Let’s start with a basic fact. For various purposes, government agencies, securities analysts and oil and gas producers often measure oil and natural production and reserves on a common basis — barrels of oil equivalent (BOE). Based on energy content, 5.8 Mcf’s (thousand cubic feet) of gas equals one barrel of oil. As it turns out, that is a critical statistic to understanding Alaska’s future.
First, that statistic helps to provide some sense of the relationship between volumes of oil and gas. Currently, Alaska is producing roughly an average of 600,000 barrels/day of North Slope oil subject to state production tax. On a BOE basis, 3.5 Bcf (billion cubic feet)/day of gas equates to about the same amount of oil. Coincidentally, that is roughly the same amount of gas which some suggest would be moved to the Lower 48 through an Alaska pipeline. Thus, if focused only on volume, an observer could argue that Alaska will not be harmed if gas supplanted oil as the primary source of revenue for Alaska.
A second, and more important, application of the statistic proves that conclusion false, however. Continue reading