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Providing coverage of Alaska and northern Canada's oil and gas industry
November 2019

Vol. 24, No.45 Week of November 10, 2019

Phillips, Marathon begin shipping LNG in 1969

Part 1 of 2: The story of one of Alaska’s first big projects, the Kenai LNG facility and terminal, the only US LNG facility to export to Japan

Kay Cashman

Petroleum News

In November 1969, Phillips Petroleum, predecessor to ConocoPhillips, and its partner Marathon Petroleum commenced liquefied natural gas shipments to Japan. The Kenai LNG terminal in Nikiski, which began producing LNG in June of that year, was the only LNG export facility in the United States, and the first source of LNG to Japanese markets. Phillips, 70%, was the facility operator and Marathon, 30%, operated the LNG tankers.

The LNG facility and terminal were approximately 60 air miles from Anchorage and 10 miles from the city of Kenai on Alaska’s Kenai Peninsula.

The move to export LNG was spurred by the 1959 discovery of the Kenai gas field by Union Oil Company of California in a 50-50 partnership with Ohio Oil Co., which in 1962 changed its name to Marathon Oil and is today called Marathon Petroleum.

It wasn’t the first major discovery in Alaska, but the Kenai gas field changed the face of resource extraction in Southcentral Alaska, forcing companies to consider natural gas as a viable alternative to crude oil even though profits from gas were much lower and revenues to the state several orders of magnitude smaller. Still, natural gas soon became a significant part of Southcentral Alaska’s economy.

With more than 2.4 trillion cubic feet in recoverable reserves and the purity of its gas at 99% methane, the Kenai gas field could not be ignored.

Phillips’ 1962 discovery of the North Cook Inlet gas field in the northern waters of Cook Inlet became a major contributor of natural gas to the Kenai LNG facility.

There were several other natural gas discoveries in the region, some as part of oil fields, and others that held primarily gas. Most of the onshore and offshore oil and gas discoveries in the Cook Inlet geological basin were made by what are today Marathon, ConocoPhillips and Chevron (then Union Oil of California).

In addition to the Kenai gas field and the North Cook Inlet field, the early gas fields included the 1961 Sterling gas field, the 1962 Beluga River gas field and the 1967 Beaver Creek gas field.

In 1963, Cook Inlet basin natural gas became the major fuel source for power generation to Southcentral Alaska communities.

And in 1968, the largest fertilizer plant on the West Coast opened in Nikiski using Cook Inlet gas as its primary feedstock.

Like oil, natural gas could be transported over long distances in pipelines. However, unlike oil, which is liquid at ambient temperature, gas is difficult to ship by sea. It can be chilled to extremely cold temperatures (minus 259 Fahrenheit/minus 161 Celsius), to become a liquid. In its chilled state, gas was 600 times denser. LNG could be transported on large marine vessels to markets, where it was re-gasified and used as conventional natural gas.

That said, liquefaction was a costly process, so the cost of the raw gas had to be low.

Huge for Phillips

Though it would soon be surpassed by Phillips’ North Sea developments, the Kenai liquefaction project was the largest single expenditure Phillips had undertaken up to 1966, when design began.

The project demanded more than the $200 million in initial costs, a lot of engineering ingenuity and international cooperation, plant manager Paul Hammaker recalled in 1985, per a story in The Oklahoman.

“The main advantage of liquefying gas,” Kenai plant engineer Tony Canfield told The Oklahoman in 1985, “is you can transport it in large volumes in areas where there is no pipeline network. … We couldn’t build a pipeline from Kenai to Japan.”

The Kenai LNG facility was designed by Phillips. The company’s proprietary Optimized Cascade process was first created and then proven in the Kenai facility.

The cryogenic technology chilled the gas, shrinking it to less than one-600th of its original volume, making long distance shipping feasible.

As an aside, development of commercial quantities of LNG began in 1964, when Great Britain began importing the liquid from Algeria using a different liquefication technology.

Awash in natural gas

Natural gas production from the Kenai gas field ramped up slowly in the first few years, increasing to nearly 6 billion cubic feet in 1965 from around 200 million cubic feet in 1961.

In 1966, production jumped to more than 33 billion cubic feet and continued to grow rapidly in the years that followed.

Faced with more natural gas than they knew what to do with because there was little local demand for gas, Marathon began looking for alternative markets.

The company decided to use its share of the field on a new venture to ship Alaska natural gas to overseas markets, partnering with Phillips to build the facility and terminal near Nikiski.

They found Tokyo Gas Co. and Tokyo Electric Power Co., which wanted to switch from coal to cleaner LNG as a means of supplying growing energy needs while helping to reduce Japan’s air pollution.

Phillips signed a sales agreement with the two utilities in March 1967 and embarked on an effort to get the gas out of the ground and to a processing facility, with Marathon responsible for transporting the product to the buyers.

Their plan called for several design and construction projects, including:

* A gas liquefaction plant with its own deepwater docking and loading terminal.

* The two largest LNG tanker ships ever built, each capable of carrying extremely cold LNG.

* The first LNG receiving and re-gasification facility in Asia, near Tokyo (constructed and paid for by the Japanese buyers).

* An offshore platform and production facility to be installed in upper Cook Inlet.

* Additional wells in the upper Cook Inlet and Kenai gas fields.

* Underwater, overland and underground pipelines to transport gas from the fields to the liquefaction plant.

The first Cook Inlet production platform, the Tyonek, was fabricated in Japan and completed on location. It began operation in late 1968. While it was being installed, work progressed on the Upper Cook Inlet pipeline, which ran 13 miles underwater, then 30 miles south along the shore of Cook Inlet to the LNG plant.

Tokyo Gas built the LNG receiving and re-gasification terminal at Negishi, part of the giant Yokohama port complex, just south of Tokyo.

The two specially designed, 799-foot tankers, Arctic Tokyo and Polar Alaska, were built in Sweden. The loading process took about 18 hours and each ship first left for the 3,300 nautical mile trip to Japan with 555,000 barrels of LNG., arriving and unloading in November 1969. The Polar Alaska was the first to unload.

Editor’s note: See the rest of the story in next week’s edition of Petroleum News.






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