Alaska Division of Oil and Gas Director Mark Myers is seeking $70 million from Congress over the next five years to conduct field tests of the production of gas hydrates.
Testifying Jan. 24 before the U.S. Senate Energy and Natural Resources Committee, Myers said the funds are needed to demonstrate the commerciality of gas hydrates production from Alaska’s North Slope.
His request came early in a half-day of testimony in a seminar convened by Energy Committee Chairman Sen. Pete Domenici, R-N.M. to gather ideas on enhancing natural gas-related provisions within an energy bill he is expected to introduce later this winter.
“We’ve got a natural gas crisis in this country, and we wanted to begin this session with renewed effort to pass a comprehensive energy program,” Domenici said in opening the seminar.
According to Energy Information Administration estimates, the nation will consume 84 billion cubic feet of gas daily by 2025 — compared to the 59 bcf per day currently being used.
Throughout the afternoon, various stakeholders representing industry, consumer groups, government agencies and financial markets offered two-minute presentations on proposals to forestall the looming U.S. natural gas supply shortage and curb rising gas prices.
Natural gas prices hovered at about $6.50 per million Btu at Henry Hub on Jan. 25, more than double the $2-$3 per million Btu it sold for a few years ago.
Access is key
Reiterating pleas from speakers throughout the day, Sen. Lisa Murkowski, R-Alaska, called for the government to grant more access to public lands to permit more exploration for new conventional gas supplies, noting that Alaska can help alleviate the nation’s projected gas shortfall.
Murkowski, a Senate Energy committee member, also urged more funding for new technologies to permit unconventional gas to be produced and gas transportation systems to be developed more economically to move any new supplies to market.
“The key is access, access both to the land and access to the research dollars and technology incentives needed to allow natural gas to be produced and shipped economically. We need to do more to make the increased production of natural gas from Alaska happen,” said Murkowski, after the seminar.
Besides the 35 trillion cubic feet of proven reserves on the North Slope, Alaska likely holds another 122 tcf, part of an estimated 600 tcf of conventional natural gas estimated as likely to be found on shore in America, Dave Houseknecht, a geologist with the U.S. Geological Survey, told the committee.
The USGS predicts another 400 tcf will be found in offshore waters, including the outer continental shelf off Alaska.
Alaska: the Saudi Arabia of gas hydrates
Myers estimated likely state reserves of conventional natural gas at 250 tcf.
He also said Alaska likely holds more than 32,000 tcf of gas hydrates — methane locked in permafrost and rock formations on the North Slope and offshore in the Beaufort Sea.
Described as the Saudi Arabia of gas hydrates, Alaska could offer vast supplies of gas once technology is perfected to capture and produce it commercially, he said. The large quantity of hydrates that underlie the existing Kuparuk River, Milne Point, and Prudhoe Bay Fields could in themselves remove all potential reserve risk for an Alaska natural gas pipeline producing at 4.5 bcf per day, from years 20 through 35 and beyond, he added.
“Reducing reserve risk will have a positive effect on project financing and potentially result in a lower tariff, which in turn could lead to increased exploration and early expansion of the ,” Myers said.
The only testing on gas hydrates to date has been done with the help of government funding, said Myers, pointing to the fact that the largest source of that funding comes from the federal Methane Hydrate Research and Development Act which expires this year.
$70 million would fund production testing
He urged Congress to make $70 million available over the next five years for continued state exploration of likely gas hydrate deposits at Prudhoe Bay and to demonstrate technology that can produce the gas economically.
“It is proposed that the Act be reauthorized for a period of five years, with appropriations of no less than $10 million per year in years 1-3 and $20 million per year in years 4-5,” according to a statement Myers entered into the federal record.
Alaska, Myers said, has been working with a team from industry, government and the university which is taking the first steps towards the use of gas hydrates by investigating known deposits on the central North Slope. The economics of the gas hydrates look good, but uncertainties remain related to commercial production.
Murkowski endorsed the state’s request, saying federal assistance is needed to develop the technology, for it to advance far enough for Alaska to get its hydrates into production.
She said the country is facing a significant future shortage of natural gas, even with construction of a pipeline to bring Alaska gas to market.
Gas line incentives approved last year
An Alaska project is expected to deliver 4.5 bcf per day to the Lower 48 starting in 2012. Last year, Congress approved federal financial incentives to help finance an Alaska gas line project — either a pipeline through Canada to the Lower 48 or the All-Alaska liquefied natural gas pipeline project.
During the conference, several groups asked Congress to approve similar federal financial incentives to spur the nation’s small coal-fired electric plants to add the ability to use natural gas and small gas-fueled plants to be equipped with clean coal-burning capability, projects estimated to cost about $500 million each.
Murkowski joined other senators in questioning the wisdom of the idea. She said aid to the Alaska gas pipeline is vital, given the high cost and technological hurdles of building an $18 billion to $20 billion project. But, she asked, should the government offer such incentives for a $500 million project?
“It’s a tough question,” she said. “Do you put a price tag to a project?”
Murkowski also questioned whether there are enough liquefied natural gas tankers in existence to allow America to import sufficient gas, if new deposits can’t be found quickly enough domestically.
U.S. Coast Guard Captain Mike Scott said there are 160 LNG tankers worldwide, about 40 currently serving the United States. He said in the near term another 25 to 30 are currently on order from the nine shipyards worldwide capable of building the tankers — enough to meet currently forecast demand.
Murkowski, however, noted that none of those shipyards are in America, and under terms of the Jones Act, Alaska gas could only be delivered to the West Coast from an all-Alaska LNG project, if the gas was delivered in American-built tankers.
“We may need to look at the Jones Act,” she said.
Information gained during the seminar could result in changes to the new comprehensive energy bill likely to be introduced by Domenici this winter. The Senate announced Jan. 24 that the energy bill will be one of the top 10 Republican priorities for the year, and that it will be given bill number 10, (S 10).
