Terrain, population centers drove Nikiski choice


North Slope producers and TransCanada Corp. have selected a site at Nikiski on the Kenai Peninsula as the proposed terminus for a 42-inch North Slope gas pipeline and a large liquefied natural gas project.

Nikiski is also the location of a smaller liquefied natural gas plant owned by ConocoPhillips that suspended operations when it allowed its export license to expire in 2012 because of lack of gas supplies from Cook Inlet fields.

North Slope producers ExxonMobil, BP, ConocoPhillips and TransCanada, a pipeline company, selected Nikiski as the preferred site after evaluating 20 possible locations, the companies announced in a press released issued Oct. 7.

Although numerous sites were being studied, Nikiski and Valdez were considered the lead contenders for the LNG plant.

Valdez is the terminus of the Trans-Alaska Pipeline System and location of the Valdez Marine Terminal, and many Alaskans had expected Valdez to be chosen because of the existing terminal infrastructure and navigation advantages of Prince William Sound over Cook Inlet, which has winter ice and strong tides.

The companies had a different conclusion, however.

“The work we have put into the site selection process gives us confidence that the Nikiski site is the lead location for the LNG plant and terminal,” said Steve Butt, an ExxonMobil manager who is senior project manager for the gas pipeline and LNG project, in the release.

“The Nikiski site also results in a pipeline route that provides an access opportunity to North Slope gas by the major population centers in Fairbanks, the Mat-Su valley, Anchorage and the Kenai Peninsula.”

In a later interview, Butt said he hopes the decision on Nikiski isn’t seen as a win-lose among Alaskan communities who were contenders to be the site, an indirect reference to Valdez.

“It’s really a win for all Alaskans because we (the North Slope producers) have never been so close to an actual project, to the point that we will start acquiring assets, such as land,” Butt said.

Valdez Mayor Dave Cobb said he was disappointed that his community wasn’t selected but if the decision moves a large 42-inch gas pipeline closer to reality, he’s all for it, he said. Valdez will continue to work with the producers’ group, he said.

Cobb said his focus will now shift to the possibility of a spur pipeline so that gas can be brought from the main line to Valdez, Glennallen, Delta and other communities that now heat and generate power with fuel oil.

“We’re still paying 38 cents a kilowatt hour and $4.90 a gallon for diesel here in Valdez,” he said.

Butt said the simplicity of the geography at Nikiski, as well as better weather and access, were prime factors that also swung the decision to that location.

“It’s flat land, which means less civil work to be done. The weather allows construction 12 months of the year, and the existing infrastructure allows for good access,” he said.

Nikiski has been home to major industrial plants since 1969 when Unocal Corp. develop an ammonia and urea fertilizer plant, Phillips Petroleum and Marathon Oil developed an LNG plant to export Cook Inlet gas, and Tesoro Corp. developed a refinery to make fuel products.

The fertilizer and LNG plants are shut down because of gas shortages from Cook Inlet fields but new gas is being discovered in the Inlet there are discussions underway about reopening both plants. Tesoro’s refinery is still operating.

The Valdez site has advantages, such as access to the ice-free Prince William Sound, but the topography is mountainous and winter brings very large snowfall, which would complicate construction.

Butt said his group has done substantial ice modeling for Cook Inlet and feels any problems can be handled. The St. Lawrence Seaway was studied as a waterway that supports substantial tanker shipping and ice very similar to Cook Inlet, he said. Also, LNG tankers have operated safely for decades from the existing ConocoPhillips LNG plant.

About 600 to 800 acres will be needed for the plant but Butt said the industry group would actually need about twice that amount of land to ensure safety and room for expansion. There is land available in the Nikiski area, some of it private land and some it municipal land, he said.

Discussions have already started with some property owners. The most attractive site appears to be to be just the south of the closed Agrium Corp. fertilizer plant.

The announcement raises questions, meanwhile, as to the future of the Alaska Gasline Development Corp.’s plan to develop a state-led pipeline project along a similar route to Southcentral Alaska. The AGDC, a state corporation, is pursuing its project as an alternative to the larger industry-led pipeline, in case that project is delayed.

Dan Fauske, CEO of the state corporation, said the announcement by the industry-led consortium is good news because it could lead to the AGDC folding its effort in with the producers-TransCanada project.

“Obviously we’re not going to see two pipes laid side by side,” Fauske said.

The state corporation could also become a vehicle for the state investing in and owning an equity stake in the larger pipeline, he said. The state laws governing the state gas corporation allow for that possibility.

Meanwhile the ADGC is continuing its work, Fauske said, because it’s not yet certain that the larger industry-led pipeline will really go forward. Nothing changes for now in the state corporation’s scope of work or budgets, he said.

ADGC is studying a possible 36-inch gas pipeline that would move 500 million cubic feet of gas per day, a smaller project than the industry pipeline, which would move about 3.5 billion cubic feet per day.

Meanwhile, Butt said several engineering and technical, commercial and regulatory issues remain to be settled for the producers and TransCanada.

“While Nikiski is the lead site for the LNG plant, the project team continues to consider other, secondary locations. Pipeline routing definition work also continues based on the summer field work activity, which will be extended south of Livengood,” in the Alaska Interior, Butt said.

Fiscal terms for gas production, which include production tax and royalty, also need to be settled before the large pipeline plans can be finalized. After the producers missed one of Gov. Sean Parnell’s benchmarks by not advancing to a pre-feasibility, engineering and design stage by June 30, he said he wouldn’t bring the topic of gas tax terms to the Legislature in 2014.

The companies are continuing to refine the agreed project concept that includes a gas treatment plant on the North Slope, an 800-mile, 42-inch gas pipeline with up to eight compressor stations, and at least five gas take-off points for in-state gas delivery, and a liquefaction plant and terminal.

The pipeline would transport about 3.5 billion cubic feet of gas daily to the LNG plant, which would manufacture and ship 16 million to 18 million tons of LNG yearly primarily to markets in Asia, the companies have said previously.

Construction costs are estimated from $45 billion to $65 billion, and possibly more, the companies have said.

Tim Bradner can be reached at [email protected].

10/10/2013 - 7:24am