Foothills, producers group face legislators’ questions on gasline projects

BP, ExxonMobil, Phillips aim to make routing decision, submit applications, by end of year; Foothills has permits, regulatory regime from 1970s

Kristen Nelson

PNA Editor-in-Chief

Permits exist for a gas pipeline from the North Slope to Alberta, but Alaska’s North Slope natural gas owners are taking a fresh look based on current pipeline technology and the growing demand for natural gas in the Lower 48.

Senate Resources and the House Special Committee on Oil and Gas heard from Foothills Pipe Lines Ltd., which has permits for an Alaska Highway gas pipeline project dating from the 1970s, and the North American Natural Gas Pipeline Group — BP Exploration (Alaska) Inc., ExxonMobil Production and Phillips Alaska Inc. — which is studying a new project.

John Ellwood, vice president of engineering and operations for Foothills, drew questions from Senate Resources Feb. 5 on volumes of gas the company would ship, whether its permits are still valid and whether the pre-built segments of the line could be expanded to handle Alaska gas.

It’s what we do every day

You start with a pipeline and a few compressor stations. As the market and the supply grow, you add more compressor stations. Eventually, the amount of fuel gas you’re using to power the compressors becomes uneconomic.

“So at that point you start laying some new pipe.” Not entire pipelines, Ellwood said, but short sections sized for incremental growth.

“And you keep doing that until the whole thing is connected — and now you have two pipes.” And then you start adding compressors to the second pipe.

Asked about the validity of its permits, Ellwood said the “legislative regime in place in both countries … provides for expedited approval of a way to move Alaska gas to market.” The arrangement is flexible, he said: “It allows us to use the best technology that is available.” Foothills expanded the Saskatchewan piece of the pre-built system in 1998 “and incorporated all the latest pipeline construction, design and environmental techniques. We believe that can be done here in Alaska as well, just as efficiently.”

Expansion of volume on the Alcan line was envisioned in the legislation, Ellwood said, starting with 2-2.5 billion cubic feet a day and increasing in both the Alaska and Canada segments. “We are now contemplating a flow of two and a half billion a day to start and expanding to 4 billion feet a day ultimately.” he said.

Old or new permits?

Senators wanted to know if the producers would use the Foothills permits.

“The first thing we’ve got to do is design the best project,” Konrad said. Then “we need to define the best process.

“It is going to be a different project,” he said. “Is it easier to make substantial changes to that legislation?” Or “to go forward in a more conventional sense? Is there a third way to do it?”

The producers group is talking to Foothills, the Federal Energy Regulatory Commission and the National Energy Board about this, he said.

Asked about an LNG project, Phillips’ Marushack said LNG has been a very lucrative business for his company.

“Phillips would be very, very motivated to have an LNG facility out of Alaska using this gas. The problem we’ve got has been demonstrated through the LNG sponsor group,” he said: based on “the work we’ve got to date, we do not have a standalone project that is economic.”

“We’re still trying,” he said.

Access concerns

Schilhab said a pipeline would be open access and a shipper would have to work out arrangements to get in and ship their gas.

For conditioning a very small gas asset, Marushack said, it’s a question of “do we have room in the existing facilities? That’s one set of negotiations. For a very large asset then it may be cheaper to build its own facility.”

Konrad said capacity to add more gas wouldn’t be an issue because the pipeline the group is planning has incremental compression capacity. “For instance, if we built a 4 BCF a day pipeline we might expect to be able to fairly easily expand it to 6 (BCF).” More volume lowers transportation costs for everyone, he said: It’s a “virtuous cycle” — a system with a low transportation cost and a high netback that encourages more investment.

The producers group will look at where liquids might be extracted from the gas and Konrad said it makes sense to extract close to where you distribute or where you have a petrochemical industry.

Marushack said a petrochemicals industry, like that on the Gulf Coast, requires a combination of low-cost feedstock, infrastructure and transportation. Plants are clustered together, “and one of the reasons they’re all clustered together is because if I’m an ethylene facility maker, I throw off other smaller particles that I really can’t use economically. But I can send them to somebody else who’s very close to me. He then gathers these up and he does something — makes a chemical out of that.”

Marushack said Alaska has opportunities to use gas in heating and in industry, but wouldn’t have economy of scale in a new facility — or the infrastructure — or the transportation — to compete in petrochemicals.

In response to a remark that the producers wanted to keep Alaska a colony, rather than have processing instate, Konrad said most investment goes to the upstream, exploration and development, end of the industry — not downstream to refining and petrochemicals.

“In terms of long-term jobs,” he said, “Alaska’s competitive advantage is its geology.” And the investment to move from the known 35 trillion cubic feet of natural gas to the projected 100 TCF “would be enormous,” he said, comparing it to the investment on the North Slope to move from the 1970s estimated recovery of 9 billion barrels of crude oil to today’s estimated recovery of 20 billion barrels.

State urged to look at all alternatives

Kristen Nelson

The study, “Alaska’s Gas, Alaska’s Future,” urges Alaskans to look beyond another pipeline boom and find an Alaska energy policy that will promote a natural gas industry in the state.

Christy McGraw, director of Backbone and editor of the study, said the group met in Talkeetna in September to consider pipeline routes. The study, which addresses both technical and public policy issues, grew out of that meeting.

Backbone members, including former Gov. Wally Hickel, Walt Parker, Malcolm Roberts and Mead Treadwell, along with Mike Metz, technical advisor to the Backbone report, compared the impact of the gas decision to the impact that development of Prudhoe Bay crude oil had on the state in the 1970s.

The study estimates 30-year revenues to the state from three major proposals: the Alcan Highway pipeline; the Mackenzie Delta pipeline; and a tidewater LNG project. LNG does best in the Backbone study, at $7.21 billion to $18.38 billion; the delta pipeline would generate $5.41 billion to Alaska; the Alcan route $3.99 billion to $7.21 billion.