In the coming weeks, as icy winter temperatures moderate on Alaska's North Slope and industrial ice roads begin to melt, Exxon Mobil Corp. will wrap up winter construction at its Point Thomson natural gas project.
During this year's December-to-May operations, Exxon began building a 22-mile pipeline that is designed to carry liquid natural gas condensates from the company's Point Thomson wells to the oil fields of Badami. From there, Exxon would divert the liquid fuel into a pipeline spur that carries oil to the Trans-Alaska Pipeline System.
Exxon's Point Thomson facility is the first production site built in the remote north-central Alaska region. The company's leases, which include onshore and offshore lands, are located 60 miles west of Prudhoe Bay just outside of the Arctic National Wildlife Refuge.
Operating off three onshore pads, Exxon is proposing to tap the liquid natural gas condensates under the Beaufort Sea by using directional drilling technology. The company estimates that the area holds 200 million barrels of condensate.
By 2016, Exxon expects to be producing 10,000 barrels of condensates per day at the Point Thomson site.
But the liquid gas condensate project is just an appetizer on the rich menu of energy options available at Point Thomson. The region also holds 8 trillion cubic feet of dry natural gas, almost a quarter of the 35 tcf of natural gas reserves available on the North Slope.
The multinational energy giants that pump oil in northern Alaska regularly encounter pockets of dry natural gas. But unlike the liquid condensates, the dry gas cannot be shipped in an oil pipeline.
Instead, the companies have been reinjecting it into their oil wells to boost production.
All of that could change if a consortium of energy companies proceeds with a recent proposal to build a large-scale natural gas pipeline from the North Slope to an LNG export terminal along Alaska's southern shores.
BP Alaska, ConocoPhillips Alaska, Exxon and TransCanada Corp. are in discussions with Alaska Gov. Sean Parnell (R) to build the pipeline, which they estimate could cost between $45 billion and $65 billion. So far, however, the companies haven't committed to building the project (EnergyWire, Feb. 19).
Dan Sullivan, commissioner of the Alaska Department of Natural Resources, argues that Exxon's Point Thomson gas condensates facility is evidence that the industry is warming to the idea of building the large-scale natural gas pipeline.
"Their initial project is 10,000 barrels a day of liquids," Sullivan said. "That's modest in Alaska. But the amount of capital that they're putting into this is very large.
"A very significant part of the infrastructure that [Exxon] is putting in for phase one could be utilized for gas commercialization," he noted. "It's always hard to read the minds of companies, but we see this as a pre-investment for gas commercialization."
The state's hope was reinforced early this month when Rosneft chief Igor Sechin announced that his firm is working with Exxon to build an LNG plant to export Point Thomson gas into the Asian market.
Sechin's comment, reported by the energy media, came two months after Rosneft and Exxon entered into an agreement giving the Russian company the opportunity to acquire a 25 percent interest in Exxon's Point Thomson facility.
However, Exxon officials are playing down the importance of Sechin's remarks. David Eglinton, head of Exxon Mobil's media relations, said the company's deal with Rosneft is not connected with the Alaska natural gas pipeline project.
"The announcement of potential Rosneft entry into Point Thomson does not impact the near term work associated with the gas commercialization/LNG concept selection," Eglinton said in an email. "We decline to speculate on future developments."
Decades of battle
In early 2012, Exxon, BP and ConocoPhillips signed an agreement with Alaska settling a seven-year legal dispute over the pace of energy development at Point Thomson. All three firms hold leases in the region, with Exxon owning the controlling interest and acting as field operator for the project.
The story of Point Thomson began in 1965 when Richfield Oil, Humble Oil and BP Exploration first acquired state leases at the 93,000-acre site. Industry interest mushroomed in the 1970s, when Exxon discovered significant reserves of oil and gas.
After drilling a series of exploratory wells, however, Exxon and the other companies stopped development at the site in 1983, focusing instead on their rich North Slope oil wells.
Twenty years later, Alaska regulators ruled that the companies had defaulted on the terms of their leases, triggering a lengthy legal battle over control of the state lands.
Last March, the energy companies agreed to begin producing natural gas condensate by the winter of 2015-2016. Under the terms of the accord, the companies would lose part of their lease acreage if they miss the deadline.
The settlement also requires the companies to build a 70,000-barrel-per-day pipeline from the Point Thomson wells to the Badami oil pipeline. Sullivan said the oversized pipeline will be open to other companies developing oil and gas condensates in the region.
"We think this is going to spur a lot more interest in this part of the state," he said. "Now, if you're a small company and you go out and find something, you would have a way to get it to market."
In October 2012, Exxon received its final U.S. Army Corps of Engineers permits opening the door for construction of roads, a gravel mine, an air strip, a coastal barge docking facility and pipelines on its Point Thomson leases.
However, Exxon's most difficult task may lie ahead. Exploiting the Point Thomson natural gas reserves is far more challenging and expensive than developing the North Slope's oil and gas fields.
Geologists refer to the Point Thomson field as a "retrograde gas condensate reservoir," which is significantly deeper than the Prudhoe Bay or Kuparuk fields and is under three times as much pressure.
Because of the reservoir's high pressure, the company must use heavier-duty equipment than normal, which will increase the cost of developing the field.
To extract the natural gas condensates, Exxon Mobil plans to cycle the natural gas coming out of the wells, stripping the condensates from the mixture and reinjecting the dry gas into the ground.
Whether Exxon's Point Thomson project will lead to construction of a large-scale natural gas pipeline is open to debate in Alaska.
State officials have been pressing the energy industry to build a pipeline for more than 30 years, ever since the companies completed work on the 800-mile trans-Alaska crude oil pipeline.
This time around, the proposal to build a large-scale natural gas pipeline could be complicated by the state Legislature's recent decision to back a smaller intrastate pipeline.
That project, which was approved Friday, would focus on bringing North Slope natural gas to Fairbanks and central Alaska in hopes of easing the region's soaring winter energy prices.
The Legislature allocated $400 million to study construction of the intrastate pipeline and set a maximum capacity for the project of 500 million cubic feet of gas per day. The total cost of the pipeline was estimated at $5 billion to $10 billion. Pipeline supporters say the project could start shipping gas by 2019.
By contrast, the large export pipeline proposed by BP, ConocoPhillips, Exxon and TransCanada would have a daily shipping capacity of 3.5 billion cubic feet of gas.
Some experts warn that by focusing money and attention on the small pipeline project, the state is confusing Asian companies that are interested in buying Alaska natural gas.
Bill Walker, general counsel for the Alaska Gasline Port Authority, said he recently received a call from Mitsubishi executives who were concerned that Alaska is turning its back on the larger export pipeline.
At an Anchorage Chamber of Commerce forum, Walker related that the Japanese executive wondered if Alaska is scrapping the large pipeline.
"He said, 'We're confused, Bill. Are you starting over again with a smaller project? Why are you not working on the larger project? What's going on?'" Walker recalled.
At the very least, Exxon's Port Thomson natural gas facility could provide a small, 10,000-barrel-per-day boost to the output of the Trans-Alaska Pipeline System at a time when North Slope oil production is steadily declining.
But state officials have far loftier goals for the project.
They suggest that Point Thomson has the potential to convince energy companies to build the long-awaited natural gas export network that could make Alaska a serious player in the international natural gas market.
Want to read more stories like this?
E&E is the leading source for comprehensive, daily coverage of environmental and energy politics and policy.
Click here to start a free trial to E&E -- the best way to track policy and markets.