OIL AND GAS CONSUMPTION IN ALASKA of Energy and Power Development of Commerce and Economic Development State of Alaska.

Transcription

1 OIL AND GAS CONSUMPTION IN ALASKA Division Department of Energy and Power Development of Commerce and Economic Development State of Alaska and Division of Minerals and Energy Management Department of Natural Resources State of Alaska for The Alaska Royalty Oil and Gas Development Advisory Board and The 1978 Alaska State Legislature by Scott Goldsmith and Tom Lane January 1978 Institute of Social and Economic Research University of Alaska Anchorage Fairbanks Juneau

2 OIL AND GAS CONSUMPTION IN ALASKA Table of Contents Executive Summary i I Oil and Gas Consumption I-1 II. Projected Consumption Levels: 1980 to 2000 II-1 III. Oil and Gas Supply III-I IV. Calculation of Surplus Oil and Gas IV-1 Appendices A Consumption Detail and Methodology A-1 B. Assumptions of Demand Projections C. Detailed Demand Projections by Use, Fuel, and Region D. Conversion Factors D~l E. Recommendations for Future Energy Data Collection E-1 References

3 OIL AND GAS CONSUMPTION IN ALASKA Executive Summary Demand for petroleum liquids is projected to increase-at an annual 6 percent growth rate between 1976 and 2000 based upon the assumption of strong economic growth resulting in increases in petroleum liquids usage in all major categories. Use of petroleum liquids for electricity generation is minimized after 1985 with coal fired generation or hydroelectric power meeting new demand where feasible, Growth in natural gas use over the same period will be at a much slower 2 percent rate. (Growth between the present and 1980 will be much more rapid than the long-run rate due to electric utility and industrial growth.) Tpis is a somewhat slower groyrth rate than previously projected and is predicated upon the assumptions of Federal legislation significantly limiting the ability of Alaskan electric utilities to expand their gas-fired generation facilities. In addition, this projection is made under the assumption of no significant increase in industrial use of natural gas beyond existing facilities. Coal and hydroelectric power will grow more rapidly in the future to meet rising needs for electric power generation and will supply an increasing proportion of the state's future energy requirements.

4 ii Royalty oil from known reserves could, if necessary, supply a large portion of the instate market thro_ugh the year Since the supply of petroleum liquids upon which the Alaskan market can draw includes the U.S. market as well as imports, there is no Alaskan demand for petroleum liquids which would be endangered were royalty oil all exported from the state. ( S_ignificant cross-hauli:ng of petroleum liquids occurs between Alaska and the Lower 48 for a variety of reasons.) Royalty gas from Cook Inlet cannot meet projected requirements in the Cook Inlet market. Total existi_ng reserves (committed and uncommitted) are sufficient to meet existing needs through 2000 but provide little allowance for unforeseen requirements and demands beyond that date. Likewise, Prudhoe Bay royalty gas, were it feasible to supply the Cook Inlet market, would not be sufficient to meet existing needs in that market. Total royalty gas from both Prudhoe Bay and Cook Inlet would also be insufficient. Therefore, it will be necessary to supplement and/or substitute for the state's royalty gas in meeting projected natural gas demands.

5 I ALASKA'OIL AND GAS CONSUMPTION The condensed version of the 1976 Alaska Energy balance in heating units (btu I s) is presented in Table I. 1. A diagrammatical analysis of consumption appears as Figure I-1. Tables I. 2 and I. 3 provide a more detailed classification.of energy use by type of user, use, and product in commodity units and in btu's, respectively. (Detail on the data and methodology used in the computation of these tables may be found in Appendix A,) Total instate consumption.was trillion btu's of energy. The categories included in this total included energy from all sources and uses for transportation, heating and miscellaneous, electricity, and industrial use which as a separate category is limited to petroleum processing, As can be seen from Table I.l, fully 93 percent of Alaska's 1976 energy consumption was provided by oil and gas, with oil accounting for 59 percent and gas 34 percent. Coal is used primarily for the generation of electricity and accounts for 5 percent of ene.rgy use. Waterpower also provides electricity and contributes 2 percent of the state's requirements. Electricity is viewed as an intermediate good in this formulation. Oil,. gas, coal, and waterpower are used to generate electricity, but the electricity itself is not a primary energy source.

6 TABLE I.l ALASKA ENERGY BALANCE IN HEAT UNITS CONDENSED VERSION Trillions of BTUs (% of total instate consumption*) RESOURCE Petroleum Natural Use Liquids Gas Coal Waterpower Electricity Total Transportation (42.8) Heating and Miscellaneous (9.8) (7.9) ( l. 4) Total Final Consumpij.o~ (52.6) (7.9) ( l. 4) Electricity Conversion (6.3) (13.8) ( 3. 4) (1. 9) Total Gross Consumption (58.9) ( 21. 8) (4.8) (1. 9) Petroleum Processing* (12.6) Total Instate Consumption* (58.9) (34.4) (4.8) ( l. 9) (42.8) (6.2) (25.3) H ( 6. 2) (68.1) I I'-) (.,. 6. 2) (19.2) (87.4) (12.6) (100.0) ~': Excludes reinjection

7 HYDROELECTRIC 4 1 Af Eleclrical I /4::~;;~~~::::: Generation &... ::i5~:f f;=~= J~Iif~:~ttiff{~:~i?~:~~IL 'NATURAL GAS..::::f)::;;f/ IJ]liilill! 1/1/ll/l/jll/l/i!l;:;:;;:;;;;;;;;I~~--.:;; -ti\ 13.7 : : : : : : : :~: : : : : : : : _~-:-= = = = = = = = = = = = = : : LOST ENERGY :-: ; ; : : : : : : : :~:;:~::::::! ~::::t\\f f I COAL l I ndustria I & Military H I (J) mffijiiiiiiii PETROLEUM LIQUIDS \t~ /\~xparls f ' I Transportation USED ENERGY 80.4 Trillions of BTU's FIGURE I.L NET ALASKA ENERGY BALANCE FOR 1976

8 TABLE I ALASKA ENERGY BALANCE IN COMMODITY UNITS rinal Petroleum Liquids (1000 barrels) Jet Fuel/ Natural Gas Use Gasoline Kerosene Distill ates Residuals LPG Total ( 1000 MCF) Cons umption Transportation civilian 4, 836 5,514 3, ,269 military 144 2, ,383 total 4,980 7,571 4, ,652 Heating & Misc. civilian , ,448 13,356 military ,448 total , ,674 16,804 Total civilian 4,836 5,526 6, ,717 13,356 military 144 2, ,599 3,448 total 4,980 7,583 7, ,326 16,804 Electrical Generation civili an , ,948 27,129 military , 155 total , ,340 29,284 Water Power Coal (million Electricity (1000 tons ) HP hours) (1000 MWH) l , , , , ( 3,394) H I ( 542) (3,936) Total Gross Consumption civilian 4,836 5,526 8, ,665 40,485 military 144 2, ,001 5,603 total 4,980 7,583 9, ,666 46, I 607 ill Extraction and 2 Processing Uses ,880 TOTAL ENERGY USE 4,980 7,583 9, , ,968 (jet fuel- 7,571) Exp ort s , Total electricity delivered to final consumers, including space heating.? - Data available for natural gas only. 26,798 MMCF production related; 111,082 MMCF reinjected. 3D. ata available for natural gas only. 4 63,509 MMCF = LNG; 24, 256 MMCF = Ammonia/Urea.

9 TABLE L ALASKA ENI:RGY BALANCE IN HEAT UNITS (Billions of BTUs) Petroleum Liquids final Jet Fuel/ Natural Total Gas Water Use Gasoline Kerosene Distillates Residuals LPG Total Gas & Liquids Coal Power Electricity Total Energy Consumotion Transportation civilian 25,379 31,264 22, , , ,471 military ,663 1, , , ,479 total 26,135 42,928 23, , , ,951 Heating & Misc. civilian ,108 1, ,835 13,677 33, ,580 45,143 military , ,396 3,531 4,927 2, ,849 9,666 total ,423 2, ,231 17,207 38,438 2, ,430 54,809 Total civilian 25,379 31,332 39,936 1, ,306 13, , , ,614 military ,663 1,375 1, ,875 3,531 18,406 2, ,849 23,145 H total 26,135 42,996 41,311 2, ,182 17, ,389 2, , ,760 I u, Electrical Generation civilian ,328 1, ,428 27,780 39,208 4,471 4,101 (11,580) 36,200 military , ,283 2,207 4,490 2, ( 1,849) 5,548 total ,611 1, ,711 29,987 43,697 7,378 4,101 (13,430) 41,747 Total Gross Consumption civilian 25,379 31,332 50,264 2, ,734 41, ,191 4,522 4, ,814 military ,663 3,658 1, ,158 5,737 22,895 5, ,692 total 26,135 42,995 53,922 3, ,893 47, ,086 10,319 4, ,506 Extraction and 141,189 1 Processing Uses , ,189 TOTAL ENERGY USE 26,135 42,996 53,922 3, , , ,277 10,319 4, ,697 2 Ex. _orts 89,871 l 27,441 production related; 113,748 for reinjection. 2 Total higher than Table I.l because of inclusion of natural gas use for repressuring.

10 I-6 The largest use of energy in the state and the largest user of pett>oleum liquids is in transportation~ Nearly 43 percent of total energy consumed in the state was for transportation purposes. Of this, the'. largest cat_eg6ry was the fuels used in aviation which accounted for 7.6 million barrels out of total tran_sportation consumption of million barrels. Gasoline accounted for 5 million barrels and the distillates 4.1 million.barrels. Seventy-three percent of petroleum liquids was used in the transport sector~ Space heating, a cat_egory which also includes some small amounts of miscellaneous and industrial uses of petroleum consumes 19 percent of total instate consumption. Oil and gas provide the bulk of the energy used in space heating. The share of oil in space heating is the larger and exceeds 50 percent. This is 3.7 million barrels of liquid. Gas provides about 40 percent of space heating requirements which is 16.8 billion cubic feet. Final consumption of electricity accounted for 6 percent of total instate energy consumption. This was 3,936 megawatt hours consumed and shows in the heati_ng and miscellaneous category in the electricity column. The generation of electricity, however, required a much larger expenditure of ene_rgy. Fully 25 percent of total instate consumption was usedfo;r>.the generation.of electricity. Since output of the sector was 6 percent of.consumption~ over 19 percent was expended, or lost, in the conversion.from.primary fuels to electricity.

11 I-7 All major primary energy sources contribute to the generation of electricity with natural gas providing about 54 percent of the total, followed by petroleum liquids with 25 percent. Petrolewn processing is the only.significant industrial use of energy which is separately calculated. In this category.are natural gas uses for flaring, use on leases in conjunction with production.of gas and oil, as refinery fuel, and for repressuri.ng in the maintenance of. oil field pressure. In this latter cat.egory, only the net use of gas is calculated, as a la.rge percentage of the natural gas which is injected into oil reservoirs to increase oil recovery can eventually be recovered when the recoverable oil supply is depleted. A significant amount of energy is directly exported from Alaska as crude oil and as the products of processes involving natural gas and the refining of crude oil. Exact figures for petroleum liquid exports are unavailable. Natural gas is exported in large quantities in the form of both LNG (liquified natural gas) and ammonia-urea fertilizer. These exports are not reflected in Table I.l, even though a significant amount of natural gas is consumed in energy conversion in these processes. The equivalent of 41 percent of instate energy consumption can be accounted for in LNG and ammonia-urea exports. These items, as well as the gross amount of repressuring gas use, are included in Tables.I.2 and.i.3. Compari.ng consumption in 1976 with the previous year, a pattern of uneven growth is evident. Slight differences in the calculation of conversion

12 I-8 rates, classification of cat_egories, changes in inventories, and improvements in the data make the actual-growth rates for individual fuels and uses subject to some uncertainty. 1 Total consumption of oil and gas increased 8 percent. Natural_ gas use was up 12 percent with the la_rgest increase, 18 percent, in electricitr generation~ Only space heating consumption, which increased 8 percent, was below the aver_age. Petroleum liquid use increased only 2 percent, but this was the result of a large decline in residual oil consumption. This occurred primarily in the miscellaneous category. Transportation consumption increased 8 percent, and electricity generation consumption was up 36 percent. The gasoline consumption increase of 12 percent was the highest of the liquid petroleum fuels, followed by distillates at 6 percent and jet fuel with 3 percent. Liquid petroleum gas use was up 16 percent. By way of contrast, hydroelectric generation increased 10 percent, and use of coal was considerably lower than the previous year. 1 This comparison is based upon Scott Goldsmith and Kent Miller, "Energy Consumption in Alaska," prepared for the State of Alaska, Department of.commerce and Economic Development, Division of Energy and Power Development, 1977,-Table II-1, page 3.

13 . II~. 'PROJECTED.CONSUMPTION LEVELS: 1980 TO 2000 A base case projection of oil and gas demands is first presented and discussed. Following this, the effect of assuming higher rates of growth is analyzed. Detail on the assumptions and methodol_ogy employed is contained in Appendix B. Detail concerning projections for individual fuels is in Appendix C. II.A. BASIC 'PROJECTIONS The base case projections are presented in Table II.l, where natural gas is measured in millions of cubic feet and petroleum liquids in thousands of barrels of crude oil equivalent. Over the entire period, use of petroleum liquids is projected to increase at a 6 percent annual rate, while natural gas use will grow at only 2 percent. These growth rates imply that by 1990, use of petroleum liquids will have more than doubled to reach an annual consumption level of 46.9 million barrels of oil equivalent, in contrast to 22.1 million in Growth will continue to 2000 when consumption will be 81.2 million barrels of oil equivalent. Growth will be most rapid in the transportation sector which is currently the largest user of petroleum liquids and also in the industrial sector where present consumption is relatively low. In 2000 about 75 percent of petroleum liquid consumption will be for transportation.purposes~

14 TABLE II.1. ALASKA PETROLEUM LIQUID AND NATURAL GAS USE: Natural Gas= 1000 MCF Petroleum Liquids= 1000 barrels of crude oil equivalents, based on heat values of various liquids liquid nat. gas liquid nat. gas liquid nat. gas liquid nat. gas liquid nat. g~s liquid nat. gas Final Consumption Transport - Liquid 16,026 Heating - Liquid''' 3,654 Nat. Gas 16,804 Total - Liquid 19,680 Nat. Gas 16,804 17,789 23,409 32,484 4,181 5,288 6,947 20,107 25,296 34,344 21,970 28,697 39,431 20,107 25,296 34,344 43,684 60,933 8,559 11,005 44,483 59,041 52,243 71,938 44,483 59,041 Electrical Generation - Liquid' ' 2,371 - Nat. Gas 29,284 2,779 3,001 3,972 32,739 28,228 24,558 5,055 5,806 26,406 28,681 H H I tv Total Gross Consumption - Liquid 22,051 - Nat. Gas 46,088 24,749 31,698 43,403 52,846 53,524 58,902 57,298 77,744 70,889 87,722 Incustrial Use''"" - Liquid -- - Nat. r,as llr,764 3,800 3,500 3, , , ,450 3,500 3,500 17Q,450 17Q,u5n Total Use - Liquid 22,051 - Nat. Gas 164,852 28,549 35,198 46, , , ,352 60,798 81, , ,172 '''Heating and electrical fuel oils converted on the basis of 5,875,691 BTUs/barrel based on 1976 ratio of,residual and distillate fuel mix. <:i'e':i'e Includes injection uses; excludes industrial electrical generation and petroleum liquid exports.

15 II-3 Space heating use of liquids will increase at a somewhat slower annual rate of 5 percent, while electricity generation use of oil will grow at 4 percent. This low rate of growth in the generation of electricity using petroleum liquids results from an effort to switch all possible new generation facilities to the use of coal in the mid-1980s. Growth in petroleum liquids use for electric power occurs only outside the railbelt area. The much slower rate of_ growth in the consumption of natural gas is attributable to the assumption of prohibition on the use of gas in new electricity generating facilities in the mid-1980s and only moderate increases in industrial use. As a result, use of gas in 1980 is 238 billion cubic feet, up from 165 billion cubic feet in By 2000 it has risen to 267 billion cubic feet, reflecting the fact that most of the growth in natural gas consumption is assumed to occur in the final years of this decade and in the industrial sector. Gas use in space heating is the most rapidly growing demand throughout the projection period at 5 percent. In contrast to 1976, when 10 percent of gas was used for space heating, by percent will be consumed for this purpose. Gas use in electricity generation remains essentially constant and thus greatly declines in relative importance. Industrial use of gas rises sharply in the near future, but further increases are assumed to be zero because of supply constraints.

16 II-4 Total energy consumption is rising more rapidly than the table refiects because hydroelectric power, and after the mid-1980s, coal both become increasingly important in the state energy mix. The majority of the growth in electricity generation is provided by these sources. The projection of future energy requirements for the state is difficult at best, because a large proportion of future use will be determined by events not directly related to the growth of the Alaskan population. In three areas particularly,. there is a large degree of uncertainty. First, a large component of transportation use of fuels is generated by international aviation. Future demand for the use of Alaska as an international aviation transit point is difficult to gauge. Second, the military consumes a large amount of energy, particularly petroleum liquids. One can only assume the future military demand will be closely comparable to the present level. Third, and most important, large industrial uses of petroleum liquids and natural gas are dependent upon both the availability of large blocks of energy and economic locational considerations of a global nature. As a consequence of these problems, any projection of future demand for energy in Alaska must be speculative because of the degree of speculation in the determination of demand estimates in these areas.

17 II-5 II.B. SENSITIVITY OF PROJECTIONS The sensitivity of the projection results to changes in several of the basic projection assumptions was tested. Partial results are displayed in Table II.2. The basic case assumes strong growth of the economy resulting in population growth of about 3 percent annually, continued strong per capita energy demand although somewhat moderated by high energy prices, and no significant new industrial consumers of large blocks of energy, More rapid economic growth than the base case would result in population increasing at a faster pace (B.II.b). This would cause faster growth in those sectors where the level of demand is sensitive to population. With faster population growth, use of energy increases more rapidly, but the overall growth rates are not significantly changed from the 6 percent for liquid petroleum and the 2 percent for natural gas from the base case. In 1985 use of petroleum liquids is 2 percent higher than the base case, while use of gas isl percent higher. In 1995 the differences are beginning to become significant at 20 percent and 6 percent, respectively. Demand for liquid petroleum is apparently much more sensitive to the rate of population change. Demand per capita for oil and gas may be less responsive to high energy prices and conservation measures than assumed in the base case. This would result in much faster increases in consumption of oil and

18 TABLE II:2. ALTERNATIVE PROJECTIONS: BASE CASE; GREATER OIL AND GAS DEMAND (B.II.a.); RAPID ECONOMIC GROWTH (B. II.b.) 1, Natural Gas= 1000 MCF Petroleum Liquids= 1000 barrels of crude oil equivalents, based on heat values of various. liquids Base Case 1985 (B.II.a.) Gre.ater Demand (B.II.b.) Rapid Growth Base Case 1995 (B.II.a.) Greater Demand (B.II.b.) Rapid Growth liquid nat. gas liquid nat. gas ~ nat. gas liquid nat. gas liquid nat. r,as liquid nat. gas Transport - Liquid 23,409 29,901 23,778 43,684 62,165 52,718 Heatin.[ Liquid - Nat. Gas 5,288 25,296 5,751 27,288 5,435 25,927 8,559 44,483 10,232 52,637 10,804 55,226 Electrical Generation - - Liquid - Nat. Gas 3,001 28,228 3,097 30,215 3,030 28,849 5,055 26,406 5,532 29,753 5,678 30,773 H H I en Total Gross Consumption - Liquid - Nat. Gas 31,698 53,524 38,749 57,503 32,243 54,776 57,298 70,889 77,929 82,390 69,200 85,999 Total Use (Includes industrial use - no change from base case) - Liquid - Nat. Gas 35, ,974 42, ,953 35,743 60, , ,339 81, ,840 72, ,449.,... Alternative cases are detailed in Appendix B, Sections II.a. and II.b, /

19 II-7 gas (B.II.a). The overall growth rate for petroleum liquids could inincrease to 7 percent, while that for gas would increase somewhat but remain close to 2 percent. In 1985 liquid petroleum use would be 20 percent higher than the base case, while use of natural gas would be 2 percent greater. In 1995 the differences from the base case would be 34 percent and 5 percent, respectively. As with population growth, use of petroleum liquids is much more sensitive to the assumptions than use of natural gas. Also, the per capita use assumptions are more sensitive than the population variable. Industrial and other exogenous increases in demand for oil and gas would occur in lumpy blocks which can simply be added to the base case projections. Since the number of possible combinations is infinite, no attempt is made to present an alternative industrial scenario and an example is given instead. Continuation of the use of gas in new electricity generating units in Anchorage after the 1980s could possibly be allowed. By 1990 this would add about 23 billion cubic feet annually to gas demands for electric power, essentially doubling gas use by that sector, This would add 10 percent td total gas requirements in that year and increase the overall growth rate in gas consumption from 2 percent up to 3 percent for I the projection period.

20 II-8 Other industrial scenarios can be generated from information provided in Appendix R. All essentially result in an "add factor" to be annually combined with the basic projection to arrive at total energy use for the year.

21 III. OIL AND GAS SUPPLY In this section, estimates of future oil and gas supplies in Alaska from existing fields are presented. The estimates of royalty gas and oil derived from these numbers then are used in the. calculation of oil and gas in excess of instate needs presented in Part IV. 1 III.A. OIL III.A.l~ Prudhoe Bay Several estimates of recoverable reserves are available for the main formation at Prudhoe Bay. It must be kept in mind that reserve estimates always involve uncertainty because the physical characteristics of the reservoir are not known with any certainty. Thus, different interpretations of data on reserve characteristics by different engineers may yield different reserve estimates. The range of estimates is presently between 8 and 10 billion barrels. 2 For purposes of the determination of available supply, however, it is useful to concentrate on the capacity of the Alyeska pipeline _because l The Barrow market, being isolated and not using royalty gas, is not included in this analysis. 2 see Alaska Department of Natural Resources, Division of Geological and Geophysical Survey. Oil and Gas Demand IV. Royalty Oil and Gas Analysis. Anchorage, undated, Idem., Division of Minerals and Energy Management. HisToric and Projected Demand.for Oil and Gas in Alaska: :.1995 by Kristine.O'Connor, April 1977, and Idem., Division of Oil and Gas. Prediction of Reservoir Fluid Recovery Sadlerochit Formation Prudhoe Bay Field, January 1977.

22 III-2 presently all oil available for the state's use is transported via the pipeline. Design capacity is presently-- l. 2 million barrels per day. Whether and when it is increased depends upon the development of further reserves on the North Slope or a favorable economic evaluation of a more rapid rate of production from Prudhoe Bay. For simplicity in this analysis, only two cases are presented. The first assumes a maximum pipeline capacity of 1.5 million barrels daily and a production schedule including only the main reservoir at Prudhoe Bay. 3 The second assumes a maximum rate of 2 million barrels daily, which includes oil from surrounding state fields. 4 The resulti_ng schedules of annual amounts of oil available and the royalty percentages, calculated at 12.5 percent, are presented in Table III.l. III.A.2. Cook Inlet At the start of 1977, Cook Inlet oil reserves were estimated to be.379 billion barrels, and production in December of the previous year had 5 averaged 173 thousand barrels daily. The Cook Inlet oil fields are declining in annual production from the peak year of Substantial 3 Alaska Department of Natural Resources. Division of Oil and Gas. Ibid., Table IV.A. 4 Alaska Department of Natural Resources. Division of Geological and Geophysical Survey. Oil and Gas Demand IV. Royalty Oil and Gas Analysis, op; cit., figure R-2. 5 Alaska Department of Natural Resources, Division of Minerals and Energy Management. op~ cit., Table A.

23 Table III.1. PROJECTED ALASKAN ROYALTY OIL (million barrels per year) PRUDHOE BAY COOK INLET TOTAL Low High Low High total royalty share total royalty royalty share total share total royalty share total royalty share Lf H H H I w Source: see text.

24 . III-4 undiscovered recoverable oil is estimated for oil reservoirs offshore along the southern part of Alaska, including Cook Inlet, but this is primarily federal land from which the state would not receive royalties were production to occur. Thus only one estimate of Cook Inlet oil production is used in this analysis based upon existi.ng reserves and a declining production rate. 6 III. B.. NATURAL GAS III. B.1. Prudhoe Bay Estimates of recoverable gas reserves from the Prudhoe Bay field are highly dependent upon the interpretation of data available on the reservoir structure. Many of the estimates are in the trillion cubic feet range. 7 As with crude oil, the limiting factor in the calculation of available supply can be assumed to be the capacity of the pipeline used to move the natural gas from the North Slope. Depending upon information gathered during the initial years in the management of oil production from Prudhoe Bay and possible further gas discoveries, the daily capacity of the pipeline could reasonably be between 2 and 2.5 billion cubic feet daily. 6 Royalty values taken from Alaska Department of Natural Resources, Division of Geological and Geophysical Survey. op.. cit., figure R-2. 1 Total production, author s estimate. 7.. See footnote 1.

25 III-5 Start~ng in 1983, this level of throughput could probably be sustained through the year A royalty rate of 12.5 percent would yield an annual amount available for state use of either 91 billion cubic feet or 114 billion cubic feet.. III.B.2.. Cook Inlet The most current estimate of recoverable reserves of gas from existing Cook Inlet fields is trillion cubic feet as of December 1976 presented in the Pacific Alaska LNG study. This is a 10 percent increase from the Alaska Department of Natural Resources estimate of trillion cubic feet. 8 Between 15 and 20 percent of the reserves are located in fields presently shut in. The Pacific Alaska LNG study also includes a set of estimates of potential additional resources of natural gas in Cook Inlet ranging from trillion cubic feet to trillion cubic feet. A portion of any new recoverable resources may be located on state lands but to estimate any amounts at this time would be premature. 8 Mark P. Sweeney et al in the Cook Inlet Basin Institute for Pacific Alaska 9. Sweeney, op. cit., p. 38. Natural Gas Demand and Supply to the Year of South Central Alaska, Stanford Research LNG Company, November 1977, p. 37.

26 III-6 Unlike the case of Prudhoe Bay gas where the capacity of the pipeline can be used to determine the amount available to supply instate needs, in Cook Inlet the future production profile must be estimated. In addition, the existing contracts for Cook Inlet gas must be considered. The reserves and committments for the seven largest fields in Cook Inlet are shown in Table III.2. About 30 percent of the gas in these fields is committed for Alaskan and export uses. An additional 13 percent appears to be dedicated to the Pacific Alaska LNG project which would require approximately 3,200 billion cubic feet of gas to operate at design capacity over a 20-year period (161 billion cubic feet annually)_. To arrive at available royalty gas for future demands, one must determine non-committed gas in fields with committed gas, in this case 4,236 billion cubic feet, and compare it to total demand net of that component already projected to be met by dedicated gas, 1,622 billion cubic feet. The royalty component of this non-committed gas would be approximately 530 billion cubic feet. To this must be added the royalty component of those fields presently without committed gas. This would increase royalties by 148 billion cubic feet to 678 billion cubic feet. No attempt is made to estimate a future production profile for this royalty gas because of the number of fields involved and the fact that production from Cook Inlet is not, in contrast to the case of Prudhoe Bay, independent of the instate demands for gas.

27 TABLE III.2. ESTIMATED COOK INLET GAS SUPPLY IN FIELDS WHERE GAS IS COMMITTED (billion cubic feet) FIELD RESERVES DEDICATED UNCOMMITTED 12/31/76 Alaskan Uses Export l Proposed Export 2 Not Including Including Proposed Proposed Export Uses Export Uses Kenai 2, ,242 North Cook Inlet 1, ,020 Beluga 1, McArthur River Beaver Creek Ivan River Lewis River 22 I ,242 1~ H H H I -...J TOTAL 5, ,245 4,236 1 Ammonia-Urea and LNG. 2 LNG 3 Does not include gas from Kenai field rented for repressuring which will be available after perhaps 300 billion cubic feet. Note: All values are estimates because of the nature of the terms of gas delivery contracts. Source: Department of Natural Resources, Division of Minerals and Energy Management, Historic and Projection Demand for Oil and Gas in Alaska: , Table B.l., W.H. Swift et al. Alaskan Electric Power (comment draft) by Battelle Pacific Northwest Laboratories, Richland, Washington, for the Alaska Division of Energy and Power Development and the Alaska Power Authority, December 1977, Table V-2, and author 1 s estimates.

28 TABLE III.2. ESTIMATED COOK INLET GAS SUPPLY IN FIELDS WHERE GAS IS COMMITTED (billion cubic feet) FIELD RESERVES DEDICATED UNCOMMITTED 12/31/76 Alaskan Uses Export 1 Proposed Export 2 Not Including Including Proposed Proposed Export Uses Export Uses Kenai 2,175 I ,242 North Cook Inlet 1, ,020 Beluga 1, McArthur River Beaver Creek Ivan River Lewis River ,242 1, H H H I -..J TOTAL 5, ,245 4,236 1 Ammonia-Urea and LNG. 2 LNG 3 Does not include gas from Kenai field rented for repressuring which will be available after perhaps 300 billion cubic feet. Note: All values are estimates because of the nature of the terms of gas delivery contracts. Source: Department of Natural Resources, Division of Minerals and Energy Management, Historic and Projection Demand for Oil and Gas in Alaska: , Table B.l., W.H. Swift et al. Alaskan Electric Power (comment draft) by Battelle Pacific Northwest Laboratories, Richland, Washington, for the Alaska Division of Energy and Power Development and the Alaska Power Authority, December 1977, Table V-2, and author's estimates.

29 III-8 III.C. CONCLUSIONS The annual volumes of royalty oil and gas available from Prudhoe Bay between now and 2000 will depend on the pipeline capacity and decline function of the reservoirs. The oil volume may range from 69 million barrels per year to a high of 91 million barrels per year in the 1980s and may drop to between 21 and 40 million barrels annually by Royalty gas volume may be between 91 and 114 billion cubic feet annually with a constant rate of throughput until Royalty oil from Cook Inlet is presently about 6 million barrels annually and is declining. Uncommitted royalty gas is about 678 billion cubic feet, At a production rate of 34 billion cubic feet annually, this uncommitted gas would last about 20 years.

30 IV. CALCULATION OF SURPLUS OIL AND GAS IV.A. INTRODUCTION This report was prepared in response to Alaska Statutes, Section Sale of Royalty. The relevent section reads as follows: "(d) Oil or gas taken in kind by the state as its royalty share may not be sold or otherwise disposed of for export from the state until the commissioner with the approval of the Alaska Royalty Oil and Gas Development Advisory Board determines that the royalty-in-kind oil or gas is surplus to the present and projected intrastate domestic and industrial needs. The commissioner shall make public, in writing, the specific findings and reasons on which his determination is based and shall, within 10 days of the convening of a regular session of the legislature, submit a report showing the immediate and long-range domestic and industrial needs of the state for oil and gas and an analysis of how these needs are to be met." There is no indication as to how the terms "surplus" and "needs" are to be interpreted in the phrase "surplus to the present and projected intrastate domestic and industrial needs." The concept of surplus involves a determination of alternative sources of supply from which needs can be met. For liquid petroleum, the cost of transportation of products is relatively small so that the world market supply can be assumed available for use in Alaska if the Alaskan user is willing to pay the world price. Surplus can, however, be calculated simply as the amount of royalty oil available minus instate oil uses as long as the ease of availability from other sources is kept in mind.

31 IV-2 For natural gas, transportation is much more costly and thus local market conditions are much more important in the determination of surplus. The important question, given that natural gas is normally sold under long-term contract~ is whether there is sufficient supply available either as royalty gas or non-royalty gas which is uncommitted which can satisfy the requirements of users without gas contracts. To define need, one must at a minimum make assumptions regarding both economics and the types of uses which are considered necessary. Two polar types of economic assumption are possible. Need could be determined independent of the market value of the energy or the ability of consumers to pay for the resource. Alternatively, and the assumption of this study, the economic dimension of need is assumed to be based upon the idea that a need exists or a true demand exists if the economic value in use of the energy exceeds the economic cost of producing the energy for that use. The final question is to determine what categories of consumption should be included in the determination of need. In particular, what potential industrial uses of energy should be eligible to come under this statute. One could argue that existing domestic demand requirements should have priority over potential large industrial consumers. The economic benefits which the latter might bring to the state would probably not outweigh the real loss to existing Alaskan residents if a misallocation were to occur under the assumption of equally valid need in either case.

32 IV-3 This study cannot answer the question of the definition of need. It proceeds on the basis of the following working definition--the demands of existing consumers have priority over those of potential consumers and, among potential consumers, residential and commercial demands have priority over large new industrial consumers. IV.B. Oil The relationship between the projected instate demand for petroleum liquids and royalty oil available is shown in Figure IV.l. Bearing in mind that the transportability of petroleum liquids results in essentially an international market such that it is reasonable to expect a large proportion of future needs to be met by non-royalty oil, it is clear that Alaska's royalty oil is largely excess to instate needs through IV.C. Gas IV.C.l. Cook Inlet Gas Essentially all of the natural gas consumption assumed in the base case demand projection occurs in the Cook Inlet market except for a small amount of residential and commercial consumption at Barrow and industrial consumption as pipeline fuel for the oil and gas pipelines from Prudhoe Bay. Presently 96 percent of consumption occurs in the Cook Inlet market, and in 1995 the proportion will be 87 percent.

33 IV-4 FIGURE IV.l. RELATIONSHIP OF PROJECTED STATE ROYALTY OIL TO INSTATE DEMAND FOR PETROLEUM LIQUIDS ~C-0 SuG Dl = base D2 = high energy demand case use demand growth Rl = low production rate royalty share (1.5 million barrels/day) R 2 = high production rate royalty share (2 million barrels/day) S = low production rate total Million Barrels Annually in Barrels of Oil Equivalent zoo 100 D2. D\ s R'Z.. fl.ccc

34 IV-5 It is likely that the only gas 9-Vailable to serve this market will be Cook Inlet gas, both present reserves and any future discoveries. Summing the annual estimates of Cook Inlet demand requirements from 1976 to 2000 results in total estimated requirements of 5,211 billion cubic feet. (Table IV-1.) Committed gas is estimated at 1,622 billion cubic feet. Netting this committed gas out results in requirements to be met with uncommitted gas of 3,589 billion cubic feet. Uncommitted reserves are 5,422 billion cubic feet, of which 4,236 billion cubic feet are fields with committed gas and 1,186 billion cubic feet in other fields. The royalty share of this gas is 678 billion cubic feet. Clearly, Cook Inlet royalty gas is insufficient to meet the future projected Cook Inlet demand through The 678 billion cubic feet available could possibly meet the space heating requirements but little else with any margin for error. There would be a negative balance of 2,911 billion cubic feet. Total uncommitted reserves appear sufficient to meet needs through the year 2000, but little margin is available for unforeseen needs, potential large industrial demand increases, or demand after For example, a proposal to export LNG to California at the rate of 161 billion cubic feet annually would require 3,220 billion cubic feet over a 20-year lifetime. Such a facility leaves the region with a 1,387 billion cubic feet deficit position by 2000.

35 IV-6 TABLE IV.l. COOK INLET NATURAL GAS BALANCE: 1977 TO 2000 (billion cubic feet) DEMAND (A) Estimated Requirements 5,211 (B) Committed Reserves (C) Requirements to Meet Base Case Demand Projection (A-B) 3,589 SUPPLY (D) Uncommitted Reserves 5,422 (E) Royalty Portion of Uncommitted Reserves (D x.125) (F) Undiscovered Reserves 678? BALANCE (G) Total Reserves Available (D-G) (H) Royalty Gas Only Available (E-C) + 1,833-2,911

36 IV-7 There exists the potential for further gas discoveries in the Cook Inlet region which could serve the local market. Increases to proved gas reserves are in any event several years in the future and discoveries in the Lower Cook Inlet area are not royalty producing for the state. Thus, the state should adopt a cautious attitude toward the use of its royalty gas in the Cook Inlet area. IV.C.2. North Slope Ga~ for Cook Inlet The potential market for North Slope gas in Alaska outside of the Cook Inlet area clearly does not approach the amount of royalty gas available. Royalty gas could be transported to the Cook Inlet market, I although at great cost. Figure IV.2 plots the relationship between Cook Inlet demand for gas and Prudhoe Bay royalty gas. Prudhoe Bay royalty gas alone could not supply the Cook Inlet market. Neither could Prudhoe Bay royalty gas plus presently committed Cook Inlet reserves (which would average 68 billion cubic feet annually). Neither could Prudhoe Bay and Cook Inlet royalties plus presently committed reserves. The total uncommitted Cook Inlet reserves are much greater in quantity than the Prudhoe Bay royalty gas and are the obvious supply source for the Cook Inlet market.

37 FIGURE IV.2. sco RELATIONSHIP OF PROJECTED STATE PRUDHOE BAY ROYALTY GAS AND COOK INLET DEMAND ')DO.,. :a -=-=== == R c. + Re. Billions of Cubic Feet IOC:, R, «2. +~ R2. H < I ro \Cnl.o \C\'"lsO \q~5 \C\ io 1qq D = base case gas demand in Cook Inlet 1 R = low throughput royalty gas (2 bcf/day) 1 R 2 = high throughput royalty gas (2.5 bcf/day) R +c = high throughput royalty gas (2.5 bcf/day) + Cook Inlet committed reserves 2 R 2 +C+R = high throughput royalty gas (2.5 bcf/day) + Cook Inlet committed c reserves+ Cook Inlet royalties from uncommitted reserves

38 APPENDIX

39 APPENDIX A CONSUMPTION"DETAIL.. AND _METHODOLOGY A.I. REGIONAL DISTRIBUTION Table A.I provides an estimate of the distribution of energy con.:.. sumptionamong seven regions within the state. In some cases, data was available in a forin readily amenable to r_egional classification. In most cases, however, considerable manipulation was required for r.egional estimates. Consequently, the distribution shown must be considered a rough approximation of the actual distribution of energy consumption within the state, Each region is an aggregate of Census Divisions as defined by the 1970 U.S. Census: Northwest - Barrow, Kobuk, and Nome Divisions; Southwest - Wade Hampton, Bethel, Kuskokwim, Bristol Bay, and Aleutian Islands Divisions; Southeast - Skagway-Yakutat, Haines, Juneau, Sitka, Angoon, Wrangell-Petersburg, Prince of Wales, Ketchikan, and Outer Ketchikan Divisions; Southcentral - Matanuska-Susitna, Kenai-Cook Inlet, Kodiak, Seward, Valdez-Chitina-Whittier, and Cordova-McCarthy Divisions; Anchorage - Anchorage Division; tnterior - Upper Yukon and Yukon-Koyukuk Divisions; Fairbanks - Fairbanks and Southeast Fairbanks Divisions.

40 TABLE A.l. REGIONAL DISTRIBUTION OF 1976 ALASKAN GROSS ENERGY CONSUMPTION Petroleum Liquids (thousand barrels) Natural Gas distillates (thousand gasoline jet fuel & residual:': LPG:'o': MCF) Coal (thousand tons) Water Power (million HP hours) I. Northwest II. Southwest III. Southeast , IV. South central 766 1,451 1, , V. Anchorage 2,364 4, , VI. VII. Interior Fairbanks Unallocated TOTAL ,077 1, , , ,980 7,571 9, , :,::,. I J\.) *Total distillate= 9,257 thousand bbls; total residual= 636 thousand barrels. and electrical generation use is distributed regionally. Only transportation,'::':distribution is based on author's estimates. Equivalent to 825 thousand MCF of natural gas. Note: 12M barrels of kerosene used for heating not shown (unallocated) Source: See text.

41 A-3 Most fuel uses were allocated to r_egions. Exceptions were: 1) the small amount of kerosene used for heati_ng; 2) residential nses of coal, also a veriy small amount; 3) distillates and residuals used for heating and for military transportation. A~IL DATA.SOURCES A. IL a~ Data 1imitations For the most part, actual consumption.data for energy resources is not available and must be inferred from sales or deliveries, ignoring possible changes in inventory levels. Actual amounts of energy consumed or delivered are available, however, for those utilities required to report annually to the Alaska Public Utilities Commission or Federal Power Commission. There are numerous sources of data concerning Alaska energy consumption. Much of this data is fragmentary or conflicting, and it is difficult to identify the "best" single source. In general, the 1976 data utilized in this report comes primarily from four sources: 1) Alaska Department of Revenue (transpor>tation fuels}; 2) U.S. Rureau of Mines (non-tr>ansportation liquid petroleum uses); 3) Alaska Department of Natural Resources, Division of Oil and Gas Conservation (natural gas disposition}; and 4) U.S. Alaska Power> Administration (electrical generation and fuel consumption).

42 A-4 A.II.b. Liquid Petroleum A,II.b.L Distillates, Residuals, Kerosene, LPG The best source of data concerning most liquid petroleum fuels seems to be the monthly tabulations of refinery output destined for Alaskan consumption published hy the Bureau of.mines (BOM). 1 This data may not include some indirect sales hut appears to be a more complete and/or 2 accurate source than others., at least in recent years. Aggr_egate totals from this source were utilized, although information concer>ning militar>y, tr>ansportation, heating, and electrical generation uses were obtained elsewhere. A.II.b.2. Tr>anspor>tation Fuels Because of the state I s inter>est in obtaini_ng tax revenue from the sale of transportation fuels, it was felt that the most reliable estimates of consumption for these fuels would come from the Alaska Department of Revenue (DOR). 3 These data were utilized for tabulation of gasoline and jet fuel consumption and for> civilian distillate (diesel) 1 U.S. Depar>tment of Interior, Bureau of Mines. Mineral Industry Surveys "Crude Petroleum, Petroleum Products, and Natural Gas Liquids in PAD District V, 11 monthly. 2 see the discussion of alternative fuel data sources in Scott Goldsmith and Kent Miller, "Energy Consumption in Alaska," Institute of Social and Economic Research, Univers.ity of Alaska, Janua:r,y 1977, pp. A-4 to A sta:te of Alaska., Department of Revenue, "Repol'.'t of Motol'.' Fuel Distributed in Alaska," monthly.

43 A-5 transportation consumption. Most of the data are tabulated by region, although the regions utilized are judicial districts and differ considerably from those defined in this report. A,II,c. Natural Gas Primary sources of information concerning natural gas consumption were unpublished reports concerning production from each Alaskan gas field 4 and the disposition of gas from the Beaver Creek and Kenai Fields, 5 the only fields not having a single consumer (see Table A.2). Both were provided by the Alaska Department of Natural Resources, Division of Oil and Gas Conservation (DOGC). Total production and distribution for the state was supplemented by information provided by Anchorage Natural Gas concerning sales to consumers, including electrical utilities and the 1 6 mi itary. A.II.d. Electrical Generation Primary data concerning electrical generation (fuel consumption and output) for utilities and the military comes from an annual report of the 4 state of Alaska, Department of Natural Resources, Division of Oil and Gas Conservation "Report of Gas Disposition," annual, unpublished (computer printout). 5 state of Alaska, Department of Natural Resources, Division of Oil and Gas Conservation Kenai and Beaver Creek Fields Worksheets, annual, unpublished (hand tallys). 6 Alaska Public Utilities Commission, Annual Reports of Gas Utilities; and for sales to the military, Harold Schmidt of Anchorage Natural Gas (not reported to APUC).

44 A-6 TABLE A ALASKA NATURAL GAS FIELDS AND GAS PURCHASERS FIEtD Beaver Creek and Kenai Beluga River PURCHASER Anchorage Pipeline Company/ Collier Chemical/Tokyo Gas & Electric/ reinjection/various small purchases Chugach Electric Granite Point other producers McArthur River Middle Ground Shoal Collier other Chemical producers Nicolai Creek other producers North Cook Inlet Prudhoe Bay South Barrow Sterling Tokyo Gas and Electric other producers for electricity generation local utilities and Navy greenhouses Swanson River other producers Trading Bay other pr,oducers Source: State of Alaska, Department of Natural Resources, Division of Oil and Gas, personal communication.