3 reasons Alaska’s oil can’t replace Russian imports, say energy experts

Pipelines stretch to the horizon on the NPR-A property leased from ConocoPhillips. The company announced that it has found 300 million barrels of recoverable oil nearby. (Photo by Elizabeth Harball/Alaska’s Energy Desk)


Alaska’s elected leaders — including Gov. Mike Dunleavy and the congressional delegation — say we should pump more oil on the North Slope to offset the import ban on Russian crude.

But energy experts say it’s not that simple. Here are three reasons why:

chemistry

Imagine you want to serve champagne at your wedding. Just as you’re about to walk down the aisle, the caterer pulls you aside and says, “By the way, I couldn’t get you champagne, but we have plenty of Mad Dog 20/20.”

Well, it’s kind of like crude oil. There are different qualities and different flavors. Some are light and flow easily. Some are heavy as mud. It can be sweet or sour, roughly in terms of sulfur content. Crude oil specifications go on and on. But you have to know that light and sweet is easier to refine and relatively more expensive. And refineries are fine-tuned to the particular qualities of what the companies want to feed into them.

Ryan Kellogg, a professor of energy economics at the University of Chicago, says chemistry explains why the US imported oil from Russia across the Atlantic.

“A lot of people wonder why we’re really importing Russian crude or crude oil from anywhere given how much oil the US is producing now,” he said. “The answer is that most of our refining infrastructure in the US, especially in the 90’s and 2000’s, was built with advanced technology designed to process heavier, dirtier crude, like Russian crude, like Venezuelan crude, like crude from the oil sands of Alberta, Canada.”

The refiners, particularly the big ones with assets in the Gulf of Mexico, made a bad bet, he said.

“All of that refining capacity, billions of dollars, was consumed long before anyone knew the shale oil boom was going to be a thing,” Kellogg said.

The fracking revolution came in 2010 and produced tons of crude oil from shale. It’s light and sweet—the expensive kind and the kind any refinery can handle. Yes, Kellogg said, refiners set up for heavy crude could retrofit and use it.

“It turns out to be cheaper to use this technology to process imported crude and export the slightly sweet crude to another location,” he said.

Refineries also blend crude oil to optimize their equipment. Kellogg said importing Russian crude allows US refiners to take some of the abundant shale oil and fill it up with the dark cheap stuff so they can operate more efficiently.

Alaska North Slope Crude – ANS – is considered medium but is heavier than shale oil, so it could theoretically be used to darken a blend. But ….

Geography

A tanker from Valdez would have to go through the Panama Canal to bring crude oil to a refinery on the Gulf Coast. That’s not efficient.

“The US West Coast is really the captive market for ANS,” said Matt Smith, senior oil analyst for the Americas at Kpler, a data company that tracks commodity shipments around the globe for industrial and financial traders.

ANS was exported to Asia, but demand there fell during the pandemic. This dynamic hit Russia hard. Crude oil from Russia’s Pacific coast usually goes to China. But China didn’t buy that much in 2021. Smith said American refiners on the Pacific coast have benefited from some bargain prices for Russian crude.

The drop in Chinese demand last year “freed up casks that could go elsewhere. And the US became sort of a target of last resort,” Smith said. “And so we saw more Russian crude coming to the US West Coast… It was opportunistic buying.”

Those imports were already declining when President Biden announced a ban on Russian imports, Smith said.

West Coast refiners could process more ANS if Alaska produces it, he said, but it wouldn’t replace Russian crude “because there’s nothing really to replace.”

So this argument that we should produce more North Slope crude to offset Russian barrels? Smith said he’s sorry for ruining a story arc, but it doesn’t ring true.

“I just debunked it,” he said.

Time

It takes years to develop projects on the North Slope.

Senator Dan Sullivan is among those saying this is a long game. We are in “a new era of authoritarian aggression,” he said.

We’ll be trying to keep aggressive foreign dictators at bay for years to come, and we shouldn’t empower them by buying their oil, the argument goes, so we’re going to need more Alaskan oil in the long run.

But in the long term, the US and the rest of the world should cut back on hydrocarbons to keep climate change in check. The idea of ​​producing more oil to offset other oil will face strong political opposition from climate activists and environmentalists, and they are particularly interested in preventing development in Alaska’s Arctic.

About Clayton Arredondo

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