Looking ahead: glass half full? Oil on decline. Alaska must have a gas line.

• Author: Brady, Judy

Looking ahead, we know that Alaska's oil and gas industry is going to look very different 20 years from now. Right now, there are more questions than answers, but even with the uncertainties of March 2007, we see many of the challenges and the possibilities ahead. We can also be certain that decisions made in the next two or three years will shape the possibilities of the next 20 years, perhaps irrevocably.

What is around the bend? We can't see what Alaska's oil and gas industry will look like in 2027 or 2047, but we do know why it will be different: Declining oil production from the Prudhoe Bay fields; declining gas production from Cook Inlet.

Oil production from the Prudhoe Bay fields has been the primary support of Alaska's private economy since 1978; at the present decline rate, that will not be possible 20 years from now. Gas production from Cook Inlet has provided cheap electricity and heat to more than 60 percent of homes and businesses in Alaska since the 1960s; at the present decline rate that will not be possible 20 years from now.

GLASS HALF FULL?

Decline has been the black cloud hovering over Alaska's economy for the past 15 years--it is only recently that Alaskans have come to the realization that we are headed for the perfect storm with half empty legacy fields and a half empty oil pipeline.

The plain fact is that no other state is so economically dependent on oil and gas as Alaska-and that dependency has essentially rested on production from the Prudhoe and Kuparuk fields and their satellites.

Nearly 20 years ago, in 1988, these fields were producing 2.1 million barrels a day. Today, even with huge multi-billion-dollar annual investments from the owner companies, these fields are producing less than 600,000 barrels per day, almost one-quarter of what they were producing 20 years ago. Even with new production from all North Slope fields, production is at 800,000 bpd. The trans-Alaska oil pipeline is running more than half empty. These fields are expected to continue a decline of about 6 percent a year. Alaska has been saved some of the economic fallout from falling production because oil prices are high right now. If oil prices drop to the $18 to $21 range they were from 1987 to 2003, with continuing falling production, Alaska's economy will immediately and drastically begin its own decline.

What about the new companies investing in Alaska? What about the billions of dollars being invested by the legacy companies? Not enough...