Cook inlet production: diminishing to point of no return?

• Author: Bradner, Mike
• Position: Special Section: OIL & GAS

[ILLUSTRATION OMITTED]

Is Cook Inlet's petroleum industry nearing its last days? One would hope not--the region is where Alaska's petroleum industry started in the 1930s, and geologists say there is potential fin new discoveries-but unless something happens we could well witness its end, possibly in the near future.

Here is the situation: The inlet's producing oilfields are fast declining in production and are nearing their economic limits. In its heyday, the Inlet produced more than 200,000 barrels of oil daily. It now produces about 12,000 barrels daily.

Chevron Corp., which owns and operates most of the Inlet's platforms, has shelved a plan to try to rekindle the aged fields with new investment and development work. The company is now in a "harvest" mode, it acknowledges.

Oil production in the Inlet not only sustains a large number of jobs, but also it helps support the Tesoro refinery at Nikiski, near Kenai. The refinery once supplied all of its crude oil needs from Cook Inlet, but now has to import crude from overseas as a supplement. If inlet oil production ceases, the refinery will have to import all of its needs, which could add to operating challenges the refinery already faces.

A lot of communities, not just in Cook Inlet, have a stake in the refinery because a good portion of the state's gasoline and diesel supply comes from Tesoro. Almost all fuel needs of Western Alaska communities are supplied by barge from this plant, also. If the refinery were not operating, this fuel would have to be brought in from out-of-state, most likely from the Pacific Northwest.

NATURAL GAS

The situation for natural gas is better, but not greatly. As with crude oil, gas reserves are being depleted in the region's big gas fields. Daily production can no longer meet peak winter demand from local gas and electric utilities during cold snaps. In such situations, the liquefied natural gas (LNG) factory near Kenai ceases making liquefied gas and diverts its supply to the local utilities.

But another problem is that a federal LNG export permit for the plant expires in March 2011, less than a year from now. The owners of the plant, ConocoPhillips Alaska Inc. and Marathon Oil Co., applied for another extension of the permit, which previously expired in 2009 but was extended for two years, to 2011.

ConocoPhillips, the operator of the plant, says it hopes the facility can play some continued role in meeting local gas needs even if LNG exports cease in 2011. However, converting the plant to an LNG import terminal and regasification facility, which is one possibility, will involve significant capital investments that will have to be paid for by the utilities, and ultimately Alaska consumers.

The unresolved future of the plant adds to...