AOGCC approves additional gas offtake at Prudhoe Bay

The Alaska Oil and Gas Conservation Commission has approved an increased natural gas “offtake” rate of 3.6 billion cubic feet of gas per day from the Prudhoe Bay field on the North Slope to supply the planned Alaska LNG Project.

The commission’s order, issued Oct. 15, amended a previous order from several years ago that allowed 2.7 billion cubic feet of gas to be produced.

AOGCC’s action is one of several major regulatory steps needed for the Alaska LNG Project, the potential $50 billion-plus large gas project that is now being planned.

Commercial gas production would start in 2025 under the current schedule for the Alaska LNG Project, which is still in its preliminary engineering phase and has not yet been approved for construction.

In its decision, the state regulatory agency, which oversees development and production operations on oil and gas fields, sided with ConocoPhillips and Chevron, two Prudhoe Bay producers, and against a proposal by the two other major Prudhoe producers, BP Exploration and ExxonMobil, seeking a 4.1 billion cubic feet per day offtake rate.

BP and Exxon had argued that the larger volume was needed to assure that sufficient gas production would be available to the gas pipeline and LNG project in the event that there were production problems at Point Thomson, another gas field that will be a second source of supply where the two companies own more than 90 percent of the gas.

In written submissions and presentation at an Aug. 27 hearing of the commission, ConocoPhillips and Chevron argued that a lower gas production rate would be more prudent in assuring maximum oil recovery at Prudhoe, where the gas helps maintain reservoir pressure to produce oil, and that a production upset at Point Thomson that would be extended, as much as for several months, is unlikely.

If that were to happen the AOGCC could amend its order to allow higher gas production rates, ConocoPhillips argued at the hearing.

BP said at the hearing that having the higher rate approved is only a safeguard in case more gas is needed, but that having preapproval for a quick ramp-up without a regulatory proceeding is helpful to the companies in marketing LNG.

Potential customers want all possible assurances that contracted volumes of LNG can be delivered even in the event of production problems.

However, AOGCC chair Cathy Foerster said that the commission’s legal mandate is to ensure maximum efficient recovery of both oil and gas and that the agency has no responsibility for commercial considerations, in helping the marketing of the gas.

Although taking a more conservative approach on gas production would seem to fit the agency’s mandate, the Oct. 15 order also acknowledged that simulation results from production modeling submitted by the companies show relatively little impacts on ultimate production from different production scenarios.

One consideration for the companies is that the Prudhoe Bay field is well known and that the gas in the reservoir has been produced along with oil for years and then reinjected underground to maintain field pressure. Because of that there is a high degree of confidence in the Prudhoe field.

Point Thomson is less certain, however, because it is not yet producing and its performance cannot be predicted with as much confidence that companies have at Prudhoe. Point Thomson is expected to begin production in 2016 in an initial phase that involved production of gas and liquid condensates, and with the liquids sold and the gas injected back underground.

Fundamentally, allowing an offtake rate sufficient to support major sales of gas for the Alaska LNG Project would lead to overall greater recovery of both oil and gas, the commission said in its order.

“The simulation results show that ultimate recovery from the Prudhoe oil pool could only be maximized with major gas sales as there are significantly more barrels of oil equivalent of reserves in the form of gas in the pool than there are in the (oil) liquids that remain within the pool,” the commission said in its order.

The AOGCC also noted that sales of gas to the LNG project will also result in large quantities of nearly pure carbon dioxide to be made available for enhanced oil recovery. The CO2 will be separated from produced gas in a large gas treatment plant to be built at Prudhoe as a part of the pipeline and LNG project.

11/24/2016 - 3:13pm