NATURAL GAS:

After 30 years of struggles, Exxon lays groundwork for project of 'unprecedented complexity'

POINT THOMSON, Alaska -- On the coast of the frigid Beaufort Sea just west of the Arctic National Wildlife Refuge, Exxon Mobil Corp. is building a $4 billion natural gas extraction facility that could help make Alaska an important player in international liquefied natural gas markets.

Over the past two years, the company has assembled a small village on the flat marshy tundra -- the first energy production site ever built in this isolated North Slope region 60 miles east of Prudhoe Bay.

So far, the Point Thomson facility includes a 55-acre central gravel pad, a high-tech airstrip, a service pier for barges, and offices and living facilities for up to 800 workers. Exxon has also drilled and capped two gas wells at the north end of the site and plans to sink a third at its west pad, which is now under construction.

On a cold, windy day in late July, Exxon workers at this remote production site were gearing up for a hydrological test of a new 12-inch pipeline system, which is designed to carry gas condensates from Point Thomson to the Badami oil field 22 miles away.

There, the pipeline will hook into a common carrier line that will transport the fuel to the Trans-Alaska Pipeline System.

Beginning in early 2016, Exxon plans to ship 10,000 barrels of gas condensates each day from the Point Thomson facility.

But long term, the oil giant has far loftier goals for its isolated Arctic facility. Exxon sees Point Thomson as the critical first step in a multibillion-dollar plan to sell Alaskan natural gas to energy-hungry Asian consumers.

In information sheets provided to reporters on a recent tour of Point Thomson, Exxon described the gas condensates operation as the "foundation for commercialization of natural gas" on Alaska's North Slope.

"We're not spending $4 billion to produce 10,000 barrels a day of liquids," project manager Nate Sanborn noted at lunch.

The Point Thomson leases are known to hold at least 8 trillion cubic feet of conventional natural gas reserves. An additional 26 tcf of natural gas is available at the oil industry's Prudhoe Bay oil fields.

Commercializing the natural gas at the two sites, however, will require construction of an extensive and expensive new gas infrastructure.

To make that happen, Exxon is taking the lead in a joint venture known as the Alaska LNG Project, which would build and operate a sprawling gas operation (EnergyWire, July 7).

Under the proposed project, gas from Point Thomson and Prudhoe Bay would be piped to a North Slope gas treatment plant and shipped through an 800-mile, 42-inch pipeline to southern Alaska.

There, the gas would be supercooled at a new liquefaction plant at Nikiski on the Kenai Peninsula, then shipped to consumers from a nearby export terminal.

To realize the multifaceted plan, Exxon is teaming up with BP Alaska, ConocoPhillips Alaska, TransCanada Corp. and the Alaska Gasline Development Corp., an independent, public corporation that represents the state's interests in the project.

"This is a project of unprecedented scope and unprecedented complexity," said Exxon's Steve Butt, senior project manager of Alaska LNG. "It's going to take unprecedented collaboration to make it go.

"There's no project that has a gas treatment plant this big, a pipeline this big and the LNG plant this big that is integrated," he noted.

The total price tag for the colossal venture is estimated at between $45 billion and $65 billion. Gas shipments would begin in 2025-2026, according to state officials.

The proposal is currently in the early engineering and environmental field work, or pre-FEED, stage.

Last month the joint venture took an important step forward, applying to the Energy Department for a permit to export up to 20 million metric tons of LNG a year from the planned Nikiski facility.

At a recent visit to Alaska, DOE Secretary Ernest Moniz promised to fast-track Alaska LNG's export license application, despite the long line of other projects in the queue.

Moniz noted that LNG export proposals in the lower 48 states must undergo a lengthy public interest assessment to determine whether they will affect national gas markets.

But such a review isn't required for the Alaska project, he said, because the state isn't linked with the continental U.S. gas market.

Oil trumps initial gas efforts

Exxon's Point Thomson development is the product of more than 30 years of conflict between Alaska and the state's major oil producers over the pace of natural gas development on the North Slope.

The story began in 1965 when Richfield Oil, Humble Oil and BP Exploration acquired the first state leases at Point Thomson and subsequently discovered significant oil and gas reserves at the 93,000-acre site.

At around the same time, however, the energy giants also discovered a mother lode of oil at Prudhoe Bay. In the 1970s, the oil companies built the Trans-Alaska Pipeline System to carry crude from their Prudhoe Bay fields to an export terminal in Valdez.

The state approved development of the Point Thomson unit in 1977, and the companies drilled 17 more wells in 1983. But they never moved forward with development of those sites or construction of infrastructure to carry the gas to market.

Finally in 2006, former Gov. Frank Murkowski (R) accused the oil companies of warehousing the gas and moved to terminate the Point Thomson leases. Exxon is the unit operator at the site, but BP and ConocoPhillips continue to hold working interest in area leases.

Murkowski's action triggered a lengthy legal battle that ended in early 2012 when the three firms signed a settlement with the state.

Under the pact, the oil companies agreed to begin producing natural gas condensates at Point Thomson by the winter of 2015-2016. Exxon, BP and ConocoPhillips would lose part of their lease acreage if they failed to move forward with that operation.

The accord also laid extensive groundwork for the companies to begin work on the current proposed cross-Alaska natural gas pipeline project.

With the Point Thomson dispute behind them, the three oil producers teamed up with TransCanada to study a gas line project that would carry their North Slope gas to southern Alaska.

Previously, each of the companies had taken part in various partnerships aimed at building a pipeline to the lower 48 states. By 2012, however, the continental U.S. was awash in natural gas thanks to the advancement of hydraulic fracturing technologies at shale gas sites across the nation.

During 2012 and 2013, Exxon and its partners spent $100 million to take a hard look at the viability of their gas export proposal.

Early this year, the multinational oil companies and the state of Alaska signed a preliminary agreement to partner on the multibillion-dollar pipeline business enterprise.

In April, the Alaska Legislature gave the green light for the Alaska Gasline Development Corp. to take an equity position with Exxon, BP, ConocoPhillips and TransCanada on the project (EnergyWire, April 22).

Two months later, the five parties signed the joint venture agreement to begin $500 million in pre-FEED work. That assessment is expected to be completed in 18 to 20 months.

From there, the partners will decide whether to begin more advanced engineering and design work, otherwise known as FEED. That second phase could take two to three years to complete and cost more than $1 billion.

The industry partners and Alaska are not expected to make their final investment decisions until the FEED studies are completed. But the high price tag of the second round of work could well signal whether the companies are committed to moving forward.

Summer strides

In late summer, Exxon secured its latest state air pollution permit for the Point Thomson operation, this one covering construction and drilling equipment needed to complete the gas condensates project.

At the North Slope site, company wildlife experts demonstrated a state-of-the-art radar detection system that Exxon is using to monitor polar bears that wander onto the Point Thomson site (EnergyWire, Aug. 4).

Meanwhile, heavy equipment crews moved tons of gravel into position to level the west drilling pad and connecting roads. The gravel base must be 6 to 8 feet deep to protect the permafrost from environmental damage.

During the last two winter work seasons, Exxon extracted 2 million cubic yards of gravel from a site near the production facility, said Sofia Wong, Exxon's pipeline and infrastructure manager at the Point Thomson project.

The summer season is the time when essential supplies arrive at Point Thomson by barge, most notably the 2.3 million gallons of diesel fuel needed to heat and electrify Exxon's North Slope operations.

"Barge shipments are our lifeline in the summer," Wong said.

During next summer's open water season, the company anticipates delivery of several critical barge-loads of new equipment now being built by Hyundai Heavy Industries in South Korea.

The equipment modules will contain machinery to separate the condensates from the gas stream that's pumped from the ground and a compression system to reinject dry gas back into the reservoir.

The barges will also carry a permanent power generation facility, as well as piping, electrical and instrumentation equipment, for the Point Thomson operation.

Barging is temporarily suspended each fall when the North Slope Native villages begin whale hunting. The fall whaling season, which is based on the bowhead whales' migration patterns, usually extends from the end of August into September.

In late fall, all barge shipments stop as the Arctic Ocean sea lanes begin to ice up. During Alaska's long winter, North Slope oil companies rely on planes and ice road trucking for deliveries.

The frozen tundra allows Exxon's crews to begin site construction work that would be environmentally damaging during the summer. This winter, Exxon expects to house 600 construction workers at Point Thomson in addition to the 200 permanent workers.

If Exxon, BP, ConocoPhillips, TransCanada and the state of Alaska agree to build the massive state LNG export project, Exxon would immediately ramp up operations at Point Thomson.

The company expects to drill 14 new wells and build a 30-inch pipeline to carry conventional natural gas from Point Thomson to a massive new gas treatment plant planned for Prudhoe Bay.

As dry gas shipments begin, Exxon would also increase its condensates production to 70,000 barrels a day.

During Exxon's first two years of construction at Point Thomson, the natural gas project has remained under the radar for most Alaskans.

State residents are more concerned that the state-industry natural gas export project could encounter the same delays and money problems that killed a string of past gas pipeline proposals.

For them, Exxon's $4 billion Point Thomson gas condensates operation may represent a renewed hope that the industry is finally ready to commercialize the North Slope's long-neglected natural gas reserves.

Twitter: @hobsonenergywir | Email: mhobson@eenews.net

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