Heavy oil might be the future of Alaska petroleum development
by Christopher Eshleman / [log in to unmask]

FAIRBANKS — Seven years ago, Frank Murkowski entered the governor’s
office after defeating Fran Ulmer at the polls. The campaign had focused
largely on building a long-discussed natural gas pipeline, and energy
debate in Alaska since has largely focused on natural gas.

But natural gas is now cheap, with prices holding at seven-year lows.
Oil, on the other hand, is twice as expensive as seven years ago.

Some are saying the change merits a renewed focus on oil development
policies. Specifically, some have asked where development rules related
to “heavy oil” reservoirs fit into the state’s long-term energy playbook.

Heavy oil is thicker and more costly to develop and refine than its more
commonly developed lightweight counterpart. But it is abundant in Alaska
and thus occasionally makes its way into energy discussions in Juneau,
where many lawmakers expect to spend part of the coming spring talking
about the oil business.

“Oil is still precious up there,” Sen. John Coghill, 

R-North Pole, said of the North Slope. “Heavy oil needs to be included in
the discussion.”

Heavy oil isn’t the stuff that makes investors jump like light, sweet
crude does. It doesn’t flow easily through petroleum reservoirs toward
production wells without an expensive nudge by complex and expensive
drilling equipment. When oil prices rise and companies clear
technological hurdles, heavy oil reserves, which generally sit shallower
in the ground than lighter reserves, might be profitable to develop.
ConocoPhillips and BP increased investment in heavy oil five years ago,
and Italian firm Eni’s new Nikaitchuq project focuses partly on heavy oil
production, according to the Alaska Division of Oil and Gas.

In 2005, heavy oil production accounted for 5 percent of the crude piped
south from the North Slope, or around 40,000 barrels per day, the
division reported. That figure rose to 6.5 percent this year.

“It’s fair to say there’s been a slight increase in daily production
overall,” said Kurt Gibson, the division’s deputy director.

Heavy oil production, however, takes a lot of work. The stuff targeted in
the BP-Conoco investment project, at the West Sak field near Kuparuk, can
have the consistency of honey. Companies need special submersible pumps
or other equipment to draw it through thousands of feet of rock and
toward production facilities.

But if such work becomes cheaper, Alaska could have the resources to one
day attract firms seriously interested in heavy oil. The Middle East is
popularly considered Earth’s petroleum golden goose. But when it comes to
heavy oil and its cousin, oil (or “tar”) sands, the Americas hold some of
the mother lodes, led by Canada and Venezuela’s resource-rich Orinoco
region. Alaska’s North Slope falls into the second tier, with an
estimated 30 billion barrels of “in place” heavy oil, up to one-fifth of
which Gibson said could be recoverable.

Sen. Joe Paskvan, D-Fairbanks, is among those in the Legislature ready to
review energy policies following the shift in world energy markets. He
said with pipeline activity declining each year, lawmakers will be
interested in knowing whether some of the North Slope’s vast natural gas
resources would be best used helping to reach the region’s
harder-to-develop oil reserves, including heavy oil fields. 

“If we want to develop new sources within known fields than you have to
talk about heavy oil,” he said. 

Drilling for heavy oil could carry environmental implications. One type
of development, steam-aided production, is energy intensive. Canada
produces more than 1 million barrels of oil from heavy oil fields and oil
sands per day, and the International Energy Agency reported four years
ago that it takes 30 cubic meters of natural gas to power the heating
process needed to extract one barrel of oil there.

“Heavy oil is traditionally more expensive to extract and refine than
light oil,” said Robert Dillon, an energy spokesman for Sen. Lisa
Murkowski. Dillon said much of the environmental community objects to the
prospect of developing heavy oil deposits because doing so creates more
greenhouse gases than many other energy processes. “There are a number in
Congress, mainly Democrats, who oppose heavy oil production and would
like to combine climate legislation with a low carbon fuel standard.”

But since development of heavy oil can often use existing drilling sites,
the environmental footprint might be smaller than expanding for more
light oil, said Pam Miller, an Arctic specialist at the Northern Alaska
Environmental Center. 

“It may be better environmentally to extract more oil from the existing
developmental footprint than to reach into riskier offshore areas or into
some environmentally sensitive areas on the North Slope,” Miller said.
“And it is on state lands, so that is generally better for Alaskans from
the revenue standpoint.”

ConocoPhillips and BP, when announcing a 2004 expansion of heavy oil
production at the West Sak field near Kuparuk, said production of North
Slope heavy crude could increase to 100,000 barrels per day by mid-2010.
That increase hasn’t happened yet, and Conoco spokeswoman Natalie Lowman
said the project grew more complex than originally expected. But BP
spokesman Steve Rinehart said his firm has spent or committed $100
million in heavy oil and last year tested a development process, common
in heavy oil-rich Canada, where screw-like drilling systems extract
combinations of earth, oil and water from the ground, creating
“wormholes” for heavy oil to flow through. 

Rinehart said heavy oil represents a big slice of BP’s long-term business
strategy but added that technical hurdles in Alaska remain. 

“It is a significant part of the remaining known North Slope resource
base,” he said. “However, there are challenges.”

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