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Vol. 11, No. 49 Week of December 03, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

Nuiqsut natural gas almost ready to go

North Slope Borough working with agencies; ready to convert village electricity to gas; residential conversion will follow

Kristen Nelson

Petroleum News

It’s taken almost 10 years, but the village of Nuiqsut is on the verge of getting natural gas.

Facilities are in place and the North Slope Borough is now working out the last of the details with the state.

The borough has been working on the project since 1997, said David Hodges of the borough Department of Capital Improvement Program Management, the program manager for the project.

“They have wanted gas for years,” and the project is now ready to deliver gas, Hodges told the Alaska Oil and Gas Conservation Commission at a Nov. 28 hearing.

Gas to Nuiqsut is a byproduct of the development of the Alpine field — its facilities are on surface land belonging to the Nuiqsut village corporation, Kuukpik Corp. — and natural gas for the village was part of the deal field operator ARCO Alaska (now ConocoPhillips Alaska) cut for use of the land.

Nuiqsut, however, had to provide the facilities for processing and transporting the gas, and Nuiqsut turned to the borough.

The borough was before the commission requesting a variance to allow the use of gas metering equipment with less accuracy than required by the commission for custody transfer.

An application for tariffs for the pipeline and the distribution system is before the Regulatory Commission of Alaska.

Borough has provided diesel fuel

Commission Chairman John Norman asked Hodges to explain the borough’s role and Hodges said when Alpine development began, ARCO Alaska and Kuukpik Corp., which owns the surface rights, agreed that as part of the compensation to the village for the use of its lands, it would get gas for “use in the village.”

It was the responsibility of the village, however, to get the gas conditioned and transported, and Nuiqsut came to the North Slope Borough for assistance. The borough analyzed the cost and determined that despite the high infrastructure cost it would save a considerable amount of money — for both the village and the borough — to build the infrastructure and use Alpine natural gas.

The borough funded the transportation system through bonds; the distribution system was funded by National Petroleum Reserve-Alaska impact aid grant funds.

The borough owns the infrastructure, Hodges, said, roughly eight miles of above-ground pipe and six miles of buried pipe, as well as the skid at Alpine which processes the gas and a module in Nuiqsut to reduce pressure before the gas goes into the distribution system and a backup system for liquids removal.

The skid at Alpine removes any liquids which might drop out in the gas pipeline at temperatures up to minus 60 degrees Fahrenheit.

They are ready to deliver gas for Nuiqsut utilities, but haven’t commissioned the system to homes yet; homes are expected to be converted in late spring, early summer. The borough buildings also need to be converted, Hodges said.

Gas is expected to be available 95 percent of the time, but diesel backup is included in the work.

Where there are multiple boilers one will be left for diesel, he said, and free-standing diesel systems will be used in homes as backup.

The tariff being requested through the RCA includes only the operating cost for the system, because there is no cost for the gas, which means heating and electricity costs for Nuiqsut residents will be significantly lower than in any other village, Hodges said.

Since the borough purchases fuel for villages for home heating as well as for borough buildings and residents pay only the cost of delivery, the borough’s cost of fuel will decrease substantially, Hodges said.

Meter accuracy the issue

The issue before the commission was meter accuracy.

Hodges told the commission in a September letter that the system design assumed custody transfer and royalty measuring would be done upstream of the conditioning facility at Alpine. Vortex meters were used for local flow monitoring.

“Earlier this year, ConocoPhillips informed us that the royalty measuring point for gas entering the NNGP (Nuiqsut natural gas pipeline) would necessarily be within the NNGP operational area. … We are told, however, that the vortex meters are not presently certified for custody transfer” as required by the commission’s regulations.

Michael Erwin of ConocoPhillips Alaska told the commission that the borough designed and constructed the skid. ConocoPhillips operates the skid on behalf of the borough. He also said that vortex meters are roughly equivalent to the required meters.

Commissioner Cathy Foerster asked Erwin how the gas use would be reported and he said it would be recorded as gas sales.

Forester then asked about a requirement for gas off-take allowance approval from the commission for the field, and Erwin said that requirement was a new revelation to him and that he was not aware of any work being done on that issue.

The commission is in the midst of gas off-take studies for Prudhoe Bay and at the beginning of gas off-take work for Point Thomson.

Agency comments

Both the Department of Revenue’s Tax Division and the Department of Natural Resources’ Division of Oil and Gas are concerned because, while Nuiqsut does not pay ConocoPhillips for the gas, the state still gets its royalty share, and the accuracy of the meters is a concern when royalties are calculated. The gas going to the village is estimated at a maximum of 500,000 cubic feet a day of raw gas, 400 mcf once it is processed, although the village has the right to a maximum of 1 million cubic feet as Alpine expands.

Replacing the meters would cost $25,000 to $40,000, Hodges said, whereas the difference in royalties would be in the hundred-dollar range per year, plus or minus $1.17 per day for all leases, and plus or minus 95 cents per day for state leases.

Hodges also said that if the meters had to be replaced now, it would delay startup of gas until next spring or summer.

Both divisions proposed methods to resolve the issue and Mike Kotowski of Oil and Gas suggested to the commission that perhaps the agencies and ConocoPhillips could work on the issue and provide information to the commission; the concern, he said, is that royalty owners be compensated.



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