BP Amoco to build $86 million GTL test plant

ANCHORAGE (AP) -- BP Amoco will build an $86 million plant to test whether turning methane gas into synthetic crude oil is commercially viable, company officials said Monday.

The gas-to-liquids (GTL) plant will be built in Nikiski about one mile south of the Tesoro refinery on the Kenai Peninsula. The plant is designed to convert 3 million cubic feet of Cook Inlet natural gas into about 300 barrels of synthetic fuel a day. It is to be operating in 2002.

''Our ultimate goal is to see commercial gas sales in 2005 to 2010,'' Richard Campbell, president of BP Exploration (Alaska) Inc., said at a news conference in Anchorage.

The plant will employ a new technology that lowers the cost of converting gas to liquid, said Ken Konrad, business unit leader for BP Exploration. The three-step process is cheaper than other methods because it uses air instead of oxygen to make the conversion, he said.

The technology was developed over the last few years at BP's Warrensville, Ohio, and Sunbury, United Kingdom, research centers in collaboration with Kvaerner Process Technology Ltd., a member of the Kvaerner group, one of the world's largest engineering contractors.

If the conversion proves commercially viable, it could define the future for an estimated 40 trillion cubic feet of natural gas on Alaska's North Slope and the MacKenzie River Delta. The gas comes up from the ground with the oil, but with no way to bring that gas to market, Prudhoe Bay producers now pump 8 billion cubic feet of gas a day back into the ground.

Campbell said it would be possible for the existing trans-Alaska pipeline to ship the gas as a separate product.

''BP's announcement today is good news for Alaska. It underlines the enormous potential of Alaska's huge natural gas reserves, which has gained renewed international interest as a result of high natural gas prices and dwindling domestic supply,'' said Claire Richardson, Gov. Tony Knowles' deputy press secretary.

The market for synthetic crude oil and the various clean-burning fuels it can be converted into, could be huge. Synthetic crude oil can be ''tweaked'' to make clean-burning fuels, including white crude, jet fuel and even a substitute for lead-free gasoline, Konrad said.

To produce synthetic crude, natural gas is processed through a compact reformer, a catalytic gas-fired furnace that creates carbon monoxide and hydrogen. It then is converted to paraffin wax and broken down with hydro-cracking equipment to create synthetic crude oil.

The company began exploring the process in the early 1980s. Nearly a decade later, it had a breakthrough in the compact reformer technology and by 1998 had completed the ''final recipe,'' Konrad said.

''The key thing now is to test and validate the technology,'' he said.

It could take a year or two to find out if the venture is commercially viable.

''That is our challenge. We need to get our cost structures in line to where the markets take us,'' Konrad said.

The company hopes to bring down costs by fine-tuning the process and finding a cost-efficient way to manufacture compact reformers for commercial use.

BP Amoco will begin site preparations for the plant this fall with construction slated to begin early next year. About 200 people will be employed during the construction phase and about 25 workers will be needed when it is operational.