Background: Prudhoe Bay Oil and Gas Discovery and Development

Background: Prudhoe Bay Oil and Gas Discovery and Development

The U.S. Geological Survey first surveyed Alaska’s Arctic in the 1920s to identify petroleum reserves for the U.S. Navy. While promising structures were found, the harsh, isolated northern frontier was deemed too costly to explore, especially compared to more accessible areas in the Lower 48.

It was the early 1960s before private companies ventured north with teams of experts to interpret existing data and conduct their own surveys. With minus 65-degree temperatures stressing instruments, and permafrost reaching 2,000 feet deep, analyzing seismic data was an inexact science. Many dry holes were drilled at huge expense and abandoned.

That all changed on July 18, 1968 when an Anchorage Times story confirmed the rampant rumors of preceding months were true: “Arctic Oil Find is Huge.” ARCO and Humble Oil’s exploration activity the previous year paid off, when others had given up, with a gigantic strike at Prudhoe Bay. In March 1969, British Petroleum announced the discovery of oil from its Put River #1 well, an extension of the ARCO/Humble discovery. These events attracted worldwide attention. Headlines hailed estimates of 9.6 billion barrels of oil and 26 trillion cubic feet of natural gas, the largest deposits ever found in North America.

The significance of a Middle East-sized oilfield in the remote Arctic began to be grasped throughout the U.S. and, particularly, in Washington, D. C. The area lacked roads, communications, housing, utilities-any of any kind. The Arctic was further isolated by three towering mountain ranges. How to get the oil to market became a topic of compelling national interest, fascination and intense controversy. The environmentalists’ favored route crossed the coastal plain of the Arctic National Wildlife Range (later renamed “Refuge”) into Northern Canada. Their reasoning was, they said, that the coastal plain of ANWR “had no redeeming qualities whatsoever” and ironically argued this in Congressional hearings on Capitol Hill.

Concurrent with oil development, and spurred to a large extent by it, was the advancement of federal environmental legislation. Beginning with NEPA in 1969, the National Environmental Policy Act, seven major federal environmental laws were enacted during the next four years: The Clean Air and Clean Water Acts, Coastal Zone Management Act, Endangered Species Act, Marine Mammal Protection Act and Outer Continental Shelf Lands Act. Each had jurisdiction over some aspect of the project.

Prudhoe Bay and its 800-mile pipeline to southern Alaska became the most studied, watched, regulated, and sued-against project in history. The U.S. Senate, in a tie vote broken by then-Vice President Spiro Agnew, finally legislated an end to further lawsuits, and authorized construction. Ten years after discovery, and after issuance of 515 federal permits and 832 state permits, oil flowed through the Trans-Alaska Pipeline System (TAPS) to the tidewater port in Valdez. Since the day first oil flowed into TAPS in1977 more than 16 billion barrels of oil have been shipped from Alaska’s North Slope, greatly exceeding original estimates of the area’s capacity. For 2-1/2 decades, Alaskan oil has supplied up to 25% of America’s domestic production, a $300 billion a year offset to the trade deficit. Today 35 years later production is in decline and throughput of TAPS is down to 500,000 bpd or ¼ full supplying 6% of the nations domestic supply. Challenges to keep the costly operations of the pipeline can only be met by increased flow rate coming from new exploration and production of satellite areas such as ANWR, NPR-A and the OCS areas of the Chukchi and Beaufort Seas.

The USGS state the nation’s best opportunity for discovery of a Prudhoe Bay-sized new oilfield is in the coastal plain of the Arctic National Wildlife Refuge. The 10-02 coastal plain is but 2 miles from current production of the Point Thomson oil and gas field. This means production facilities and a feeder pipeline already exist just outside of the ANWR border lessening any new impact and cost of development within the refuge area.

As the TAPS throughput declines the pressure to discover new oil increases. The cost of exploration and operation of TAPS itself makes the challenge even greater for the commercial companies operating in the Arctic. Oil production has expanded east and west from the original Prudhoe Bay fields to satellite fields near ANWR and NPR-A. Yet still the decline in TAPS throughput is there. At a certain level estimated to be about 300,000 bpd the pipeline will run into mechanical issues of being unable to efficiently operate pumps and push oil through the pipe in low volumes over great distances. The industry is currently studying ways to overcome this problem. Further to this the cost of running the pipeline, of course, must be paid for by the oil flowing through it, and at low levels and low oil prices this becomes a serious concern. Should the price of oil and throughput not cover the costs of operations, TAPS will close. By law TAPS must be removed and the land remediated once it has closed down. This would strand any oil in the arctic and end all debate on ANWR.

Contrary to many conclusions it is not for lack of oil that TAPS is running low. Combined estimates of the Bureau of Ocean Energy Management for offshore arctic areas and the Bureau of Land Management estimates for onshore areas equate to over 40bbls of oil left remaining in the Arctic. Compare that to the 9 billion estimated originally for Prudhoe Bay. The problem remains that all of that new oil is on federal land and currently unavailable or highly restricted by regulations to prevent companies accessing it. The contrast is stark. Despite that the State of Alaska owns but only a 1/3rd of all the land in the Arctic (2/3rds are federal managed by Congress) 99.99% of all the oil produced in the Arctic has come from State land! America owes its enjoyment of Alaskan oil solely to Alaskans and not one bit to the efforts of the federal government and its agencies.

Alaska currently receives 90% of its revenues from taxes and royalties on the oil from the Arctic. Look at it another way add up all the taxes and revenue from commercial business in the state, all the state revenue from fishing, timber, mining and tourism and it equals less than 10% combined. With the need nationally for greater domestic supplies of oil and the economic and national security benefits we as a nation receive from domestically produced oil, it becomes a “no-brainer” to Alaskans to support increased exploration on federal land to continue the legacy and benefit of Alaska’s gift to the nation. Combine this with the fact that production in Alaska consumes all its products and services from the Lower 48. In a ten year period in the 90s it was estimated Alaska production consumed over $50 billion in products and services to develop and produce its oil. That means jobs in every state in the nation whether its production of hard hats in Rhode Island, or purchasing medical supplies in California or production buildings in Louisiana. When Alaska works America works.

With the full support of Alaska’s government it is hoped Congress and the Administration will see the wisdom of opening its controlling 2/3rds of the Arctic to help fill TAPS again.