At current rates of production decline from North Slope producing fields, oil flowing through the Trans-Alaska Pipeline System will drop to an average of 500,000 barrels per day by 2014, a senior manager with Alyeska Pipeline Service Co. told the Meet Alaska conference in Anchorage Jan. 22.

The conference was sponsored by the Alaska Support Industry Alliance, an oil services contractors' trade association.

TAPS currently is now moving about 680,000 barrels per day, said Greg Jones, Alyeska's senior vice president for operations. Alyeska operates the pipeline on behalf of its owners, which are mostly North Slope producing companies, which ship oil through TAPS.

Jones said he could not comment on points at which the pipeline system would no longer be economical to operate. Alyeska has a number of engineering studies underway on possible modifications that would allow TAPS operate at low rates of oil flow.

Also significant, Jones said, is that average temperature of crude oil in the pipeline is cooling and is estimated to be at 32 degrees Fahrenheit when shipping a volume of 500,000 barrels a day.

Crude temperature averages in the mid-30 degrees, but dips to and below 32 degrees, Jones said.

TAPS was designed to move crude oil at much higher temperatures and volumes of up to 2 million barrels per day. The friction of fluid moving through the pipe warms the oil, and as throughput declines, the oil gradually cools further.

At lower temperatures, increasing problems with wax buildup, water accumulation, frost heaves and ice plugs are anticipated for the pipeline, Jones said.

"A good indicator of the cooling temperature is that snow of the roofs of the large crude oil tanks at the Valdez terminal doesn't melt," from heat radiated up from the stored oil. "We're having to shovel the snow off the tanks," Jones said.

Alyeska is working to trim its operating costs as the volume of oil shipped declines. The company has reduced its 2010 budget by $100 million compared to 2009 and has its long-range strategic reconfiguration project to modernize pump stations underway.

Three pump stations have been upgraded with new equipment able to handle lower volumes of oil more efficiently, and the pump stations have been automated. Modernization of pump station 1 in Prudhoe Bay was scheduled for this year, but was deferred due to the budget cuts.

Another project planned for the future is modernization and upgrade of the Valdez Marine Terminal, Jones said.

"We need to renew the oversized infrastructure in Valdez," he said.

One project that has been done is reconfiguration of the ballast water treatment plant at the oil shipping terminal so that it can efficiently handle smaller volumes of ballast water from tankers.

With the flow of oil decreasing, there fewer tankers calling at Valdez, and most are now double-hull and carry less ballast water that must be disposed of and treated onshore in Valdez.

Along with problems of declining flow rates and cooling temperatures, TAPS is also getting hit with increases in state taxes, Jones told the Alliance.

Alaska's only state property tax is on oil production and transportation property, which includes production facilities on the North Slope, Cook Inlet platforms and pipelines that carry petroleum.

Jones said the state Department of Revenue has shifted its method of assessing the value of TAPS from a formula based on the income of the pipeline to one based on replacement costs, or what it would cost if TAPS were built new.

The effect of that has been to triple the state property taxes paid by Alyeska's owner companies, Jones said.

It is good news for municipalities along the pipeline route – the North Slope Borough, Fairbanks North Star Borough and city of Valdez – which share in the state oil property tax revenue, but it doesn't help the economics of operating the pipeline, Jones said.