On October 22, the U.S. Bureau of Land Management (BLM) gave the go ahead to a drilling plan in the National Petroleum Reserve in Alaska (NPR-A), one of the last ditch efforts to keep the Trans Alaskan Pipeline from running dry.
ConocoPhillips has plans to drill the Greater Mooses Tooth Unit (GMT-1), which could result in the first oil and gas production from federal land in the NPR-A. “I’m proud of this collaborative effort to ensure thoughtful, balanced, and responsible development in the NPR-A that will provide additional economic security for Alaskans as well as a new source of oil for the Trans-Alaska Pipeline System,” BLM Director Neil Kornze said in a statement.
According to BLM, the 23 million acre NPR-A is the “largest single block of federally managed land in the United States.” It is located on Alaska’s North Slope, and was set aside in 1923 by President Harding who wanted to preserve the area as a source of fuel supply for the U.S. Navy. In 1976, legislation transferred the administration to the BLM, under the U.S. Department of Interior. Related: What The Oil And Gas Industry Is Not Telling Investors
There has only been exploratory drilling in the NPR-A to date. The Interior Department is required by law to manage the NPR-A for both environmental conservation and for oil and gas development, with an eye on protecting “areas containing significant subsistence, recreational, fish and wildlife or historical or scenic value.”
However, President Obama has supported more oil and gas development in the region. Interior used to hold lease sales every two years, but beginning in 2011, Obama ordered the agency to conduct lease sales on an annual basis.
Still, it is unclear when and if ConocoPhillips will move forward. Low oil prices could prevent the company from following through on their drilling strategy, which includes plans to drill 33 wells. The permit only gives them two years. Separately, ConocoPhillips brought two relatively small North Slope wells into production in October. The CD-5 site will add 16,000 barrels per day of output at its peak. Also, the DS-2S will add 9,000 barrels per day at its peak.
Alaska is running out of options to keep its oil industry and the Trans Alaskan Pipeline afloat. Arguably the most oil-dependent state in the country, Alaska’s oil production has been falling since the late 1980s. Related: Putin Is Taking A Big Risk With China Gas Deals
In the weekly GOP address, Alaskan Senator Lisa Murkowski blamed the Obama administration for blocking oil development in her home state. She argues that Obama has slowed or derailed development in several different regions of Alaska.
“Since taking office, the Obama administration has repeatedly denied Alaska’s best opportunities to produce energy for our nation and the world. It has blocked production in half of our National Petroleum Reserve, which was specifically designated for energy development. It is locking away the non-wilderness portion of ANWR, where an estimated 10 billion barrels of oil could be produced from just 2,000 acres.“
“And in the Chukchi Sea, the constantly-shifting regulatory environment recently forced a company to abandon seven years of work and $7 billion in investment. And instead of recognizing that as a significant loss, the administration doubled down last week by canceling offshore lease sales in the region,” Murkowski said.
One can quibble with the degree of opposition that the Obama administration has put forward against oil development in Alaska. On the Arctic National Wildlife Refuge, Murkowski is right. Earlier this year, the White House sent a proposal to Congress that would block drilling in ANWR for good. But the President had supported drilling in the Chukchi up until Shell pulled the plug. And now, the BLM gave the green light to ConocoPhillips to drill in the NPR-A. Murkowski won’t be assuaged, however. Related: Major Oil And Gas M&A News That Has Yet To Make The Headlines
Alaska is desperate to boost falling oil production, as it seeks to stave off the decline of the Trans Alaskan Pipeline. The pipeline used to carry 2 million barrels of oil per day, but that level has fallen by 75 percent to just 500,000 barrels per day. Even if ConocoPhillips moves forward on GMT-1, it is only expected to produce 30,000 barrels per day at its peak. Lower flows through the pipeline not only mean lower revenue, but also raise the risk of corrosion and damage to the pipeline from freezing water.
Proponents argue that the BLM approval at least sets a precedent that will make future approvals easier.
With few options left, the state is going to greater lengths to see oil and gas produced and exported. The Alaskan state legislature approved a plan on November 4 for the state to buy a stake in a large natural gas pipeline and LNG export facility. The state’s involvement has been controversial, but with falling oil production, it is willing to take the risk.
By Nick Cunningham of Oilprice.com
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