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Guide to Alaska natural gas projects Part 1 of review by Office of the Federal Coordinator of recent natural gas projects; Alaska LNG, REI, highway line in this part Bill White Researcher/Writer, Office of the Federal Coordinator
Ideas for moving Prudhoe Bay’s natural gas bounty off Alaska’s North Slope are as plentiful as cottonwood seed in the June air.
Some are modest: Truck small amounts of gas to Fairbanks consumers.
Some are epic: Pipe massive amounts to a Southcentral Alaska liquefied natural gas plant for LNG shipments to Asia - the most expensive North American private-sector construction project ever.
Some are pinned to visions of an Alaska energy utopia, where gas for local use is plentiful and relatively cheap, the oil and gas industry develops new fields by the dozen, the state treasury overflows with wealth, and new industries sprout from the earth like wild lupine.
Some are backed by tens or even hundreds of millions of state dollars to help design, engineer and otherwise prepare for construction. These include the big producer-led LNG project, a much more modest state-led pipeline to Southcentral Alaska and the Fairbanks trucked-LNG project.
Some are little more than a concept looking to catch on.
The great North Slope oil discoveries of the 1960s and 1970s also found an estimated 35 trillion cubic feet of natural gas - almost one and a half times the entire volume of U.S. production in 2012. The U.S. Geological Survey estimates an additional 221 trillion cubic feet await discovery in Alaska’s Arctic, onshore and offshore. If only an economically viable way could be found to move the gas to consumers.
Below we summarize several proposals - big and small - for transporting natural gas from Alaska’s North Slope.
LNG export project This would involve an approximately 800-mile mostly buried pipeline from the Prudhoe Bay field on Alaska’s North Slope to Southcentral Alaska - the lead site is Nikiski, 60 air miles southwest of Anchorage along Cook Inlet. At the port, a plant would chill the gas to minus 260 degrees to create liquefied natural gas, or LNG, a compressed form of the gas that can be shipped on insulated tankers to markets worldwide.
The 42-inch-diameter pipeline under consideration by the major North Slope producers would carry 3 billion to 3.5 billion cubic feet of natural gas per day. Alaskans would use some of this gas, and running the pipeline and LNG plant would consume some. The plant would make up to 20 million metric tons a year of LNG, the equivalent of 2.5 billion cubic feet a day of gas. That would place it among the world’s largest LNG plants.
Sponsors ExxonMobil, ConocoPhillips and BP, the main North Slope producers, plus pipeline company TransCanada, in March 2012 said they are planning a project to export LNG to Asia, where the gas currently can fetch a much higher price than in North America. The state of Alaska joined the effort in January 2014.
Two of the sponsors - ExxonMobil and TransCanada - in 2010 proposed to build a pipeline to Valdez, with someone else constructing and operating an LNG plant there. They found insufficient customer interest at that time to pursue the project. But the global LNG market has changed since then, and they have taken up the new LNG effort with ConocoPhillips, BP and the state. The project team has selected Nikiski as the site of its liquefaction plant and export terminal and has been doing environmental field work and engineering.
Estimated cost $45 billion to more than $65 billion (2012 dollars).
ExxonMobil, ConocoPhillips, BP and TransCanada say their cost estimate would cover a pipeline from the Point Thomson gas field to Prudhoe Bay, a massive gas treatment plant at Prudhoe Bay, the roughly 800-mile pipeline to tidewater and compressor stations along the way, a liquefaction plant at a Southcentral Alaska site, LNG storage tanks and a tanker terminal.
Gas for Alaskans The pipeline concept pursued by the oil producers, TransCanada and the state would provide at least five points from which spur lines could be built to provide gas to Alaskans. Utilities, private companies, the state or someone else would need to build spur lines or local distribution lines from the gas-takeoff points; that would not be part of the main-line work.
Status The North Slope producers, TransCanada and state project is in the pre-front-end engineering and design (pre-FEED) phase in which initial design, technical, environmental and commercial assessment work is done. In January 2014, the parties signed a Heads of Agreement document that laid out terms for the state to become an equity owner in the liquefaction plant and to receive its gas royalties and taxes in the form of natural gas rather than as cash. The Alaska Legislature approved a bill in April 2014 that changed state laws to enable negotiations under this agreement. The HOA provides that with passage of this legislation, pre-FEED activities will accelerate.
The four companies said in 2013 they expected to have spent $80 million to $100 million on the LNG effort from spring 2012 to the end of 2013. Their limited 2013 field season included work on the northern half of the proposed pipeline route to improve their data on fisheries, stream hydrology, water resources, wetlands mapping and other information they would need to apply for project permits. The team has volumes of other route information gathered in earlier, unsuccessful gas line efforts by the same sponsors.
The companies said the 2014 field season work focused on the southern half of the pipeline route, south of Livengood, and on the liquefaction-plant site. They said the full pre-FEED phase will involve about $500 million in spending by the time it is completed in late 2015 or 2016. Then, each sponsor would decide whether to commit to enter the project’s next phase, called front-end engineering and design, or FEED. Activities during FEED include more complete design and engineering work, obtaining government permits, assessing and confirming the project’s commercial viability, and negotiating fiscal terms with Alaska state government, all in advance of a decision whether to build the project. The sponsors estimate FEED work could cost billions of dollars to reach a final investment decision on the project, which the sponsors say could come in 2018 or 2019.
Construction would take five to six years, they have estimated.
Pluses •Short-term economic boost to Alaska during construction.
•With the right project economics, long-term boost as billions of dollars in revenue flows to the state treasury, the Alaska Permanent Fund and local governments along the pipeline route.
•Southcentral Alaska gets new industry based on LNG exports.
•Outlet for natural gas now stranded on Alaska’s North Slope would spur oil and gas exploration.
•Relatively inexpensive gas made available for heating and power generation in the Fairbanks area.
•For Southcentral Alaska, the project likely provides a new, affordable source of natural gas to supplement Cook Inlet’s declining supplies.
Problems •A very expensive option. High cost makes project risky for lenders that would supply construction financing.
•Shippers must sign long-term commitments to use the pipeline and liquefaction plant (perhaps 15 or 20 years) and find long-term buyers for the gas in an Asia-Pacific LNG market that other exporters are targeting. Long-term contracts are needed to underpin financing.
•Intense competition among LNG suppliers for Asia customers and prospects of weaker prices due to a buyers’ market in the years ahead.
•Fairbanks-area energy costs remain relatively high until pipeline is running.
•Southcentral Alaska could need supplemental source of natural gas before pipeline is finished.
A smaller-scale LNG project Separately, a Japanese company called Resources Energy Inc. is proposing a smaller-scale LNG plant in Southcentral Alaska. The company was formed in late 2011 by Japan’s Hyogo Prefecture, a regional government, as well as other business interests and several small Japanese utilities affected by that nation’s nuclear power plant shutdowns following an earthquake and tsunami that year.
As conceived, the smaller-scale plant would cost around $1 billion and make up to 1 million metric tons of LNG per year, or an average of about 133 million cubic feet of natural gas per day, for export to Japan. The gas would come from potential local production in the neighboring Cook Inlet basin or from a proposed small-scale, state-sponsored gas pipeline project from Prudhoe Bay to Southcentral Alaska.
Alternatively, if the North Slope producers, TransCanada and state build a large-scale gas pipeline, REI says it could build a $20.3 billion LNG plant with four production trains producing 15 million metric tons of LNG annually for export as well as arrange shipping. Including a North Slope gas treatment plant and pipeline would bring total development costs to $38 billion to $45 billion, REI says, though it would prefer that someone else take the lead on those pieces.
REI said it completed feasibility studies in spring 2013 that cost $10 million to $20 million. REI would rely on others to produce the natural gas and build a pipeline from the North Slope to its plant. REI said it is working to find investors in its idea. Also ahead would be engineering and design, financing, government authorizations, environmental impact statements and purchase contracts with buyers.
Pipeline to Alberta
This proposal was active until 2012; considerable work was completed in the preceding years.
The project conceived an approximately 1,700-mile, 48-inch buried pipeline from the Prudhoe Bay field on Alaska’s North Slope to the British Columbia-Alberta border in Canada. From there, the gas could flow to the Lower 48 via an extensive network of existing pipelines.
The gas pipeline would run parallel the trans-Alaska oil pipeline from Prudhoe Bay to Delta Junction, then continue into Canada roughly parallel to the Alaska Highway. The pipeline would move up to 4.5 billion cubic feet of gas per day.
Estimated cost $32 billion to $41 billion (2009 dollars).Sponsor The project is inactive, as North American shale-gas production has amply supplied the market and deflated prices. The Alaska Pipeline Project spent more than $300 million from the project onset through 2011. The sponsor essentially ended the project in early 2012. In January 2012, the sponsor filed with the Federal Energy Regulatory Commission volumes of data on fish, wildlife, soils, vegetation, cultural sites, air quality and other information that can be used for the environmental impact statement FERC would prepare. Much of that data also could be used for an EIS on the LNG-project pipeline, because some of the route in Alaska would be same as the route for an Alberta line.
Editor’s note: This is a reprint from the Office of the Federal Coordinator, Alaska Natural Gas Transportation Projects, online at www.arcticgas.gov/guide-alaska-natural-gas-project.
Part 2 of this story will run in the Sept. 21 issue of Petroleum News.
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