Gas-to-liquids offers glimmer of promise for gas producers: GTL process could use existing pipeline to get gas to market. Tests still ongoing at Nikiski.

Energy researchers and scientists around the world are working to improve existing techniques involved in the process of converting natural gas into a commercially usable liquid.

Called gas-to-liquids, or GTL, the chemical process was first developed on a production scale during World War II in fuel-poor Germany. Two German scientists are credited with discovering the catalytic conversion of "syngas" into synthetic hydrocarbons, such as transportation fuels like diesel. Syngas, already a known technology back then, is created by compressing natural gas.

The end product of the gas-to-liquids process, a synthetic "white crude," burns much cleaner than diesel, jet fuel and other petroleum-based transportation products. But a major drawback to the GTL conversion process is that it traditionally requires a large amount of fuel-an expensive and inefficient use of natural gas, particularly when comparing the end product to development of existing crude oil sources.

Yet the GTL concept continued to intrigue the energy industry. Obvious applications are stranded gas supplies around the world, where conventional natural gas transportation systems are cost prohibitive. Alaska's large supply of natural gas on the North Slope fits perfectly into that category.

A number of research laboratories have partnered with energy industry companies to further advance GTL development. Alaska's oil producers are part of that global research effort, spending millions on research, laboratory tests and construction of pilot projects.

While GTL has previously been considered more of a dark horse in the race to develop North Slope gas, it is an option that seems to be gaining momentum.

BP Exploration (Alaska) Inc. just finished construction of an $86 million GTL test plant, located on the Kenai Peninsula in Nikiski. Significant is that this plant tests several design aspects particularly applicable to such a plant operating on the North Slope.

"We're using our compact reformer technology, which is one quarter of the size of conventional technology, and that's the real breakthrough. It's not really the chemistry or the reactions," said Steve Fortune, BP Exploration's GTL program manager. "That substantially impacts a project being built somewhere particularly like the North Slope."

NORTH SLOPE GAS OVERVIEW

Since crude oil began flowing through the trans-Alaska oil pipeline in the mid-1970s, producers have been mulling over ways to commercialize an even larger energy resource located on the North Slope--natural gas.

While there's general agreement between producers and government geologists about the amount of natural gas easily recoverable from existing North Slope infrastructure--about 35 trillion cubic feet--the total resource available in Alaska's Arctic region is still an open-ended figure.

Some estimates put that possible natural gas resource at more than 100 trillion cubic feet, and that is considering only conventional gas supplies, in areas that have already been explored.

Factor in recent additional exploration that is targeting gas prospects in the foothills of the Brooks Range, work being completed by Anadarko Petroleum and Alberta Energy. Coupled with that effort is an even larger, but still unquantified, amount of gas hydrates and coalbed methane supplies on the North Slope. It's obvious that Alaska's North Slope is rich with gas energy supplies.

But the question remains--what to do with this massive resource? Conventional development would include construction of a separate, gas-specific pipeline to carry the resource to market, whether to a shipping terminal in Valdez, or south to existing gas transportation infrastructure in Canada.

Talk about a gas pipeline project ebbs and flows in parallel with market prices, government incentives and other development drivers. Yet facing each effort to commercialize North Slope gas is a stark reality--such a pipeline development project would cost billions and require immediate placement in the marketplace of large quantities of gas.

After spending $125 million throughout 2001 and in the first few months of 2002, Alaska's three largest oil producers have reported publicly that a natural gas pipeline project remains uneconomical.

Construction costs for a pipeline that would move North Slope gas from Alaska south to existing transportation systems in northern Alberta, Canada, are estimated somewhat less than $20 billion, according to Dave MacDowell. He's the external affairs director at BP Exploration, and a spokesman for the producers' group looking at the gas pipeline project.

Estimates for the gas pipeline project have a factor of 20 percent uncertainty, he added. "On a $20 billion project, that's an $8 billion spread," MacDowell said. "That's some serious dollars."

Yet representatives from Exxon-Mobil, BP Exploration and Phillips Alaska Inc. have continued to meet with a pipeline building consortium, which includes Canadian-based Foothills Pipeline Co., Williams Co. Duke Energy, Sempra Energy, Westcoast Energy, TransCanada Pipelines, El Paso, PG&E Corp. and the now bankrupt Enron.

Independently, the pipeline builders' consortium initiated the permitting process for constructing a gas line, by applying to the state of Alaska for a right-of-way, according to Sally Kornfeld, senior analyst with the U.S. Department of Energy.

Included in that process was a $5.5 million reimbursable payment to the state to create a gas pipeline office, and a similar payment to the Canadian government to start the permitting process, Kornfeld said.

"This is being considered by people at very high levels," she said. "This is big money ... it's also high risk. Not high risk with technology, but high risk for costs."

INVESTIGATING THE GTL OPTION

While the saga of the fate of Alaska's gas pipeline runs its course, Alaska's oil producers are continuing to work independently on gas-to-liquids research.

One intriguing transportation alternative involves converting North Slope natural gas into GTL and shipping it in through the existing 800-mile oil pipeline.

"That's one very interesting option for maintaining the viability of a very valuable Alaska asset," said Mike Malvick, system engineering lead at Alyeska Pipeline Service Co., the business entity that maintains and operates the trans-Alaska oil pipeline system.

"We've arrested the decline (of oil flowing through the pipeline) with production from Alpine and Northstar, but forecasts show a decline on down the road," he said. "The real key is to come up with additional liquids to transport in the pipeline."

Shipping GTL products through the existing oil pipeline was one of the highlighted topics discussed at an energy workshop held at the University of Alaska Fairbanks in early April.

Industry representatives, university faculty and government research entities gathered together to identify different barriers that block development of Alaska's oil, gas and coal resources, and to brainstorm research projects that could help open the door to development.

Already, UAF researchers have landed two Department of Energy grants to study North Slope gas transportation issues related to use of the transAlaska oil pipeline, Malvick said during his presentation at the energy workshop.

Alyeska collaborated with UAF in the two transportation studies, providing substantial information and review for researchers, Malvick said. As part of the information sharing effort, Alyeska provided crude oil samples for oil/GTL product blending experiments and supplied crude oil analysis data and pipeline operating data to support thermodynamic and hydraulic modeling.

Currently, research supports two options for shipping GTL through the pipeline, Malvick said. One would involve blending GTL products with crude oil, a method that would require less infrastructure cost initially.

A blended product could be beneficial, he said, in terms of the liquid composition being transported through the 800-mile pipe. "It's particularly interesting if heavy oil becomes a significant part of the TAPS stream," Malvick said. "There may be synergy there where you blend the two and get something mutually better and easier to transport."

One drawback to a blended flow is that the economic value of the clean-burning GTL is lost, once it is mixed with crude, Malvick said. "If you contaminate it, you have to re-refine it."

Another option is to segregate the two products, sending GTL south in batches. That method would theoretically maintain the integrity of the higher value GTL, Malvick said. "You could take it right off the pipeline and put it right into a production tank and into a distribution system for commercial outlets," he said.

Researchers have predicted some contamination could occur from residual crude oil that sticks to the pipeline walls, and in the interface between the two products, Malvick added.

Drawbacks to the batching method include higher initial capital costs, which would include construction and installation of separate storage tanks and additional changes inside pump stations to assure separation of the two streams, he said. And finally, a pure GTL flow through the pipeline could face some challenges, as the pipeline was designed specifically for crude oil transportation.

"A key (design factor) is the 14.7 psia vapor pressure," Malvick said. "We cannot exceed that without doing significant capital investment and re-permitting the system."

BP BUILDS GTL PLANT IN NIKISKI

Before Alyeska starts preparing for GTL shipments, a conversion plant must first be built on the North Slope. BP Exploration has taken one step toward that goal by constructing a GTL test plant in Nikiski.

Several aspects unique to this GTL plant will test design and technology processes specifically applicable to the North Slope, according to Fortune, who is overseeing construction and start-up of the facility.

In particular is the size of the Nikiski plant, which is about one-fourth the size of a conventional GTL plant already built and operating in Trinidad, he said.

The size reduction allows for a more compact, module-style construction, thereby reducing expenses.

"Most think that if we build this on the North Slope, we have to modulize it and (move it by) sea lift," Fortune said.

"So the actual cost of your modules is smaller and the sea lift is smaller ... you can see how the effect of making everything smaller can compound and produce quite a significant savings for a project on the North Slope."

The Nikiski plant also will recycle 97 percent of water produced in its conversion process, Fortune said, another factor that would enable such a facility to operate on the North Slope.

"That helps reduce the actual amount of freshwater needed," Fortune said. "That helps for somewhere like the Slope, which is an Arctic desert, where water is not in abundance. That's another unique characteristic to our reformer."

The BP Exploration plant in Nikiski also recycles hydrogen produced in the first stage of the GTL process, using that as a fuel for the catalytic conversion. That greatly reduces the amount of natural gas needed to fuel the plant, helping to improve the efficiency and the economics of the project, Fortune said.

"We've got some clever engineering to try to make this reaction much more efficient," he said. "Theoretically, it's only 78 percent thermally efficient, so there are some challenges in there, trying to make this a commercial application and a process that will really work, and to try to recover some of our energy back."

BP Exploration expects the Nikiski plant to convert about three million cubic feet of natural gas into 300 barrels of liquids each day, Fortune said. Although the end product fuels--diesel, jet fuel and naphtha--will have a higher value, due to their clean-burning attributes, sales will not offset the $86 million capital costs, he said.

"Our return on the process is very negative--we're really doing this to prove the technology," he said.

Yet the GTL process could open other development doors for the use of North Slope gas. With no sulfur, very low nitrogen levels and no aromatics, GTL products meet new federal regulations for fuel products.

"From an environmental aspect, the fuels are very superior, highquality fuels that are produced," Fortune said. "That opens the door to, not just transportation fuels, but other chemical feedstocks and power fuels in the GTL process."