Alaska editorial: Action, realism needed as oil production declines

Posted: Monday, December 26, 2005

This editorial first appeared in the Anchorage Daily News:

Happy days are here again if Alaskans only look at the high prices for North Slope oil, which is the source of our wealth, our services, our tax-free state.

But the news is less happy if you look at oil production. It's dropping more than state officials predicted last spring, more than they forecast last year, and much more than they said in the Department of Revenue fall 2003 forecast book - the first longer-term forecast issued by the new administration of Gov. Frank Murkowski.

The culprits are new fields being delayed; a lack of enough big-money exploration; unexpected maintenance problems that temporarily stopped production at North Slope fields; and declining oil flow at the aging Prudhoe Bay and Kuparuk giants. Add it all up, and Alaska is fortunate that high prices are masking the steepening drop in production.

The fall 2003 Revenue Department forecast book said North Slope production would average 937,000 barrels a day for fiscal years 2006 through 2015. By the spring 2005 book, that estimate was down to 876,000 barrels a day for the same 10-year period. And in the fall 2005 book, issued last week, the latest estimate is down to 827,000 barrels - an additional 6 percent drop from the spring forecast.

And here's another reason to get nervous about the fiscal future of our state: The fall 2003 Revenue book said about one-quarter of the expected North Slope flow in 2015 would come from fields discovered but not yet under development. Last week's report says that number is now close to one-third, placing even more importance on multibillion-dollar private investments to produce the oil needed to fill the state treasury.

The reality of declining production also places more importance on our elected officials giving us real numbers, not unrealistic expectations. Catchy slogans such as "No Decline After '99" don't do anyone any good if they don't come true. And campaign speeches are harmful if they fool people into believing what they want to hear.

Gov. Murkowski in a campaign speech in 2002 touted the gushing promise of the McCovey offshore field, telling Alaskans, "it's a field we hope will come in with as much as 300,000 barrels a day and which would provide the state with as much as $400 million a year by 2006." Sorry, but explorers failed to find commercial quantities of oil, a fact that wasn't verified until after the election - besides, most industry observers thought the governor's prediction was wildly optimistic.

Please, don't tell us wishful political guesses. Tell us the truth, which is that North Slope production is dropping, anticipated new fields are being delayed, aging equipment is breaking down, and it will take billions of dollars just to keep pace on oil production. And that doesn't even count the billions upon billions more than would be needed if Congress ever opens the Arctic National Wildlife Refuge to oil and gas exploration, or if companies decide to take the $20-billion-plunge on a North Slope natural gas line.

Alaskans need to think about how much we need private investment on the Slope. While it may be the state's oil, we need someone else's money to drill the risky holes and lay the pipe and build the processing facilities to get our oil and gas out of the ground. And we need to do what it takes to attract that investment - though we need to do so wisely, ensuring that we don't spend money or give away tax breaks without getting something in return.

But we need to act. High oil prices may not last forever.

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