Year in Review: Prices drop, new production, permits for Liberty and ConocoPhillips, tanker transitions in Sound and Inlet

  • Construction crews work at the Greater Mooses Tooth-1 project in the National Petroleum Reserve-Alaska, which began producing oil ahead of schedule in October. ConocoPhillips also gave the green light to Greater Mooses-2 after getting a favorable permitting decision from the federal government. (Photo/Judy Patrick/ConocoPhillips)

Alaska’s budget got a boost for much of the year, and then oil prices did what they always seem to — the unexpected.

For the most part oil prices were on a slow but steady increase in 2018. Alaska North Slope crude went from an average of $66 per barrel in February to more than an $80 per barrel average in October, according to the state Department of Revenue.

The consistent increase in value had some market analysts predicting $100 per barrel oil was again in the near future.

It led former Gov. Bill Walker’s administration to the conclusion prices would average $76 per barrel for the current 2019 fiscal year, which ends June 30, when they held their annual forecasting session in October. At the time, state officials believed prices would stabilize and average $75 per barrel in 2020 as well.

Those price projections would have made for the first balanced state budget since 2012.

President Donald Trump’s reapplication of economic sanctions on Iran was expected to keep much of the country’s oil out of world markets, causing a market imbalance that would drive prices upward. However, oil sales waivers in those sanctions to some of Iran’s largest customers meant more oil continued to be available, which sent prices south this fall.

By the time Walker’s team had assembled a budget he could present as balanced in late November — an objective that was far out of reach for much of his term — prices had again fallen to the mid-$60 per barrel range.

Through much of December ANS crude has hovered just above $60 per barrel. On Dec. 17 the price for Alaska oil fell to $59.22 per barrel, according to the Revenue Department.

The Revenue Department is now predicting Alaska oil will average about $68 per barrel in 2019 and $64 per barrel in 2020.

2. GMT-1 starts production, GMT-2 advances

ConocoPhillips achieved another accomplishment Oct. 5 when first oil began flowing from its $725 million Greater Mooses Tooth-1 oil project in the National Petroleum Reserve-Alaska.

Production from GMT-1 was not only the culmination of years of work for the company, it also marked the first commercially produced oil to come from federal lands on the North Slope.

ConocoPhillips first began permitting the project, which is expected to produce upwards of 30,000 barrels per day at its peak, in 2013.

Meanwhile, the company also got good news throughout the year on its similar, but slightly larger, Greater Mooses Tooth-2 project about eight miles away.

In late August the Bureau of Land Management issued the final environmental impact statement for GMT-2 and selected ConocoPhillips’ preferred alternative for development approval. That became official Oct. 15 when the U.S. Army Corps of Engineers and BLM issued a joint record of decision formally approving the GMT-2 plan.

Company executives quickly sanctioned the more than $1 billion project Oct. 25 so construction could begin this winter. First oil from GMT-2 is expected in late 2021 and peak production estimates have gradually grown to nearly 40,000 barrels per day.

The GMT projects not only provide substantial sources of new oil, but they are the start of infrastructure development in the NPR-A that industry, the state and the North Slope Borough hope to continue across much of the 22 million-acre reserve.

3. Liberty EIS completed

For much of the year it appeared Hilcorp Energy had a clear path to finally building the long-planned $1.5 billion Liberty manmade island oil project just off the shores of the North Slope.

In late August the Bureau of Ocean Energy Management approved the company’s plan to construct a 24-acre gravel island in the federally-controlled shallow waters about six miles offshore and just east of Deadhorse in the Beaufort Sea as its preferred option for developing the estimated 330 million barrels of light crude oil at the heart of the project in its final environmental impact statement.

Hilcorp Alaska leaders have said the project could produce between 60,000 and 70,000 barrels of oil at its peak. It is planned for a 15- to 20-year production life.

A 12-inch, roughly seven-mile, mostly subsea oil pipeline would connect the Liberty Island to onshore oil infrastructure near Deadhorse. Specifically, the pipeline would tie into the Badami oil line, which feeds the Trans-Alaska Pipeline System.

However, a consortium of five conservation groups filed suit against BOEM in the 9th U.S. Circuit Court of Appeals Dec. 17, contending the agency did not consider the environmental impacts of a possible oil spill from the project, or its potential impacts on endangered species.

BP purchased Liberty from Shell in 1996 after Shell discovered the prospect with four exploration wells in the mid-1980s. BP first planned to build an island to develop Liberty but put those plans on hold in 2001 to further study the project, according to the EIS.

In 2005 the London-based oil major proposed drilling ultra-extended-reach wells from onshore to eliminate the need for an island and minimize the project’s impacts on Alaska Native subsistence whaling hunts in the area. That plan was scrapped in 2012 and Hilcorp subsequently took over the project in 2014.

4. Cross-Inlet oil pipeline

Hilcorp Energy made quick work of a $90 million endeavor to drastically reduce oil tanker traffic in Cook Inlet and shutter the precariously positioned Drift River oil tank terminal on the west side of the Inlet.

The company said in May 2017 that it would commence a long-discussed project to turn a cross-Inlet gas pipeline into an oil line, which along with other work, would allow oil produced from west Cook Inlet fields to arrive at the now-Marathon refinery in Nikiski via pipeline instead of by tanker.

Hilcorp held a ribbon cutting for the project, which for years was also a goal for the Cook Inlet Regional Citizens’ Advisory Council Oct. 19 in Kenai.

To complete the cross-inlet connection, Hilcorp laid about six miles of new pipe from the Tyonek Platform to the existing west-side pipeline network.

The displaced gas will travel through another pipeline that historically carried gas produced from the Tyonek Platform to the now inactive LNG export terminal on the Inlet’s east side.

Drift River’s outflow into Cook Inlet is among the few places where the west-side coast has depth to accommodate tankers, but as a location for a crude oil terminal, it has a downside, too; the Drift River tank farm sits in the shadow of the volcanic Mount Redoubt and has been threatened twice by its eruptions.

5. Edison Chouest takes over Valdez tug responsibilities

It wasn’t quite a seamless transition, but Edison Chouest Offshore took control of the Ship Escort and Response Vessel System out of Valdez for Alyeska Pipeline Service Co. July 1 as scheduled.

The Louisiana-based company was selected by Alyeska to take over for Crowley Maritime Services on a 10-year contract in mid-2016. Crowley previously held the SERVS contract since 1990.

The new responsibility required Edison Chouest to build 14 new tugs, spill response barges and other vessels and get them manned and ready for service out of the Valdez Marine Terminal in just about two years.

Edison vessels were involved in two accidents in training leading up to the official SERVS handoff but neither resulted in injuries or a fuel or oil spill. On June 27 the 105-foot tug Ingot dented the hull of the oil tanker Florida as it helped the tanker dock at the terminal. A couple days later, an unoccupied skiff was crushed between a tugboat and a barge it was hauling.

Alyeska was also at odds with the Prince William Sound Citizens’ Advisory Council, which has strongly advocated for conducting tug training exercises in adverse weather and sea conditions up to the point where normal tanker escorts would be stopped.

Alyeska officials contend the bad weather training would put tug crews in unnecessary danger, while the council argues it is the only way to know if crews are prepared to handle conditions they will inevitably face.

12/21/2018 - 3:11pm