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Alaska oil's new 'Gulf of Mexico'

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The most promising section of the Alaskan OCS could be the Chukchi Sea – the largely ice-covered expanse between northwestern Alaska and northeastern Russia. Also a target is the Beaufort Sea off the north coast.

Industry representatives say they are only beginning to grasp the enormous hydrocarbon potential of the area, once considered too far and too forbidding to justify investment. Only five wells have ever been drilled in the Chukchi. In the similar-sized Gulf of Mexico, the number is nearly 50,000, notes Rick Fox, Alaska asset manager for Shell, the company leading the charge into Alaska's OCS.

Shell has so far spent $2.5 billion in an effort to establish offshore Alaska as a major global operating center. This includes $2.1 billion for Chukchi leases in a record 2008 sale.

Alaska politicians are gung-ho supporters of OCS development, even though OCS oil would provide no royalties or production-tax dollars to the state, since it is federal territory. The reason: Without OCS oil, the 32-year-old Trans Alaska Pipeline System (TAPS) faces a grim future. It is running at one-third of its capacity.

"We are quickly approaching the minimum throughput rate, beyond which the flow of oil cannot be maintained. Without development of new sources of Alaskan oil, TAPS could shut down within the next decade," Gov. Sean Parnell said in a Sept. 3 letter to Interior Secretary Ken Salazar, who is mulling the Obama administration's national offshore-drilling strategy.

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