Alaska’s Cook Inlet area needs thriving industrial natural gas customers in order to have plentiful and inexpensive natural gas for its residential heating and electric generation customers, according to Harold Heinze, chief executive officer of the Alaska Natural Gas Development Authority.
“The economics of bringing gas into Cook Inlet are tough,” Heinze said. “You need industrial customers.”
Gas requires three things for its use: supply, a way to move it and a market, Heinze said, adding that the first two items are obtainable, but only if the market is large enough to reach economies of scale needed to justify construction and carrying expense of the required infrastructure.
Cook Inlet’s two current major industrial gas users are located south of Anchorage on the Kenai Peninsula, near gas fields that currently serve the Cook Inlet area. One plant converts natural gas to liquefied natural gas, to be shipped to Asia by tanker. The other plant, a nitrogen fertilizer plant owned by Agrium Inc., is threatened with closure in late 2005, due to a dwindling gas supply and higher prices in Cook Inlet.
But Heinze said future gas supply health in the Cook Inlet area will require more industrial usage, rather than less.
“The LNG plant at Kenai is too small, and it needs to be expanded to three or four times its current size,” Heinze said.
Three distinct markets must combine to form a critical mass large enough to spur economic delivery of North Slope Gas to Cook Inlet — first: home heating, business heating and electric generation; second: propane; and third: a major industrial facility, Heinze said.
The Cook Inlet gas distribution system is likewise comprised of three major areas: Anchorage, the Kenai Peninsula and the fast-growing Matanuska Valley.
Demand is growing around Cook Inlet, but reserves are declining.
“The timeline of Cook Inlet gas needs is pretty tight; some of us believe we’re already started to see the fallout,” Heinze said. “We’ve had the announcement of Agrium shutting down and we haven’t even gotten to the bad part of the curve yet — what’s going to happen when we get to the bad part of the curve?”
Heinze is hopeful that the dire nature of the Cook Inlet gas situation will stimulate action on projects to alleviate the predicted drop in supply.
“Events are going to precipitate people wanting to move forward; it’s going to become really important to get as many of these things going as possible,” he said.
Tidewater possibilities
Heating and electric generation are the underpinnings of the Cook Inlet gas market, but the icing on the cake is the access to tidewater which the inlet itself provides.
“Once gas gets to tidewater, it opens up a lot of benefits,” Heinze said, adding that it is not a foregone conclusion, however, that North Slope gas will reach Cook Inlet.
“The leading contender project right now, in reality, is taking that gas down through Fairbanks, down the highway, down through Canada,” Heinze said.
“The North Slope gas pipeline project doesn’t touch Alaska, and it doesn’t bring gas to tidewater anywhere in Alaska or on the West Coast.”
If a spur line is economic, there won’t be much red tape between Alaska and North Slope gas. Rules that would govern the proposed Prudhoe Bay natural gas pipeline project favor the ability for the state to tap into the line for local use, Heinze said.
“One of our concerns is that we were just basically going to end up with this big sort of like interstate highway running from Prudhoe Bay to Chicago, and there’s no off ramp in Alaska.” Heinze said. “The rules they’ve written give us lots of ramps on and off, we get to say where they are, and how many lanes there are.”
Heinze said the authority is preparing a state right of way lease application for filing April 1, to secure a complete right of way extending 140 miles from Glennallen to Palmer.
“Once the right of way is in place, everything else will fall in line,” Heinze said.
The authority estimates the pipeline will cost $300 million, or more, depending on where the hook-in to the main North Slope line is located.
Heinze said a 24-inch-diameter high-pressure buried gas line could supply the Cook Inlet area’s current level of gas use of half a billion cubic feet per day, while at the same time offering benefits above a larger or a smaller diameter project.
A 24-inch line is easier to construct, and the pipe adds structural strength, Heinze said, adding that at 2,500 pounds per square inch, it is possible to “cram natural gas liquids into the line.” The 24-inch pipe is easier to get than large diameter stock, with a larger variety of suppliers.
On the other hand, going to a pipe smaller in diameter than 24 inches doesn’t move enough gas to justify the investment.
“A six-inch pipe is expensive to move gas,” Heinze said.
Propane
The authority is currently contracting for a study of barging propane to Alaska coastal and river communities.
Propane is the ideal fuel for most of rural Alaska, easy to transport, clean, safe and familiar, Heinze said.
Propane is fairly widely used already in rural Alaska, and would be more widely used if priced more attractively, Heinze said, adding that the price of most propane being used in Alaska is driven by the price of propane that is being extracted in Alberta and trucked up the highway from Canada.
Heinze said the authority has a completed study that says co-transport of large propane volume is feasible and attractive in a dense phase spur line to Cook Inlet.
Along with 4.5 billion cubic feet of gas per day, the North Slope natural gas pipeline project will carry 100,000 barrels per day of propane, some of which could profitably stay in Alaska, Heinze said.
“We’d be looking at taking out 50,000 barrels per day, bring it to the Cook Inlet area, by marine transport bring it to the coastal communities of Alaska, and export the rest,” Heinze said. “If we can intercept that propane here in Alaska and make it pretty readily available throughout the state at a reasonable price, it would be adopted in rural areas.”
Propane is a valuable export, saleable anywhere in the Pacific Rim at a premium. For the developing nations in particular, and some of China’s population centers, propane is a highly desirable transportation fuel, Heinze said. For burgeoning population centers that have smog problems, propane is the kind of fuel needed in the longer term to solve air quality issues.
Bullet line
The authority is looking at a fall-back position, to build what it calls a bullet line, to deliver North Slope gas directly to Cook Inlet in the event no larger pipeline is built from the North Slope.
“If everything comes unglued, and Alaska decides that in its own best interests, it wishes to proceed to get gas to this area, there will be a plan available that in the long run is compatible with somebody coming back in at a future date, and building a really big gas line,” Heinze said.
