Producers differ on Prudhoe gas offtake increase

There’s disagreement between major North Slope producers over a proposed gas “offtake” rate from the Prudhoe Bay field that would support a large natural gas pipeline and LNG export project.

The Alaska Oil and Gas Conservation Commission, a state regulatory agency, held a hearing on the matter Aug. 27.

While there are differences, there is unanimous support for a determination by the commission for a gas offtake rate because it is necessary step for the Alaska LNG Project.

There is concern about losses of crude oil recovery if gas is extracted from the Prudhoe field and similar worries over losses of condensate liquids in the Point Thomson field, which will also supply Alaska LNG, as gas is produced there. The commission is charged with maximizing the recovery of oil and gas hydrocarbons and must approve changes in the producers’ practices that affect that.

Meanwhile, BP and ExxonMobil have applied for a Prudhoe Bay field offtake rate of 4.1 billion cubic feet per day in annual average production, which the two companies say is sufficient to guarantee enough gas for the big project to cover any upsets in production.

Most of the gas for Alaska LNG Project will come from the Prudhoe Bay but some will also come from Point Thomson, a new gas field being developed east of Prudhoe.

If there are any problems with Point Thomson operations, BP and ExxonMobil want to make sure they can increase the Prudhoe output to cover Alaska LNG’s needs, Bruce Laughlin, BP’s manager for reservoir development, told the commission.

However, ConocoPhillips and Chevron, who are also Prudhoe producers, disagree that the offtake rate proposed by BP and ExxonMobil is justified and urged the commission to set a lower rate of 3.6 billion cubic feet per day, as an annual average.

ConocoPhillips’ North Slope subsurface manager Eric Reinbold said his company believes the higher rate is unnecessary and that it is important not to “pull” the Prudhoe reservoir any more than necessary so as to not injure long-term oil recovery.

“We recognize that gas sales from Prudhoe Bay will affect long-term oil liquids production, and a 3.6 billion daily offtake rate minimizes that,” he said.

The companies’ estimates for potential loss of crude oil recovery were in confidential information presented to the commission, but during the public portion of the hearing, AOGCC chair Cathy Foerster pressed to get as much on the public record as possible. 

Laughlin said the producers’ latest estimate for ultimate Prudhoe liquid oil recovery is 14.1 to 14.2 billion barrels, assuming current economic conditions. About 12.2 billion barrels have been produced to date, BP has said previously.

While the oil recovery estimates were included in confidential data, including any differences between the two gas offtake rates, both companies said the impacts would be similar.

ConocoPhillips said this isn’t certain because the estimates result from models of gas production, and argued that it would be prudent to go with the lower rate.

About 75 percent of the gas needed to support throughput for the Alaska LNG Project will come from Prudhoe Bay, while the remaining 25 percent will come from other fields, the bulk of it from Point Thomson.

Reinbold said Prudhoe’s needed contribution to the Alaska LNG Project is 3.3 billion cubic feet per day and that authorization for the additional 300 million cubic feet, bringing the total average daily allowance, is enough to cover any upsets at Point Thomson.

“This would be enough to cover a four-month down-time at Point Thomson, which is extremely unlikely, a ‘worst-case’ event,” Reinbold said. “We’ve never been able to understand why BP really wants the 4.1 billion rate,” he said.

Foerster questioned BP on that point and was told that regulatory approval for higher rates would also be an important advantage for LNG marketing, as an additional assurance to potential buyers and the financial community.

“The flexibility this would give us could be a tremendous asset,” in LNG marketing, Dave Van Tuyl, BP’s Alaska regional manager, told the Commission. “We can’t discuss the details of marketing among ourselves because of antitrust, the but ability for the Prudhoe field to support higher rates, to make up for shortages creates by disruptions, could be a big advantage over competitor projects. It would also been seen favorably by lenders. It’s like an insurance policy. You hope you’ll never need it, but it’s there.”

Sources familiar with the proceedings say there are other issues involved in the disagreement, one being discord among the producers over a “gas balancing” agreement for the pipeline and LNG project now being negotiated behind closed doors.

This would be a contract among the companies to backstop each other in gas supply in case production upsets occur in Prudhoe or Point Thomson. The AOGCC will consider a Point Thomson gas offtake rate separately and will also weigh potential losses of liquid condensates when gas is extracted from that reservoir.

The Prudhoe Bay gas offtake issue may also be connected with another matter being debated, whether a “joint-venture” marketing approach for selling LNG, where a project consortium will handle sales contracts, or “equity” marketing, where each producer markets its own share of LNG including the state of Alaska, which would own a 25 percent share of gas and LNG production under the current plan.

No decisions were taken Thursday by the AOGCC — the Commission typically takes time to consider and decide on complex issues — but Foerster said the agency’s responsibility is to ensure maximum efficient recovery of hydrocarbon fluids from reservoirs and that marketing issues will not be considered.

Prudhoe contains about 23 trillion cubic feet of proven gas reserves and about 12 billion barrels of oil still “in place” in the reservoir. There is a high degree of confidence in the ability of Prudhoe’s reservoir to perform, the companies have said. That’s because the gas has been produced for years along with oil from the field, and it is now injected to maintain reservoir pressure to aid oil production.

Point Thomson has about 8 trillion cubic feet of proven gas reserves but because the field is not yet producing there are uncertainties as to how well the reservoir will perform.

09/02/2015 - 2:46pm