2nd pipe dream nearer reality in Alaska's north

Economic viability rises with Lower 48's need for natural gas

Cost could top $10 billion

May 29, 2001|By Marego Athans | Marego Athans,SUN NATIONAL STAFF

PRUDHOE BAY, Alaska - For three decades, this place has been all about oil, an eerie-looking industrial complex of wells, rigs, turbine engines, trucks and worker camps plunked down in the middle of nowhere, all feeding the trans-Alaska pipeline, which has carried 13 billion barrels of crude to market since 1977 and transformed Alaska into a modern society.

Natural gas was discovered in abundance here while companies were drilling for oil, but much of it has been injected back into the ground for later use because there was no way to get it to market.

Now, in a telling example of the changes sweeping through the U.S. energy market, the focus at Prudhoe Bay is turning to natural gas. The energy companies that control the fields here are gearing up to build a second pipeline stretching 1,600 to 2,000 miles to Alberta, Canada, twice the length of the original oil pipeline. This pipeline will transport the stranded gas to energy-hungry markets in the Lower 48.

In contrast to the fight between oil companies and environmentalists that has erupted over possible drilling for oil in the Arctic National Wildlife Refuge to the east, there is no large controversy over tapping the known gas reserves beneath the tundra.

The North Slope has known reserves of 35 trillion cubic feet of natural gas and estimated reserves of 100 trillion cubic feet. The United States consumes 22 trillion cubic feet of natural gas each year, and demand is expected to increase 30 percent by 2010 as power companies continue to shift to gas from fuels that pollute more, such as coal and oil.

"This project will be the largest pipeline in the world, longer than the Great Wall of China," said Curtis Thayer, spokesman for the Alaska Gas Producers Pipeline Team, which is studying the project. "The trans-Alaska pipeline had never been done before, and this kind of falls in that same bailiwick of forging new ground."

The pipeline would carry about 1.5 trillion cubic feet of gas a year to the lower 48, Thayer said, estimating that the life span of the proven reserves is about 24 years. "If you carry that out to the potential 100 trillion [estimated reserves] the life span on the North Slope is 60 to 70 years," he said. "That's just the gas we know is there, without even looking for it."

Discoveries are being made on Alaska's North Slope, as oil companies explore to the west of Prudhoe Bay in the National Petroleum Reserve, opened for exploitation by President Bill Clinton in 1998. Last week, Phillips Alaska Inc. announced the discovery of three oil and gas fields there that together rank among the largest domestic discoveries of the past decade.

In the hope and anticipation that the extraction of natural gas in this remote, frozen world would one day make commercial sense, oil interests in the mid-1980s constructed the world's largest gas-processing plant here, a huge structure a quarter-mile in length, nine stories tall, and filled with turbine engines, pipes, compressors, vacuums and startlingly few human workers. Outside the building, flares burn off excess gas.

The plant separates the product that comes out of the ground, which is 92 percent natural gas, 5 percent water and 3 percent oil, and injects gas back into the ground to keep pressure on the oil and ease pumping. The plant processes 8 billion cubic feet of natural gas each day, an amount equal to the daily consumption in Japan, said Ronnie Chappell, a spokesman for BP PLC (the former BP Amoco), the other major oil producing company operating here.

Oil and gas companies had considered building gas pipelines from Prudhoe Bay before, but the costs of transportation and construction over the rugged terrain seemed prohibitive at a time when natural gas was abundant and cheap in the lower 48. Now, oil production in Prudhoe Bay is declining as demand for natural gas rises. And advances in pipeline-construction technology make building more economical.

Amy Jaffe, senior energy adviser at the James A. Baker III Institute for Public Policy at Rice University, said the energy companies think they could profitably deliver natural gas from Prudhoe Bay to the Midwest at $2.25 to $2.50 per million British thermal units.

"That's a much lower price than we're currently seeing in the market," she said. Last week, natural gas was trading at $4.125 per million British thermal units, double the price gas was trading at during much of the past decade.

The $2.25 price is "the price we're all used to, that allowed cheap electricity in California, that allowed all of us to think energy was unlimited," Jaffe said.

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