I can only imagine how frustrating it must be to watch helplessly as a fortune idles away before one’s eyes without a glimmer of hope to take advantage of it…
That’s how I feel every time I come across Alaska’s oil and gas industry.
Admittedly, we’ve never given Alaska much hope to recover its oil production, which peaked more than two decades ago.
And if we wanted to take it a step further and pinpoint the exact moment when everything began to fall apart, it was in March 1988.
The state’s oil production averaged 2.86 million barrels per day that month. And since then, it’s been one long downhill slide:
Let’s assume for just a moment that ANWR is suddenly opened up…
Pretend that all opposition mysteriously vanished and companies were free to develop the billions of barrels there.
The problem is years would pass before anyone saw a single drop of oil.
The EIA previously suggested it would take a minimum of a decade for companies to begin production.
Between setting up the infrastructure, getting the equipment in place, getting leases approved, drilling exploratory wells, and finally placing wells on production, it would be 2022 before they pumped any crude.
What’s more, ANWR production might have added approximately 800,000 barrels per day to the mix. Of course, by that time the state’s production will have plummeted to less than half of what it is today.
I can’t help but feel a twinge of sympathy for Alaska…
But it isn’t because developing ANWR is a fairy tale oil execs tell themselves before they go to sleep.
Nor is it due to the state’s ever-declining oil production.
It isn’t even because the USGS dropped a bombshell on the state when it drastically revised its estimate for the amount of conventional undiscovered oil in the state’s National Petroleum Reserve (NPR).
(That USGS report slashed its estimate by a staggering 90%, from 10.6 billion barrels of oil down to just 896 million barrels.)
No, the reason I feel sorry for Alaska is because the state is sitting on a wealth of natural gas — with only a slim chance of capitalizing on it.
How much natural gas are we talking about here?
Alaska’s North Slope has about 35 trillion cubic feet of proven natural gas reserves, with another potential 200 tcf that could ultimately be discovered.
It’s not as if the state’s marketed natural gas production is at zero; Alaska was the seventh largest-producing state back in 2007.
But there’s a lot of room to grow…
Alaska’s Jealousy Rages
So what’s the problem?
I have a feeling you know the answer to that question.
The United States is flooded with natural gas production.
And for the fifth consecutive year, our domestic gas production increased.
Alaska’s frustration over shale production must’ve increased tenfold over the last five years, mostly because state production simply can’t stay competitive with the shale gas boom happening in the lower 48 states.
The Last Frontier’s diminishing oil production means it will have to find another cash cow.
And lo and behold, here’s 35 trillion cubic feet of natural gas that may never see the light of day.
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It seems the only possibility is to turn away from the United States. That’s why Alaska’s governor recently called a powwow with execs from the state’s top three oil producers: Exxon Mobil Corporation, ConocoPhillips, and BP.
The governor had one goal in mind: to convince these bigwigs to tap into a market that would be willing to pay good money for Alaskan natural gas: Asia (LNG exports, to be specific).
Don’t think it’ll happen? It already has…
Two months ago, Alaska’s Kenai terminal shipped one cargo of 41,441 mt of LNG to Japan.
But in order to tap into the Asian LNG market with natural gas from the North Slope, ExxonMobil and friends would have to build a pipeline running the entire length of the state.
Let me say just this once I think the supermajors might be on to something…
How I’m Trading Gas in 2012
Let’s face it; most people aren’t talking about natural gas right now — especially since prices fell below $3/Mcf recently. Basement-level prices and a supply glut tends to discourage investors.
But they also present a window of opportunity for you to get in on the ground floor right now.
I’ll take it a step further, too, because it’s not Alaska’s LNG exports that I’m going to bet my money on…
In fact, there are a few natural gas players that have been developing this same strategy for years, and by the time Alaska starts building that pipeline to the North Slope, these companies will already have cornered the market across the Pacific.
Look for my full report in just a few weeks.
Until next time,
A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
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