Alaska: Oil Companies Balk at Prudhoe Bay Tax Slap

The trans-Alaska Pipeline is the largest conduit of domestic oil, a funnel for crude from the North Slope’s Prudhoe Bay to the Port of Valdez. But the Prudhoe wells are drying up—and the prospect of replacing them appears ever more grim. Despite the capacity to carry 2 million barrels a day, the pipeline’s current flow is less than 700,000 gallons and falling at least 6 percent a year. Now its operators have commissioned a study to see how low the supply can get before crude freezes in transit. The most common estimate is about 500,000 barrels, a figure that ConocoPhillips recently predicted would be reached by 2015.

The simple fix is more oil. But the search for new wells has slowed since 2007, when Sarah Palin approved a steep tax on oil production. BP cut its local development budget by 30 percent; Shell drilled five exploratory wells on the North Slope this past summer (compared with 22 last year); and for the first time since Alaskan statehood, ConocoPhillips canceled all such drilling. In search of a sweeter deal, the industry has threatened more divestment. That may mean trouble for Alaska’s economy and wallets nationwide. Oil, after all, is cheaper out of Alaska’s tap than an overseas tanker.