Nikiski will be the site of an $86 million pilot plant to test technology for turning natural gas to high-quality synthetic crude oil, BP Amoco announced Monday.
"The test facility in Nikiski will be a research project rather than commercial development," said Richard Campbell, president of BP Exploration (Alaska) Inc.
Researchers still must do considerable work to prove and refine the process BP Amoco developed with Kvaerner Process Technology Ltd., he said. However, Campbell said he believes the new technology will cut the cost of turning natural gas into synthetic crude by up to a fifth, and that could make it feasible to develop North Slope gas.
Ken Konrad, leader of the company's Alaska Gas Group, said construction of the pilot gas-to-liquids plant will begin in about six months off the Kenai Spur Highway a mile south of the Tesoro Alaska Co. refinery. Large vessels, compressors and complex equipment will be manufactured Outside, he said, but the rest will be built in Alaska using local materials, contractors and labor to the greatest extent possible.
Construction will employ a peak of 200 to 250 people. Once it is done, the plant will employ 10 or 12 full-time operators and an equal number of maintenance and support workers, he said. The plant should open in the second quarter of 2002.
"Boy, isn't that great news?" said Bill Cheek, president and chief executive of Natchiq Inc., whose subsidiary Alaska Petroleum Contractors assembles oil field production equipment in Anchorage and Nikiski. The Nikiski yard has found little work since assembling equipment for the Alpine oil field on the North Slope.
"What I hope it means is that we'll be able to compete for possibly the engineering and construction of the project," Cheek said.
Natchiq could do much of the work at its Nikiski yard, he said.
Sen. Jerry Ward, R-Anchorage, said the project is good for Alaska, the Kenai Peninsula Borough and Nikiski.
"We certainly needed a shot in the arm for our community," he said. "This is a big one."
Campbell said the project demonstrates BP Amoco's commitment to developing North Slope natural gas. Gas-to-liquids technology uses chemical processes to convert natural gas to a stable liquid fuel. If the new process proves viable, he said, BP Amoco could build a much larger plant on the North Slope to convert natural gas to a liquid that could be shipped through the existing oil pipeline to Valdez.
However, the company is exploring other options, too. It is part of an industry consortium exploring the feasibility of a pipeline to bring North Slope gas to Nikiski or Valdez, where it could be cooled to a liquid -- liquefied natural gas, or LNG for short -- for shipment to Asia. It also is exploring the feasibility of a pipeline to move natural gas to the Lower 48 states.
Campbell said market forces will determine which methods BP Amoco uses.
"The competition for North Slope gas will be if the (Lower 48) gas line can deliver higher value at the well-head than either LNG or gas-to-liquids. That's what the gas-to-liquids will be competing against," he said. "What we want is the technology to do any of those three options."
Konrad said the company considered the North Slope and Nikiski as sites for the pilot gas-to-liquids plant. Nikiski offers a skilled work force, a mature process maintenance industry, easy access and better weather. BP Amoco likely will buy electricity from Homer Electric Association, he said. Existing pipelines will allow it to buy natural gas from Enstar or Cook Inlet producers.
Each day, the pilot plant will convert 3 million cubic feet of natural gas into 300 barrels of synthetic crude, which later could be refined into jet fuel, diesel or other fuels.
Tesoro could buy the output, Konrad said. Ron Noel, vice president for Tesoro Alaska, said the Nikiski refinery produces more than 50,000 barrels of refined products daily and easily could absorb the pilot plant's production.
Konrad said a prime goal of the pilot plant is to bring down costs. Technologists hope to to prove and refine the technology, learn how to mass-produce the plant's component parts and explore markets.
Oil companies generally must produce crude at a cost of no more than $5 per barrel to compete on the world market, he said. He estimated that existing gas-to-liquids technology could produce synthetic crude for about $10 to $15 per barrel.
The new technology could cut a fifth from the cost, he said. Meanwhile, synthetic crude is nearly free of many polluting compounds found in natural crude. As people demand cleaner fuels, he said, it may be cheaper to produce synthetic crude than to refine the natural variety.
BP Amoco will run the pilot plant for about three to eight years, he said. After that, it may test other processes there or tear down the plant. Managers have not decided where to build a commercial-scale plant if the process proves viable, he said, but there is not enough room on the present 23-acre site in Nikiski.
Kenai Peninsula Borough Mayor Bagley said there is more land available nearby.
"I don't think space is probably the issue," he said. "I'm sure it's the availability of natural gas."
BP Amoco could build a full-sized plant on the North Slope, he said, but if the North Slope gas line comes to Nikiski, managers could consider building one here. Konrad said a full-scale plant might produce 50,000 to 100,000 barrels of synthetic crude per day.
Ward said the gas-to-liquids plant could help bring the North Slope gas line to Nikiski.
"They don't want to rule out going through Canada or to Valdez, but this definitely puts Nikiski on the map," he said.
BP Amoco announced its plans the same day Forcenergy Inc. towed its new Cook Inlet oil platform to a site near West Foreland. Jack Brown, who represents Nikiski on the borough assembly, said Campbell's announcement was the best news he has heard in at least a decade.
"Along with Forcenergy, it looks like a bright future again for Nikiski, and if this in some way adds the the possibility of the (North Slope) gas pipeline coming here, it's a bigger project than people think."
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