Legislature(2007 - 2008)BUTROVICH 205
01/31/2007 03:30 PM Senate RESOURCES
| Audio | Topic |
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| Start | |
| Cook Inlet Gas Overview | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
January 31, 2007
3:30 p.m.
MEMBERS PRESENT
Senator Charlie Huggins, Chair
Senator Bert Stedman, Vice Chair
Senator Lyda Green
Senator Gary Stevens
Senator Lesil McGuire
Senator Bill Wielechowski
Senator Thomas Wagoner
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Fred Dyson
COMMITTEE CALENDAR
Cook Inlet Gas Overview - BOB SWENSON, Division of Geologic and
Geophysical Surveys (DGGS)
PREVIOUS COMMITTEE ACTION
No previous action to consider
WITNESS REGISTER
BOB SWENSON, State Geologist & Acting Director
Division of Geologic and Geophysical Surveys (DGGS)
Department of Natural Resources
400 Willoughby Ave.
Juneau, AK 99801-1724
POSITION STATEMENT: Presented Cook Inlet Gas overview.
ACTION NARRATIVE
CHAIR CHARLIE HUGGINS called the Senate Resources Standing
Committee meeting to order at 3:29:50 PM. Senators Wielechowski,
Green, Huggins, Stevens and Huggins were present at the call to
order.
^Cook Inlet Gas Overview
CHAIR HUGGINS announced that the committee would hear the Cook
Inlet gas overview.
3:32:15 PM
BOB SWENSON, State Geologist and Acting Director, Division of
Geologic and Geophysical Surveys (DGGS), Department of Natural
Resources (DNR), said he would give them an overview of gas
potential around the state focusing on Cook Inlet. Of the 36
trillion cubic feet (tcf) of Alaska gas, nearly all was
discovered while searching for oil. Gas exploration is in its
infancy mostly because of the lack of a large market in which to
sell it. He noted that published resource assessments often have
very large associated "error bars" due to a fairly large
distribution around a mean number. Significant exploration
potential exists in a number of basins around the state, but
access to markets is important to its development. In Cook
Inlet, most of the "easy" gas has been found and delineated. The
rest of the gas will be more expensive to develop.
3:35:42 PM
CHAIR HUGGINS asked what gas was included in his 36 tcf.
SENATOR MCGUIRE joined the committee.
MR. SWENSON replied that the 36 tcf includes all the gas in the
state that is "booked." Reserve potential is another issue. He
said Alaska's topography is complicated and the geology is
likewise complex. On his PowerPoint, he indicated the population
centers and roads, which is the only infrastructure in the
state. Only the sedimentary basins have gas potential and all
have different and distinct potential, and they have a different
amount of data available to determine that - a key point.
SENATOR STEVENS asked if a sedimentary basin is likely to have
oil.
MR. SWENSON replied when geologists talk about a sedimentary
basin, they mean it has not gone into any kind of metamorphosis
- into hard rock, for instance. Whether or not it has gas is
related to whether it is a marine source rock or gas source
rock. The gas can be either marine or coal. A lot of biogenic
gas in Alaska is associated with coals. Almost all of the
sedimentary basins in the state do have some potential.
3:38:57 PM
MR. SWENSON compared the size of Colorado to the size of Alaska
and said Colorado is a very rich oil and gas province. But
Alaska has basins that nearly cover up the state of Colorado. He
said the North Slope has tremendous gas potential and the Barrow
arch is where most of the oil in the state and North America has
been found. The Beaufort Sea and Colville basin probably have
the dominant potential within the state for natural gas.
Extending the Colville trough out into the Chukchi Sea area, is
the Chukchi Basin, which has similar geology to onshore North
Slope geology. It is a tremendous gas province, he said.
3:40:45 PM
He said the Division of Geological Geophysical Surveys (DGGS)
has gone through a series of mapping programs in the last 15
years to map the Brooks Range Foothills. It is an important gas
province with only limited exploration wells because of the gas
the early wells had. He showed lease sales in the Foothills area
that were picked up by a number of gas companies, and he
remarked that the only difference between the Brooks Range and
the Foreland Basin associated with it and the Canadian Foreland
Basin and Rocky Mountain front is the infrastructure.
3:42:23 PM
MR. SWENSON said Bristol Bay has the North Aleutian Basin. He
showed the annual lease sale held last year. At the most recent
sale, Shell Oil spent $1.2 million on leases.
He explained that the map they were looking at showed the
thickness of the tertiary sediment in the basin and explained
the potential for hydrocarbons. He noted that the Bristol Bay
area is significantly larger than the Alaska National Wildlife
Refuge 1002 area and that the presence of volcanoes makes the
potential for oil and gas essentially zero; it's really in the
near shore and offshore areas.
SENATOR WIELECHOWSKI asked how much oil and gas is there and how
does one get it to market.
3:46:10 PM
MR. SWENSON said the market issue is the big one, and the Gulf
of Alaska is Alaska's sleeper basin. A significant amount of
exploration has already happened there. In fact, the first oil
production in Alaska in the late 1800s was at Katalla [west of
Kayak Island]. His map marked oil seeps with green dots and
wells with red dots. The on-shore wells were drilled primarily
in the 1950s and 1960s; the offshore wells were drilled in the
1970s following the discovery of Swanson River. Unfortunately,
however, none of the wells in the entire exploration program
found economic reserves. One reason for that is the complexity
of the geology, and he showed a cross section that goes from
Chugach to the north all the way down to the Pacific plate. It
has a thrust belt, similar to the Wyoming-Canadian thrust belt.
It is deforming today, and the oil seeps with big structures got
people excited, but the sediment is too thick to get down into
what was expected to be reservoir rock.
CHAIR HUGGINS asked if neither oil nor gas was found. Mr.
Swenson replied that there were lots of shows and lots of
indication of hydrocarbons throughout the system, but no
economic reserves.
3:48:46 PM
MR. SWENSON showed an oil seep on Johnson Creek, about 50 miles
west of Yakutat; about a barrel a day is seeping out of the
ground a quarter of a mile from the Gulf of Alaska. He showed
estimates provided by the MMS [Minerals Management Service] and
United States Geological Survey (USGS) from assessments they had
done. He explained that the numbers were for technically
recoverable reserves. This means if there are no economic or
access constraints, those hydrocarbons could be recovered. The
ranges of estimates of the volumes of gas are 95 in 5
probabilities. This is an important concept to understand. When
geologists are asked to give a number, they may say 5, but they
really mean somewhere between 1 and 10, but he said it is based
on rigorous analysis of data in any given area. The figures are
predictions of what kind of technically recoverable reserves
exist. The 95 number means that there is a 95 percent
probability that the amount of reserves in the basin are greater
than that number. The 5 percent probability means that there's a
5 percent chance that it is not greater than that number or a 95
percent chance that it's smaller. The mean is usually in the 50
percent range, he explained.
The point is that usually what everyone sees published is the
mean number. But it's really important to understand, depending
on how much data one has in an area, what the distribution looks
like. In a district with very little data, like the Hope basin,
there is a chance that there are no hydrocarbons because all
mean numbers are often added together.
3:53:32 PM
SENATOR STEDMAN asked how much exploration has been done in
Southeast Alaska.
MR. SWENSON replied that the Yakutat block is the limit of
exploration.
SENATOR STEDMAN asked about exploration in Chatham Strait, which
is similar to Cook Inlet.
MR. SWENSON replied that one of the key issues for any
hydrocarbon basin is the thickness of the sediments. The
basement rock, which is all around Juneau, has no oil and gas
potential at all; the potential is in the sediments. In Chatham
Strait, the thickness of the sediment is no more than 1000
meters. The potential there is relatively low.
3:55:53 PM
SENATOR WIELECHOWSKI asked how much of Alaska would one tcf fuel
and for how long.
MR. SWENSON replied that 8.2 tcf of gas was found in Cook Inlet
in 1968, and it has 2.2 tcf left. He estimated that 60 percent
of that was export from the Agrium plant; the Anchorage Bowl
uses 260 bcf per year.
3:56:50 PM
SENATOR HUGGINS asked him to elaborate on the gas exports.
MR. SWENSON responded that when the 8.2 tcf of gas was found in
Cook Inlet, it was all stranded--there was no market. To develop
a market and start monetizing the gas, both Phillips and
Marathon created a LNG plant, and Unocal developed the
fertilizer plant. The amount of gas used in both of those export
facilities probably makes up about 60 percent of the usage.
MR. SWENSON said there is a mean estimate of 20 tcf of
undiscovered conventional reserves in all of southern Alaska,
derived from adding all the means together. Central Alaska, the
interior basin, has a mean of about 9 tcf of undiscovered gas,
and northern Alaska has greater than 33 tcf of reserves, with a
mean estimate of 150 tcf undiscovered for all the basins he has
spoken about. The proven (booked) gas reserves total 36,170 bcf
in the 2000 annual report. Cook Inlet has only 6 percent of
those total proven reserves. In the USGS' opinion, Cook Inlet
has a mean of 1.4 tcf yet to be found.
SENATOR STEVENS said that he thinks of Cook Inlet as including
Shelikof Strait, but this refers to just the Cook Inlet.
MR. SWENSON agreed, and he showed the committee a geology map of
the Cook Inlet area indicating a significant amount of activity
over the years. He said the stratigraphy "that we'll be talking
about in the gas is the Sterling, Beluga and Upper Tyonek
formations." Oil and gas are totally separate hydrocarbon
systems. "The oil is generated down in these rocks and has some
associated gas. Ninety-five percent of the gas that's being
produced in the basin all comes out of the coals and is a
biogenetic gas and does not require the thermogenic hit; it does
not require to be cooked to release those hydrocarbons." He said
the beluga coal fields are just behind the town of Tyonek.
4:00:29 PM
MR. SWENSON said the Alaska Peninsula and Cook Inlet are created
from the Pacific plate subducting under the North American
plate, which moves as fast as a fingernail grows and creates the
region's earthquakes and volcanoes. Cook Inlet basin is a unique
type of depositional system, he noted. It is a forearc basin [a
depression in the sea floor located between a subduction zone
and an associated volcanic arc], and it is unusual for that
system to have hydrocarbon accumulations. The material scraped
off of the Pacific plate becomes the Kenai and Chugach
Mountains, he explained.
4:02:11 PM
MR. SWENSON said the Cook Inlet basin is bounded by the Bruin
Bay fault on the west side. The Cook Inlet forearc basin was
filled in with non-marine sediment that came from Interior
Alaska and erosion from the arc in the northwest and southwest.
Understanding the geology is important for understanding the
potential, he noted. Major rivers filled the basin for the last
40 million years. Point bar is a very good reservoir, but "the
flood plain and channel abandonment-type things are very poor
reservoirs." The sands deposited by the river system are the
hydrocarbon reservoirs and the other areas in between make up
the coals, and that is why there is so much coal in the basin,
he said. There is a complicated sequence of different types of
reservoir rock. He showed outcrops and seams of coal. In the
subsurface, well logs are used, he said.
4:04:34 PM
MR. SWENSON showed the sand distribution and a structure map of
the tertiary reservoir section. It is five miles thick in the
deepest part of the basin, and that is why there are
hydrocarbons, he said. There has been a significant amount of
exploration and lots of discoveries since the 1958 discovery of
Swanson field. He showed a map of the wells drilled since then,
but nearly all were drilled in search of oil. By 1968, "they had
found 8.2 tcf of gas in the basin and no market for it, and a
little over 2 billion barrels of oil-incredible hydrocarbon
province," he said. At that time it made no sense to look for
gas. He showed a field size distribution map. There are many
100-300 bcf sized fields. There are two fields in the 1.2 to 1.5
tcf range, and there are two fields that are huge-greater than 2
tcf. "What's very, very interesting about this is that normally
if you go to any other hydrocarbon basin in the world, what you
see is that this distribution is that you have a full
distribution. There'll be lots of small fields, there'll be
very, very few big fields, and this will be filled in with a
number of the other interim fields." He said it is an incredibly
important diagram because it shows what could be out there.
4:07:28 PM
SENATOR WIELECHOWSKI asked the success rate when drilling wells.
MR. SWENSON said wildcat success is usually around 10 percent,
and with new technology like 3-d seismic, there is a 40-50
percent success rate. Drilling around existing fields has a 70
to 80 percent success rate.
SENATOR HUGGINS asked how success rates correlate with price.
SENATOR WIELECHOWSKI asked if there is good success finding gas
in Cook Inlet.
MR. SWENSON said no, there is not; it is probably 10 percent
right now in new exploration wells. When drilling right next to
existing fields, the rate goes up. He noted that many of the
recent dedicated gas wells are actually wells that were drilled
in the 1960s, where gas was seen in the shallow section but was
ignored. "So they're going after those old opportunistic wells
right now. From a wildcat standpoint it's really not
specifically fair to make that comparison."
4:09:01 PM
MR. SWENSON showed a diagram -"the reason why we're here"--of
the proven reserves in Cook Inlet. He stated that "we're sitting
on a precipice." He said he is only showing the proven or booked
reserves and it is not the only gas. There is additional gas to
be found within the fields and there is exploration gas. He
said, "It clearly is something that we all need to pay specific
attention to. The days of having a significant amount of
stranded gas are over in the Cook Inlet." He stated that there
is more gas out there, and it will certainly be found within the
existing fields and in new exploration play types. The majority
of the exploration plays that have been drilled in the basin
have been on very easily-defined structures on seismic (on big
folds). He said the hurdles are the limited market, complicated
land access, and expensive data and drilling costs. The costs of
exploration are high compared to other places in the United
States, he explained.
4:11:22 PM
MR. SWENSON said only structural traps have been explored and
developed; stratigraphic trap potential is untapped in the
basin. He said 85 percent of the gas was discovered in the early
exploration cycle. At least 70 exploration wells were drilled
strictly for gas. Nearly one in ten fields is over 2 tcf, and
that is a very unusual statistic. The four largest fields have
86 percent of the reserves, and field-size distribution lacks
discoveries in the "300 to 1.3 tcf range," and "that's what
we're here for is to understand the potential of finding those
fields." He explained that structural traps are indicated by
large anticline with a cap rock that stops the movement of
hydrocarbons and that most of the big plays have been drilled.
He showed the types of gas that have not been drilled and said
that the gas that has been drilled has obvious hydrocarbon
indicators in the seismic data.
4:13:35 PM
MR. SWENSON pointed to an example of gas push-down that happens
when the velocity of the seismic wave slows down dramatically
going through the gas zones. It takes longer for the wave in to
get back to the surface to be recorded. Gas push-down is a good
indication of a major gas accumulation.
4:14:26 PM
MR. SWENSON said they look for the subtle stratigraphic traps
and how the distribution of the sands is associated with the
different river systems. Where the sands pinch out is where the
hydrocarbons are generally stopped. The state geologic survey is
looking at the basin as geometry and looking for those subtle
changes in stratigraphy. He showed the committee examples of the
thick lateral traps and exploration outlines in Cook Inlet of
areas with potential gas. He said one of the exploration issues
is that there are areas of potential that don't have access.
4:17:17 PM
SENATOR HUGGINS asked if the Kenai National Wildlife Refuge was
within the exploration area.
MR. SWENSON replied that that area goes along the Sterling
Highway and is state acreage, which was up at the last lease
sale. That's why it was picked up. He explained, "During a lease
sale, we only offer everything inside with all the squares in
it." Federal acreage is not up for lease. "The Swanson River
field and the Cannery Loop and Beaver Creek field are actually
located within the wildlife refuge."
He moved on to non-conventional exploration gas in the Cook
Inlet basin. One of the issues is that so much gas was found in
so many stacked reservoirs that explorers had a difficult time
completing those fields. Because of the variance in pressure,
one bore can open up two zones of gas with different pressures.
Gas from one zone can move up to the other zone because of the
higher pressure. To get around that, the explorer does "dual
completions or triple completions" by running a production
tubing string down to just pick up those two sands. Then it
would run another one down to pick up two or three other sands.
Some wells have up to 50 sands - like the Blue River gas field.
To make sure all the gas is retrieved, the entire tubing string
has to be pulled out and major well work needs to be done.
MR. SWENSON moved on to certain potential within the basin using
a porosity-permeability plot. This relates to the pore spaces
between rocks and the ability to move fluids in them.
4:20:16 PM
MR. SWENSON said that "tight gas sands" have the potential to
reservoir a significant amount of gas, but it is expensive to
get into the well bore because of the low permeability. In the
Lower 48, gas is produced from fractured shale - the Red Dog
mine in northwestern Alaska is doing this for its mine energy.
Twenty years ago producing gas out of fractured shale was
unheard of and now it's the hottest exploration play in North
America. "So technology does make a big difference. Good data
collection is critical - and sound interpretation."
4:21:34 PM
SENATOR STEDMAN asked if the Yukon-Kuskokwim Delta had a lot of
exploration.
MR. SWENSON replied that some exploration has occurred there.
Most of the sediment directly offshore from the river is
relatively thin; the sediments have been transported into the
offshore basins. A number of majors did stratigraphic tests in
those regions in the 1980s, and what they saw was that all the
basins were gas-prone. The economics and the costs back at that
point in time didn't warrant further exploration.
4:23:34 PM
SENATOR WAGONER asked if Escopeta was still pursuing the Kitchen
project [in Cook Inlet]. He heard they were having problems with
the first drill rig.
MR. SWENSON replied yes, but he was not completely up to date on
it. He understood that Escopeta got a waiver from the Jones Act
to tow the rig, which was a big issue. The company that was
retrofitting the rig had a contract with Escopeta, but it was
sold, according to the newspaper, and the new company did not
honor that contract.
SENATOR DYSON asked what the market issues are and what the
legislature should do to help.
MR. SWENSON said, "The bottom line of that is that we're not
connected to the Lower 48 hub." There are three companies
exploring for gas right now, and if one found a two-tcf gas
field, for example, it would totally overwhelm the local market.
He said as early as ten years ago, when gas was $1.50 per mcf,
"we would be put into, again, a stranded gas situation unless
there is an export market or others." Without a larger consumer
base, it will be very hard for an exploration company to "come
up," he explained. He noted that Enstar is paying a significant
amount for gas because the price is associated with lower 48
prices. The potential gas in Cook Inlet now is not "easy gas"
and will be relatively expensive to find, "so the companies are
risking a significant amount of money to go out and explore for
that, and without a wide open market where they can sell as much
gas as they can produce, that's a fairly risky venture."
4:26:50 PM
SENATOR DYSON said any projection for power generation or
heating is incremental. It would take a large industrial user to
provide a large enough market, he surmised. "We're whipsawed
here," he said, because some people say Alaska needs to spend
billions for a spur line or a bullet line, but there may be more
gas than is needed domestically. "We need to know what gas is
out there, and if we have a solution there, as opposed to a very
expensive gas pipeline," he said. He has heard that the
structures are good east of Swanson River field, and that no has
asked to go out there and look. He said it is the same dilemma,
and he asked what should be done.
4:27:58 PM
MR. SWENSON said it is a complicated interactive system. In the
moose range, the oil potential is fairly limited and the gas
potential depends on who is looking at the small amount of data.
Exploration in the basin is in its infancy. Marathon actually
has approached the federal government to do an expansion, he
said. He thinks that was approved. He said he is not an expert
on markets, but there are experts in the Division of Oil and
Gas, and they are working hard to understand what can be done.
Mr. Swenson said they should be asked to address the committee.
SENATOR DYSON said the committee needs his wisdom, because it
does not have enough information to make decisions. He asked how
that information could be attained.
MR. SWENSON said the state is putting significant money into
understanding the potential and looking at the specifics of the
geology. He just hired a new geologist, he said. The Division of
Oil and Gas is in the final phase of a study on the market.
4:30:52 PM
SENATOR WIELECHOWSKI asked if, because the gas is stranded,
there is no incentive for companies to drill.
MR. SWENSON said the recent activity in the basin is associated
with the gas price. For many years the spot market was $1.50 per
mcf, and now the price is tied to the oil price. When the oil
price rises it "certainly" gives incentives for companies to do
exploration, "and we've seen that increase in exploration." The
market is small, and it is like a small pipe with a huge funnel
feeding it. To fill the funnel without changing the size of the
pipe will make it stranded again. Expanding the pipe will
increase exploration efforts significantly, he opined.
4:33:27 PM
SENATOR WAGONER asked about how gas storage relates to
production and keeping the wells going.
MR. SWENSON said gas storage is a critical part of the basin's
deliverability and production. The Swanson River field and the
Kenai gas field have storage capabilities and permits, he
stated. The Enstar and Chugach contracts have the problem of
large seasonal swings of demand. When there were many gas wells
with lots of deliverability, that was not an issue; there was
always excess deliverability. "The amount of holes that are in
the rock that are producing gas are becoming less because we're
seeing more water come in and all those different issues." So
there is not enough deliverability in cold winter months, so the
export market gets shut down. "What the storage does, is that we
take that deliverability in the time when we're having that huge
demand, and we take that gas and we put it back in other
reservoirs that are not producing," he said. The gas is pumped
out when needed instead of halting the exports. It lessens the
seasonal swing in demand, he explained.
4:35:41 PM
SENATOR WAGONER said he would like to know what Escopeta knows.
"If they think there's enough gas there to bring in the jack up
rig…and explore and start producing that gas, what kind of
market are they looking at?" He said he has been asking that
question and he hasn't gotten an answer.
MR. SWENSON said it is a good question and he doesn't know the
answer. Looking at the basin-wide scale, it goes all the way
down to the prospect level, he said. And when an
"explorationist" looks at a prospect that person "has to do that
same probabilistic analysis about how much gas is in that
prospect, and so you will say, OK, I have a 95 percent chance
that it is bigger than 200 bcf, and I've got a 5 percent chance
that it's as big as 20 tcf, and my mean number is somewhere
around 5 or 6 tcf…from the prospect level, that really depends
on how much data that you have. And if you have a wide
distribution like that, you most likely don't have a lot of data
that you're basing those assessments on. As far as the market,
that's a good question to ask Escopeta." He said there is
exploration going on, and he doesn't want to make it sound like
it is a hopeless case without any place to sell gas. He said
there are a lot of places to sell gas from the basin. Agrium has
been looking for cheap gas, he noted. It is the huge discoveries
that would make a difference on the marketing and create a
stranded gas situation, he said.
4:38:10 PM
SENATOR HUGGINS said there is a relatively dynamic interface
between the producers and Enstar in the peak periods "to make
sure it is in the line."
MR. SWENSON said he doesn't know the details of the market, but
there are days that it is very challenging.
4:38:50 PM
SENATOR WIELECHOWSKI said gas prices for Alaska consumers have
increased by 75 percent in the last three years, and he has
heard that LNG is being exported to Asia for a lower price. He
asked if Alaska consumers are paying more.
MR. SWENSON replied that he didn't know.
SENATOR HUGGINS said there is some validity to that issue and he
intended to shine a bright light on Cook Inlet from multiple
perspectives. The gas business and the proposal to bring in a
super-expensive pipeline make him question what gas would cost
and if it would be competitive based on what's in Cook Inlet.
4:40:19 PM
SENATOR WAGONER said the LNG plant is already permitted and it
could be turned into a receiving station. In some places in the
world people are paying $0.50 to $0.75 per mcf for gas for LNG.
It might be cheaper to bring gas in by LNG and regasify it than
to bring it from the North Slope.
4:40:56 PM
SENATOR HUGGINS said the good news is that there appears to be
significant gas in Cook Inlet. He then asked about methane.
MR. SWENSON said all gas from the North Slope is thermogenic,
whereby for hundreds of thousands of years accumulated marine
organisms were buried and cooked, and it includes both oil and
gas. The Cook Inlet is not a marine system, and there are coals
throughout. As those coals are being formed methane is produced.
He said in a five-mile thick stratigraphy, it is a significant
amount. It is biogenic and not cooked. Buried, the methane gets
dissolved onto the coals, "and when you uplift that with a
structure, it releases pressure. It comes out of solution and
then migrates up into the structures."
4:43:00 PM
SENATOR HUGGINS said it was a controversial subject in Mat-Su.
SENATOR WAGONER surmised that there is still gas in Cook Inlet,
but no more cheap gas, and that is why industry is looking for
other options in order to continue to operate there.
4:44:04 PM
SENATOR HUGGINS noted that the committee will hear about Agrium
using some of Alaska's coal in the future. There being no
further business to come before the committee, he adjourned the
meeting at 4:44:42 PM.
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