The question of how much gas Prudhoe Bay can sustain without unacceptable oil losses will be decided by the AOGCC, and a decision will have to be made by 2010 so that a pipeline developer ¬ TransCanada or the Denali pipeline group – can hold an open season. If a gas pipeline were being completed today there is no doubt that considerable volumes of oil would be lost to production, and state law would prohibit the AOGCC from allowing a situation like this. However, the thinking is that as the years go by more of the Prudhoe Bay oil reserves will be depleted. At some point enough of the oil will have been produced so that large volumes of gas can be taken out, and the loss of the additional oil will be within acceptable bounds. 

Just when an acceptable tradeoff will occur is unknown, but the AOGCC, with advice and information from the producing companies (who have a financial stake in this, along with the state) will have to do enough modeling to make educated estimates. It is possible that they will estimate that by 2018, the soonest a pipeline can be complete, enough oil will have been taken out of Prudhoe so that gas production can occur. It’s no sure bet, however.  One problem is that the point in time when oil losses are acceptable can be a moving target. There are technical as well as economic considerations, and the two are intertwined. On the technical side, industry is continually developing more and better ways to squeeze more oil from the reservoir rock. In 1977 the assumption was that Prudhoe would produce 9.6 billion barrels of oil. With technological gains the assumption is now that 13 billion barrels will be produced. Technology continues to advance, so what will be number be in 10 years? There are also economic questions: At high oil prices, sacrificing even small amounts of oil to produce gas could create more of a loss to the producers (and the state, through its royalty stake) than any financial gain from gas production. After all, what is being sold is energy, whether as gas or oil. The fact is that the same amount of energy in the form of oil is worth a lot more than the same amount of energy in the form of gas. Why sacrifice valuable oil for gas that is worth less? It is a question all of us have to think about.

Bradners’ Legislative Digest is a private subscription service publishing reports on the Alaska Legislature and state government. This briefing is a special service, and is provided in cooperation with the Alaska Journal of Commerce.