North Slope oil and gas producers are now focused on a large- diameter pipeline to a south Alaska port and a liquefied natural gas (LNG) export plant, thanks to Gov. Sean Parnell's initiatives. By the end of September, the companies are due to submit a plan to Parnell laying out how they will tackle the project.
The state Senate hasn't helped this effort, however, by stonewalling efforts by the governor and the state House to adjust state oil taxes to encourage more investment in both oil and gas.
The companies have said that gas production for a gas pipeline won't be economic without an economically healthy oil production business that supports it. Oil and gas are produced together, using the same facilities, and the oil basically pays the bills for maintenance and support of those facilities.
Without oil, gas production doesn't work. We shouldn't blame all senators, of course. Some made an effort. I recognize there are different views of this, and the oil tax change will be back in 2013.
I want to focus, however, on two related topics that haven't received a lot of attention. One is the natural gas liquids that will be produced along with the gas; second is the relationship between a small- diameter in-state pipeline, possibly built with state help, and the larger pipeline.
North Slope gas is "wet," meaning that when it's produced it contains a mixture of gas liquids like propane and butane mixed with the methane, the main component of natural gas.
Cook Inlet gas, in contrast, is "dry" and is almost pure methane. If 4.5 billion cubic feet a day of North Slope gas is produced for a gas pipeline, about 130,000 barrels a day of gas liquids are also produced.
Methane is typically used for space heating and power generation. Ethane, a slightly heavier molecule, is often used for petrochemical manufacturing, and is light enough that it can be moved with methane in gaseous form through a pipeline.
Then come heavier liquids like propane, butane, pentane and on, all with heavier, more complex hydrocarbon molecules and physical properties that require special handling.
These heavier liquids can't be moved with methane in a typical lower-pressure pipeline (operating at about 1,400 pounds per square inch, or psi), but can be moved in a thick-walled pipeline operating at high pressures (2,500 psi).
This high-pressure "dense phase" pipeline is what TransCanada has proposed for the all-land line to Alberta. All the liquids would move to Alberta along with the methane through this pipe, and there are industrial customers in Canada willing to buy them.
But now we could have a pipeline, most likely to Valdez, and an LNG plant. Of course, this pipeline could still be built to operate in "dense phase" to move the liquids, but then what is to be done with them in Valdez? Petrochemical plants? Direct exports?
If the pipeline winds up being built to the Anchorage and Kenai areas, the same problems exist but there is more of an industrial infrastructure near Kenai and more possibilities of commercial sales.
I would bet, however, that the companies will choose Valdez because of the synergies of building the gas line parallel to the oil line, the advantages of co-locating the LNG plant near the existing oil-loading terminals at that city, and the navigation advantages of Prince William Sound over Cook Inlet for large LNG tankers.
Interestingly, Valdez was selected over Kenai in the late 1990s by an industry consortium working on LNG that included some of the same companies working on this today, including BP, ARCO (now Conoco Phillips), and Foothills Pipe Lines, now TransCanada. The project was not built, however.
Natural gas liquids are one of many questions facing this project. One interesting idea is that a state-assisted small- diameter pipeline that could be built early to move gas to Fairbanks, and possibly to Anchorage if needed, could be later converted to a liquids pipeline to move the gas liquids if a big line is built.
This could help the larger project by allowing it to be built as a lower-pressure, less expensive pipeline, and it would bring many of the liquids to Interior and Southcentral for use as fuel (the propane) or in petrochemical manufacturing (the ethane).
If only the northern North Slope-to-Fairbanks leg of the in-state pipeline is built, which assumes enough new gas discovered in Cook Inlet so that the southern end is not needed, the gas liquids could be moved from Fairbanks by the Alaska Railroad, which has demonstrated its ability to efficiently move large quantities of bulk liquids.
I can't claim credit for this idea. That should go to Richard Peterson, a friend of mine who is working on a gas-to- liquids project, and who has been remarkably on-target with his predictions for Alaska's gas. Years ago Peterson foresaw, correctly, that the Lower 48 gas market would ultimately not support a large overland pipeline.
Peterson has been right about a lot of other things because he looks at them from an independent viewpoint. He isn't tied into any politically correct view on gas. Peterson isn't shy about sharing his advice, either, but politicians often don't like to hear it because it's usually given bluntly.
In any event, Peterson thinks a 24-inch pipeline, the size now contemplated for the in-state line, is too small for gas and too big for gas liquids. A 16-inch line would be more practical because this could easily accommodate Fairbanks' and Anchorage's short-term gas needs and later, when converted to a liquids line, would have the capacity to move up to 130,000 barrels a day of gas liquids.
Such a plan would solve the biggest worry Alaskans have about an in-state line, that its investment would be stranded, or wasted, when the big line is built. It would get gas to Fairbanks sooner and also make a large volume of gas liquids available to the interior for heating and in Southcentral Alaska for manufacturing.
Innovative thinking like this may or may not be workable, but it's the kind of thing we need. It's too easy to get locked into one kind of thinking about something like an in-state gas line. We need more people like Dick Peterson, who think more creatively.
Tim Bradner writes for an Alaska economic reporting service. He also consults for private clients and writes for business publications. His opinion column appears every month in the Daily News.
By TIM BRADNER