3-55 on page 3-107 of the report illustrates the production forecast for oil if the NETL’s “optimistic assumptions” (their term) are accurate. What the chart shows is current production will remain relatively flat for the next 10 years followed by a substantial increase in production until production peaks in 2042 at 3,000,000 barrels per day. This would mean the current oil pipeline would be at peak capacity and the state would have built a second pipeline to accommodate the additional production. This is based on NETL’s projection of the discovery of 35 to 36 billion barrels of oil. Obviously there is a very low chance of this occurring.

Figure 3-56 on page 3-108 of the report illustrates the production forecast for gas if NETL's "optimistic assumptions" are accurate. These optimistic assumptions of the discovery of 137 tcf of gas would have the state producing 11 bcf of gas per day by 2032 which would require all expansions by compression of the proposed 4.5 bcf per day gas pipline and then looping of that line. This too is a virtual pipe dream.

Many believe that the 137 tcf referred to in the NETL report will be discovered and produced over the next 50 years. In fact, they believe the potential is much greater. The only way to ground that belief in reality is to examine what they must also believe about the oil potential that was referred to in the same report. If they believe the 137 tcf will be produced, then they must also believe the 35-36 billion barrels of oil will be produced and that the existing TAPS pipeline will once again be at full capacity and an additional oil pipeline will be build to transport the surplus oil that has been discovered. The absurdity of such a position becomes apparent once it is understood in context.


Hopefully the above perspective will bring a bit of reality and understanding to the discussion of the oil and gas potential on the North Slope. The state should be an advocate for the oil and gas potential on the North Slope, but it should base its economic and business decisions on a more realistic analysis of North Slope potential. It is one thing to dream about winning the lottery, it is another thing to base your current business decisions on that assumption.

The August 2007 Report is located at http://www.netl.doe.gov/technologies/oil-gas/publications/EPreports/ANSFullReportFinalAugust2007.pdf



The April 2009 Addendum Report is located at http://www.netl.doe.gov/technologies/oil-gas/publications/AEO/ANS_Potential.pdf



If the above reference doesn’t work, the April 2009 Addendum Report can be accessed from the following page. http://www.netl.doe.gov/technologies/oil-gas/AEO/main.html

Security Guards Need Education on Private Rights

The basic rule for public or quasi-public gatherings is that any member of the public has a right to attend the meeting so long as they conduct themselves in a manner expected of all members of the public in that situation.

For example, in the Miller forum conducted at Central Middle School in Anchorage members of the public were expected to come and listen to Joe Miller speak about his candidacy for Senate. They were also expected to ask questions during and after the event. So long as a newspaper reporter stayed within those boundaries, he could not be considered as trespassing on the event.

If the reporter had tried to take the stage and speak to the audience, he could have been asked to leave. If the reporter had forcibly blocked an entrance preventing people from leaving the building, he could have been asked to move. But attempting to ask a candidate a question the candidate does not wish to answer does not violate any law nor does it give the security guard the right to handcuff the reporter, even if the reporter’s persistence is irritating.

The mere renting of a facility does not give the renter an absolute right to eject a person from the facility as a trespasser just because the person does not agree with or irritates your boss. The security guard misunderstood his rights under the law when he announced to the reporter that the campaign had rented the school, and they had the right to exclude anyone. Rental of the facility gives you certain rights and obligations under the rental contract between you and the owner of the facility. Your obligation to the public that attends the meeting is different from your rights under the rental contract. Your obligation to the public is not dictated by your rental contract and your rental contract cannot withdraw rights from the public that they would otherwise have.

Your rights and obligations to the public are dictated by your invitation. Miller could have sent out invitations to specific individuals to attend his meeting. Only those receiving invitations would be allowed to attend. All others would be trespassers and could be asked to leave. But that is not what happened here.

The campaign through its invitation granted the public the right to attend and participate. The invitation and the methods of announcing the event clearly did not intend to only invite a specific group of individuals. In fact, I assume the more people that attended the event, the happier the campaign would be.

The campaign invited the public to come listen to Joe Miller and ask questions. And to the extent the campaign invited the public to attend, they must treat all members of the public equally, even those that may disagree with the campaign, even reporters.

To do otherwise would illegally tread on individual constitutional rights, rights which I am sure Joe Miller understands.

Equal Time for Parnell

Some have complained that I only write about Ethan Berkowitz, but actually, I write about what I hear or read in the press. Recently, I finally got a chance to listen to a soundbyte from Governor Parnell thanks to a posting from the Fairbanks Daily News-Miner. If your are interested in watching the soundbyte go to:

http://www.youtube.com/watch?v=wLkf1TJxhH4&feature=player_embedded#!

In the video Governor Parnell defends his position on the Alaska Natural Gas Pipeline and the need to continue to support the $500 million reimbursement to TransCanada and ExxonMobil by citing the benefits of AGIA. The problem is that most of his justifications are either wrong or are of little value.

The method I have used in the article is to quote the governor and then provide my analysis and response, and where appropriate I have also provided the subject law or regulation.


It assures that there are 5 offtakes for gas for Alaska communities. – Governor Parnell

This is his first justification for supporting the $500 million.

Offtakes will occur where they are economic, not based on a demand by the state. As I stated in a previous article regarding the benefits of AGIA, or lack thereof, the only reason the Palin administration demanded 5 offtakes was because the Murkowski administration required 4. Offtakes will occur wherever the demand is sufficient to pay for the facilities necessary at the offtake site to provide access to the gas. Offtakes are about economics, not about meaningless demands. The state could have demanded 10 offtakes sites and the pipeline company would have agreed because the basis for the offtake site was that it would be paid for entirely by the entity taking the gas.

The real answer to the offtake issue is that all compressor stations should be designed to allow for offtake of gas.

My evaluation of this justification. – It’s not wrong, it’s just not important and certainly doesn’t justify giving a pipeline project $500 million.

AGIA must have #12 at AS 43.90.130(12) is reprinted here for your convenience.

(12) commit to provide a minimum of five delivery points of natural gas in this state;


It ensures that tariffs, instate tariffs for gas delivered to Alaska communities are measured by distance sensitive rates, meaning we are only going to pay for mileage for that gas from Prudhoe to Fairbanks for Fairbanks gas. We are not going to pay for mileage from Prudhoe to Chicago and back to Fairbanks which is what the producers could do if Alaska didn’t have that kind of protection. – Governor Parnell

Governor Parnell states that without the protection of AGIA the producers could charge Alaskans a tariff that included the cost of transporting the gas from Prudhoe to Chicago and back to Fairbanks. This simply isn’t true. It wasn’t true when AGIA was passed, and it is not true now. Surprisingly, AGIA even cites the federal law that would prohibit what the governor says could happen. So the Governor must know his statement is untrue and that protecting distance based tariffs is not a reasonable justification for providing TransCanada and ExxonMobil $500 reimbursement for moving the project forward.

My evaluation of this justification. – It’s wrong and doesn’t justify giving a pipeline project $500 million.

AGIA must have #13 at AS 43.90.130(13) is reprinted here for your convenience.

(13) commit to
    (A) offer firm transportation service to delivery points in this state as part of the tariff regardless of whether any shippers bid successfully in a binding open season for firm transportation service to delivery points in this state, and commit to offer distance-sensitive rates to delivery points in this state consistent with 18 C.F.R. 157.34(c)(8); and
    (B) offer distance-sensitive rates to delivery points in the state consistent with 18 C.F.R. 157.34(c)(8);

18 C.F.R. 157.34(c)(8) is reprinted here for your convenience

    (8) Based on the In-State Study and the delivery points within the State of Alaska identified in paragraph (c)(1) of this section, there must be an estimated transportation rate for such deliveries, based on the amount of in-state needs shown in the study. Such estimated transportation rate must be based on the costs to make such in-state deliveries and shall not include costs to make deliveries outside the State of Alaska;


It assures access to that pipeline on favorable rates for future explorers so that the producers don’t control the pipeline but there is possibilities for more abundant cheaper gas from other areas. – Governor Parnell

This is the state’s “rolled-in” rates argument which I have written about previously. The governor’s argument here is accurate. AGIA does require that the pipeline company advocate for “rolled-in” rates, but that does not mean that this position is in the best interest of the state.  There is no argument from either pipeline proposal or the shippers that the first expansions by compression will be through “rolled-in” rates. So, as a practical matter, the demand by the state that the pipeline company propose “rolled-in” rates is unnecessary because it is in the pipeline company’s interest and the shippers interest, and the FERC will probably require it. The real debate is over expansions by “looping,” building a second parallel pipe beside the first in order to expand that segment of the pipeline. I have written about this in other articles, but the effect of requiring the pipeline company to propose “rolled-in” rates under these circumstances will probably result in the state arguing for a reduced tariff for the owners of gas found in offshore federal waters where the state receives no royalty or taxes, the reduced tariff to be paid for by existing shippers already shipping gas in the pipeline, including in-state shippers. The result will be an incremental increase in the price of gas in Alaska to be paid for by Alaskans to benefit a gas owner that will pay no royalty or taxes to the state, clearly the wrong position.

My evaluation of this justification. – This argument I would rate as accurate but either not important or slightly detrimental to the state depending on which expansion the governor is referring to. But you certainly wouldn’t pay $500 million for a pipeline company to hold a position that is either not valuable to the state or possibly could hurt the state’s interests in the future.

AGIA must have #7 at AS 43.90.130(7) is reprinted here, in part, for your convenience.

(7) commit that the applicant
    (A) will propose and support the recovery of mainline capacity expansion costs, including fuel costs, from all mainline system users through rolled-in rates as provided in (B) and (C) of this paragraph or through a combination of incremental and rolled-in rates as provided in (D) of this paragraph;


That $500 million dollars is protection for Alaskans in a deal that gets negotiated between multinational corporations. I think that’s a fair price to pay to assure that Alaska interests are protected. – Governor Parnell

I am not sure what the Governor is arguing here, but I think he is arguing that the $500 million is justified to protect Alaska’s AGIA requirements. As I stated above and in a previous article on AGIA, the $500 million was an incentive to encourage a pipeline company to do what no rational pipeline company would do, to move forward to filing for a FERC certificate after a failed open season. The only way to get a pipeline company to do this was to pay for the vast majority of the costs of doing so.

Maintaining the obligation to pay the $500 million may be the right answer, but it is not for the reasons stated by the governor. Justifying the commitment of $500 million to the project should be based on whether it helps move the project forward. Does it encourage the major players BP, ConocoPhillips, TransCanada and ExxonMobil to resolve their differences and move a single project forward or does it continue to provide one of the bases of dissention between the parties? Currently the “20 must-haves” of AGIA are one of the bases of disagreement between the parties. BP and ConocoPhillips do not agree with the requirements of AGIA. TransCanada has agreed by contract to meet the requirements of AGIA, but TransCanada’s partner, ExxonMobil has not agreed to those requirements. Currently AGIA stands in the way of the major parties to the pipeline in resolving their differences. Someday it may be time to abandon the requirements of AGIA, but the state may want to consider maintaining its commitment of $500 million to the project, but only if it can be used as a tool in the negotiations to bring the parties together and move the project forward, not as a burden that stands in their way.

Natural Gas Pipeline Options

The gubernatorial candidates have been debating alternatives for a natural gas pipeline and which alternative makes more sense. Berkowitz is a staunch supporter of the state building a natural gas pipeline, I assume to Valdez, while Parnell is a supporter of staying the course and supporting AGIA. This article will provide some clarification regarding the passage of AGIA and make some recommendations on the proper path forward, or at least which path not to follow.

First, AGIA was not about the administration getting rolled as Berkowitz says in his ad. Governor Palin, Lt. Governor Parnell at the time, and 59 out of 60 legislators did not get rolled by the pipeline companies, especially Exxon. At the time Exxon was arguing against AGIA. AGIA was about rolling Exxon and the other producers. It was about bribery to get a pipeline company to, as Commissioner Galvin put it, do things they would not otherwise do. The state, through AGIA, made a requirement that the pipeline company, regardless of the results of open season, push the project forward through filing a FERC certificate. As an incentive the state would reimburse the project for up to $500 million. The percent of reimbursement after open season would be 90%. The reason for the 90% was because no rational pipeline company would move forward past open season unless the open season was successful. I assume the AGIA proponents expected the open season to fail; so they made sure the pipeline company had the incentive to move the project forward anyway.

So even though Ethan Berkowitz attempted to rewrite history in his ad and failed, we should still ask if he has a valid point regarding the state building a pipeline to Valdez or other port?

Actually, if his proposal was the right answer, and the all-Alaska option is really a viable economic option, the shippers will have bid at the Trans-Canada open season. Trans-Canada provided all shippers with the option to bid their gas to Valdez. The Trans-Canada option would also have the added benefit of a private company or companies funding and taking the risk on the project.

The only way it makes sense for the state to build the pipeline is if Trans-Canada’s open season failed. Denali’s open season would also have to have failed as well. That means that the shippers of the gas believe the project to Valdez and the project through Canada are both uneconomic. Based on this assumption let's look at the state owned and funded all-Alaska project.

Does Ethan Berkowitz propose the state retrace the same ground the pipeline companies have gone over so far? Does he propose the state appropriate the funds to bring the project to open season? Since the economics of the pipeline project haven’t changed, the pipeline costs the same to build, the owners of the gas are the same, the risks of shipping are the same, wouldn’t Ethan Berkowitz expect the same result to occur at the open season? Only two years from now? Perhaps he proposes the state not hold an open season. Who needs shippers to commit to the pipeline anyway? Maybe the state will just build the $20 to $30 billion pipeline to Valdez. Surely the gas owners will ship their gas on an existing pipeline? And if they don’t, we will sue them and take away their gas. Sounds logical enough ---- except that it is short-sighted and extremely shallow thinking.

If the state does not hold an open season and builds the pipeline without contracts, the shippers will have no contractual obligation to ship the gas. They will only have the reasonably prudent operator standard/obligation under their leases.

A reasonably prudent operator will ship gas when it can make money selling the gas and a reasonably prudent operator will leave the gas in the ground when it is not profitable to ship it.

Lets assume it cost $4 to ship the gas to the point of delivery. It may cost much more if the state is the builder of the pipeline, but lets assume the state was an efficient designer and builder of the pipeline, tankers, and all facilities to get the gas to market. Any time the gas owner can ship the gas for more than $4, they may agree to ship their gas on the state’s pipeline. Any time the price of gas is less than $4, the shippers will leave their gas in the ground and no one will ship gas on Alaska’s pipeline. The state will have taken 100% of the risk of building the pipe and 100% of the shipping risk. Eventually this will backfire on the state because sometime in the future the price of gas will go below the cost of shipping the gas and the state will eat the cost of staffing and owning an empty pipe, not to mention the other facilities required to get the gas to market.

The problem with Ethan Berkowitz’s pipeline proposal is that it sounds good and may get the votes of those who haven’t done their research or seriously considered the ramifications of his idea, but the proposal is not well thought out. He has not considered the viability of his proposal or the risk he is forcing on the state. If you don’t agree with me then help me answer just a few of the questions I have proffered above. How does Ethan Berkowitz propose to fill the pipe? Does he plan to hold an open season? Does he plan to commit the state’s gas to the state’s pipeline? How about the other facilities required to get the gas to market? Who will take the risk of building those facilities without shipping contracts?  How does he plan to fund such an expensive pipe? Please don’t tell me through PFD checks. I have already written another article about the viability of that proposal.

To answer the above questions you can’t guess. You must find the answers in the documentation Ethan Berkowitz has created or in a speech he has given. If you cannot find the answers, then Ethan Berkowitz’s proposal is shallow and not well thought out. If you find the answer, please provide them to me. I will be glad to analyze them and let you know if they are viable. Campaign soundbytes can only get you so far. Eventually someone is going to ask for meat on the bones of your proposal. I'll be waiting.

Clarification on the MidAmerican Deal

A recent article stated that the Berkowitz campaign says that the MidAmerican deal looked like a project that was going forward, until the Murkowski administration changed the terms and it fell apart.

In reality the MidAmerican deal fell apart because MidAmerican demanded it be granted the exclusive right for five years to develop the pipeline without any commitment to move forward with the project. This would have stopped negotiations with all other parties proposing projects under the terms of the Stranded Gas Development Act. The state was not willing to accede to MidAmerican’s demands; so MidAmerican withdrew its proposal.

The information provided in this clarification was obtained from an article written by Gianna Trinca, KTUU-TV, Updated 12:00 a.m. ET March 26, 2004