DOE to study LNG for Southcentral

Posted: Wednesday, October 12, 2005

The U.S. Department of Energy has awarded a $500,000 contract to Science Applications International Corp. to take a more detailed look at future natural gas demand in Southcentral Alaska.

The study also will consider imports of liquefied natural gas as an alternative in meeting the regional gas demand if a spur pipeline bringing North Slope gas to the region is uneconomic, or if discoveries of new gas in the region can't keep up with demand.

Bill Lawson, an official in DOE's National Energy Technology Laboratory, said the primary purpose of the study is to define the need for gas which could be supplied to the region through a spur pipeline to deliver North Slope gas south. Information from the study will be used in determining the economic feasibility of a spur pipeline, Lawson said.

SAIC previously managed a DOE study on gas supply in the Cook Inlet region that was released in 2004. That work highlighted possible regional shortages of gas, Lawson said.

Charles Thomas, who headed the study on Cook Inlet gas supply, will lead the study of gas demand. The project is to be complete by January 2006.

Thomas said the analysis will also consider imports of LNG to meet the region's demand if a spur pipeline is uneconomic.

"We all like to think about shipping LNG out of Alaska, but the reality is that if a spur pipeline is not available and discoveries of gas in Cook Inlet don't keep up with demand, it's an alternative we've got to consider," Thomas said.

Whether a spur pipeline is economic will likely hinge on whether one or both of the two large industrial users of gas on the Kenai Peninsula continue their operations.

An LNG plant owned by ConocoPhillips Alaska Inc. and Marathon Oil Co. now exports liquefied gas from Cook Inlet to utilities in Japan, but the export license for the plant expires in 2009. The companies have not yet decided whether they will apply for an extension to the license.

The other large gas user, Agrium Corp., has already announced that it will close its ammonia and fertilizer plant if it cannot purchase enough gas at prices the plant can afford.

Agrium was planning to close in November but was able to secure enough short-term gas supply commitments to allow it to operate another year.

These two plants consume about two-thirds of the gas produced in Southcentral Alaska. Residential and commercial customers served by utilities consume about one-third of the gas supply.

If the two plants shut down, there are serious questions as to whether the remaining one-third of the demand from the utilities can afford a spur pipeline, which could cost about $500 million to build.

Additional gas is being found in Southcentral Alaska, the most recent announcements being new discoveries on the west side of Cook Inlet by Aurora Gas LLC.

Thomas said there is potential for new gas, but the question is whether it will be enough to replace the gas now being used in the region.

Meanwhile, if imported LNG is to be considered as an alternative, the economics of any plan require a careful evaluation, he said. If the ConocoPhillips-Marathon LNG plant is shut down there will be a dock and LNG tanks available, but a regasification plant would have to be built.

A venture like this can't be based on a shipment of LNG every now and then to supplement local production, Thomas said. It will have to be done on a regular, sustained basis to justify the investment of additional facilities.

Two possible spur pipeline routes are being considered to bring North Slope gas to Southcentral if a large-diameter pipeline is built to the North Slope.

One would branch off the large pipeline near Fairbanks and follow a corridor parallel to the Parks Highway south to Anchorage. A federally funded, conceptual feasibility study of this pipeline is about the start.

A second route involves a pipeline branching off the main pipeline at Delta and following the corridor of the trans-Alaska oil pipeline to Glennallen and then following the Glenn Highway to near Palmer, north of Anchorage. There the pipelines would connect with an existing 20-inch gas pipeline owned and operated by Enstar Natural Gas Co.

Enstar is the prime sponsor of the Parks Highway alternative, while studies of the Glennallen-Delta alternative are being led by the Alaska Natural Gas Development Authority, a state agency.

The gas demand study is important because a spur pipeline by either route could cost as much as $500 million. It is important to know what the future demand is likely to be so the pipeline can be built to the most efficient size, Lawson said.

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