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Noah: standalone line work on schedule Parks Highway route selected because it is shorter, could cost less; gas conditioning in Cook Inlet, at PBU facilities, considered Kristen Nelson Petroleum News
Harry Noah, special manager of the in-state gas pipeline project, told Alaska legislators Dec. 16 that the standalone or bullet line — a project which would deliver gas just within Alaska, not to outside markets — is on schedule to meet what he called a very aggressive schedule to put the package of engineering work and permits out to bid in early 2011. The goal is to find a private party to build the line and have it delivering gas in 2015 or early 2016.
Noah, who has announced his departure, told members of the House Resources Committee and other legislators who participated that he is leaving because of the demands of his family business.
But he admitted to frustration with the process, telling the legislators that there’s too much politics in Alaska right now and that commercial parties don’t find that attractive.
“If you want commercial entities to make agreements, there’s just so far they’re going to step into this world of politics,” he said.
Routing completed An alternative routing analysis of the Parks and Richardson highways for that portion of the line south of Fairbanks to Cook Inlet has been completed, he said. The cost of the routes was compared, he said, “and we didn’t find a whole lot of difference between the two other than the Richardson Highway route is longer, which equates to just slightly less than $500 million more cost.”
Since the goal was the lowest-cost project, the engineering effort then focused on the Parks Highway.
A permitting-level project description was also completed, major project applications have been prepared and filed and the scoping process for an environmental impact statement has begun.
Other work completed includes review of the capital cost estimates prepared by Enstar Natural Gas Co., compressor station locations set for the permitting process and a letter sent to the chairman of the Federal Energy Regulatory Commission requesting verification that an in-state gas pipeline would not be regulated by FERC.
Different scenarios The team looked at four scenarios: 250 million, 500 million, 750 million and 1 billion cubic feet per day.
Associated with the lower flow the team also looked at a 16- to 18-inch pipeline in addition to the base case of a 24-inch line. In addition, Noah said the team looked at the cost difference if a 48-inch line were built to Fairbanks and a 24-inch line beyond that, which amounted to an additional $6.5 billion, he said, telling legislators that there wasn’t a lot of work done on the 48-inch option, but that the intent was to provide a set of numbers which would answer questions which were expected to come up.
Work was also done on a pipeline route to western Alaska with an end point at Donlin Creek.
Point Thomson considered Rep. Craig Johnson, R-Anchorage, co-chair of House Resources, asked about taking gas from Point Thomson to a pipeline at Pump Station 2 south of the North Slope.
Noah said one focus of the study was reducing gas conditioning costs. Unlike Prudhoe Bay gas, which has some 12 percent CO2 and hydrogen sulfide, Point Thomson gas has lower CO2 values and lacks the hydrogen sulfide, reducing conditioning requirements. He said the team looked at a pipeline route from Point Thomson to Pump Station 2 “with the idea that that may be a less expensive pipeline because it’s going along the foothills and higher in the watershed so you don’t have the length of the river crossings associated with it.”
Although a line to Pump Station 2 was considered, Noah said the assumption the project is going with right now is that Point Thomson gas would come across “on the pipeline that’s being looked at right now by Exxon” so the standalone project wouldn’t be in the middle of ongoing commercial discussions.
Noah said that because a major cost issue is gas conditioning on the North Slope the team looked at whether the standalone project could integrate into North Slope facilities for conditioning, or alternatively, “could we just bring the gas down to Point MacKenzie and condition it there where it would be much cheaper to build a gas conditioning plant than on the North Slope.” A smaller plant in Fairbanks would clean up gas for the Interior and put what was taken out of the gas back into the line for shipment to the Cook Inlet plant.
Noah said the standalone team doesn’t know right now what the cost would be for a conditioning plant.
Asked by Johnson whether using North Slope facilities had been discussed with the producers, and at what level, Noah said he’d had “sort of hazy” discussions with Exxon about the proposal. “No one said no; … no one opposed taking a look at it; … it was just hazy.” He said they’d just started to have those conversations at the last commercial working group meeting some weeks ago.
NGL marketability at tidewater Another issue that came out of the initial work is marketability of natural gas liquids at tidewater in Cook Inlet.
If the transportation tariff is based on the British thermal units of what’s transported, “could you reduce the overall tariff by moving more Btus down the line — and that’s essentially what Exxon and TransCanada are talking about doing,” Noah said, moving as much of the gas liquids as possible “and literally use the methane … just as a transport vehicle.”
He said he has a question of whether, and how much, NGL could be sold at tidewater in Cook Inlet.
To drive the cost down on a standalone line moving North Slope natural gas to Cook Inlet you have two choices, Noah said: “One you increase the volume to the greatest extent possible or two the state subsidizes it.”
Rep. Mark Neuman, R-Wasilla, co-chair of House Resources, asked about reducing the cost by shipping a higher-quality product.
Noah said the issue was whether you could market NGLs at a good profit from Cook Inlet. “The reason that it made sense to take those NGLs to Calgary is there’s an existing infrastructure” to handle the gas liquids.
The project schedule calls for moving gas in 2015 or 2016, Noah said, calling it a “very aggressive schedule.”
That requires completing the basic cost of transport estimate in the early summer of 2010.
He said he suggested another $6.5 million, a lot of that for field work, for this year’s budget, and said the lead federal agency has come up with a program that will allow completion of initial permitting by February 2011. That would allow the project to be put up for bid, a process which would be complete in April 2011. “To do that the intent was to start the process in the fourth quarter of 2010 to find that company,” Noah said.
Policy decisions Asked by Rep. Les Gara, D-Anchorage, whether the big pipeline wouldn’t provide cheaper gas than an in-state line, Noah said “absolutely” the gas from a big line would be cheaper.
Fairbanks has the more immediate need for gas, Gara said, while Anchorage is looking for a next generation supply, and he said he was concerned that a pipeline project that gets needed gas to Fairbanks now, reducing their cost of energy, could end up costing Anchorage more for gas than what it pays now. Is there an economic way to get natural gas to Fairbanks without saddling Anchorage with gas that might be more expensive than what Anchorage could get elsewhere? Gara asked.
Those questions “are at the heart of the policy decisions that have to be made,” Noah said.
“There is no question if the big line were coming along in a timely manner I’d say stop all this,” he said, because as long as the state can get “a reasonable amount of gas out of the big line, then that’s a slam dunk, no question about that.”
Noah said the problem is that there’s no way to define what the schedule is for the big line. If you work on these projects for 20 years “you see the circle go around and around and the enthusiasm build up and the … engineering work gets done and then, oh my goodness … it’s not going to work. And it goes around and around on the big line.”
A project we can control
The intent of the standalone program is to identify “the cost of doing a project that we can control,” Noah said.
The only way Fairbanks gets a reasonable cost of gas is if a pipeline is going by, he said, because the market isn’t big enough.
He said he can’t think of a reason the State of Alaska doesn’t want to encourage a big pipeline.
“But the question is when do we say we’ve got to take care of ourselves. And if you make the assumption that the gas is going to be more expensive in Cook Inlet because the big line is coming along, then you have to have the underlying assumption that the big line is coming.”
Noah said he didn’t know whether it is true that it’s only a matter of time until the big line comes along.
But would an in-state gas line provide gas for less than a big line, something Gara said many Alaskans believe.
Noah said that for gas to work for the Nikiski LNG plant or for Agrium, “we’re going to have to get gas here for something around Nymex or just slightly less.”
But the North Slope producers are also going to have to make as much or more on gas sold in-state as they would make on gas going to the Lower 48, Noah said.
“It has to be a commercial deal or they’re not going to do it.”
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