Alaska’s Oil Piles Up at Port as Barrels Wait for a Ride

October 27, 2014 By

October 21, 2014

by Lynn Doan and Dan Murtaugh, Bloomberg

Stockpiles of oil from Alaska’s North Slope have surged to a five-year seasonal high as tanker maintenance slows loadings, forcing the grade to trade at a discount to U.S. crude for the first time since 2010.

Inventories at the Valdez terminal, the northernmost ice-free port in North America and the loading point for Alaskan oil, have averaged 4.38 million barrels this month, the most for October since 2009, data posted on the Alaska Revenue Department’s website show. Tanker repairs have shrunk the pool of vessels available, terminal operator Alyeska Pipeline Service Co. said.

Inventories at the Valdez terminal, the northernmost ice-free port in North America and the loading point for Alaskan oil, have averaged 4.38 million barrels this month, the most for October since 2009, data posted on the Alaska Revenue Department’s website show. Tanker repairs have shrunk the pool of vessels available, terminal operator Alyeska Pipeline Service Co. said.

The trapped stocks threaten to further cut prices for oil from the North Slope, once the most prolific crude-producing region in the nation, as refiners on the U.S. West Coast turn elsewhere for supplies. California is bringing in a record volume of oil by rail from other states and the region has increased imports from countries including Iraq and Saudi Arabia.

Alaskan oil “is cheap and there’s a lot of it because it’s sitting in Valdez,” David Hackett, president of energy consulting company Stillwater Associates in Irvine, California, said by telephone.

ConocoPhillips (COP) last month exported a cargo of Alaskan oil to South Korea, the first shipment of crude from the state bound for foreign shores since 2004. A company spokesman said at the time that sending the oil abroad would “potentially realize a higher value.”

ANS Prices

Alaska North Slope crude for delivery to the U.S. West Coast weakened by 50 cents a barrel to a discount of 40 cents relative to domestic benchmark West Texas Intermediate, data compiled by Bloomberg show. It’s the first time the grade has been discounted against WTI since Dec. 9, 2010. The oil fell $1.53 a barrel versus the international benchmark North Sea Brent for prompt delivery to a $3.81 discount at 2:54 p.m. New York time.

Alyeska’s 800-mile (1,300 kilometer) Trans Alaska Pipeline System, known as TAPS, carries oil from the North Slope to Valdez. From there, it’s typically sent by vessel to refineries along the U.S. West Coast. Production of the oil has declined from a peak of 2.1 million barrels a day in 1988 to an average of 523,797 barrels a day this month, state data show.

Tanker Work

Tanker maintenance is affecting vessel-loading schedules at Valdez, Michelle Egan, a spokeswoman for Alyeska in Anchorage, Alaska, said by e-mail. “It will sort itself out over time,” she said.

All BP Plc (BP/), Conoco and Exxon Mobil Corp. (XOM) tankers that carry Alaska North Slope oil are operating, spokesmen for the companies said by e-mail. Conoco’s inventories at Valdez “are within normal levels,” said Natalie Lowman, a Conoco spokeswoman in Anchorage.

While the Houston-based company sent Alaska North Slope, or ANS, oil abroad last month, Lowman said by e-mail, “Our traditional and most important market for ANS crude oil is, and will likely remain, the U.S. West Coast.”

Tina Barbee, a spokeswoman at Tesoro Corp. (TSO)’s headquarters in San Antonio, declined by e-mail to comment.

In Transit

The volume of Alaskan oil being carried in tankers slid in the week ended Sept. 19 to 1.85 million barrels, the lowest since January 2011, data compiled by the Energy Information Administration show.

“There are only a handful of companies involved in moving that oil, and there were some ships in dry dock, having maintenance,” Robert Merriam, who oversees the EIA’s weekly petroleum report, said by telephone Oct. 8.

The tanker work is another blow for Alaskan oil producers as the West Coast replaces their output with less-expensive barrels from other states including Utah and North Dakota. California took 16,373 barrels of oil a day by rail in July, a record for the month, according to the state Energy Commission.

Saudi Arabia supplied 17 percent of California’s oil in the first six months of 2014, up from 14 percent in the two previous years, state data show. Iraq’s share has risen to 11 percent 9 percent.

To contact the reporters on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net; Dan Murtaugh in Houston at dmurtaugh@bloomberg.net.

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