Vol. 27, No.21 Week of May 22, 2022
Providing coverage of Alaska and northern Canada's oil and gas industry

North Slope methanol?

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Part 1 of 2: Alyeschem LLC looks to make first local source of methanol

Kay Cashman

Petroleum News

On March 2, Alyeschem LLC and Ahtna Petrochemical Products LLC applied to the Alaska Department of Natural Resources’ Division of Oil and Gas for an assignment of state lease ADL 421055 from Ahtna Petrochemical to Alyeschem under Alaska Statute (AS) 38.05.070 and AS 38.05.920.

The division approved the assignment with an effective date of May 11. The current Entry Authorization, or EA, is set to expire on July 30.

The odd lot lease is located within active oil and gas lease ADL 28312 in the Hilcorp North Slope-operated Prudhoe Bay unit, approximately one-half mile east of Drill Site 14 and 100 feet south of Flow Station 3, immediately adjacent to the Spine Road.

Alyeschem, which is owned by Walter Wilcox II (also known as JR Wilcox) and his family, intends to build a petrochemical plant to produce methanol on the 23-acre parcel in support of North Slope oil and gas activities. (An AS 38.05.070 lease cannot be used for mineral extraction.)

Methanol is used as a freeze protectant for wells and pipelines and is currently imported to the North Slope for use by oil and gas operators.

Background, infrastructure

In a May 18 interview Wilcox said the 23-acre parcel is essentially square-shaped and composed of a 15-acre gravel pad (no improvements on it), and a pipeline corridor that links to Flow Station 3.

The story begins on Oct. 15, 2013, when Spectrum Alaska LLC entered into a right-of-way, or ROW, lease (ADL 419409), with the Division of Oil and Gas State Pipeline Coordinator’s Section for the purpose of pursuing a natural gas pipeline project, pursuant to the provisions of AS 38.35.

In 2014, Spectrum assigned all rights, title, and interest of the members, subject to all rents, covenants, and conditions, to the Alaska Industrial Development and Export Authority, or AIDEA.

Subsequently, on July 31, 2014, AIDEA entered into a ROW lease for the purpose of constructing a natural gas pipeline and liquefied natural gas, or LNG, facility, pursuant to AS 38.35.

Under the ROW, a 15-acre gravel pad and associated access roads were built.

After the construction of the pad, AIDEA proposed an alternative business plan and use of the ROW to allow for installation of a methanol plant on a portion of the pad.

DNR determined that the existing AS 38.35 lease was not appropriate for a methanol plant and that a general purpose lease under AS 38.05.070 was required. On June 8, 2018, as a result of DNR’s determination, AIDEA submitted an application for an AS 38.05.070 lease. To facilitate the new lease, AIDEA agreed to surrender its interest under the existing ROW lease (ADL 419409).

On Dec. 12, 2018, DNR issued a Final Finding and Decision to proceed with an EA to AIDEA for the lease, ADL 421055.

The release of the ROW was finalized upon issuance of the EA, effective July 30, 2019. The EA was issued for a term of 3 years. The term of the lease, including the EA, was 30 years. Upon the release of the ROW, the gravel pad and access roads were authorized under and subject to the terms of the EA and the lease.

On Aug. 7, 2019, AIDEA’s board approved Resolution No. G19-19, approving the transfer or subleasing of property leased under ADL 421055 to third parties for development purposes.

Subsequently, on Sept. 10, 2019, AIDEA entered into a purchase and sale agreement to transfer ADL 421055 to Ahtna.

On Dec. 23, 2019, a Memorandum of Decision for ADL 421055 was approved to proceed with the assignment of the EA. Upon assignment of the EA, Ahtna was eligible to request approval from DNR’s Division of Mining Land and Water, or DMLW, for construction of the proposed methanol plant and subleasing.

Construction of the methanol plant was scheduled to begin in the summer of 2020.

Ahtna never built the plant and the gravel pad remains free of any surface improvements.

In March 2021, DNR’s commissioner determined that case file administration for ADL 421055 was to be transferred to the Division of Oil and Gas. The case file was transferred on Sept. 8, 2021.

On Jan. 21, 2022, Ahtna and Alyeschem entered into a purchase and sale agreement with the intention of selling Ahtna’s interest in ADL 421055 to Alyeschem.

Alyeschem’s plans

As noted above, on March 2, Alyeschem and Ahtna formally requested assignment of ADL 421055 from Ahtna to Alyeschem and to extend the terms of the EA, with the intention of continuing the project to build a petrochemical plant. (Alyeschem was registered with the Alaska Department of Commerce’s corporations division on July 16, 2015, and Wilcox has been involved in planning since that time.)

According to the May 11 decision signed by Division Director Derek Nottingham, Alyeschem told the agency it intends to develop a small-scale petrochemical plant on the site, and “over the years has worked with AIDEA, SPCO, SPCS, DNR ML&W, the Division of Oil and Gas and Ahtna to obtain surface rights necessary for the financing of such a project.”

At this time Alyeschem’s only proposed action is to convert the EA into a long-term lease so that financing may be obtained for development. The company told the Division of Oil and Gas that it “cannot obtain financing without a term of lease that is longer than the term of a loan.”

Alyeschem’s envisioned development would only take up one-third of the 15-acre pad, so the company intends to work with other potential users of the pad to sublease space as permitted by AS 38.05.070 and approved by DNR. These could include gas processing, product storage, power generation, a data center, or any other operation that is complementary to Alyeschem’s use, and to oil and gas operations on the North Slope.

In its May 11 approval the division said, “the lease will be located around an 800-foot by 810-foot pad with one 60-foot wide by 310-foot long and one 60-foot wide by 180-foot long driveways connecting the parcel to Spine Road … incorporating an area of undeveloped tundra located between the two access roads.”

The width of the pipeline ROW is 100 feet centered on the downstream flange of FV-3519 on the Prudhoe Bay Field Fuel Gas System south of Flow Station 3 and continuing approximately 1,100 feet south to the north edge of the pad near its northeastern corner.

Prior to commencement of construction activities for petrochemical plant facilities, or other related facilities, Alyeschem is required to provide the division with “a detailed development plan that includes an engineering design package, process hazard analysis, construction schedule, material specifications, fabrication and construction execution plan, topsides process flow diagram, design data and process description, and hazardous substance safety plan.”

Findings and decision

In its findings, the division said methanol production in the North Slope is in the best interest of the state by providing an additional and local source of methanol.

Furthermore, the division said in its approval, the lease assignment and EA extension will provide Alyeschem with the surface land it reasonably requires for the construction and operation of a petrochemical plant facility.

The division assigned and extended the EA for a period of only 5 years, which will terminate on July 30, 2027.

“After the construction of an operational petrochemical plant, and satisfying all deliverables of the EA, a 30-year lease will be issued to the lessee,” Nottingham wrote in his May 11 decision.

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