Oil volume through the Trans Alaska Pipeline System (TAPS) is declining at more than 6 percent a year. This simple fact should be a wake-up call to all Alaskans.
Just nine years ago, volume exceeded 1 million barrels per day. Through July of this year, it has dropped below 575,000 barrels. At the current rate, 2012 may be the year when the volume slips below 550,000 barrels.
That number is a critical threshold. The Low Throughput Study by the Alyeska Pipeline Service Company indicates that as TAPS’ throughput falls below 550,000 barrels, oil temperature may drop below the freezing point of water and form ice in the pipeline during winter, which could damage pumps and equipment.
While pipeline operators are working to mitigate the effects of low oil throughput, Alaskans can’t ignore the obvious: oil companies — the ones with the investment capital and capacity to produce major quantities of oil — are not investing enough in Alaska to stem TAPS’ throughput decline, let alone increase it.
Gov. Sean Parnell has set a vision for TAPS throughput at 1 million barrels per day within 10 years. Our administration believes it will take annual private-sector investment in the North Slope of about $4 billion, rather than the current annual industry investment of about $2.2 billion.
Parnell proposed a plan to increase Alaska investment and Alaska production. The governor’s plan forward includes lower taxes, permitting reform, and greater access to lands.
Alaska’s statehood was premised upon us being able to maximize our state’s resources for the benefit of the people. Alaska’s oil resource cannot be maximized for Alaskans’ benefit if it remains in the ground. Neither can the status quo of declining production and TAPS throughput be accepted as anything but a dead-end economic strategy.
The way forward is to successfully compete for $4 billion annually in oil company investment dollars. Our oil tax regime needs to have the rate and method of progressivity changed. The steep slope of the state’s increasing tax take at higher prices acts as a disincentive to Alaska investment. Part of the Parnell Administration strategy also includes providing industry incentives to tackle development challenges, such as viscous or heavy oil. Small, incremental tax changes will not attract substantial industry investment back to our oil fields.
To the critics of the Parnell Administration’s plan, we simply ask, “Where’s your plan?” How do you propose that Alaska get to 1 million barrels of oil production per day? What do you think should be done to attract $4 billion in annual investment to the North Slope, rather than the current $2.2 billion?
Oil is our state economy’s backbone for this time in our history and in our nation’s history. And, yet, we are not standing still when it comes to the future of clean and renewable fuels. With the state’s goal of reaching 50 percent renewable energy by 2025 for electricity, we’re investing in renewables like never before in our state’s history. While Southeast Alaska has been a leader in hydropower, Southcentral and the Railbelt have yet to fully develop its potential.
That’s about to change. This year, the Susitna-Watana Hydro Project has been jumpstarted with $65 million, and the preliminary application with the Federal Energy Regulatory Commission will be filed this November.
Additionally, to date, more than $176 million has been approved for more than 200 renewable energy projects across Alaska. And, new natural gas exploration is occurring in Cook Inlet, and likely in other areas of the state. These projects will help create a variety of energy resources to power Alaska’s energy needs for the next 100 years or more.
To make it 50 years down the road to a day when renewables can be more affordable to everyday Alaskans, we’ve got to keep the oil flowing. One million barrels of oil per day through the pipeline is the goal of the Parnell Administration. To get there will take more than a wing and a prayer from naysayers; it will take bold steps, including oil tax changes.
• Bell is commissioner of the Alaska Department of Commerce, Community and Economic Development.