Alaska Pipeline Problem Signals Future Oil Shortages

Trans-Alaska Pipeline near Fairbanks
Catherine Corrigan | CNBC
Trans-Alaska Pipeline near Fairbanks

The four-day shutdown of the Trans Alaska Pipeline, which sent a jolt through world energy markets, pushing the price of oil up $4 a barrel in two trading days, could be a sign of things to come, according to officials.

That's because the 33-year-old pipeline could outlive its usefulness, unless new sources of oil are developed in northern Alaska.

The flow of oil through the 800-mile pipeline was partially restored late Tuesday. Officials hope to have it fully restored in a matter of days, with another brief shutdown to install a bypass around a leak at a pumping station that led to the initial shutdown. The pipeline is now running at a rate of around 400,000 barrels per day.

But even at full strength, currently around 650,000 barrels per day, the flow is a fraction of what it once was. At its peak in the late 1980s, the pipeline carried more than 2 million barrels per day. It was designed to carry 1.5 million per day, according to Alyeska Pipeline Service Company, the consortium that owns and operates the line.

With the flow decreasing by around 5 percent a year, officials say it could soon become impractical to operate the system, both because of engineering and economics.

"The cost per barrel and to ship it down the pipeline is going to increase," said Jason Brune of the Alaska Resource Development Council, "and at some point there is a threshold where the companies realize it costs too much to do that and they're going to put their development dollars elsewhere."

Brune believes that point is around 300,000 barrels per day, and could be as little as seven years away. At that point, he says, there would be little choice but to decommission the pipeline, cutting off the flow of Alaskan oil once and for all. Even with the reduced flow, Alaska accounts for as much as 17 percent of U.S. domestic oil production.

Officials in Alaska say the shutdown, and the havoc it created, should be a wake-up call to develop new oil fields in areas like the controversial Arctic National Wildlife Refuge, as well as offshore.

Trans-Alaska Pipeline near Fairbanks
Catherine Corrigan | CNBC
Trans-Alaska Pipeline near Fairbanks

Even in Alaska, where many take for granted the pipeline that has been carrying oil from the North Slope since 1977, industry leaders say the shutdown should be ay eye-opener to residents.

"It's a wake-up call for us Alaskans who have lived here for forty, fifty years that we really need to get behind future oil and gas development in the state because our future is at stake," said Marilyn Crockett, executive director of the Alaska Oil and Gas Association, who says the oil industry accounts for one-third of Alaska's economy.

Even before the recent leak, low flow of oil was already causing problems, according to a briefing published last year by the Alaska Pipeline Coordinator's office. The report says the weak flow allows ice and wax to build up inside the line and increases the time it takes the oil to make the 800-mile trip from Prudhoe Bay to Valdez.

At least twice, in 2006 and 2008, Alyeska has been forced to pump oil intermittently because of low flow issues, the report says.

Despite that, opposition to expanded drilling in northern Alaska remains intense from environmental groups, and the Obama administration has shown no sign it may change its stance against expanded drilling in the state or offshore in the Arctic Ocean.

Officials in Alaska say even if exploration were approved today, it would be six to seven years before oil could be produced. By then, the studies say, the flow could already reach the point where the pipeline would have to be mothballed.