A pipeline to the Lower 48 likely will be the first project to bring North Slope natural gas to market, a top Phillips Alaska Inc. executive said Friday.
That may seem like sour news to proponents of a North Slope pipeline to Nikiski, where the gas could be cooled to a liquid for shipment Asia.
However, there are 30 trillion feet of known North Slope reserves, Henry McGee, senior vice president for Phillips Alaska, said during an Alaska State Chamber of Commerce forum in Soldotna titled "Natural gas & missile defense -- the brink of an economic boom."
He said there is plenty of gas for a Lower 48 pipeline, a liquefied natural gas project and a gas-to-liquids plant, which would convert gas into synthetic diesel or other fuels.
"You shouldn't think about it as an either-or proposition," he said. "We should always be thinking of it in terms of the synergies we could create through multiple types of projects."
An LNG project and a pipeline to the Lower 48 could share the billion-dollar cost of a plant to remove carbon dioxide from the gas, he said. A pipeline to tidewater could fuel a gas-to-liquids plant, an LNG plant and other industries.
McGee said producers have long used North Slope gas to pressurize oil fields and boost production.
"My best estimate is that over the last 15 years, the gas has increased oil production by about 2 billion barrels," he said. "But we're coming to the end of that time. By 2005 or 2006, the gas will probably only add another 300 million barrels."
Now, he said, it may be more profitable to market the gas.
"There's basically three markets that Alaskan gas can access," he said. "If you had to make a call, the enthusiasm is for the Lower 48."
The Lower 48 states already consume 60 billion cubic feet of natural gas per day, he said, and demand is expected to rise by 33 percent in 20 years.
That dwarfs the other potential markets. By McGee's figures, the synthetic fuel made from just 4 billion cubic feet of natural gas per day would meet present West Coast demand for diesel. East Asian LNG consumption amounts to just 10 billion cubic feet of natural gas per day.
Previously, it was impossible to move North Slope gas to the Lower 48 at competitive prices, but now, the competition is in decline. John Ellwood, vice president of engineering and operations for Foothills Pipe Lines Ltd., said western Canada gas production shows signs of decline despite numerous new wells. McGee said Gulf of Mexico gas production is declining faster than expected.
"We're seeing a much more bullish price environment," he said. "So I think the attention of all the producers, a lot of interested parties, is turning much more toward the Lower 48 option."
Ellwood said Foothills has permits for a gas line to Fairbanks, then down the Alaska Highway to the Canadian system, which connects to Lower 48 pipelines. Construc-tion of the Alaska portion would cost $3 billion and the pipeline also might supply petrochemical, gas-to-liquids or LNG plants.
Natural gas brought a petrochemical boom to Alberta. Alberta has just 8 percent of Canada's population, Ellwood said, but it accounts for 30 percent of Canada's natural gas, largely because of demand from the petrochemicals industry.
"That's one of the things we'll be looking at," McGee said. "I think we would be crazy not to look into having a spur (to Cook Inlet). That could fuel business, residential and industrial use, and you clearly would want to evaluate the costs vs. the benefits of building something big enough to accommodate LNG."
A competing Lower 48 route would run offshore from Prudhoe Bay to the Mackenzie River delta, then south to the Canadian system. However, that would not bring as many benefits for Alaska, Ellwood said.
Rep. Gail Phillips, R-Homer, said she lobbied hard for the Alaska Highway route. There is no way Alaskans will accept an offshore line to the Mackenzie delta, she said.
"There's no reason, as we develop the gas, as we come to Fairbanks, that we can't have a pipeline to Kenai and one to the Lower 48," she said. "We can entice new industry to Alaska if we have a cheap energy source."
A gas line to Fairbanks would open the possibility to barge compressed natural gas from Nenana to villages as far as the mouth of the Yukon River.
"If you put a Canadian pipeline, the availability of compressed gas to the villages and surplus gas to the Kenai Peninsula and encourage industry, all of a sudden, you have a project that's economically viable," she said.
McGee said he is more optimistic than ever before about the prospects for commercializing North Slope gas.
"The markets are here. I think we have the wherewithal among all of the producers and from the pipeline companies to make this happen," he said. "I would fully expect that before the end of the decade, we'll have a viable project up and running."
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