Thursday, January 26, 2012

Alaskan oil, part 2

You've heard of the Alaskan pipeline.

Well here it is.

From the northern shores in Prudhoe bay to the shipping terminal in Valdez,
800 miles.

Travelling under ground, above ground, and on bridges over rivers and streams.

48 inches wide.
Capable of holding 9,000,000 barrels of oil when filled.

But, that's the problem. It is not filled.

In fact, it is only carrying 1/2 the volume it did during its peak. Plus the oil is not he same quality it used to be. It has a lot more paraffin (eg wax) than it did originally.

The low volume and extra wax means it is likely to solidify in the pipe at our cold temperatures. There is talk of adding heating elements to the pipe to keep the oil moving.

Those are not just problems for us. They are problems for you in the lower 48 as well. You can no longer count on Alaska's current oil fields as a reserve in case foreign oil to the US is cut short. You'd better be thinking of expanding production.

There is much debate these days in the Alaska government on how to do this. Oil income is what funds the stat treasury: itmakes up to 90% of the state's "unrestricted" income.

Governor Parnell wants to decrease the taxes oil companies pay the state to stimulate exploration drilling here in AK. That is counter to ex-Governor Palin who raised taxes during her term. Parnell thinks there is now too much competition for exploration in the oil sands down below so we have to make it more attractive to the drillers.

According to the Kodiak newspaper: "Under the current tax structure, which features a 25 percent base tax rate, a progressive surcharge is triggered when a company's net profits hits $30 a barrel. The idea when the law was passed in 2007 was that the state would help companies on the front end, with things like tax credits, and share with them when oil flowed and prices were high.

But critics, including Parnell and the oil industry, argue the surcharge at times of high oil is excessive and a disincentive to investment."

So, if oil production is really going down, we have a problem. On the other hand, something has apparently come out in the courts. British Petroleum, a major producer here, has in its records that the pipeline is expected to keep working well till 2060; not 2025 like the tax cutters claim.

I don't know what is best. Our state government will decide on a tax rate during this session of the legislature.

But, I have to tell you this story. I asked a VP of Exxon-Mobil a few years ago what they felt about the high taxes in Alaska. Here is his response: "The tax is higher than we'd like. But the Alaskan government is fair. We know we can count on them not suddenly pulling the contract out from of under us." And that was way before Chavez took their assets in Venezuela away form them.

(PS I must say that in Kodiak, I would deny that I know anyone who is a leader in Exxon...since the Exxon Valdez oil spill it is a company-non-grata around here. More about that another day.)

Anyway, what would your state do if it had resources that were being drained?

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