Tim Bradner: Without LNG, what's our Plan B?

Tim Bradner | Alaska Journal of Commerce

I really hope this gas pipeline deal goes. It could open up a bright new future.

But we have to be realistic about the obstacles and thinking of a Plan B.

What could that be? The in-state gas pipeline plan led by the state could be part of Plan B to meet local needs, but I believe the rest of it is gas-to-liquids.

If Plan A, the big gas project, fails, the "GTL" option may be another way to commercialize stranded gas on the North Slope. This would convert natural gas into liquids, either synthetic crude oil or finished fuels like diesel or gasoline, which can be shipped to market through the Trans-Alaska Pipeline System that is now three-quarters empty.

Gas-to-Liquids is not liquefied natural gas. LNG is gas that is chilled down to where it becomes a liquid for transportation and is then regasified to a gaseous form for customers.

In contrast, GTL chemically converts the gas to finished liquid products. It's a refinery and chemical plant rolled into one.

This idea may not be popular among some Alaskans because we all want another big pipeline and a construction boom. However, the GTL alternative would be a pretty big deal too.

There are huge working GTL plants in Qatar, Malaysia and South Africa. Since a North Slope plant would be built in stages over several years, we would have a construction boomlet that could last a decade or more, instead of one big spike of activity for two or three years.

We know that a lot of the fabrication work can be done in the state because North Slope oil and gas process plants are built in Anchorage and Fairbanks and trucked as modules to the North Slope, or barged from Anchorage or Kenai.

We know about the challenges of the big gas pipeline and LNG project -- mainly, an 800-mile, 42-inch pipeline our competitors don't have to build. There are also a lot of competitors vying for our markets, including LNG plants planned for British Columbia that also involve TransCanada Corp. building their pipelines. TransCanada is proposed to be the state's main pipeline partner in the Alaska project.

A huge obstacle for our project is that it will be one of the largest, or the largest, LNG project in the world, and it can't be done incrementally -- all that 16 million to 18 million tons of LNG yearly will go on the market in a short span of time and will have to be sold. That's the belief of our partners, the major North Slope producers.

Other views exist on this. REI Alaska, a Japanese group that would like to invest in or build an Alaska LNG project, believes a project could start small and grow incrementally into the market.

But even a smaller LNG project has to overcome the economic burden of that 800-mile pipeline.

Another worry is whether we can get the skilled labor force to build the big gas project. If we have to bid up wages to get people it may blow the economics. That's what's happening in Australia, where skilled labor shortages are a major driver in cost overruns with LNG projects now under construction there.

We'll have a better handle on costs next year. The "pre-Front End Engineering and Design" work getting under way this summer on the project will give us updated estimates by late 2015. I hope we don't see the price tag go to $70 billion or $80 billion.

Larry Persily, the savvy federal natural gas pipeline coordinator for the Alaska project, believes our cost must be at the low end of the current estimate of $45 billion to $65 billion if we are to compete with LNG from plants in Louisiana. Those will have access to cheap Lower 48 shale gas and don't have to build 800-mile pipelines.

If the pipeline/LNG project doesn't look good, gas-to-liquids seems like an alternative. That would make the gas into a liquid and ship it down the underused TAPS.

But GTL has issues too. One criticism is that these plants consume 40 percent of the gas to make their products. However, that's true only if the 40 percent is just consumed and not used profitably in other ways, like waste heat. A plant on the North Slope, for example, could generate power with its waste heat and replace the current oilfield power generation that uses natural gas. Waste heat from a large GTL plant is about equal to a 300 megawatt power plant.

Another criticism is that these plants generate a lot of carbon dioxide, like coal power plants or refineries do. However, a lot of new work has been done on this, the result being a process to capture the CO2 and recycle it through the plant to make more liquid products.

On the North Slope, however, the CO2 could also be used to re-pressure the oilfields and get more oil, just as it is now planned for the gas pipeline/LNG project.

Finally, there is the problem of scale, the sheer size of these plants. That is a big deal on the North Slope, because building anything there is prohibitive. However, some very smart people in small technology companies in Texas have figured out ways to "downsize" these plants.

Previously, GTL plants had to be large to be economic. That may no longer be the case.

In any event, these problems -- waste heat use, CO2 recycling and process miniaturization -- are technical issues engineers can solve. The challenges facing the big gas pipeline and LNG project, such as the amount of product dumped on the market and labor force issues, are a lot tougher.

If we do a GTL plant as Plan B, we'd still need that in-state gas pipeline but perhaps one sized to what's needed in Fairbanks, which has no alternative for energy. In Southcentral we have Cook Inlet, where more gas is now being found.

I do hope we'll see a big pipeline and LNG project. I watched TAPS being built, and having two true mega-projects built in one's lifetime is an amazing concept. But let's be realistic too. Let's have a Plan B ready.

Tim Bradner is a writer for the Alaska Journal of Commerce.

Tim Bradner