The New Alaska Oil Discovery: What You Need to Know

The New Alaska Oil Discovery: What You Need to Know

In early October, Caelus Energy, a Dallas-based company, announced a significant light oil discovery on Alaska’s North Slope. In an article published October 11th, in The National Interest, detailing the discovery, many believe this will breathe new life into Alaska’s oil industry. While long-term benefits have the potential to be significant, they do remain to be seen. Here is what Caelus Energy is telling us at this point.

  • It has the size and scale to play a meaningful role in sustaining the Alaskan oil business for the next three decades.
  • It is estimated that the find encompasses between 6 and 10 billion barrels of oil.
  • The company expects it can recover 30-40% of the find potentially yielding two-hundred thousand barrels per day.
  • Should these estimates prove true, Caelus Energy plans to build an $800 million 125 foot pipeline to connect with the existing pipeline.

What does this mean for Alaska?

Considering that the oil industry in Alaska has declined for the past three decades, this new find brings hope that this industry will see a revival in the state by way of job creation as well as revenues generated through the exportation of oil. There is a complex political story that underscores this issue in Alaska, but the implications of a significant oil discovery on Alaska’s North Slope certainly speaks of good news for Alaskans as well as the rest of the United States.
The potential for energy independence for the United States, which a decade ago was a slim hope, now has a much better chance of becoming a reality. As reserve discoveries improve and production becomes more efficient, easing environmental burdens and concerns, the Energy Information Administration (EIA) predicts the US could become an exporter of oil by 2022.

Alaska’s History in Oil Discovery & Development

In order to really understand how this new discovery may impact the state, it is important to give an overview of Alaska’s history when it comes to oil. The timeline below offers a concise history.

  • The United States acquired Alaska as a territory in 1867. It was a Russian colony until then when the US purchased it for $7.2 million.
  • The First oil claims were filed in the 1890’s on the Iniskin Peninsula on the West Shore of Cook Inlet.
  • In 1898 the first Alaska wells were drilled striking small amounts of oil. By 1900 a group of investors was brought in to help support the drilling process but oil was not as abundant as initially expected.
  • In 1911 several new wells in the area began to produce oil but the quantities were still not large enough to justify the cost of transportation so most of the oil was recovered at a refinery at Katalla and then shipped by tanker to Cordova. This continued for about 20 years with the property changing hands in the 1920s.
  • In 1933 a fire destroyed the refinery and the wells were abandoned. While this proved that Alaska could produce oil, it also showed that the cost was high due to transportation and higher operating costs in Alaska. The industry lagged through the 1930’s and through most of the 1940’s while discoveries in Texas and Oklahoma flooded the market and drove down oil prices.
  • During World War II the demand for petroleum caused much concern and in response the US and Canadian Army engineers began the ambitious program of building an oil pipe-line from Normand Wells on the Mackenzie River in Canada’s Northwest Territories to Whitehorse, Yukon Territory and Skagway. The project was completed in 1944 and the pipeline did see some shipments of petroleum products from Seattle to Alaska but the project was soon abandoned by the Army engineers. However, it demonstrated the feasibility of a pipeline.
  • In 1957 the large Swanson River oil field was discovered on the Kenai Peninsula creating interest from potential oil investors within the United States. This discovery tested at 900 barrels a day and was the first commercial oil discovery in Alaska. Alaska became a state in 1959.
  • In 1960 Alaska created the state’s natural resources agencies and oil companies bought exploration leases for work in the Cook Inlet.
  • In 1962 the Middle Ground Shoal oil field was discovered and production began there in 1967. This brought a huge boom to the population and economy of the area that was felt for many years following eventually sparking the construction of the Alaskan pipeline that lasted from 1974-1977.

Since this time, Alaska has experienced a “boom-bust” pattern in their economy; experiencing periods of huge economic prosperity followed by years of economic decline. In the mid-1980s oil prices fell from $27 a barrel in 1985 to $15 a barrel by 1986 having a devastating effect on the state’s economy. The state’s general fund fell from $4.1 billion in 1984 to 2.6 billion by 1986. By 1990, the state’s general fund had dipped to $143 million. State officials had to make deep cuts in spending leading to job loss, as well as a loss in value of property and business. The state eventually recovered from this downturn but this serves as an example to the important role oil plays in Alaska and the lives of Alaskans.

New Discovery, New Hope

The great thing about this most recent discovery is not only the positive impact it can have on the oil industry but on other industries as well. For example, should Caelus Energy determine the need to build the 125 foot pipeline to connect to the existing one, this process will generate numerous construction jobs. Not only will there be employees to hire for the pipeline, but the ripple-effect to other companies is profound. A company, such as Alaska Air Forwarding, could potentially see a sharp rise in demand for equipment transportation to the building site of the pipeline. Heavy Lift Air Cargo is one of our specialties and construction and engineering are two industries that we have worked closely with over the years.

The bottom line is that the potential for the creation of numerous jobs, in a variety of industries to support the processing of this oil find would be a positive move forward for Alaska. Here at Alaska Air Forwarding, we will be here every step of the way to insure the smooth transition of heavy cargo and equipment to make the process smooth and successful for Alaska and the United States.

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