Hilcorp details plans for cross-inlet oil pipeline

By fall 2018, oil produced by Hilcorp on the west side of Cook Inlet could be traveling by pipeline instead of barge, according to a plan for a cross-inlet oil pipeline introduced by Hilcorp Alaska Vice President David Wilkins in May. Operations manager Richard Novcaski of Hilcorp’s pipeline-owning subsidiary Harvest Alaska provided details at a Wednesday Kenai Chamber of Commerce luncheon.

 

“The general concept, is to create a swap of capacity,” Novcaski said.

The plan would repurpose an existing cross-inlet natural gas pipeline as an oil pipeline, and use part of an existing pipeline to transport the displaced gas. In all, the design — estimated to cost about $73 million — would require only about 9 miles of new pipe to be laid.

Novcaski said various companies have planned to replace cross-Inlet barge traffic with a pipeline since he began working in the Alaska oil and gas industry in the 1980s. In 2012, Cook Inlet Energy planned to build a 29-mile, $53 million pipeline connecting the East and West Forelands areas of Cook Inlet. A Tesoro subsidiary took over the project from Cook Inlet Energy in November 2013, but it remains unrealized.

“I don’t think it ever got past the conceptual engineering,” Novcaski said.

Novcaski said Hilcorp will be able to cross Cook Inlet more efficiently because most of the necessary pipe already exists. Under the plan, the cross-inlet section of the Hilcorp-owned Kenai Beluga natural gas pipeline, which travels 137 miles between Ninilchik and Beluga and carries gas beneath the Inlet through a pair of 10 inch diameter pipes, will become a west-to-east oil pipeline.

This section belongs to a subset of Hilcorp’s pipeline system known as the Cook Inlet Gas Gathering System, or CIGGS. Novcaski said it was built in 1984, making it one of the younger pipelines in Cook Inlet, where much of the oil and gas infrastructure was created in the 1960s.

“It’s in the great shape, it’s in like-new condition,” Novcaski said. “It really fit the role for an oil pipeline across the Inlet.”

After this pipeline is converted from gas to oil, gas will flow instead through a pipeline that presently connects the offshore Tynonek platform to Cook Inlet’s east side. There’s no existing connection between Tyonek Platform and the west shore, however, and creating one will require Hilcorp to build about 6 miles of new pipeline that will come ashore at Ladd Landing, a Kenai Peninsula Borough-owned property about 4 miles north of Tyonek, and from there connect with the existing Beluga Pipeline that travels north to the Matanuska-Susitna Valley and Anchorage. Hilcorp bought the Tyonek Platform and its pipeline from ConocoPhillips in November 2016, with the cross-inlet pipeline plan in mind, Novcaski said.

“With the acquisition of the Tyonek Platform, we got piping that was two-thirds the way across the Inlet,” Novcaski said. “So it significantly shortened the amount of pipe we had to install.”

The pipe for the extension is expected to arrive in Anchorage in October, Novcaski said, and be assembled into six mile-long segments on the Ladd Landing beach during the winter. In the spring, a barge will drag the segments into the water and connect them — ideally in the spring before set-net fisherman begin using the beach, Novcaski said.

“By fall, we’ll be doing our testing, and late summer is our goal to begin moving first oil across the inlet,” Novcaski said.

Changes in the gas market are also making it more feasible to repurpose this infrastructure. Since the pipeline system was created, “the dynamics of gas movement in the Inlet have changed,” Novcaski said. The pipeline that Hilcorp now plans to use for oil once brought gas from west-side fields to the large industrial gas consumers on the east side: the Agrium fertilizer plant and ConocoPhilips’ liquefied natural gas (LNG) export terminal. Agrium closed its plant as Cook Inlet’s gas supply dwindled in 2007. The ConocoPhillips LNG plant stopped exporting gas in 2015, and is presently mothballed and for sale. Without this demand, most buyers in Cook Inlet’s gas market are heating and electrical utilities with many customers in Anchorage and the Matanuska-Susitna Valley.

Production from west side gas fields is also declining, requiring that Hilcorp supplement that source from gas from Kenai and Ninilchik fields. For the last several years, Harvest has been sending gas from the east side of the Inlet to the west via a connection with the Beluga Pipeline, which supplies gas to Matanuska Electric Association, Fairbanks Natural Gas, Anchorage’s Municipal Light and Power, and other utilities.

Drift River Terminal decommissioning

The oil Hilcorp produces on the west side of the inlet is presently collected via pipeline at the Drift River Oil terminal and barged across the inlet to the Andeavor Refinery in Nikiski (previously known as the Tesoro Refinery). The Drift River terminal has drawn criticism from conservationists and oil-spill concern groups both for the inherent spill risk of transporting large amounts of oil by ship, and for the fact that it sits near the base of Mount Redoubt volcano and has been threatened by mud flows in past eruptions.

The pipeline to Drift River collects oil from two other facilities — the Trading Bay Production Facility and the Granite Point Tank Farm — which in turn collect it from offshore platforms. Hilcorp’s plan would reverse the flow of oil from Trading Bay and Granite Point into the cross-inlet pipeline, cutting off Drift River. When this is accomplished the Drift River terminal will be decommissioned — a job Novcaski expected to cost about $20 million.

“If we can get oil going across the Inlet next fall, our intent is to pump down Drift River, get as much product out as we can before winter — so it’s just down to residual oil in the pipes and tanks,” Novcaski said. “At that point, we’ll be planning to come back the next spring and clean everything… Then it’ll all be decommissioned.”

Novcaski said the barge terminal at Drift River, known as the Christy Lee loading platform, will probably be left intact for a while after the rest of the structures are taken down.

“We’ll probably lighthouse that until we take out some of the other platforms in Cook Inlet, just because the cost of marine mobilization is pretty expensive,” Novcaski said. “There’s some older platforms out there that are shut in, so there might be some synergy around coming up and doing some platforms at the same time.”

Barging oil across the Inlet costs about $3 per barrel, Novcaski said. Moving it by pipeline could drop this transport cost by as much as $2 per barrel — in the long term, extending the economic life of Cook Inlet oil fields by up to 20 years, he said.

“The reality is, it looks like oil is here to stay at this price level, and we believe this project is economic at these prices,” Novcaski said. “If we don’t do it, I think it’s unlikely we’d stay in business as long as we would with it.”

Reach reporter Ben Boettger at benjamin.boettger@peninsulaclarion.com.

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