BP reviews contracts for gas-to-liquids plant

Posted: Friday, November 03, 2000

BP expects to award the contract this month to erect an $86 million plant in Nikiski to test technology for turning natural gas into synthetic diesel fuel.

Small vessels and materials should begin arriving next week at the 23-acre site BP bought by the Kenai Spur Highway about a mile south of the Tesoro Alaska Petroleum Co. refinery, said Dave Calvin, BP gas-to-liquids project manager.

"Our limiting factor right now is air quality permits," he told the Kenai Chamber of Commerce on Wednesday. "We anticipate getting those by January."

Heavy construction should begin in January and February, he said. Major vessels should arrive in February and March. Construction will employ a peak of 150 to 200 people, he said. The plant should open during the second quarter of 2002 and employ 10 to 15 full-time operators, supervisors and maintenance workers.

Kvaerner Process Technology Ltd., a Dutch firm, is providing engineering, construction management and procurement. The contract award this month will cover heavy construction and steel work, Calvin said. BP plans to release a bid package this month for construction of warehouses and other buildings. Next summer, it will hire a landscaping contractor.

BP expects to spend about half the $86 million in Alaska. It already has hired several local firms -- L&J Enterprises for snow removal, Medicenter Nikiski for emergency medical services, McLane Engineering for civil inspections and testing, and Enstar Natural Gas Co. to install low-pressure gas lines. Dames and Moore, Raven Contractors and Arctech Services also have contracts.

BP will seek additional contracts for water and septic service, equipment rental, waste handling, utilities and more. It still is negotiating to buy natural gas from area suppliers, Calvin said. It has agreed to buy three to four megawatts of power from Homer Electric Association.

BP has been telling people the Nikiski plant will operate for about five years, Calvin said. After that, BP could tear it down. However, there are other possibilities.

"I've four or five people tugging at my sleeves saying we should install a fuel cell or another type of reactor. This could become a test facility for a number of different energy projects."

BP's goal is to find a profitable way to bring North Slope natural gas to market. There are three options -- building a pipeline to Alberta, where the gas could be shipped through the Canadian system to markets in the Lower 48 states; building a pipeline to tidewater, where it could be cooled to a liquid for shipment to Pacific Rim buyers; and turning it to synthetic crude, which could be shipped through the existing oil pipeline to Valdez.

BP is aggressively exploring all three options, Calvin said. With 35 trillion cubic feet of proven North Slope reserves, they are not mutually exclusive.

Calvin said growing demand for cleaner fuels drives the quest for an economical process to produce synthetic crude, which contains no sulfur or heavy metals. The Nikiski plant will test technology BP and Kvaerner have developed to cut the cost .

There are three steps to producing synthetic crude, he said. The first combines natural gas and oxygen to produce syngas, a mixture of carbon monoxide and hydrogen. The second converts the syngas into waxy paraffins. The third breaks those into lighter fuels, such as synthetic crude and diesel.

There are several ways to supply the oxygen, Calvin said. One is to cool air until the oxygen condenses as a liquid. BP produces syngas with a steam reformer, which extracts the oxygen from water. Its compact reformer occupies just a fifth of the space of traditional steam reformers, Calvin said.

"We're able to reduce the capital cost to where it's economical," he said.

BP already has tested its technology, but managers want to test it on a larger scale before building a full-sized plant. The pilot plant in Nikiski will consume about 3 million cubic feet of natural gas and about 300 barrels of synthetic crude per day.

"That's the size we would need to feel comfortable building an 80,000- or 100,000-barrel-per-day facility on the North Slope," Calvin said.

A gas-to-liquids plant produces huge quantities of steam, he said, and that can generate electric power.

"A 60,000-barrel-per-day facility will make almost as much power as we consume on the North Slope. That has got to be a revenue stream for this to make a profit," Calvin said.

With increased development, there soon could be a shortage of electrical power on the North Slope.

"So there could be some nice synergies," he said.

Calvin said he used to think the slope was the only viable site for an Alaska gas-to-liquids plant.

"I'm no longer convinced," he said.

If the natural gas were available in Cook Inlet, he said, a full-sized plant could go here. The climate is less severe, the existing infrastructure is a plus and the gas also could supply other uses. A spur from a pipeline to Alberta could carry North Slope gas to Nikiski.

"Almost any permutation you can think of, we're looking at," he said.

For now, though, BP simply wants to make sure its gas-to-liquids process works on a commercial scale.

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