Guide to Alaska natural gas projects

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Researcher/Writer, Office of the Federal Coordinator
Release Date: 
September 10, 2014

Ideas for moving Prudhoe Bay's natural gas bounty off Alaska's North Slope are as plentiful as cottonwood seed in the June air.

Some are modest: Truck small amounts of gas to Fairbanks consumers.

Some are epic: Pipe massive amounts to a Southcentral Alaska liquefied natural gas plant for LNG shipments to Asia — the most expensive North American private-sector construction project ever.

Some are pinned to visions of an Alaska energy utopia, where gas for local use is plentiful and relatively cheap, the oil and gas industry develops new fields by the dozen, the state treasury overflows with wealth, and new industries sprout from the earth like wild lupine.

Some are backed by tens or even hundreds of millions of state dollars to help design, engineer and otherwise prepare for construction. These include the big producer-led LNG project, a much more modest state-led pipeline to Southcentral Alaska and the Fairbanks trucked-LNG project.

Some are little more than a concept looking to catch on.

The great North Slope oil discoveries of the 1960s and 1970s also found an estimated 35 trillion cubic feet of natural gas — almost one and a half times the entire volume of U.S. production in 2012. The U.S. Geological Survey estimates an additional 221 trillion cubic feet await discovery in Alaska's Arctic, onshore and offshore. If only an economically viable way could be found to move the gas to consumers.

Below we summarize several proposals — big and small — for transporting natural gas from Alaska's North Slope.

 

LNG export project

This would involve an approximately 800-mile mostly buried pipeline from the Prudhoe Bay field on Alaska's North Slope to Southcentral Alaska — the lead site is Nikiski, 60 air miles southwest of Anchorage along Cook Inlet. At the port, a plant would chill the gas to minus 260 degrees to create liquefied natural gas, or LNG, a compressed form of the gas that can be shipped on insulated tankers to markets worldwide.

Alaska LNG project
Sponsors: ExxonMobil /BP /ConocoPhillips /TransCanada/state of Alaska
Estimated cost: $45 billion to $65 billion
(2012 dollars)
Route: Parallel the trans-Alaska oil pipeline from Prudhoe Bay to the Fairbanks area. The route then likely would head south to Nikiski along Cook Inlet. A large-scale gas liquefaction plant would be built at the tidewater location.
Gas for Alaskans: The project would provide at least five points in Alaska from which spur pipelines could be built.
Status: The sponsors have started preliminary engineering and environmental data gathering, as they also assess the economic viability of an LNG export project. They applied in 2014 for federal authorization for LNG exports.

The 42-inch-diameter pipeline under consideration by the major North Slope producers would carry 3 billion to 3.5 billion cubic feet of natural gas per day. Alaskans would use some of this gas, and running the pipeline and LNG plant would consume some. The plant would make up to 20 million metric tons a year of LNG, the equivalent of 2.5 billion cubic feet a day of gas. That would place it among the world's largest LNG plants.

Sponsors

ExxonMobil, ConocoPhillips and BP, the main North Slope producers, plus pipeline company TransCanada, in March 2012 said they are planning a project to export LNG to Asia, where the gas currently can fetch a much higher price than in North America. The state of Alaska joined the effort in January 2014.

Two of the sponsors — ExxonMobil and TransCanada — in 2010 proposed to build a pipeline to Valdez, with someone else constructing and operating an LNG plant there. They found insufficient customer interest at that time to pursue the project. But the global LNG market has changed since then, and they have taken up the new LNG effort with ConocoPhillips, BP and the state. The project team has selected Nikiski as site of its liquefaction plant and export terminal and has been doing environmental field work and engineering.

Estimated cost

$45 billion to more than $65 billion (2012 dollars).

ExxonMobil, ConocoPhillips, BP and TransCanada say their cost estimate would cover a pipeline from the Point Thomson gas field to Prudhoe Bay, a massive gas treatment plant at Prudhoe Bay, the roughly 800-mile pipeline to tidewater and compressor stations along the way, a liquefaction plant at a Southcentral Alaska site, LNG storage tanks and a tanker terminal.

Gas for Alaskans

The pipeline concept pursued by the oil producers, TransCanada and the state would provide at least five points from which spur lines could be built to provide gas to Alaskans. Utilities, private companies, the state or someone else would need to build spur lines or local distribution lines from the gas-takeoff points; that would not be part of the main-line work.

Status

This chart shows world gas production for 2012.

Source: BP

(Click to enlarge.)

The North Slope producers, TransCanada and state project is in the pre-front-end engineering and design (pre-FEED) phase in which initial design, technical, environmental and commercial assessment work is done. In January 2014, the parties signed a Heads of Agreement document that laid out terms for the state to become an equity owner in the liquefaction plant and to receive its gas royalties and taxes in the form of natural gas rather than as cash. The Alaska Legislature approved a bill in April 2014 that changed state laws to enable negotiations under this agreement. The HOA provides that with passage of this legislation, pre-FEED activities will accelerate. In summer 2014, the project sponsors applied with the U.S. Department of Energy for authorization to export LNG and with the Federal Energy Regulatory Commission to begin the environmental review.

The four companies said in 2013 they expected to have spent $80 million to $100 million on the LNG effort from spring 2012 to the end of 2013. Their limited 2013 field season included work on the northern half of the proposed pipeline route to improve their data on fisheries, stream hydrology, water resources, wetlands mapping and other information they would need to apply for project permits. The team has volumes of other route information gathered in earlier, unsuccessful gas line efforts by the same sponsors.

The companies said the 2014 field season work focused on the southern half of the pipeline route, south of Livengood, and on the liquefaction-plant site. They said the full pre-FEED phase will involve about $500 million in spending by the time it is completed in late 2015 or 2016. Then, each sponsor would decide whether to commit to enter the project's next phase, called front-end engineering and design, or FEED. Activities during FEED include more complete design and engineering work, obtaining government permits, assessing and confirming the project's commercial viability, and negotiating fiscal terms with Alaska state government, all in advance of a decision whether to build the project. The sponsors estimate FEED work could cost billions of dollars to reach a final investment decision on the project, which the sponsors say could come in 2018 or 2019.

Construction would take five to six years, they have estimated.

Pluses

An Alaska LNG-export plant could look something like this conception provided by the SCLNG sponsors.

Source: Alaska LNG

An Alaska LNG-export plant could look something like this conception provided by the Alaska LNG project sponsors: ExxonMobil, BP, ConocoPhillips and TransCanada. (Click to enlarge.)

  • Short-term economic boost to Alaska during construction.
  • With the right project economics, long-term boost as billions of dollars in revenue flows to the state treasury, the Alaska Permanent Fund and local governments along the pipeline route.
  • Southcentral Alaska gets new industry based on LNG exports.
  • Outlet for natural gas now stranded on Alaska's North Slope would spur oil and gas exploration.
  • Relatively inexpensive gas made available for heating and power generation in the Fairbanks area.
  • For Southcentral Alaska, the project likely provides a new, affordable source of natural gas to supplement Cook Inlet's declining supplies.

Problems

  • A very expensive option. High cost makes project risky for lenders that would supply construction financing.
  • Shippers must sign long-term commitments to use the pipeline and liquefaction plant (perhaps 15 or 20 years) and find long-term buyers for the gas in an Asia-Pacific LNG market that other exporters are targeting. Long-term contracts are needed to underpin financing.
  • Intense competition among LNG suppliers for Asia customers and prospects of weaker prices due to a buyers' market in the years ahead.
  • Fairbanks-area energy costs remain relatively high until pipeline is running.
  • Southcentral Alaska could need supplemental source of natural gas before pipeline is finished.

A smaller-scale LNG project

Separately, a Japanese company called Resources Energy Inc. is proposing a smaller-scale LNG plant in Southcentral Alaska. The company was formed in late 2011 by Japan's Hyogo Prefecture, a regional government, as well as other business interests and several small Japanese utilities affected by that nation's nuclear power plant shutdowns following an earthquake and tsunami that year.

As conceived, the smaller-scale plant would cost around $1 billion and make up to 1 million metric tons of LNG per year, or an average of about 133 million cubic feet of natural gas per day, for export to Japan by 2019. The gas would come from potential local production in the neighboring Cook Inlet basin. Later this plant's output could be doubled or tripled, REI says.

In the mid-2020s or beyond, if the North Slope producers, TransCanada and state build a large-scale pipeline that delivers gas to Southcentral Alaska, REI says it could expand the plant's capacity to 10 million to 20 million metric tons per year. The company earlier estimated a 15 mtpa LNG plant would cost $20.3 billion; adding a North Slope gas treatment plant and pipeline would bring total development costs to $38 billion to $45 billion, REI said, though it would prefer that someone else take the lead on those pieces.

REI says it would market the gas in Japan, and that financing would come from Japan. REI says it is working to find investors in its idea. Besides securing buyers, financing and investors, also ahead are engineering and design, government authorizations, environmental impact statements and obtaining natural gas to liquefy.

 

Pipeline to Alberta

United States dry gas production climbs sharply until the early 1970s and then goes down in until the early 1980s, levels off in the 1990s and then rises sharply in the mid-2000s.

Source: U.S. Energy Information Administration

(Click to enlarge.)

This proposal was active until 2012; considerable work was completed in the preceding years.

The project conceived an approximately 1,700-mile, 48-inch buried pipeline from the Prudhoe Bay field on Alaska's North Slope to the British Columbia-Alberta border in Canada. From there, the gas could flow to the Lower 48 via an extensive network of existing pipelines.

The gas pipeline would run parallel the trans-Alaska oil pipeline from Prudhoe Bay to Delta Junction, then continue into Canada roughly parallel to the Alaska Highway. The pipeline would move up to 4.5 billion cubic feet of gas per day.

Estimated cost

$32 billion to $41 billion (2009 dollars).

Sponsor

The project is inactive, as North American shale-gas production has amply supplied the market and deflated prices

The Alaska Pipeline Project (TransCanada and ExxonMobil) spent more than $300 million from the project onset through 2011. The sponsor essentially ended the project in early 2012.

In January 2012, the sponsor filed with the Federal Energy Regulatory Commission volumes of data on fish, wildlife, soils, vegetation, cultural sites, air quality and other information that can be used for the environmental impact statement FERC would prepare. Much of that data also could be used for an EIS on the LNG-project pipeline, because some of the route in Alaska would be same as the route for an Alberta line.

 

Pipeline to Southcentral

A 737-mile, 36-inch buried pipeline from the Prudhoe Bay field on Alaska's North Slope to the Big Lake area north of Anchorage. From there, the gas could flow to consumers, utilities and other industry via the local distribution pipelines of ENSTAR Natural Gas Co. The pipeline also would supply the Fairbanks area.

The line would parallel the trans-Alaska oil pipeline from Prudhoe Bay to just north of Fairbanks, then continue south to Big Lake, roughly parallel to the Parks Highway.

The pipeline would move up to 500 million cubic feet of gas per day. The project also is known as the "bullet line," the in-state line and the Alaska Stand Alone Pipeline, or ASAP.

Sponsor

Alaska Gasline Development Corp., a state agency the Legislature created in 2010. The state-led effort is a backup if the larger producer-led LNG-export project stalls.

Estimated cost

$5.4 billion to $10 billion (2012 dollars). Sponsor is using midpoint of $7.7 billion as a working number.

The cost includes a gas treatment plant at the Prudhoe Bay field to remove propane, butane and other gas liquids as well as water, carbon dioxide and other impurities from the gas, then compress the gas before it enters the pipeline. The cost also includes a separate 35-mile spur line between the main pipeline and Fairbanks.

Project cost does not include a local gas distribution network needed for Fairbanks. The local gas pipeline network already exists in much of Southcentral.

Gas for Alaskans

Gas for Alaskans was the main idea when the state Legislature funded a feasibility study in 2010.

Status

Project information
Sponsor: Alaska Gasline Development Corp.
Estimated cost: $5.4 billion to $10 billion
(2012 dollars)
Route: Parallel the trans-Alaska oil pipeline from Prudhoe Bay to just north of Fairbanks, then continue south to Big Lake, roughly parallel to the Parks Highway.
Gas for Alaskans: That is the main purpose of this proposal. Pipeline would supply Fairbanks and Southcentral.
Status: Design, permitting work under way. Decision on building planned in 2017 or later.

The feasibility study issued in July 2011 provided a preliminary plan. In 2013, the Alaska Legislature appropriated about $355 million to continue design, permitting and commercial work. That's in addition to $72 million in funding for 2010–2012. The Legislature in 2013 also granted the state gas pipeline corporation unlimited authority to issue bonds to pay for construction, with the restriction that the state is not legally or morally responsible for the debt. Bond buyers would be repaid from revenue collected from the pipeline's customers, including utilities and large commercial customers.

Possible timeline

2013–2015 - Project sponsor sharpens engineering and cost estimate, obtains permits.

2015 or later - Customers solicited to ship gas on the pipeline, called an "open season." Customer response will help determine the project's economic viability.

2017 or later - Final decision on whether to build project.

Construction would take an estimated three years, with gas then initially flowing to Fairbanks, followed by gas flows to Southcentral Alaska a year later.

Pluses

  • Short-term economic boost to Alaska during construction of multibillion-dollar project.
  • Assuming the pipeline operates at full capacity and preliminary construction-cost estimates hold true, Alaska's Railbelt consumers could be assured of an affordable gas supply for decades. In Southcentral Alaska, the gas could supplement Cook Inlet supplies used for heating and power generation. Delivering natural gas to Fairbanks could greatly lower that community's high cost of energy.
  • The project might feed the Kenai Peninsula LNG plant. That plant exported gas from 1969 through 2012. It then shut down due to a lack of Cook Inlet gas supply. When more Cook Inlet supply became available, the plant restarted in 2014 under a federal authorization to resume limited exports to 2016.

Problems

  • Requires the state gas line corporation to issue billions of dollars in revenue bonds for construction, and could need direct state funding if the pipeline lacks enough customers to carry the full cost. The state Legislature would need to approve direct financial aid.
  • The construction cost estimate is soft until more engineering work is done. A much higher cost than the midpoint $7.7 billion estimate would alter the project economics.
  • Requires major gas shippers to make long-term commitments to use the pipeline.
  • The project would produce far less state revenue than a larger pipeline for an LNG export project due to the small volume of gas moved.
  • Requires the state to bear all of the pre-construction cost because no private developer will do so.
  • The cost of gas to Alaskans would be higher than gas from the larger LNG export project.
  • The project would not spark as much Arctic oil and gas exploration as the bigger pipeline.
  • The project relies on assumptions about customer demand that must come true to meet the pipeline rates and consumer prices predicted for the project. These include:
  1. A major mine, such as the Donlin gold prospect in Western Alaska, will start up by 2019 and contract for a significant volume of gas down the line.
  2. A utility or utilities will build a local gas distribution pipeline network in Fairbanks by the time the pipeline from Prudhoe Bay is ready.
  3. Cook Inlet gas production will fall to such a point that power plants and the local gas utility in Southcentral Alaska will consume a lot of North Slope gas.
  4. A revived liquefied natural gas export plant on the Kenai Peninsula or other large-volume industrial customer(s) will contract for much of the pipeline's capacity.

Cook Inlet gas

Out of concern that aging Cook Inlet fields might not produce enough gas for local needs after doing so for nearly 50 years, two Anchorage electric utilities and a gas utility in 2011 jointly began considering the idea of importing liquefied natural gas or compressed natural gas to Southcentral Alaska. Other utilities soon joined the effort. In particular, the utilities were concerned they didn't have enough gas supply under contract for coming years.

Since then, their sense of urgency has eased as Cook Inlet producers are stepping forward to offer increased gas production to cover the next several years.

Also, in June 2011 the U.S. Geological Survey said the Cook Inlet region still holds an estimated 19 trillion cubic feet of natural gas that could be produced using current technology.

That's about double the total Cook Inlet gas production over the past 50 years. But how much of the gas could be produced profitably with current technology likely is a much smaller number, possibly as little as 10 percent.

Separately in June 2011, the Alaska Division of Oil and Gas estimated that Cook Inlet alone could continue to profitably supply all of the region's natural gas needs until 2018–2020, at which time supplemental supplies would be needed. The study said the gas industry must continue investing in the Inlet for this prediction to hold.

The state Legislature in recent years has approved incentives to boost Cook Inlet gas exploration and production.

New players, led by Hilcorp, which acquired Chevron and Maraton's holdings in Cook Inlet, have boosted oil and gas production.

In 2010, state lawmakers passed tax credits and other incentives to encourage development of an underground gas storage facility on the Kenai Peninsula. The goal was to help utilities meet peak winter demand by storing surplus spring-and-summer production. Such a storage site opened in 2012.

Gas to Fairbanks by truck

Ideas have been floated for getting North Slope natural gas to the Fairbanks area, where energy costs are much higher than in Southcentral Alaska and only a little natural gas is available, via truck deliveries from a privately owned LNG plant north of Anchorage.

Project information
Sponsor: Alaska Industrial Development and Export Authority
Estimated cost: $430 million-plus
Route: Trucks would transport the LNG down the Dalton Highway from Prudhoe Bay to the Fairbanks area.
Gas for Alaskans: This project would bring gas only to the Fairbanks area initially.
Status: $363 million state cash-and-loan package available. Companies have been selected to both to build and operate a North Slope LNG plant and to expand the local gas-distribution system in the Fairbanks area.

In 2013, the Alaska Legislature approved a $333 million cash-and-loan package requested by Gov. Sean Parnell for a small-volume North Slope LNG plant as well as storage and distribution infrastructure in the state's Interior. A year earlier, state lawmakers approved $30 million in tax credits for the LNG storage tanks the Fairbanks area would need to receive trucked deliveries. Escalating heating-oil bills in the Fairbanks area prompted the state to act.

With private money added, the Interior Energy Project, as the state named it, could total $430 million or more. This total would include building gas distribution pipelines in a limited area of the Fairbanks region; the state estimates expanding the grid could cost an additional $200 million.

At the center of the funding is the Alaska Industrial Development and Export Authority, a state agency that supports economic development. With the state's financial assistance for the project, AIDEA believes LNG will be more affordable than oil-based fuels.

AIDEA would use the $57.5 million cash appropriation from 2013 for an equity stake in the LNG plant and perhaps other aspects of the project. AIDEA also is authorized to lend $125 million at a low interest rate and issue on the open market $150 million in other low-interest debt to raise money for the project.

The plan is for a private operator or operators to:

  • Build the gas liquefaction plant on the North Slope.
  • Own and operate a fleet of LNG delivery trucks running between the plant and Fairbanks. The trucks were not included in the state's cost estimate for the project.
  • Build and operate aboveground LNG storage tanks.
  • Build and operate "regasification" equipment to warm the gas back into a vapor and feed it into a distribution grid for delivery to residences and businesses around Fairbanks.

The LNG plant would be designed to process up to perhaps 6 billion to 9 billion cubic feet of gas a year — 16 million to 25 million cubic feet a day — depending on the forecasted ramp up of Fairbanks-area demand.

In January 2014, the AIDEA board chose global infrastructure firm MWH Americas Inc. to develop and run the LNG plant at Prudhoe Bay. MWH proposed to invest $82.5 million in equity and debt. MWH needs to lock in a gas supply from North Slope producers as well as buyers for the gas before building the plant.

The LNG would be used as a fuel to heat buildings, including homes, and generate electricity.

The project sponsors foresee three main customers:

  • Fairbanks Natural Gas, a small, privately owned local utility that already has a limited pipeline network in the city of Fairbanks. The company now distributes LNG trucked from Southcentral Alaska.
  • Interior Gas Utility, a new utility that the cities of Fairbanks and North Pole set up in 2012 and that the Fairbanks North Star Borough eventually took over. In December 2013, the Regulatory Commission of Alaska chose this utility over Fairbanks Natural Gas to provide gas to North Pole and other somewhat densely populated areas outside the city of Fairbanks. Interior Gas plans to install a local gas-pipeline distribution system to be ready when LNG deliveries begin. The North Pole population totals only a little more than 2,000 people, but a sizable power plant is there.
  • Golden Valley Electric Association, the regional power company with a generating plant in North Pole that currently burns diesel and naphtha. The naphtha turbine could be converted to burn natural gas instead.

In 2014, the outlook for Fairbanks demand became fuzzier. Flint Hills stopped processing crude oil at its North Pole refinery. Flint Hills could have been an important industrial customer of the trucked-LNG project, substituting less expensive natural gas for oil to fuel its operations. Flint Hills also has been an important commercial customer of Golden Valley, including as naphtha supplier to the power utility's North Pole plant.

AIDEA says that if the proposal's many parts come together easily and quickly, the first LNG could move to Fairbanks in 2016. But AIDEA acknowledges that schedule is "aggressive." And the agency says it is exploring alternatives, such as burning Cook Inlet gas in the Fairbanks area.

Federal Coordinator Larry Persily contributed to this article.