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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
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We get royalty from federal onshore Steve. This lack of depth should frighten folks. Please check your facts if you hope to be credible.
ReplyDeleteFurthermore, judging by where we are in terms of getting anything done either in federal OCS or ANWR, I think you're way off base to suggest that 47% of future oil will come from OCS or 22% from ANWR.
How about 100% from a combination of central ANS state land and federal onshore (NPR-A) and 0% from the others.
Dear Anonymous,
ReplyDeleteYou bring up two good points. First, although the State of Alaska is not a royalty owner in NPRA, the federal government, pursuant to the National Petroleum Reserve Act of 1976, has agreed to share 50% of the revenues it receives in NPRA with the State of Alaska on the condition that a priority use of those funds be for communities impacted by development of the oil and gas leases in NPRA. This fund is generally referred to as the NPRA Impact Mitigation Program. When I think of revenue to the State of Alaska I seldom think of this fund because, to my knowledge not a single dollar of NPRA revenue has made it into the state general fund, at least not since 1996. It is difficult to determine what happened prior to 1996. But your comment brings up a good question of what has happened to the NPRA revenue over the last 15 years. I will try to address that in a future article.
Second, you mention that I am way off base when I suggest the percentages of where potential reserves may exist. I must tell you these are not my numbers. They are numbers from a Department of Energy study and presentations of those numbers by the State of Alaska Department of Natural Resources. In fact, the intent of the article was to suggest that the reserves numbers in the report were very optimistic, in fact, unrealistic, and that we shouldn’t depend on finding such huge reserves when making business decisions about the future. I think perhaps you stopped reading the article after paragraph 3. I recommend you go back and read paragraphs 4 through 7.