ASAP work aligns with major LNG export effort

Photo/Courtesy/AGDC

A year ago there was a lot of complaining about state money being wasted on the Alaska Stand Alone Pipeline project, the little brother to the big North Slope gas pipeline project.

Also called the “bullet” line, ASAP was advanced by legislators as a backup plan in case a larger gas project falters.

ASAP was limited to moving 500 million cubic feet of gas per day, a requirement of the state’s Alaska Gasline Inducement Act, or AGIA, a state contract with TransCanada Corp.

At that volume of gas “throughput,” the economics of the bullet line seemed dubious. Bill Walker, Alaska’s new governor, shared those views.

But a funny thing has happened. The project has morphed. Little Brother pipeline isn’t little anymore. It has grown up.

There’s one other development, which may be a surprise. As the Alaska Gasline Development Corp., or AGDC, worked on its state-led pipeline, the work was shared with Alaska LNG teams working on a larger gas pipeline and liquefied natural gas project, in which the state is also a partner.

This is already saving money and time for the large project, and it fits one of Walker’s key goals: finding ways to expedite the big project.

Little pipeline grows up

How did Little Brother grow up? Mainly, its developer AGDC changed the plan in early 2013 so that what was a 24-inch pipeline became 36 inches.

That means ASAP, is now capable of moving a lot more gas. The AGIA contract is history (it ended when the state became a partner in the large Alaska LNG Project) and the limit of 500 million cubic feet per day has also been lifted.

How much gas could it ship now? At present, ASAP’s throughput even with the larger pipe size is still officially 500 million cubic feet per day, but that assumes no compressor stations along the 727-mile route.

Frank Richards, AGDC’s vice president of engineering and program management, said that adding compression stations could increase throughput to 1.6 billion cubic feet of gas per day.

ADGC President Dan Fauske said earlier that with more compressor stations and higher strength pipeline steel and components, the throughput for a 36-inch line could be increased further, possibly to as much as 2.6 billion cubic feet of gas moving daily.

That’s still less than what the big project would move (about 3 billion cubic feet per day) but if ASAP was actually built, which assumes the big gas project falters, its economics now look more favorable.

However, another new development that the work the state corporation has done on ASAP is proving very beneficial to the Alaska LNG Project.

Timing good for Walker’s stop-work order

As a budget measure Walker ordered Dec. 26 that six state “megaprojects” be put into a holding pattern, including the ASAP project.

The timing of this proved fortunate because the ASAP project is at a point where a pause can be accommodated without losing the value of work already done.

Just as Walker’s stop-work order came in, AGDC was wrapping up its “Class 3” cost estimate for the ASAP line. The new cost is projected at $10 billion, about $1 billion more than was estimated in 2012.

This is a key piece of work because it is a highly-developed estimate in which the project technical teams have a 75 percent confidence level, meaning there’s a 25 percent chance the estimate could be lower, or higher.

A cost estimate at this level is usually sufficient for owner companies to make a sanctioning decision on whether to proceed with the project.

This level of estimate is as detailed as what is normally provided for an “open season,” which is when a pipeline developer solicits customers and long-term gas shipping contracts from gas producers or buyers.

The detailed cost estimates, and the projected shipping tariffs, are needed by the potential shippers.

A revised environmental impact statement, or EIS, which is already funded, is currently underway by the U.S. Army Corps of Engineers and is expected to be complete by early November, with a Record of Decision later that month.

There is more engineering work needed to refine the pipeline route and design components.

To accommodate the governor’s order, AGDC has deferred $90 million of activities that are solely focused on ASAP and is focusing on work that could benefit both projects. Remaining money appropriated by the Legislature to fund work needed to conduct an open season will remain with AGDC, unless lawmakers re-appropriate it back to the state general fund.

Other orders by Walker caused more discomfort for the state corporation, such as his firing three members of its board of directors, who were people with extensive experience in industry and government.

The governor’s order, however, does not affect the state corporation’s involvement with the much bigger Alaska LNG Project.

This is a planned 42-inch gas pipeline built from the North Slope, about 800 miles in length, that also involves a large natural gas liquefaction plant that is planned at Nikiski near Kenai.

AGDC represents the state’s 25 percent ownership in the LNG plant only. Both the ASAP and Alaska LNG projects include gas treatment plants on the North Slope to prepare gas for the pipeline, although the Alaska LNG Project treatment plant is much larger than that proposed for the ASAP.

The state owns 100 percent of ASAP, although if it were actually built, private partners would be solicited including an experienced pipeline company (talks have been held with Enbridge, a Canadian pipeline firm).

In the much larger Alaska LNG Project being led by industry, the state is a 25 percent partner representing the ownership interest equal to the state’s share of North Slope gas that would be shipped and sold as LNG.

Under the partnership plan, the state would take its royalty and taxes “in kind,” or as gas, and sell the gas as LNG to customers much like the state’s royalty oil, mostly taken in-kind, is sold to refining companies.

AGDC is the state entity that would directly own 25 percent of the large LNG plant at Nikiski. TransCanada Corp., an experienced pipeline company, represents the state in its 25 percent share of the 42-inch pipeline and large gas conditioning plant on the Slope.

All four of the gas owners — the state, BP, ConocoPhillips and ExxonMobil — that are part of the AK LNG consortium will own percentages of the project equal to their shares of gas, so that each owner essentially ships its gas through its share of the project.

“It is the continuity of the gas ownership and the project ownership that establishes the alignment (among the producer companies and the state) in the project,” which is crucial, said Joe Dubler, AGDC’s vice president of commercial operations.

TransCanada owns no gas but would invest and own a share of the Slope gas treatment plant and pipeline. 

TransCanada would finance a portion of the 25 percent of the pipeline and Gas Treatment Plant, a capacity sufficient to ship the state-owned gas, (the state would pay a shipping fee, including 12 percent rate of return, to TransCanada) although the state has an option to buy 40 percent of the pipeline company’s share before construction begins.

AGDC’s board has approved $39.8 million in funding for the calendar year 2015 work plan the corporation would do in support of the Alaska LNG Project. This money has been appropriated and is not encumbered by the governor’s Dec. 26 stop-work order.

Work helps big gas project

Engineering and design work is now proceeding on the big gas project as it advances through the current pre-Front End Engineering and Design, or pre-FEED.

As a project partner AGDC is part of the pre-FEED, with the state paying its share of the $500 million cost.

The pre-FEED got a late start last summer, however, although the Alaska LNG teams believe they can catch up the lost time and meet the deadline for completing the work in early 2016. The pre-FEED includes a revised cost estimate, a fine-tuning of the current estimate of $45 billion to $65 billion in 2012 dollars.

This is where the work done by the state corporation on the ASAP pipeline is proving useful for the Alaska LNG Project, which is led by ExxonMobil Corp.

Several big-name contractors are engaged in the Alaska LNG pre-FEED work. The LNG plant work includes Chicago Bridge and Iron, and Chiyoda, a Japanese company. CH2M Hill’s Houston and Anchorage offices are involved in design work for the marine facilities needed for the LNG ships.

Worley Parsons is engaged in the pipeline pre-FEED work, from its offices in Calgary.

Pre-FEED work on the large Gas Treatment Plant at Prudhoe Bay includes URS, Chicago Bridge & Iron and Arctic Slope Energy.

A lot of the current technical work underway by AGDC is actually useful for both projects, and because the state corporation had contractors and consultants already ramped up for ASAP, and was also given special streamlining authority on state permits by the Legislature, AGDC is now helping the large project teams catch up from the late start on the pre-FEED.

One example where the two efforts, ASAP and Alaska LNG, have meshed is in the sharing of bore-hole information. With the confidentiality agreements provided for by the Legislature in 2012, in House Bill 4, AGDC was able to transfer geotechnical data it had acquired on the pipeline route south from Livengood to the Matanuska-Susitna Borough, while also receiving from the Alaska LNG sponsors geotechnical data on the northern part of the route, from Livengood to the North Slope.

“This represents a savings worth millions no matter which project is built,” Richards said.

There are other efficiencies, too. One is that the 413-mile right-of-way through state lands granted to AGDC for the ASAP project is without conditions and is transferable to Alaska LNG if that proceeds.

Also, the specific routes of the two projects are now the same no matter which proceeds.

AGDC could expedite the Alaska LNG Project in getting a right-of-way on several hundred miles of federal land, too. Once the supplemental environmental impact statement on ASAP is finished, a right-of-way across federal lands is granted, although the terms of this are negotiated.

One of AGDC’s goals would be to ensure the right-of-way language is worded so the stipulations on the federal lands are exactly the same or very similar as stipulations on state lands, said Miles Baker, AGDC vice president of external affairs and government relations.

An amendment to the federal right-of-way agreement would still be needed but the goal is for the AK-LNG Project not to have to submit a whole new application, he said. That would save a lot of time.

Lower-pressure redesign lowers costs to Alaskans

One of the key reasons for the design change in ASAP was that the previous 24-inch pipeline would have operated at a high pressure so that it could also move natural gas liquids along with the methane, the main component of natural gas.

Liquids like propane, ethane and butane are valuable and the original plan involved these being exported with the methane used in-state mainly for fuel.

The new 36-inch design is for a lower-pressure pipeline that would carry mostly methane although some propane would also be shipped. The bulk of the gas liquids would be removed at the North Slope from the gas coming into the gas treatment plant from producing wells.

One reason for the change in the plan is the uncertainty over whether there are really good export markets for the liquids.

However, the main reason was that a lower-pressure design, for a pipeline operating at 1,480 pounds-per-square-inch, simplifies and reduces the cost of a connection to the pipeline for communities, like Fairbanks, along the pipeline route.

Under the previous high-pressure design, at about 2,500 pounds-per-square-inch, a $250 million “straddle” plant would have been needed at the connection for a lateral to take gas to Fairbanks. The straddle plant would be needed to extract the liquids from the gas (mainly methane) shipped to Fairbanks for fuel.

A problem this posed is that the rules of the Regulatory Commission of Alaska would require consumers in Fairbanks to pay the cost of the straddle plant, which substantially increase the final cost of the gas in Fairbanks.

The same problem would occur at any other tap for a community and this would make the local gas service prohibitive for small communities along the pipeline like Nenana, Healy and Talkeetna.

The low-pressure design eliminates the need for the straddle plant although other costs, like the connection and the lateral line, would still have to be paid for.

Under the Alaska LNG partnership, AGDC would assume responsibility for designing the off-take connections needed.

“AGDC will be working this year on planning, developing and siting in-state off-takes,” for both the large gas project and the ASAP, said Baker. “That will include looking at the ‘kit’ required under either project scenario. It’s still too early to say specifically how the kits might differ between the two projects from an engineering or economic perspective.”

Under the latest cost estimate, ASAP project could deliver gas to Fairbanks for an estimated “burner tip” (consumer) price of $11 to $14 per million British Thermal Units (mmbtu) which includes a local distribution cost of $4 per mmbtu; that figure is the estimated cost from the newly-formed Interior Gas Utility owned by the Fairbanks-North Star Borough.

“That compares favorably with what people have been paying, about $21 (per mmbu) with fuel oil,” said Dubler.

In Anchorage, the “burner tip” estimate is $11.50 to $14.50 per mmbtu using the known Enstar Natural Gas Co. distribution cost.

“That’s a little more than what people (in Anchorage) pay now, but a consideration is that there is a large, known supply of gas (on the Slope) despite continued uncertainty about gas supplies in Cook Inlet,” Richards said.

A gas consumer’s cost to convert a home furnace from oil to gas is not included, he said.

The range in the cost estimates is mainly due to the uncertainty of the price a producer on the Slope would sell gas for. Past cost studies have assumed a producer gas price at $2 per mmbtu but the latest ADGC estimates include a $3.30 per mmbtu price that is assumed in estimates of a North Slope LNG trucking project.

There is a gas sales contact associated with the LNG trucking plan and while the terms are confidential, the $3.30 price is widely used as a benchmark in negotiations. The trucking project is not proceeding at the moment after costs came in to high for a Slope processing plant, however.

Dubler said the tariff estimates assume a private firm making an equity investment, most likely an experienced pipeline company. The estimates assume a 70 percent debt/30 percent equity ratio and a 25-year depreciation schedule.

“We have started discussions with one possible owner/builder/operator. Previously we reached out to about 11 potential investors but found them reluctant to make any commitment until more is known about the cost,” said Dubler.

ADGC now has this information, the Class 3 estimate and a Project Execution Plan. There is other technical work by AGDC that is being shared with the Alaska LNG Project teams. A key piece of work is the testing of special, high-strength pipe that would be used in areas of discontinuous permafrost which is mostly in Interior Alaska.

The permafrost is intermittent and more unstable in these areas compared with regions with continuous permafrost, mainly the North Slope, which are more stable. The tests underway by AGDC were also to determine that the pipe meets new federal pipeline safety standards.

Updated: 
01/28/2015 - 2:24pm

Comments