For the first time in a decade, Alaskan oil heads for Asia

Amid energy boom in lower 48, Alaska looks to sell its oil overseas.

 

On September 26, a large oil tanker called Polar Discovery left the port of Valdez, Alaska, carrying just under 800,000 barrels of oil. Colin Halling, the director of oil market publications for an energy intelligence company called Genscape, was sitting at his computer in Sugar Land, Texas, where he monitors how much oil is moving around the United States at any given time, through pipelines, tankers, and by rail. He uses a program called Vesseltracker that picks up data transmitted by commercial ships about their cargo and destination.

A computer program called Vesseltracker detected a rare shipment of Alaskan oil headed for South Korea. Photo by Colin Halling

When a notification popped up on his screen saying an oil tanker was leaving the port of Valdez, bound for Yeosu, South Korea – 4,000 miles across the Pacific – Halling, who’s monitored oil transport around the U.S. for two decades, thought, “Hmm, that’s unusual.” Oil production in Prudhoe Bay, on Alaska’s North Slope, has been declining for years, so fewer and fewer tankers are leaving Valdez. Ships that do load up with crude here head mostly to a few refineries on the West Coast.

In general, oil produced in the U.S. is banned from export, but oil from Alaska’s North Slope is one of the few exceptions. After production exploded in the 1980s, President Clinton decided in 1996 that it was “in the national interest” to lift the ban in Alaska. For awhile, South Korea was the biggest foreign buyer, but as the surplus supply dwindled and wells aged, exports stopped. Until last month, no Alaskan oil had been exported from the state since 2004.

Halling remembered that energy giant Conoco Phillips worked in Alaska, so he called them up to find out what was going on. He learned that the price Conoco could get selling Alaskan crude to energy hungry South Korea was much better than the price offered by buyers on the West Coast. Thanks to the energy boom in places like Texas and North Dakota, the lower 48 is awash in cheap oil. The result: Alaska needs new customers.

“Bit by bit we’re seeing more North American crude being moved to other parts of the world,” says Halling, adding that it’s a sign oil production in the U.S. is starting to outpace domestic demand. A big question in U.S. energy circles right now is: Should the 40-year ban on crude oil exports be lifted?

When Congress passed the ban in 1975, the country was in the midst of an oil crisis. The goal was to conserve domestic reserves and protect American consumers from price shocks. But in recent years, the U.S. energy landscape has undergone a radical shift. New techniques like hydraulic fracturing and horizontal drilling have opened up previously inaccessible sources of shale oil. The U.S. is now poised to eclipse Saudi Arabia as the world's largest producer of oil.

Arguments for and against lifting the ban have been mounting. Those who oppose dispensing with the ban – mostly independent refiners – claim that exports could mean more expensive domestic oil for them, and higher prices for American consumers.

Oil companies, and many independent experts, on the other hand, argue that the opposite is true: selling crude on the world market will spur more production and increase global supplies. That would lead to lower international prices and, ultimately, a small reduction in the price Americans pay at the pump.

Although Alaskan producers already have a way around the ban, lifting it would level the playing field with producers in the Lower 48, says Douglas Reynolds, an oil and energy economics professor at the University of Alaska-Fairbanks. The domestic market would be less flooded, causing oil prices in the lower 48 to go up. That shift would pave the way for Alaskan oil – which is more expensive to produce – to re-enter the domestic market.

But in the meantime, at least Alaska has access to Asia, where demand is high. The benefits are significant, says Halling. Alaskan oil production, long the pillar of the state’s economy, is declining. The 800-mile Trans-Alaska Pipeline, connecting the North Slope with Valdez is currently operating at 25 percent of its capacity, carrying 500,000 barrels per day instead of the 2 million it was designed to handle. So Alaskan producers are looking to squeeze every possible dollar they can from the oil they pump. Combine that with all the cheap oil flooding the U.S, and Halling says the Polar Discovery is probably not the last tanker that will depart Valdez for Asia in the months to come.

That may be true, says Reynolds, but he cautions that Asian markets alone won’t result in a flood of new Alaskan production. Taxes have lot more impact on production than prices being a few percentage points higher or lower, he says. What would really increase production? According to Reynolds, “opening up ANWR – (the Alaska National Wildlife Refuge) – to oil drilling” would do the trick.

Sarah Tory is an editorial intern at High Country News.