Phillips “highly motivated” to commercialize North Slope gas

Company’s Alaska natural gas commercialization vice president tells Alliance Alaska gas reserves company’s largest development opportunity

Kristen Nelson

PNA News Editor

We are highly, highly motivated to commercialize North Slope gas, Joe Marushack, Phillips Alaska Inc.’s vice president of Alaska natural gas commercialization, told the Alaska Support Industry Alliance in early November.

And, he said, “We’re in the process of working with our partners, BP and Exxon, on working on this project together. We think it makes the most sense and the resources are so vast that it makes sense for us to work on this together.

“We’re in the process of putting together a memorandum of understanding. I expect that to be done fairly soon.”

The companies announced a joint work agreement in early December (see brief this page).

“The idea being,” Marushack said, “that initially then we’ll have the three companies looking at how best to optimize this. Sharing that information with ourselves, with the state, work with a lot of different outfits, work with pipeline companies, work with contractors.”

But initially the group will be small.

“You’re aware,” he said, “that the more people you get at the table, in an undefined project, the more difficult it is.”

Significant resource for Phillips

The company has been creating joint ventures for non-exploration and production segments of the company and using the cash from those ventures to build the exploration and production side of the company, he said.

The acquisition of ARCO’s Alaska assets doubled Phillips’ booked barrels of oil equivalent reserves, Marushack said, from 2.2 billion BOE of reserves on the books a year ago — about the same as the company had 10 years ago — to 4.4 billion BOE currently.

“And what’s really important,” he said, “is the gas reserves (on the North Slope) are not booked right now.

“They’re not commercial, so they’re not booked. When we book those, we will grow from 4.4 to 5.9 billion BOE. There is nothing on our books that were aware of right now that is as big a development opportunity as those gas reserves to us. The point is, we are highly, highly motivated to commercialize the North Slope gas,” he said.

Prudhoe reevaluation

And ownership at the field isn’t the only thing that’s changed. Over the years since crude oil has been produced from Prudhoe Bay, the field itself has changed.

“Were we to discover this field right now, what you would see is more of the characteristics of a condensate field than an oil field,” Marushack said.

While the gas isn’t as valuable as the oil, he said, “now is perhaps the time when we really need to be thinking about how best to optimize the entire field and utilize those gas resources for something other than just maintaining the pressure and producing additional oil.”

And looking at natural gas resources across the North Slope, including Point Thomson, Phillips’ interest is about 25 percent, Marushack said.

While there are three major ways to produce North Slope natural gas — gas-to-liquid, liquefied natural gas and a pipeline — “we’re really focusing on the pipeline at this point in time,” Marushack said, although he noted that the other options are still being pursued.

“But we really think that right now the pipeline is the primary opportunity that we have to first commercialize the gas and then hopefully build other opportunities off of the pipeline — gas to liquids, LNG exports — later on… There’s clearly enough gas for more than one opportunity,” he said.

The current high prices in the Lower 48 make a gas pipeline a strategic opportunity, Marushack said.

What makes a pipeline more likely now than 20 years ago?

Gas demand has been increasing, and over the next 10 years the current demand of some 22 trillion cubic feet a year will increase by almost another 20 TCF.

With a price threshold different than the norm of $2 to $2.25 per thousand cubic feet, he said, “Alaska can compete.” And at rates of 2 to 2.5 to 3 billion cubic feet a day, the Alaska supply would help meet the need of an additional 20 TCF a year. And technology changes over the last 20 years will also help make a gas pipeline to the Lower 48 feasible, he said.

“So, really three things that are going to make this different: better technology, a lot of demands for gas and we think that that demand for gas has created a need for non-conventional sources of gas which should boost the threshold up from the normal $2.25, $2.50 up to something higher than that.

“We do not expect to see $5 gas in the Lower 48. We don’t need $5 gas in the Lower 48. I’m not even sure we think that’s good. What we do need, though, is we need a different threshold, we need something about north of $3 in order to make an Alaska gas project… $3.50 we think we’ve got the opportunity,” he said.

He noted that the companies are still looking at multiple routes for a pipeline to the Lower 48 and are also looking at what happens when Alaska gas reaches existing Canadian gas pipelines. “We don’t know,” Marushack said, “if that will be moved in existing pipelines, if it means putting in more compression or if it takes an additional pipeline to get it down to its final destination.”