Local Voices: More Oil and Gas Development Needed to Keep TAPS Alive

May 24, 2016 in Blog, Local Perspective

There are many reasons why the Department of the Interior’s (DOI) upcoming five-year offshore leasing plan must include the Arctic, but one reason that has not received much attention is the importance of continued Arctic oil and gas development to the livelihood of the Trans-Alaska Pipeline System (TAPS). Arctic Energy Center has written about the importance of the pipeline to Alaska before – and so have lawmakers, elected officials, Native communities, and business leaders, who have once again reiterated their concerns in letters submitted to DOI regarding its 2017-2022 leasing plan.

Since 1977, TAPS, one of the world’s largest pipeline systems, has transported oil from the Prudhoe Bay oil field on the North Slope of Alaska to the port of Valdez, where the oil is then shipped primarily to refineries in Washington and California. But even though the peak flow for the pipeline was once 2.1 million barrels of oil per day – three percent of global crude – daily throughput has dropped to 500,000 barrels, a fraction of its capacity. This decline in throughput threatens the very existence of the pipeline, because low flow rates could cause major operational issues and eventually lead to a shutdown.

A decommissioning of the pipeline would hurt not only Alaskans, but Americans residing in the Lower 48.

The pipeline has served as the “backbone,” “lifeblood,” and “central artery” of Alaska’s economy for decades. By facilitating the transport of oil from Prudhoe Bay to markets, TAPS has allowed for the development of one of the largest oil fields in the world, which has, in turn, provided the tax revenues that have supported the state and local governments and the services they provide – sans income tax. Indeed, Gov. Bill Walker (I) has said, “Right now, about 75 percent of our revenue comes from that oil pipeline.”

But as editors of the Wall Street Journal warned, “Since the pipeline is the only way to get large quantities of Alaskan oil south, shutting it down means closing to exploration one of the world’s greatest repositories of hydrocarbons.” The editors continued, “Shutting the pipeline would be a terrible blow to the state.” “TAPS throughput decline is the MOST URGENT issue facing the State’s economic future,” emphasized Sen. Dan Sullivan (R-AK) in 2013, then Commissioner of the Alaska Department of Natural Resources. He went on to say, “Less oil in the pipeline year after year takes away revenue from future generations—the ultimate giveaway.”

As for the impact of the pipeline’s declining throughput on Americans in the Lower 48: Take California for example.

As a state that ranks third in the country in petroleum refining capacity that also faces declining in-state oil production, California depends on importing crude to keep its refineries running. It has a choice between importing crude from Alaska or from foreign sources. Historically, Alaska has provided the bulk of this crude: about 46 percent of the crude oil supply to California refineries in 1991, compared to four percent from foreign sources. But the trends have reversed over the past two decades, with foreign-sourced crude supplied to California refineries increasing dramatically and volumes of Alaska-sourced crude falling (see the chart below): In 2014, 52 percent was supplied from foreign sources – 36 percent of which came from Saudi Arabia and 22 percent from Iraq – and only 11 percent of the crude originated from Alaska. These foreign sources of oil tend to be more expensive, and the potential shutdown of TAPS would likely translate into higher prices Americans have to pay for gasoline.

 

TAPs CA infographic

Because the future of TAPS rests on ongoing oil and gas development – and vice versa – elected officials, local lawmakers, Native communities, and business leaders around the state have spoken out about the importance of the pipeline and urged the DOI to include the Arctic in the agency’s upcoming offshore leasing plan. Below is a roundup of a few of their voices.

Sen. Lisa Murkowski (R-AK):

“In Alaska we have an extraordinary piece of energy infrastructure, the trans-Alaska oil pipeline. … Unfortunately, the amount of oil going into the pipeline has been declining for years and our attempts to increase production have been blocked by our inability to access our resources on federal lands.”

Gov. Walker:

“We need to get some oil in the pipeline. … We need to do it as quickly as possible.”

Paul Fuhs, former mayor of Unalaska/Dutch Harbor, former Commissioner of Commerce and Economic Development:

“Keeping the pipeline active would provide ongoing substantial property tax revenues to local governments along the pipeline route that would otherwise be lost. Other communities would be helped as well.”

Kevin Pomeroy, Laborers’ Local 942 Business Manager/Secretary-Treasurer and Vice-President of the Alaska District Council of Laborers:

“From a peak of two million barrels per day running through TAPS in 1988, throughput has slowed to five-hundred and forty thousand barrels per day; and could reach its minimum operating level of two-hundred thousand barrels per day sometime after 2020. This couldn’t be worse news for the States’ revenues and workforce, when oil is hovering at $40 per barrel.”

Lisa Herbert, President and CEO of the Greater Fairbanks Chamber of Commerce:

“We are facing unprecedented low oil throughput in the Trans-Alaska Pipeline System (TAPS) and even worse, experiencing a drastic drop in the price per barrel of oil that has dramatically affected our state’s budget. We know there is a significant amount of oil that has yet to be produced in Alaska – and we find it unacceptable that this commodity remains in the ground mostly due in part from delays in government. … In a time when our economy is starving for work, it is ironic that our government continues to delay.”

Rex Rock Sr., head of the Arctic Slope Regional Corporation (ASRC), which represents 12,000 Iñupiat shareholders:

“The reality is this: the continued viability of TAPS—which is contingent upon further development of the Arctic OCS—is critical to the economic and social wellbeing of Iñupiat communities on the North Slope.”

Richard Glenn, ASRC’s Executive Vice President of Lands & Natural Resources:

“Think of the Arctic from the perspective of energy security. As all of you well know, it can difficult to build out major new energy infrastructure in the United States. Yet TAPS is a major part of America’s energy infrastructure that isn’t living up to its potential today. It is estimated that there are 26 billion barrels of oil alone under Alaska’s OCS [Outer Continental Shelf]. Without additional capacity from the Arctic OCS, the nation runs the risk of squandering one of America’s greatest energy assets in TAPS.”

Michelle Anderson, President of Ahtna, which represents over 1,900 Ahtna Athbascan shareholders:

“Ahtna shareholders and many other Alaska regional and village corporations have benefitted from TAPS with employment, contracting and training opportunities. … Our TAPS pipeline needs a lot more oil which needs to come from federal lands. … Ahtna has proven that a major world-class pipeline, like TAPS, can safely transport oil through our own lands. TAPS just needs more oil, particularly from federal lands, to keep running for future generations. … We need major oil and gas and mining companies to continue making multi-billion dollar investments in Alaska to keep TAPS running for the next 40 years, to protect our Ahtna culture and to provide economic benefits to our shareholders.”

Tom Barrett, retired Coast Guard Vice Commandant and president of the Alyeska Pipeline Service Company, which operates TAPS:

“TAPS operations are increasingly difficult because Alaska production has declined over the years, and we now operate well below our design capacity. The most direct solution to this operating challenge is more oil flowing down our line. Oil and gas resources are abundant in northern Alaska lands and waters. However, access to those resources is limited and difficult to achieve. Making those resources more readily available for responsible development and getting them into TAPS is the best path to sustain the benefits our existing TAPS infrastructure. … The best long-term solution to these challenges, and the most assured way for us to continue to provide the many benefits TAPS provides, is to produce and deliver more oil into TAPS from the North Slope of Alaska.  … [O]il throughput is ultimately the key to our sustainability. Better access to energy on the North Slope of Alaska, onshore and offshore, is essential. Responsible development can bring benefits to TAPS and to all of us.”