The federal crystal ball presents some stark outcomes for Alaska's energy sector. In one forecast, Alaska oil and gas production breaks its decades-long decline. In another, each dries up entirely.
Every year, the U.S. Energy Information Administration issues the Annual Energy Outlook, a long-term forecast of domestic energy markets. The outlook compares a "reference" case to a handful of alternatives, each considering different circumstances.
This year, the five alternatives in the outlook present wildly different visions for Alaska.
If oil prices stay low for decades, Alaska oil production would end -- not decline, but simply stop outright. Without oil production, gas production would be hampered, too.
If prices rise, though, and rise far beyond recent highs, Alaska oil production would increase above current rates and natural gas production would add a cherry on top.
Not a prediction
The outlook considers energy markets through 2040. That timeframe is far too long to be accurate. The outlook is mostly a way to consider the implications of various trends.
The reference case assumes oil prices will recover to $78 per barrel by 2018 and grow to $141 per barrel (in 2013 dollars) by 2040 on the strength of increased global demand.
With those conditions, the EIA forecasts Alaska oil production would putter along over the next quarter century. It would fall by approximately 1.6 percent each year through 2040, bottoming out at around 180,000 barrels per day by 2035 before picking up to 340,000 bpd by 2040. (Whether the trans-Alaska oil pipeline could safely and efficiently operate at 180,000 barrels per day is an open question that the outlook fails to address.)
In the reference case, North Slope natural gas production would begin in 2027 and reach 1.1 trillion cubic feet by 2040 through a liquefied natural gas export operation.
The outlook also considers five alternatives to the reference case: high oil prices, low oil prices, high economic growth, low economic growth and high oil and gas resources.
The two price alternatives have big implications for Alaska.
In the "high oil price" alternative, developing countries demand more energy and reduced investment from the Organization of Petroleum Exporting Countries crimps global supplies, all of which pushes the price of Brent crude to $252 per barrel in 2013 dollars.
Under those circumstances, the EIA forecasts Alaska oil production climbing to 570,000 bpd by 2030 before dipping down to 450,000 bpd by 2040. Alaska gas production would begin in 2026, reach 1.2 trillion cubic feet by 2029 and remain at that level through 2040.
The "low oil price" alternative is much different. Low demand for energy in developing countries and increased OPEC supplies restrain Brent oil prices, which slowly rise to $76 per barrel by 2040. Under those circumstances, the EIA forecasts Alaska oil production falling to 420,000 bpd by 2020 and going offline through the rest of the forecast. Plus, lower natural gas prices would make an Alaska liquefied natural gas export operation uneconomic. And with natural gas currently used to boost North Slope oil production, lower oil prices could lead indirectly to a decline in North Slope natural gas production.
While price is the greatest driver in the forecast, the "high oil and gas resource" case would also have implications for Alaska, presumably by increasing global supplies. The alternative forecasts declining oil production and challenges to an LNG export operation.
This story originally appeared in Petroleum News. It has been republished with permission.