Trans-Alaska pipeline isn’t shutting down: Rumors of demise are exaggerated
by Hollis French Fairbanks Daily News Miner
How long will the pipeline last? Since 1977, the trans Alaska oil pipeline has carried the economic lifeblood of Alaska from the North Slope to Valdez, where it is loaded on tankers and taken to market. The future of the pipeline is in a real sense the future of the state.
How bright is that future?
Some say it is quite dark. During this year’s oil tax debate, we regularly heard dire predictions of an imminent pipeline shutdown. Indeed, the Make Alaska Competitive organization, which was formed to advocate for lower oil taxes (and whose members include Jim Mulva, CEO of ConocoPhillips) has a website that says “the pipeline may shut down within a decade.”
The issue of pipeline longevity was recently the subject of a very extensive public proceeding in an Alaska court.
The case arose out of a dispute over property taxes. Just like homeowners, the owners of the pipeline pay property taxes. And just like homeowners, they aren’t interested in paying any more than they have to. ConocoPhillips, Exxon and BP — which own more than 95 percent of the pipeline — went to court to lower their property tax bills. Their argument was that the pipeline wasn’t worth very much.
Unsurprisingly, the state and the boroughs across whose land the pipeline runs took a different position.
Judge Sharon Gleason, who heard the case (and who was recently elevated to the federal bench to wide bipartisan acclaim), listened to five weeks of testimony and reviewed thousands of exhibits before rendering her decision.
Setting the value of the pipeline and the Valdez tanker facility required Judge Gleason to delve deeply into the question of how long the pipeline would carry oil. The judge’s findings are worthy of close examination.
First, there is some $550 billion worth of oil still in the ground on the North Slope. These are “proven reserves.” Given the existence of all that extremely valuable oil, the judge found that even if there were no pipeline in place today, it would be to the economic advantage of the pipeline owners to build a new one. That’s right, there is still enough oil in the ground today to justify the construction of a brand new pipeline from the North Slope to Valdez.
Second, Judge Gleason found that, in Alyeska’s own words, “TAPS’ physical life is considered virtually unlimited given the execution of appropriate surveillance, maintenance, repair and replacement programs.”
Third, the pipeline can effectively operate down to 200,000 barrels per day, if heaters are installed at certain points to warm up the oil as it travels south. There was evidence at the trial that the pipeline could operate at lower production levels, but the judge was persuaded that the correct number was 200,000 barrels per day.
Finally there is Judge Gleason’s calculation as to the expected life of the pipeline. Her answer may come as something of a shock to Alaskans who have been listening to the scare tactics of those who are trying to rush us to lower taxes on these same oil producers — Exxon, BP and ConocoPhillips — who also own Alyeska. After carefully weighing all the evidence from all of the litigants, the judge found that the life of the pipeline is “at least” 2047.
2047. Now you have to admit, you were a bit surprised by that. And don’t think that the judge just went off and picked a number out of thin air. Her decision is 171 fact-filled pages long.
It is a remarkable document, one that any Alaskan who wishes to be wellinformed on this topic should read.
In the end, the judge made a decision about the value of the pipeline. It was not the lowball number of $850 million urged by the oil industry.
She found the pipeline was worth more than ten times as much.
We are studying our oil tax system, and will support any changes that actually put more oil in the pipeline.
And the good news is that the pipeline is in no danger of shutting down anytime soon.
Sen. Hollis French, D-Anchorage, represents west-central areas of Anchorage, including Spenard, Westchester Lagoon and the area north of the Ted Stevens International Airport.
Oil tax cut plan based on myths; oil industry grew under ACES
By SEN. HOLLIS FRENCH
Published: March 29th, 2011 08:22 AM
Last Modified: March 29th, 2011 08:23 AM
An advertising campaign is under way to persuade the Legislature and the public to go along with the governor’s plan to reduce taxes on some of the richest corporations in the world. The campaign is founded upon several myths that do not stand up to close examination. Let’s take a look at some of them
Myth: Oil company investment is down on the North Slope since ACES passed.
Fact: Oil industry capital investment on the North Slope is up 35 percent since ACES passed. This data comes from the oil industry itself. This year capital spending on the Slope will be $2.76 billion.
Myth: Oil companies are leaving Alaska.
Fact: Repsol, an oil company with 40,000 employees and operations in 29 countries, announced plans a month ago to invest at least $768 million in oil exploration and development on the North Slope. This is new money coming to the state. One thing that attracted Repsol to Alaska was our stable political climate.
Myth: Wells are not being drilled on the Slope.
Fact: 164 development wells were drilled on the North Slope in 2010, an increase of 24 percent over 2009. That’s right: Drilling was up last year, not down as some would have you believe.
Myth: The pipeline is going to be shut down soon.
Fact: This is highly unlikely. OCS development could add 1 million barrels of production into the pipeline. And just this month BP launched a $100 million “heavy oil” pilot project at Milne Point. BP is under time pressure to get its heavy oil reserves out of the ground as it needs to blend that oil with lighter crude to render it shippable in the pipeline. Heavy oil could, according to BP, amount to 250,000 barrels per day in a few years.
Myth: The oil industry is unanimously opposed to ACES.
Fact: Most industry business people think ACES is OK. The Fraser Institute Global Petroleum Survey asked 364 companies with exploration and development budgets totaling $161 billion about whether ACES was working or not. These are industry insiders, and fully 70 percent of them said that ACES either encouraged investment or was no deterrent to investment.
Myth: Progressivity takes too much when oil prices are high.
Fact: Progressivity is the feature in ACES that raises the tax rate once profits climb. What you don’t hear about are the credits the state grants for investment in Alaska. The credits reduce an oil company’s taxes dollar for dollar. And according to the Department of Revenue, the credits granted in 2010 were nearly equal to the amount collected under progressivity. In other words, what the state takes in under progressivity goes back as credits to the companies that are actually investing in Alaska.
These facts are inconvenient for those who believe that giving $2 billion per year to the oil industry, which the governor’s bill would do, will somehow lead to a full pipeline. Keep in mind that oil production has been declining on the North Slope since 1988. It has declined about 6 percent on average every year since then. Oil taxes were lower during much of that time. Why did production rates decline during a period of low oil taxes? The answer is simple. Because that’s what the vast majority of oil reservoirs do. They decline.
Alaska does need new oil in the pipeline. The problem is that the governor’s bill does not bring any assurances of more production. Don’t take my word for it. This headline ran in this newspaper recently: “Parnell’s oil tax gets BP’s praise but no promises. Spokesman stops short of saying jobs or investment would result.” The unfortunate truth is that we could pass the governor’s bill and not see another dollar of investment.
A bill that actually stimulates new exploration and production without giving away the farm will get support in the Legislature. For example, we are considering a bill that focuses on granting credits for drilling in unexplored areas of the state. But the debate must be based on facts and not the myths and half-truths that some are peddling.