They talked about a lot of things at the Alaska Oil & Gas Congress in Anchorage earlier this week. There's the issue of a gas pipeline to take natural gas away from the North Slope. Does it go to Alberta and into the North American grid, or does it go to Valdez for export as LNG?
And what about the tax system? Is it discouraging production from existing fields? And how about the federal government? Will it bless more production in places long guarded by an environmental velvet rope?
But at the end of the day, there's really only one issue in Alaska.
After two days at the conference, at which I co-chaired and spoke, it is clear that every issue in the state's energy sector is filtered through the question of its impact on the Trans Alaskan Pipeline, and its rapidly dwindling flows. Current flows of 650,000 b/d are creating problems on a line that at one time carried more than 2 million b/d; getting down toward 350,000 b/d may make the line non-operational. So virtually every presenter on day two of the conference spoke with the shadow of that hanging over their remarks.
Call it issue #1.
So, for example, Bud Cribley should have been a hero at the conference. Since last November, he's been the Bureau of Land Management's Alaska director. Just a day earlier, the BLM announced a December lease sale in the NPR-A, a federally-owned onshore reserve being opened to outside exploration for the first time. President Obama specifically implemented exploring NPR-A as part of his energy plan.
But the most prospective area of the NPR-A lies under a lake with a large waterfowl population, so it's off the table for now. Besides, even if oil is found, it isn't certain how it can get to TAPS; there's no infrastructure there now. So it won't help issue #1 for a long time. It won't be saving the day.
Jeffrey Leppo, a partner with the law firm of Stoel Rives, has done a lot of work in the area of permitting. So just as the political winds out of Washington appear to be shifting the state's way, with the awarding earlier in the week of a final air permit allowing Shell to drill in two of the Beaufort Sea tracts it is seeking to develop, as well as the NPR-A sale, Leppo gave what he conceded was a "downer presentation." He noted the legal obstacles Shell and other companies (such as ConocoPhillips, with a pending air permit request for the Chukchi Sea) will face.
"We have become the poster child here in Alaska for issues on a national scale," Leppo said. Non-governmental organizations -- none identified by name, but assume the usual anti-drilling groups -- pursue legal battles that are "not random, and thoughtful," and are often better organized than the industries they are battling.
He did have some soothing words: "patience is a virtue." According to Leppo, some of the legal strategies pursued by drilling opponents in the past are not likely to have the same success rate as in the past, as they are countered by new strategies forged from experience, and "persistence will begin to prevail in 2012."
However, it was noted several times that even if Shell is able to begin drilling in the Beaufort next year, oil from a successful effort won't flow into TAPS for at least 10 years. So issue #1 gets no assistance there.
But probably no factor comes in for as much debate as ACES, a progressive tax structure implemented when Sarah Palin was governor. (Nobody seems to remember what the acronym ACES stands for; there was a difference of opinion.)
In the panel that wrapped up the meeting, the opposing views on ACES were represented by Sen. Bill Wielechowski, who backed ACES, and Rep. Charisse Millett, a firm opponent.
Wielechowski noted that production was declining long before the past few years, when ACES was in effect, and that numerous companies have cited strong profitability in their Alaskan operations. But Millett argued the tax rate is set up to climb as production climbs, providing a disincentive to grow and invest.
Ultimately, it all comes down to issue #1. "What if you're wrong?" Millett asked rhetorically." "If you keep it at a lower tax rate, and if I'm wrong, then Alaska doesn't make as much money. But if you're wrong, we have an asset that is being torn apart."
Tim Bradner, Platts' correspondent in Alaska and a long-time observer of the Alaska oil scene, also was on the panel. He said the best opportunity for filling TAPS, and dealing with issue #1, is "probably in existing oil fields...there's viscous oil (a heavier grade) in the existing fields, and producers agree the way ACES is structured is a disincentive to getting it."
Safe to say, at the next Alaska Oil & Gas Congress in 2012, issue #1 won't have been knocked from its perch at the top of the list.
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