There’s little doubt the world is headed into a transition in how we use energy. This will affect oil-producing states like Alaska and our petroleum industry. That’s an important part of our economy.
There’s no reason for hand-wringing. Alaskans are adept at reinventing, and we’ll adapt to this transition.
This won’t be abrupt, for one thing. The world will continue using fossil fuels, but we’ll use less of them as renewable energy becomes more and more competitive, and as less carbon-intensive fuels are developed.
A potential less carbon-intensive fuel is ammonia, which is made of nitrogen and hydrogen. The hydrogen is the fuel. There are no carbon emissions. There are nitrogen emissions, but we deal with those now. Alaska may play a part in the hydrogen-ammonia transition, too, with our huge, stranded natural gas resource on the North Slope — more on this in a future column.
Basically, traditional fossil fuels industries will change. Alaska and its petroleum industry will change with it. The shift is already underway, although most Alaskans have not noticed it.
For example, oil no longer pays most of the bills for state government. Two-thirds of revenues to support our state will now come from earnings of Alaska’s $70 billion-plus Permanent Fund.
Petroleum still pays a third, however, which is substantial. The industry itself is vital to our economy, too.
Oil jobs pay some of the highest wages in the state, and contrary to myth the vast majority are Alaska residents.
However, the oil-gas job count is down to less than half of what it was in 2015 thanks to lingering effects of the oil price crash that year and the demand and price collapse during the pandemic last year.
Prices and demand are up again, but the jobs are not yet coming. That’s because oil producers are skittish about the market, which is still volatile, and they’re not yet ready to fire up a lot of drill rigs. There are worries about uncertainties over the energy transformation, too.
Oil producers will take care of themselves, of course. They’re run by smart people who see transition coming and many companies are repositioning themselves.
However, most Alaska jobs in the industry come through the support and service companies, not the producing companies. Most of these are Alaska-based and owned, many of them by Alaska Native corporations.
Our homegrown oil support industry is starting on its own transformation as well. Many companies are diversifying and using skills and technologies developed for oil to work in other Alaska industries, like power generation and mining — and by the way, Alaska’s mines, though few in number, are doing quite well.
One other way our Alaska industry support companies adapt is to become smarter, mainly through technology. Even if oil’s share of the energy market gradually shrinks our Alaska producers and support, companies should be able to stay competitive and retain market share.
To do this, the producing companies will have a laser-like focus on controlling costs increasingly through technology, with Alaska support companies helping.
They are already driving down costs for new oil developed. Just a few years ago, the rule of thumb was that it took $65-plus per barrel oil prices to develop new oil on the North Slope. Now it’s $40 per barrel or less.
The rigid focus on cost control may cool the regrowth of industry jobs in the short term, but in the long term, it’s good if it helps keep Alaska competitive.
When the market is slowly shrinking, the producers who can control costs will keep market share, helping them ride through the transition.
Technology change can take out-of-the-box thinking, and Alaskans have done that. For example, horizontal drilling of oil production wells, which has revolutionized the industry worldwide, was invented right here. Some of its critical components, in fact, were developed in contractors’ machine shops in Anchorage, basically by blue-collar guys with tools.
“Multilateral” wells, where several underground producing legs are drilled horizontally off a single oil well from the surface, were also first done in Alaska. These innovations have created huge cost savings in surface infrastructure, to say nothing of the smaller environmental footprint.
Those were 1980s innovations, but the process continues. In ConocoPhillip’s Alpine field on the North Slope today, Doyon Drilling’s new Rig 26 is drilling into an underground oil deposit seven miles distant from the surface location of the drill rig. Doyon Drilling is Alaskan-owned, by the way, by an Alaska Native regional corporation.
We need to work on making new products with our resources including the huge coal deposits in the state, too. This is where we need a well-funded University of Alaska — hello, Legislature.
The most out-of-the-box idea I’ve heard in the Alaska industry, which I think could someday happen, is a creative concept thought of by Alaskan petroleum engineers for tapping the huge “Ugnu” heavy oil resource on the North Slope, a large undeveloped deposit — much of the reservoir is frozen in shallow permafrost.
The idea is to drill and produce Ugnu from underground with horizontal shafts built to allow drilling into the oil reservoir rock from below. Pipelines and utilities would be underground as well.
The concept isn’t new. Underground miners have been doing things like this for years in Alaska and elsewhere. The advantages of this are obvious in minimal surface impact and with people and equipment working in a controlled environment. New kinds of small, compact drill rigs are needed for the underground drilling, but basically, the mining industry does this all the time.
It’s a radical idea, but no more than drilling long-distance horizontal wells seemed a few years ago.
The good news is that our resource endowment is still huge and existing infrastructure like the Trans-Alaska Pipeline System is being well taken care of.
But Alaska’s industries do face challenges, and not just energy transformation, but with climate change, too. That will affect permafrost on the North Slope, which provides stable soils for industry to work on.
Challenges create opportunities, though. What a great place for a young person to be, in on the ground floor when an industry reinvents itself. Mining a big oil field from underground — what an idea!
Tim Bradner is editor and publisher of the Alaska Economic Report and Alaska Legislative Digest.
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