Pipeline to Lower 48 could make North Slope reserves economically viable

Council eyes commercializing gas

Posted: Friday, November 17, 2000

ANCHORAGE -- The talk during Thursday's meeting of the Resource Development Council was not so much about whether to bring North Slope natural gas to market as about how and when.

Much of the discussion focused on the growing likelihood for a pipeline to bring North Slope gas to markets in the Lower 48 states.

U.S. demand, driven by growth in gas-fired electric power generation, is projected to rise from about 21 trillion cubic feet today to at least 30 trillion cubic feet by 2020, said Robbie Luxbacher, vice president for Amerigas ExxonMobil Gas Marketing Co. Others predicted U.S. demand will reach 30 trillion cubic feet by the end of the decade, and new supplies will have to fill 20 percent of the need.

Future demand is uncertain, though, since natural gas faces significant competition from alternative fuels such as clean coal, said Luxbacher. Alaska and the Mackenzie River reserves hold significant natural gas potential, she said, but to realize that potential, the gas must be brought to market at competitive prices.

"We don't think there is enough in the Lower 48, so some will have to come from Alaska," said Greg Pensabene, vice president for government relations and public affairs with Anadarko Petroleum Co. "But Alaska gas will have to be competitive. That includes the cost of a pipeline and tariff."

Dave VanTuyl, commercial manager for BP's Alaska Gas Group, said the realignment of Prudhoe Bay ownership and the change to BP as sole operator cut operating costs, leaving more money for investment. The distance to Lower 48 markets has grown shorter with the opening of a pipeline that connects northern Alberta to Chicago.

Joe Marushack, Phillips Alaska vice president for North Slope gas commercialization, said 3 billion barrels of oil remain at Prudhoe Bay, while Prudhoe gas reserves are equivalent to 4.2 billion barrels of oil.

"It's time to look at how we optimize the use of the field," he said.

Marushack said the Prudhoe owners -- BP, Phillips and ExxonMobil -- are hammering out agreements to form a joint working group to tackle the challenges of a pipeline to the Lower 48.

Meanwhile, an industry consortium is studying the feasibility of a pipeline to bring North Slope gas to Nikiski or Valdez, where it could be cooled to a liquid for shipment to Pacific Rim buyers.

A pipeline to Nikiski might also supply gas to homes, businesses and industry from Anchorage to Kenai.

The consortium is considering whether it makes sense to tie the LNG project to the pipeline to the Lower 48, Marushack said.

"But what you have to have first is an economic project," he said.

Considerable work and new infrastructure are required to develop competing resources such as Gulf of Mexico deep water gas or coal-bed methane, he said. Prudhoe gas already has been developed. The infrastructure is there. All that is needed is a way to bring it to market.

New technology -- high-strength steel, more powerful trenching machines, automated welders, larger and more efficient compressors -- has cut pipeline costs.

There are two main routes being proposed for a pipeline to the Lower 48.

Pat Duncan, Yukon Territory premier, touted the route from Prudhoe Bay to Fairbanks, then down the Alaska Highway through Yukon and British Columbia to meet the Canadian system in Alberta. Congress and the Canadian Parliament already have awarded certificates of need for that route, and rights of way exist in Yukon and parts of Alaska. A Canadian environmental review done in 1982 is a significant head start.

However, there are 9 trillion cubic feet of proven reserves in the Mackenzie River Delta and potential reserves of 60 trillion cubic feet. A competing proposal runs from Prudhoe Bay through the Beaufort Sea, then through the Northwest Territories to Alberta.

John Antoine, who heads several Northwest Territories government ministries, said the Northwest Territories hold sufficient gas to support a stand-alone pipeline. However, Alaska and the Northwest Territories would both benefit from a pipeline from Prudhoe Bay under the Beaufort Sea to the Mackenzie River delta, then down the Mackenzie valley to Alberta, he said. That would be shorter and less costly than a pipeline down the Alaska Highway route, maximizing the return from Alaska gas.

A key issue to many in attendance during natural gas sessions of the Resource Development Council was bringing some of that gas to Alaska homes, businesses and industry. The Alaska Highway route would bring gas to Interior Alaska. Antoine said a spur from the northern route also could supply North Slope gas to the rest of the state.

Any pipeline to the Lower 48 would facilitate delivering gas to the rest of the state, said Van Tuyl, of BP's Alaska Gas Group. A route along the Alaska Highway could bring gas to Alaska, he said, while a route across the Beaufort Sea and down the Mackenzie River valley would require a spur.

"All those options are going to be addressed as we mature the project," he said. "Clearly, the successful project will have to meet the requirements of all the stakeholders, the state of Alaska as well as others."

Mark Sikkel, ExxonMobil vice president for North American operations, said any pipeline will facilitate the use of gas along its route. That is one consideration a new industry working group being formed to study a Lower 48 line will consider, he said.

"I do think it's a bit premature to think about that as an issue, given that there is so much to be done just on the fundamental issue of the basic routes and essential design," he said.

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