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Parnell's 'alignment gasline' scam won't happen; Alaskans should be relieved

Jerry McCutcheon

Earlier in Alaska Dispatch I addressed the House Bill 4 gasline of House Speaker Mike Chenault and Legislative Affairs Council Chairman Mike Hawker who grossly understated their HB 4 bill's 32-inch gasline cost as only one-fourth to one-fifth of what the actual estimated cost would be in order to secure passage in the Legislature. Using the Alignment Gasline cost, $45 billion to $65 billion or more for a 42-inch gasline as reference, the HB 4 gasline would cost $40 billion to $50 billion.

Bill Walker’s commentary published in the Alaska Dispatch July 1, correctly castigated Gov. Sean Parnell for failing to hold the major oil companies to meaningful gasline goals, which belies the fact that Parnell is sponsoring a disingenuous ‘Alignment Gasline’ with BP, ConocoPhillips and Exxon Mobil Corp.

However, Walker’s portrayal of Japanese interest in North Slope gas as real is unfortunate when in fact the Japanese company, Resource Energy Inc., is just a shell, just a negotiating ploy to drive a better bargain for the gas the Japanese want from elsewhere. Elsewhere like British Columbia, where the Japanese have considerable interest. Walker’s gasline opportunism for a gubernatorial candidate is unbecoming. Just because Parnell is peddling an illusory gasline to Alaskans does not give license for Walker to also mislead Alaskans that a gasline off of the North Slope is viable or desirable.

There is not going to be a gasline off of the North Slope, nor should there be. A gasline off of the Slope is neither in the best interests of the oil companies nor Alaska’s best interests. As BP told the Legislature -- in 2002 -- once a gasline is hooked to Prudhoe Bay, the blowdown begins and oil production becomes incidental. Oil is where the money is, not gas, and there are billions of barrels of producible oil in Prudhoe Bay that will take another 50 years or more to produce. The recent Trans-Alaska Pipeline System (TAPS) property tax case disclosed at least 7 billion barrels of oil remain to be produced. I think it is more than 10 billion barrels with today's technology. The Original Oil in Place (OOIP) for Prudhoe Bay reservoir was 32 billion barrels, and it is 65 percent producible according to Exxon, and that 65 percent producible was with 1970s technology. 



The Parnell, BP, Conoco and Exxon ‘Alignment Gasline’ from the North Slope to tidewater is now down in size to 42 inches from 48 inches, transporting 3 bcfd to 3.5 billion cubic feet a day (bcfd) of methane, down from 4.5 bcfd to 5.6 bcfd, and costing $45 billion to $65 billion or more -- same as their 48-inch gasline. If the oil companies’ bigger gasline was not economically feasible, how is it that a gasline transporting 40 percent less gas and costing the same feasible?



BP, Conoco and Exxon have invested billions of dollars in gas compression and gas recycling infrastructure for the production of oil. Does a thinking person really believe the oil companies would trash that entire oil production infrastructure and sacrifice billions of barrels of oil and hundreds billions of dollars so some politicians can have an uneconomic gasline? Oil is where the money is, not gas.

There is not enough proven gas on the Slope to produce all of the proven oil on the North Slope. Proven gas is gas that is proven at the end of a drill bit, not speculative gas and that meets Securities and Exchange Commission standards for reporting. 

Some readers understand that gas provides the energy to drive the oil to the well bore. However, more importantly, the gas goes into solution and swells the oil, which reduces the viscosity, increases the mobility and the aerial sweep of the reservoir for a far greater recovery of the producible oil. Oil recovery is a function of oil reservoir gas pressure -- the greater the gas pressure the greater the oil recovery.



There is a law of oil production which states: “Maximum recovery is had when a reservoir is produced at or above the bubble point.” For Prudhoe Bay, the bubble point is the discovery pressure of 4,400 pounds per square inch (psi), now down to 3,100 psi. Why don’t oil companies raise oil reservoir gas pressure by injecting flue gas as a substitute for natural gas as suggested by the BP study commissioned by Sir John Brown when he was BP’s CEO? It is an intramural squabble between the majors as to who puts up what and who gets what; their interests in Prudhoe Bay are very dissimilar. When they get close to settling, they will sue each other again, down in Juneau again, settle and seal court records again as they have done several times before.



Would anybody in their right mind construct the World’s Most Expensive gas conditioning plant on the North Slope, by the majors own admission, to remove hydrogen sulfide, carbon dioxide and other impurities, the World’s Most Expensive 739-mile gasline to tidewater, and the World’s Most Expensive LNG terminal and expect to compete with those that have their gas at tidewater and need none of the above? Oil companies may lie, cheat and steal -- but they are not stupid.



Parnell’s ‘Alignment’ has refused to release an estimated cost of the gas as LNG FOB, Freight On Board, the tankers or where that LNG tanker terminal will be located. Parnell and the major oil companies, by saying they are still considering the location of the LNG terminal, are sucking in as many as they can, not just Valdez or Nikiski residents. Getting the hopes up of as many people as you can is a very good election gimmick. At pipeline costs of $2 billion per 100 miles, which would you choose, 739 miles or 800 miles?



LNG terminal location is a scam on top of scam, like Mayor Sullivan’s Brown Out scams, which were scams on top of the scam that Cook Inlet was running out of gas when in fact there was 1.8 trillion cubic feet of proven gas available, according to the Alaska Department of Natural Resources (DNR). The estimated gas reserves of the Cook Inlet basin are between 13 tcf and 27 tcf, according to the U.S. Department of Energy, DNR, USGS and others.

The Alignment Gasline oil companies are using LNG terminal scam just like they used the TAPS terminal location scam when I was buying property in Valdez before TAPS terminal was announced. When I was buying Valdez property, I went to see a geologist friend who had relocated to Valdez, and on a wall of his inner office were drawings of the tank farm and tanker docks laid out on old Fort Liscum.

An example of the value of gas pressure maintenance: Chevron/ARCO leased gas from Union/Marathon for $0.10 per million cubic and early in the life of the Swanson River reservoir Chevron/ARCO to repressurize the Swanson River oil reservoir. Swanson River attained three times the percentage of oil recovery as did the Cook Inlet platforms, where the gas was flared off or sold off as the gas came up with the oil.

There are more than a billion barrels of once-recoverable oil under the Cook Inlet platforms. Only 300 million barrels of that are now recoverable according to DOE, provided the oil reservoirs are recharged with gas.

Another example of gas pressure maintenance but not full gas pressure maintenance is Prudhoe Bay. Prudhoe Bay has produced an additional 6 billion barrels of oil that would not have been produced if Exxon had been able to construct a 2 bcfd gasline in the 1980s. Further, the state of Alaska would be broke today according to the Alaska Oil and Gas Conservation Commission (AOGCC) testimony to the legislative gasline hearings in Anchorage in 2008.

Parnell’s ‘Alignment Gasline Consortium’ refuses to release the estimated cost of its LNG because the public would quickly realize that the Parnell Alignment Gasline is just another gasline scam. The press needs to demand the estimated cost of the Alignment’s LNG, even if it is only range of values.

Jerry McCutcheon has followed oil and gas development in Alaska for 60 years.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch, which welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com