Future of state's LNG plant to flame out?

Posted: Sunday, July 19, 2009

The liquefied natural gas plant in Nikiski has faithfully chilled Cook Inlet natural gas to liquid form and shipped it to Japan for 40 years, never missing a shipment.

But now the plant's future is uncertain, at least in its present form.

That's a concern for Southcentral Alaska home and business owners. The facility plays a vital role in keeping natural gas flowing to furnaces and power plants during winter cold snaps.

The LNG plant is the last of Alaska's major value-added manufacturing industries for export. Everything else, from Southeast Alaska's pulp mills to a major fertilizer plant, have gone by the wayside.

The gas liquefaction plant could join that list when its federal export license expires in March 2011. If this happens, it will also cost the Kenai Peninsula about 50 high-paying positions and 20 or so contract positions. This after the loss of 150 jobs two years ago, when the fertilizer plant owned by Agrium Corp. ceased operations.

But the plant could play some new, as yet undefined, role in assuring Southcentral's gas supply.

Backstop supply?

If the plant simply closes, there's nothing on the horizon in the short term to take its place as a backstop for regional gas supplies except, ironically, imported LNG.

There are plans for a bullet line to bring North Slope gas south to the Anchorage area, but that will take years, assuming it is feasible.

There's also gas to be found in Cook Inlet, but there seems to be a complex web of obstacles blocking the drill rigs; high costs, lack of access to prospective acreage and regulatory hurdles among them.

For at least the next 22 months, the LNG plant is a safety net for heat. Producing wells in the region's gas fields can't produce enough to supply the local gas and electric utilities during very cold weather. Under an agreement with the utilities, ConocoPhillips Alaska Inc. and Marathon Oil Co., the LNG plant owners, divert gas to the utilities that otherwise would have been liquefied for export.

If the LNG plant weren't there, wouldn't more gas be available for the utilities?

Probably not. Gas wells must produce at a steady threshold to retain the capability to cycle up to meet mid-winter peaks in demand. The plant provides a steady, year-round customer for the gas field producers, which the wells produce at a steady rate and then cycle up to meet the peak.

Absent the steady demand from the LNG plant, the gas well would serve mainly the utilities, which require about 150 million cubic feet per day in summer but more than twice that in winter. That much up and down in the production rates would likely damage the gas wells, petroleum engineers say.

The LNG plant doesn't have to shut down if the export license is lost. There are options, including a continued role in supporting local gas supply, according to Peter Micciche, ConocoPhillips' asset and operating integrity superintendent. Components of the facility, such as the three LNG storage tanks and marine loading facilities, could be used other ways.

LNG equals efficient storage

LNG is actually an ideal way to store gas for use to meet peak demands. It can be vaporized fairly quickly so gas is available on short notice. This is in contrast to other ways of storing gas, such as in depleted reservoirs, where the gas can be withdrawn but not quickly.

For these reasons, LNG units in many sizes are now commonly used to meet peak gas demand needs in the Lower 48, Micciche said. LNG is stored and used to supply a diversified portfolio of natural gas demand from large municipalities in the northeastern U.S. and small rural pipeline networks, to isolated manufacturing plants and even large ranches in the Lower 48.

In Alaska, LNG is trucked from a small gasification plant in the Matanuska-Susitna Borough to Fairbanks, where it is regasified for local distribution. On the drive from the Mat-Su to Fairbanks, LNG trucks supply the Talkeetna Lodge, where stored liquefied gas is vaporized and used for heating, Micciche said.

LNG is also increasingly used to fuel vehicles, its attraction being superior environmental qualities over motor fuel. It is more compact than compressed natural gas, which is an alternative way to fuel vehicles with natural gas. Waste Management Inc. is a major U.S. refuse disposal operator that runs hundreds of garbage trucks on LNG.

In Dallas, Houston, El Paso and Los Angeles, municipal and airport bus fleets are fueled with liquefied gas. LNG also is used to power train locomotives.

The fuel is safe, too. Methane, the main component of natural gas and LNG, is difficult to ignite and impossible to explode in the open air. A confined area increases the risk, which is why such facilities are designed in the open. A LNG spill in the open poses little fire danger and quickly evaporates, Micciche said.

The global safety record of LNG has been impressive.

Companies quiet on plans

ConocoPhillips and Marathon Oil aren't saying anything about their plans for the LNG plant, however. The facility is operating under a two-year extension on its federal liquefied gas export permit, which would have expired in 2009. The permit allows shipments of LNG until March 2011.

In theory the plant could ship LNG to domestic U.S. markets on the West Coast, but there are no LNG receiving terminals on the coast, as yet. Also, there are no U.S.-built LNG carriers available that would comply with the Jones Act, a federal law requiring shipments from one U.S. port to another to use vessels built in American shipyards.

The companies could apply for another two-year extension on their permit, but Cook Inlet gas reserves are in decline, and a condition to the U.S. Department of Energy's approval of an export permit extension requires a showing that gas supplies are surplus to regional gas needs. Given the depletion of the gas fields, that showing may be difficult to demonstrate.

If the plant closes and LNG needs to be imported into Cook Inlet to supplement local gas production, and until North Slope gas is available, some of the facilities of the plant might be used in an import/LNG regasification project. Whether that is feasible is unknown.

The size of the plant requires it to operate at a certain volume to be efficient, so using the turbines and other equipment to make small quantities of LNG, or to operate in a start-and-stop "batch" model would probably not be economic, Micciche said.

Plant performance

Although its future is up in the air, the LNG plant continues to chill gas and ship LNG as it has for 40 years, hardly missing a beat.

As gas supplies wind down and gas is diverted to the utilities during cold weather, the amounts of LNG being shipped to Japan are down to less than half of what they were in previous years, Micciche said. The plant only requires one ship now, down from two.

Here's how the LNG process works: Natural gas is produced for the Nikiski LNG plant from the North Cook Inlet offshore field operated by ConocoPhillips and onshore Kenai Peninsula fields operated by Marathon Oil. The Tyonek offshore platform was constructed in the North Cook Inlet field in 1968.

Two sub-sea 13-mile, 10-inch parallel pipelines were built from the platform to shore to connect with a 30-mile, 16-inch pipeline built down the west shore of the Kenai Peninsula to the LNG plant.

Marathon Oil also built an 18-mile, 20-inch pipeline to connect the plant with its gas producing wells on the peninsula.

At the plant, raw gas is received as more than 99 percent methane and is processed to remove water, carbon dioxide and other impurities, according to information provided by ConocoPhillips.

The purified gas enters the Phillips Cascade System, a patented LNG process the company developed, which consists of three chilling cycles using different refrigerants -- propane, ethylene and methane -- in proper order through the processing cycle. Each cycle reduces the temperature until the gas nearly liquefies.

The sub-cooled methane is then "flashed" or subjected to a reduced pressure, to produce LNG at approximately atmospheric pressure. This changes the natural gas from a vapor to a liquid and shrinks the gas to less than 1/600th of its original volume, making long-distance shipping feasible.

As Micciche explained, the natural gas to LNG phase change allows the approximate volume reduction from a large beach ball of natural gas into a golf ball of LNG containing the same energy.

The LNG, now at nearly minus-259 degrees Fahrenheit, is transferred into three, heavily insulated, 225,000-barrel storage tanks. While in storage some LNG "boils off," which maintains the remaining LNG at its liquid temperature. The boil-off also provides fuel for the turbines that drive the plant's large refrigeration compressors.

The final step in the process is loading LNG on the tankers. Each ship can be loaded in about 18 hours and, if fully loaded, leaves Kenai with 555,000 barrels of LNG. Liquefied natural gas is less than half as dense as water, is colorless, odorless, non-toxic and sulfur-free. The LNG is stored at receiving terminals as a liquid and vaporized as needed for use as a fuel.

The natural gas business

The making and transporting of LNG is another step in the history of the natural gas industry, which is actually recent compared to crude oil and refined liquid oil products.

Until well into the 20th century, natural gas was considered a nuisance byproduct of crude oil production, which at the time was more valuable. Marathon and Phillips Petroleum (now ConocoPhillips) were among the first companies to recognize the potential of gas, according to information provided by the companies. Marathon had found large reserves of gas in Wyoming in 1915 and in the 1920s pioneered the development of gas pipelines to bring gas from remote areas to markets.

In the 1920s Phillips Petroleum developed the business of extracting valuable natural gas liquids like propane and butane from raw natural gas for use in gasoline and other products. In the 1930s, Phillips went on to develop the liquefied petroleum gas (LPG) business. Today LPG is an economical fuel for rural areas and is also used as a "green" motor fuel, touted for its cleaner environmental qualities.

The first experiments on cooling natural gas to a liquid were carried out by other U.S. companies in 1937 and the first experimental transportation of LNG was done by ship in the early 1950s. By 1964 and 1965 LNG was being supplied to the United Kingdom and France from gas fields in Algeria.

Four years later, in 1969, the first long-distance transportation of LNG was initiated in Alaska. The regasification of the LNG at the receiving end also involved firsts for the Alaska venture. The facility designed and built for the customers, Tokyo Gas Co. Ltd. and Tokyo Electric Power Co. Inc. in Negishi, south of Tokyo, was the first such plant built in Asia.

Few Alaskans realize today what a pioneering industrial initiative the LNG plant was when it was built in the late 1960s. The plant is not only the first and still the only U.S. LNG plant built for liquefaction export but it was also the first to attempt long-distance shipments of LNG, from Alaska to Japan.

At that time LNG was being shipped for short distances, such as from North Africa to Europe, but not across thousands of miles of ocean. Kenai was to demonstrate the potential for a global LNG business, and today liquefied gas is being shipped around the world. In fact, the longest-distance LNG ocean shipment was made recently, from Norway to Japan.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

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