Closing arguments have ended in a four-day hearing over the value of the trans-Alaska oil pipeline, with the state of Alaska, major oil producers and local governments locking horns in a proceeding that included discussion of how much oil remains to be pumped off the North Slope.
It’s not as much as many people hope, according to a state attorney.
Early Thursday, the State Assessment Review Board that considers appeals of state assessments began deliberating, a process closed to the public that would continue at least through Friday, according to chair Jim Mosley.
Whatever decision the board reaches, it will likely end up in court.
The value of the pipeline, the artery that carries the lifeblood of oil-dependent Alaska, has been in hot dispute for years. The state Supreme Court early this year affirmed a lower court’s decision to set a value for the 2006 tax year at $10 billion. Still unsettled by the Supreme Court is another case on appeal involving the tax years 2007 to 2009.
The issue may be more contentious than ever this year. The state has set a $5.7 billion value this year, well below the $11.9 billion set by the board last year.
Owners say number too high
Pipeline owners BP, Exxon Mobil Corp. and ConocoPhillips say the state’s number is much too high. The City of Valdez, the Fairbanks North Star Borough and the North Slope Borough say it’s much too low. The groups have appealed, prompting the hearing.
Adding intrigue are the actions of Gov. Sean Parnell, who critics say has taken steps to create an oil-friendly board that reduces the value of the pipeline, including firing the previous chairman and trying to appoint a former oil industry employee from California.
Parnell’s office said this week the governor is working to fill two of the board’s five open seats. Spokesperson Sharon Leighow said there was no timeframe for when replacements would be named. The Legislature must confirm the members.
The epic fight hinges on complex assessment methods and appraisal techniques, but one key to the debate centers around when the pipeline will no longer be able to pump oil and how much proven reserves remain in the ground.
The state and the oil companies argue that the pipeline value should fall in part because the proven reserves have fallen since 2006.
State attorney Ken Diemer defended the state’s number and said the board should not be swayed by pie-in-the-sky estimates of a huge amount of oil remaining to be pumped off the North Slope, an argument presented by the municipalities. The longer the pipeline’s estimated life — partly a function of the amount of oil available to transport — the higher its value.
“It’s like Carl Sagan — there are billions and billions of barrels out there,” Diemer said, doing his best impression of the late scientist who popularized astronomy. “Where? Where are they?”
There’s apparently a lot of oil at Point Thomson, but it won’t all be produced because it’s not economic, said Diemer, referring to a field under development by Exxon Mobil following an out-of-court settlement with the state.
Initial plans at the field call for 10,000 barrels of liquid condensate removed from natural gas — it will be counted as oil — to be shipped in the trans-Alaska oil pipeline per day. That’s a fraction of the 550,000 daily barrels produced on Tuesday.
Diemer next turned to the U.S. Arctic Ocean. Royal Dutch Shell hasn’t been able to figure out what’s there, so there’s nothing there to be counted, he said. Meanwhile, the Arctic National Wildlife Refuge won’t be open to development without an act of Congress, and that shouldn’t be counted either, he said.
He mocked production forecaster Dudley Platt — whose studies have been accepted in court decisions that led to higher values — though the state and oil companies discount his work.
“Even Mr. Platt doesn’t count that oil. I don’t know where he gets the rest of his oil from, but he doesn’t count that,” Diemer said to laughter.
Robin Brena, an attorney representing the municipalities, noted that it’s time for the board to get its assessment right. The state’s value is typically increased by the board, he noted. Court decisions have pushed the values even higher. Meanwhile, the values proposed by the oil companies have been well below the other proposals.
Brena noted that during this week’s hearing, he presented an expert witness who said the pipeline could operate at as low a volume as 50,000 barrels per day — about 9 percent of current production — which would extend the pipeline’s life well beyond 2075.
That low-flow figure was never rebutted, he said.
The state argued in the hearing that the pipeline’s end of life is 2047.
As for the oil companies, an attorney said their proposed value this year of $2.7 billion is closer to the state’s than it has been in past years because both sides are following methods affirmed by the Supreme Court earlier this year, though there are differences.
On the other hand, the $13.7 billion value proposed by the municipalities is not realistic, he said.
“I would urge you not to head down to Wonderland with Mr. Brena,” said attorney Mike Garatoni.
Contact Alex DeMarban at email@example.com or on Google+
Related stories from around the Arctic:
Canada: Canada’s Northwest Territories unveils ambitious energy plan, CBC News
Finland: Finland EU’s third largest user of renewable energy, Yle News
Sweden: Sweden shares top global energy ranking, Radio Sweden
United States: Ex-commissioner calls for Alaska energy mega-projects analysis, and ‘call bluff’ on North Slope gasline, Alaska Dispatch