Oil Patch Insider

TAPS starts first new electric pumps; Agrium writes off Nikiski; Palin slams Exxon; Petro-Canada not going to operate in NPR-A

The startup of the new electric pump system at pump station 9 of the trans-Alaska pipeline has started to bring to fruition the years of work involved in the strategic reconfiguration of the pipeline system.

“We have reached a major milestone in the last couple of days,” Curtis Thomas, spokesperson for Alyeska Pipeline Service Co., the pipeline operator, told Petroleum News Feb. 14. The pump station is alternating operations between the old and new pumping systems, to make sure that everything is operating correctly — the new system should go into continuous operation later today or early tomorrow, Thomas said.

“So far everything is working exactly as planned and we’re very proud of this,” Thomas said.

Alyeska’s strategic reconfiguration is a modernization project to reduce infrastructure and simplify operations and maintenance by electrifying and automating control systems at Pump Stations 1, 3, 4 and 9. The new systems include electric pumps that replace the old turbine pumps and that will enable the pipeline to respond flexibly and efficiently to varying oil throughputs.

A 30 to 45-day testing period will follow startup of the electric pumps, Thomas said. That testing period will provide opportunities to make adjustment to the pump station operations and learn lessons to be applied to the conversion of other pump stations.

Then attention will switch to pump station 3, the next of the pump stations to be converted, although Alyeska does not have a specific timetable for the pump station 3 conversion.

“We’ll take our time and do it right, and do it to our specifications,” Thomas said.

Alyeska will convert pump stations 1 and 4 at some time after pump station 3. But the conversion of pump station 9 constitutes the first step in the conversion of the complete pipeline system.

“This is a great step for Alyeska and the state of Alaska,” Thomas said.

—Alan Bailey

Palin parries low blow from ExxonMobil

Tillerson, in discussing what he called access and contractual challenges in Alaska at the Cambridge Energy Research Associates conference in Houston, Texas, told reporters that he didn’t know where things were headed with the gas line and he didn’t think Alaska knew where it wanted to go, either.

Calling Tillerson’s comments “unfortunate,” Palin said she believes ExxonMobil knows exactly where Alaska is going with the gas line and doesn’t like that direction.

“What bothers me is that Alaska tried it Exxon’s way,” Palin said. “The result was a contract that is not viable. It did not have the support of the public or the Legislature.”

Palin vowed that her administration will continue to pursue a competitive, open and transparent process to achieve a gas line deal that will benefit all parties involved.

“It’s painfully obvious that ExxonMobil does not want that process. We know exactly where we’re going and have a plan to move forward. Exxon doesn’t like that plan because it puts the interests of Alaska and the nation, first — and not Exxon.”

Palin said she plans to introduce the Alaska Gasline Inducement Act in the state Legislature in about two weeks, and looks forward to continuing positive dialogue with everyone interested in moving the gas line forward and bringing Alaska’s gas to market.

She also said she plans to meet with ExxonMobil in Washington, D.C., within two weeks and “hopefully, we can get to the bottom of this.”

“It’s unfortunate that the top dogs at Exxon would come out swinging. They haven’t seen AGIA. I think it’s very premature. … I would prefer a much more positive relationship with a company involved in the process and not one that is so adversarial, right off the bat,” she added.

—Rose Ragsdale

Agrium ‘in essence’ writes off Nikiski facility, but hope lies in gas exploration and coal gasificat

The already scaled-back facility will reopen in March, as planned, he said, but only stay open for “roughly” eight months. (The Nikiski fertilizer facility closed Oct. 23 because of projected tight winter gas supplies from the Cook Inlet basin.)

Wilson’s comments were in response to an analyst asking him to put a gross value on the Nikiski, Alaska operation.

Wilson replied, “We’ve in essence written it off. We’ve told you to be very conservative and don’t count a lot on it. We’re keeping it alive for option value.”

Three things are working in the Alaska facility’s favor — a “transportation advantage” for shipping finished product, “significantly lower” natural gas prices than in the Gulf of Mexico and high global prices for nitrogen.

“We’re making a lot of cash on it; we’ll make cash on it,” Wilson said.

Richard Downey, Agrium’s director of investor relations, told Petroleum News on Feb. 14 that the company would make a “potential reasonable cash flow” from the Nikiski facility in 2007, but that was dependent on continued strong global nitrogen prices.

Despite viewing Nikiski as a write-off, Wilson held out hope for the facility.

“But also we’re looking at a gasification unit out there, and people are looking for more gas. So it’s hard to say, but it is an upside for us for sure,” he said.

The coal gasification unit Wilson was referring to is Agrium’s Blue Sky project, announced in 2005, which proposes to use local coal and a coal gasification unit as an alternative to natural gas to feed the Nikiski nitrogen facility. In August, Agrium said it was progressing to phase two of that project.

On Feb. 15 Agrium's Alaska spokeswoman Lisa Parker told Petroleum News that the company is “currently working on front-end engineering design ... (and) selecting gasification technology,” after evaluating seven different options.

Initially, Agrium talked about using only Shell's gasification model, but in late 2006 the company sent out “a request for information to all the companies that provide gasifiers, including Shell, ConocoPhillips and a host of others,” Parker said.

Agrium will be “selecting an environmental firm to do project permitting in March,” she said, and “completing coal due diligence and undertaking transportation analysis.”

—Kay Cashman

Petro-Canada not going to operate in NPR-A

In January, Petroleum News reported that the company was teaming with Talisman Energy’s Alaska subsidiary FEX for exploration drilling on jointly held leases in the National Petroleum Reserve-Alaska. And that Petro-Canada had abandoned plans already in the permitting stage to drill on 100 percent Petro-Canada leases in NPR-A.

That was accurate.

But in December and again in January the State of Alaska posted public notices regarding Petro-Canada-operated NPR-A drilling that were accurate, but (unintentionally) misleading. The first was for an oil discharge prevention and contingency plan for a “multi-year exploration drilling program” in NPR-A. The second was for an Alaska Coastal Management Program review notice about the same 2007-09 drilling program.

But the Petro-Canada filings were submitted before the FEX partnership agreement was finalized.

After reading the January notice, Petroleum News called Petro-Canada and was assured that the company’s NPR-A drilling plans included only wells to be drilled in partnership with FEX on joint leases.

As an aside, in mid-December Petro-Canada staked eight NPR-A wells with the U.S. Bureau of Land Management. Six of those wells were on joint Petro-Canada/FEX leases, but two were on 100 percent Petro-Canada acreage.

Since that time paperwork has been submitted to BLM to include FEX in the ownership of the two wells on the 100 percent Petro-Canada acreage.

BLM is still processing that ownership change.

—Alan Bailey