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Tapping out

The Trans-Alaska Pipeline—an economic lifeline for the state and an American oil industry icon—is under threat as output declines

When the last length of steel pipe was laid down in 1977, the Trans-Alaska Pipeline System (Taps) was a marvel of ingenuity, engineering and ambition, crossing some of the world's most forbidding landscapes to link Alaska's North Slope oilfields to the rest of the world. Today, the pipeline's future-and the state's oil industry-is in serious doubt. Alaska's output is falling relentlessly and the amount of oil flowing through the line is heading towards dangerously low levels.

Industry and state officials have long warned about the risks to Taps from falling production, but the threat is more immediate today as low oil prices and shrinking investment dim the outlook for Alaskan output. In July, production was just 468,000 barrels a day, less than half the 1m b/d pumped in the early 2000s and a quarter of the 2m b/d that justified building the pipeline in the first place.

Less oil going through Taps doesn't mean empty space in the line, it means the oil filling up the pipe moves more slowly. It used to take oil about four days to make the near-1,300km route from Prudhoe Bay to the port of Valdez. Now it takes around 18 days, crawling along at just 3km or so an hour.

This causes a host of engineering problems because of the extremely cold temperatures down the line. Ice can start to form along the way, potentially damaging pumps, corroding the steel pipe and raising the risk of spills in the pristine wilderness. Slower moving oil also means more wax build up, which impedes crude flow and makes maintenance more difficult. Officials earlier this year said they might have trouble getting the line restarted if there was a mid-winter shutdown because the oil could get so cold it congeals.

Underflow

So far, fixes have been found to keep oil flowing safely through Taps. Oil is now heated at vulnerable parts of the line, for instance. And new pipeline pigs-used to clean out the wax-are being tested. But there is a limit to how low the Taps flow can go. Once output drops below that level, and Taps is forced to shut down, Alaska's oil production and reserves would essentially be stranded with no route to market.

The problem is, nobody is quite sure what that limit is. Earlier estimates said that 350,000 b/d to 400,000 b/d could pose fatal problems to the pipeline. In an Alaska Dispatch op-ed earlier this year Tom Barrett, president of Alyeska Pipeline Service Company, which operates Taps, seemed to draw the red line lower than that. "Despite some of the best and most innovative people in the industry focused on this scenario, an operational solution has not yet been identified to sustain Taps operations below 300,000 b/d," he wrote.

That day may be drawing nearer than Alaska's oil industry is truly prepared for. The Energy Information Administration's annual outlook, released in September, sees Alaskan oil output falling below 300,000 b/d in just a decade, assuming oil prices creep back up towards $90 a barrel. In the organisation's $50/b case, output falls below Taps' threshold by 2022, and Alaska's drops to essentially nil in 2023. That's a disaster not just for Alaska's oil industry, but the state's broader economy.

The best hope for Taps is that explorers find more oil to pump through the pipeline. The outlook is mixed on that front. A few years ago, offshore Arctic production looked like the best bet to revitalise the state's oil output. But any production looks far off after Shell led an industry retreat from America's Arctic waters following a failed and costly exploration campaign and the drop in crude prices.

The state did get some good news more recently in the form of a potentially large new discovery in the North Slope. Caelus Energy, a private-equity-backed explorer, said it found around 2bn barrels of recoverable light oil at a shallow-water field in Smith Bay, deep into the Arctic Circle, that could eventually pump 200,000 b/d into Taps. But a healthy dose of caution about the discovery is warranted. The company made the announcement after drilling just two wells, so much more test drilling will be needed. And if the reserves are proved up, getting the oil out of the ground and into Taps will be a massive undertaking needing huge amounts of investment to develop the field in the North Slopes harsh climate, likely taking years. Time isn't on their side.

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