New mines could consume some ANS gas

Office of the Federal Coordinator provides overview of where some of the natural gas from a North Slope project could be used

Bill White

Researcher/writer for the Office of the Federal Coordinator

Many Alaskans hope that a side benefit of the proposed multibillion-dollar LNG project would be to spark a new golden age for Alaska’s historic mining industry.

It likely won’t be that simple - nothing is for an industry beset by such challenges as numbing costs, remote sites, extreme climate and environmental landmines.

However, siphoning a small stream of gas from the 800-mile pipeline feeding the Alaska LNG project could help mines improve their financial margins, shaving power costs in a place where energy can be extraordinarily expensive.

Mining is a small but important industry in Alaska. It creates wealth, produces jobs, pays well. Mining, with commercial fishing, once dominated the Alaska economy. It helped populate the territory and build the towns. It helped form the rugged, self-reliant, sourdough self-image many Alaskans continue to hold of themselves.

Today, mining contributes about 4 percent to Alaska’s gross state product, or about $2.5 billion a year, according to U.S. Bureau of Economic Analysis data. It’s long been eclipsed by the oil and gas industry and government spending, which together account for about half the economy.

Alaska’s best mine prospects mostly are in far-flung locations, many expensive miles from reliable and affordable energy sources. These are the ones that some day might sip from the North Slope gas flow. As such, they are eying the Alaska LNG project with interest.

The state’s deal with its partners in Alaska LNG - North Slope producers ExxonMobil, BP and ConocoPhillips, and pipeline partner TransCanada - requires at least five points along the pipeline between Prudhoe Bay and Cook Inlet where mines, other industries and communities could get some of the gas. The state, not the companies, will decide the locations of the offtakes.

The remoteness of Alaska’s mine prospects tells a story that often is not understood by those who never have visited the state. Most of Alaska lies off a road grid. In many ways it is like the 1850s’ American West. It is wilderness. It is vastness. It is unsettled.

These traits put many mine prospects on the financial margins at the starting gate. But the industry understands high costs and remoteness - Alaska isn’t the only remote place the mining industry operates in the world - and it knows that importing energy can be expensive.

To illustrate, take the case of the Nixon Fork mine.

Nixon Fork lies about 30 miles northeast of the village of McGrath in west-central Alaska. It is remote. Miners have worked the ground for about 100 years, mostly taking gold, silver and copper. The Nixon Fork underground gold and copper mine operated in gasps from 1995 to 1999, in 2007, and from 2011 to 2013.

Diesel fueled Nixon Fork’s power generators. For getting fuel to the site, the expensive option was the only option. Mystery Creek Resources, the mine operator, hauled in diesel aboard DC-6 and C-130 Hercules planes. The mine shut down in 2013 as the operator experienced financial problems. (Gold and copper prices fell in 2013.)

Six big mines

Besides gold, Alaska mines primarily produce coal, silver, lead and zinc, especially zinc.

The Red Dog zinc, lead and silver mine in remote Northwest Alaska, above the Arctic Circle, is one of the world’s largest zinc producers. It started up in 1989, signaling a renaissance of an industry in Alaska that had limped along for decades, really since the start of World War II.

Until gold prices broke into the stratosphere in recent years, Red Dog’s zinc production alone typically exceeded the collective production from all Alaska gold mining. Still, Red Dog accounts for perhaps one-third the value of Alaska’s mineral production. Canadian company Teck Resources operates Red Dog.

Another world-class resource is the Greens Creek Mine, which also started in 1989. Its money rock is silver, but it also produces lead, zinc and gold. Idaho-based Hecla Mining runs operations at the mine on Admiralty Island in Southeast Alaska.

Three of the other big mines target gold:

•Fort Knox near Fairbanks, run by Kinross Gold, a Canada-based global operator. The first gold was poured in 1996.

•Pogo, near Delta, about 100 miles southeast of Fairbanks, run by Japanese joint venture Sumitomo Metal Mining and Sumitomo Corp. Production started in 2006.

•Kensington near Juneau in Southeast, run by Idaho-based Coeur d’Alene Mines. Production began in 2010.

The sixth big mine is the granddaddy, dating its birth to 1943, as most of Alaska’s other mines were shutting down. Usibelli Coal Mine near Healy, in Interior Alaska, was started by an Alaskan entrepreneur, Emil Usibelli, and remains Alaskan owned.

The five other big mines export their production, and Usibelli exports some of its coal, too. Its core market, however, is six Interior Alaska power plants.

None of the six has talked publicly about tapping into the gas stream if the Alaska LNG project goes ahead. But the gas would available to the electrical power grid that Fort Knox, Pogo and Usibelli already plug into.

Hopes for a big gold mine

Work on Donlin Gold’s environmental impact statement is under way. A decision on whether to build the $7 billion project 277 miles west of Anchorage might come in 2017 or thereabouts.

Donlin would be massive. Its initial production of 1.5 million ounces of gold a year would rank it among the world’s largest gold mines, as big as the biggest producers in Indonesia, South Africa, Peru, Uzbekistan and Nevada.

Figuring out how to power Donlin has vexed developers for well over a decade. Finally, they’ve landed on a two-pronged approach: diesel delivered via a chain of hand-offs from ocean to river to a newly built 30-mile road, and natural gas via an approximately 315-mile pipeline that would be the longest single gas line in Alaska, at least until Alaska LNG project goes ahead.

The developers are Barrick Gold, a Canada-based global mining concern, and NovaGold Resources, a Canadian junior mining company whose main play is Donlin.

As conceived, Donlin would consume about 30 million to 35 million cubic feet of natural gas a day. The gas would fuel the mine’s 227-megawatt power plant. Waste heat from the plant would heat the mine’s buildings. Diesel would fuel the heavy-equipment and truck fleet, and be the power plant’s back-up fuel.

The gas pipeline would cost $1.1 billion, the developers estimate. It would start at Cook Inlet, the source of the natural gas, cross a mountain range, eight major rivers and two active earthquake faults. The buried pipeline would need special engineering to traverse patches of discontinuous permafrost - to make sure it doesn’t freeze unfrozen ground and thrust toward the surface, or thaw frozen soil and sag. Either scenario could cause the line to rupture.

Should Donlin get built and North Slope gas become available, the mine very well could consume some of the gas, taking a feed from the line near Cook Inlet. Another option for Donlin could be to buy gas from Cook Inlet fields. But gas production marketed from the inlet’s aging fields - some of which date back 50 years - peaked in 2001 and has plunged since. Regional utilities are assured of supplies through at least 2019, and explorers are looking for and could find new supplies. Donlin’s earliest start-up date might be 2020.

Regardless of the gas source, the Donlin EIS assumes gas from somewhere will come in via pipeline.

Over more than a decade, Donlin developers considered many alternatives instead of piping gas to the site for power generation. These included producing coal-bed methane nearby, combining diesel generators with wind turbines, small nuclear systems, and buying electricity someone else produces and stringing transmission lines across hundreds of miles of wilderness. The other options looked more expensive, less reliable or environmentally trickier - in some cases all three.

Two comparisons might help put the scale of Donlin’s gas needs in perspective for those who can’t easily grasp megawatts and cubic feet.

As one of the world’s largest gold mines, Donlin’s power needs would not be small. Its 227-megawatt power plant would give it the capacity to produce a bit less electricity than Golden Valley Electric, which serves nearly 100,000 residents of the Fairbanks region. Donlin likely would produce much less power than its generating capacity, as is true for almost all electric utilities. Its average running load would be an estimated 153 megawatts.

The 30 million cubic feet a day of natural gas that Donlin would need for its power plant is roughly one-third the volume the rest of Alaska’s electric utilities burn on a typical day. Add in utilities that pipe gas to home and business furnaces for heat demand, and Alaska burns about 200 million cubic feet of gas a day on average. So Donlin could raise Alaska demand by perhaps 15 percent or so.

But the Alaska LNG project is so big that even if Donlin got all of its gas from the North Slope, it would consume only about 1 percent of the daily flow that would leave Prudhoe Bay for market.

Part 2 of this story will run in the Jan. 11 issue. Editor’s note: This is a reprint from the Office of the Federal Coordinator, Alaska Natural Gas Transportation Projects, online at www.arcticgas.gov/new-mines-could-consume-some-north-slope-gas.