Legislature(2007 - 2008)BARNES 124
03/02/2007 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Gas-to-liquids (gtl) | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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 |
|---|