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Working small-scale natural gas in Alaska
‘No rate increase in 30 years,’ brags Deadhorse gas utility Norgasco; founder forms company to scrub CO2, H2S from product Steve Sutherlin Petroleum News
Small-scale natural gas is a topic Ray Latchem is closely familiar with. Latchem founded Norgasco Inc. in 1989, a privately owned company that operates a small-scale natural gas utility at Deadhorse in Prudhoe Bay.
Norgasco hasn’t had a rate increase since 1989, Latchem said in a presentation entitled “Small Scale but Real Natural Gas Development in Alaska,” delivered at The Alaska Support Industry Alliance virtual breakfast April 22.
“We’re kind of proud of that, but in all fairness the way it works in the utility business is that as Deadhorse grew we increased the volumes, and that enabled us to make our revenue requirement without having to do a rate hike,” Latchem said. “There aren’t too many utilities that can brag on a 30-year-plus rate that hasn’t been changed - now that may change; Deadhorse is dropping off so this year we may have to review that.”
Norgasco’s gas prices in Deadhorse are a bargain compared to prices elsewhere in the state, Latchem said.
“Norgasco sells gas for about $5 per million Btu,” he said.” Enstar sells it for just under $10 in Anchorage; in Fairbanks it’s a little over $20, and if you were to buy oil in any of those markets, you’d pay between $30 and $35 a million Btu,” he said.
CNG for Deadhorse Latchem said the company believes compressed natural gas, CNG, has a good shot at being successful in Prudhoe Bay because of the cost of gasoline and the fact that it has to be trucked up from Kenai or Valdez.
“Fundamentally we’re promoting the use of natural gas and we’re pretty lonely; we don’t see a lot of other people trying to do it,” he said.
Gasoline and diesel are the go-to transportation fuels currently on the North Slope, but Norgasco is offering an alternative, he said.
The company plans to install a circular drive at its pad at Deadhorse where pickups can pull in and fuel up with CNG and gasoline, Latchem said. Norgasco’s CNG fuel station is operating from a neighbor’s pad currently, but it will be moving in summer after the Norgasco pad is enlarged.
Latchem said TDX Corp. bought and is operating a CNG-powered truck, and “it’s worked out well,” he said, adding that Norgasco has also tested the fuel with an 18-wheeler Class A tractor, which “was plugged in and it stated at minus 40 and it drove around; we hauled loads with it.”
“We demonstrated that a class A truck can run on compressed natural gas; that’s typically a market that’s been reserved for diesel,” Latchem said. “In the Lower 48 they run them on CNG and LNG, and we’re just showing it works in the cold, and we hope the next year or two well see more CNG Class A trucks up there operating.”
Natural gas as fuel Latchem thinks it makes sense to choose natural gas for travel on the North Slope.
“We should burn the gas and sell the oil; it’s something to think about,” he said. “We don’t have any markets to speak of for the natural gas that’s up there but every gallon of fuel that we burn that’s gasoline or diesel, that’s a gallon that could have been exported through Valdez and sold out of state - there is no way to export that natural gas out of state right now, it just makes more sense for us to burn that as a fuel and sell the stuff we can sell.”
Norgasco is also bringing in a new partner called Rawhide Leasing Co. to supply high-pressure tube trailers which can transport CNG for off pipeline distribution.
Gas treatment Latchem’s latest project is Tulsa-based SES Midstream LLC, which proposes to build a natural gas treatment facility on Spine Road near the Deadhorse airport to treat and process gas for the Deadhorse market.
The plant would scrub carbon dioxide and hydrogen sulfide out of Norgasco’s gas before the gas is shipped by pipeline or trucked as compressed natural gas to local customers around Prudhoe Bay.
“The natural gas in Prudhoe has 12% CO2 and about 30 parts per million H2S,” Latchem said. “Anywhere else in the world, that would be unacceptable, but in Prudhoe, because it’s just been industrial, no residential users, etc. etc., we’ve been able to get by with this.”
With a 12% CO2 level, the gas sold in Deadhorse makes it hard to meet new EPA emission standards, he said, adding that Lower 48 gas is around 2% CO2 maximum, and 4 ppm H2S maximum.
“Now is the time to change it,” Latchem said. “It just needs to be cleaned up and we’ve started this midstream company to do it.”
The midstream industry in the Lower 48 operates between the producer and the downstream market to clean up gas and “that’s what has been missing on the North Slope for some time,” Latchem said. “We’re bringing it in; it’s a good project that solves a lot of problems.”
SES Midstream The treated gas would lead to gains in efficiency for Norgasco and its customers, he said.
“That 12% CO2 takes up a lot of space in a CNG tank in the back of a pickup, or in tube trailers,” Latchem said. “It’s an efficiency thing and it’s an environmental thing as well, so we set up SES Midstream in 2019 and began the process to develop the project.”
Norgasco thinks cleaning up the gas will help drive adoption of the CNG on the North Slope.
“It’ll help us at Norgasco in the sense that our customers will get cleaner gas and their emissions will improve and it also helps us a lot with promoting CNG,” Latchem said. “CNG is not necessarily a cheap proposition so you have to overcome some economic hurdles.”
Norgasco is an example of a family-owned business that has survived to provide a valuable service in Alaska’s oil patch.
It is said that smaller companies can gain an advantage by being nimble, but when it comes to SES Midstream, that advantage has been compromised by an unexpected bureaucratic snafu.
SESM met with the Alaska Department of Natural Resources in 2019 to discuss the gas treatment project, Latchem said. SESM moved quickly on the department’s lease application instructions and in July, the company received a final finding and decision approving issuance of a 25-year lease for construction and operation of a gravel pad and gas treatment plant from the Northern Regional Land Office of DNR’s Division of Mining, Land and Water.
In August, however, without notice, SESM got a letter from DNR that rescinded its final finding and decision, Latchem said, adding, “The issue came down to what statutes do you authorize the project under.”
“This is an interesting dilemma - I’ve not seen anything or had this happen to me before,” he said.
Latchem said the lease for the gas treatment project was authorized under AS30.05 as DNR had recommended, but the agency changed its mind and now is requiring the company to submit it under AS38.35 instead.
SESM had planned to start construction in the summer of 2021, but the agency action will delay the project by a year or two, he said. SESM has appealed the agency’s decision.
“In looking back, when we developed Norgasco, the state involvement there cost us about two years; in Fairbanks it cost us a year,” Latchem said.
Northern Eclipse In 1992 Latchem started a company called Northern Eclipse that built a small-scale LNG plant, which in 1997 sent the first load of LNG to Fairbanks.
“Still in service today, that plant went from making 10,000 gallons per day to making about 50,000 gallons per day, we call it Titan LNG,” he said.
“Talkeetna was the fastest that thing happened - almost overnight, but there was no state involvement in it at all - a private deal between a couple of companies that happened,” Latchem said, referring to an off-pipeline gas distribution arrangement with the Talkeetna Alaskan Lodge.
“We got a call one day from a guy named Howard Nugent and he was building a really nice hotel complex for Cook Inlet Region in Talkeetna,” Latchem said. “He told me on the phone he wanted to put in natural gas at the facility and I explained to him that there’s a lot involved.”
“He told me, ‘son, I have a degree in physics; I understand this’” Latchem said. “I said, wow, all we need to talk about is the commercial aspect of it, and he said, ‘you probably need a long-term commitment, send me a contract.’”
“He got Carl Marrs at CIRI to sign it,” Latchem said. “Thanks to Howard’s foresight and Carl’s willingness that facility has been running on natural gas since 1997.”
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