Providing coverage of Alaska and northern Canada's oil and gas industry
September 2005

Vol. 10, No. 36 Week of September 04, 2005

Nenana gas project analyzing seismic

Decision on drilling depends on results of seismic analysis and on rig availability, Usibelli Energy tells Alaska legislators

Alan Bailey

Petroleum News Staff Writer

On Aug. 23 in Fairbanks state lawmakers heard an update on the Nenana basin gas exploration project. The update was part of a joint meeting of the Alaska Legislature’s House and Senate Resources committees and the House Special Committee on Oil and Gas. Nineteen lawmakers attended the meeting.

Andex Resources LLC is exploring in the Nenana basin, southwest of Fairbanks, under the terms of a state exploration license. Usibelli Energy LLC, Doyon Ltd. and Arctic Slope Regional Corp. are participating in the project.

“We are currently processing and evaluating seismic data, trying to determine whether we have a viable well site to drill,” Mitch Usibelli of Usibelli Energy said to the lawmakers. PGS Onshore completed an initial 2-D seismic survey in the exploration area in the spring, Usibelli explained.

Next steps

“Over the next year or two we will be hopefully conducting some wildcat well drilling once we determine where the site is and/or conduct any additional seismic work, as needed,” Usibelli said.

Usibelli also said that the current shortage of rigs might constrain the timing of any drilling.

“Drill rigs right now … are very tight, not only in Alaska but throughout North America and world,” Usibelli said. “… For drilling to the depths that we’re looking at they’re very difficult to locate in this area.”

The project anticipates drilling to depths of 10,000 to 12,000 feet, Usibelli said.

Usibelli said that the basin contains all of the components of a petroleum system but that the location of hydrocarbon traps requires seismic analysis. But given the size of the exploration area and the lack of previous data for the area the project was shooting 2-D seismic rather than 3-D seismic. 3-D seismic would be more appropriate to a more focused area, perhaps after some initial drilling, he said.

Given the high cost of drilling, a decision on the first wildcat well will be a major step.

“That’s the really big decision,” Usibelli said.

Little previous data

Bob Swenson, deputy director of Alaska’s Division of Geological and Geophysical Surveys, pointed out some of the risks and uncertainties associated with the lack of information about the Nenana basin. The geometry of the Nenana basin bears close similarities to that of the productive Cook Inlet; both basins contain similar non-marine Tertiary rocks, he said. But past exploration of the Nenana basin has only resulted in 350 miles of seismic and two relatively shallow wells.

“All the data (about the Nenana basin) that we have so far are based on very, very limited data,” he said. “… What Andex and Usibelli are out there doing right now is trying to increase our knowledge.”

In fact, Swenson sees the current exploration of the Nenana basin as an important step toward a better understanding of the petroleum geology of several similar basins in the interior of Alaska.

The Nenana basin has good potential for gas but low potential for oil — the U.S. Geological Survey estimates of technically recoverable gas for central Alaska lie in the range 0.5 trillion to 7.3 trillion cubic feet, with a mean of 2.8 tcf, Swenson said. The wide range of possible reserves reflects the high level of uncertainty about the potential of the interior basins, he said.

Markets for the gas

But if there is a gas find in the Nenana basin there should be a ready market for the gas, especially in the nearby Fairbanks area — Kevin Banks, senior commercial analyst in the Division of Oil and Gas, reviewed the economics of producing gas from the basin.

“There’s a potential for considerable growth in Fairbanks,” Banks said.

Gas consumption in the Fairbanks area has been increasing by about 0.1 billion cubic feet per year and reached 0.5 bcf in 2004, he said. About 46 percent of that gas consumption is associated with domestic use and about 64 percent is from commercial use. Gas used in Fairbanks comes from the Cook Inlet and is trucked as LNG from a facility near Point MacKenzie across Knik Arm from Anchorage.

Banks cautioned that the low population density in the wider Fairbanks area might limit domestic gas distribution, but said the use of gas for electrical power generation could push up gas demand to as much as 27 bcf, if the electrical power distribution from a central power station extended to areas around Fairbanks.

Industrial use of gas could grow to more than 90 bcf per year, depending on the availability of gas at an appropriate price.

“It only depends on what you think of, what you could use gas for,” Banks said, listing some possible industrial applications such as Internet server farms and petrochemical facilities.

Banks said that gas from the Interior could also go to the Cook Inlet where there’s an emerging excess of gas demand over gas supply.

Gas prices

All potential uses for gas depend critically on the price at which the gas can be delivered. And Nenana gas would have to compete with North Slope gas, if a gas line is built from the Slope to Fairbanks or Anchorage. Banks estimated that North Slope gas would be priced in a range from $3.93 to $5.68 per bcf in Fairbanks and in a range from $4.88 to $7.05 per bcf in Anchorage.

“Nenana can supply into a market as long as it can beat that $3.93 to $5.68 price,” Banks said.

Banks also said that Alaska gas prices are becoming increasingly linked to gas prices in the Lower 48 — this factor is now appearing in Cook Inlet pricing, where returns on gas exploration need to compete with returns on exploration elsewhere. However, price projections suggest that gas from the Nenana basin could be delivered to Fairbanks at prices substantially lower than those of current Fairbanks fuels such as fuel oil and trucked LNG.

So, how soon could people in the Fairbanks area see economic benefit from a gas discovery in the Nenana basin?

Usibelli expressed guarded optimism about the likelihood of a significant gas find, although both he and Swenson emphasized the challenges and uncertainties inherent in wildcat drilling in a poorly understood basin. Jim Mery, vice president for lands and resources for Doyon, said that there’s a good chance of finding enough gas to supply Fairbanks for 20 years but that it would take several years to find and commercialize the gas.

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