Alaska’s Oil Industry: Last Frontier of the Energy World

Alaska is a world apart, a northern crossroads,

and yet clearly the abode

of a new energy world, And transitions to realize.

1. Land of pioneers and first movers

Alaska is a land that seems to have fallen asleep, slumbering. We’ve always known that energy is an axis with enormous reach. And over the years we began to see, no, we foresaw what the future would bring to Alaska. But the question we began to ask is: Will Alaska keep up with the plans we have made for the future of this prestine wilderness? Are we making these plans abrasive of the natural harmony? We would transfer our abstract ideas of the industrialized world to a totally prestine environment, the natural world.

Alaska means so much to the American spirit; its vastness and sense of wilderness symbolize the American spirit. Alaskan resources conjure up unlimited possibilities. How will Americans harness this enormous energy that exists beneath their own feet? It is worth remembering that oil and gas have been a central pillar of U.S. energy policy for more than a century and will likely continue to play a major role in U.S. energy markets for many decades to come.

The United States was exploiting oil long before Alaska was on the energy producer map. At that time, California, Texas and Pennsylvania were much higher on the minds of decision makers, politicians and energy companies. Before Alaska became a key player in U.S. energy markets, California played a much more central role in U.S. energy policy. U.S. energy policy in the western United States was focused on California. Texas was equally important, but because of its latitude, Texas was more involved in North Atlantic energy trade and East Coast trade. And while we have found great potential for oil and natural gas in the far north, exploitation of that potential remains limited. The environment makes access to these resources difficult. The climate is hostile to oil and gas operations. 

2. Alaska: A fragile energy system

More than any other environment, Alaska reminds us of the fragility of the energy system, of the vulnerability of the natural environment. Alaska also reminds us that we must make trade-offs between environmental concerns and energy security. At its core is the age-old adage that energy must meet three requirements: Energy must be cheap, it must be easily accessible and safe, and it must be environmentally friendly. You can only have 2 of the three.  Alaska is an example of how this is difficult to achieve at any given time.

3. Alaska has a history of environmental disasters: Exxon Valdez

In such a fragile climate, any energy project will be judged on its own merits. The construction of the Trans-Alaska Pipeline involved enormous costs. It has had a significant impact on the natural environment. The Trans-Alaska Pipeline transports crude oil from the far north, from beyond the Arctic Circle, which is sent south through the interior of Alaska. This happens in a similar way to oil and gas projects in Siberia. The long transit actually reduces the energy return of such projects. This is because we need energy to push the liquid through the pipes. The longer the passage, the more energy we have to expend. 

As an aside, this is one of the reasons why NordStream is so effective. The pipelines run under the seawater. The pressure exerted on the pipe by the ocean helps to pressurize the gas and push it through the pipe faster. Overland pipelines, as in the case of Alaska, are also more expensive to operate and require a lot of maintenance. The use of drones, smart metering and artificial intelligence won’t change that, although they make sense considering Alaska’s geography. Assuming such on-top solutions reduce costs by targeting specific faults along the pipeline network, they also add costs that didn’t exist before. Although the initial investment may make overland projects attractive at first, ongoing maintenance costs can make them significantly more expensive to operate. OPEX is really important. It’s not just about CAPEX. There are hidden costs that drive up total OPEX over time, especially if the pipeline network has been in operation for many years. Such costs are often underestimated.

The crude oil is then picked up and transported by oil tankers once it reaches the shore. This is another similarity between Nordstream and the oil network in Alaska. But that’s where the similarities end. We remember the disaster that occurred in 1985 when the Exxon Valdez spilled crude oil into the sea and onto the southern coast of Alaska. 

Many thanks for the shared interest in the energy world!

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