Flow through the 800-mile trans-Alaska pipeline has diminished as the huge Prudhoe Bay oil field ages.
While that fact is not in dispute, the rate of decline and especially the state's response is an open question.
"It's a big deal," acknowledged Rep. Beth Kerttula, D-Juneau, a former oil and gas attorney with the Alaska Department of Law who allied with former Gov. Sarah Palin to raise taxes on the industry.
"I think that anybody who comes into the Legislature recognizes pretty early on the impact that oil has on our budget," she said.
Allies of the state's oil producers are urging lower taxes on the industry to stem the decline by producing oil faster.
Former Gov. Frank Murkowski started the campaign by telling the Juneau Chamber of Commerce that the pipeline can't operate economically past 2018, and will have to be removed, devastating the state's oil-based economy.
Murkowski proposed lowering oil taxes to induce oil companies to produce the remaining oil faster.
Murkowski said flows through the trans-Alaska pipeline system have declined from a 1988 peak of more than 2 million barrels a day to 950,000 barrels a day when he was governor to 640,000 barrels a day currently.
"When we reach the figure 300,000, it's generally assumed that the economics of the pipeline become marginal," he said.
In an interview with the Empire later, Murkowski was unable to say at what price per barrel it would be uneconomic, a key factor in determining financial viability of the pipeline.
A pipeline that falls below 300,000 could leave the state not just with less revenue but without any oil revenue at all from TAPS, he suggested.
"If it isn't used, it has to be removed," Murkowski said.
A few weeks ago, Murkowski again called for lower oil taxes in an opinion piece in the Empire.
This time, he said technical limitations would keep TAPS from operating below 300,000 barrels.
Interviews with pipeline officials and statements in industry documents challenge Murkowski's claim of looming disaster for the state.
"Below 300,000 barrels (per day) we expect to have operational problems," said Michelle Egan, spokeswoman for Alyeska Pipeline Service Co., the company owned by the state's oil producers that operates TAPS.
Alyeska has a major study underway to determine what those problems will be, she said.
One likely problem is the declining temperature of the oil flowing through the pipeline. Temperatures of oil have dropped from 90 degrees to barely above 30, caused by a combination of lower volume and the longer time it takes the oil to make the transit from Prudhoe Bay to Valdez.
Possible solutions are heating the oil, additives that reduce drag, or other changes in operation. The oil already goes through a refinery at North Pole. What is not used is then put back in the pipeline.
"We get a sharp spike in temperature at the refinery," Egan said.
The industry itself doesn't think the pipeline is going anywhere.
"BP Alaska expects continued economic production from the Prudhoe Bay field at a declining rate through 2049," according to financial documents filed by the BP Prudhoe Bay Royalty Trust with the Securities and Exchange Commission.
The trust is funded by oil produced from BP's Prudhoe Bay holdings, and its profits depend on the pipeline's continued operation.
Other estimates differ from BP's, with the North Slope Borough and the state's petroleum assessor and the companies all producing different dates for assessment purposes.
TAPS owners have argued that the value of the pipeline is $1 billion, while the North Slope Borough has argued that it is worth $12 billion. Property taxes on the pipeline provide significant income to the borough.
TAPS owners agreed to a life estimate for the pipeline of 2034, while the state said 2042 might be a more accurate estimate.
It all depends upon how much more oil can be found to fill the pipeline. That can come from new drilling on land, including the Arctic National Wildlife Refuge, already discovered but undeveloped oil such as that in Point Thomson or heavy oil.
Kerttula said that was part of new oil tax reforms in recent years, including tax credits for exploration and requirements that that oil companies share some exploration data in an effort to boost drilling.
The best option for a large new flow, however, is thought to be offshore in the Beaufort or Chukchi Seas.
"That's the game changer, offshore oil," Alyeska's Egan said.
Contact reporter Pat Forgeyat 523-2250 or e-mail firstname.lastname@example.org.
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