North Slope oil production could shut down as early as 2035 according to new U.S. government report

The U.S. Energy Information Administration (EIA), in its Annual Energy Outlook 2012, projects that Alaska North Slope oil production could shut down as early as 2035 under their Low Oil Price case.

The EIA report assumed that for North Slope fields to be shut down, Trans-Alaska Pipeline (TAPS) throughput would 1) be at or below 350,000 barrels per day and 2) total North Slope oil production revenues would be at or below $5 billion per year. At that time, EIA assumes TAPS would be decommissioned and dismantled and North Slope exploration and production would stop. The EIA estimate is based on:

• Current maintenance capital expenditures of $1.6 billion annually
• Estimated operating expenses of $1.28 to $2.56 billion annually
• Alaska royalty cost of $1 billion annually

The agency estimated that in the Reference and High Oil Price cases, oil prices are high enough to stimulate the new development of new fields for new production, and to provide sufficient revenues to maintain existing North Slope production. The two most important variables affecting the long-term viability of North Slope oil production and continued operation of TAPS, according to the agency report, are the wellhead price North Slope producers receive and the cost of developing new resources.

The report does not evaluate the impact of Alaska's oil tax structure, which adds significantly more than the $1 billion in estimated royalties to the cost of production.

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