Tech Talk - of Alaska, Libya and the belated bleat of awareness of a problem

I have written in earlier posts about the problems that the Trans-Alaskan Pipeline System (TAPS) will face, as production declines below 500,000 bd. The conclusions from that post are pictorially summarized in a graph in the recent edition of the Oil and Gas Journal.

Figure 1. Declining throughput through TAPS showing the points of concern (OGJ)

Looking at current figures, in September the pipeline had an average throughput of 524,181 bpd against the year-to-date average of 528,092 bpd. It has just passed below the upper limit at which operational difficulties can be anticipated, due in part to the flow being too slow to keep the temperature high enough to prevent wax from separating from the fluid, and starting to block valves and critical infrastructure. Because of the long lead times, and high capital requirements for the development of new fields in the Arctic, and the likely probability that these will not yield significant production until at least 2025, the article is pessimistic about both the fate of the pipeline, and future Alaskan production.

Despite those declines OPEC remains optimistic, in their October Monthly Oil Market Report that the world producers can continue to meet global demand as they foresee it rising to an average of 89.7 mbd this year, and then going up to 90.8 mbd on average next year. They foresee, for example, that non-OPEC supply will increase this year by 1.1 mbd (to 54.1 mbd) led by production gains from the USA, Brazil, Kazakhstan, South Sudan and Sudan. Next year they see an additional non-OPEC growth of 1.2 mbd with Canada replacing Kazakhstan among the five countries that will make up this additional production. In contrast OPEC itself is reducing production, with overall production reported to be down 390 kbd in September.

The gain in crude oil production seen in the US, which has risen from 5 mbd to an average of 7.3 mbd in the first seven months of this year has had a significant impact on these projections, though the change in the mix of product now available to the Gulf refineries will continue to have some impact on the overall import picture. This is because, as the EIA note, some of the heavier crude refineries along the Gulf are tied to foreign producers including Pemex of Mexico, PDVSA of Venezuela, and Saudi Refining (for a combined total of just under 2 mbd).

Yet it remains difficult to sustain the optimism that OPEC project. Libyan exports, at one time running up around 1.25 mbd remain down at some 90 kbd, due to tribal disruptions and internal political disputes that show little sign of resolution.

Figure 2. Recent Libyan oil production (Energy Policy Info)

Certainly the physical ability to return to around pre-disruption levels has been demonstrated, but the weakness of the central government does not indicate that the political problems will be resolved in the near future. And until they are there is the best part of 1 mbd being with-held from the market. This drain from global supply is not yet disruptive since it has, to date, been largely picked up by the Kingdom of Saudi Arabia (KSA).

The picture from the combination of Sudan and South Sudan following the division of the one country into two has not been promising, however it appears that the overall total decline has now been halted, and recent reports have raised production to somewhere between 190 kbd and 240 kbd.

Figure 3. Change in oil production from Sudan and South Sudan following the division of one country into two. (Council on Foreign Relations )

The IEA is not optimistic that the return to production will be as smooth as others think:

“Industry sources have been quoted as saying that restarting oil production could take six months or even longer, since the lines have been filled with water and because some wells were not closed properly.”

The OPEC projection that overall Sudanese production has returned to the 240 kbd level may, therefore, be still an optimistic estimate. The increase to 175 kbd following the repair to the pipelines from the Majnoon field in Iraq is encouraging (although the high level of violence that continues in that country does not give high confidence that the pipeline might not be struck again.)

The increased production from the Kashagan field in Kazakhstan – anticipated to rise to 75 kbd - has again been hit following system leaks so that this increased production that OPEC had anticipated has, again, been postponed.

And while production has now started from the Espirito Santo in the pre-salt fields off Brazil, it is not clear whether the production gains will offset the declines that have occurred in Brazilian production in recent months.

Figure 4. The Espirito Santo floating production storage and offloading (FPSO) vessel (Shell )

Just as there is a perception that the United States is heading toward independence in energy needs (a fallacy I have written about several times in the past), so there is a perception that OPEC is becoming a less critical supplier. This is far from the case. KSA has been producing over 10 mbd for the last months, in order to offset the loss in Libyan oil to the market, and the combined production of KSA, UAE, Kuwait and Qatar now supplies 18% of global demand. This is only the second time that this number has been that high in the past 30 years. It comes at a time when the Middle East is supplying 25% of Chinese oil demand, as that country passes the United States to become the largest importer of oil.

Figure 5. OPEC oil production (numbers compiled from secondary sources (OPEC MOMR October )

This comes at a time when the world still wonders about the actual oil balance as it flows in and out of China.

Unfortunately the picture that is emerging continues to show that OPEC is tending to be overly optimistic in its forecasts for production, which does not bode well for future supplies of fossil fuel.

Given that a group of environmental scientists have just released a letter calling for increased investment in nuclear power since, to quote James Hansen:

Hansen, who’s now at Columbia University, said it’s not enough for environmentalists to simply oppose fossil fuels and promote renewable energy.

“They’re cheating themselves if they keep believing this fiction that all we need” is renewable energy such as wind and solar, Hansen told the AP.

This comes a bit late, since as I noted recently, it takes over a decade to build a new nuclear power plant, and with the current schedule for existing plant closures moving inexorably along their timetable, this may presage a decade of power shortages. We shall see!! But in the meanwhile we had better hope that those folk concerned over the possible shut down of the Trans Alaskan Pipeline because of inadequate flow are being just a tad pessimistic.

OGPSS - China's energy and a conclusion

Although Energy Policy has not been a significant issue in the current political debate over who should be the next President of the United States, this has not been a particularly good month for that future. In August the Alaskan pipeline pumped an average of 399 kbd from the North Slope. As winter approaches that number needs to be above 350 kbd to ensure that there are no solids built-up within the pipe, and each year the numbers fall a little closer to that limit.

Just this past week Shell has announced that they will not complete any wells in the Chuchki Sea this year, but will only partially drill a number of wells, and leave completion until next year. This despite the fact that the Arctic Ice acreage fell to the lowest level in 33 years, the time over which these measurements have been made. Further over in Russia, the promised development of the Shtokman field, which has been postponed several times in the past, has again been put back on the shelf. The arrival of increasing quantities of shale gas, and the loss of the market to China have reduced the need, in the short term, for these supplies. At the same time the Russian government is, again, seeking support from Western companies for developments in East Siberia and offshore. They are, apparently, still courting BP.

Overall US Crude production has stabilized, following the impacts of Hurricane Isaac, but is not following the steadily upward production path that folks such as Wood Mackenzie would anticipate. That would require that the curve continue upward at a gain of around 0.5 mbd/year, which would be around the overall average for the gain this past year, but as a continuing slope, passing through the current apparent plateau.

US Crude Statistics for the week of Sept 20th 2012, (EIA TWIP)

It is this halt in the increase in oil production that is, perhaps, of the most concern to China (as well as the rest of us), since, while it can be shown that China has been able to provide for its future intermediate-term demand for natural gas and coal , they must have less confidence in their ability to sustain their growing demand for oil. The presumptive reason for that lack of confidence should come from a realistic assessment of their growth in demand, relative to the supply and demand scenarios for the rest of the world, Figure 1 playing some part in that realistic analysis.

The disagreements between China and Japan over island ownership in the China Sea is continuing to roil the waters. While the issue is nominally over who owns the Diaoyu/Senkaku Islands, the aggressive position that China is taking not only here, but also with other nations that border on the South China Sea show no signs of diminishing. Following a meeting between Secretary of Defense Panetta and the Japanese Foreign Minister Koichiro Gemba, the Japanese have stated that the US recognizes that the disputed islands fall within the purview of the U.S.-Japan security treaty. China, in response, is sending hundreds of fishing boats into the region, as well as official government ships that will monitor events.

“We will send monitoring ships in waves, and have them remain around the Diaoyu Islands at all times to display our will to defend our sovereignty,” the Chinese official said. The official added that the Fisheries Bureau will also work closely with the State Oceanic Administration.

According to the Fisheries Bureau, as of Sept. 19 more than 700 Chinese fishing boats were operating within 127 nautical miles, or 235 kilometers, of the Senkakus. Of these, 23 were within 60 nautical miles, or 111 km.

The official said commercial fishing boats will enter waters close to the islands at a time to be decided “based on the situation,” indicating that it will depend on Japan’s response.

Figure 2. Chinese fishing boats off the Senaku/Diaoyu Islands (Asahi Shimbun )

We are coming to the end of the period where increases in global demand for oil could be met by developing new reserves, or by expanding the production from older fields. Yet, while driving across America this past week, the amount of investment being made in repairing the interstate highway system, and expanding the number of lanes bringing cars into the cities shows that there is continuing commitment to automobiles and truck transport in the USA. (And as an aside there appeared to be more trucks on the road than I remember seeing in the past 3 or 4 years).

With a slow but significant re-growth in the American economy, certainly helped by the low price of natural gas, there remains a serious lack in viable alternative fuels to replace oil for use in transportation. Thus the demand for oil in America and Europe will continue to be sustained. It will continue to rise in those countries such as Brazil, Russia, China and India where automobile use has yet to fill the potential market. For the next few years Brazil and Russia can probably meet demand from their increased use of internal supplies, albeit by reducing exports. India and China, and their ilk, cannot.

Conflict over resources is, of course, not by any means new. Maschner and Reedy-Maschner have documented such conflicts in the Pacific Northwest during early arrivals of native peoples from Siberia, and conflict and warfare (as evidenced from skeletal remains) is pervasive throughout human history, from some of the earliest of times. (Stone weapon points found in mastodon skeletal remains are also found associated with some early human skeletal remains, showing that the tools were likely causes of the death of both).

The problem, however, that comes in the future is not just that the more powerful nations of the planet will need more crude oil resources than they can provide for their peoples on their own. It is that it will become more difficult to identify places where it is practical to carry out an invasion that will then provide the needed volumes for a given country. Evidence of recent conflicts (Iraq is a prime example) show that conflict makes resource recovery more difficult and delays levels of production that might be achieved if the conflict did not occur.

Perhaps the Chinese use of fishing fleets is an attempt to achieve its goals, without going to physical war. If so, it is unfortunate that the locations in which it can be deployed are likely to be few. Yet, at a time when most of the rest of the world appears unwilling to face the coming limitation on a vital resource, or to recognize that a problem might even exist, the Chinese awareness of the situation and their pro-active positioning of themselves to assure reserves ahead of other nations is beginning to be a greater concern.

OGPSS - pipelines from the North

Art Berman commented, in regard to my last post on the oil and gas reserves offshore Alaska, that at one time companies looked for an estimated 1 billion barrels in reserves, before they would consider starting down the long road to bringing them to market. With the rising price of oil, that number may have declined a little, but for natural gas a similar need for a long-term assured market is currently potentially raising barriers to progress. As I mentioned in that post, there is a considerable sum involved, not just in acquiring the leases for the sites, but in all the preparatory work needed before the first drill even hits the surface. But even after the wells have come in, the hydrocarbons must still be moved down to the customer, and as the Trans-Alaska Pipeline System (TAPS) showed, it takes time, money and a considerable commitment before that connection can be made.

One of the recent changes that I noted a couple of posts ago, is that more of the reserve in the North Slope is now known to be natural gas, rather than oil. With the current relative natural gas glut in the contiguous United States, that reduces the immediate market, and the potential current price that the gas could bring in. This, in turn, slows lease development. But times change, and with an increase in natural gas demand there will be a growing demand with time. One can also see an increased future need for natural gas in Alberta, where it helps in the production of the heavy oils from the shallow sands around Fort McMurray. And that brings us to the current controversy over the building of another pipeline, this time for natural gas, down from the Arctic.

Possible TransCanada gas pipeline routes from the North Slope, showing connecting pipeline networks, both for it and the MacKenzie River pipeline. (TransCanada)

More particularly I thought I would tie in the problems that the MacKenzie Valley Pipeline has had in Canada, with the debate about the Alaskan pipeline. This is not so much to argue either side, but rather, in showing some of the delays that have arisen, to underscore one of the points that these last few posts have been hopefully suggesting. This is that when somebody says that all we have to do is go out there and drill to solve our energy problems, they really don’t understand the complexities of the real world. The MacKenzie River flows into the Beaufort Sea just to the East of Alaska, in the Canadian Northwest Territories.

Proposed path for the MacKenzie River Pipeline

The recent application for approval of the MacKenzie River pipeline was originally filed in August 2004. But by then the project was already old. Back in 1977 Mr. Justice Berger (a Canadian Judge) who had examined the project over a three-year period, recommended that it be put in abeyance for 10 years, following his Inquiry. A major concern of the time was the expressed opposition of many of the native tribes (First Nations) through whose land the pipeline would run.

Move forward some 34 years, and some of those tribal leaders are now in favor of the project. And while, in that time frame, the Canadian Government had pledged billions to the First Nations of Canada, with recent emphasis being on schools, water and community services, a more likely reason is because of the work of settling land claims, (all the land belongs to the First Nations) and, for example, that the Inuvialuit now own the company that runs the barges up and down the river. At the same time, through the Aboriginal Pipeline Group, the First Nations will now also own a third of the pipeline itself.

At the time that the National Energy Board approved the project it included the development of three natural gas fields (Niglintgak, Taglu and Parsons Lake), about 120 miles of gathering pipelines and an almost 300-mile natural gas liquids pipeline as well as the 743-mile pipeline itself, which will carry 1.2 Bcf/day of gas down to Alberta.

With construction now scheduled to begin in 2014, (and to occur mainly during the winter months) it is expected that the pipeline will be in operation by the end of 2018, at a cost of $16 billion. It will take some $800 million to develop the Niglintgak field with 6 - 12 wells started from 3 pads. It will take some $2.5 billion to develop the Taglu field, with 15 producing wells extended from a single pad, but requiring a compressor and more wells as the field ages. And the cost of the Parsons Lake field is anticipated to be around $2,5 billion with two drilling pads that will hold from three to nineteen wells.

Now move West a tad, and Alaska also has those significant gas resources that I have mentioned in previous posts. They are, however, not quite as far along in the process of getting a pipeline in place to move it to where it becomes a real reserve. I will forego exploring the idea (mentioned in comments on earlier posts) of converting the natural gas to methanol and sending it down TAPS to Valdez, where it would be separated from the oil, and converted into gasoline. (Although, because methanol is corrosive to pipes, the plan is moving toward doing the conversion to gasoline near Deadhorse, and mixing the gasoline with the crude.) The initial target for the project would produce 63 kbd of gasoline, with an original estimate of the cost being around $7.7 billion.

Moving the natural gas itself through a new pipeline, however, requires customers, and while a number of different proposals have been put forward, the lack of such customers at this time recently caused Denali to discontinue their efforts to build a 48-inch diameter pipe that would carry up to 4.5 Bcf/day from the North Slope to Alberta.

Path of the proposed Denali Natural gas line from the North Slope. (Denali )

TransCanada, who remain in the hunt, is also finding it hard to find any firm customers. Given that they estimate that the cost of a similar sized pipeline would run between $20 and $41 billion, depending on whether the line feeds an LNG plant in Valdez, or runs over into Alberta, they are hesitant to move forward, even though they will receive $500 million for planning the project, and getting the regulatory approvals. (The top map shows both alternatives)

The TransCanada/ExxonMobil option to Valdez. (Alaska Pipeline Project)

Nevertheless TransCanada and Exxon, who are now partnering in the Alaska Pipeline Project have held meetings with the project communities likely to be affected by the project, offering refreshments and door prizes for the present and potential feeder lines in the future. Their presentation can be found here, and notes that under the current schedule first gas will flow in 2021.

By that time it is quite likely that there will be more of a demand for natural gas supplies in the anticipated market, but convincing investors and potential customers of that is likely to be an uphill task in the more immediate term, and the project will likely not be able to make headway until those folk show up. And so, while it may not take the almost 40-years of the MacKenzie River pipeline (which isn’t started yet) the current Alaskan effort is likely to take longer than currently hoped.

The Alaskan Pipeline stoppage

Some years ago I drove up the Dawson Highway from Fairbanks to the Yukon River, and as the highway paralleled the Trans-Alaska Pipeline, we stopped at one of the pumping stations to take a look. I think we were there about a minute before a security vehicle came whipping up alongside to tell us a) that we were not permitted to stop there and b) that we couldn’t take photos. Which is why I am not illustrating the post today about the leak at one of the pumping stations, with my own photo of one. However I am quite happy to borrow one from the Pipeline Website.

Pump Station 1 (Alyeska Pipeline )

The pipeline was shut down on January 8th when the leak, which is in a section of pipe feeding into the first of the pump sets along the line, occurred. Because the leak was within the plant the leak was caught early, only 10 barrels of oil spilled into the basement before the system was shut down. While the initial options were to either repair the leak, which is in a length of the pipe that is encased in concrete, or bypass it, the current plan is to install a bypass length of about 157-ft which will effectively replace the damaged section and bring the system back on line. This is expected to happen before the end of the week. As long as this holds true then the impact of this short-term 650 kbd of oil will be minimal, since the oil feeds into storage tanks that remain, at the present, comfortably full. Unfortunately the company did not have spare parts on hand, and these have bad to be made in Fairbanks, and transported to the site at Prudhoe Bay.

UPDATE: Because of fears of the problems caused by the falling temperatures in the pipeline, the flow has been restarted at a low level, without the bypass installed. I have added a paragraph of explanation at the end of the story. And in a further UPDATE, the problem pig is stuck about half-way down the pipeline.FURTHER UPDATE (THURS) The pipeline is now flowing at around 400 kbd but the pig is still moving to the transfer point, and remains in the line, but with no problems encountered, except that the leak is worse, but that should be be fixed this weekend.

Last November, for example, one the runs of the instrumented pigs down the pipeline indicated that there might be significant corrosion in the pipeline at Isabel Pass.

Isabel Pass, is a gap in the eastern mountains of the Alaska Range. Located approximately 11 miles north of Paxson at Pipeline Milepost 592.50, the Top of the World is geographically known as a funnel valley, a land feature that compresses the wind flowing north or south of the Alaska Range through this narrow passage. Work at the site was, in fact, halted for two days due to extremely high winds in mid-November.

The second challenge with this site also involves geography: the confluence – the meeting point – of Phelan Creek and the Delta River. The pipeline runs directly under this northern waterway. Aufeis – groundwater that swells up through layers of ice – is also a common feature at this location, adding to the water challenge of this project.

Interestingly back in 2006, when flows along the pipeline were reduced to 650 kbd, the lower flow caused some vibrations along the pipeline just south of Isabel Pass. At that time the pipeline was still producing 800 kdb, from a peak supply of over 2 mbd. It has now fallen pumping some 642 kbd in December, against an annual average of 620 kbd. That drop in flow rate has also increased the time it takes the oil to reach Valdez. (Since the pipeline remains full, at lower flow volumes, the oil moves more slowly than it did at peak). Thus a transit time of 4 days at peak production, now takes 13 days to arrive. Because of the longer residence times in the pipe, the oil, which enters the pipe at 110 def F cools more than it did before, and below 70 deg F wax begins to precipitate out on the walls. This has to be removed, and that means that the pigs used to clean the pipe are sent down more frequently now. (Every 4-7 days instead once every few weeks).

The next concern long-term problem may come as flow continues to drop may come if/when the flow drops below 500 kbd, since at that point the temperature may fall below 32 degrees, and ice may start to form in the pipeline. (H/t Luke H). ) However, in the short-term, this is the longest the pipeline has been shut down in winter and if the delay continues much longer, Alyeska President Kevin Hostler has explained the problem to Congress thus:

Our current studies and plan indicate that if the pipeline is shutdown during continuous minus 40 F temperatures, we will need to restart within 14 days to avoid significant problems. If BP reduces throughput this winter to 500,000 barrels or less, we may only have 9 days to restart after a cold temperature shut down.

There are four issues about cold restart that concern us: the crude oil develops a gel strength that is too strong to allow pipeline start-up; water drops out of the crude oil, collects in low spots, and freezes; ice in the pipeline upon restart could plug the mainline pump suction piping and custody transfer flow meter strainers, causing restart to fail; and the pipe steel temperature cools to minus 40 F or minus 50 F, making pipe welds susceptible to fracture.

The pipeline was designed for quite sever loads, Luke H, put up some pictures after my pipeline post, showing how it coped with an earthquake that moved the earth along the pipeline route.


And after the earthquake

(Photos from Luke H ).

Overall it looks as though this stoppage may not, in itself, cause any problems, but as with so many events in the oil business, these days, it is a warning of problems in the years ahead.

UPDATE: Well about the time I was writing this story, Alyeska began pumping oil down the pipeline again. They had found a way to temporarily route oil around the leak, so that enough flow could be achieved to stop the pipe from reaching the freezing point. The problem is made worse in this case because there is a pig in the line, and a continued drop in temperature would cause ice and wax to settle in the pipe. Then, when the pig moved, it would sweep this material before it, and if there was enough of it, this could then cause a pipe blockage, or get into and damage the pumps. By starting the pipeline before the temperature falls that low, the pig can be moved to a place where it can be taken out of the line. At the same time the line temperature can be brought back up to the level where some of the solids will re-melt and move back into circulation. It is still going to take about four days to get the parts needed for the bypass finished, and this would have taken the pipeline into the critical time period for a cold restart. The leak is continuing to flow small amounts of oil, and a total of 1,200 barrels has now been captured. The company are accepting the consequences of the leak continuing.

The restart would cause a small amount of oil to leak from the broken pipe that was discovered last weekend, but industry officials said that leaking a little more oil was better than leaving liquid idle in the pipes in freezing temperatures. Without warm oil moving through the system, water in the pipes could freeze and expand, possibly causing cracks in the pipeline or around the North Slope oil wells. . . . . . . .Industry officials in Alaska said that if it took more than a week or two to repair the leaky pipe, many wells could also suffer damage from freezing water.

A freeze in the system “is a nightmare, a worst-case scenario” that could shut production for several weeks, said one Alaska oil executive, who asked for anonymity because he was not authorized by his company to discuss the situation.