Alyeska imposes 10% cut to North Slope production as COVID-19 hammers oil demand

pipeline
The trans-Alaska pipeline runs alongside the Dalton Highway near the Toolik Field Station, in the North Slope Borough. (Rashah McChesney/Alaska’s Energy Desk)

The company that runs the trans-Alaska pipeline announced a 10% cut to North Slope oil production Friday, amid a global oversupply of crude caused by the COVID-19 pandemic.

North Slope producers have pumped an average of 500,000 barrels a day into the pipeline this month, according to state data, so the 10% reduction amounts to some 50,000 barrels. That lost production is worth about $575,000 at Thursday’s price of $11.55 a barrel.

Alyeska Pipeline Service Co., which operates the pipeline on behalf of owners BP, ExxonMobil and ConocoPhillips, can store some 6.6 million barrels of oil at the end of the pipeline in Valdez, where tankers pick it up and deliver to West Coast refineries. Friday’s decision to pro-rate North Slope production is aimed at averting a storage crunch that Alyeska expects at the end of May, said spokeswoman Michelle Egan.

The 10% reduction is the only one planned for now, she added.

“With all the information we have about oil coming in and the movement of tankers visiting the terminal in Valdez, this is the pro-ration needed to manage through the month of May,” she said. “If information changes, the pro-ration rate might change.”

Alyeska isn’t directly involved in hiring the tankers that pick up the oil from Valdez, so Egan said she wouldn’t speculate about the specific factors causing the crunch or how connected it is to the crash in demand caused by COVID-19. Similar cuts have been imposed in the past, and sometimes at higher levels, she added.

Nonetheless, the decision to pro-rate comes as global markets are awash in crude. April demand was expected to be 30% less than the year before, according to the International Energy Agency. And dozens of tankers filled with crude are currently anchored off the California coast, with nowhere to sell the oil.

Experts say that Alaska’s oil production is somewhat less susceptible to market turmoil because major producers own their own refineries and sell North Slope crude farther in advance because of its distance from markets.

The market value of a barrel of North Slope oil was as high as $57 just two months ago, according to state figures, before crashing to negative territory earlier this week.

Oil prices fell to a historic low Monday. Here’s what that means for Alaska.

Friday’s announcement is the latest blow to Alaska’s oil industry, whose companies have already announced spending cuts and delayed projects as prices have plummeted. Oil-field service companies have laid off workers, and lower prices and production also translate into less revenue for the state treasury.

“It’s disappointing for Alyeska and people who work for us, and we also understand what the implications are for the state of Alaska,” Egan said. “We try to avoid these situations with every tool that we have in our toolbelt, and the tool that we’re able to use at this time is to do a lighter pro-ration for a longer period of time and watch for changing circumstances.”

Correction: This story originally misstated the value of the oil that’s not being produced — it is roughly $600,000, not $6 million.