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Week of August 26, 2012
Providing coverage of Alaska and northern Canada's oil and gas industry

Too useful to sell

AOGCC says results justify using propane rather than sell it for local markets

Eric Lidji

For Petroleum News

Even though there is a demand for propane in Alaska, BP Exploration (Alaska) Inc. is not wasting the propane it produces at the Prudhoe Bay unit by using the fuel for field operations, according to a recent Alaska Oil and Gas Conservation Commission inquiry.

In fact, Prudhoe Bay propane is so useful for enhancing North Slope oil recovery it may complicate attempts to sell propane, both in the future as well as sales going on now.

Selling one oil-equivalent barrel of propane today would result in a net loss of 0.93 oil-equivalent barrels of valuable liquids in the future, according to the AOGCC findings.

Because propane contributes to a system generating a net gain in energy production, “If they did choose to sell it rather than re-inject we would have to look at that as potential waste,” AOGCC Chairman Cathy Forester told Petroleum News on Aug. 21.

Issue community use

The inquiry began after former ARCO Alaska and Alaska Natural Gas Development Authority head Harold Heinze suggested BP could be selling some of the propane it produces and injects back into the reservoir at Prudhoe Bay. While not accusing BP of impropriety, Heinze suggested the field could be reconfigured to provide propane for local communities without impacting oil recovery. Because any propane not sold today would eventually be trapped underground when the field reaches the end of its life, Heinze argued reinjection might constitute waste under the statutory definition.

The AOGCC rejected that argument, but potentially upended it, too.

Under a previous AOGCC decision, the Prudhoe Bay owners currently sell natural gas liquids into the trans-Alaska oil pipeline. “The findings from this hearing beg the question of whether we should evaluate that decision,” Forester told Petroleum News.

This issue also remains alive at the legislative level.

As part of a larger investigation into energy pricing in Alaska, the Senate Finance Committee is studying propane. Specifically, the committee wants to know what it would take to reconfigure the Prudhoe Bay gas processing facilities to recover propane for local use without harming enhanced oil recovery operations. It also wants to know if BP is required under its lease commitments to provide propane to willing local buyers.

‘Clear and substantial benefits’

While Alaska communities — particularly in rural areas — may be hungry for local propane to displace expensive diesel and heating oil, using propane for field maintenance has “clear and substantial benefits to ultimate recovery,” the AOGCC concluded.

The Central Gas Facility at Prudhoe Bay, or CGF, separates the gas produced at the field into two streams: gas liquids and residue gas. Both contain small volumes of propane.

BP subsequently separates the liquids into natural gas liquids sold through the trans-Alaska oil pipeline or to the Kuparuk River unit, and miscible injectant to enhance oil recovery. A small amount of propane is used in house to cool CGF processing systems.

The Prudhoe Bay field could technically yield larger volumes of propane, but the CGF currently “produces as much gas liquids as it is physically capable of doing,” according to the AOGCC findings. Although BP could expand the plant, the equipment would involve a “substantial” cost and installation would require a six to eight month shutdown.

Even if BP did expand the plant, it would need all the additional liquids to make more miscible injectant, BP said. The current system is only running at 22 percent of capacity.

Royalty considerations?

During the hearing Heinze specifically questioned whether moving propane from the BP-operated Prudhoe Bay unit to the ConocoPhillips-operated Kuparuk River unit should trigger state royalty considerations. While the AOGCC did not consider that question, it did find that the natural gas liquids sold to the Kuparuk River unit also enhance oil recovery, around 1.3 barrels of oil for each barrel of natural gas liquids used at the field.

Additionally, the natural gas and natural gas liquids BP currently sells to other units “provides clear and substantial improvements in ultimate recovery from these units while having a negligible effect on recovery in the (Prudhoe Bay field),” the AOGCC found.

The propane in the residue gas stream is also crucial for operations, the AOGCC found.

The majority of the residue gas is injected into the Prudhoe Bay gas cap to maintain reservoir pressure, although some is sold to the BP-operated Northstar unit for enhanced oil recovery operations and a small amount is used as a fuel supply at Prudhoe Bay.

The injections are responsible for 500 million barrels of oil recovery at Prudhoe Bay and have increased Northstar recovery by 15 percentage points, according to the AOGCC.

BP praised the findings.

“The AOGCC agreed that the propane is a greater benefit to Alaskans by helping to get more oil out of the ground right. … As we face the continued decline of North Slope oil production, every barrel counts,” BP spokeswoman Dawn Patience told Petroleum News.

Concerning the larger issue of rural energy needs, Patience said BP continues to meet with utilities and policymakers “to determine if there is a role for our company to play.”



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