Developing Alaska’s Outer Continental Shelf (OCS) would, among other things, be an important factor in reducing risks for the proposed natural gas pipeline from the North Slope to Lower 48 states, a study prepared for Shell Exploration and Production has found.

The findings were said to be based on a “reasonable” set of exploration, development and production scenarios for three offshore areas: the Beaufort Sea, the Chukchi Sea and the North Aleutian Basin. The U.S. Minerals Management Service has estimated that the three areas have undiscovered technically recoverable resources of 2.8-65.8 billion bbl of oil and 11.4-305 Tcf of natural gas. Assuming 2006 market prices of $60/bbl and $9.07/Mcf, undiscovered economically recoverable resources were estimated at 1-46 billion bbl and 3.8-175.1 Tcf.

“The Alaska OCS has some of the largest natural gas resources in Alaska and knowledge of the potential development of these resources reduces the financial risk to the shippers that may commit to the natural gas pipeline project,” said the study, which was issued this month by Northern Economics and the University of Alaska Anchorage’s Institute of Social and Economic Research.

Shell, one of the biggest leaseholders in Alaska, financed the study and issued it on March 9, the same day the U.S. Court of Appeals for the Ninth Circuit vacated a decision that has prevented the producer from moving forward on an exploratory drilling program in the Beaufort Sea (see Daily GPI, March 10). The court said it would issue a new opinion, but it did not indicate when that would be.

The study describes and quantifies the potential economic benefits to the state of Alaska and to stakeholder communities from developing oil and gas resources in OCS areas. The findings, said the authors, “are not predictions of the future for Alaska, but rather they describe a reasonable approach that one might expect for OCS development. The findings also provide a basis for thinking about potential actions that state and local governments, industry and other stakeholders might undertake to deal most effectively with the effects that do occur.”

Past studies have analyzed the potential effects of OCS development, but the authors claimed that this review is based on more recent information and “represents the current state of knowledge in OCS resource estimates, exploration, development and production activities; recent technology improvements; and state and local government fiscal systems.” The economic benefits were based on assumptions about when and how OCS development, as well as other economic development in the state, might occur during the next 50 years.

“There is a great deal of uncertainty as to whether oil and gas production in the OCS would occur, and if production does occur, it is even more difficult to predict the timing and magnitude of exploration, development and production activities,” the authors note. However, study assumed that development “would occur given certain price and cost assumptions and that there will be no major regulatory impediments or delays to OCS development.”

The economic impacts of OCS development were described as “incremental effects in relation to a baseline economic projection of the Alaska economy without OCS development.” According to the study, the Alaska economy and population are anticipated to continue to grow in the next 50 years “given the development of the natural gas pipeline, new development in the mining sector and modest growth in tourism, fisheries and military and civilian federal operations.”

However, declining oil output from existing onshore fields may pose long-term challenges for the state, the study noted. “OCS development, if it were to occur, could be a significant driver of the next generation of economic activity by extending the duration of the petroleum industry in the state…OCS-related employment growth could more than offset losses from the decline of petroleum production on state lands and could help sustain the economy for several decades.”

The report is available at www.northerneconomics.com.

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