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In-state gas feasibility study begins Legislators get update from Harry Noah, governor’s in-state gas coordinator; contract let to engineering firm Michael Baker Engineers By Kristen Nelson Petroleum News
Harry Noah, the governor’s in-state gas coordinator, updated legislators June 5 on the work plan his office is doing on in-state natural gas.
Noah said the underlying problem is that Alaska has “no clear source of long-term affordable fuel.”
This program, he said, is focused on development of the state’s natural gas resources with the intent of providing legislators, the governor and the public with enough information “in terms of costs associated with this and the risks associated with this that the long-lead-time public policy decisions could be made.”
There are three questions that need to be answered about gas development for in-state use, he said:
“Can a standalone project from the North Slope to Cook Inlet be commercially viable?”
Would it make more sense for the state to provide incentives for development of additional Cook Inlet natural gas as opposed to bringing gas from the North Slope to Cook Inlet?
A spur line to Southcentral off a gas pipeline taking North Slope natural gas to market has been on the table for a long time, Noah said, and the question there is, “What are the actual savings associated with that, if we wait for that pipeline?”
There are five major tasks: a feasibility study on a standalone project; taking gas to western Alaska; whether it makes sense to provide incentives for Cook Inlet gas development; defining cost-of-service comparisons between a standalone line and a spur line; and permitting work for a standalone project so it can move forward rapidly if it is feasible.
The timeframe for the first four items is June of 2010, he said, and getting the work done will involve a technical team and a commercial working group.
The state’s goal with the permits — and the feasibility study — is to package them and put them out for bid for anyone that might want to build the pipeline, Noah said.
Four contracts On the technical side an engineering contract has been let to Michael Baker Jr. for engineering, he said, introducing Keith Meyer, Mike Metz and Ward Whitmore of that firm. Bids have been received back on a second contract for an environmental contractor to support the permitting. The third contract will be for help in looking at the Cook Inlet gas basin question. And then a third-party contractor to do an environmental impact statement.
On the commercial side a commercial working group has been formed including companies who have natural gas and companies who need to buy it.
“We have invited Anadarko, Exxon, BP, Conoco, Agrium, Enstar and the Railbelt utilities, specifically Chugach and Golden Valley, to participate as a group in helping us define this project.”
Noah said the pipeline is important, “but the most important thing is to answer the question: The people that are producing the gas — are they willing to sell it to the people that want to buy gas and vice versa?”
“This is the critical commercial question that has to be answered here,” he said.
The state is just a facilitator; the potential sellers and buyers are the key, Noah said, “and they’ve all committed to step up to the table and work on the project.”
The first commercial meeting will be in about two weeks, he said.
Noah said there are two important points on the commercial side. Major industrial users are necessary to hold down costs to consumers on an in-state gas line, “whether it’s a standalone project or it’s a spur line.” The second point is that time is an issue — one of those potential industrial users, the Agrium fertilizer plant, is already shut down and at some point that plant will “age and rust and blow away.”
If industrial customers aren’t available the state could subsidize an in-state line, Noah said, telling legislators “that will be for you all to decide, but if you want a commercial project then you’ve got to have the big industrial users.”
Feasibility study Keith Meyer, a pipeline engineer with Michael Baker, briefed legislators on the feasibility study for a standalone project to transport natural gas from the North Slope. This would include a conditioning plant on the North Slope, defining the route and the gas demand, Meyer said.
The assumption on gas demand is going to be about half a billion cubic feet a day, he said, because the project won’t make sense unless you have enough volume to make economic sense.
He said they don’t see a demand for gas in-state greater than 500 million cubic feet a day, and are looking at 460 million to 480 million cubic feet a day.
The base case is a 24-inch-diameter line which could actually carry up to 1.3 billion cubic feet a day, he said, but the numbers they put together will indicate whether a 24-inch line is needed or a 20-inch line.
Those things — a gas conditioning plant, the transportation and the gas demand — will be put together to figure out the cost of service. That doesn’t include the cost of gas, he said: It’s just putting in the gas conditioning plant and transporting the gas to the customer.
What’s included in a gas conditioning plant depends a little on the composition of the gas, Meyer said: If extra components are added to the methane, additional things will have to be done at the gas conditioning plant. If the gas is “spiked” by adding some liquid components, the pressure in the gas pipeline might also have to be raised to ensure those liquids don’t drop out in the line.
Routing issues include pinch points, such as Atigun Pass, and the Parks and Richardson highways routing alternatives.
He said they hope there will be natural gas liquids plant opportunities and the feasibility study will look at whether an NGL plant could profitably be put in Interior Alaska and whether utilities can use NGLs.
Will draw on other work Meyer said there has been a lot of work done on the trans-Alaska oil pipeline corridor and they’ll draw on that.
The Alaska Natural Gas Development Authority has done economic studies they’ll draw on, he said, and Enstar Natural Gas Co. has done route studies and an agreement is in the works to share data with Enstar.
The Department of Natural Resources and the Department of Revenue have done tariff models and they “expect to supply cost elements to the DNR and DOR and have them supply the actual tariff element,” Meyer said.
The Department of Transportation and Public Facilities has done route studies and there is also a wealth of information available from groups such as the Joint Pipeline Office and the U.S. Geological Survey.
Gas to western Alaska Meyer said that getting natural gas to western Alaska isn’t an issue of trying to sell western Alaska gas at the price gas would sell for in Anchorage, but “trying to get gas to them at something that would be economic to their other alternatives.”
What they’ll be looking at is how to get gas to Donlin Creek, which would be a big user, Meyer said, but the study won’t include how that gas could be distributed to the region. The focus will be “can we get it there and get it there at a reasonable price,” he said.
The Cook Inlet study will include answering questions about how much land is actually available for exploration; what would be the estimated cost of exploring for and producing new gas and if new discoveries were made how long it would take to get those discoveries into production, particularly if they were offshore.
Answers to those questions lead to the question of what it would take in terms of incentives for new exploration to occur, and Noah said that is really an issue for DNR and the Legislature.
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