Infrastructure investment climate for oil and gas industry: economics may be a challenge.

• Author: Bradner, Tim
• Position: OIL & GAS

What we've learned in recent times, from recent oil discoveries, is that there is a lot of oil on the North Slope. The rocks are good, as geologists like to say. There's enough new production possible, in fact, that "throughput," or the volume of oil flowing, in the Trans Alaska Pipeline System might be stabilized at rates high enough to keep TAPS economically viable and operating. With luck, throughput might actually be increased.

The new discoveries are by Caelus Energy at Smith Bay, northwest of the Alpine field at on offshore location; Armstrong Oil and Gas and Repsol, its partner, onshore near the Colville River; and most recently by Cono-coPhillips in NPR-A (National Petroleum Reserve-Alaska) west of the producing Alpine field.

It's also true that more oil can also be squeezed out of the big producing fields on the slope, mainly the Prudhoe Bay, Kuparuk, and Alpine fields. After decades of production they are still the major producers on the slope. The operating companies, BP at Prudhoe Bay and ConocoPhillips at Kuparuk and Alpine, believe that several billion barrels of oil can still be produced from the three fields.

This is all good news but there's a catch, of course. The geologic potential is good, but the oil is scattered across a lot of real estate. The costs of moving that oil to the established infrastructure, the pipelines around the established fields, will be high. While the potential is there, the economics may be a challenge.

Distance and Technology

Caelus Energy's offshore discovery at Smith Bay, for example, could be big, although there's a lot we don't yet know about it. The main problem is that it is off in the middle of nowhere, more than 100 miles west of the nearest pipeline connection at the Alpine field.

Other new discoveries, like those by Armstrong Oil and Gas and Repsol, are more favorably situated because they are onshore, near the Colville River and nearer infrastructure. But they may be technically challenging to produce, meaning the oil may be high-cost. Armstrong and Repsol have never published estimated production rates, but the production facilities being planned are to be capable of handling 120,000 barrels daily.

There are also two smaller projects awaiting development, both onshore and near infrastructure. One is Mustang, a small deposit west of the Kuparuk field that is planned for construction by Brooks Range Petroleum Co., an Alaska-based independent. Mustang would produce about 10,000 barrels daily. The second is Nuna, another small deposit larger than Mustang, near the producing Oooguruk field. Caelus...