Distributing North Slope gas challenging

Enough gas exists to meet Alaska’s needs for decades, but at a cost; and getting gas to rural areas more difficult and costly yet

Bill White

Researcher/writer for the Office of the Federal Coordinator

Propane or wet gas for road-system towns?

Away from the city, North Slope gas for Alaskans becomes an iffy prospect. However, no one has fully analyzed the subject.

The state’s Alaska Gasline Inducement Act deal with TransCanada requires the company to provide at least five places along its pipeline where gas can be withdrawn for in-state use. Fairbanks and the Anchorage area are obvious in-state markets — they harbor over 60 percent of Alaska’s 722,000 residents.

Perhaps the gas could be tapped by mines, such as a proposed gold mine at Livengood, or other industry.

But what about other locations? How about the hamlets the pipeline would skirt?

A 2010 study by Northern Economics on potential in-state demand for gas from a major North Slope pipeline was skeptical.

“Many of the communities along the pipeline routes have very small populations and typically have relatively small demand for natural gas or propane,” the study said. “The capital cost for taking natural gas or propane off of the gas pipeline is very high per unit of energy, and for most small communities it would be more cost-effective to truck propane from Fairbanks or another location to meet their energy requirements.”

The 2011 AGDC report echoed that opinion: “Due to the need for NGL removal, it is not economical to serve the smaller areas along the pipeline route, regardless of the alignment, except via a new distribution system developed off the proposed Fairbanks Lateral. Even if the main pipeline transported only utility-grade gas (as opposed to methane laced with propane and other gas liquids), development of local distribution systems for the smaller communities and users along the pipeline would very likely be cost-prohibitive regardless of the alignment.”

An AGDC consultant, R.W. Beck, found that rural residents along Alaska’s road system might benefit from propane extracted from a big pipe’s gas stream. Propane might be cheaper than heating oil for them, Beck concluded. The estimated savings could be as great as 51 cents a gallon in the Big Lake and Nikiski areas of Southcentral Alaska, and 76 cents a gallon in rural Fairbanks.

In late 2011 another study came along that planted a small seed of hope for residents of pipeline-corridor towns. At a relatively low cost, they might be able to tap the great stream of gas flowing past them.

A small community right next to the pipeline would need solutions to three problems:

• How to ramp down the gas’s high pressure to make it usable.

• What to do with the natural gas liquids mixed in with the methane.

• How to pay for piping gas from the big line to their homes.

The November 2011 study by Black & Veatch for the state showed a path through the first two problems. It didn’t discuss the third problem (some along the pipeline corridor believe the state should pay the cost of piping gas to homes).

To depressurize the gas, Black & Veatch recommended something called a “stub gas delivery” system. It would cost $150,000 to $200,000 to install at each location when the big pipeline is built. Each one would cost $50,000 to $75,000 a year to operate and maintain. (Those modest sums might not feel too modest if prorated among, say, the seven year-round households of Wiseman or Livengood or the six of Coldfoot.)

“It is anticipated that the small diameter stub size will allow for sufficient gas supply volumes for all potential delivery point sites except for Fairbanks or Anchorage,” the consultant said.

Here’s how it would work:

A small pipe stub would be welded onto the side of the big pipeline where the gas offtake would occur. Once gas customers are secured, the pipeline would be tapped at the stub.

The gas would flow to a metering/regulating station. There the gas would get heated and cooled in four stages to ease the pressure from 2,500 psi to a more usable 125 psi. Gas pressure is reduced further to a usable level when it passes through a regulator on a home’s meter.

What about the propane, butane and other gas liquids? They’re normally extracted because they have their own markets and they’re more valuable than methane. Black & Veatch says: For these small communities, keep the liquids blended with the methane.

Channeling pure propane into methane-based household appliances would be a bit like trying to funnel a tornado through a windsock. The Btu content of both propane and butane is over two times that of methane. Propane also flows into propane appliances at higher pressure than methane into methane appliances.

But propane and butane together would comprise less than 5 percent of the gas stream. They raise the Btu content of the entire gas stream above what most methane pipelines carry, but they don’t push the Btu content off the scale, Black & Veatch suggested. While the targeted heat content of marketed gas is 1,035 Btu per cubic foot, Black & Veatch said the heat content of the big pipeline’s gas would be about 1,118. (A cubic foot of pure propane contains 2,520 Btu.) Black & Veatch said a handful of communities in the United States and Canada burn gas that rich without “any significant issues.”

Still, the North Slope gas stream could be near the upper end of acceptable Btu-richness for home and commercial use, and if the liquids separate from the methane, the community gas-distribution system could encounter big problems.

Remote towns could be out of luck

This winter, when Fairbanks homeowners were suffering $4-a-gallon heating oil, residents of Ruby paid $5.30, Bethel $5.78, Gambell $6.75 and McGrath $7.47. McGrath residents paid about $53 per million Btu of energy.

The best-case scenario for getting North Slope gas to these towns would be to ship propane to them.

But the Beck study last year concluded this scenario simply won’t work unless oil prices were sky-high. Propane would cost so much that no one would switch to it.

How high is sky-high?

For Tanana, Beck said, the price of crude oil must top $165 a barrel to justify converting from heating oil to propane for space heating, and $186 a barrel to convert to propane for water heating.

For Seldovia, oil prices must exceed $215 and $246 a barrel to trigger switching to propane for space heating and water heating, respectively.

“Rural consumers that lack highway access are only likely to switch fuels under extreme oil price(s) due to very high intermodal transportation, storage, and distribution costs for propane,” Beck concluded.

As with other analyses of in-state gas delivery, no one has done the kind of detailed engineering, precise demand studies and humorless financial number crunching that, say, a bank would require before lending money to build the gas-delivery infrastructure. And the cost of switching to propane could look very different to consumers if the state subsidized construction.

Older reports also have explored the economics of widespread in-state propane delivery from North Slope gas:

A 2005 report from PND Inc. Consulting Engineers for the Alaska Natural Gas Development Authority said propane might work in some ice-free coastal communities that could take deliveries year-round. Propane could provide less expensive electricity for cooking. In larger towns, propane could work for water and space heating. Coastal power plants could use propane if they could get year-round deliveries of the fuel to minimize storage costs, or if the government subsidized propane deliveries. A key to making all of this work: Most of the gas liquids extracted from the North Slope gas must get sold outside of Alaska to create economies of scale that make the in-state propane price more affordable.

A 2009 study for the same state agency said a small amount of propane probably could be extracted at the North Slope oil fields and trucked to Interior Alaska towns for a lower price than oil-based fuels.

Please see part 1 of the story in the May 6 issue and part 2 in the May 13 issue.

Editor’s note: This is a reprint from the Office of the Federal Coordinator, Alaska Natural Gas Transportation Projects, online at www.arcticgas.gov/challenges-distributing-north-slope-gas-alaskans.