Is GTL Alaska's Gas Answer?-Study Confirms Alaska's Economy Poised for a Dive - Governor Sean Parnell Attacks Challenger's Gas Pipeline Proposal - EIA Tests America's Knowledge of Canadian Imports - Activist Sotomayor Will Make Final Energy Law Decisions

Alaska Dispatch.  Because of all the coverage of the as-yet undecided Republican U.S. Senate primary, it may be easy to forget all the other primary races are settled, including the gubernatorial ones. According to KTVA-TV, Gov. Sean Parnell (NGP Photo) fired back against Democrat gubernatorial candidate Ethan Berkowitz's idea to stimulate the construction of a natural gas pipeline from Alaska's North Slope. Called "The Alaskan Ownership Stake," as Alaska Dispatch reported recently, the plan would ask Alaskans to voluntarily contribute some part of their own Permanent Fund Dividends to an escrow account in order to become shareholders in a big project.  (See our story yesterday.)

Calgary Herald by Dina O'Meara.  ... Energy watchdogs south of the border are testing audience waters to see how much Americans know - or don't - about where their oil comes from.   The Energy Information Administration is asking visitors to its website where they think the United States receives most of their crude imports.  "Based on our site, other energy sites, or just what you know about energy... The largest share of U.S. imported oil comes from ...?," asks the EIA.  ...  The question, number 10, appears on a pop-up quiz when opening the EIA  website,www.eia.doe.gov.  ...  For the record, the Canadian Association of Petroleum Producers said it wasn't aware of having any influence on the annual EIA survey. Provincial government representatives also said they didn't believe Alberta Energy had a hand in the questionnaire, but were looking into it.

APRN, by Dan Bross.  A study commissioned by a statewide partnership of economic development groups called the Alaska Forward Initiative, tapped consulting companies that looked at things like jobs, income and gross state product.  The organization’s president, Kathryn Dodge, says the data by consultant I.H.S. Global Insights, paints a pretty bleak picture, when Alaska is compared to the rest of the country.  Dodge says Alaska is a victim of its heavy dependence on oil, an industry with production that’s declining at a rate of 6 to 7 percent annually.  She says Alaska’s old image as a state with high incomes is outdated.

 

Has GTL Now Come of Age?

By
Richard Peterson, President
Alaskan Natural Gas To Liquids (ANGTL) & Alaska Natural Resources to Liquids, LLC (ANGRL)
 


A SOUTHCENTRAL BULLET GAS LINE AND A GTL PLANT AS ANCHOR TENANT POSSIBLE WITH THE ADMINISTRATION AND LEGISLATURE WORKING TOGETHER
 
 
I have been Alaska since 1997 when we proposed with Sasol, the world leader in gas to liquids (GTL) to then Governor Knowles that we would develop the North Slope stranded gas with a major GTL program and batch the GTL products down TAPS to Valdez. The one thing we did not plan for was rejection of this idea by Governor Tony Knowles, then Governor Frank Murkowski, then Governor Sarah Palin and now Governor Sean Parnell. They all had one thing in common, a “pipe dream”. They all hoped for a large diameter gas line to the lower 48. Each supported legislation that only favored a gas line or a gas line LNG option but in general specifically excluded a GTL option. So it’s no wonder that GTL technology providers aren’t at Alaska’s door step today.
 
 
On July 14th, I attended the July meeting of the Anchorage Mayors’ Energy Task Force. On the agenda was Mark Neuman, State Representative from Big Lake to discuss GTL as an anchor tenant for the proposed bullet line to Southcentral (or it could be a spur line to the Anchorage area if AGIA or Denali is successful). Many of you know that the State Legislature was concerned that there was no “Plan B” to the big pipeline, and passed HB 369 extending the evaluation of a bullet line but moving the responsibility into a newly created subsidy of the Alaska Housing Finance Corporation. The Alaska Gasline Development Corporation (AGDC) was transferred this responsibility effective July 1. AGDC recently let an RFP to study a GTL option in Southcentral to hopefully increase throughput to 1 bcf/d or more so that the pipeline tariff, reported to be over $10/million Btu would be much lower. Most feel that without a major industrial customer, nothing short of a massive subsidy will save this pipeline program. The question is “where do you want the subsidy to come from”? Alaska or the Federal Government?
 
 
I am glad the Mayors’ Energy Task Force is looking at GTL’s as an option. Today it was evident that Task Force members understand the central issue of a GTL anchor customer– “How do you attract a private commercial GTL developer to Alaska?” This is the question ANGTL has been struggling with since 1997. As a potential GTL co-developer our concern is as an equity owner, not as a project promoter. Our equity investment has to be profitable and the project financeable. There are only two proven commercial scale GTL developers in the world today – Sasol and Shell. Neither licenses its technology. They only bring their Fischer-Tropsch (F-T) technology to a project where they have a major ownership position. They both evaluate their GTL opportunities against other energy opportunities across the globe. If an Alaska GTL program, when all things are considered, isn’t better than another opportunity, they will decline the opportunity. Then it’s on to the second or third-tier F-T technology providers who don’t have a large scale GTL plant operating (actually none have GTL plant beyond a pilot size) who are more than willing to license their technology but you have to give them exclusive access to all of the modifications you do to make their technology actually work efficiently.
 
 
Because banks won’t rely upon these second or third tier F-T providers pilot plant technology, or rather their integration of the three steps in the F-T technology program they are likely to require 50% or more equity investment, which dramatically lowers the IRR for the investor. Having a 500, 1,000 or 5,000 bbl/d F-T plant doesn’t guarantee the ability to scale the project up to a 35,000 or 70,000 bbl/d plant, as Sasol found out in Qatar. It took a year and hundreds of millions of dollars to fix the problems encountered with the scale-up. Today a Sasol 70,000 bbl/d plant works because it’s using two proven 35,000 bbl/d modules. The same can be said with regard to Shell’s 140,000 bbl/d Pearl plant. It has two 70,000 bbl/d modules. ANGTL and its investors can’t stand a one or two year delay in full operation of a GTL plant to fix startup problems, not if we are paying up to 70% of the tariff on the bullet line.
 
 
Today GTL projects around the world usually have an inlet natural gas cost under $1 / mmbtu plus pay the gas owner a % of the market price received for F-T fuels. As a rule of thumb you multiply the inlet cost of natural gas by 10 to get a base outlet cost of the GTL products. In the above example of a $1/mmbtu inlet price the base outlet price of products is $10/bbl. You need to add the cost of debt service, the GTL plant operating cost, taxes and profit for the investor to arrive at a true GTL plant tailgate product cost. A GTL plant built anywhere but Alaska will cost less to build, have a lower operating cost and probably lower taxes. 
 
 
It is possible to have a base cost for natural gas on the North Slope around $1/mmbtu (a North Slope GTL program doesn’t need the massive investment in a gas conditioning plant that a gas pipeline needs). During a meeting at the Alaska Gas Development Corporation’s (AGDC’s) office we were told that we could expect a tariff in the range of $9 to $14/mmbtu plus the cost of natural gas. It’s hard not to laugh at these numbers. No large commercial customer is coming to Alaska to buy $12 to $18 for natural gas, period. We have heard Agrium needs something south of $5 and a GTL plant will be difficult if not impossible to work above this number unless crude oil is in the $150/bbl + range. The current bullet pipeline program just doesn’t make sense or work to attract large commercial customers.
 
 
ANGTL believes the pipeline evaluation got off track when it limited itself to a 24 inch line. Also the producers need to supply pipeline quality gas on the North Slope. In addition, they need to take their liquids and batch pig them down TAPS, which will extend the life of taps or build a products line to Fairbanks and rail them to a market. With that in hand the cost of a gas line will be closer to $6 billion. With 1.1 to 1.3 bcf/d of in-state load, the tariff should be under $2/mmbtu. Now we are talking. Add $2.5 to $3/ mmbtu for the natural gas commodity and it’s possible the industrial customers will be here.
 
 
No matter what anyone says Alasks GTL must compete in a world market. While we may and I mean may receive a small premium for F-T fuels, when the competition is paying 50 cents per mmbtu for gas ($5/bbl of oil equivalent), a Southcentral GTL plant will be paying $5/mmbtu or more ($50/bbl oil equivalent). We also have to offset higher construction and operating costs. 
 
 
ANGTL’s North Slope GTL proposal uses a lower alternative fuels excise tax rate (state and federal) to increase the netback by some 31 cents per gallon or $13/bbl. This lower excise tax is similar to the lower rates for ethanol, biodiesel, LNG and CNG to name a few. This economic uplift pays for the higher cost of a North Slope operation and the cost of converting TAPS into a dual fuel pipeline. For a 4 Bcf/d North Slope GTL program this higher netback is worth over $1.5 billion a year. For a smaller .7 Bcf/d Southcentral GTL plant it’s worth over $300 million per year. 
 
 
But that’s not enough to offset a $5/mmbtu inlet gas price for the Southcentral location.
 
 
Frustrated with lack of support from the various administrations for a GTL program in Alaska, ANGTL pursued a coal to liquids (CTL) option for the Cook Inlet. A CTL plant is two to three times more expensive than a GTL plant and CTL doesn’t qualify for a GTL lower excise tariff – we are not “natural gas”. So, we approached Senator Stevens for help. He introduced legislation that gave Fisher-Tropsch fuels, the generic name for fuels made from biomass, coal and natural gas, a 50 cent per gallon federal energy credit. That’s a $21/bbl economic uplift. Unfortunately we did not include natural gas in the definition. Before he was blindsided by the U.S. Injustice Department, Senator Stevens was working on amending the Legislation to include natural gas. His successor has yet to return our calls to pick up the mantle, and the other Senator is equally elusive; both we believe to be stuck on a gas pipeline dream.
 
 
We believe by some minor changes to existing federal laws we can bring as much as $4.00/ million Btu to the table from the federal level putting the Southcentral GTL program on a similar footing as even a Qatar GTL project. When you look at the higher value end markets we will serve in Alaska and California, it could tip the scales in our favor.
 
 
The military is an important part of Alaska and we certainly want them to not only stay but to grow in size. The military is close to finalizing a new military specification for jet fuel consisting of a 50-50 blend of F-T jet fuel and conventional jet fuel. That said, until aviation fuels have to be Ultra Low Sulfur (ULS), the value of jet fuel is much lower than on-road ULS diesel. Plus, the military is not a tax-paying entity, so a lower excise tax doesn’t apply. That takes away $13/bbl of price support. We have proposed a way where the Defense Energy Support Center can offset this potential lower price and loss of tax rebates through the use of a “call” option. 
 
 
The military has call options on airline seats, air cargo, container, tanker and roll on roll off ship capacity, so why not a call on F-T fuels? We have approached the Pentagon, Senators Akaka, Inouye, Boxer, Feinstein and numerous representatives from western states asking for their support for GTLs and these energy programs. The first thing they ask is “where is the state of Alaska on GTLs”? This brings us back to my first statement. It’s hard to attract GTLs to Alaska when there is no support from the state administration.
 
 
A Southcentral GTL program won’t be easy to pull off. But if the State gets behind the GTL program, the Alaska federal delegation can do some heavy lifting, then the Rail Belt and possibly the western interior will have a reasonable cost clean energy to power Alaska into the next century.
 
 
Unless we figure out how to improve the economics of an Alaska GTL plant there won’t be one. Without a GTL program to anchor the “bullet” gas line the tariff will exceed $12 or more per Mmbtu. That means there won’t be a bullet line, because consumers can’t afford it.
 

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Activist Sotomayor Will Sit In Judgment Over America's Appealed Energy Policies