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Private sector lead sought for propane ANGDA hosts Alaska Opportunities Conference; state corporation looking for companies to process, transport, buy propane By Stefan Milkowski For Petroleum News
The Alaska Natural Gas Development Authority has reached a tentative agreement with a major North Slope producer for the sale of propane and is seeking private parties to help distribute the fuel across Alaska.
At a conference June 17 in Fairbanks, ANGDA Chief Executive Officer Harold Heinze urged anyone interested in processing, transporting, or buying propane to come forward now to help make the project a reality.
“We believe it’s got every basis in the world to go forward,” he said, “but it’s not what I think; it’s what you think, that in the ultimate is going to count here.”
If the private sector isn’t interested in the project, Heinze said, ANGDA will “write it off as another good idea that didn’t launch.”
ANGDA’s idea is to draw several thousand barrels per day of propane out of the stream of natural gas produced at Prudhoe Bay at one or more propane extraction plants. Gas would be returned to existing processing facilities and reinjected into the ground. Prudhoe Bay natural gas contains about 2 percent propane, according to Heinze.
The propane would then be processed and transported by truck and barge to cities, villages and large industrial users around the state. ANGDA would help develop the North Slope infrastructure and ensure that gas is available to all interested parties, while private entities would operate the infrastructure and deliver the propane.
Heinze said one of the three major North Slope producers has agreed to sell propane for a small fraction of the cost of oil — as little as 20 to 30 cents per gallon of propane — if an independent third party can prove the project is technically feasible and if there’s a market for the gas. (Heinze said the producer doesn’t want to publicly announce a major project that goes nowhere.)
ANGDA has contracted with the firm NANA Worley Parsons to study whether the project is technically feasible and is talking with large energy consumers like Golden Valley Electric Association in Fairbanks and the Red Dog mine near Kotzebue to ensure a market for the gas.
According to an analysis by Scott Goldsmith of the Institute of Social and Economic Research, extracting the propane and shipping it to Fairbanks would add roughly a dollar per gallon in cost. On a per-Btu basis, propane would be cheaper than heating oil any time North Slope oil was selling for more than $21 a barrel, he said. At current oil prices, customers would save more than $17 million a year by substituting 2,000 barrels per day of propane for heating fuel.
Mary Ann Pease, ANGDA’s propane supply coordinator, said propane deliveries could begin within two years.
Making it work Sales of propane in Alaska currently amount to roughly 1,000 barrels per day, according to the American Petroleum Institute. Propane is supplied by the Tesoro refinery in Kenai and by imports from Canada and the Lower 48.
ANGDA’s proposal envisions anywhere from 1,000 to 10,000 barrels per day of propane from the North Slope, although Heinze said the project would probably need at least a few thousand barrels per day and one large user like GVEA to be economic.
Kate Lamal, GVEA’s vice president of power supply, said her utility is considering converting its North Pole expansion plant from naphtha to propane, but added that their cost estimates are less favorable than those presented by Goldsmith. (Goldsmith’s numbers showed savings over naphtha at oil prices above $51 a barrel.)
“We’re going to have to make some decision based on our view of what oil is going to be,” Lamal said, adding that GVEA is also considering investing in the necessary North Slope infrastructure. Lamal is an ANGDA board member, but has recused herself from any votes dealing with propane.
Several presenters described a chicken-and-egg situation facing the project — consumers are reluctant to convert to propane before an inexpensive supply is available, and suppliers are reluctant to invest in the project until they know the demand is there. A public-private partnership could help the various parties manage risk, according to financial experts speaking at the conference.
Nicholas Hann of Macquarie explained how suppliers could help customers switch to the new fuel by leasing propane appliances.
Competing projects The propane project is complicated by ongoing efforts to develop a natural gas pipeline. Natural gas delivered in a large-scale pipeline would likely undercut propane from the North Slope in urban areas and would allow new propane plants to be built at various points along the route.
But Heinze argues the two projects would complement each other. While GVEA may switch to natural gas when it becomes available, Red Dog may never have access to gas, he said. “Frankly, the biggest user may actually be the remote operations on the North Slope.”
The project could also impact two smaller natural gas projects that are more dependent on in-state demand — a “bullet” pipeline from the North Slope and a proposal by Fairbanks Natural Gas to truck gas from the North Slope to Fairbanks as liquefied natural gas.
FNG President Dan Britton said in an interview June 16 that ANGDA’s project would create significant challenges for his project relating to the siting of North Slope infrastructure. He argued his project is better because it would encourage the build-out of Fairbanks’ gas distribution system in advance of a pipeline and said he is continuing to seek customers and financing.
Government support Alaska’s Congressional delegation and Gov. Sarah Palin offered general endorsements for the idea.
In a video-taped message, U.S. Sen. Lisa Murkowski described propane as “a shovel-ready solution to the energy crisis that’s stifling Alaska’s rural economy.”
Palin, in a letter read by special assistant Joe Balash, said using propane could be “a part of the answer.”
Palin did not support a budget request from ANGDA this year and instead directed funds toward the in-state gas line effort directed by Harry Noah. Heinze said ANGDA is trying to stretch a previous appropriation as far as possible.
In an interview, Balash said the governor does support the propane project.
“It’s not going to happen unless it provides some competitive advantage price-wise with the current forms of energy,” Balash said. “Anything that gets done to reduce the cost of energy in any Alaska community is a good thing.”
Balash acknowledged the project could negatively impact an in-state gas line, but added, “we’re not going to close off this opportunity just because there might be an opportunity on a bullet line.”
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