Oil is drying up -- and we should be very worried

Kevin Meyers, Conoco Phillips' North American exploration and production senior vice president, told the Alaska World Trade Center annual conference that with no new oil discoveries, the trans-Alaska oil pipeline -- the one that provides 90 percent of state revenues -- could in a few years dry up to a minimum operating level of 500,000 barrels daily. Small discoveries, efficiencies and new developments near known fields could perhaps stretch it to eight, he said.

Severely diminished throughput could be devastating to Alaska's economy and the pipeline itself. The remedy for both? More oil. Unfortunately, production is down and dropping. Tim Bradner reported in the Alaska Journal of Commerce that Meyers says there is little oil exploration under way and, given that, prospects for new discoveries are nothing to write home about.

It seems almost any hope for a new discovery lies offshore, but the federal government has blocked drilling there while it reviews offshore safety in the wake of the Deepwater Horizon explosion and spill in the Gulf of Mexico. It will be a while before a decision is made on Arctic offshore drilling.

Meyers says the industry knows where the onshore oil is in the Arctic and needs only the right fiscal structure to get the job done, according to Bradner's report.

That would require, I suppose, changing Alaska's Clear and Equitable oil tax, an exploration-crippling bit of avarice conjured up by Sarah Palin and adopted by a fearful Legislature in 2007. It snatched Alaska out of the oil exploration and production game by saddling the industry with perhaps the highest marginal oil tax in the world, one with an insanely aggressive progressivity unseen virtually anyplace else.

Add to all that a London Financial Times report that Conoco Phillips' CEO, Jim Mulva, said his company is reassessing its Denali gas line efforts, that Alaska gas now has competition in Canada and Australia and the Gulf of Mexico.

That story quickly was followed by a company assertion that it is really only continuing its ongoing open season assessment, that the press misunderstood, that it has not ruled out Alaska. Or whatever. Then there was news about a glut of shale gas pushing natural gas prices down to about $4 per million British thermal units from 2008's $13.69 and that an MIT study shows shale gas can be developed inexpensively. Who in their right mind is going to wait for Alaska's gas?

Swell.

Alaska -- and the nation -- should be worried about how much oil is flowing through the trans-Alaska oil pipeline. The line is operating two-thirds empty, and the flow is dropping by 6 percent a year. Grim reality lurks just around the corner.

Gov. Sean Parnell's administration -- the one that refuses to tell Alaskans the results of a recent TransCanada-Exxon Mobil open season for the state's sanctioned gas pipeline effort -- has done zip to add a drop of oil to the pipeline. It says ACES is working fine, that the industry's problems are related to global economic woes. That is not what the guys who run the companies say. They say that is only part of it, that ACES and the state's tax policies cause most of the problems. Maybe Meyers, Mulva and all the others are fibbing. Maybe they are just trying to stick it to Alaska to pad their bottom lines. Is it likely? No.

Conoco Phillips, the nation's third-largest oil company, has the desire and fiscal incentive to boost oil production and monetize its vast North Slope gas holdings to burnish its bottom line. But nobody will wait forever on our oil or gas. The company has alternatives and is looking elsewhere. Alaska already is feeling the impact.

It is more likely to me that we are being sold a bill of goods about a lousy oil tax designed by a vindictive Palin to punish the oil industry and fatten the state treasury to underwrite tax-and-spend administrations.

What will politicians say and do in four years when the pipeline begins to have serious problems and no gas line is forthcoming?

What will they do when Alaskans are left holding the bag? My guess is they will hand out more bags and demand a "thank you."

Paul Jenkins is editor of the Anchorage Daily Planet.