August 2008

Process Automation

New Alaskan pipeline - a sure boon to state and automation sector

The plan to build a 1,700-mile pipeline carrying 4.5 billion cubic feet per day of natural gas faces significant choices, potential obstacles

FAST FORWARD

  • Alaska's top officials want pipeline project as proposed by TransCanada Alaska Co. (TC Alaska).
  • Some lawmakers and energy experts said the job is too big for TC Alaska.
  • lBP, ConocoPhillips, and ExxonMobil have plans of their own.
 
By Jim Strothman

Declaring a natural gas pipeline project proposed by TransCanada Alaska Co. and Foothills Pipelines Ltd. should be the choice because it "puts Alaskans first," Alaska's governor and other state executives have signaled their strong preference for that plan rather than an alternative gas pipeline proposed by BP and ConocoPhillips.

Alaska Governor Sarah Palin, Department of Natural Resources Commissioner Tom Irwin, and Department of Revenue Commissioner Patrick Galvin said they have concluded the natural gas pipeline project as proposed by TransCanada Alaska Co. (TC Alaska) "merits issuance of the Alaska Gasline Inducement Act (AGIA) license because it maximizes the benefits to Alaskans."

"Everything we asked for in AGIA to protect Alaska's interests is in the TC Alaska project. In fact, because of the competitive process, TC Alaska's proposal is a better proposal than we'd even hoped for, and everything in its proposal is binding and enforceable," said Palin.

However, some lawmakers and other energy experts have expressed concern that TransCanada may not have the financial wherewithal to handle a project that could reach $30 billion-about $10 billion more than TransCanada's market capitalization.

The Alaska Legislature has to decide whether to grant a state license to TC Alaska this month. If the legislature rejects a license, which would include $500 million in matching seed money from the state, Alaska officials would find themselves back at the bargaining table with producers like BP and ConocoPhillips.

The numbers:

One cubic foot of natural gas has about 1031 British Thermal Units (Btu). A box 10 feet deep, 10 feet long, and 10 feet wide would hold 1,000 cubic feet of natural gas. One Btu is the energy required to raise the temperature of one pound of water 1°F. Ten burning kitchen matches release 10 Btu. A candy bar has about 1,000 Btu.

The TC Alaska application proposes a 4.5 billion cubic feet per day (bcf/d), 48-inch diameter, mostly-buried pipeline running 1,715 miles from a natural gas treatment plant at Prudhoe Bay on the North Slope to the Alberta Hub in Canada. The Alaska section will be approximately 750 miles in length with six compressor stations at startup and five natural gas delivery points in Alaska. The application includes an expansion capability of up to 5.9 bcf/d. Further expansions would include a combination of additional compression and looping.

TransCanada Corp. has built several natural gas pipelines in Canada and operates more than 36,000 miles of natural gas pipelines in North America.

"We spent months reviewing the TC Alaska project, and there are many reasons why this project stands above other proposals and deserves to receive the AGIA license," said Irwin.  "Among the reasons: Benchmark timelines ensuring the gasline project moves forward; expansion opportunities and lower tariffs, which protect and ensure Alaskans' economic opportunities and long-term careers; and distance-sensitive rates, which ensure more affordable gas for Alaskans," Irwin said.

"But the one thing that makes this project stand out above anything else is that each and every commitment by TC Alaska is binding and enforceable. Taken together, this project will ensure Alaska's future for decades to come," he said.

Enforceable commitments

TC Alaska's commitments, he said, include:

  • Benchmarks-TC Alaska has committed to enforceable benchmarks, including filing for regulatory permits by certain dates.
  • Low transportation rates, or "tariffs"-A low tariff not only increases the netback for Alaska, but it encourages long-term exploration and development by newer players on the North Slope, Irwin said.
  • Distance-sensitive rates for Alaskans-Alaskans will pay just the costs incurred to ship gas from the North Slope to one of the five off-take points within Alaska. Currently, Alaskans pay competitive world market prices.
  • Expansion capabilities-TC Alaska promised to expand its pipeline system on reasonable terms to smaller and newer gas producers on the North Slope, accommodating new gas discoveries.
  • LNG Y-line offered-TC Alaska has offered to construct a "Y line" from Delta Junction to a natural gas processing facility in Prince William Sound, if shippers express sufficient demand for that project.

"Competition spurred this incredible proposal," Palin said. "TC Alaska knew that it had to create an attractive plan, which was good for Alaskans, in order to win the bid. They succeeded. And it means that Alaska's gas will make it into our homes and America's homes sooner."

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Significant revenues seen

"The dollars generated by the TC Alaska project take your breath away," said Galvin. "Reading the expert reports that are part of the AGIA Findings and Determination leads to only one conclusion-the TC Alaska project will provide extraordinary profits for all project stakeholders."

Galvin said a $500 million matching contribution to TC Alaska "is a prudent investment for the state, with a potential return of billions and billions of dollars."

In exchange for the commitments required in AGIA, the Alaska legislature offered a package of inducements that included reimbursement of up to $500 million of the costs incurred to obtain a Federal Energy Regulatory Commission (FERC) certificate; an AGIA project coordinator to facilitate the process; a stable production tax rate for 10 years; and fixed royalty valuation methods to anyone who commits to purchase capacity to ship natural gas on the AGIA gasline during its first binding open season.

BP, ConocoPhillips' alternative

BP and ConocoPhillips have sought approval for another natural gas pipeline project, called the Denali proposal.

The Denali proposal calls for building a four bcf/d, 2,000-mile long buried large-diameter pipeline to the Alberta Hub with extension of the pipeline to the lower 48 U.S. states if an extension would improve project success or reduce transportation costs.

The proposal includes a natural gas treatment plant on the North Slope near the Prudhoe Bay facilities, supports in-state natural gas distribution efforts, and would provide at least five Alaskan natural gas delivery points, including Fairbanks.

No commercial terms are specified, and unlike TC Alaska, the Denali proposal made no enforceable commitments, state officials said.

If the Alaska State Legislature passes a bill issuing the license to TC Alaska, TC Alaska would then hold an "open season," where the pipeline builder solicits firm shipping commitments for natural gas. Producers that commit to ship natural gas get reserved capacity on the pipeline and fixed tariff rates. The pipeline company gets commitments to transport natural gas that will help it finance construction of the natural gas pipeline.

After the open season, TC Alaska would apply for a FERC "certificate of public convenience and necessity." FERC is the federal agency that reviews the commercial viability of such projects and approves proposed tariff terms.

Once it obtains a FERC certificate, the complex process of pipeline construction would begin. Construction of the pipeline and the associated processing plants would take at least three years, officials said.

ABOUT THE AUTHOR

Jim Strothman (jstrot@comcast.net) is a regular contributor to InTech magazine and was InTech's editor in the 1990s.

$30B natural gas pipeline price tag dwarfs 1970s-built oil pipeline

Estimated to cost as much as $30 billion, the natural gas pipeline project would dwarf the 800-mile trans-Alaska oil pipeline, completed in 1977.

Built at a cost of about $8 billion, the 48-inch diameter, 800-mile Trans Alaska Pipeline System (TAPS) has transported more than 14 billion barrels of oil since startup in 1977.

Some 13 billion barrels have been loaded into tankers, while the remaining oil has been refined in Alaska. The volume of oil moving through the pipeline has decreased from a peak of 2.1 million barrels per day (mbpd) in 1988 to about 1 mbpd today. One barrel equals about 42 gallons.

TAPS went online in the 1970s after the discovery of oil at Prudhoe Bay in 1968. The oil pipeline links Prudhoe Bay on the Arctic Ocean with the terminal at Valdez, the northernmost ice-free port in the Western Hemisphere. The flow from this pipeline accounts for roughly 20% of U.S. oil production annually.

Alyeska Pipeline Service Co. (Alyeska) operates the pipeline. Six companies-BP Pipelines (Alaska) Inc., Exxon Pipeline Co., Mobile Alaska Pipeline Co., Amerada Hess Pipeline Corp., Phillips Alaska Pipeline Corp., and Unocal Pipeline Co.-are Alyeska.

The pipeline is below ground for less than half its length-only where the ground is well-drained gravel or solid rock and thawing is no problem. Because the warm oil could thaw the icy soil, which in turn would cause sinking or heaving, most of the pipeline is above ground, sitting on top of 78,000 supports spaced 60 feet apart. All the sections above ground are insulated and covered. The pipe is high off the ground in places to span rivers or to allow wildlife to cross under the pipe.

There were originally 12 pump stations and many valves controlling the flow of oil. Currently, two pump stations are not operating, and two are on idle status, leaving pumps 1, 3, 4, 5, 7, 9, 11, and 12 operating. The entire system is operated from the Operations Control Center located in Valdez, but it can also be operated independently at each pump station.

The 48-inch diameter pipe is made of specially coated material covered with zinc anodes to ward off corrosion. The conduit crosses ore than 800 rivers and streams between Prudhoe Bay and Valdez.

Alyeska built the 360-mile haul road, now known as the Dalton Highway, from the Yukon River to Prudhoe Bay for $150 million to supply the oil facilities on the North Slope. The pipeline bridge across the Yukon River is the only span across that river in Alaska.

A Joint Pipeline Office opened up in 1990 in answer to concerns about corrosion of the pipe and potential spills. The office is composed of nine state and federal management agencies that issue permits and monitor operation of the pipeline to encourage environmental safety.

Alyeska employs more than 2,000 people in Alaska, including sub-contractors. In 1997, Alyeska's main offices split into three business units, one of which is located in South Fairbanks.

-Jim Strothman

 

ExxonMobil holds trump card: Gazprom waits in wings

Many Alaskans are bitter about the U.S. Supreme Court's June decision to slash the punitive damages Exxon Mobil Corp. must pay for the 1989 Exxon Valdez oil spill.

However, the relationship between the oil-rich state and the oil-producing company could get significantly worse in coming months.

The Wall Street Journal reported Exxon holds an effective veto over whether a pipeline from Alaska's North Slope to carry natural gas to the lower 48 states can actually happen at all.

Alaska Governor Sarah Palin has made building the pipeline a centerpiece of her administration. The project, which will cost more than $30 billion, has wide support from Alaskans, many of whom remember the economic boom that accompanied building the state's oil pipeline.

However, to get the gas pipeline built, she will need Exxon to commit its portion of the gas in Prudhoe Bay. Thus far, the Texas company has refused to do.

Exxon is the lone holdout. Its Prudhoe Bay partners, ConocoPhillips and BP PLC, earlier announced they would begin planning for a pipeline. Moreover, the state legislature, with the support of Palin, is currently meeting to determine whether to back a competing pipeline proposal from TransCanada Corp.

"Exxon has made billions of dollars off our North Slope oil. What we must demand in return is to be treated fairly," said Ethan Berkowitz, the Democratic candidate for Alaska's seat in the U.S. House of Representatives.

For the pipeline projects to proceed, energy producers must commit to shipping enough barrels of oil or cubic feet of gas in a process known as "open season."

However, Exxon, under a 1977 agreement among the Prudhoe Bay producers, can stop its partners from committing the estimated 24 trillion cubic feet under Alaska's North Slope to any pipeline.

Exxon also has a large stake in the Point Thomson field, near Prudhoe Bay. The state currently is trying to wrest control of the field from Exxon for not moving fast enough to develop it.

Drue Pearce, a federal Interior Department official charged with expediting the gas pipeline application, said rising energy prices and limited opportunities to invest their cash should help convince them to get onboard.

Meanwhile, earlier this month, Russian gas giant OAO Gazprom said it is interested in opening discussions about its possible participation in either of the competing pipeline projects. The company operates several pipelines that deliver gas from Russia into Europe.

 

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