Crews begin foundation work on Kenai gas-to-liquids pilot plant

KENAI -- BP Exploration (Alaska) Inc. has received the remaining permits it needed to begin construction of a pilot plant in Nikiski to test technology for turning natural gas into synthetic crude oil.

"We started bringing in craft labor yesterday," Ken Konrad, senior vice president for BP said during a meeting Feb. 20 of the Alaska Support Industry Alliance in Kenai.

The plant is scheduled to begin operating early in 2002. Kvaerner Process Technology Ltd, a Dutch firm, is providing engineering, construction management and procurement. Austin Industrial, based in Houston, is doing the heavy construction, and Udelhoven Oilfield System Services will install electrical instrumentation.

Workers have erected a tent 100 feet wide, 160 feet long and 40 feet tall at the site, said Gary Ramberg, construction manager for Austin Industrial.

Now, they are using steam and heaters to thaw the ground. With recent warm temperatures, they have been able to raise the temperature in the tent to as high as 56 degrees, he said.

Once the ground is thawed, Austin Industrial will excavate and pour the plant’s foundation, all in the heated tent. By May, workers should be building the structure, he said.

Austin Industrial and Udelhoven are screening job applicants and hiring through the Peninsula Job Center at the old Carrs mall in Kenai. Ramberg said Austin Industrial brought about eight managers from outside Alaska and will hire the rest of its workers here. It has hired about 25 people and should have 50 people on the job by early March, he said.

Right now, Austin Industrial is looking for civil workers such as earth-moving and heavy-equipment operators.

"We’ve gotten a bundle of applications," Ramberg said. "We need people, and all of our resources are coming from this area."

About half the $86 million budget for the project will go for purchase of steel, pipe, valves, vessels, control systems, design and engineering, BP officials said. About $40 million will be spent to buy goods and services in Alaska.

"We bid everything competitive, and we take competitive quotes," Ramberg said. "Everything is coming from the peninsula first and then from Alaska."

About 20 Alaska contractors already have been hired, about half of which are Kenai Peninsula companies or peninsula branches of larger operations. Peninsula contracts include Northland Drilling, Alaska Petroleum Contractors, Big G. Electric, ArcTech, Peninsula Sanitation, L&J Enterprises, McLane Consulting, Nikiski Medicenter, S&R Enterprises, United Rental, and Best Water Products. The remainder of the contracts are to Anchorage operations.

Konrad said the construction workforce should reach about 200 people this spring and summer, then taper off toward the end of the year. Once the plant is finished, it will employ 15 to 20 operators and produce roughly 300 barrels of synthetic crude daily, BP has said. By way of comparison, the nearby Tesoro Alaska Co. refinery can process up to 72,000 barrels of crude per day.

If BP can prove the technology in Nikiski, Konrad said, it will consider building a production-scale plant, producing 80,000 to 100,000 barrels of synthetic crude per day, on the North Slope. It also will consider building gas-to-liquid plants elsewhere around the world.

BP has said the Nikiski gas-to-liquids plant will operate for about five years. After that, BP could tear it down or use it for additional research projects.

Konrad said BP still is exploring three options to bring North Slope natural gas to market. Those are a gas-to-liquids plant on the slope, which could produce synthetic crude for shipment through the trans-Alaska pipeline; a gas pipeline to Nikiski or Valdez, where the gas could be cooled to a liquid for shipment to Pacific Rim buyers; or a gas pipeline to reach Lower 48 markets.

"At this point, it seems that a pipeline to access the North American market, which is the most vibrant market in the world, would be the lead contender," he said.

The three major owners of North Slope gas, BP, Phillips Alaska Inc. and Exxon Mobil Production Co., are examining two possible routes -- one from Prudhoe Bay to Fairbanks, then down the Alaska Highway to Alberta, Canada and one from Prudhoe Bay through the Beaufort Sea, then down the Mackenzie River valley to Alberta.

By the time a gas line is built, Konrad said, the existing Canadian distribution system will be full, so the companies also are exploring the feasibility of expanding the capacity of existing pipelines or building new pipelines from Alberta to the Lower 48.

BP understands Alaskans’ desire to access North Slope gas, he said, so with their analysis of the Mackenzie route, the companies are exploring the feasibility of an Alaska spur. What that would cost and who would pay are part of the study, he said, but if the Mackenzie route proves substantially less expensive than the Alaska Highway route, there could be funds available to subsidize an Alaska spur.

Kenai Peninsula Borough Mayor Dale Bagley asked whether the companies have ruled out an independent LNG project in Nikiski or Valdez. Konrad said nothing has been ruled out. BP is part of an industry consortium that still is exploring that idea.

"Right now, it doesn’t appear to be a compelling economic case," he said.

However, the gas owners are exploring whether an LNG project would fly as a spin-off to the Lower 48 pipeline, he said.

Konrad said they will build excess capacity into the Lower 48 line, but market forces will determine whether future Alaska projects, such as an LNG project or a chemicals plant, plug into the pipe.

"If there is a call for the gas, may the highest bidder win," he said.

Updated: 
03/03/2001 - 8:00pm

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