Pump station leak shuts down TAPS

Pump station leak shuts down Trans Alaska Pipeline System

By CASEY GROVE

Published: January 8th, 2011 07:23 PM

The 800-mile trans-Alaska oil pipeline is shut down due to a leak at Pump Station 1 on the North Slope.

tool nameclose tool goes here North Slope oil producers have been asked to cut their production to 5 percent of normal.

An oil line encased in concrete leaked an unknown quantity of crude oil just outside a booster pump building, according to Alyeska Pipeline Service Co. spokeswoman Michelle Egan. Alyeska operates the line and its pump stations.

A crew doing a routine inspection noticed the leak this morning and Alyeska shut down the pipeline at about 9 a.m., Egan said.

"There's no visible oil on the tundra," Egan said. "We believe it's all inside that casing."

While Alyeska staff believe the leak is contained, Egan said, they wouldn't know for sure if it had escaped that concrete structure until crews had a chance to excavate around the pipe. Crews are working to determine how to fix the line and get the pipeline running, Egan said.

Alyeska is unsure when oil might start flowing, she said.

"We want to make sure that we aren't going to make the situation worse by restarting, so we're being very careful and methodical about that," Egan said.

BP is in the process of cutting off production at the fields it operates, said Steve Rinehart, Alaska spokesman for the oil company. It will take time for wells to be shut in and pipelines and other facilities to be freeze protected.

Normal production from the North Slope fields averages around 630,000 barrels a day of oil. A 5 percent production level would be about 31,500 barrels a day. The oil fields have limited storage capacity, and the production that occurs will go into storage while the trans-Alaska pipeline is shut off.

BP runs most of the oil fields on behalf of itself and the other leaseholders. Conoco Phillips and Pioneer Natural Resources also run fields. BP, Conoco and Exxon Mobil are the major producers on the North Slope.

Rinehart said it was unclear how long the pipeline shutdown would last.

The pipeline runs from the North Slope to a tanker port in Valdez. Pump Station 1 is at the beginning of the pipeline. Alyeska runs the pipeline for the five oil companies that own it: BP, Conoco, Exxon, Koch Industries and Chevron.

No timeline for AK

Salazar says he needs confidence in safety before allowing OCS drilling

By Alan Bailey
Petroleum News
The Department of the Interior will not decide whether to allow exploration drilling for oil and gas in the Alaska Arctic outer continental shelf until it has completed a review of safety issues relating to offshore drilling activities, Interior Secretary Ken Salazar told a press conference in Anchorage on Sept. 3.
The briefing came at the end of a 48-hour visit to Alaska by Salazar and Deputy Interior Secretary David Hayes to meet with Alaska communities, energy industry officials and others, and to view areas of the state impacted or potentially impacted by oil and gas development.

Prohibited Shell drilling
Following the Deepwater Horizon disaster in the Gulf of Mexico, Interior prohibited Shell from proceeding with a planned 2010 drilling program in the Beaufort and Chukchi seas — the company now hopes to carry out that program in the summer of 2011. But, although Interior is aware that Shell needs to know in late 2010 or early 2011 whether it will be allowed to drill in 2011 to give the company sufficient time to mobilize its drilling fleet, Interior cannot make specific time commitments on a decision whether to authorize the drilling, Salazar said.

“I put those exploration plans on hold this year until we learn more from the experience that we’ve had dealing with the Macondo well in the Gulf of Mexico,” Salazar said. “Until we are confident that drilling can be conducted (safely) in the Chukchi and Beaufort seas we will not be allowing that program to go forward.”
Much will depend on the outcome of a report on offshore drilling that Michael Bromwich, the new director of the Bureau of Ocean Energy Management, Regulation and Enforcement, is preparing, and on the results of a Marine Board investigation of the Deepwater Horizon disaster, as well as on a pending Deepwater Horizon report from the National Academy of Engineering, Salazar said. Bromwich has been traveling around the United States gathering input for his report, which he anticipates delivering to Salazar by Oct. 31 at the latest.
“It’s a dynamic situation and we will make our decisions based on information when it comes forward,” Salazar said.

Three questions
Salazar said that the Deepwater Horizon disaster had raised three central questions for the United States when it comes to offshore oil drilling: workplace safety, the ability to contain oil from an out-of-control well and the feasibility of conducting an adequate response to an oil spill.
With regard to the issue of workplace safety, Interior is issuing new safety-related regulations that address questions such as blowout preventer requirements; well cementing and casing standards; and several other issues.
“There’s a bucket of issues around drilling safety and worker safety that we’re looking at,” Salazar said.
And when it comes to containing oil from a subsea well blowout, multiple failed efforts to capture oil from the Macondo well, including a failed containment dome, a failed “top kill” and a failed “junk kill,” illustrated the difficulty of dealing with a subsea blowout, even for one of the largest companies in the world, Salazar said.
“It is something which we will address before we allow drilling to continue,” Salazar said, while also commenting that Shell and the oil industry are trying to deal with this issue.
In addition, BP’s Gulf of Mexico oil spill response plans, despite being specified for a larger oil flow than that from the Macondo well, had proved inadequate, resulting in 1,200 miles of Gulf of Mexico coastline being impacted by oil and in damage to natural resources, Salazar said.
“And so one of the major questions that we are facing is what will we require of companies with respect to having an adequate spill response plan, and that question is very applicable to the Arctic Circle area,” Salazar said. “What happens if you have an oil spill in the Chukchi and Beaufort? How is it going to be contained?”

Moratorium applies in Alaska
The question of whether drilling on Alaska’s Arctic outer continental shelf is subject to a six-month drilling moratorium imposed by the U.S. Department of the Interior following the Deepwater Horizon disaster has been a subject of confusion and, at times, acrimonious debate since imposition of the OCS moratorium in May.
“The moratorium does in fact apply to Alaska,” Salazar said, contradicting a Nov. 26 statement by Bromwich that there “is not a moratorium per se in Alaska.”
Salazar said that he is applying the moratorium in Alaska because the three central questions over OCS drilling apply as much in the context of Arctic offshore drilling as they do in the Gulf of Mexico.
The moratorium imposed in May applied only to water depths greater than 500 feet and did not make any mention of the Arctic OCS, where the waters in areas of oil and gas interest are substantially shallower than that 500-foot limit. But Salazar said that he had notified Shell that Interior would not issue drilling permits for Shell’s 2010 program and that he viewed this de facto moratorium as, in effect, an extension of the deepwater moratorium.

Applied differently“The moratorium on the Arctic essentially is imposed in a different way. … I withheld the (drilling) authorization because of the fact that that some of the same questions that I am looking at in the Gulf of Mexico are central to the question of whether we allow an exploration well,” Salazar said. “If you look at the Chukchi, nothing or very little is known about the reservoir pressures that would be encountered. And if you look at the Chukchi you know that it will be very difficult to mount the kind of oil spill response that has been mounted in the Gulf of Mexico.”
On July 12 Interior issued a new drilling moratorium, replacing the May moratorium and banning all OCS drilling done from a floating drilling facility using a subsea blowout preventer. Again, the moratorium did not mention the Arctic and Bromwich, in his Aug. 26 statement, emphasized that the moratorium applied to specific equipment usage, rather than water depths or geographic locations.
But Shell’s planned Arctic drilling, using a drilling vessel and blowout preventers in well cellars in the seafloor, would presumably have been banned under the terms of the July 12 moratorium.

Court injunction
However, a court injunction actually applies to the drilling moratorium as a consequence of an appeal by several Gulf of Mexico oil service companies against the original May drilling ban. In June a judge in the Louisiana District Court ordered the injunction, saying that Interior’s application of a blanket moratorium on all deepwater drilling on the OCS would likely be viewed by the court as “arbitrary and capricious.” And on Sept. 1 the court threw out a claim by Interior that the July 12 moratorium had rendered moot the appeal case.
The case has now gone back to the Court of Appeals for the 5th Circuit, where Interior had appealed the injunction.
But, as far as the Alaska is concerned, the injunction really is in practice moot, since at this late stage in the annual open water season there is no possibility of anyone drilling for oil in the U.S. Arctic OCS this year.
The real question is whether an Arctic drilling moratorium, de facto or otherwise, will apply in the summer of 2011.
Wednesday, In the lead testimony, it was said, "Secretary Salazar has created an imperial throne of his administrative position. He has not acted in response to the law but – in Plato’s words – has attempted to make the law subject to his own authority. Your clear-headed recommendation could help set the Interior Department back on a steady course consistent with the rule of law, respectful of due process and serving the interest of the American public.

I am advising you tonight –via several bullet comments—under your second mission of considering ‘economic consequences’ of the Department’s decisions.
• The Secretary’s moratorium applied to deepwater development. Yet, without public notice or notice to affected parties he told the Senate Appropriations Committee on June 23 that the Moratorium did apply to Alaska. Just like that. No due process. Done on his own authority. He repeated his verbal extension of the moratoria last week while he was in Anchorage. He said he had other reasons than ‘deepwater concerns’ for applying the moratorium on his own authority to Alaska. He said he had applied this moratorium to Alaska on his own authority by causing various approvals to be withheld.
• The Secretary’s blunt use of power under the authority of his own word without notice or due process has significantly harmed Lessees, the State of Alaska and the people of the state. Chukchi and Beaufort Sea exploration was on course for his approval early in the year, following several years of preparation by exploration companies and the expenditure of billions of dollars. The Secretary’s actions have cost companies hundreds of millions or billions of dollars in delays and lost opportunities. His actions have endangered the economic survival of the State, dependent as it is on declining throughput of the Trans Alaska Pipeline--waiting for new volumes of OCS or ANWR or National Petroleum Reserve-Alaska throughput. His actions have erased job opportunities this very summer for hundreds of Alaskan citizens."

Tax program for oil industry makes exploration less attractive

Letter to the ADN editor:

Tax program for oil industry makes exploration less attractive
Some say Alaska's tax program, ACES, benefits the oil industry. Industry executives say while innovative technology opens opportunities, ACES takes away "the up-side" and Alaska is no longer attractive for oil exploration. What should Alaskans believe?
Alyeska Pipeline's reality is based on one thing: pipeline throughput. Setting aside debate over policies, taxes and regulations, Alaskans should be concerned that the Trans Alaska Pipeline System now carries just one-third of peak throughput. Since 1988, throughput has declined from 2.1 million to 700,000 barrels per day and should dip below 300,000 barrels a day within 15 years.
What does future declining throughput mean for Alaskans? Fewer jobs. Lower state revenue. Reduced services. Tougher economic times for all.
Alyeska is making dramatic changes to manage decline. Our 2010 budget is 14 percent lower than 2009. We have cut 60 well-paying Alyeska and contractor positions and are spending less with local businesses. Seeking efficiencies, we will likely close some facilities and relocate jobs to Anchorage.
These difficult changes will impact individuals and communities. But every change is designed to extend the pipeline's life. While we increase efficiency, we will still invest in pipeline renewal and maintain our keen focus on safety, integrity and environment.
Pipeline throughput is a harbinger of things to come in Alaska. Alaskans must pay attention to Alyeska's reality. We are carefully changing our processes, culture and operations so TAPS can stay viable despite declining oil throughput. Alaska, its communities and its citizens would be wise to do the same.
-- Kevin Hostler
President and CEO
Alyeska Pipeline Service Company
Anchorage

Palin does not play well with others

More Legislature vs. Palin

Posted: April 17, 2009


The antagonism between legislators and Gov. Sarah Palin doesn’t end. Hours after the Legislature voted down the governor’s nominee for attorney general, House Finance Committee members tonight slammed the governor’s aides for not briefing legislators on Palin’s plan for an in-state gas pipeline.

“I’ve had a lot of friction with the governor this year on her lack of connection, frankly the appearance that she’s more concerned about her national ambitions than what’s going on in the state,” Anchorage Republican Rep. Mike Hawker, co-chair of the finance committee, told Palin budget director Karen Rehfeld.

The committee was deciding on a request by Palin for $9 million to help develop a private in-state natural gas pipeline from the North Slope down to the Kenai Peninsula. Hawker and the other co-chair said Palin staffers spoke to legislative leaders about the money -- but several other finance committee members complained this was the first they’d heard of it.

“Nobody from the (Palin) administration has been to my office at all…I see a number of different legislators all shaking their heads, same thing, nobody’s been in their office,” said Kodiak Republican Rep. Alan Austerman.

Haines Republican Rep. Bill Thomas said nobody has spoken to him about gas plan either. Anchorage Democratic Rep. Les Gara -- who questioned if this is a set up to benefit the Enstar "bullet line" project -- said he’s being asked to approve a $9 million plan with no one ever describing to him what it is about.

Hawker said it’s an insult if Palin staffers were only talking to legislative leadership about it and not following up with other members of the state Legislature about something that is supposed to be a high priority for the governor.

“I would offer some counsel and instruction to the (Palin) administration. If this was your highest priority, it is beyond me… 11 people have been sitting at this (finance committee) table all year, you are looking for support for an appropriation and it is just beyond me that you folks didn’t have someone, quite frankly it just never occurred to me that you wouldn’t have talked to everybody on this table,” he said.

Palin budget director Rehfeld responded she is clearly sensing the frustration at the committee.

“We have had this appropriation in our budget for in-state gas since December…it has evolved, but the discussion and the interest and the desire to move forward on in-state gas has been very clear from the administration and we have talked with the committee about the budget request. So the specific design now going through the governor’s office is different, yes, than what we had proposed but I think clearly the governor has been very consistent in her discussion of in-state gas,” Rehfeld told the finance committee.

Healy Clean Coal: Rewarding cheats and con men

Healy Clean Coal: Rewarding cheats and con men


After twenty years of screwing both the State of Alaska and the US Department of Energy over a clean coal plant that they wanted built in the first place, it looks as if the Palin administration is on the verge of allowing Golden Valley Electric Association to screw the state one more time.

According to sources, the Palin administration is reportedly close to a deal that would have AIDEA, the state's economic development arm, basically give away the $300 million clean coal plant completed in 1999 to GVEA, the very same utility which backed out of paying for the plant and cheated the state out of tens of millions.

Over the last eighteen years, GVEA has used one excuse after another in refusing to accept responsibility and management for a plant that they were hoping to get for free at taxpayers expense. Instead, over the last ten years the plant has been sitting idle, with GVEA putting up roadblocks in front of AIDEA's attempts to utilize the asset.

Finally in November of 2005, the Murkowski administration had enough of GVEA's stalling tactics and filed legal action.

But then along comes Palin and after stacking the board with her cronies, is now proposing to let GVEA be rewarded after screwing the state for the last twenty years, for her own political gain.

Funny, if GVEA were Exxon, something tells me this wouldn't be happening.

Whats worse is when you look at the cast of characters involved in this giveaway of a state asset, you can't help but be alarmed.

Since Governor Palin has come into office she has replaced the head of AIDEA with a fellow Wasilla crony and planted her resident babysitter and former administrative problem child, Ivy Frye, at AIDEA. Inside sources confirm she seldom attends work, preferring to hang out in the Governor’s suite.

But the biggest red flags are those who have something to gain with the GVEA giveaway.

In March, Palin appointed Steve Haagenson as the head of the Alaska Energy Authority and as the State Energy Czar.

So what was Haagenson's prior job?

He was CEO of Golden Valley Electric Association (GVEA).

In his brief stint as State Energy Czar, lawmakers have complained that he has totally botched the renewable energy grant program and has so far failed to deliver the statewide energy plan on December 17 as he promised a week earlier while speaking to the Anchorage Chamber of Commerce.

Sources say the delay in releasing the energy plan was due to criticism about the plan Haagenson described to Chamber members on December 8, wasn't a plan at all, it was simply a menu of options. The delay was necessary in order for AIDEA to rush this giveaway of the coal plant through to try and add substance to a weak energy plan and to provide cheerleading material for Palin's state of the state speech.

Multiple sources confirm that Department of Revenue Commissioner Pat Galvin, who is an AIDEA Board member, and Fairbanks Representative Mike Kelly have engineered a sweetheart deal giving away the HCCP to GVEA.

According to my sources, Kelly has long promised to right this situation and resolve the issue in favor of GVEA.

So what was Kelly's former job before he landed in the legislature?

Like Haagenson, Kelly is a former CEO of Golden Valley Electric Association (GVEA).

HCCP was built by AIDEA for GVEA in a deal when Kelly was CEO of GVEA. The HCCP cost AIDEA $300 million to construct and after years of GVEA refusing to accept the plant or pay for it, it has been written down on the AIDEA books in 2002 to some calculation around $180 million. In the 2005 lawsuit filed under the Murkowski administration, the state was suing GVEA for $167 million in damages.

So because Kelly was CEO during the time the coal plant was being built for GVEA, he has had this albatross hanging around his neck for the last decade. It has long been rumored that Kelly and the GVEA Board are still working to save face over a deal gone wrong years ago with the state now picking up the tab.

Galvin and Kelly’s deal basically gives HCCP to GVEA. Cost will be $50 million, with 100% long term financing at 5% interest by AIDEA. AIDEA immediately pays $45 million in “restart” costs. That means the state nets out $5 million while GVEA gets a plant that will provide a profitable long term revenue stream.

Documents obtained by a legislator explicitly confirm reports from an outside source that Galvin and Kelly have told the GVEA board and management that the deal must be done “before Mike Chenault takes over as Speaker of the House," on January 19,2009.

Why the rush to get this deal done so fast?

One reason is that Chenault represents the Kenai Peninsula where Homer Electric Association already has an offer on the table of $85 million to purchase the plant from AIDEA.

Sources outside the legislature have alleged that Rep/ Kelly used his position as Budget Subcommittee Chairman for DCCED with administrative authority over AIDEA to obtain confidential information about the HEC offer that he took to an executive session of the GVEA Board.

There are rumors that Kelly counseled GVEA Board against negotiating or agreeing to any HCCP settlement plan until he derailed the HEC proposal and put the fix in with the administration who would do his bidding.

The second reason for urgency is the administration wants a deal closed by the State of the State which is scheduled to be given by Governor Palin on January 20.

This will give her something to offer as an accomplishment since her administration has done very little in the last twelve months.

AGIA, ethics reform, increasing oil taxes...she claimed credit for all of those during last years state of the state. In fact one source told me yesterday that in this year's accomplishments sent out to employees, the administration listed the Santa visits to rural Alaska as an accomplishment.

Then there is our dear friend Tom Irwin, who was fomerly a public relations executive at GVEA after he dropped out of the Murkowski administration.

So that makes three Fairbanks neighbors and former GVEA executives that quite possibly have a hand in handing over a $300 million state asset to their former employer for a reported $50 million, minus the start up costs.

But wait, according to my sources there is more. The HCCP will be transferred to a new entity controlled by GVEA, but GVEA will not provide any guarantee of the $50 million debt. How’s that for bankruptcy protection and leaving the creditor totally exposed?



From what I understand the deal is done and AIDEA is only waiting for its next board meeting to approve the giveaway of the Heally Clean Coal Plant.

According to the AIDEA website, their next board meeting is January 15, 2009.

To read the AIDEA press release from 2005 regarding the filing of a law suit against GVEA as well as a detailed time line of the Healy Clean Coal Plant history, click on link:
http://www.aidea.org/PDF%20files/HCCP/AIDEA%20sues%20GVEA%20over%20HCCP.pdf

AP INVESTIGATION: Palin's Pipeline Terms Netted 1 Viable Bid, From Firm With Inside Ties

AP INVESTIGATION: Palin's Pipeline Terms Netted 1 Viable Bid, From Firm With Inside Ties

TIES THAT BIND

Palin's team was led by Marty Rutherford, a widely respected energy specialist who entered the upper levels of state government nearly 20 years ago. Rutherford solidified her status when, in 2005, she joined an exodus of Department of Natural Resources staff who felt Murkowski was selling out to the oil giants.

What the Palin administration didn't tell legislators _ and neglected to mention in its announcement of Rutherford's appointment _ was that in 2003, Rutherford left public service and worked for 10 months at the Anchorage-based Jade North lobbying firm. There she did $40,200 worth of work for Foothills Pipe Lines Alaska, Inc., a subsidiary of TransCanada.

Foothills Pipe Lines Alaska Inc. paid Rutherford for expertise on topics including state legislation and funding related to gas commercialization, according to her 2003 lobbyist registration statement.

Read More

Congressional craziness

Congressional craziness keeps United States in much hot water

WE KEEP LOOKING for an expert to explain why the economy is such a mess, but haven't seen anything thoughtful and comprehensive yet. So we'll offer our own. At least two big problems can be blamed in large part on foolish government decisions.

Why are energy costs so high, triggering inflation throughout the marketplace? Why, indeed, since the United States has huge untapped energy resources in oil, gas, coal and tremendous potential in nuclear energy. Then there are renewable sources like hydroelectric, wind and moving water energy.

Some of the problems are in developing technologies, but the nation's vast oil, gas and coal resources are largely off limits to exploration and production because Congress (with a little help from presidents like Bill Clinton) made them that way.

That makes the nation dependent on foreign sources, especially the Middle East, which is now an economic lifeline and must be defended with the lives of young soldiers and the fortunes of average taxpayers.

Many politicians have sold their souls to environmental activists and fight to block oil and gas drilling and coal mining within and around the country's borders. When the subject comes up of drilling in ANWR, a huge oil and gas reservoir, critics argue that it will take 10 years to tap ANWR. "That won't help today," they say. But legislation opening ANWR was passed by Congress in 1995, more than 13 years ago. The field could easily have been in production by now.

And why does it take 10 years to get a new field into production? Mostly government regulation and red tape. It's impossible to believe that process couldn't be speeded up and due consideration still given to environmental protection and public opinion.

Then there are the stock market gyrations triggered by a collapse in the mortgage lending field. Why did that happen? Because Congress mandated that poor people should be able to buy houses whether they could afford them or not. And the rules were loosened enough that liar's loans allowed even middle class people to buy larger and better houses than they could really afford if they wanted to bet that their income was going to go up later on.

Those who sold mortgages to people who couldn't afford the payments or were at risk of defaulting made their money on the paperwork. Afterward they laid off the loans on larger lenders who tried to make their money by buying mortgage paper in large amounts. It should be no surprise that eventually the system collapsed.

These things are all craziness, folks. They just should not be. The United States could be a wise shepherd for its natural resources and still extract them in a timely fashion without damaging the environment. Doing so would create millions of jobs as well as provide the nation with major sources of energy on its own soil.

America needs reform, all right. Most of these problems stem from congressional idiocy. How you fix that is a difficult question. We don't have the answer, just the question.
Read More

Palin requests a conference call with oil executives

Governor Sarah Palin has requested a conference call this week with the CEO's of the major oil companies playing a role in the potential development of Alaska's natural gas pipeline.

The requested participants include Tony Hayward from BP, James Mulva from ConocoPhillips, Rex Tillerson from Exxon along with others. According to my source, no one knows exactly what the purpose of the call is, but some have never the less speculated.

Last week in her address to the nation, Palin stepped far over the line of truthiness (thanks Steven Colbert) when she told the country, "I fought to bring about the largest private-sector infrastructure project in North American history. And when that deal was struck, we began a nearly forty billion dollar natural gas pipeline to help lead America to energy independence."

Nothing could be further from the truth.

In fact the state has done little more to move the gas pipeline forward over the last twenty months than to grant a Canadian company $500 million to push paperwork with no guarantee a pipeline will be built.

Anchorage Daily News reporter Wesley Loy reported last month;

Palin said in her press conference that the state never before had commitments to build this line. Now we do. That's incorrect.

TransCanada has not promised to actually build the gas line, one of the state's grandest and most frustrated economic development dreams.

The state license, awarded under the Alaska Gasline Inducement Act, or AGIA, which the Legislature passed at Palin's request last year, is not a construction contract and does not guarantee a pipeline will be built."

Since becoming Alaska's governor in December of 2006, Palin's administration has had a very combative relationship with the oil & gas industry in Alaska and has ignored any attempts to communicate with them on development issues.

When the Alaska Gasline Inducement Act (AGIA) was introduced and passed by the legislature in 2007, the administration refused to entertain suggestions from the producers to make the process more commercially viable. At the end of the day the state had crafted a proposal that ignored all legal and fiscal realities.

So instead of negotiating with the producers, the administration said they'd rely on public and share holder pressure to force three of the largest oil companies in the world to commit to paying for the most expensive privately financed project in the history of the United States.

Even United State Senator Ted Stevens raised serious concerns about the process back in March saying; "financing terms won't be set by the legislature, the governor or the Congress. They're going to be set by the people who manage the money."

Today, the state has awarded a $500 million inducement and exclusive rights to TransCanada, while their CEO is on record as saying that they cannot order one piece of steel pipe without first gaining the financial support from the oil companies. "Nothing goes ahead unless Exxon is happy with it," CEO Hal Kvisle told the Toronto Globe and Mail in August.

So what could the agenda be on this requested phone call by Governor Palin?


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Oil reserve totals depend on price

By RICHARD W. RAHN

If you had to bet whether the price of oil would be higher or lower 10 years in the future, what would you say?

Some argue that the world is running out of low-cost oil and that oil prices will get higher and higher. Others argue that the current high price of oil will cause a flood of new oil, much of it from nonconventional sources; hence, prices will fall significantly (provided the political class in Washington, D.C., does not continue its energy and environmental death march policies).

The case for much lower oil prices is as follows. There are hundreds of years of oil supplies (at present and projected consumption levels) if oil in oil sands and shale is properly included in reserves. In some places, such as Saudi Arabia and Iraq, there is still much low-cost oil ($15 a barrel or even less) that can be produced for decades, but not in an amount sufficient to meet the world's demand; hence, much higher-cost oil is also pumped. This higher-cost oil includes much of the offshore oil (the huge cost of the mammoth drilling rigs has to be amortized over each barrel of oil produced) and on-shore oil in hard-to-reach places and/or produced from low-production wells.

Oil reserves are largely a function of price. Global proven reserves of conventional oil obtainable at prices of less than $40 per barrel are estimated at more than 1.3 trillion barrels, with much of it concentrated in the Middle East. Additionally, reserves of so called "heavy oil," the largest reserves of which are in Venezuela's Orinoco area, are estimated at 1.2 trillion barrels, and most of this . . .

could probably be recovered for less than $50 per barrel.

The reserves of oil sands, which are actively being mined in Canada's Alberta Province, are estimated to be 1.8 trillion barrels. Experts estimate that much of this can be produced for $45 per barrel or less. Global reserves of oil shale are estimated at more than 3.3 trillion barrels, with 70 percent in the United States (primarily in Colorado, Utah and Wyoming).

Shell Oil Co. last year announced it has developed a process for extracting the oil from the shale, without mining, at a price of roughly $35 per barrel. The United States also has the world's largest reserves of coal — enough for hundreds of years of production at present levels. Coal also can be turned into liquid petroleum (as the Germans and South Africans proved decades ago). Current estimates of the conversion cost are as low as $35 per barrel.

Does it seem a bit odd that the current price of oil is more than twice the cost of producing all the oil the world presently needs and will need long into the future? The reason the price is so high is that the supply has been artificially constrained by governments. Most (88 percent) of the conventional oil reserves are owned by governments, and these governments have underinvested in new production. As is well-known, the U.S. government has restricted offshore and onshore drilling, shale development, and coal conversion.

Some politicians argue, even if the U.S. government started to allow increased production, that it would be seven to 10 years or more before there would be additional output. This is nonsense. Oil wells can be drilled at an average rate of 1,000 feet or so per day, which means that the average U.S. well can be drilled in a week. It does take a few weeks to set up the pump and install the separation tanks, etc., but new land wells can be producing within months, even if the product has to be trucked rather than piped away.

Drilling in the Arctic National Wildlife Refuge in Alaska would not take all that long for some production to get started. Politicians often confuse the time it takes to get peak production from a field as compared to some production — each additional well takes time, plus the necessary new piping collection infrastructure for each additional well.

Offshore wells do take a lot longer, but most of the time involved is the government permitting process, not the physical production of the rigs, drilling and so forth. If the government gave a full green light to production of oil shale in the Rocky Mountains, it might take several decades to reach full production, but some production would be accomplished in the next couple of years.

The very same politicians who claim we cannot increase oil production quickly are often the same ones who tell us we need to move to alternative forms — windmills and solar, etc. — without seeming to understand these desirable technologies will take far more time to meet the goals of "energy independence" than ramping up oil production. Speaker of the House Nancy Pelosi said she would not allow a vote on more drilling because she wanted "to save the planet," without seeming to understand, if increased oil production does not take place in the United States with all its environmental safeguards, it will take place where U.S. environmental law cannot be enforced — and that is not healthy for the planet.

Fortunately, the people are beginning to understand they are paying twice more for a gallon of gasoline than is necessary, and the global environment is not benefiting. Less expensive energy and a cleaner environment are most likely to be achieved quickly not with alternative energy sources but with an alternative set of congressional leaders.

2 Days after Alaska's incompetent Legislators pass AGIA

ENERGY- Alaska Goofs It Again

Exxon key to Alaska pipeline
DAVID EBNER

August 4, 2008

VANCOUVER -- TransCanada Corp. has won support from Alaska to build a $26-billion natural gas pipeline, but ground won't be broken until Exxon Mobil Corp. signs on, says TransCanada chief executive officer Hal Kvisle.

Calgary-based TransCanada, which secured Alaska's official backing Friday, is in competition with BP PLC and ConocoPhillips Co. to build a pipeline that would connect large untapped gas reserves on the north slope of the state to consumers in the continental United States.

But Exxon, the company that controls the most gas in Alaska, hasn't yet backed either of the competing proposals, though it has an active Alaska team monitoring the pipeline race.

"Nothing goes ahead until Exxon is happy with it," Mr. Kvisle said in an interview yesterday.

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Competitive Canadian business - the government's role
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For TransCanada to proceed, it will also need to attract the shipping business of rivals BP and Conoco, which control part of the natural gas.

"This is not about TransCanada dreaming up the project we think will work, it's about the five key parties getting together and crafting something here," Mr. Kvisle said.

That presents some big challenges. All of the companies would likely seek a longer-term deal with Alaska on such issues as taxes before deciding to make a long-term commitment to a pipeline.

Reaching such a deal could be an uphill battle because the relationship between the firms and Alaska is frayed after a previous pipeline proposal fell through two years ago. Further, while it looks like it's BP-Conoco versus TransCanada in Alaska, the relationships are much more tangled.

London-based BP is TransCanada's largest customer on its sprawling gas pipeline network, and Conoco, based in Houston, and TransCanada are partners on a major new oil sands pipeline.

In this foggy and seemingly fractured picture, Calgary-based TransCanada is positioning itself in the role of intermediary, hoping to own part of the pipeline while getting closely involved in its design and construction by pitching its pipeline expertise as an important card.

An ownership stake in any pipeline is something the producers want if they are to sign long-term contracts, Mr. Kvisle said.

But TransCanada also has the right, under federal Canadian legislation from the late 1970s, to build the Canadian portion of the line, the company says.

Mr. Kvisle said he thinks TransCanada can figure out a deal that will work for everyone and offer advantages such as savings amounting to several hundred million dollars with technology that eliminates the need for pressure-testing the pipeline.

Late Friday, the Alaska Senate approved a licence for TransCanada to start preliminary work with $500-million from the state - but also a long list of requirements to ensure that the line benefits Alaskans. The licence was issued under the Alaska Gasline Inducement Act, a process that Exxon, BP and Conoco rejected as unreasonable, and led BP and Conoco to independently propose a $30-billion pipeline called Denali.

TransCanada's new pipeline licence does not affect Denali, said Bud Fackrell, a BP executive who is now president of the venture, in an interview with Bloomberg News on Friday.

Mr. Fackrell added that an open season for contracts to ship gas on Denali will be conducted in 2010. It's the same year that TransCanada plans to do the same, as required by its licence, but Mr. Kvisle said it's unlikely two open seasons will be conducted.

While Alaska inches ahead, the proposed $16-billion Mackenzie Valley pipeline - whose lead backer is Exxon - in the Northwest Territories is much further along and is nearing the end of a long regulatory review.

Mr. Kvisle doesn't think the two ventures are in competition and said construction on Mackenzie could begin in 2010 while Alaska likely won't break ground before 2015.

And in Alaska, Exxon remains the deciding factor.

"Things aren't always as they seem," Mr. Kvisle said. "Exxon is not the front-and-centre party in the press but I know for a fact that they've got very hard work going." Rean More