State sees Prudhoe gas as too valuable to sell, for now -
ECONOMICS: Reinjecting it aids in the recovery of oil, a more valuable commodity.
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By KAY CASHMAN
Petroleum News
Published: October 10, 2006
Last Modified: October 10, 2006 at 12:42 AM
If Alaska voters approve the natural gas reserves tax on the state's Nov. 7 ballot, they could be providing a strong incentive for Prudhoe Bay's owners to violate a conservation commission ruling.
The Alaska Oil and Gas Conservation Commission is the state agency responsible for preventing waste and ensuring the greatest ultimate recovery of hydrocarbons from Alaska's oil and gas fields.
Because Prudhoe Bay gas helps boost oil recovery at Prudhoe and other North Slope fields, field operator BP will not be allowed to send Prudhoe gas down a pipeline to market until the commission says it can.
The last estimate the commission gave for possible Prudhoe gas sales was sometime between 2010 and 2020. In Prudhoe Bay alone, natural gas used to enhance oil recovery has resulted in 3 billion more barrels of produced oil.
The commission is studying when to allow Prudhoe Bay gas to be shipped down a pipeline.
If approved, the gas-reserves tax will take effect Jan. 1.
To sell gas too soon from Prudhoe could result in a huge loss of oil and hundreds of millions, perhaps billions, of dollars from the state treasury because oil is the more valuable of the two commodities.
"From the AOGCC's perspective, we are not charged with considering economics," Commissioner Cathy Foerster said this summer. "We are simply charged with preventing hydrocarbon waste and encouraging greater ultimate hydrocarbon recovery. Usually, these two charges result in best value to the state."
But the commission does not always agree with other state agencies or the producers on what's most important, Foerster said.
John Norman, the commission chairman, likes to use gas flaring from Cook Inlet-area fields as an example of the importance of this different perspective.
According to Foerster, Norman points out that for years the Cook Inlet oil field operators flared the gas they produced rather than selling it or reinjecting it. They defended this action by saying there was no market for the gas and, thus, no sales value and that it cost too much to add the compression and other infrastructure needed to reinject it. But when the commission was able to force Cook Inlet operators to quit flaring, "a fertilizer plant and residential users began to buy the gas that wasn't reinjected," Foerster said.
The commission's concerns with North Slope gas sales are similar, Foerster said.
"As long as the producers are reinjecting the gas for pressure maintenance and EOR (enhanced oil recovery), it's making more oil and it's still there to be gotten later. Thus, we're meeting our two charges -- we're preventing waste and we're encouraging greater ultimate hydrocarbon recovery. However, if we sell the gas before it has completed its job of getting oil out of the ground, then we may not be encouraging greater ultimate hydrocarbon recovery."
"As you know, we will not have answers until the (Prudhoe Bay) study is done (at the end of this year) and even then it will simply be a forecast based on what we know right now. Having given you that disclaimer, it is unlikely that our studies will indicate that we should allow significant gas sales any earlier than 2010 and possibly many years later," Foerster said Thursday.
If a reserves tax is approved, will the state be giving North Slope gas owners incentives for breaking the commission's rules?
Yes, Foerster said.
Will a reserves tax likely force gas owners into court because it and the commission's ruling would be in direct opposition?
Yes, Foerster said. |
