Prospects For Development of Alaska Natural Gas: A Review

135 Pages·2001·6.05 MB·English

PROSPECTS FOR DEVELOPMENT OF
ALASKA NATURAL GAS: A REVIEW
As of January 2001
by
Kirk W. Sherwood and James D. Craig
U.S. Department of the Interior
Minerals Management Service
Resource Evaluation Office
Anchorage, Alaska
This report is available online at http://www.mms.gov/alaska/re/reports/rereport.htm
A Compact Disk version of the report (in PDF format) may be obtained by contacting Rance Wall,
Regional Supervisor for Resource Evaluation, Minerals Management Service, 949 E. 36th Ave.,
Rm. 308, Anchorage, AK 99508-4362, or at Ph. 907 271 6078, or at e-mail [email protected]
TABLE OF CONTENTS
Table of Contents (p. 2) Gas Hydrates (p. 23)
Coal Bed Methane (p. 23)
List of Tables (p. 4) Total Conventional Gas Resource Base
(Discovered and Undiscovered) for
List of Figures (p. 5) Alaska (p. 24)
1. Executive Summary (p. 8) 4. Undiscovered, Economically
Alaska Gas: Key Drivers and Issues (p. Recoverable Gas Resources of Alaska
8) (p. 26)
Summary (p. 8) Rationales for Market and
Transportation Scenarios Used in
2. Natural Gas Reserves and Production Economic Models (p. 26)
in Alaska (p. 14) Results of Economic Assessment (p. 27)
Gas Reserves of Northern Alaska and Undiscovered Economic Gas in Arctic
the Arctic Federal Offshore (p. 14) Alaska and Northern Alaska
Gas Reserves of Tertiary-Age Basins of (Onshore) (p. 27)
Central Alaska and the Bering Shelf Undiscovered Economic Gas in Bering
(p. 16) Shelf (Offshore) and Central Alaska
Gas Reserves of Southern Alaska (Onshore) (p. 29)
(Onshore Outside of Cook Inlet) and Undiscovered Economic Gas in the
the Pacific Margin (Federal) Offshore Pacific Margin (Offshore) and
Continental Shelves of Alaska (p. 16) Southern Alaska (Onshore) (p. 30)
Gas Reserves of Cook Inlet (p. 17) Total Undiscovered Economic Gas in
Alaska (p. 31)
3. Undiscovered Natural Gas Resource
Base in Alaska (p. 20) 5. Undiscovered Economically
Undiscovered Gas Resources of Arctic Recoverable Gas Resources Potentially
Federal Offshore and Northern Available at Extreme High Prices in
Alaska (p. 20) the Alaska Federal Offshore (p. 33)
Conventional Gas (p. 20)
Gas Hydrates (p. 20) 6. Long Term (Years 2010 to 2050)
Coal Bed Methane (p. 21) Export Options for Alaska Natural Gas
Undiscovered Gas Resources of Bering (p. 36)
Shelf and Central Alaska (p. 21) Current Alaska Gas Issues and
Conventional Gas (p. 21) Background (p. 36)
Gas Hydrates (p. 22) Gas Pipelines through Canada to U.S. (p.
Coal Bed Methane (p. 22) 38)
Undiscovered Gas Resources of Pacific The Original (1977) ANGTS
Margin (Federal) Continental Shelves Proposal (p. 38)
of Alaska and Southern Alaska The New (2000) ANGTS—
(Onshore) (p. 22) Highway Route Proposals (p. 39)
Conventional Gas (p. 22)
2
Foothills Pipeline Highway TAGS-LNG: Trans-Alaska Gas Pipeline
Route Proposal (p. 39) System (TAGS) and Conversion to
Prudhoe Bay Gas Owner Liquefied Natural Gas (LNG) for
Group Highway Route Marine Shipment (p. 50)
Proposal (p. 40) Background (p. 50)
The Mackenzie Valley Pipeline The Yukon-Pacific Corporation,
Proposals (p. 40) L.P., Proposal for TAGS-LNG
The Arctic Resources (p. 51)
“Northern Gas Pipeline” Viability of the TAGS-LNG
Proposal (p. 40) Project for Northern Alaska
The TransCanada Pipeline Natural Gas (p. 53)
Proposal (p. 40) Conclusions on Economics of
The Mackenzie Delta Gas Development Proposals for Northern
Owners Pipeline Proposal Alaska Natural Gas (p. 54)
(p. 41) Offshore Gas Development Must Await
GTL: Gas to Liquids Technology (p. Excess Capacity (p. 55)
41) 7. Trends in Leasing and Exploration of
Review of Process (p. 41) the Alaska Federal Offshore and State
The Oxygen Source for Methane of Alaska (p. 57)
Breakup and Syngas Creation: Alaska Federal Offshore (p. 57)
Recent Developments (p. 42) State of Alaska (p. 58)
Synthesis of Liquids from Syngas:
Recent Developments (p. 43) 8. Moratoria and Sequestered Resources
Overall Trends in Technology- in the Alaska Federal Offshore (p. 60)
Driven GTL Economics (p. 44)
Commercial GTL Projects and 9. Conclusions and Prospects for Future
Planned Projects (p. 44) Gas Production from the Alaska
Elements of Cost Critical to GTL Federal Offshore (p. 61)
Plant Commerciality (p. 45)
Market Receptivity to GTL 10. References Cited (p. 63)
Products (p. 46)
GTL Prospects for Northern Tables (p. 69-87)
Alaska Natural Gas (p. 47)
Summary of GTL Potential for Figures (p. 88-135)
Northern Alaska (p. 49)
3
LIST OF TABLES
Table 1: Potentially exportable, known gas Table 12: Summary of gas transportation
reserves for Alaska as of 2000 (p. scenarios used in 1995 and 2000
69). assessments for economically
Table 2: Gas reserves of developed fields, recoverable gas in Alaska Pacific
Arctic Alaska, as of Year 2000 (p. Margin Federal Offshore (p. 79).
70). Table 13: Gas trunk pipeline lengths used in
Table 3: Gas reserves of undeveloped fields, 1995 and 2000 MMS economic
Arctic Alaska, as of Year 2000 (p. assessments (p. 80).
71). Table 14: Gas shipping routes and marine
Table 4: Cook Inlet—State of Alaska lands, LNG tariffs (p. 80).
gas reserves of developed and Table 15: Total gas processing and
known undeveloped fields as of transportation tariffs (p. 81).
Year 2000 (p. 72). Table 16: Economic, undiscovered natural
Table 5: Uses of Cook Inlet produced gas in gas resources for Alaska offshore
1998 (p. 73). at $6/mcf in $2000 (p. 82).
Table 6: 1995-1999 Average LNG shipping Table 17: Current options for transportation
prices and recent price volatility and marketing of Alaska natural
for LNG leaving Port Nikiski, gas (p. 83).
Cook Inlet, Alaska and delivered to Table 18: Experimental options for
Yokohama, Japan (p. 73). transportation and marketing of
Table 7: Conventional natural gas resource stranded natural gas (p. 84).
base for Alaska as of 2000 (p. 74). Table 19: AEO 2001 world oil price
Table 8: Gas hydrate gas resource base for forecasts (p. 84).
Alaska (p. 75). Table 20: Comparative economics of GTL
Table 9: Total gas resource base for Alaska vs. TAGS-LNG projects for
as of year 2000 (p. 76). northern Alaska gas (p. 85).
Table 10: Economic, undiscovered natural Table 21: Historical data for oil and gas
gas resources for Alaska (p. 77). leasing in the Alaska Federal
Table 11: Summary of gas transportation offshore (p. 86).
scenarios used in 1995 and 2000 Table 22: Offshore oil and gas resources
assessments for economically sequestered by moratorium of oil
recoverable gas in Alaska Arctic and gas leasing and exploration in
and Bering shelf Federal Offshore North Aleutian basin (p. 87).
(p. 78).
4
LIST OF FIGURES
Figure 1: Potentially exportable known gas gas resources of Alaska and
reserves of Alaska and Alaska Alaska Federal offshore, as of
Federal offshore, as of 2000 (p. 2000, at gas prices comparable to
88). LNG marketed to Japan ($3.34 to
Figure 2: Oil and gas fields, offshore $3.52/mcf) (p. 99).
exploration wells, and oil pipeline Figure 13: Price-supply curves for
system (TAPS) for Arctic Alaska undiscovered economically
(p. 89). recoverable gas in Beaufort shelf,
Figure 3: Major oil and gas fields, delivered to Prudhoe Bay
production infrastructure, and plantgate (p. 100).
current activity in the Prudhoe Bay Figure 14: Price-supply curves for
area as of December 2000 (p. 90). undiscovered economically
Figure 4: Hope basin, basins of the Bering recoverable gas in Chukchi shelf
shelf, Cook Inlet, and the Pacific and marketed as LNG to Japan (p.
margin offshore (p. 91). 101).
Figure 5: Exploratory and stratigraphic test Figure 15: Price-supply curves for
(“COST”) wells of the Cook Inlet undiscovered economically
Federal OCS Planning Area (p. recoverable gas in Hope basin if
92). marketed to a hypothetical
Figure 6: Exploratory wells, stratigraphic test industrial complex at the port of
(DST) wells, and areas of OCS Kivalina, Alaska (p. 102).
lease sales in Gulf of Alaska (p. Figure 16: Price-supply curves for
93). undiscovered economically
Figure 7: Oil and gas fields, production recoverable gas in Norton basin if
infrastructure, and current activity marketed as LNG to Japan (p.
in Cook Inlet (State of Alaska) as 103).
of September 1999 (p. 94). Figure 17: Price-supply curves for
Figure 8: Conventional natural gas resource undiscovered economically
base (risked, undiscovered, recoverable gas in Navarin basin
conventionally recoverable gas for if marketed as LNG to Japan (p.
Alaska provinces as of 2000 (p. 104).
95). Figure 18: Price-supply curves for
Figure 9: Gas hydrate methane resources (in undiscovered economically
place volumes) for Alaska and recoverable gas in St. George
Alaska offshore (p. 96). basin if marketed as LNG to
Figure 10: Major coal fields and field Japan (p. 105).
resources for Alaska (p. 97). Figure 19: Price-supply curves for
Figure 11: Hypothetical gas development undiscovered economically
infrastructures used for economic recoverable gas in North Aleutian
modeling of Alaska Federal shelf if marketed as LNG to Japan
offshore in 1995 and 2000 MMS (p. 106).
assessments (p. 98). Figure 20: Price-supply curves for
Figure 12: Undiscovered, economically- undiscovered economically
recoverable conventional natural recoverable gas in Gulf of Alaska
5
shelf if marketed as LNG to Japan Figure 29: Sketch of distillation tower and
(p. 107). products from refining of crude
Figure 21: Price-supply curves for oil (p. 116).
undiscovered economically Figure 30: Cost components of a gas-to-
recoverable gas in Cook Inlet liquids facility at output scale of
(Federal waters) if delivered to 100,000 barrels of product per
local markets within Cook Inlet day, located in Qatar (p. 117).
basin (p. 108). Figure 31: Economics of GTL projects and
Figure 22: Price-supply curves for relationship to feedstock gas costs
undiscovered economically (p. 118).
recoverable gas in Shumagin- Figure 32: Example from “GasCat” process
Kodiak shelf if marketed as LNG showing how larger GTL plants
to Japan (p. 109). benefit from economy of scale
Figure 23: Economic, undiscovered gas and can produce liquids from gas
resources for Alaska offshore more cheaply (p. 119).
(delivered to various markets) at Figure 33: Trans-Alaska oil pipeline (TAPS)
$6/mcf in $2000 (equivalent to tariff projections to year 2035,
$11.05/mcf in $2020) and at the shown in $1995 (p. 120).
mean resource case (p. 110). Figure 34: Proposed routes for gas pipelines
Figure 24: Production decline projections for carrying northern Alaska gas to
northern Alaska producing fields LNG facilities at Alaskan
in Prudhoe Bay area (p. 111). shipping ports (p. 121).
Figure 25: Model for TAPS (oil pipeline) Figure 35: Elements of proposed TAGS-
throughput if gas is conveyed LNG gas transportation system
through a separate gas pipeline for requiring capital outlays for
export from southern Alaska (p. initiation of project. Cost
112). estimates for 14 million metric
Figure 26: Model for TAPS (oil pipeline) ton (0.7 tcf) per year project (p.
throughput if gas is exported as 122).
GTL liquid conversion product Figure 36: Comparison of production profiles
through the TAPS line to the for crude oil and LNG projects
tanker facilities at Valdez (p. showing the effects of the time
113). interval for “ramp-up” to
Figure 27: Routes of proposed gas pipelines maximum production on overall
from Prudhoe Bay and Mackenzie project economics (p. 123).
delta to northern British Columbia Figure 37: Example of relationship of LNG
and northern Alberta, Canada, prices to world oil prices in long-
northern heads for export of term sales contract (p. 124).
pipeline transmission gas south to Figure 38: AEO Energy Outlook 2001
U.S. (p. 114). forecasts for world oil prices and
Figure 28: Gas-to-Liquids, Fischer-Tropsch 1995 DOE results for breakeven
Process, or “F-T Process”. (NPV = 0) flat oil prices ($1995)
10
Schematic shows basic steps in for GTL ($19.94/bbl) and TAGS-
GTL or converting methane or LNG ($19.36/bbl) projects for
natural gas into synthetic liquids northern Alaska natural gas (p.
(p. 115). 125).
6
Figure 39: Bar chart for numbers of tracts leases were acquired and the dates
offered and leased in the Alaska when the first exploration wells
Federal offshore in the years from were drilled, indexed to year that
1976 to 2000, with world oil the well was completed (p. 131).
prices adjusted to 1999 dollars (p. Figure 45: Bar chart for average lag (in
126). years) between the dates that
Figure 40: Bar chart for numbers of acres leases were acquired and the dates
offered and leased in the Alaska when the first exploration wells
Federal offshore in the years from were drilled, indexed to year that
1976 to 2000, with world oil the lease was acquired (p. 132).
prices adjusted to 1999 dollars (p. Figure 46: Bar chart for numbers of
127). exploratory wells drilled annually
Figure 41: Bar chart for fractions of offered in Alaska Federal offshore from
acreage actually leased in lease 1976 to 2000, with world oil
sales in the Alaska Federal prices ($1999) also posted. A
offshore in the period 1976 to total of 83 exploratory wells have
2000, with world oil prices been drilled in the Alaska Federal
adjusted to 1999 dollars (p. 128). offshore p. 133).
Figure 42: Bar chart for total high bids Figure 47: Bar chart for aggregate annual
(adjusted to 1999 dollars) footages for exploratory wells
accepted in lease sales in the drilled in Alaska Federal offshore
Alaska Federal offshore in the from 1976 to 2000, with world oil
period 1976 to 2000, with world prices ($1999) also posted. A
oil prices (also adjusted to 1999 total of 83 exploratory wells have
dollars) (p. 129). been drilled in the Alaska Federal
Figure 43: Bar chart for average bonus bid offshore with aggregate
values (adjusted to 1999 dollars) penetration footage of 875,915
per acre for leases sales in the feet (p. 134).
Alaska Federal offshore from Figure 48: Locations of North Aleutian basin
1976 to 2000, with world oil and North Aleutian basin OCS
prices (in $1999) also shown (p. Planning Area, the latter under a
130). moratorium since 1989 that
Figure 44: Bar chart for average lag (in forbids oil and gas leasing and
years) between the dates that exploration (p. 135).
7
1. EXECUTIVE SUMMARY
Alaska Gas: Key Drivers and Issues which is closed by moratorium until year
2012.
• The first gas production from northern
Alaska will focus on the proven, low- • LNG export models are required for
cost reserves at Prudhoe Bay (26 tcf). future Bering Sea gas production.
Potential gas resources cannot be taken
• The most likely scenario for exports of to the U.S. West Coast because there are
northern Alaska gas is a gas pipeline no LNG receiving facilities. The most
down existing highways from Prudhoe likely LNG export models deliver gas to
Bay to Alberta, Canada. No decision Japan or other Asian Pacific Rim
has yet been announced. The State of countries.
Alaska, Yukon Territory, and most
stakeholders advocate a highway route. • Alaska has a huge resource base of
Existing regulatory permits and discovered and undiscovered gas
international treaties, subject to review, (217.91 tcf), but 88 percent of this gas is
authorize the highway route. undiscovered. Expensive and time-
consuming exploration programs will be
• Phillips Alaska estimates that prices required to identify new commercial gas
above $3.50/mcf at Chicago city gate are fields.
needed for economic success. Chicago
city gate prices were approximately
$8/mcf in January 2001. Summary
• Gas delivery to U.S. via gas pipeline Alaska contains 39.88 trillion cubic feet
from Prudhoe Bay is not expected before (tcf) of gas remaining in developed and
years 2007-2010. Regulatory delays or known undeveloped fields. Some of this gas
litigation could delay it. is in fields too small or remote to justify
economic development. Of the known gas
• The gas pipeline will be sized for reserves, 26.92 tcf may be considered
efficient transportation of the known gas available for export at appropriate market
reserves at Prudhoe Bay. For a 4.0 prices and pending construction of new gas
billion cubic feet per day pipeline, transportation systems. Most of this gas is in
excess capacity would become available onshore fields and mostly beneath State of
in year 2023 (assuming a 2007 start up). Alaska surface or submerged lands. No
Federal offshore gas reserves are considered
• Cook Inlet remaining natural gas to be readily available for export at present.
reserves (2.56 tcf) will be depleted by
Three percent (0.92 tcf) of Alaska’s
year 2012. New gas sources must be
exportable gas reserves occur within fields
located soon to supply the majority of
in the Cook Inlet basin of southern Alaska
the State’s population which lives in the
and are at present dedicated to future LNG
area around Cook Inlet.
exports to Japan. Cook Inlet has 2.56 tcf in
total remaining gas reserves, most of which
• The most attractive gas province in the
is used locally or converted to fertilizer
Bering Sea is North Aleutian basin,
feedstock. At present rates of consumption,
1. Executive Summary 8
all Cook Inlet gas reserves will be depleted setting far from existing infrastructure and is
by year 2012. uneconomic to develop with current
Ninety-seven percent (26 tcf) of technology and price conditions.
Alaska’s exportable gas reserves occur Most (82%) of the 190.99 tcf of
within fields in or near the Prudhoe Bay undiscovered natural gas resources forecast
field in northern Alaska. The Prudhoe Bay for Alaska and the Alaska Federal offshore
area gas reserve base totals 30.90 tcf occur in the Arctic. If the undiscovered gas
(developed fields and Point Thomson field, resources in the Mackenzie delta (53 tcf) are
not including carbon dioxide), but some of added to those onshore in northern Alaska
this gas will be consumed (current rate 0.2 (63.5 tcf), and Federal submerged lands on
tcf/yr) by future (oil and gas) production the Beaufort (32.07 tcf) and Chukchi shelves
activities at Prudhoe Bay. The stranded gas (60.11 tcf), the Arctic regional
reserves at Prudhoe Bay are presently undiscovered gas potential totals 208.68
attracting proposals for construction of a gas tcf. This volume is equal to 40% of the total
transportation system that can take the U.S. undiscovered conventional gas resource
natural gas to markets outside of Alaska. base (526 tcf). Arctic Alaska and the
In the Mackenzie delta area of Canada Mackenzie delta seem destined to someday
(300 miles east of Prudhoe Bay), exploration become major producing areas for natural
drilling from 1970 and 1989 discovered 53 gas. However, a significant fraction of the
oil and gas pools about equally divided undiscovered gas resources could occur in
between the onshore and offshore areas. The small, remote accumulations that may never
Mackenzie delta area contains be profitable to develop.
approximately 9-12 tcf of discovered gas, Across Alaska and the Alaska offshore,
some of which may be in pools sufficiently unconventional sources like gas hydrates
large to justify construction of a new gas and coal bed methane are estimated to
pipeline to take the gas south to Alberta. The contain up to 170,000 tcf of natural gas in
largest gas field is Taglu (2.07 tcf) located place. Most of this hypothetical natural gas
onshore. All of the Mackenzie delta resource is contained in gas hydrates that are
discoveries are stranded at the present time, located far offshore in water depths
although several development proposals are exceeding 300 m and will remain
under consideration. inaccessible for the foreseeable future.
A total of 83 exploration wells have However, 37 to 44 tcf of gas are estimated to
tested prospects in the Federal waters occur in sub-permafrost gas hydrates in and
offshore Alaska since 1976. Exploration around the Prudhoe Bay-area developed oil
results have been disappointing, and the few fields and might be exploited on an
significant oil and gas discoveries made in experimental basis once a gas transportation
the Arctic remain undeveloped due to high infrastructure is installed.
capital costs and uncertain prices. Two Resource assessments in 1995 and 2000
offshore oil fields, Liberty and Northstar, estimated the total undiscovered
will begin production in 2001-2003, but the conventionally recoverable gas resource
associated gas will be used for lease base and the fractions of that gas resource
operations. The Burger well, located on the base that could be profitable to develop.
Chukchi shelf 360 miles west of Prudhoe Several Alaska provinces, onshore and
Bay, penetrated the largest gas pool found to offshore, were found to potentially hold
date in the Alaska Federal offshore. economic gas resources at landed market
However, Burger is located in a formidable prices of $2.11 and $3.52/mcf (constant
1. Executive Summary 9
$2000, equivalent to oil at $18/bbl and local gas transmission pipeline network in
$30/bbl). At $2.11/mcf paid at a variety of Cook Inlet region, the Lower Cook Inlet
markets, 6.172 tcf gas might be economic to (Federal waters) could have 1.24 tcf of
develop across Alaska (5.14 tcf for offshore undiscovered economically recoverable gas.
alone). At $3.52/mcf, 12.23 tcf gas might be At $6/mcf delivered as LNG to Japan, the
economic to develop (8.67 tcf for offshore Shumagin-Kodiak shelf and Gulf of Alaska
alone). The undiscovered economically shelf could have 1.40 tcf and 0.31 tcf,
recoverable gas resources (12.230 tcf) respectively, of undiscovered economically
represent only 6% of the 190.99 tcf total recoverable gas.
undiscovered conventionally recoverable The Prudhoe Bay-area gas reserves (26
gas resource base for all of Alaska. tcf ) are the key assets that will drive near-
At high gas prices like those witnessed term strategic decisions about how to
in the U.S. in recent months, economic transport and market stranded natural gas
recoverability improves for most offshore from northern Alaska. Since 1977, natural
Alaska provinces. At a gas price of $6/mcf gas recovered during oil production has been
(constant $2000) delivered to a variety of re-injected to increase oil recovery or used
markets, the Alaska Federal offshore could as fuel for production facilities. Over 35 tcf
contain a total of 35.78 tcf of undiscovered of gas has already been produced and re-
economically recoverable gas. At injected or consumed at the Prudhoe Bay
$6.00/mcf, 20.0 tcf could be economic to co- area fields. In 1999, gross gas production
produce with oil resources on the Chukchi from the North Slope oil fields was 3.15 tcf
shelf and deliver as LNG to Pacific Rim (8.63 bcfpd) of which 93 percent was re-
markets. Associated gas resources produced injected.
through new offshore oil fields on the The 5.8 billion barrels oil reserves
Beaufort shelf and delivered to a plantgate at remaining (as of late 1999) in the Prudhoe
Prudhoe Bay become economic at prices of Bay area fields (originally17 billion barrels)
$1.00/mcf or higher, with 4.66 tcf are now only a little larger than the
economically recoverable at $6/mcf. If remaining gas reserves—an energy asset
produced gas is delivered to a hypothetical equivalent to 4.6 billion barrels of oil.
plantgate at Kivalina—the port for the Red Northern Alaska oil production is declining
Dog mining operation—Hope basin could precipitously and there is some concern
have economically recoverable gas about when production will fall below the
resources of 2.27 tcf at $6/mcf. Not all minimum required to profitably operate the
basins invite economic development. Even Trans Alaska oil pipeline (TAPS). As the
at a $6.00/mcf price, most of the Bering Sea Prudhoe Bay area oil fields begin to
provinces remain uneconomic. Gas prices approach depletion, daily gas production is
of $10/mcf to $15/mcf would be required to increasing and gas-handling capacities may
support significant economic gas someday further constrain oil production.
development in Norton basin, St. George Expansion of gas-handling facilities may be
basin, or Navarin basin. At $6/mcf, North required to allow oil production to continue
Aleutian basin in southern Bering Sea offers at optimum rates, or, at least at rates
5.90 tcf of undiscovered, economically sufficient for TAPS operations.
recoverable gas. However, North Aleutian Alternatively, gas sales out of Prudhoe Bay
basin is under a moratorium forbidding oil could help avoid capital outlays for new gas-
and gas leasing, exploration, or development handling equipment. Limited gas sales
until year 2012. At $6/mcf delivered to the could begin at any time from the Prudhoe
1. Executive Summary 10