BP's experimental GTL plant to operate in two months

Posted: Monday, January 27, 2003

ANCHORAGE (AP) -- BP hopes to begin operations at its experimental gas-to-liquids plant in Nikiski in the next two months.

The goal of the $86 million plant is to figure out how to cheaply turn natural gas into a liquid. Solving that problem could finally liberate a mother lode of natural gas from the North Slope and could help extract natural gas from other remote areas of the world.

''Everybody's excited. We've got great people out here to test this technology,'' Len Seymour, a BP manager, told the Anchorage Daily News.

The know-how to do such a conversion has been around for decades, but no one has yet figured out how to do it cheaply and on a large scale.

Many think that's about to change. BP and other major oil companies including Chevron Texaco, Shell, Exxon Mobil and Conoco Phillips all are taking an interest in so-called gas-to-liquids (GTL) technology. Smaller companies, university scholars and the U.S. Department of Energy also are chasing the idea.

A double prize is up for grabs. The first is a new way to get so-called stranded gas to market, gas that might otherwise remain stuck in the ground for lack of a practical way to transport it. The second is the wide range of clean, sulfur-free goods that can be made from GTL, including diesel and naphtha, a raw material for making gasoline.

''The future is very, very bright with this technology,'' says Godwin Chukwu, a University of Alaska Fairbanks petroleum engineering professor and GTL expert.

In the gas-to-liquids process raw natural gas to converted to white crude. It's clear like water, needs no special cooling or pressure to remain a liquid, and can flow down an ordinary oil pipeline to market.

Once it begins operating, the Nikiski plant will take in 3 million cubic feet of Cook Inlet natural gas each day and convert it to 300 barrels of white crude, which will then be hauled to the Tesoro refinery in Kenai.

The BP plant will employ about 20 people, and BP is partnering in the experiment with a London-based, Russian-owned company called Davy Process Technology.

The plan is to run the GTL plant only 18 months or less, gather as much experience and operating data as possible, then tear it down, says Dave MacDowell, gas spokesman for BP Exploration (Alaska) Inc.

The goal is to greatly boost the efficiency of GTL technology to reduce the substantial loss of gas in the process and also cut the size and cost of such plants.

If successful, this test plant could lead to far larger, commercial GTL plants capable of making 300,000 barrels a day or even more.

Other big oil companies, ''a lot of them,'' are racing to perfect their own GTL secrets, Chukwu says.

The reason for the race is the potential market value of the world's remote, stranded gas assets. Very often, this gas is in the vicinity of existing oil pipelines but is left in the ground for lack of a way to move the gas to market.

If all this gas could be converted economically to a liquid, it could flow through those oil pipelines. The trans-Alaska oil pipeline would need very little modification to accommodate GTL, Chukwu says.

Chiefly, only some new storage tanks at Valdez would be needed, he says. The GTL could simply be blended in with the oil or, better, it could be sent down in discrete slugs or batches.

''This is a big deal if it happens,'' says Dale Nesbitt, an energy consultant in Los Altos, Calif. ''There's huge, just absolutely phenomenal, reserves of stranded gas around the world. It's ridiculous how much gas they have in the former Soviet Union with no market.''

So far, there are no large, commercial GTL plants in the world.

The Nikiski plant does not mean BP is aiming to build a large GTL plant on the North Slope, company spokesman MacDowell says.

BP continues to support building a pipeline down the Alaska Highway and across Canada as the best way to bring North Slope gas to market, he says.

Other factors also could delay GTL. Oil prices must stay high enough to justify the costs of converting gas to a liquid. A November 2001 study from the Baker Institute at Rice University said the breakpoint for GTL profitability is $15 to $20 a barrel, with BP regarding $20 as the minimum profitability threshold. That's higher than the historic price of oil but lower than the price for the last three years.

Another question is whether it's smart, just now, to start converting gas to liquid. The reason is that much gas is needed on the North Slope to flush out more oil from porous rock in Prudhoe Bay, Kuparuk and other fields. If major gas sales began in 2005, some 400 million barrels of oil could be stranded, the Energy Department says.

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