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Popp finds permitting ‘seriously flawed’ Analysis of oil and gas issues for Kenai Peninsula Borough says Cook Inlet gas reserves declining; Redoubt, possible second Cosmopolitan well bright spots for oil Kristen Nelson PNA Editor-in-Chief
What can the Kenai Peninsula Borough do to ensure continuing supplies of natural gas — used not only for heat and energy, but to drive two major borough industries? Bill Popp, the borough’s oil and gas liaison, said chief among issues that must be addressed to encourage future oil and gas development is the regulatory permitting process.
Popp noted that reform and streamlining of the regulatory process has become a prominent issue in recent years. He said in a Nov. 7 report to the Kenai Peninsula Borough Assembly that industry representatives have told him “that the regulatory and permitting processes of the state of Alaska have become so cumbersome, capricious and confusing that it is deterring new development rather than guiding and controlling it as was originally intended.”
He said industry told him that the permitting process has “become too complex, contradictory and illogical” and that there is a “lack of clear process lines to follow.” A lack of educated agency personnel “results in erroneous information being disseminated that eventually derails the permitting process of a given project and costs the applicant thousands of dollars in lost time and duplicated efforts to obtain necessary permits.”
Incomplete information, abuse of process What Popp heard from agency representatives confirmed some of what he heard from industry: there was agreement, he said, that the process is “very complex” and that there are often conflicting permit stipulations from one agency to the next.
But, he said, a frequent theme that he heard from the agencies was that applicants did not submit complete information required for applications, and that they abused the permitting process “by using it as a strategic tool to misdirect competitors by submitting multiple drilling or exploration permits for areas the applicant has no intention of ever using, which… has at time clogged the system with frivolous applications that waste limited agency resources.”
System flawed Popp said he asked every industry and agency representative he spoke with to draw a flow chart of the entire permitting process for a new oil or gas well.
“I have emphasized that I didn’t care if the piece of paper needed to draw this flow chart was a foot long or 10 feet long. To date, having posed this question to everyone I have met with from both industry and government, no one has been able to produce such a flow chart.”
If you can’t draw it out, Popp said, “how can you understand it and how do you know it works? And how can an indefinable process be deemed efficient and responsive to both the industries involved and the public?”
Popp said he believes that until the permitting process can be put down on paper in a clear and logical and understandable manner, “permitting will continue to deter new development of oil and gas reserves in the state of Alaska and in the Cook Inlet basin.”
New development needed Popp reviewed published studies on Cook Inlet natural gas resources and consumption, and said known reserves of 2.3 trillion cubic feet at consumption rates of 220 billion cubic feet a year represent a 10-year supply. He noted that in the Lower 48, reserves average a seven- to nine-year supply.
The export license for the Phillips LNG facility expires in 2009, as does the 10-year natural gas supply contract between Agrium and Unocal, Popp said. The LNG facility and the fertilizer plant generate nearly 11 percent of borough property tax revenues (nearly $3 million a year) and more than $130 million in annual payroll and supply purchases.
“Cook Inlet is a relatively closed natural gas market with finite local supplies of natural gas that will eventually restrict the continued economic growth of the local economies of the region unless new supply streams and reserves are developed,” Popp said.
Continued exploration and production Continued exploration and development of Cook Inlet reserves needs to be promoted, Popp said. There are exploration efforts, he said, but those are likely to extend current reserves only an additional five to 15 years beyond 2012, “based on government projected consumption patterns and estimated potential reserves.”
A longer-term solution will require imports, Popp said. The North Slope is a likely source, but: “A pipeline built solely to deliver to Southcentral is not economically viable when potential market demands are weighed against the capital costs associated with this type of project.” More likely, he said, would be a pipeline to deliver gas to Valdez or the Lower 48 states through Canada, with a spur line to Southcentral, or a pipeline to a Cook Inlet tidewater LNG facility.
The hurdle, he said, is the delivered cost of Alaska North Slope natural gas. In 1999, Enstar’s average residential price of $3.66 per thousand cubic feet, while recent estimates put ANS natural gas delivered to Southcentral at prices between $5.03 and $5.71.
Coalbed methane is a possible option, Popp said, but Evergreen Resources (Alaska) Corp. is only now doing initial drilling, “with testing and evaluation of flow rates and production costs continuing for the next 18 months before a final decision will be made on the economic viability of the project.”
Also mature oil province On the oil side, he said, more than 907 million barrels of oil have been produced from the Cook Inlet basin, but production has declined since 1973.
Redoubt Shoals, expected to begin production in the near future, is expected to raise Cook Inlet oil production to more than 20 million barrels per year, Popp said, “the most significant increase in oil production levels since 1983.”
But new oil prospects under development are few.
Forest Oil faced a number of challenges in bringing Redoubt Shoals into production, primarily “several legal challenges” which have “resulted in delays completing the necessary drilling and ramp up to production.”
ConocoPhillips Alaska is in the initial exploration stages at Cosmopolitan offshore near Stariski Creek north of Anchor Point, and has drilled an initial exploration well on which no information has been released.
Popp said that a second exploration well has been proposed “and is awaiting approval by ConocoPhillips corporate headquarters.” That well, if approved, would likely be drilled in early 2003 to “delineate the prospects potential for economic oil production.
“If this well provides positive results, then ConocoPhillips could begin development and production efforts by late 2003,” he said.
Other oil prospects are tentative, with the most likely in federal outer continental shelf waters which begin off Ninilchik and run south to the entrance of Cook Inlet. The draft environmental impact statement is expected to be completed in November, Popp said, and if sales are scheduled they could be held in 2004 and 2006.
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