For the Alyeksa team, it's 40 years down and 40 to go
There are a lot of people in Alaska banking on the hope that throughput decline is just the Trans-Alaska Pipeline System going through a minor midlife crisis.
Because if that’s the case, many billion more barrels of oil are likely to flow through it.
Having pumped oil for 40 years, nearly 17.5 billion barrels of North Slope crude have coursed Alaska’s 800-mile economic artery.
TAPS, or even more simply, “the pipeline,” to most Alaskans, is already living beyond its years, according to the folks responsible for it.
Alyeska Pipeline Service Co. Senior Vice President of Risk and Technical Support Curtis Nuttall said the pipeline’s anodes and other systems indicate it was likely built for about a 30-year life.
“The original designers I don’t think ever envisioned TAPS to last as long as it has,” Nuttall said.
Correspondingly, the lone oil field the pipeline was built to support has outlived expectations. Prudhoe Bay has produced well beyond the 9 billion barrels it was supposed to yield in the mid-1970s.
Alyeska President Tom Barrett said keeping Father Time at bay is a task that drives a lot of the company’s spend.
The large North Slope producers BP, ConocoPhillips and ExxonMobil jointly own Alyeska Pipeline Service Co.
It’s much more than just the pipe itself that Alyeska engineers must concern themselves.
Barrett described the Valdez marine terminal as a “mini-refinery” that also was not meant to work around the clock as long as it has and requires constant attention.
However, the core infrastructure is still in good shape and should be viable into the foreseeable future.
“We’re pretty confident — very confident — we’ll get it to last another 40 years,” Nuttall said.
And there’s one thing alone that will make that job much easier.
Barrett made that point repeatedly during an hour-long interview with Alyeska leaders.
“The reserves are there and just getting the obstacles out of the way to get them in the pipe is the simplest solution to a lot of our challenges,” he said.
TAPS likely wasn’t designed to last as long as it has and it surely wasn’t meant to carry the volumes of oil it does today.
The 48-inch steel pipe does its job best when it is full; that means moving 2 million barrels of oil per day, as it did in the late 1980s and early 90s.
Average throughput these days is about 515,000 barrels per day, with the very best days approaching 560,000 barrels.
Running the pipeline at a quarter of its capacity presents operational challenges that will just be exacerbated if the oil volume shrinks further.
Full, but slow
It’s often said that the pipeline is “three-quarters empty,” which is a subtle but significant inaccuracy. TAPS is actually always full; the rate at which it pumps oil is what changes along with North Slope production.
It once took four days for a barrel of oil to travel the 800 miles from Prudhoe to Valdez. The same trip now takes about 15 days.
The slower moving oil starts to negate one of the simple engineering tricks in the system meant to harness everyday physics. It lessens the heat generated by the friction of the oil moving against the pipe wall.
Oil entering the system at Pump Station 1 used to be 140 degrees Fahrenheit. It’s now often less than 110 degrees.
Traversing a route that occasionally sees winter temperatures of -50 degrees Fahrenheit or colder in a pipeline that is half above ground means the oil in it has plenty of time to cool.
The slower, cooler oil allows the waxes and water that are trapped in the unrefined crude to separate, Nuttall said. If it is allowed to get cold enough the water freezes right inside the system.
“The oil’s moving so slowly, it’s losing so much heat that the small amount of water just freezes solid and the wax — literally it’s just like snowing in the pipe,” Nuttall described. “It just snows in the pipe and starts building out like a glacier faster than it can be flushed down.”
Alyeska now adds heat to the system to prevent a TAPS snowstorm. The oil is circulated through loops of pipe at several pump stations — again harnessing good old friction to do the heating — at volumes up to 25,000 barrels per hour.
Last year a fired heater was installed at remote gate valve 65 to add slip-stream heat and methanol injection ports were installed as further protections against the cold, according to Barrett.
The methanol would be used as an anti-freeze system to prevent total freeze-up should something cause TAPS to be stopped in the dead of winter.
That exact scenario played out in 2011 when a leak at Pump Station 1 forced a shutdown and Alyeska officials were unsure if it restarted smoothly. That’s when the idea to recirculate the oil was born.
Every pipeline also needs to be periodically cleaned and TAPS is no exception. So Alyeska employs a technique once reserved for gas pipelines. It “pigs” the pipe.
A special mechanical pipeline inspection gauge, or pig, is inserted into the system while oil is flowing and literally scrubs the wax from the pipe wall.
Instrument pigs are also used to inspect the pipe from the inside for corrosion and other potential integrity issues.
The cleaning pigs used to be employed once a month, but now they are used weekly. At any given time there can be up to three pigs in the pipe, according to Alyeska.
Operationally, the current system should work until throughput reaches about 300,000 barrels per day, company officials said.
But that doesn’t mean there is time to relax now.
Staying ahead of the decline curve
Alyeska Senior Director of Engineering Betsy Haines said the company is perpetually trying to “stay ahead of the curve” to prevent potential issues from ever becoming actual problems.
“We’re in (research and development). We’re in a regime that we’ve never operated before,” Haines said. “We’re now instrumenting the actual pipeline better, and in creative ways, to better understand how it actually behaves.”
For instance, when the generally slower moving oil hits a downhill section of pipe the cascading oil can hamper leak detection, she said.
And while half of the pipeline is above ground to protect it from thawing the permafrost, which would create a host of challenges, cooler oil leading to a cooler pipe could have the opposite effect on the buried sections.
“For the pipe that is buried and has had this warmer crude oil in it, the frozen ground can actually start to come in on the pipe. What does that mean from a geotechnical perspective?” Haines questioned.
Another prospective idea for operating at ultra-low flow when pig cleaning can’t keep up is running the system only half-time, according to Nuttall.
Alyeska is in the process of learning about intermittent flow options, he said.
“You actually don’t run the pipeline for a while. You shut it down and store the oil up and flush the wax and water down,” Nuttall said.
The current theory would have the system running on a week on-week off schedule so that when it is running it’s pumping 600,000 barrels per day. At that volume it is believed the oil would have enough velocity to self-clean the pipe, according to Nuttall.
The problem with a part-time pipe is oil wells pump full-time, and therefore large storage tanks would be needed on the Slope, at a very large cost.
In addition to fighting wax and water, very low flow could allow tiny microbes found in the crude to hang around too long.
“If you don’t have enough flow (the oil) won’t flush or scour those microbes off the pipe and those microbes actually eat steel and that’s another concern, another challenge that we’re looking at how to address,” Nuttall said.
The simplest engineering solution to all the problems would be to build a smaller pipe, Nuttall noted, but that is far from the most economical one.
To that end, Alyeska’s army of engineers not only must find ways to keep TAPS open, but the solutions cannot be cost-prohibitive.
So far, they’re doing pretty well.
The TAPS tariff — the cost-recovery charge for sending oil through the system — is virtually the same as it was in 2012 when throughput was about 580,000 barrels per day, at less than $6 per barrel.
Other operational challenges
Beyond the operational challenges, Barrett said Alyeska is dealing with a modern-day threat that faces any large business, and that’s the risk of cyber attacks.
Most of Alyeska’s conventional problems, such as leaks and mechanical failures are point source problems, Barrett noted, which are usually easily isolated and handled. However, cyber threats can come from anywhere.
The primary concern is with TAPS’ control systems. Barrett described the possibility of a replacement pump, ordered from overseas, potentially having mischievous code embedded in it.
“It’s a multi-location risk factor,” he said. “People underestimate — closing our valves in the wrong sequence could breach our line; overpressure the line. We just can’t have it.
“Making sure that we’ve got robust layers of defense against things like that. I’d like to tell you that people didn’t think of doing things like that but unfortunately in today’s world some people do.”
Barrett said Alyeska partners closely with the Federal Bureau of Investigation to monitor for cyber threats and shares information regularly with the Alaska State Troopers and Homeland Security as well.
“TAPS is externally visible and iconic. You can go on the web and find us and that gives people ideas; and it goes all they way from state actors to any number of people,” he said.
The prospect of production
For those who haven’t heard, oil prices are down. From a pure economics standpoint, the current $50-ish price regime wouldn’t seem to bode well for TAPS, given it costs about $45 just to get a barrel of North Slope oil to market, according to the state Department of Revenue.
At the same time, oil, particularly North Slope oil, is a long game.
Announcements from Armstrong Energy and Caelus Energy last year that their Nanushuk and Smith Bay discoveries could combine to provide 320,000 barrels per day in the early 2020s were huge positives.
Not to be forgotten is Hilcorp Energy’s in-permitting offshore Liberty project, which could add another 60,000 barrels per day.
In the nearer term, ConocoPhillips is now working on Greater Mooses Tooth-1, which is projected to add 30,000 barrels per day. Its nearby CD-5 project started producing in fall 2015 and is 25 percent better than expected at 20,000 barrels per day now.
Achieving the goals laid out by Armstrong and Caelus on the early 2020s production timeline would buck the Alaska development trend in a big way, however.
Historically, it has taken more than a decade for companies to go from discovery to production on the North Slope.
And in the interim, production is expected to keep declining.
Despite a nearly 3 percent North Slope production increase during the state 2016 fiscal year, from 501,000 barrels per day in 2015 to 514,000, which was the first production bump since 2002, state officials are projecting the decline to resume as soon as this year.
During the 2017 fiscal year, which ends June 30, the daily average TAPS throughput is expected to be 490,000 barrels, according to the Revenue Department estimates released Dec. 15, which must project conservatively.
Throughput in 2018 is forecasted to drop significantly to 455,000 barrels per day with a steady decline to 345,000 barrels by 2025 — perilously close to Alyeska’s 300,000-barrel operational threshold.
Revenue officials are also conservative on oil price despite OPEC’s November commitment to cut production by 1.4 million barrels per day in hopes of returning to a price regime of $60 per barrel or more in 2017.
Independent Alaska energy economist Roger Marks said he sees OPEC’s cuts bumping the price by $5 to $7 per barrel if they materialize.
Alaska officials don’t see oil markets sustaining $60 per barrel until 2019, with prices staying sub-$80 per barrel through 2024, according to the state’s Fall 2016 Revenue Sources Book.
State economist Neil Fried has also noted that oil prices, adjusted for inflation, have historically averaged about $50 per barrel since the early 1960s.
Additionally, the Lower 48 shale oil producers that led to the U.S. becoming the world leader in barrels of oil equivalent, but whose success also played a part in the 2014 price collapse, are finding ways to be more efficient and more profitable at lower costs.
According to Paul Carpenter of the international financial firm The Brattle Group, the breakeven price for shale oil from the major basins has fallen by 50 percent or more since early 2013.
The cost to produce that was nearly $70 per barrel in North Dakota’s Bakken fields just a few years ago is now in the $30 per barrel range and in Texas’ Permian Basin it has fallen from nearly $100 per barrel to less than $50.
On top of that, the U.S. Geological Survey announced in November that it believes there are upwards of 20 billion barrels of unconventional recoverable oil in the Permian Basin and Apache Corp. revealed last September that it could be sitting on 3 billion barrels of oil again in the Permian region.
The shale reserves revelations come while U.S. crude inventories are still in excess of 500 million barrels.
But if Lower 48 shale costs are going down, the cost of unconventional oil in Alaska could get cheaper as well.
Unconventional explorer partners 88 Energy and Burgundy Xploration snatched up more than 420,000 acres in the state’s Fall 2016 North Slope oil and gas lease sale to add to the 250,000-plus acres the companies already held on plays they see as highly prospective.
Bucking convention, given the current price situation, explorers bought more than 630,000 acres of state leases in December, which contributed to one of the largest North Slope lease sales in the last 20 years.
Armstrong CEO Bill Armstrong, a geologist by trade, has said the North Slope is still “target rich” and other geologists have said it remains “one of the oiliest places on Earth.”
For TAPS’ future let’s hope so.
Elwood Brehmer can be reached at [email protected].