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Prudhoe gas treatment plant hits snag
SES Midstream appeals division’s decision on Deadhorse lease to DNR commissioner; Ray Latchem says project is shovel ready Kay Cashman Petroleum News
SES Midstream’s plan to begin construction of a small compressed natural gas and sales quality natural gas plant at Deadhorse to serve the local oilfield support contractors and Norgasco, the local gas distribution firm, has run into permitting roadblock, which ultimately resulted in a Jan. 29 appeal filed with Corri Feige, commissioner of the Alaska Department of Natural Resources.
The appeal is still being adjudicated, so DNR was unable to comment on the case, which means the following information is largely from SESM’s perspective.
“DNR was briefed in the Fall of 2019 and we received advice from them about how to lease the SOA land needed for the facility. We followed their advice,” SESM’s manager, Raymond Latchem, said.
On July 23, SESM received a final finding and decision that approved 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.
“We concurrently permitted with the COE for the installation of a gravel pad. Things were on track for 2021 construction in Deadhorse,” Latchem said.
SESM had already determined the location of its gravel pad, applied for and received a permit from the U.S. Army Corps of Engineers, and made “substantial investments in furtherance of the project,” he said.
Moreover, SESM decided not to build a supply pipeline subject to AS 38.35. Rather, Latchem said, “SESM is pursuing an alternative to a new pipeline to supply the treating and processing plant with untreated gas, and to discharge the treated gas into an adjacent natural gas distribution system.”
In a Feb. 22 plea for intervention from Alaska Gov. Mike Dunleavy, Latchem wrote: “The train left the tracks on August 19th of 2020 when the DNR, without notice or discussion, rescinded its Final Finding and Decision. The DMLW in Fairbanks had done a good job of processing the application and issuing the FFD. However, the DOG (Division of Oil and Gas) in Anchorage apparently felt that they should have jurisdiction over gas treating. The only way they can reach this project is through the land rights. If we could have located on private land - there isn’t any - or even NSB (North Slope Borough) land in Deadhorse, then the DOG could not grab this turf.”
Founder of Norgasco In Latchem’s letter to the governor, he described SESM as a “small family-owned company” with “a long history of natural gas development in Alaska. Past projects include bringing natural gas service to Prudhoe Bay/Deadhorse in the 1980’s, Fairbanks and Talkeetna in the 1990’s, and developed and built Alaska’s second LNG plant at Pt. McKenzie. We also started another LNG project in Prudhoe Bay but sold it to AIDEA after Governor Parnell created the Interior Energy Project in 2013.”
All of this can be substantiated in public records and news reports. Latchem was actually the founder of Norgasco, the Prudhoe Bay/Deadhorse natural gas distributor he mentioned and that SESM’s proposed gas plant would serve.
Conflicting regulations “Natural gas is normally a very clean fuel. However, Prudhoe Bay gas contains a large amount of CO2 and H2S,” Latchem told the governor. “SES Midstream is endeavoring to build a small gas treating facility in Deadhorse that could remove the contaminants from the gas that is used locally for power generation and heating. This would bring the quality of the gas up to the same standards as Anchorage, Fairbanks, Wasilla and the Kenai Peninsula, as well as the rest of North America.”
DNR, he said, “is quick to point out, albeit a year or more too late, that they do not have any problem with gas treating. But they want the treating facilities authorized under an AS38.35 pipeline ROW lease rather than the AS38.05 land lease they originally pointed to and we followed. This would delay our project at least a full year and add costs to it that could make it uneconomic.”
Further, Latchem wrote, “AS38.35 points to getting a Pipeline Common Carrier Certificate from the RCA under AS42.06. This is another process that could take over a year to get and places a large burden on the project. Also, AS42.06 also specifically excludes gas treating facilities. The statutes are not harmonious. I am sure the Legislature never foresaw the day that DNR would suggest that gas treating facilities should be confused with gas pipelines.”
Reduce Deadhorse’s carbon footprint Latchem also told the governor that he enjoyed his 2021 State of the State address, particularly this part: “We’re taking a hard look at regulations that stifle innovation and frustrate Alaskans.” And “I’ll be working with my departments and the Legislature to review as many of these regulations as possible for potential modification or repeal.” Even better, he said, “If Alaska is to survive on its own, we must prioritize energy independence. For too long, our economy has been held back by the extreme cost of energy in many parts of our state.”
Latchem asked the governor to “please understand” that SESM’s project not only provides cleaner gas for Deadhorse but is also “the first critical step in reducing the carbon footprint of Deadhorse.”
Additionally, he said, “it is the first step in producing compressed natural gas (CNG) as a more viable fuel on the Slope,” noting that currently the diesel and gasoline used on the North Slope is “trucked from as far away as Valdez. That oil could have been sold out of state if we would use our natural gas resources instead.”
SESM’s project can also support other processes, Latchem wrote, such as “small-scale LNG production that can be trucked to several places outside of Prudhoe Bay, or methanol for local use in the oil fields” instead of importing it from the Lower 48.
“If you support us now, in 2022 you will have a great example to point out what happens when you walk the talk with respect to removing stifling regulations.”
Latchem asked Dunleavy to intervene and urge DNR to reinstate its final finding and decision.
“While we have hired lawyers and filed a formal appeal, the timeline is not in our favor for building anything this year without your help,” he wrote.
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