A small oil company just discovered a massive new oil field on Alaska’s north coast. Dallas-based Caelus Energy LLC says the field could contain as much as 6 billion barrels of crude, and that one day it could produce 200,000 barrels per day (bpd). The WSJ reports:
[Caelus Energy LLC] says it expects to be able to extract between 1.8 billion and 2.4 billion barrels from the discovery, probably using barges built along the Gulf Coast, then towed to Alaska and permanently sunk in the bay to create man-made drilling islands. […]
That idea likely will generate strong support from a state grappling with plummeting oil revenue. If Alaska can’t find a way to reverse steep declines in its oil production, which are putting the Trans Alaska Pipeline in jeopardy of freezing up, it could face a near-total collapse of the oil industry and its entire economy. Adding new barrels from Smith Bay could extend the pipeline’s life.
Bloomberg points out that this single discovery could have increased Alaska’s known oil reserves by 80 percent. Talk about a windfall, and with the northern state’s crude production is waning, this couldn’t come at a better time.
Of course, this isn’t just encouraging for Alaska, it’s also a boon for U.S. energy security. Low oil prices have led to a slight decline in U.S. oil production from 9.6 million bpd back in June of 2015 down to just below 8.5 million bpd today, as shale producers have been forced to idle their higher-cost projects. The area of Alaska where this new discovery was made typically has a breakeven level of around $40 per barrel, so with oil trading today near $50, the Caelus project should be able to turn a profit.
As good as this is for both Alaska and the United States, it’s a bad sign for other major producers, and more specifically it’s unwelcome news for petrostates like Saudi Arabia and Russia. OPEC intends to cut production at its semiannual meeting in November, but even as it works to constrain the world’s oil supply to set off a price rebound, new discoveries are being made and new projects are coming online. You can find the latest example of this massive global glut off the coast of the United Kingdom, where roughly a dozen tankers are waiting their turn to offload their crude cargoes. The world is awash in oil, and despite the protestations of the delusional “peak oil” movement, that doesn’t look to be changing anytime soon.