There is no doubt that the world is headed for change in the way we use energy. This will affect oil producing states like Alaska and our petroleum industry. It’s an important part of our economy.
There is no need to wring your hands. Alaskans are adept at reinventing themselves and we will adapt to this transition.
For one thing, it won’t be abrupt. The world will continue to use fossil fuels, but we will use less of them as renewable energies become more competitive and less carbon intensive fuels are developed.
A potentially less carbon intensive fuel is ammonia, which is made up of nitrogen and hydrogen. The hydrogen is the fuel. There are no CO2 emissions. There are nitrogen emissions, but that’s what we’re looking at now. Alaska could also play a role in the transition from hydrogen to ammonia with our vast, stranded natural gas resource on the North Slope (more on this in a future column).
Fundamentally, the traditional fossil fuel industry will change. Alaska and its petroleum industry will change with it. The shift is already underway, although most Alaskans haven’t noticed.
For example, oil no longer pays most of the state government’s bills. Two-thirds of the proceeds to support our state will now come from the proceeds of the US $ 70 billion Permanent Fund of Alaska.
However, petroleum still pays a third, which is considerable. The industry itself is also of crucial importance to our economy.
Oil jobs pay some of the highest wages in the state, and contrary to myth, the vast majority are Alaska residents.
However, due to the ongoing impact of the oil price crash this year and the collapse in demand and prices during the pandemic last year, the number of oil gas jobs has fallen to less than half its 2015 level.
Prices and demand are rising again, but the jobs are not yet coming. This is because oil producers are skeptical of the market, which is still volatile, and are not yet ready to bring many drilling rigs up and running. There are also concerns about the uncertainties surrounding the energy transition.
The oil producers will of course take care of themselves. They are led by bright minds who are about to change and many companies who are repositioning themselves.
Most jobs in the Alaska industry, however, come from the support and service companies, not the manufacturing companies. Most of them are Alaska based and owned, many of them from Alaska Natives companies.
Our domestic oil production industry is also beginning its own transformation. Many comoanies diversify and use skills and technologies developed for oil to work in other Alaskan industries, such as power generation and mining (and, by the way, Alaska’s mines, although few, are doing quite well).
Another way our industrial companies in Alaska are helping the customization is to get smarter, mostly through technology. Even if the share of oil in the energy market of our Alaskan producers and support gradually shrinks, companies should be able to stay competitive and maintain market share.
To do this, manufacturing companies will have a laser-like focus on increasingly controlling costs through technology, with Alaska support companies helping.
They are already driving down the cost of newly developed oil. Just a few years ago, the rule of thumb was that it would take the oil price per barrel over US $ 65 to develop new oil on the North Slope. Now it’s $ 40 a barrel or less.
The rigid focus on cost control can slow industrial job growth in the short term, but in the long run it helps keep Alaska competitive.
As the market slowly shrinks, manufacturers who can control costs will keep their market share and help them make the transition.
Technological change can require unconventional thinking, and the Alaskans have done that. Here, for example, the horizontal drilling of oil wells was invented, which revolutionized the industry worldwide. Indeed, some of its critical components were developed in the Anchorage contractors’ workshops, essentially by workers with tools.
“Multilateral” wells, in which multiple subsurface production branches are drilled horizontally from the surface from a single oil well, were also first drilled in Alaska. These innovations have resulted in huge cost savings in surface infrastructure, not to mention the lower environmental footprint.
These were innovations from the 1980s, but the process continues. In ConocoPhillip’s Alpine field on the North Slope, Doyon Drilling’s new 26 rig is drilling into an underground oil reservoir seven miles from the rig’s surface location today. Incidentally, Doyon Drilling is owned by a regional Alaska Natives company in Alaska.
We must work to use our resources, including the huge coal reserves in the state, to create new products. Here we need a well-funded University of Alaska (hello, legislature).
The most unusual idea I’ve heard in the Alaskan industry that I believe could happen one day is a creative concept devised by Alaskan petroleum engineers for the development of the vast Ugnu heavy oil resource on the North Slope, a large untapped deposit ( much of the reservoir is frozen in shallow permafrost).
The idea is to drill and produce Ugnu from underground, building horizontal shafts to allow drilling into the oil reservoir rock from below. Pipelines and utilities would also run underground.
The concept is not new. Underground miners have been doing this sort of thing for years in Alaska and elsewhere. The advantages are obvious in the minimal surface load and when people and devices work in a controlled environment. New types of small, compact drilling rigs are needed for underground drilling, but basically the mining industry is doing this all the time.
It’s a radical idea, but no more than drilling long-range horizontal wells seemed like a few years ago.
The good news is that our resource base is still huge and existing infrastructure such as the Trans-Alaska Pipeline System is well maintained.
But Alaska’s industry is facing challenges, not just the energy transition, but also climate change. This will affect the permafrost on the North Slope, which provides stable soils for industry.
But challenges also create opportunities. What a great place for a young person on the first floor when an industry is reinventing itself. Extracting a large oil field from the underground – what an idea!
Tim Bradner is the editor and editor of the Alaska Economic Report and the Alaska Legislative Digest.