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Petrochemical industry would have big economic impact on Alaska Group of faculty at University of Alaska Fairbanks College of Engineering and Mines recommends in-state processing of natural gas liquids from North Slope gas, cites example of Alberta Paul Metz, Gang Chen, Scott Huang, Tao Zhu For Petroleum News The authors are members of the faculty at the College of Engineering and Mines, University of Alaska Fairbanks.
Paul Metz is professor of geological engineering and chair of the Department of Mining & Geological Engineering; Gang Chen is professor of mining engineering; Scott Huang is professor of geological engineering; Tao Zhu is assistant professor of petroleum engineering. A consortium of petrochemical producers and engineering firms including Dow, Shell, and Mitsubishi completed an investigation of the feasibility of the development of a petrochemical industry in Alaska in 1981 in anticipation of the construction on an Alaska natural gas pipeline project. The study was predicated on the completion of a gas pipeline project that would transmit Alaska North Slope natural gas to markets in the contiguous states at a rate of at least 2.7 bcf per day. This study was funded by industry but was made available to the state of Alaska and the communities that were considered as potential sites for a world class petrochemical complex.
The natural gas liquids that comprise 13 percent of the natural gas by volume account for a very large portion of the value of the proven natural gas reserves (35 tcf) on the North Slope. Inferred resources of conventional gas are estimated in excess of 165 tcf while unconventional sources of methane on the North Slope may exceed 600 tcf (see Table 1). At a production rate of 4 bcf per day, the conventional resources are estimated to have a production life of more than 100 years.
Prior to the sale of the North Pole Refinery, Williams completed a feasibility study for the construction of a much smaller petrochemical complex than that envisioned in the Dow-Shell investigation. This study was not made available to the general public. More recently Inter Pipeline Fund has shown an interest in processing natural gas liquids from Alaska at its facilities in Calgary (see Petroleum News, July 08, 2004). China now major market for petrochemicals The products from a world-class petrochemical complex would include methanol, ethylene, polyethylene, ethylbenzene, ethylene glycol, Styrofoam, alpha olefins, ethylene dichloride, ammonia, urea and caustic soda. The markets for these products in 1981 were the Gulf Coast of Texas and Japan. Today the major market is China. The production of these products was expected to produce an adequate rate of return on capital in 1981 contingent on the natural gas pipeline and a fair market price for the gas liquids. The production rates of various currently proposed natural gas pipeline alternatives range up to 4.5 bcf per day or more than 50 percent larger than the proposed project in 1981. Thus there is a significant increase in the economy of scale of production. Increases in product demand and prices as well as decreased transportation costs also have enhanced the current feasibility over the market conditions in 1981.
In addition to the gas liquids from the Alaska natural gas pipeline, benzene and water are necessary factor inputs. Benzene could be produced at the North Pole Refinery, southeast of Fairbanks and transported by pipeline to an adjacent petrochemical complex. The petrochemical plant would consume approximately 38,000,000 gallons of processed water per day. The North Pole location has adequate supplies of near surface groundwater and surface water from the Tanana River.
In addition to the natural gas pipeline other necessary infrastructural improvements include the re-alignment of the Alaska Railroad to avoid transport of large volumes of hazardous materials and coal through Fairbanks, a railroad extension from Wasilla to Point McKenzie, and a deepwater port facility at that site. The port facility would need to support at least 450 moorings per year to transport the products to markets in the Pacific Rim. A railroad extension from North Poles south to Blair Lakes in support of military training activities is under preliminary design. Further extension of the railroad across the Northern Foothills of the Alaska Range would provide a high-speed rail link to the Nenana coal fields and a high-speed link for the first 75 miles of the rail transport of the petrochemical products to tidewater. Coal could meet energy needs of project The large scale project would require 370 megawatts of electricity and 1.85 million pounds per hour of steam. Meeting the energy requirements for petrochemical production would necessitate the combustion of at least 9.3 million tons of sub-bituminous coal per year. The utilization of coal rather than methane for the thermal requirements of petrochemical production as well as the production of electricity would not diminish the quantities of methane that would be transported by pipeline to markets in the contiguous states. The only product shipped through the natural gas pipeline south of Fairbanks to Midwest markets would be methane as a single phase. Thus pipeline transport costs and tariffs would be minimized. In addition at a power production scale in excess of 300 megawatts, the low sulfur coal has significant economic advantages over natural gas. Unlike coal, methane can be economically transported to competitive markets in Chicago.
Lignite, a lower rank coal than that from the Usibelli Coal Mine, is used to produce petrochemicals in Texas. Texas accounts for 75 percent of the petrochemical production in the United States. The Texas facilities, many of which are antiquated, are experiencing major shortages in feedstock as natural gas liquids production from Texas, Louisiana, and Oklahoma continues to decline.
The project would provide an estimated 10,200 direct and indirect jobs at a capital cost of $6.7-$7.5 billion. The estimated contribution to the economy of the Fairbanks North Star Borough is at least $600 million per year in the form of payroll, contractor and vender services and supplies, and property taxes. This does not include the contributions from the six-fold increase in coal production from the Usibelli Coal Mine, the 22.5 million tons of added freight per year for the Alaska Railroad Corp., or the 13.23 million tons of petrochemical products that would be shipped through the port facilities at Point McKenzie. In-state coal production and petrochemical transport to tidewater will contribute an additional $400 million per year to the economy of the state. Alberta requires in-province processing D.B. Reynolds, in a 2003 study, “Alaska and North Slope natural gas: Development issues and U.S. Canadian implications,” estimated that methane production from the 35 tcf of proven reserves would generate approximately $23 billion in royalties to the state of Alaska over the 23 year production period. Simply stated, this constitutes royalty revenue of $1 billion per year to the state. This is assuming a well-head price of $1.33 per million Btu. The in-state processing of the natural gas liquids has the potential of generating equivalent revenue to the economy of Alaska thus doubling the benefits of the natural gas pipeline.
Alaska should learn from the experiences of Alberta. When the province began to develop its natural gas resources on a large scale, it enacted statutes to prohibit the export of natural gas liquids without the processing of those liquids into higher unit value petrochemical commodities. Alaska should follow suit.
The rapid expansion of the economy of the Peoples Republic of China has resulted in large increases in demand for mineral and energy commodities. In 1981, China was a net exporter of energy while today it imports more than 30 percent of its petroleum requirements. The rapid increase in mineral commodity prices over the past year and the continued pressure on energy prices due to demand in China is expected to be a prelude to long-term trends. Due to Alaska’s proximity to China it has an economic advantage in supplying China’s material needs. It makes no economic sense to transport North Slope natural gas liquids south and east 1,800 miles from Fairbanks to Calgary and then ship the derived petrochemical products west to China. Fairbanks is 2,000 miles closer to Shanghai, China, than Calgary. The processing of North Slope gas liquids in Fairbanks rather than Calgary will reduce transportation distances to the major Asian market by nearly 4,000 miles.
Chinese participation in petrochemical production in Alaska would require major diplomatic efforts from both the state and federal government. This would be the largest capital investment made by Chinese companies outside the mainland. It would also rank in the top six of all capital investments made within China.
From a Chinese perspective, Alaska is a secure and stable source of mineral and energy commodities relative to the Middle East, Indonesia, and Russia. Importation of materials from Alaska also has the advantage of decreasing the wide trade surplus that China experiences over the United States. Diminishing this imbalance in trade is in the best interest of both China and the United States.
Note: The opinions expressed in this article are solely those of the co-authors and have not been reviewed or endorsed by the University of Alaska.
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