PUBLISHED: 4:58 PM on Wednesday, July 16, 2008
Gas-to-liquids could bring state more value
Richard Peterson, president, CEO and managing member of Alaska Natural Resources to Liquids, holds three bottles synthetic diesel, made using the Fisher-Tropsch process. Peterson told Alaska lawmakers he believes the gas-to-liquids technique could bring more revenues to the state, compared to the current pipeline proposal. Photo/Joshua Borough/For the Journal

When it comes to developing the state's natural resources Alaskans often think big, with even bigger visions. But in some ways the state may be too narrowly focused, and in ways that opportunities could slip by.

Take the gas pipeline, for example. Alaskans have pipeline mania, hoping for another big boom. But why not think outside the box a little? Are there other possibilities?

If a pipeline isn't possible - if it winds up being too costly - why not convert the gas to high-value liquid products that can be shipped through the existing trans-Alaska oil pipeline, which is running more than half empty?

Gas-to-liquids is different than liquefied natural gas, or LNG, which freezes gas to liquid form and then thaws and regasifies it after delivery. Gas-to-liquids makes a chemical conversion, converting the gas directly to finished products like gasoline and diesel. It's like a big refinery.

As for that pipeline construction boom, why not stretch it out? Making something of higher value from the gas would create just as many construction jobs but could spread out over 10 to 14 years rather than a short-term spike over three years.

Plus, valuable liquids in the gas, such as ethane, propane and butane, would be retained in the state for local use or manufacture rather than being shipped to Canada by pipeline.

These are things Alaskans could be thinking about, says Richard Peterson, an Anchorage-based developer and former marketing manager for such major U.S. firms as Southern California Gas Co. and Anadarko Petroleum Corp.

In an analysis developed for the state Legislature, Peterson and his colleague, Peter Tijm, estimated that at today's prices for liquid products, like clean diesel, a major gas-to-liquids project on the North Slope could get three times the royalty and tax value as the state would get by selling its gas after shipping through long-distance gas pipeline.

Not only is the gas worth more in the form of liquid products, but the cost of getting the resource to market is a lot less.

Gas-to-liquids relies on the Fischer-Tropsch process, a long-established technology, for chemical conversion of natural gas or other carbon-bearing feedstock, like coal and biomass, to make liquid products.

Peterson and Tijm, a former senior Shell Oil manager who directed that company's gas-to-liquids program, were asked to prepare an analysis on gas-to-liquids as an option for marketing North Slope gas. The two completed a 250-page study of a gas-to-liquids project and presented its results to the Legislature June 20. The study is available through the Legislature's Budget and Audit Committee.

Peterson's estimate for the cost of a large GTL plant, built in increments over several years, is $40 billion, about the same investment needed for a pipeline, but a smaller project could also be built. That could leave enough gas for a small "bullet" pipeline proposed just to serve Alaska markets.

Peterson and Tijm aren't seeking to do a North Slope GTL project themselves because they have their own project efforts underway with coal and biomass through their company, Alaska Natural Resources-to-Liquids LLC.

Peterson says the three major North Slope producers have GTL expertise to varying degrees and are fully capable of doing a project. However, South African energy company Sasol would consider bringing its proven gas-to-liquids technology to Alaska if invited. Chevron is Sasol's partner in international gas-to-liquids programs and would be part of any Sasol Alaska GTL project. Sasol has been interested in Alaska but when Peterson brought senior company executives to Alaska in 1998 to make inquiries, the initiative was given a cold shoulder by state officials.

Meanwhile, all of the producing companies now involved in the pipeline have experience with gas-to-liquids, particularly ExxonMobil Corp. GTL industry leaders Sasol and Shell aren't producers on the Slope, although Shell has an aggressive exploration program. Chevron is Sasol'spartner in gas-to-liquids projects in Nigeria and Qatar.

If the numbers look good for GTL, why aren't the producing companies pursuing it? Part of the answer is that the producers have experience with GTLs at varying levels but none have actual operating plants. Only Sasol and Shell are operating commercial GTL plants today. At least one of the producers, ExxonMobil, pursued a GTL option for the North Slope in the late 1990s.

Part of the reason why the producers are not pursuing GTL is that they are more knowledgeable and have more experience with gas pipelines and gas marketing. However, GTLs will likely become a serious option if the gas pipeline gets slowed by political delays and becomes uneconomic.

There are also commercial reasons that may impede the producers' look at GTL today. Different companies have their own patented technologies. ExxonMobil would want to use its own patented technology, and would have to persuade other companies to go along.

Peterson also believes that clean GTL products sold on the West Coast would compete with the existing refineries all of the Slope producers own.

"They are the largest refiners on the West Coast and they do not relish competition from clean GTL fuels from a large Alaska plant," he said.

Peterson and Tjim have been occupied with a potential large coal-to-liquids project at the Beluga coal field, located 50 miles west of Anchorage.

ANRTL has completed a $1.5 million preliminary feasibility study for the coal-to-liquids plant. The Alaska Industrial Development and Export Authority, the state's development corporation, has helped facilitate the work.

However, a coal-to-liquids plant needs coal. A mine is planned at Beluga and is now at an advanced stage of permitting. The coal-to-liquids plant could be a customer for the mine, which would otherwise export the coal to Asia.

ANRTL's project would manufacture 80,000 barrels per day of ultra-clean diesel and naphtha for U.S. West Coast markets. In the longer term, the plant could make a variety of other products, like jet fuel. Petrochemical feedstocks could aid development of a petrochemical industry. The plant would spur a lot of industrial development in the Cook Inlet region.

Peterson said he agreed to do the recent GTL analysis for the Legislature mainly to show lawmakers there are other possibilities than a gas pipeline.

"It is important for the Legislature to know that there are other options for monetizing North Slope gas than with a gas pipeline, and that GTLs may well result in a much higher wellhead value for gas than a pipeline, more long term jobs for Alaskans and a larger tax base in Alaska," Peterson said.