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Are North Slope producers sending propane down the drain?

Alex DeMarban

Why can't one of the world's largest oil companies provide a tiny amount of propane to help reduce towering energy costs in Alaska?  

That was the central question fielded by state oil-patch regulators on Tuesday, as the Alaska Oil and Gas Conservation Commission heard arguments in an investigation into possible propane waste at North America's largest oil field.

Many Alaskans want access to the propane, which rises to the surface as a byproduct of oil before most is reinjected back into the ground. In scores of rural villages, a sliver of that propane would provide a cheaper alternative to "catastrophic" heating fuel costs that hammer family budgets each winter, said Marcia Davis, general counsel for Calista Corp., the regional Native corporation for much of Southwest Alaska.   

"We're looking for any and all alternatives in our region because the diesel fuel costs are going to kill us," Davis, a former deputy Revenue commissioner, told a reporter at the meeting.

'Talk to the hand'

Companies poised to purchase, store and distribute that propane have approached BP Alaska about the idea, said Harold Heinze, the former head of ARCO Alaska who requested the investigation as a private citizen. But he said BP doesn't want to talk.  

"I encountered a 'Talk to the hand,' " Heinze told two of the three commissioners who attended. "It was very hard to find out anything. I have lot of concern as to why even minimal volumes of propane could not be made available."

The Alaska market for propane is tiny. A 2009 study found that it provides about 1 percent of the state's energy needs. But advocates say that sliver is growing. The Alaska Natural Gas Development Authority, where Heinze worked for years until recently leaving, has worked with shipping companies and others to create a statewide distribution plan.

BP officials -- at least seven of them helped fill the small hearing room -- said there's no wasted propane at Prudhoe.

More than 100,000 barrels of propane are injected back into the ground each day. Around 70,000 barrels helps pressurize the reservoir. Close to another 40,000 barrels a day is used to create miscible injectant, a fluid that improves oil recovery and has helped BP suck up 2 billion barrels more oil than originally thought possible.

Propane used to produce more oil

Making propane available for in-state use means BP has less for making miscible injectant, and therefore recovers less of the valuable oil that fuels the state economy, Janet Weiss, BP's vice president of resources, told the commission.

Compounding problems is that while the London-based oil giant is a Prudhoe Bay unit operator, they're just one voice. BP owns 26 percent, while Exxon Mobil Corp. and Conoco Phillips own 36 percent each.

To free up propane, BP would need to upgrade its gas-processing facility at Prudhoe Bay. But is the market for propane substantial enough to pay for that work? The oil companies don't see how such an overhaul would pay off, Weiss said.  

Suppose there was a lucrative market for propane in Alaska, suggested Commissioner John Norman, who attended the hearing along with Commissioner Cathy Foerster. Daniel Seamount, another commissioner, was absent.

"The owners would certainly consider that," said Weiss.

Only 500 barrels needed 

Heinze said only 500 barrels are needed to jumpstart an effort to market propane. Making that much available for in-state use would not be difficult or costly for BP, and demand would soon rise.  

He believes the fuel is being wasted in the short term because it's not being made available for Alaskans. And it’s possible the gas reinjected back into the ground will never be recovered, Heinze said.  

"I'm sitting here today because there is an opportunity to do something," he said. "The failure to produce looks a lot to me like burning it, throwing it on the ground."

The Northwest Arctic Borough has been a strong proponent of the in-state propane plan. Under it, Prudhoe Bay propane could be shipped by trucks down the haul road to Fairbanks, with distribution by river barge to dozens of villages. As demand grows, barges could cross the Arctic Ocean from Prudhoe Bay during warmer months to reach Northwest Alaska communities.

The plan could also help the Bristol Bay region, said Nels Anderson, a former energy advisor to ex-Gov. Sarah Palin. He said he had come to the meeting to make sure the commission takes a serious look at the possible waste.

Rural Alaska energy crisis

"I want to get the propane ripped out of that oil company so we can start using it for lowering the cost of energy in Alaska," he said.

"Rural Alaska is in an energy crisis, but no one really seems to care about it," said Anderson, a former Dillingham resident and the original chief executive of the Bristol Bay Native corp.

The Calista Native corporation, meanwhile, believes the huge natural gas pipeline the state wants built won't bring energy to more than 50 villages in the Yukon-Kuskokwim Delta. Calista wants to build a road between the Yukon and Kuskokwim rivers, where a 72-mile portage between Russian Mission and Lower Kalskag connects Alaska's two largest rivers.

Propane that's been trucked down the haul road to reach Fairbanks could travel by river barge to reach dozens of villages, Davis said.

After BP had presented its arguments, Heinze told a reporter during a break that the company is looking for reasons not to provide propane for in-state use, instead of looking for ways it can.

Contact Alex DeMarban at alex(at)alaskadispatch.com