Intrastate Gas

Dan Fagan's Gas Pipeline Luncheon Meeting

Dan Fagan (NGP Photo) presents a first ever luncheon featuring all the players, decision makers, and experts on Alaska gas. The free for all luncheon/town hall meeting has the sole purpose of determining what's real, true, and plausable for Alaska's vast gas resources.

Alaska Dispatch by Patti Epler.   ...a new oil and gas drilling operation has begun in Cook Inlet and is churning its way toward a potential $25 million boost from the state.

The Spartan Blake 151 jack-up drilling rig, operated by Escopeta Oil Co., arrived on site north of Nikiski on Aug. 10 after a long and controversial journey from the Gulf of Mexico to Alaska.  ... Steve Sutherlin (NGP Photo), an Alaska-based spokesman for the company, said Monday the rig is currently in position over the well and crews are driving casing into place.  Company officials have said Escopeta expects to spend about $30 million to get the rig into place, between mobilization costs and other expenses to satisfy state requirements. ... Escopeta plans to spud the well by the end of the month, coming in just under a deadline set by the Legislature for drilling to begin in order for the company to take advantage of an incentive program passed late last year. Lawmakers offered to pay for as much as 100 percent -- up to $25 million for the first well -- of the cost of the first three wells for the first company to bring a jack-up rig to the area and begin work.  A couple weeks ago, two environmental organizations -- Trustees for Alaska and Cook Inletkeeper -- asked federal regulators to prevent Escopeta from bringing the rig into Cook Inlet because of concerns over the effects on beluga whales.

Breaking news.  A few minutes ago, the Alaska Gas Pipeline Federal Coordinator, Larry Persily (NGP File Photo), said he thinks the (AGIA/TransCanada) project is "very viable…," but to get someone to sign shipping commitments, "you're going to have to have a fiscal deal between the state and producers."  Check for more complete report tomorrow morning.  -dh

More links to yesterday's hearings: KTVA, Channel 11.

Beginning Comment.  Question regarding legislative hearings: Are Alaska's legislative leaders keeping their collective eye on the ball: filling the oil pipeline to sustain Alaska's economy?  If so, should we be hearing more support for federal approval of Shell's 2012 Alaska OCS program, more support for federal approval of ConocoPhillips' CD-5 project, more opposition to the Fish and Wildlife Service plans to lock up ANWR's designated 1002, oil and gas production area, more support for production tax reform?   After all, if TAPS shuts down, we won't get a gas pipeline and due to a 90% drop in state revenue and resulting outmigration, we won't need much natural gas to satisfy a teenie in-state demand.  -dh

Gas Pipeline Comment.  At today's legislative hearing the Alaska Gas Pipeline  Federal Inspector will provide lawmakers with his view of the status of an Alaska Gas Pipeline Project (Watch streaming video, 9 a.m. AST).  Yesterday, we gave an immediate link to Yereth Rosen's breaking news article revealing TransCanada Pipeline's lack of shipper commitments.  Today, the Anchorage Daily News' Richard Mauer quotes Alaska Oil and Gas Conservation Commissioner, Cathy Foerster (NGP File Photo), as saying that, "...with oil a far more valuable commodity than gas, it makes sense to use gas to produce oil rather than sell the gas and leave oil in the ground.  That factor begins to change in the future as oil reserves dwindle, she said. The oil fields wouldn't be hurt by the 500 million cubic feet a day that would be drawn by the 24-inch instate line, she said, but the 4.5 billion cubic feet taken daily by the larger line is another matter.  But that's not a reason to shelve the project. The North Slope likely has huge natural gas fields that no one has bothered to explore because there's no market. Put in a pipeline and that would change -- and those "dry" fields wouldn't limit oil production, she said."  We believe Foerster's logic, unassailable as it is, will be used by intrastate gas pipeline advocates to justify state ownership of a local use pipeline.  -dh

Oil Tax Comment.  

Let's Don't Use Alaska's Constitution To Justify Selfishness

by

Dave Harbour

An Anchorage Daily News Editorial writer this morning meant well and wisely said, "The state's job is to get the most value it can from its resource for the benefit of all Alaskans.  That's not a matter of discretion. That's in the state constitution."  Well, yes it is but....   But after we define who "Alaskans" are, we might reach a different conclusion than if we just assume the constitution grants this generation the right and obligation to unleash a slash and burn policy only benefitting current Alaskans.  

If we want to extract every drop of blood out of a dying turnip for tonight's family dinner, we're not looking for ways of sustaining that turnip for the kids' families.  If we do want to sustain turnip output for future generations, we'll eat a little less tonight and plant a little more in the morning.  

Put another way, we agree with the editorial writer if our job is to extract from the Alaska North Slope (ANS) every single dollar possible for this generation to spend.  But...if, as I have come to believe, our constitution demands we produce maximum natural resource benefit for this AND future Alaska generations, then we must undertake policies that weigh more heavily in favor of sustaining development for them, than for satisfying this generation's demands for cash now to spend now on me, now.

Put a final way, don't you agree that we should not let Alaska's constitution help us rationalize tax and regulatory policies that have the effect of taking sustained revenue from our kids to satisfy our greed today?  Some might still argue in favor of extracting the maximum benefit of natural resource revenue for this generation at the expense of the next.  To them, I would gently offer that such a philosophy would also justify spending the kid's college money and every future PFD check on things that I want for me to satisfy my immediate wants right now.

Come to think of it, I fear the growth of that "maximum benefit for me, now" mentality.  It is very self centered.  It ignores and disrespects the idea that one generation, through sacrifice, assures a better life for the next.  Ultimately, it is an argument for selfishness, for not giving, for not saving, for not loving, for not defending a country with one's life.  

Oh Canada - significant developments in Canadian energy

 

TransCanada has no firm commitments to ship gas on its proposed $40 billion gas pipeline project according to executive, Tony Palmer (NGP Photo).   See Reuters Story breaking now.  (Story by Yereth Rosen, Jeffrey Jones and Rob Wilson)  Watch the hearings:  http://www.alaskalegislature.tv/ 

 

TODAY, the Senate Resource Committee Examines Status of TransCanada's AGIA Gasline Project (See above report) and Of Cook Inlet Natural Gas Reserves, Exploration and Development Projects.  Go Here For Information.  Below Is Yesterday's Report On the Alaska Intrastate Gas Pipeline Project--And Our Own Editorial Comments.  (Mike Prax comments in the News Miner: We would be foolish to even consider abandoning two years of effort and risk losing hundreds of millions of dollars on a project that is proceeding according to the agreed-upon plan, only to start over on the same project that we had to admit was uneconomical.)

Alaska Dispatch by Patti Epler.  The state and Exxon Mobil have reached an agreement in the years-old lawsuit over the Point Thomson oil and gas field on the North Slope, a major hurdle that needed to be crossed before a major gas pipeline could be economically viable.

ADN by Richard Mauer.    ...  Dan Fauske (NGP Photo-R), the head of the state-owned corporation, tried with his staff to answer the questions ....  "I appreciate the enthusiasm and the need to answer the questions, but you're not going to answer every question in one year," he said.  ...  In a business flush with four-letter acronyms, the state corporation headed by Fauske was chartered by the Legislature to examine the Alaska Stand-Alone Gas Pipeline, or ASAP, once called the bullet line.  ... Lest anyone think that the 24-inch line is a small-scale project, Fauske's lieutenant, project manager Dave Haugen (NGP Photo), sought to correct the record.  "This project is spoken flippantly, occasionally, as being the 'little-inch guys,' or a minor project," Haugen told the committee. "This is a huge project...."

ADN by Sean Cockerham.  Gov. Sean Parnell (NGP Photo-l) is getting ready to renew his push to roll back Alaska's oil tax while supporters of the tax are pointing to news of increased exploration and jobs on the North Slope.   The latest report getting attention from lawmakers came from Petroleum News. It reported in an Aug. 14 article that "operators on the North Slope and nearshore Beaufort Sea are preparing for what promises to be one of the busiest exploration seasons since 1969... Fairbanks Democratic Sen. Joe Paskvan (NGP Photo) sent a statement to the press soon after the Petroleum News article first appeared. Paskvan is among the skeptics in the state Senate who blocked Parnell's tax cut.  "It appears that Alaska's tax credits under its production tax system are working to promote capital expenditures, including new exploration wells. Good news for the industry and the state, which relies upon the industry for revenues to its treasury. Exploration should mean increased oil production and increased throughput down the pipeline," he said.   *    News Miner by Rod Boyce.  Parnell, in an email from his spokeswoman, responded Saturday to Paskvan’s comments and to the Petroleum News story.  ...  Sen. Joe Paskvan, D-Fairbanks, put out a news release last week praising a recent story in Petroleum News that said 2012 could be one of the busiest in years for drilling activity on the North Slope.    

CHECK OUT ENERGY DAY, OCTOBER 15, 2011 -- CELEBRATE AMERICAN ENERGY: A GOOD IDEA FOR ALL OF NORTH AMERICA!

We have preordered the new book by respected Alaska Dispatch Co-Founders, Tony Hopfinger and Amanda Coyne: Crude Awakening: Money, Mavericks, and Mayhem in Alaska

Federal Gas Pipeline Coordinator, Larry Persily (NGP Photo-r) will address Commonwealth North today: noon, ANGDA Conference Room, 411 West 4th Avenue, Yellow Sunshine Mall, Anchorage.  (More from ADN where Persily formerly served with distinction as a journalist and editor.  -dh)

Alaska State Legislature:

(Comment.  We hear from a reliable source that at a recent conference in San Antonio of the National Council of State Legislators a Member of our own Alaska State House of Representatives spoke against passage of a resolution supporting development of ANWR.  We herewith offer any legislator an opportunity to comment and correct the record.  -dh)

1. Dan Fauske (NGP Photo-above) briefing, Anchorage LIO, Monday, August 15, Alaska Stand Alone Gas Pipeline Project Plan.
2. Tony Palmer (NGP Photo-r) briefing, Anchorage LIO, Tuesday, August 16, AGIA gasline project, along with briefings on Cook Inlet Natural Gas Reserves.
3. Larry Persily briefing, Anchorage LIO, Wednesday, August 17, status of Alaska gas pipeline project federal coordination.
4. Our Commentary: To keep the 2/3 empty Trans Alaska Pipeline System (TAPS) operating, new oil reserves are needed.  New oil can come from federal sources like ANWR, OCS, NPR-A -- which the Obama Administration currently opposes.  New oil reserves could also come from state lands --  were the Legislature to act to improve the investment climate.  If certain legislators oppose ANWR and investment climate improvement, TAPS cannot be sustained.  If TAPS is not sustained, the state operating budget (almost 90% dependent on oil) and the entire state economy (over 1/3 dependent on oil) will fail.  If TAPS is dismantled, removed and the right of way restored (DR&R, as required by Alaska law) and Alaska returns to a pre-pipeline population, no intrastate gas pipeline from Prudhoe Bay will be required.  No big hydroelectric project will be needed.  Most state services will be dramatically curtailed.  The Permanent Fund will be dissipated.  The legislature will be managing a fiscal crisis never experienced by our citizens.  Is this logic not indisputable?   If it is, why don't legislators act of one mind to improve the state investment climate and demand federal support for robust oil and gas development on federal lands?  -dh

Fairbanks News Miner by Matt Buxton.  The Alaska Gasline Port Authority board of directors voted unanimously this week to pass a resolution calling for the removal of a ballot proposition directing the agency to pursue trucking natural gas into the Fairbanks area.  The decision, made Wednesday, comes in advance of a special meeting of the Fairbanks North Star Borough Assembly next week, where members will introduce and discuss an ordinance to remove Proposition 1 from the Oct. 4 ballot. ... During discussion, board member Merrick Peirce, along with many other members, applauded the private partnership.  “What’s formed is a deal that’s better than we’ve could have ever envisioned,” he said. “This opens the door for the North Pole distribution area and that’d be great.”   As the port authority abandons a plan to truck natural gas, something it has explored for about two years, it will resume its pursuit of a natural gas pipeline to connect Prudhoe Bay, Fairbanks and Valdez.   The renewed focus is strengthened by a late-July analysis, from consultant Wood MacKenzie, showing a line to Valdez would be profitable and could bring the state of Alaska $65 billion over 30 years.

 TIME TO TAKE ALASKA OUT OF THE ICEBOX - Wall Street Journal

TODAY: Another Important Deadline; here is how to easily comment!  Your OCS comment by TODAY's deadline makes the legal record more supportive of reasonable OCS exploration for Alaska and the benefit of all Americans. A reasonable OCS program will help save Alaska's economy and protect America's economic recovery and national security.  Send us your comment and we will post it to make it Internet searchable!  Meanwhile, here are comments from Jason Brune (NGP Photo),Bob Hoffman, Kaye Laughlin and myself.  Others who submitted comments include Mary Ann Pease of Anchorage....  We have not yet seen comment from Alaska's U.S. Senators or Congressman or from any Alaska legislators.   -dh  (A modest reminder for why we stay motivated!)

Former Canadian Cabinet Minister Stockwell Day provides an insightful view of current northern energy debates and puts them in context of the Mackenzie Valley Pipeline Berger hearings over three decades ago.  His insight should also be appreciated by Alaskan and Washington energy decision makers.  -dh

(Related to the story below, note that the Alaska Gasline Development Corporation (AGDC)  will be making a presentation to the Alaska State Legislature's House and Senate "In-state Gas Caucus" on the "Alaska Stand Alone Pipeline Project Plan" at 10 a.m. this morning in Anchorage.  You can watch by video conference.  We commend Doug Smith for volunteering to write a detailed update on the Fairbanks Natural Gas' (FNG) challenge to supply interior Alaska consumers with natural gas.  He posits that FNG's plans and those of AGDC are not mutually exclusive.  We think you will appreciate Doug's review.  -dh)

Fairbanks Natural Gas Update

by

Doug Smith

Despite the controversy and uncertainty that multiple, competing ideas create, one company has broken ground on its plan to get an Alaska North Slope (ANS) gas supply to Interior Alaska. I believe Fairbanks Natural Gas and affiliate Polar LNG have put forth a viable plan that will be ready to begin gas deliveries within two years at a reasonable cost and with a volume that will provide benefit to significant numbers of Interior Alaska residents.

FNG sought to remedy its supply issues by seeking an Alaska North Slope (ANS) supply. The company secured a long term supply contract with ExxonMobil in 2008. The deal with ExxonMobil provides much larger gas volumes than Cook Inlet currently provids, and a stable pricing structure that is not subject to the escalation recently seen in the Cook Inlet market. The gas supply on the North Slope requires new facilities to condition and liquefy the gas for transport.

Since concluding the deal with ExxonMobil, FNG has sought financing for new ANS facilities, including an arrangement with the Alaska Gasline Port Authority (AGPA), in which APGA offered to purchase FNG,  and then use its bonding authority to obtain financing for construction of the new facilities. AGPA was stalled in pursuing the deal after the member municipalities (Fairbanks North Star Borough and City of Valdez) required AGPA to obtain voter approval of the project plan before proceeding. The vote is scheduled for October 2011. FNG and AGPA are not currently moving toward closing a deal.

Meanwhile, FNG has obtained financing through its parent companies and private investment, and created affiliate Polar LNG, LLC to own and operate the North Slope plant. Polar obtained state and federal permits for the project throughout the winter of 2011, and broke ground on the project in June this year. It is scheduled to be operational in fall 2013. The ANS facilities needed are:

·        

3.8 mile pipeline carrying feedstock gas from the Prudhoe Bay Unit to the Polar site in Deadhorse

·        

Gas treatment plant, with a capacity of 30 mmscfd

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Gas liquefaction plant, with output of 255,000 gallons LNG per day

·        

15 MW power plant

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Truck loading facility

·        

29 specialty LNG tanker trailers, to supplement FNG’s existing fleet of 14 tankers

The Fairbanks area electric utility, Golden Valley Electric Association (GVEA) is evaluating a proposal to sign on as an “anchor client” and take deliveries of around 3.4 bcfy to use in its recently constructed North Pole Expansion Plant. If GVEA elects to pursue the LNG supply, a large storage tank and vaporization facility would be constructed near GVEA’s plant.

Fairbanks is the largest city in the United States without a pipeline source natural gas supply. The plan to deliver large quantities of gas by truck is a frequent topic of debate. It is often asked why bother with the LNG trucking plan, when a pipeline is a better, seemingly more permanent solution. The answer is timing. The LNG trucking plan will bring a new source of energy to the Fairbanks area within two years. Even the AGDC plan, with significant pressure from the legislature pushing it, cannot get a pipeline source to Fairbanks before 2019.

The liquefaction plant uses conventional technology composed primarily of “off-the-shelf” components. There is no technology development and little customization required. The process used for liquefaction is nitrogen recycle process, where nitrogen is used as a refrigerant, cooling the methane to its liquefaction point of -260 degrees F. The nitrogen recycle process is very similar to hundreds of air separation plants in service around the US that provide liquid oxygen, nitrogen, argon and other cryogenic fluids. The project is designed in truck-sized modules that will be constructed off-site and set and interconnected at Deadhorse.  This provides for the rapid development timeline.

A report prepared by Steve Haagenson and Jim Dodson

(Haagenson, 2011)

for the Fairbanks Economic Development Corporation concluded that the net present value of the savings realized from a LNG-truck delivered supply available in two years is more than twice the value of  a pipeline based supply available in 7 years. The report also found that the cost of LNG deliveries to a city gate and pipeline deliveries the same gates are nearly identical, at $11.75/mcf and $11.74/mcf respectively. The AGDC project plan provided additional verification of this, estimating the Fairbanks city gate price of its gas would be $10.45 in 2011 dollars. If this is inflated at a conservative 2% rate to 2019, the price is $12.50.

There is also concern about lost investment in LNG facilities if a pipeline source becomes available during the economic life of the LNG project. There are options for the LNG facilities that preclude lost investment. First, the LNG could continue to be produced at the North Slope, and the product delivered to communities both on and off the road system that are not served by natural gas. The same tankers that haul LNG to Fairbanks now could be redirected to other locales. Villages not on the road system could receive LNG deliveries in ISO containers by barge. The planned LNG facilities are constructed in modules, and could be dismantled and sold to other stranded gas development areas. The build-out of distribution piping and installation of gas appliances is the same regardless of the gas transmission method. This means that Interior Alaska consumers will not be saddled with duplicate infrastructure costs if a pipeline gas supply becomes available.

There is also some concern about the safety of hauling LNG over the highway.  Hauling of LNG in highway tankers has taken place since the 1970’s and has a record of safe operation. A LNG consulting firm, CH.IV has compiled a list of LNG tanker accidents that have occurred since 1971, and the results and magnitude of the accident

(CHIV, 2009)

. Very few of the incidents reported resulted in fire or product leakage. One incident resulted in a fire and explosion, but it occurred in a trailer that was not of the specialty design used by FNG. It occurred in a single walled pressure vessel with external foam insulation. It was not the double wall vacuum-jacketed type that will be used by FNG, and that are widely used in the US.

The tankers are designed with multiple safety systems. They carry double walled tanks and redundant overpressure relief devices. If LNG is spilled, it readily evaporates, leaving no residue. The auto-ignition temperature of LNG vapors is about twice that of diesel fuel. LNG vapors readily ignite, and quickly burn back to the LNG pool they originated from. Although rapid burning might sound like a serious risk, this tendency toward rapid burning is actually beneficial in the control of the vapors. It reduces the likelihood of explosive concentrations of gas occurring. LNG vapors have a narrow explosive band. The vapors are only explosive when mixed 5% to 15% with air in a confined area. So a highway tanker roller that results in an LNG spill is very unlikely to cause an explosion, even though a fire may result. The tanker design includes a rupture disk as a failsafe device to prevent overpressure that could result in explosive conditions.  FNG has been hauling LNG over the Parks Highway since 1998, and has had two tanker accidents in that period. Neither resulted in fire or explosion, and the LNG in the damaged tankers was transferred to other tankers, and any spilled LNG evaporated without incident.

The project plan calls for Polar LNG to own the specialty LNG tankers, but to contract the hauling to firms experienced in traveling the Dalton Highway. At periods of peak demand, there will be an additional 35 trucks on the Dalton daily. The Alaska DOT has stated that this additional load is within the capacity of the highway.

Another topic of frequent discussion about the LNG project is FNG’s status as a regulated utility. FNG currently serves Fairbanks under a certificate from the Regulatory Commission of Alaska. FNG has announced no plans to seek to rescind that status once the ANS supply becomes available.  FNG’s primary business is selling natural gas – not manufacturing LNG. It  manufactures LNG as a means to obtain gas to sell. If any of the Alaska natural gas development plans since Gubik in the 1950’s had been realized, Fairbanks Natural Gas would be distributing that piped gas in the Interior, and not LNG. FNG is poised to leap onto any economically viable gas supply that allows it to expand distribution.

FNG customers are not typically on “take-or-pay” contracts. They can switch to other fuel sources at any time they desire. FNG has several commercial customers on “interruptible” service, due to the supply constraints, where in periods of high demand these customers can be shut-off from gas and must switch to alternate fuels. These interruptible customers maintain dual-fuel equipment. Residential customers are not on interruptible service. Fairbanks area mechanical contractors report that conversion of residential oil fired boilers to natural gas typically runs $1500 to $2000.

The option for Fairbanks to take no action and continue to wait for a gas pipeline is the worst of all alternatives. Waiting only lets costs escalate, drives residents and business investment to less costly locales, and accelerates the downward economic spiral that Interior Alaska finds itself in. FNG and its affiliates are clearly serving the public interest by investing in Alaska to provide an alternative to fuel oil heating. The LNG plan not only provides a lower cost fuel, but cleaner burning fuels that will help Fairbanks address its air quality non-attainment problems.  This project will serve Interior Alaska well in the short term, and can be part of a long term solution for a larger portion of the state.

Doug Smith, PMP is the Alaska Regional Manager for Haskell Corporation and has managed energy projects across Alaska. Since 2010 he has been consulting with Fairbanks Natural Gas and Polar LNG on the development of its project.

Jason Brune of Anchorage commented to BOEMRE: