More oil can flow from Alaska’s North Slope as global demand creeps back

An above-ground section of the Trans-Alaska Pipeline System near the Toolik Field Station in the North Slope Borough. (Photo by Rashah McChesney/Alaska’s Energy Desk)

The operator of the trans-Alaska pipeline is allowing oil companies to send more crude from the North Slope to Valdez as demand creeps back and economies reopen.

Alyeska Pipeline Service Co. had previously imposed a 15% cut to North Slope production as the coronavirus hammered demand for oil and that, paired with an international oil price war, led to a glut of oil on the market. On Friday, Alyeska trimmed the reduction to 5%, or roughly 25,000 barrels of crude a day spread across all fields.

“It is a big deal to be able to adjust a proration and get back to business, where every barrel that producers intend to move, we can move,” said Michelle Egan, a spokeswoman for Alyeska. “That’s what we’re here for.”

In late April, Alyeska had cut oil flow by 10% to avert a storage crunch in Valdez, the town where tankers pick up the crude and deliver it to West Coast refineries. It raised that to the 15% cut on May 8.

Now, oil prices are crawling back after taking a historic plunge into the negatives last month. That’s as global demand for oil begins to return, the oil price war ends and companies shut down wells.

Larry Persily, who has long tracked oil and gas markets, described the reduced cut from Alyeska as “the first sliver of good news for Alaska North Slope oil producers.” It indicates there’s a place for the crude to go after it’s pumped from the oil fields at the top of Alaska, he said.

“It’s more of an indication that there’s capacity on the West Coast, at the refineries, and in storage,” he said. “So they’re going to up production because there’s a place to put it. There’s someone who wants it. And prices are higher.”

But, Persily said, there’s still a backlog of bad news for Alaska’s oil industry: Oil producers have recently slashed spending and reduced drilling. Oil field service companies have laid off hundreds of workers. The state’s largest oil producer, ConocoPhillips, also still plans to cut its oil production in half in Alaska for the month of June.

“The decision to curtail production by 100,000 barrels a day in June has been made, and that won’t change,” Conoco Alaska spokeswoman Natalie Lowman wrote in an email.

Alyeska operates the pipeline on behalf of its owners: Conoco, BP and ExxonMobil.

Alyeska reported 450,299 barrels of North Slope crude flowing down the pipeline on Monday. The value of a barrel reached almost $30 by last week — a significant climb from a low of -$2.68 on April 20. It’s still far below the $70 value from early January.

Egan said there’s no timeline for when Alyeska will remove the 5% cut. She said that’s the ultimate goal.

“We’ll make every effort to get back to 100%,” she said. “That’s absolutely where we want to be.”