Legislature(2007 - 2008)BARNES 124

03/02/2007 01:00 PM House RESOURCES


Download Mp3. <- Right click and save file as

Audio Topic
01:04:13 PM Start
01:04:48 PM Presentation: Gas-to-liquids (gtl)
02:51:52 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: Gas-To-Liquids (GTL) TELECONFERENCED
Technology
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         March 2, 2007                                                                                          
                           1:04 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Carl Gatto, Co-Chair                                                                                             
Representative Craig Johnson, Co-Chair                                                                                          
Representative Bob Roses                                                                                                        
Representative Paul Seaton                                                                                                      
Representative Peggy Wilson                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative David Guttenberg                                                                                                 
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Vic Kohring                                                                                                      
Representative Scott Kawasaki                                                                                                   
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Senator Charlie Huggins                                                                                                         
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION:  GAS-TO-LIQUIDS (GTL)                                                                                             
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
GODWIN A. CHUKWU, Ph.D., P.E.                                                                                                   
Professor of Petroleum Engineering                                                                                              
Department of Petroleum Engineering                                                                                             
University of Alaska Fairbanks                                                                                                  
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Provided a presentation of his findings                                                                    
regarding GTL technology.                                                                                                       
                                                                                                                                
PETER COOK                                                                                                                      
Sasol Chevron                                                                                                                   
London                                                                                                                          
POSITION  STATEMENT:   Provided  a  presentation regarding  Sasol                                                               
Chevron's use of GTL technology.                                                                                                
                                                                                                                                
MICHAEL GRADASSI, Project Development Manager                                                                                   
BP Conversion Technology Centre                                                                                                 
BP America, Inc.                                                                                                                
Houston, Texas                                                                                                                  
POSITION   STATEMENT:      Provided  statements   regarding   GTL                                                               
technology.                                                                                                                     
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
                                                                                                                                
CO-CHAIR  CARL   GATTO  called   the  House   Resources  Standing                                                             
Committee  meeting  to  order at  1:04:13  PM.    Representatives                                                             
Gatto,  Johnson, Roses,  Seaton, Wilson,  Edgmon, and  Guttenberg                                                               
were  present at  the  call to  order.   Also  in attendance  was                                                               
Senator Huggins.                                                                                                                
                                                                                                                                
^PRESENTATION: GAS-TO-LIQUIDS (GTL)                                                                                           
                                                                                                                                
1:04:48 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  announced that the  only order of  business would                                                               
be  the presentation  regarding  gas-to-liquids (GTL).   He  then                                                               
clarified  that liquid  natural gas  is at  minus 280  degrees or                                                               
otherwise  it  boils  away,  while   GTL  is  a  liquid  at  room                                                               
temperature.                                                                                                                    
                                                                                                                                
1:07:15 PM                                                                                                                    
                                                                                                                                
GODWIN   A.  CHUKWU,   Ph.D.,   P.E.,   Professor  of   Petroleum                                                               
Engineering, Department  of Petroleum Engineering,  University of                                                               
Alaska  Fairbanks (UAF),  reviewed  the work  being  done at  UAF                                                               
since  1997.   The work  has been  performed in  two phases,  the                                                               
first of which was to  check the possible modes of transportation                                                               
of  GTL through  the Trans-Alaska  Pipeline System  (TAPS).   The                                                               
aforementioned work  was completed  in 2001-2002 and  funding was                                                               
obtained  to continue  working on  identifying the  problems that                                                               
would  exist  if   GTL  were  transported  through   TAPS.    The                                                               
aforementioned work  is complete  and the  final report  is being                                                               
developed.                                                                                                                      
                                                                                                                                
1:10:48 PM                                                                                                                    
                                                                                                                                
DR.  CHUKWU   directed  attention   to  the   PowerPoint  titled,                                                               
"Operational   Issues  in   Gas-to-Liquid  (GTL)   Transportation                                                               
through the  Trans Alaska  Pipeline System  (TAPS)", specifically                                                               
slide  4, titled  "ANS Gas  Resources".   Dr. Chukwu  pointed out                                                               
that  the   proven  and  recoverable  conventional   natural  gas                                                               
reserves  range  from  37-40 trillion  cubic  feet  (tcf),  which                                                               
illustrates  that Alaska  has tremendous  amounts of  recoverable                                                               
natural gas  reserves.   Those reserves  include Prudhoe  Bay and                                                               
Point Thomson, to name just a  few.  There are also possibilities                                                               
of  gas in  the Arctic  National Wildlife  Refuge (ANWR),  Alaska                                                               
North Slope (ANS) gas hydrates, as well as coal-bed methane.                                                                    
                                                                                                                                
1:12:03 PM                                                                                                                    
                                                                                                                                
DR.  CHUKWU  moved   on  to  slide  5,  which   reviews  ANS  gas                                                               
utilization options.   The  options are as  follows:   building a                                                               
new gas pipeline, using gas  as a miscible injectant for enhanced                                                               
oil  recovery,   building  a  natural  gas   based  petrochemical                                                               
complex,  burning natural  gas to  generate  steam for  potential                                                               
thermal  recovery   options,  and  chemical  conversion   to  GTL                                                               
products  and  transport   through  TAPS.    The   later  is  the                                                               
discussion for today.   Dr. Chukwu continued with  slide 6, which                                                               
relates the  problem.   Dwindling oil production  on the  ANS has                                                               
created  some  burdens on  the  transportation  of crude  on  the                                                               
throughput through  TAPS.  In  the face of  dwindling production,                                                               
the   question  becomes   how  can   TAPS  continue   to  operate                                                               
economically in  the future.  A  further question is what  can be                                                               
done with  such vast gas  resources when the domestic  gas market                                                               
is  far away  from  ANS,  there's very  small  local demand,  and                                                               
limited natural gas use in  enhanced oil recovery (EOR) and other                                                               
operations.    Dr. Chukwu,  referring  to  slide 7,  discussed  a                                                               
possible  solution.   He  suggested  that  the vast  natural  gas                                                               
resources on the  ANS can be converted to GTL  products using the                                                               
Fischer-Tropsch process  that dates  back to World  War II.   The                                                               
aforementioned GTL products  can be used to fill  TAPS with crude                                                               
oil.   Dr. Chukwu questioned  whether it's possible  to transport                                                               
the GTL given the environmental and operational conditions.                                                                     
                                                                                                                                
1:14:59 PM                                                                                                                    
                                                                                                                                
DR.  CHUKWU  turned  to  slide  8,  titled  "Gas-To-Liquid  (GTL)                                                               
Technology".     He   explained  the   three-step  Fisher-Tropsch                                                               
chemical process  for converting natural gas  to synthetic crude.                                                               
The  result is  the  direct production  of  diesel, naphtha,  and                                                               
kerosene.  Slide 9 illustrates  what GTL technology is all about.                                                               
This project isn't  geared toward the kinetics  of GTL technology                                                               
but  rather  reviews  the transportability  of  GTL  through  the                                                               
existing infrastructure  provided by TAPS.   Slide 10 illustrates                                                               
how natural  gas can be converted  to a usable liquid.   Slide 11                                                               
then illustrates how the GTL  technology works.  Oxygen, methane,                                                               
and  steam combine  to form  carbon monoxide  and hydrogen.   The                                                               
type of  catalyst used  differentiates the  type of  product from                                                               
GTL.   In response to  Co-Chair Gatto, Dr. Chukwu  clarified that                                                               
refined oxygen is necessary.                                                                                                    
                                                                                                                                
1:17:00 PM                                                                                                                    
                                                                                                                                
DR. CHUKWU  continued with  slide 12, which  points out  that GTL                                                               
technology has been a worldwide  event because of the significant                                                               
worldwide volumes  of stranded  gas reserves.   Despite  the high                                                               
costs, everyone believes  that this is technology  that should be                                                               
looked   into.       Furthermore,   this    technology   produces                                                               
environmentally friendly fuel.  There  have been advances in this                                                               
technology that  have significantly  reduced capital costs.   The                                                               
reason this technology should be  introduced in Alaska is because                                                               
currently  Alaska  has no  economic  gas  utilization option,  he                                                               
explained.  All  potential options must be  investigated in order                                                               
to continue the  operation of TAPS, which  requires a significant                                                               
increase in  throughput.   The benefits of  GTL products  is that                                                               
it's  an attractive  way to  utilize ANS  gas resources,  a clean                                                               
source  of  energy,  and  it  makes  use  of  the  existing  TAPS                                                               
infrastructure.  Ongoing  work is occurring with  regard to using                                                               
GTL as a diluent in future  diverse throughput of ANS heavy oils.                                                               
These  heavy  oils  produced  on  the  North  Slope  need  to  be                                                               
transported.   Mixing them with  GTL will reduce  the pumpability                                                               
of the GTL crude mixture.                                                                                                       
                                                                                                                                
1:20:08 PM                                                                                                                    
                                                                                                                                
DR. CHUKWU  moved on to slide  14, which reviews the  features of                                                               
TAPS.   He  highlighted that  TAPS was  designed for  2.2 million                                                               
barrels  per  day   (BPD)  of  throughput.     However,  TAPS  is                                                               
experiencing  declining  throughput  with current  throughput  at                                                               
less than  800,000 BPD.   Therefore, continued operation  of TAPS                                                               
will  require a  significant increase  in throughput.   Slide  15                                                               
focuses on the transportation of GTL  through TAPS.  In doing so,                                                               
one must  consider the problems  and challenges  the introduction                                                               
of GTL products will  pose to the operation of TAPS.   He said he                                                               
anticipated  the  following  problems:     gel  formation,  vapor                                                               
formation,  altered  pumping  pressure requirements,  and  solids                                                               
precipitation  and deposition.   The  last problem  is the  major                                                               
area of focus since it can lead to pipe failure.                                                                                
                                                                                                                                
1:23:34 PM                                                                                                                    
                                                                                                                                
DR.  CHUKWU pointed  out that  slides 16-17  review the  proposed                                                               
modes of GTL transportation through  TAPS.  Batch flow, also know                                                               
as "slugging,"  is when alternate  batches or slugs of  crude oil                                                               
and GTL  are moved through TAPS.   There is also  commingled flow                                                               
in  which the  GTL and  crude  oil are  premixed and  transported                                                               
through the pipeline as a single  phase fluid.  He explained that                                                               
there are three  types of transportation modes:   as-is batching,                                                               
batching with  pigs, and  modern batching.   As-is batching  is a                                                               
do-nothing case  in that  it's investment  free.   However, as-is                                                               
batching  will  require  manual operations  to  switch  from  one                                                               
battery  to another.   He  then explained  that in  batching with                                                               
pigs, pigs  are used as  a spacer  between the GTL  crude stream.                                                               
The modern batching is a  situation in which probes are installed                                                               
along  the line  that are  tied  to automatic  control valves  to                                                               
divert  fluid to  the respective  tanks.   The aforementioned  is                                                               
referred to as the distributed control system.                                                                                  
                                                                                                                                
1:26:35 PM                                                                                                                    
                                                                                                                                
DR. CHUKWU focused on the as-is  batch mode as discussed on slide                                                               
18.   Under the as-is  batch mode, batch  slugs of GTL  and crude                                                               
oil let physics  control slug movement in TAPS.   The as-is batch                                                               
mode requires the pipeline to be  built from the GTL plant to the                                                               
TAPS  inlet.   This  will require  extra  storage facilities  for                                                               
products that are  waiting to be batched.  He  noted that the as-                                                               
is batch  will require  minimal additions  to capital  and labor.                                                               
He  then pointed  out that  this mode  will experience  increased                                                               
levels of  mixing between slugs,  which will create  an interfill                                                               
zone.  At  this point, there isn't any systematic  model that can                                                               
specify  the   length  of  the   interfill  zone.     Dr.  Chukwu                                                               
highlighted that although there is  a model, it can't be verified                                                               
unless a  fueled test is  run.  He  said that the  interfill zone                                                               
would, theoretically, run  about 300-500 feet inland.   The final                                                               
length of  the zone  would depend  upon the  viscosity, velocity,                                                               
and the density differences.                                                                                                    
                                                                                                                                
1:29:06 PM                                                                                                                    
                                                                                                                                
DR.  CHUKWU then  drew  the committee's  attention  to slide  19,                                                               
regarding  batching  with  pigs.   He  related  that  traditional                                                               
batching with  pigs physically  separates the  oil from  the GTL.                                                               
The number of  pigs that have to be run  depends upon the optimal                                                               
size of  the slugs.   Large  or very long  slugs will  require an                                                               
increased amount  of pigs.   He  noted that  the pig  sensors can                                                               
detect product  movement, which  is an  advantage because  it can                                                               
possibly   determine  the   length   of  the   interfill.     The                                                               
aforementioned   knowledge  is   necessary  for   all  modes   of                                                               
transportation for batching.   Under this mode, the  pigs must be                                                               
transitioned  between pump  stations,  which  may be  problematic                                                               
between the slugs.                                                                                                              
                                                                                                                                
1:30:46 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO  opined  that   the  aforementioned  would  be  a                                                               
significant issue if there is cavitation of the pumps.                                                                          
                                                                                                                                
DR.  CHUKWU noted  his agreement,  and said  he would  address it                                                               
when he discusses the cavitation.                                                                                               
                                                                                                                                
1:31:18 PM                                                                                                                    
                                                                                                                                
DR.  CHUKWU  moved  on  to   slide  20,  which  discusses  modern                                                               
batching.   Modern  batching uses  new  technology for  interface                                                               
detection and  tracking product  movement.   This batch  mode has                                                               
been tried  by a company  in Canada.   Dr. Chukwu  explained that                                                               
until the  flow loop is tested,  he won't be able  to confirm the                                                               
practicality of  this system.   Once a  flow loop  is constructed                                                               
and  built,  there  will  be  a  densitometer.    A  densitometer                                                               
measures the  specific gravity  of the  product in  the pipeline,                                                               
which  can  dictate the  product  densities  along the  pipeline.                                                               
Again,   it's  necessary   to  know   where   to  install   these                                                               
densitometers.   Sound velocity interface detectors  also need to                                                               
be installed in order to detect  changes in the sound velocity of                                                               
the product, which  allows monitoring of what is  moving where in                                                               
the pipeline.   The colorimeter sensor detects  the color changes                                                               
of  the  pipeline  product,  which means  that  samples  must  be                                                               
collected in  between lines  and then check  the type  of product                                                               
that's on  line.  There  is also the distributive  control system                                                               
that will be installed at  the receiving end between the refinery                                                               
and the tank farm.   The aforementioned will optimize the control                                                               
of the product  movement and will help allocate the  crude to the                                                               
various tank batteries.                                                                                                         
                                                                                                                                
1:33:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON  asked if  the modern  batch mode  would be                                                               
cost effective.                                                                                                                 
                                                                                                                                
DR. CHUKWU  related that  two graduate  students are  running the                                                               
economic numbers, which indicate that  [the modern batch mode] is                                                               
very expensive comparatively.                                                                                                   
                                                                                                                                
1:34:58 PM                                                                                                                    
                                                                                                                                
DR. CHUKWU  pointed out  that one advantage  of the  modern batch                                                               
mode is  that it helps  to maintain the  GTL purity.   Again, the                                                               
length of interface is a measure  problem.  The lesser the length                                                               
of  interface,  the  better  for the  batching  mode.    However,                                                               
currently  there isn't  a model  that can  specify the  interface                                                               
lengths.  Dr. Chukwu reiterated  that this is complex technology,                                                               
although it's effective.                                                                                                        
                                                                                                                                
1:36:01 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO  pointed out  that  although  this technology  is                                                               
expensive, it results in a product that's very valuable.                                                                        
                                                                                                                                
DR. CHUKWU noted  his agreement.  The economics,  he pointed out,                                                               
depend upon the  volume of throughput.  With a  test run of about                                                               
40,000 BPD  of clean diesel  one would have to  determine whether                                                               
the initial cost of the  technique is justified.  Therefore, [the                                                               
economics] are  being run  at 25,000 BPD  increments in  order to                                                               
determine how the volume of throughput impacts the cost.                                                                        
                                                                                                                                
1:37:11 PM                                                                                                                    
                                                                                                                                
DR.  CHUKWU,  moving on  to  slide  21, highlighted  the  capital                                                               
investments  required  if following  the  batching  mode.   There                                                               
would  have to  be new  holding  tanks on  the Slope  and at  the                                                               
terminal.   The tanks  could be  new or  refurbished to  meet the                                                               
conditions for  the new product.   Other capital  investments are                                                               
the installation of distributive  control systems and accessories                                                               
at the  inlet and outlet  points in order to  automatically empty                                                               
in the storage  tanks.  Relief tanks at pump  stations need to be                                                               
installed.   There also  needs to be  additional piping  from the                                                               
GTL  facility to  TAPS and  pigs  must be  used as  needed.   Dr.                                                               
Chukwu  emphasized  the need  for  a  contingency plan  in  which                                                               
capital  is  set aside  to  combat  emergencies and  ensure  that                                                               
there's  no  prolonged  shutdown,   particularly  in  the  winter                                                               
months.                                                                                                                         
                                                                                                                                
1:39:05 PM                                                                                                                    
                                                                                                                                
DR.  CHUKWU  continued with  slide  22  regarding the  commingled                                                               
mode,  which requires  minimal capital  and labor  since the  two                                                               
products have to  be premixed and then moved to  TAPS.  Low grade                                                               
GTL can  be produced  at the North  Slope and  thus hydrocracking                                                               
isn't necessary.   The problem, he  pointed out, is that  the GTL                                                               
purity is fully  lost, although there is higher  output of diesel                                                               
and gasoline  at the  downstream end, after  refining.   Based on                                                               
using available  infrastructure in  place, the decision  was made                                                               
to  run  more tests  on  the  commingled  mode.   Therefore,  the                                                               
remainder of his presentation would  speak to the commingled mode                                                               
of transportation.                                                                                                              
                                                                                                                                
DR. CHUKWU, referring to slide 23,  began to address why he chose                                                               
the  commingled  mode.     He  related  that   in  reviewing  the                                                               
commingled mode the following was reviewed:                                                                                     
                                                                                                                                
     The expected loss of purity  of the product mixture and                                                                    
     a  trade-off  between  loss in  product  value  due  to                                                                    
     contamination and  cost of keeping the  product pure at                                                                    
     the terminal.                                                                                                              
                                                                                                                                
     Flexibility  of  using   existing  infrastructure  with                                                                    
     minimal addition to capital cost for transportation.                                                                       
                                                                                                                                
     The commingled mode of  transportation does not require                                                                    
     additional  facility because  the present  relief tanks                                                                    
     system is  capable of handling the  crude oil-GTL blend                                                                    
     product.                                                                                                                   
                                                                                                                                
DR.  CHUKWU  mentioned  that although  the  [U.S.  Department  of                                                               
Energy (DOE)]  sponsored this  project, Alyeska  Pipeline Service                                                               
Company (Alyeska) supplied all of  the crude oil for analysis and                                                               
BP supplied the GTL for the analysis.                                                                                           
                                                                                                                                
1:42:10 PM                                                                                                                    
                                                                                                                                
DR.  CHUKWU moved  on to  slide 24  regarding GTL  transportation                                                               
issues.   He pointed  out that  TAPS is  designed for  a specific                                                               
type  of  crude oil,  which  calls  into  question the  GTL  flow                                                               
behavior through TAPS and the  effect of cold temperatures on the                                                               
crude oil-GTL blends  during a cold restart of the  pipeline.  He                                                               
opined that  one must also need  to review the phase  behavior of                                                               
the GTL products  and any vapor pressure concerns.   He mentioned                                                               
that with cavitation, flashing is  a possibility.  Therefore, the                                                               
conditions under  which there is a  single phase and a  two phase                                                               
pipeline must be determined.   Another question to consider is in                                                               
regard to the effects of  solids precipitation.  Discussions with                                                               
Alyeska have  led to the  understanding that wax deposition  is a                                                               
major problem,  and thus  the wax  deposition must  be determined                                                               
for crude oil-GTL.                                                                                                              
                                                                                                                                
1:44:23 PM                                                                                                                    
                                                                                                                                
DR. CHUKWU continued by reviewing  slide 25, titled, "Operational                                                               
Challenges".    He  explained  that knowing  the  type  of  fluid                                                               
present will help determine what  kind of force will be necessary                                                               
to move that fluid.  For  example, a more gel-like fluid requires                                                               
more force  than a  water-like fluid.   The  relationship between                                                               
the force  of movement  and the velocity  of flow  determines the                                                               
pumping horsepower requirements.                                                                                                
                                                                                                                                
1:46:28 PM                                                                                                                    
                                                                                                                                
DR. CHUKWU  moved on to  slide 26  which discusses the  effect of                                                               
gel strength.  He related that  a mixture of the crude oil-GTL in                                                               
four different  ratios were  reviewed.  The  best cases  were GTL                                                               
and  crude oil  stand-alone.   The  crude oil  utilized was  from                                                               
TAPS.   After running some  experiments to determine  the butanol                                                               
structure of  the mixture, it  was discovered that the  fluid gel                                                               
strengths  generally  don't pose  a  problem  at normal  pipeline                                                               
temperatures.    The   experiment  had  to  go   with  a  subzero                                                               
temperature to simulate  a shutdown.  With a higher  ratio of GTL                                                               
in the crude oil, it was  found that the gelling ability was very                                                               
much  reduced even  at  temperatures  of 20°F  below  zero.   The                                                               
potential  for cold  re-start problems  after a  prolonged winter                                                               
shutdown  of  the  pipeline  increases  as  fluid  gel  strengths                                                               
increase.    Therefore, as  the  amount  of  GTL in  the  mixture                                                               
increases, the gel  strength is reduced.  However,  as the amount                                                               
of  GTL  is  decreased,  the  gel strength  is  increased.    The                                                               
aforementioned is problematic.                                                                                                  
                                                                                                                                
1:49:38 PM                                                                                                                    
                                                                                                                                
DR.  CHUKWU  continued with  slide  27  regarding the  effect  of                                                               
density.   The density  of each  of the  samples was  measured at                                                               
different  temperatures.   The density  values  decrease with  an                                                               
increase  in temperature,  which is  normal.   Dr. Chukwu  turned                                                               
attention to  the reference to  Alaska GTL (AKGTL), which  is the                                                               
GTL we obtained from BP that  was manufactured in Alaska.  It was                                                               
found that  the addition of  AKGTL caused a reduction  in density                                                               
because of  the light  end.   He then turned  to slide  28, which                                                               
relates to the  effects of rheology.  Rheology,  he explained, is                                                               
the  relationship of  the force  of movement  to the  velocity of                                                               
flow.  The  aforementioned is used to classify the  type of fluid                                                               
that will flow in the pipeline  under various conditions.  It was                                                               
discovered that  AKGTL shows pseudoplastic behavior,  which means                                                               
that it's  an elastic  type of  flow and  thus will  require less                                                               
horsepower  to  flow within  the  temperature  range of  -4°F  to                                                               
122°F.   At  temperatures  of  68°F and  above,  crude oil  shows                                                               
Newtonian  behavior   while  it's  more  like   Bingham  Plastic,                                                               
ketchup, and difficult to pump  at temperatures below 68°F.  When                                                               
AKGTL  and   crude  oil   were  blended,   they  showed   a  more                                                               
Pseudoplastic  behavior  at  higher temperatures  while  behaving                                                               
more  Newtonian  behavior  at  room  temperature  and  more  like                                                               
Bingham Plastic at freezing or  below.  The Bingham Plastic stage                                                               
is  problematic  because  it requires  higher  pumping  power  to                                                               
restart the  pipeline after a  shutdown during  low temperatures.                                                               
Pipeline  designers and  mechanical  engineers have  to keep  the                                                               
aforementioned in mind.                                                                                                         
                                                                                                                                
1:54:54 PM                                                                                                                    
                                                                                                                                
DR.  CHUKWU  moved on  to  slide  30  titled, "Effects  of  Vapor                                                               
Pressure".   He related  that the  vapor pressure  increased with                                                               
the addition of  AKGTL, but not to  a level of concern.   As long                                                               
as  it's  below  the  minimum TAPS  operating  pressure,  it's  a                                                               
single-phase flow and  thus only liquids are  flowing and there's                                                               
no cavitation.  He expressed the  need to be sure that the blends                                                               
would flow through  TAPS as compressed liquids  from inception to                                                               
discharge.    Therefore,  as the  blends  are  transported  vapor                                                               
formation in  the pipeline  isn't possible.   Dr.  Chukwu related                                                               
that under current TAPS operating  conditions and for all blended                                                               
ratios considered in the study, the  fluid will always exist as a                                                               
single phase  liquid through  out the  pipeline conditions.   The                                                               
aforementioned is an important conclusion, he emphasized.                                                                       
                                                                                                                                
1:56:39 PM                                                                                                                    
                                                                                                                                
DR.  CHUKWU continued  with  slide 31  regarding  the effects  of                                                               
solids  deposit.    He informed  the  committee  that  asphaltene                                                               
flocculation and deposition  is a potential major  problem in the                                                               
transportation of the  blends through TAPS.   He further informed                                                               
the committee that  he found that asphaltenes are  stable in pure                                                               
TAPS  crude  oil,   and  therefore  the  crude   oil  can  retain                                                               
asphaltene in  solution in  TAPS.  However,  when GTL  was added,                                                               
there  was asphaltene  precipitation, which  is a  major concern.                                                               
This asphaltene  flocculation occurred  in a blend  containing as                                                               
little as 5.7 percent by  volume of AKGTL.  Therefore, dispersant                                                               
would be necessary  to treat the problem from the  onset.  If the                                                               
deposition  is left  untreated, it  might settle  and then  cause                                                               
corrosion, especially along welded areas and joints.                                                                            
                                                                                                                                
1:58:13 PM                                                                                                                    
                                                                                                                                
DR. CHUKWU,  referring to  slide 32,  related the  discovery that                                                               
the  gel   strength  isn't  a  significant   factor  of  concern.                                                               
Furthermore,  the Bingham  fluid  flow characteristics  indicated                                                               
that  a high  pumping power  would be  required during  prolonged                                                               
shutdown situations.                                                                                                            
                                                                                                                                
1:59:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON  asked if the  pipe can withstand  the high                                                               
pumping  power   required  after  a  long   shutdown  under  cold                                                               
temperatures.                                                                                                                   
                                                                                                                                
DR.  CHUKWU  clarified  that  the pipe  can  withstand  the  high                                                               
horsepower requirement, it's just  that high horsepower pumps are                                                               
necessary.  He noted that those pumps are a higher cost.                                                                        
                                                                                                                                
1:59:49 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON asked  if  this  could be  done  on a  seasonal                                                               
basis.                                                                                                                          
                                                                                                                                
DR. CHUKWU said  that if this is done seasonally,  in the summer,                                                               
the costs will quadruple and the  process will have to start over                                                               
again in the winter.                                                                                                            
                                                                                                                                
2:00:33 PM                                                                                                                    
                                                                                                                                
DR. CHUKWU, in response to  Representative Seaton, clarified that                                                               
the crude oil [without GTLs]  will illustrate Newtonian behavior,                                                               
like  water at  low temperatures.   Therefore,  there's not  much                                                               
problem with gelling.                                                                                                           
                                                                                                                                
REPRESENTATIVE SEATON posed  a situation in which  there is heavy                                                               
mixture of crude and a prolonged  shutdown at -20°F or below, and                                                               
asked if the power requirement for  a mixed GTL crude is going to                                                               
be higher or lower than cold crude oil only in the pipeline.                                                                    
                                                                                                                                
DR. CHUKWU  answered that the  power requirement for  the mixture                                                               
will be higher.                                                                                                                 
                                                                                                                                
2:01:53 PM                                                                                                                    
                                                                                                                                
DR. CHUKWU  concluded with slide 33.   He related that  the phase                                                               
behavior studies  show that the  GTL-crude oil mixture  will flow                                                               
as a  single fluid system at  all four blend ratios.   Therefore,                                                               
the cavitation problem  is minimized.  He  reminded the committee                                                               
that the mitigation of solids  deposition remains a major problem                                                               
that  has to  be reviewed.   Under  the commingled  flow profile,                                                               
there is  a decrease in throughput  in TAPS, which can  result in                                                               
faster and more  deposition of these solids along  the pipe wall.                                                               
The long-term result will be corrosion, he said.                                                                                
                                                                                                                                
2:03:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON  surmised then  from the  presentation that                                                               
the less  product passing  through the  pipe, the  more corrosion                                                               
will occur.                                                                                                                     
                                                                                                                                
DR.  CHUKWU noted  his agreement  that there  would be  corrosion                                                               
some time  in the  future if there  aren't enough  dispersants to                                                               
address the solid deposition.                                                                                                   
                                                                                                                                
2:03:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON surmised  then that  the less  the volume,                                                               
the  more expense  it  will  be due  to  the  need for  increased                                                               
pigging.                                                                                                                        
                                                                                                                                
2:04:14 PM                                                                                                                    
                                                                                                                                
DR. CHUKWU  said that's  not what  he meant.   He  explained that                                                               
decreasing  throughput  in  TAPS   results  in  faster  and  more                                                               
deposition  of solids  along the  pipe wall.   Therefore,  if the                                                               
throughput  is reduced  by  reducing  the amount  of  GTL in  the                                                               
amount of  crude oil in TAPS,  the solids will build  faster than                                                               
when there is  higher throughput. The higher  the throughput, the                                                               
faster movement of the solids occur.                                                                                            
                                                                                                                                
2:05:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON  related  her understanding  that  keeping                                                               
things as  they are  currently will create  more problems  as the                                                               
volume decreases.                                                                                                               
                                                                                                                                
DR. CHUKWU  pointed out that  currently there is only  crude oil.                                                               
He clarified that he isn't  commenting on what is happening right                                                               
now but rather what would happen with a crude oil-GTL mixture.                                                                  
                                                                                                                                
2:05:49 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON  inquired as  to what  dispersants can  be added                                                               
and  are  they derivatives  of  petroleum  products that  can  be                                                               
distilled on the North Slope.                                                                                                   
                                                                                                                                
DR. CHUKWU responded  that he's referring to  something that will                                                               
not allow  the solids to get  together.  He noted  that different                                                               
companies  will   have  different   dispersants,  but   none  are                                                               
manufactured  on the  North Slope.   In  further response  to Co-                                                               
Chair Johnson,  Dr. Chukwu  said he wouldn't  be able  to specify                                                               
any volumes of dispersants at  this point because it would depend                                                               
upon the formulation.                                                                                                           
                                                                                                                                
2:08:11 PM                                                                                                                    
                                                                                                                                
PETER COOK,  Sasol Chevron, drew  the committee's attention  to a                                                               
PowerPoint titled,  "Sasol Chevron and  GTL - an overview".   Mr.                                                               
Cook  reviewed  the  slide   titled,  "Partnerships:    Enhancing                                                               
value".   He explained that  essentially there are  the following                                                               
three steps:   natural gas reforming, the  Sasol proprietary step                                                               
called the Fischer-Tropsch conversion,  and a Chevron proprietary                                                               
product upgrade.                                                                                                                
                                                                                                                                
2:09:56 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO inquired as to what  percent of a gallon of GTL is                                                               
wax.                                                                                                                            
                                                                                                                                
MR.  COOK  explained  that  the  wax  is  fully  broken  down  or                                                               
hydrocracked, which results in a  very nice diesel coming out the                                                               
other end.   Therefore, there's no  wax left in the  final diesel                                                               
product  if product  upgrading is  performed.   Mr. Cook  related                                                               
that Sasol's work has determined  that some form of stabilization                                                               
and  mild  hydrotreating  is  necessary in  order  to  produce  a                                                               
synthetic crude that can flow.                                                                                                  
                                                                                                                                
2:11:10 PM                                                                                                                    
                                                                                                                                
MR. COOK then continued with  the slide titled, "Matching the GTL                                                               
challenge".  This slide discusses  the joint venture of Sasol and                                                               
Chevron,  which began  in 2000.   Sasol  is a  global driver  for                                                               
cleaner fuels  and has proven GTL  technology as well as  a large                                                               
level  of operating  and  maintenance  experience and  technology                                                               
commercialization and  GTL marketing experience.   Chevron has an                                                               
international  presence with  marketing  and  E&P experience,  as                                                               
well  as  its  hydroprocessing technology.    The  aforementioned                                                               
forms  the  base of  the  Sasol  Chevron  joint venture.    Sasol                                                               
Chevron's overall drive  and strategy is to  build, own, operate,                                                               
and  market GTL  facilities around  the  world.   The next  slide                                                               
titled, "Locations  for GTL" illustrates  where in the  world the                                                               
reserves of gas are found as  well as the ready-made GTL markets.                                                               
The GTL markets are the  United States, Brazil, Europe, Southeast                                                               
Asia, and Australia.  The  slide shows four blocks that represent                                                               
Sasol Chevron  and its  first endeavors, the  first of  which was                                                               
the  Oryx plant  in Qatar.   Sasol  Chevron also  has a  plant in                                                               
Escravos,  Nigeria,  and  is  looking   to  develop  projects  in                                                               
Australia and Algeria.  He then  drew attention to the slide with                                                               
photographs  of the  Oryx plant,  from which  its first  shipment                                                               
will take place  weeks from now.  The Oryx  plant, he related, is                                                               
a 34,000 barrel per day (BPD) facility.                                                                                         
                                                                                                                                
2:14:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON  surmised that the main  reason that [Sasol                                                               
Chevron] doesn't have the problems  faced in Alaska is because of                                                               
the temperature at its locations.                                                                                               
                                                                                                                                
MR. COOK  answered that  it isn't  as simple as  that.   Mr. Cook                                                               
said, "It depends  on what final product one decides  to take out                                                               
of the plant."                                                                                                                  
                                                                                                                                
2:15:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO  asked if  it's  fair  to  say that  when  [Sasol                                                               
Chevron] makes  GTL it's already  at the destination  and doesn't                                                               
need to be commingled with any crude.                                                                                           
                                                                                                                                
2:15:07 PM                                                                                                                    
                                                                                                                                
MR. COOK related:                                                                                                               
                                                                                                                                
     The  value  of  the final  products,  particularly  the                                                                    
     diesel, of which  is about 70 percent of  the output of                                                                    
     our  plants, so  much above  crude.   The uplift  above                                                                    
     crude price is in effect  so big that it is effectively                                                                    
     one  of   the  major  drivers  and   enablers  of  this                                                                    
     technology.   So, to  commingle it  with crude,  in ...                                                                    
     whatever form, unless you can  get the product back out                                                                    
     down the other end of the  pipeline and make use of the                                                                    
     high quality,  which is  essentially zero  sulfur, high                                                                    
     cetane, ... you  actually destroy a lot of  value.  ...                                                                    
     it's a  product which  you can run  a diesel  engine on                                                                    
     ... without adding anything to it.                                                                                         
                                                                                                                                
2:16:32 PM                                                                                                                    
                                                                                                                                
MR.  COOK then  drew  attention to  the next  slide,  which is  a                                                               
depiction of the Escravos, Nigeria  project (EGTL).  The Escravos                                                               
project is  the same size  as the Oryx  project, 34,000 BPD.   At                                                               
this  point  there  are  site   activities,  the  engineering  is                                                               
complete, and  procurement and  early construction  is advancing.                                                               
The EGTL project is due for startup in 2009.                                                                                    
                                                                                                                                
2:17:13 PM                                                                                                                    
                                                                                                                                
MR. COOK continued with the  slide titled, "Market scale:  diesel                                                               
demand growth".   He informed  the committee that one  benefit of                                                               
low temperature Fischer-Tropsch  conversion technology instead of                                                               
getting many  products out  of a GTL  facility, two  products are                                                               
produced.   Both of these  end products, diesel and  naphtha, are                                                               
excellent.   The  diesel is  very high  quality, low  sulfur, low                                                               
cetane, and  an excellent blend  to upgrade poorer  quality crude                                                               
within a refinery or neat fuel.   Currently, the diesel market is                                                               
huge at 13.5 million barrels, as  depicted by the large sphere on                                                               
the slide.   In  contrast is the  smaller sphere  that represents                                                               
the Oryx GTL  diesel product that delivers 23,000  barrel per day                                                               
of diesel, which  is about 65-70 percent of the  throughput.  The                                                               
slide illustrates the  cumulative growth of diesel  over the next                                                               
10 years, which  is 4.6 million [barrels] in  comparison to Sasol                                                               
Chevron's projected  capacity of 300,000  barrels as well  as the                                                               
projected GTL capacity of the  world.  The projected GTL capacity                                                               
of the world would  only amount to 4 percent of  the demand or 13                                                               
percent of the new total demand.                                                                                                
                                                                                                                                
2:20:02 PM                                                                                                                    
                                                                                                                                
MR.  COOK, referring  to  the slide  titled,  "GTL diesel  market                                                               
channels", pointed out  that there are two market  channels.  The                                                               
blend stock  route uses  the excellent  properties of  the diesel                                                               
and allows  a conventional  refiner to  optimize the  refinery by                                                               
potentially  digging  deeper in  the  barrel  or running  heavier                                                               
crudes while  being able to deliver  diesel on spec.   This [type                                                               
of  diesel] would  go to  premium auto  and truck  markets.   The                                                               
aforementioned is the  route that the Oryx  product is utilizing.                                                               
In the  future, neat applications  such as a dedicated  bus fleet                                                               
within large polluted cities could  run and show huge benefits as                                                               
a  result  of  reductions  in various  air  qualities,  which  is                                                               
depicted in the slide titled,  "Meeting new air quality demands".                                                               
The  graph  illustrates  the  percentage  of  change  of  various                                                               
emissions.  The  dark bar is pure  GTL, while the light  bar is a                                                               
mixture of  GTL diesel and  50 percent  EU diesel baseline.   The                                                               
graph  illustrates significant  hydrocarbon reduction  emissions,                                                               
carbon  monoxide  emissions  and  reductions  in  nitrous  oxide,                                                               
particulate matter, and carbon dioxide.   He pointed out that the                                                               
fuel consumption moves slightly in  the negative direction as the                                                               
GTL  diesel  is  a  lighter density  than  conventional  diesels.                                                               
Therefore, the fuel  consumption in the miles  per gallon results                                                               
in a small penalty on conventional  engine.  Mr. Cook related the                                                               
belief  that  further optimization  of  the  engine could  almost                                                               
result  in  the eradication  of  the  negative movement  in  fuel                                                               
consumption.                                                                                                                    
                                                                                                                                
2:23:42 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO  inquired  as  to what  is  occurring  in  Europe                                                               
regarding  emissions  and  air  quality  demands/standards.    He                                                               
further  inquired as  to whether  GTL  is a  superior product  if                                                               
those demands increase.                                                                                                         
                                                                                                                                
MR. COOK  stated that the  European market  is where most  of the                                                               
[GTL] product will  find itself.  The European  market is leading                                                               
the move  in reducing sulfur  and GTL has essentially  zero parts                                                               
per million (ppm) in sulfur.                                                                                                    
                                                                                                                                
2:25:07 PM                                                                                                                    
                                                                                                                                
MR.  COOK  noted  that  the  remaining  slides  are  photographs,                                                               
including  one demonstrating  Sasol Chevron's  work with  Daimler                                                               
Chrysler on emissions tests.  There  is also a slide that depicts                                                               
the  alliance for  synthetic fuels  in  Europe (ASFE).   He  then                                                               
turned to  the slide  relating the  Sasol Chevron  GTL challenge,                                                               
for  which  a number  of  standard  diesel vehicles  were  driven                                                               
11,000  kilometers across  Africa using  GTL diesel.   One  slide                                                               
shows the clarity of the  diesel and the slide titled, "Journey's                                                               
End"  shows the  oil of  the GTL  diesel after  11,000 kilometers                                                               
versus the standard diesel after  5,000 kilometers.  Those slides                                                               
provide a  base for  deductions related to  engine wear  and tear                                                               
and longevity [when using GTL diesel versus standard diesel].                                                                   
                                                                                                                                
2:30:06 PM                                                                                                                    
                                                                                                                                
MICHAEL  GRADASSI,  Project  Development Manager,  BP  Conversion                                                               
Technology  Centre,  BP America,  Inc.,  began  by informing  the                                                               
committee  that he  has  more  than 33  years  experience in  the                                                               
petroleum industry.   He related that  over the last 18  years he                                                               
has  been   involved  in  the  development   and  application  of                                                               
technologies  addressing   the  conversion  of  natural   gas  to                                                               
liquids.    He noted  that  during  that  time he  has  published                                                               
several  papers  on the  economics  of  GTL technology  and  have                                                               
provided research  guidance to help steer  its development toward                                                               
more favorable  commercialization options.   Mr.  Gradassi opined                                                               
that he  is a  strong proponent  of GTL  technology, but  an even                                                               
stronger  proponent  of identifying  and  carrying  out the  best                                                               
project  option for  any given  gas resource  asset.   He further                                                               
opined that  GTL isn't the  best option for Alaska's  North Slope                                                               
gas.   The commercial viability  of GTL depends upon  plant site,                                                               
capital costs, gas costs, and  market opportunities.  He said his                                                               
remarks  would  focus on  plant  site  and capital  costs,  which                                                               
amount to  staggering costs for a  GTL plant on the  North Slope.                                                               
The aforementioned  along with  gas costs  would likely  render a                                                               
GTL plant  on the North  Slope uneconomic compared to  GTL plants                                                               
in other  parts of  the world that  could benefit  from locations                                                               
that aren't  remote, lower construction costs,  and significantly                                                               
milder weather costs.                                                                                                           
                                                                                                                                
MR. GRADASSI then  explained that GTL technology  is the chemical                                                               
conversion of natural gas to  a pumpable synthetic crude oil that                                                               
can  be  further converted  to  refined  products.   The  process                                                               
involves three steps,  the first of which is when  natural gas is                                                               
chemically converted at pressure and  very high temperature to an                                                               
intermediate  gas   that  is  chemically  converted   to  another                                                               
intermediate or  waxy hydrocarbons,  which can be  mildly treated                                                               
to  reduce its  waxy properties  and convert  it into  a pumpable                                                               
synthetic crude oil.   This synthetic crude oil  and the products                                                               
made  from   it  are  especially  attractive   because  of  their                                                               
properties, purity,  and cleanliness.  Mr.  Gradassi informed the                                                               
committee  that BP  has  been involved  in  developing just  such                                                               
technology since the early 1980s.   In fact, it's currently being                                                               
demonstrated at BP's  Nikiski test facility.   The test facility,                                                               
he  related, is  designed  to convert  about  3 million  standard                                                               
cubic feet (mcf) a day into 300 BPD of synthetic crude oil.                                                                     
                                                                                                                                
2:33:49 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO  inquired as  to  how  much  of the  resource  is                                                               
consumed for  every 100 units  of gas used  to produce a  unit of                                                               
GTL.                                                                                                                            
                                                                                                                                
MR. GRADASSI said that about 10,000  cubic feet of natural gas is                                                               
used to  produce 1 barrel  of GTL liquid.   If one counts  all of                                                               
the energy  requirements for  the process itself  as well  as the                                                               
supporting utilities,  about 50-60 percent of  the resource would                                                               
be used.   In further  response to Co-Chair Gatto,  50-60 percent                                                               
of btus  will be used.   The barrel  of GTL will  represent 50-60                                                               
percent of  the total  btus.   He noted  that higher  figures are                                                               
related  when  only  the  process  is  taken  into  consideration                                                               
without the supporting utilities.                                                                                               
                                                                                                                                
2:35:14 PM                                                                                                                    
                                                                                                                                
MR.  GRADASSI  continued  his   presentation,  and  informed  the                                                               
committee that  the synthetic crude  oil from BP's  Nikiski plant                                                               
is stored  in a  storage tank  and is  transported via  truck for                                                               
further processing.   The  facility cost  $100 million  to build.                                                               
However, the  capacity and cost  for BP's  demonstration facility                                                               
is a far cry from that of  a 400,000 BPD commercial scale ANS GTL                                                               
plant where  both site remoteness  and Arctic  weather conditions                                                               
add  substantially to  a  plant's capital  costs.   Mr.  Gradassi                                                               
pointed out that  Dr. Chukwu doesn't address the  North Slope GTL                                                               
plant itself, although he implies  capacity of upwards of 400,000                                                               
BPD.   The  scale of  such a  GTL facility  is unprecedented  and                                                               
would resemble  a conventional  crude oil refinery  in size.   In                                                               
fact,  it would  consume about  4 bcf  a day  of natural  gas and                                                               
would have  an expected capital cost  in the tens of  billions of                                                               
dollars.   Although  BP hasn't  recently costed  a plant  of such                                                               
scale, BP can draw from its  recent evaluation of a GTL plant for                                                               
its gas assets in Columbia.   Although the site in Columbia isn't                                                               
Arctic, it's  remote as  it sits  600 miles  inland on  the other                                                               
side of the  Andes Mountains.  A capital cost  estimate in excess                                                               
of $40 billion  isn't unreasonable.  He highlighted  that the $40                                                               
billion is the  cost before recognizing the added  costs to build                                                               
a  plant  that   can  operate  reliably  in   the  severe  Arctic                                                               
conditions of the North Slope.                                                                                                  
                                                                                                                                
2:37:12 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  inquired as to  why BP,  with its remote  site in                                                               
Columbia, doesn't  build a pipeline  to ship the  crude elsewhere                                                               
for conversion into LNG.                                                                                                        
                                                                                                                                
MR.  GRADASSI  pointed  out  that   Columbia  doesn't  enjoy  the                                                               
infrastructure  that  the U.S.  does  in  terms of  gas  pipeline                                                               
transport.                                                                                                                      
                                                                                                                                
2:37:46 PM                                                                                                                    
                                                                                                                                
MR.  GRADASSI returned  to  his presentation.    He informed  the                                                               
committee that  similar capital  costs can  be inferred  from GTL                                                               
construction costs  published by one  of BP's competitors  who is                                                               
in the  early stages of  constructing the largest ever  GTL plant                                                               
in Qatar.  That plant, at  140,000 BPD, is one-third the capacity                                                               
envisioned for the  ANS GTL project.  He opined  that to consider                                                               
building a plant  three times the scale of the  Qatar plant prior                                                               
to the commercial approval of the  Qatar plant and to do so under                                                               
the severe conditions of the  North Slope would expose developers                                                               
to  substantial capital  and economic  risks as  it will  compete                                                               
daily with  GTL plants elsewhere  that experience  lower capital,                                                               
operating,  and  maintenance costs.    Additionally,  an ANS  GTL                                                               
project   would  face   many   other   large  economic   hurdles.                                                               
Furthermore, there  are other cost  challenges of  modifying TAPS                                                               
to  accommodate  batched  GTL  synthetic  crude  oil  along  with                                                               
regular crude  in order to  maintain GTL's  attractive qualities.                                                               
He reminded  the committee  of Mr.  Cook's remarks  regarding the                                                               
importance of  maintaining those  clean qualities.   Mr. Gradassi                                                               
then expressed  the need to keep  in mind the cost  of separating                                                               
and loading  separate cargos of  synthetic crude oil  and regular                                                               
crude  oil for  transportation to  the market  place.   Moreover,                                                               
there is  continued competition with  very low-cost gas  that can                                                               
feed  GTL plants  in  other parts  of the  world.   Mr.  Gradassi                                                               
reiterated that in order to  be commercially viable, GTL projects                                                               
require  low  capital  cost,  low   cost  gas,  and  ongoing  low                                                               
operating  and maintenance  costs  for  plant and  transportation                                                               
infrastructure.                                                                                                                 
                                                                                                                                
2:39:31 PM                                                                                                                    
                                                                                                                                
MR.  GRADASSI turned  to  gas  costs and  expressed  the need  to                                                               
recognize that every  barrel of GTL liquid  requires about 10,000                                                               
standard  cubic feet  of natural  gas.   Therefore, every  $1 per                                                               
1,000 cubic feet  of gas adds $10 to every  barrel of GTL liquid.                                                               
With a  GTL plant located on  the North Slope, he  opined that it                                                               
would  be  reasonable  to  expect   that  ongoing  operating  and                                                               
maintenance  costs wouldn't  be low.   Since  an ANS  GTL project                                                               
meets none of the requirements  for commercial viability relative                                                               
to those offered by other GTL  locations, it's certain to make an                                                               
ANS GTL project uncompetitive.                                                                                                  
                                                                                                                                
2:40:24 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO  surmised  then that  Mr.  Gradassi  opposed  the                                                               
concept.                                                                                                                        
                                                                                                                                
MR.  GRADASSI  reiterated his  earlier  statement  that he  is  a                                                               
proponent  of  GTL  and  GTL  technology,  although  he  said  he                                                               
recognizes  that  there are  right  and  wrong places  for  [GTL]                                                               
projects.   He  further said  that he  doesn't believe  that [the                                                               
North Slope] is the right place for a GTL project.                                                                              
                                                                                                                                
2:40:59 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO asked if Mr.  Gradassi's thinking would be changed                                                               
if his company had 50 tcf of gas stranded on the North Slope.                                                                   
                                                                                                                                
MR. GRADASSI said that he couldn't  comment on such.  However, he                                                               
said that  he firmly  believes that his  remarks for  the current                                                               
situation are the right conclusion.                                                                                             
                                                                                                                                
CO-CHAIR GATTO  reminded Mr.  Gradassi that  the intention  is to                                                               
build a pipeline and sell the  vaporized gas at the highest price                                                               
for the least amount of money.                                                                                                  
                                                                                                                                
MR. GRADASSI  pointed out that  there is a  value to that  gas on                                                               
the North  Slope and every dollar  going into that barrel  of GTL                                                               
liquid  will  be  reflected  as  another $10  per  barrel.    The                                                               
aforementioned has to be compared  to what one believes are long-                                                               
term  forecasts for  crude oil  and products  and whether  or not                                                               
it's worth  the risk.   "Would  you ...  actually be  getting the                                                               
returns  for the  gas that  ... you'd  be happy  with versus  the                                                               
returns that you could get for the pipeline," he asked.                                                                         
                                                                                                                                
CO-CHAIR GATTO acknowledged that,  but questioned what the return                                                               
would be if a pipeline isn't built.                                                                                             
                                                                                                                                
2:43:06 PM                                                                                                                    
                                                                                                                                
MR.  GRADASSI posed  a scenario  in which  the gas  on the  North                                                               
Slope  is worth  $2  per 1,000  standard cubic  feet.   When  the                                                               
aforementioned is converted  into a barrel of GTL,  it amounts to                                                               
$20 a barrel,  just for the gas  alone.  On top of  that one must                                                               
add  the  capital  costs  and  the  return  on  it,  the  ongoing                                                               
maintenance  costs, and  the transportation  to the  marketplace.                                                               
The aforementioned  must be compared  to what the  marketplace is                                                               
going to bear  and determine whether it's a better  return on the                                                               
capital than if it was invested elsewhere.                                                                                      
                                                                                                                                
2:44:39 PM                                                                                                                    
                                                                                                                                
CO-CHAIR GATTO  remarked that if the  gas stays in the  ground on                                                               
the North  Slope, it's probably  worthless.  Therefore,  he asked                                                               
if it would be  the fair thing to take the gas  and convert it to                                                               
GTL, adding $20 per barrel in the scenario above.                                                                               
                                                                                                                                
MR. GRADASSI explained:                                                                                                         
                                                                                                                                
     It doesn't  make a barrel of  GTL for $20.   ... you're                                                                    
     going to be getting up  there, you'd have to divide all                                                                    
     your capital  of all the barrels  you're manufacturing,                                                                    
     the return  you want to  get on that capital,  and then                                                                    
     add on top of that ... the  $10 or $20 just for the gas                                                                    
     cost itself.                                                                                                               
                                                                                                                                
2:46:13 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO  asked  if  the high  quality  diesel  meets  the                                                               
specifications for kerosene.                                                                                                    
                                                                                                                                
MR. GRADASSI  related that  BP hasn't  done those  specific tests                                                               
and published  [the findings].   He recalled  that the  tests may                                                               
have been  sponsored by the U.S.  DOE and the U.S.  Department of                                                               
Defense  (DOD).   He further  recalled seeing  a photograph  of a                                                               
military jet in flight fueled by GTL liquids.                                                                                   
                                                                                                                                
2:47:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GATTO commented  that the  military would  probably [be                                                               
willing [to pay a lot] for  a barrel of cleaner oil that provides                                                               
greater range and lower maintenance.                                                                                            
                                                                                                                                
2:47:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  remarked that  the discussion is  based on                                                               
whether a plant would be sized to  do all of the gas on the North                                                               
Slope or a plant with expansion capability for a gas line.                                                                      
                                                                                                                                
MR.  GRADASSI  clarified that  his  comments  were based  on  the                                                               
400,000 figure that Dr. Chukwu used.                                                                                            
                                                                                                                                
REPRESENTATIVE  SEATON   pointed  out  that  part   of  what  the                                                               
[legislature] is reviewing is what has  to be done for a gas line                                                               
and whether there  are alternative ways to monetize the  gas.  He                                                               
then  pointed  out  the  "Prospects  for  Development  of  Alaska                                                               
Natural Gas: A  Review" by the U.S. Department  of Interior dated                                                               
January 2001.   That document  discusses TAPS throughput  with no                                                               
gas  sales  possibly  [falling]  to  200,000  BPD  in  2015,  and                                                               
becoming uneconomic at that point.   He asked if there would be a                                                               
large capital  incentive if "we  could put 100,000 barrels  a day                                                               
and increase that so TAPS is still  economic to run."  Or, is the                                                               
thought  that the  TAPS line  would  be replaced  with a  smaller                                                               
pipeline, he asked.   He opined that it would  be a large capital                                                               
cost if the rest of Prudhoe Bay is stranded.                                                                                    
                                                                                                                                
MR. GRADASSI  said that he's  unable to  answer that as  he's not                                                               
part of the BP Alaska project team.                                                                                             
                                                                                                                                
CO-CHAIR  GATTO   pointed  out  that  when   TAPS  quits  working                                                               
dismantlement,  removal, and  restoration  (DR&R)  must be  done,                                                               
which he  estimated would cost a  couple of billion dollars.   He                                                               
asked, "Would it  enter into your equation if you  knew that it's                                                               
possible to extend the life  of a pretty valuable resource before                                                               
you start spending the money to remove it?"                                                                                     
                                                                                                                                
MR. GRADASSI said that he would guess it probably would work                                                                    
into the equation, but how he didn't know.                                                                                      
                                                                                                                                
2:51:52 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Resources Standing Committee meeting was adjourned at 2:52 p.m.                                                                 

Document Name Date/Time Subjects