Alaska’s economy is in broad upheaval due to the triple threat of low oil prices, poor returns on investments to the state funds, and social disruptions preventing people from going to work due to the ongoing coronavirus pandemic. However, one business deemed to be critical infrastructure is the oil and gas industry, so drilling and refining still push on.
On the Kenai Peninsula, two main companies dominate the oil and gas industry: Marathon Petroleum, which owns the refinery and the natural gas liquefaction plant in Nikiski, and Hilcorp, which operates most of the offshore platforms in Cook Inlet, as well as a number of onshore wells and pads and the cross-inlet pipeline running to the Beluga Power Plant. Hilcorp spent just shy of $350 million in 2019, with the majority being in drilling capital and facility/pipeline expenses, and planned about $300 million in capital expenditure in the state for 2020, according to a presentation at the Kenai Peninsula Economic Development District’s Industry Outlook Forum in January.
A handful of smaller operators are also producing oil and gas, including BlueCrest Energy, Glacier Oil and Gas, and Furie Operating Alaska, which recently went through bankruptcy and is in the process of being purchased by Hex LLC. There have been disruptions, at the beginning of this year, though. For one, due to the COVID-19 pandemic, Marathon Petroleum delayed its annual turnaround at the refinery from April until the fall. Essential personnel remain on-site but have implemented telework plans where possible, and employees on-site are observing personal protection and social distancing measures to prevent transmission.
“Toward ensuring the ongoing smooth functioning of our critical operations, we have implemented business-continuity plans to accommodate staffing needs in the event of illness-related absenteeism,” the company stated in a release on its website. “We are also working with critical suppliers to ensure ongoing support in the event of illness-related disruptions and providing additional hand sanitizers at owned-and-operated retail stores.”
The COVID-19 pandemic has interrupted other operations across the state, too, delaying shift changes on the North Slope and elsewhere. Meanwhile, low oil prices have put extra pressure on, and ConocoPhillips and Oil Search have both announced plans to scale back their North Slope spending in response. As of March 25, Alaska crude oil prices hovered around $26.73; production and transportation costs in Alaska average about $39.16, according to the Alaska Oil and Gas Association.
If layoffs do happen in the oil field, those workers may not be idle, though, said Tim Dillon, the executive director of the Kenai Peninsula Economic Development District. When oil prices plummeted to similar lows in early 2016, workers laid off from oil-related companies stayed busy getting additional education and certifications, he said.
“I think you’re going to see some similar things, and I think you’re going to see workers that are going to continue to be flexible and make themselves a little bit more recruitable or hireable, with the fact that during some of these extra times they’re getting their (commercial driver’s licenses), they’re getting additional trainings and all that,” he said.
In Cook Inlet, the broad shift in production has been toward natural gas. Early in Cook Inlet’s history, when it was a petroleum producing area, exploring companies looking for oil found large amounts of natural gas, but didn’t develop it until the late 1960s. Companies produced more than 85.7 billion cubic feet of natural gas between February 2019 and February 2020, according to the Alaska Oil and Gas Conservation Commission. Hilcorp plans to drill between five and seven new gas wells in the basin this year, according to its January 2020 presentation. Much of that goes to supply utility demands in Southcentral Alaska, which is home to the majority of Alaska’s population.
The natural gas reserves in the basin are falling, though. Natural gas production in the inlet has fallen steadily over time, and utilities have been concerned for at least a decade about the future of gas supply. One of the proposed solutions would be to bring gas from the North Slope, where it is currently stranded, to the inlet for liquefaction, at which point it could be used for Alaska’s energy needs or exported.
The Alaska LNG Project, as it is known, has stalled for the past few years, but received its final Environmental Impact Statement from the Federal Energy Regulatory Commission in March. This brings the Alaska Gasline Development Corporation, the state-owned corporation that manages the project, one step closer to the final decision allowing the project to be built.
However, investors and the state Legislature have been skeptical about funding the multi-billion-dollar megaproject for the past few years as more LNG projects around the world have come online and LNG prices have fallen. Dillon said AGDC has to go ahead with the permitting to have a project to work on, but investors and the state are taking another look at it based on the economics.
“You have to go through with all the permitting, and then at least you have a product,” he said. “I think you’ll continue to see people who are interested but they’re kind of kicking the tires and checking it out.”
One of the things KPEDD is working on with companies and stakeholders is a workforce development plan for the Kenai Peninsula Borough, Dillon said. Within the next year or so, the group hopes to produce a report detailing what opportunities there are to better prepare Kenai Peninsula residents for the jobs companies have. In the oil and gas industry, one of the things companies are identifying as a need in future workers is the ability to collaborate, he said.
“You need to be able to work with a team,” he said. “You have to be able to work as part of a group. Think about each one of the different jobs, whether it be in gas and oil and any one of the other industries. It’s very rare that you’re out there by yourself and doing everything.”
Reach Elizabeth Earl at elizabethearl@gmail.com.
