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Natural gas to liquids: wave of the future for North Slope gas? Richard Peterson of Alaska Natural Gas to Liquids says proven technology will provide Alaska jobs and long-term benefits Tom Hall PNA Staff Writer
Gas-to-liquids technology holds promise for efficient and profitable use of Alaska’s 30 trillion cubic feet of natural gas reserves.
That is the proposition Richard Peterson, president of Alaska Natural Gas to Liquids Co., presented to the Alaska Support Industry Alliance April 16. Peterson wants to build a plant on the North Slope that will produce 40,000 barrels of Fischer-Tropsch diesel (see Gas to Liquids sidebar) and 10,000 barrels of naphtha per day, batch the product through the oil pipeline, remove any contaminants in Valdez and market an environmentally superior finished product.
That’s just for openers. “The Angtl program is the start of a revolution for the state of Alaska,” Peterson said. As the market allows, he said, an additional GTL plant could be added every three to five years. Alaska, he claims, could eventually produce 300,000 barrels per day of diesel and other value-added products, create thousands of new, permanent jobs for Alaskans and extend the life of the trans-Alaska pipeline by as much as 40 years.
Today, Alaska only exports raw materials, but the addition of a GTL plant would create many different options for the export of a variety of value added products, Peterson said.
“With gas to liquids, we can make a finished product and move it out of the state of Alaska. We can produce diesel or some other product and we can also produce other types of chemicals, raw materials, and with that we can then form the basis of a value-added industry,” he said. By way of example, he pointed out that the South Africa Oil Co., or Sasol (with whom Alaska Natural Gas to Liquids has an agreement covering their GTL process), has, along with third-party companies, produced approximately 120 different chemicals and products from their upstream GTL plants. In addition, some 170,000 people are employed as a result of Sasol’s plants.
Tailoring a plant to product and market size Peterson said that a study of Alaska’s most likely market, the U.S. West Coast, indicates that diesel would be the most salable product and, initially at least, 40,000 barrels per day would be a realistic amount that the West Coast market could safely absorb. He added that the 10,000 barrels per day of naphtha will have a ready market in the Far East.
Gasoline would not be a good choice because West Coast gasoline is already among the cleanest to be found anywhere, and a Fischer-Tropsch gasoline would not provide a significant environmental improvement, said Peterson, who hopes to market instead the environmental superiority of Fischer-Tropsch diesel.
“Seventy percent of the particulate matter in the air on the West Coast comes from 2 percent of the vehicles: diesels,” he said. Typical diesel contains anywhere from 500 to 3,000 parts per million of sulfur; Fischer-Tropsch diesel has 1 part per million. “Basically, it’s sulfur free,” he said.
While normal diesel has a 40 cetane number (equivalent to an octane rating), he said that Fischer-Tropsch diesel has a rating above 70. The product can be used either unadulterated or mixed with conventional diesel at the retail site, thus no special treatment of the product is required. And Fischer-Tropsch naphtha, Peterson said, is 10 times better than regular naphtha.
Once proven profitable, Peterson believes that the major producers would follow suit and build their own GTL plants. He may not have to wait long.
BP Amoco said recently in a statement that if the ARCO acquisition is approved BP Amoco “will continue the ARCO-led gas sponsor group, relocate our gas technology center to Alaska, and build a $70 million gas-to-liquids pilot plant on the North Slope.”
Compare that to the estimated $2.6 billion Peterson says that it would cost to build the first 50,000 barrel per day facility on the North Slope. And though those initial construction costs are significant, they would include North Slope facilities for about 1.5 million barrels of storage, modifications to the existing oil pipeline (to enable batching of Alaska Natural Gas to Liquid’s syncrude) and a finishing facility in Valdez. Although he isn’t sure by how much, Peterson said that subsequent plants would be less expensive.
Drawbacks and hurdles Essentially a one-man operation, Alaska Natural Gas to Liquids was formed in 1998 to lobby and educate state and federal legislators about, and win support for, GTL technology. With 25 years in market and product development as well as a background in pipeline and plant construction, Peterson is familiar with the obstacles he must overcome.
The first is the plant location. Many of the jobs Peterson talked about will be on the North Slope, because that’s where a GTL plant would have to be built.
“We hoped that we could create all these jobs down in the Valdez area ... but as we worked through the program, we realized it had to be sited at Prudhoe Bay,” said Peterson.
Next, Alaska Natural Gas to Liquids needs a gas supplier. In early 1998, he said that he had approached the state’s two largest gas owners, Exxon and ARCO, for a gas dedication deal, but both declined, saying that they were developing their own GTL technology.
Peterson then approached the state of Alaska in June of 1998, and said that if the state wanted to move their North Slope royalty gas, Alaska Natural Gas to Liquids had the solution. To date, the state has not made a commitment but Peterson believes that after meeting with Alaska’s congressional delegation and state legislators, he has generated considerably more interest in and support for an Alaska GTL plant.
Another consideration is the amount of product derived from the raw material. Peterson admitted that a GTL plant yields only about 64-67 percent of the raw material input. He added, however, that the process results in a value added product. “It’s diesel; it’s naphtha,” he said. “These have a different value.”
Tax free and tax exempt Without some changes in federal law, building an Alaska Natural Gas to Liquids plant on the North Slope would not be possible. An essential element to make the project economical, Peterson said, is a federal diesel motor fuels tax exemption of 24 cents per gallon. He pointed out that the federal government has granted such an exemption on ethanol for the past 20 years and recently extended the exemption for another nine years.
Peterson emphasized that a GTL tax exemption should apply to anyone in the country who wants to build a GTL plant. That could be very important because GTL technology also uses coal as a raw material. Peterson said that by using the Sasol process with coal, “...we have the ability in this country to produce 2 to 4 million barrels per day of Fischer-Tropsch diesel and significantly reduce the emissions across the nation.”
The ability to issue tax-free industrial revenue bonds is another of Alaska Natural Gas to Liquid’s financial goals. Peterson said that Wall Street views Sasol’s GTL technology as a risk-free commercial process and tax-free revenue bonds would be no problem. That’s why the company went with Sasol. “With Sasol, we can get a tax-free revenue bond,” he said.
For a company to be eligible to issue tax-free bonds, it must be in a tax-free economic zone. But, Peterson noted, the federal government had closed a loophole in the law so that it now says that private ownership or operation of a particular plant renders the company ineligible to issue tax-free bonds. Higher commercial interest rates only add to operational costs, and since Alaska Natural Gas to Liquids will operate on a net-back basis (the resource owner’s sale price is derived from the end product sales price), the resource owner will get less per unit of natural gas.
For example, Peterson said that in the first year of a 4.4 percent tax-free revenue bond, the company could pay 65 cents per thousand cubic feet at the well head, whereas an 8 percent commercial bond drops that amount to 36 cents. Over a 20 year period, the difference is significant.
Alaska Natural Gas to Liquids is also seeking strong support and a firm commitment from the state (please see sidebar) for the project. What’s next? Peterson will continue to lobby state and federal legislators, and he urges anyone who believes in the potential of GTL plants in Alaska to call their congressmen and state representatives. Recent meetings with state and federal legislators have given Peterson reason to be optimistic. He said that as they learn more about GTL technology — particularly Sasol’s — legislators are warming more and more to the idea of a GTL plant on the North Slope.
From an environmental standpoint, Peterson said that from what he has been told, there is less resistance to a GTL plant than to an LNG pipeline. In part, he attributed that attitude to Alaska’s oil industry continual efforts to reduce their platform footprints on the North Slope.
Sasol too is concerned about environmental emissions and takes great pains to reduce pollution, Peterson said. “They have animals coming right up to the gates of their plant,” he explained. “They have 60,000 people who live and work close by.”
And while major producers like Exxon, BP and ARCO are each conducting their own development of a GTL process, Peterson believes that Sasol’s slurry phase distillate process is the best choice. Besides providing the most environmentally friendly product, Sasol’s technology has a proven track record of commercial success. In fact, Peterson said that Sasol recently entered into agreements with Qatar and Nigeria to build GTL plants in those countries.
For more information, contact the Alaska Natural Gas to Liquids Co. at 907 264-6709 or by e-mail at [email protected]
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