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Several options and a big cost range Heinze reviews the various ideas for delivering and using North Slope gas inside Alaska, to support the state’s own energy needs Alan Bailey Petroleum News
While gas supplies in Southcentral Alaska from the Cook Inlet basin tighten and energy prices in Interior Alaska mushroom, there remains a massive quantity of natural gas on the North Slope, waiting for a pipeline heading south through the Brooks Range for delivery to market. But, while the delivery of North Slope gas to population centers in, say, Fairbanks in the Interior or Anchorage in Southcentral is technically feasible, the economic challenges of delivering the gas over hundreds of miles to small numbers of gas consumers have yet to be overcome.
On Sept. 28, at the Alaska Oil and Gas Congress in Anchorage, Harold Heinze, CEO of the Alaska Natural Gas Development Authority, reviewed the various options for delivering North Slope gas within the state. Heinze used public-domain information to assess the relative costs of gas delivered by various means.
“My focus is on where the benefits lie in any of the choices that are out in front of us there for Alaskans,” Heinze said.
Low in-state demand Heinze presented the various gas delivery options against a background of an Alaska utility gas demand of about 200 million cubic feet per day for heating and lighting, with a further unknown future gas demand from the LNG export facility on the Kenai Peninsula. The internal Alaska demand is tiny compared with the 4.5 billion cubic feet per day that may in the future flow down a major North Slope gas line for export from the state, he said.
And because of the low utility gas demand, a new Alaska value-added, gas-based industry such as gas-to-liquids or petrochemicals would make a huge difference to gas delivery economics in Alaska. Without such an industry those economics become very difficult, Heinze said.
Running a spur gas line from the main line is clearly the most cost-effective means of delivering in-state gas because of the economies of scale involved, Heinze said. ANGDA has formed a cooperative called the Natural Gas Supply Co. to aggregate Alaska utility gas demand and bid for capacity on a future gas line. The co-op made bids in the recent open seasons for both the TransCanada-ExxonMobil Alaska Pipeline Project and for the BP-ConocoPhillips Denali project, thus gaining substantial tariff discounts for Alaska utility gas if either of these pipelines is constructed.
“There is a tremendous opportunity that we’re being offered by participating in this initial open season for either of those pipelines,” Heinze said. “As a matter of a fact they’re offering about 30-percent-plus discounts to those people who come through the door during that initial phase.”
Two routes Two North Slope gas line routes are being considered: a route following the trans-Alaska oil pipeline to Valdez, where the gas would be converted to LNG for shipping to the U.S. West Coast or overseas; and a route following the Alaska Highway through Alberta, for delivery of the gas to the U.S. Lower 48 states.
A spur line from a Valdez main line could follow the Glen Highway into the Cook Inlet region. Or if a main gas line is built along the Alaska Highway, a spur line from Delta Junction could follow the Alaska road system to Valdez and the Cook Inlet (editor’s note: people have also considered a spur line route following the Parks Highway from Fairbanks to the Cook Inlet region).
ANGDA has already done some of the right-of-way work and pre-engineering for the Glen Highway spur line route, so that this route option is almost in a pre-build state, Heinze said.
“We could actually move pretty fast on something like this,” he said.
Estimated tariffs Based on a gas throughput of about 250 million cubic feet per day into Southcentral Alaska, Heinze has estimated the tariffs on various combinations of mainline and spur line routes, and hence has estimated the possible delivery costs for gas in Fairbanks, Valdez and the Cook Inlet region.
For a mainline through Alberta, the delivery cost could be $1.65 per million British thermal units in Fairbanks, $5.15 per million Btu in Valdez and $5.15 per million Btu in the Cook Inlet region. For a mainline to Valdez, the corresponding costs would be $2.40 for Fairbanks, $2.58 for Valdez and $4.15 for Cook Inlet. These estimated costs would cover gas processing and transportation, but do not include the wellhead price of the gas on the North Slope.
However, Heinze pointed out that the massive, perhaps $30 billion to $40 billion main line project, presents many difficulties, given its scale and the need for many complex “moving parts” such as a huge North Slope gas processing plant.
The bullet line A simpler concept that has some traction at the moment is the so-called “bullet line,” a gas pipeline built from the North Slope into Southcentral Alaska purely for the delivery of gas to Fairbanks and Southcentral. But anyone contemplating this option needs to consider the issue of the carbon dioxide that exists in the North Slope gas — that carbon dioxide would likely need to be removed in an expensive treatment plant on the Slope, although some people have considered piping the carbon dioxide along with the natural gas into Southcentral, Heinze said.
Whereas the tariffs on a mainline from the North Slope would include the cost of gas treatment services on the Slope, a bullet-line project would need to take responsibility for the carbon dioxide. And given the 800-mile length of the pipeline, the pipeline by itself would cost several billion dollars, Heinze said.
“If you take on the bullet line project you must install the gas conditioning facilities to take the 11, 12 percent CO2 down to something that is more pipeline compatible. … It almost doubles the cost of the project,” Heinze said.
And those costs translate to a gas conditioning and transportation cost of perhaps $12 per million Btu to Fairbanks and $14.7 per million Btu to the Cook Inlet region, Heinze said. However, although those costs would likely appear exorbitant to Southcentral gas consumers, they may be more appealing in Fairbanks where current energy costs are even higher, he said.
Other options There are a couple of other proposals for the delivery of North Slope gas, just to Fairbanks. One of these options, being pursued by the Alaska Gasline Port Authority and Fairbanks Natural Gas, involves the trucking of LNG by road from Prudhoe Bay. With a published estimate of $250 million for the financing of this project, Heinze thinks that the delivery cost of gas by this route would come in at around $6 per million Btu.
The other Fairbanks option is a pipeline proposed by Energia Cura from the Slope down to the Fairbanks area. The published estimate of around $500 million for this project might translate to a gas delivery cost of about $9 per million Btu, Heinze thinks.
Another possibility for in-state energy that ANGDA has been pursuing is the use of North Slope propane, delivered by truck and barge to remote communities around the state. North Slope gas contains large quantities of propane that could be extracted for distribution in liquid form, thus eventually enabling perhaps 99 percent of the state’s population to benefit from North Slope energy resources, Heinze said.
Low cost, high uncertainty In summary, the shipping of in-state gas through a major North Slope gas line, in combination with spur lines, would result in relatively low gas-transportation tariffs. And Fairbanks, in particular, would benefit from cheap gas delivered through this mechanism. But there is no certainty about whether construction of the big gas line will actually happen, and construction is still some years off.
Other options for the in-state delivery of North Slope gas face the economic hurdles of high pipeline tariffs that must include the cost of dealing with the carbon dioxide that the raw gas contains. On the other hand, a relatively low-cost, short-term option, such as the delivery of North Slope gas to Fairbanks, might head off the need to make a hurried decision on the more expensive proposals, Heinze said.
And, with North Slope gas rich in natural gas liquids, there is an opportunity for an investor to pursue an in-state petrochemical industry, thus improving the economics of in-state gas, Heinze said.
But what of the option to ship North Slope gas to Valdez for export as LNG?
Since that was an option within the TransCanada-ExxonMobil open season, the market will issue its verdict on that concept, Heinze said.
“There is an opportunity to basically be in the hunt in Valdez, to have gas at or below the U.S. price, and if you can liquefy it and get it overseas you may be able to make that project work,” he said.
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