Alternative fuels: options and obstacles: Fischer-Tropsch and dual-strategy dynamics.

• Author: Bradner, Mike
• Position: OIL & GAS

Things appear to be off to a good start for the large North Slope natural gas project. The consortium of producing companies, pipeline company TransCanada Corporation and the state's Alaska Gasline Development Corporation, or AGDC, have signed a Joint Venture Agreement for a $500 million pre-Front End Engineering and Feasibility study, so called pre-FEED, and have applied for a federal permit to export liquefied natural gas, or LNG, to markets outside the United States.

However, huge obstacles remain. The world seems awash in LNG, and new projects are being planned, many at more advanced stages and without some of the disadvantages of Alaska's, mainly the need to build a new eight hundred-mile pipeline.

By late 2015 or early 2016 Alaskans will have a reality check. By then the results of the pre-FEED will be in, including an all-important updated cost estimate.

If the project costs have increased much beyond the current estimate of $45 billion to $65 billion, it may cause the project sponsors to pause. Independent analysts have estimated that Alaska will have to have a project in the $50 billion range or lower to compete in Asia markets with low-cost US shale gas converted into LNG.

LNG from new plants on the US Gulf Coast, using shale gas, will have a longer shipping route to Asia than LNG from Alaska, but the high costs of the Alaska project may overwhelm its location advantage.

Natural Gas Options

If the big gas project doesn't go, what then? For one thing, a smaller state-built gas pipeline project, such as one still being planned by AGDC as a backup option, could still be built to move gas to Alaska communities, although the state would have to foot much of the bill.

But what of those huge remaining North Slope natural gas resources? The first option would be to use as much of the gas as possible to continue oil production. For example, the gas facilities at Point Thomson now under construction are designed to be used three ways: to produce a condensate liquid while re-injecting the produced gas, which is the first stage of the project; to produce gas for a gas pipeline; or to produce gas, ship to the Prudhoe Bay oil field, and use it to re-pressurize Prudhoe and produce more oil.

If the gas pipeline is not feasible, the Point Thomson owners will first seek to increase the size of the ten thousand barrels-per-day gas condensate project that is set to begin operation in 2016, but there may be limits to the extent this can be increased. Given that, absent a large gas pipeline much of Point Thomson's gas may be used to produce more oil...