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Economists expect worldwide slowdown in offshore drilling

May 12, 2010
  • Oil and gas reporter Tim Bradner says, like the Exxon Valdez spill prior to a vote to open ANWR to drilling, this spill came at a bad time for offshore exploration in Alaska. (Daniel Hernandez/KTUU-DT)
Oil and gas reporter Tim Bradner says, like the Exxon Valdez spill prior to a vote to open ANWR to drilling, this spill came at a bad time for offshore exploration in Alaska. (Daniel Hernandez/KTUU-DT)

by Rhonda McBride
Tuesday, May 11, 2010

ANCHORAGE, Alaska -- Interior Secretary's Ken Salazar's announcement to split the Minerals Management Service into two separate agencies fueled fears that the BP Gulf of Mexico disaster will have economic fallout for Alaska.

Fadel Gheit, a Wall Street oil and gas analyst, says economists are expecting a worldwide slowdown in offshore drilling.

As Americans take in images of the fuel spill in the Gulf of Mexico, Alaskans wonder what it means to the state's big bread winners: oil and gas. 

"The entire industry will face more hurdles going forward," said Scott Goldsmith with the Institute of Social and Economic Research.

The big worry is that offshore oil drilling in Alaska will suffer setbacks.

Shell Oil is set to drill this summer on prospects where oil is likely to be found -- oil that Alaska needs to fill its pipeline and that is declining at a rate of about 5 to 6 percent a year.

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"The opportunities there for employment, for keeping the pipeline operating for another generation or two generations, are critically important for the future of Alaska," Goldsmith said.

Even Wall Street is concerned about a slowdown in offshore drilling because of the oil that's needed to fuel a world economy. 

Mark Myers is the state's AGIA coordinator, appointed by Gov. Sarah Palin, to streamline the industry's efforts to build a pipeline to the Lower 48 through the AGIA process.

"Folks will look and reassess the environmental risks, no matter where we're drilling for oil and gas," Myers said.

Myers predicts there will be a national dialogue about the risks of offshore drilling, which will be necessary because onshore supplies are running out. 

"We have to go to increasingly more difficult environments to produce in deeper water, more challenging environmental conditions, more expensive production techniques," Myers said.

Right now there are more questions than answers, but one thing is for sure -- a lot is beyond Alaska's control. One wildcard: public perception. 

Even though Alaska's offshore drilling conditions are dramatically different from the Gulf of Mexico's, the two will be linked in the public's mind.

"In 1989, just as Congress was getting ready to vote to open ANWR, one of the first serious moves to vote on it, Exxon Valdez happened.  And the timing of that was just terrible," said Tim Bradner, an oil and gas reporter for the Alaska Journal of Commerce.

He says the timing of the BP spill is terrible for offshore drilling in Alaska.

"There's going to be a lot more attention on backup systems, and redundant systems, standby rigs, things like that, that are going to add cost," Bradner said.

"There's no way to get through this today, without talking about the Gulf of Mexico oil spill," said federal Alaska Pipeline Coordinator Larry Persily at a luncheon sponsored by the Resource Development Council.

From Gov. Tony Knowles to oil industry leaders, the luncheon was a Who's Who in Alaska, all gathered to hear Persily talk about the natural gas pipeline.

He warned about letting the Gulf disaster distract Alaskans.

"A chorus of cheers for onshore gas and a chorus of boos for offshore oil are not going to change the economics of the gas line," Persily said.

Some say it all comes down to the price of gas, but others are not so quick to say their might not be a silver lining in the Gulf disaster for Alaska.

"The awareness of those challenges, I think, is what the oil spill brings out, and that creates some opportunity," Myers said.

Some at the luncheon said they believe the BP spill will spark more interest in energy alternatives, which could help the gas line.

As for BP's investment in Alaska, Steve Rinehart, a spokesperson for BP, said in an e-mail Tuesday: "BP will continue with its Alaska plans.  BP is a global company and Alaska is an important part of it."   

Contact Rhonda McBride at rmcbride@ktuu.com

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