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State investigates whether oil companies waste Alaska propaneClaiming one of the world's largest oil companies has refused to support an effort that could lower soaring energy bills across Alaska, a former oil company executive has taken his argument to state oilfield regulators. Now the Alaska Oil and Gas Conservation Commission has launched an investigation into whether BP Exploration (Alaska) Inc. is wasting a resource that some believe could drive down costs for electricity, heat and diesel-fueled vehicles. The request for an investigation came from Harold Heinze, not the Alaska Natural Gas Development Authority where he worked for roughly a decade, until recently accepting a job with the Matanuska Electric Association. Under Heinze's leadership, the voter-created authority crafted a plan that depends on the oil companies at Prudhoe Bay. The major owners -- Exxon Mobil Corp., ConocoPhillips and BP -- would free up propane from the nation's largest oil field. The propane could be refined and stored at Prudhoe Bay, then delivered to communities by truck and barge. The idea could be especially beneficial in scores of villages off the road system, where electricity and heat can cost several times higher than in Anchorage because diesel fuel, which is tied to the global price of oil, is the primary source of energy. But Heinze, the past president of Arco Alaska, believes that BP, operator of the Prudhoe Bay field, might be wasting propane that at relatively little expense and effort could help supplant diesel fuel in many communities. It's also possible the London-based oil giant isn't wasting propane. But the potential benefit of that resource to Alaska is great enough that the matter should be investigated, Heinze said. "The commission needs to at least examine the issue and determine if it meets the statutory definition of waste," he said. A BP spokesman said propane isn't wasted. It's used to produce more of the valuable oil, which in part fuels the state treasury through taxes. Producers at the oil field, the largest in North America, have pulled up propane for decades. It comes to the surface with oil, as a component in vast amounts of natural gas. Just like the natural gas, most of the propane is separated from the oil at a giant central-gas facility operated by BP, and re-injected back into the ground. The gas helps pressurize the underground oil reservoir. Some propane is stripped from the gas for use as a solvent to help release oil from the underground rocks. Some of it is used as a refrigerant in the extraction process. "What all this boils down to is we don't waste gas. We use it to produce more oil," said Steve Rinehart, BP's spokesman in Alaska. But Heinze believes, based on his long history at Prudhoe Bay and data presented during a hearing before the commission some 15 years ago, that 50,000 to 75,000 barrels of propane a day is re-injected back into the ground without helping produce more oil. He fears that once the oil companies leave Prudhoe Bay, that valuable energy will be trapped in the ground forever. "If we pass on an opportunity to recover it, have we forever sealed our fate?" Heinze asked. BP clams up?A few thousand barrels a day could meet current demand for the Alaska market, said Mary Ann Pease, a consultant for the natural gas authority. Propane use in Alaska remains small but has grown. A 2009 study found that propane provides about 1 percent of Alaska's energy, with some using it to power everything from backyard grills to heaters, ranges, driers and refrigerators. But demand would likely grow. Propane sold in Alaska, like diesel fuel, is often imported from Outside, much of it coming from Washington state. Yet even that imported propane is often cheaper than energy derived from diesel fuel. Propane from Prudhoe Bay would be cheaper still, advocates say. Propane, a bridge to gas: Obtaining 'wasted' product from Slope could be the key http://newsminer.com/pages/full_story/push?content_instance=17319555&id=17319555&need_to_add=true#cb_post_comment_17319555 We need to trench in a 6”-8” “temporary” propane poly pipeline from the North Slope to Fairbanks. Every fifty miles, or according to logistical needs there should be a fueling site for equipment. At the Yukon Bridge there should be a large off take station and facilities where barges can transport LPG to all of the villages along our major river systems. ANGDA has completed extensive studies that point to propane as being the most economically feasible way to get affordable energy to remote villages. DT says it can be "plowed in at 4 mph". Even if it only made it to the Yukon River the first year, that would make propane available to everyone from Canada to the Bering Sea and up the Tanana to Nenana. At Nenana could always transfer over to railcar that could take it all the way to North Pole for GVEA and Flint Hills or down the railbelt. If it has to be trucked for a while, 150 miles is a lot better than 450. My concern is for "long-term" extra traffic on the haul road. AND this will not lower the cost of heat or electricity much if any. This propane line deserves some real consideration when you consider ITH at Livengood and the potential to open up further resource development along the haul road. Read more: Fairbanks Daily News-Miner - The voice of Interior Alaska since 1903 The gist of the article is Harold Heinze is asking for free or highly discounted propane. If propane is removed from the lease, i.e. shipped outside the Prudhoe Bay Unit, the propane is subject to royalty and taxes based on its market value. Market value could be determined by the local price of imported propane or the price of propane on the West Coast plus transportation to Alaska. The State of Alaska doesn't give or discount any of its hydrocarbon production. Think about it, if the State wanted to reduce the cost of fuel to the Bush, it could discount its crude oil to local refiners and have those refiners provide heating oil to the bush communities at a reduced price. If the State doesn't discount crude oil, why should it discount or give away propane particularly when that propane is used as a solvent to extract more crude oil. Assume that the State gets generous and gives Harold Heinze all that the propane he wants for free, who's going to pay for the investment required for processing, storing, shipping, and conversion of all the stoves, furnances, etc. to burn propane? I installed a propane heater in my cabin. The cost of the stove, plumbing, tank, and venting was $4,000. How many people are going to volunteer to convert their heating systems to propane? I suppose these are just little details to Heinze, since besides free propane he probably wants the State (that's you and me) to pick up the tab to construct all the infrastructure needed to convert the Bush from heating oil to propane. A village of six hundred on the Yukon River uses 400,000 gallons of fuel a year. At $10 a gallon, diesel costs $4 million. At $2 a gallon, propane costs $800,000. That is one-fifth the cost. The propane won't go to Harold Heinze, it will go to Alaskans that currently pay most of the money they have for fuel. There are issues with taxes to be worked out, but virtually everywhere in the USA except Alaska, propane is much cheaper than diesel, cleaner burning, and readily available. Homes in the lower 48 that don't have access to natural gas have a propane tank in the yard, not a fuel oil tank. The reason is in the sentences above. Northeast USA runs on fuel oil, not propane. The rest of the country uses natural gas, if it's available. Fuel oil is a more concentrated form of energy than propane and can be stored in a tank in the basement or garage. Nobody stores propane in their basement or garage. Propane is used in more rural environments where it can be stored away from the house. I use propane in my cabin. On a btu adjusted basis, it was probably a little more expensive than fuel oil. The extra money was worth it since I figured no one would try to steal propane but a less than honest person with a five gallon would try to steal my fuel oil when I wasn't home. Heinze's proposed propane solution only works if the State gives him free or highly discounted propane and pays for all the propane infrastructure costs. Bottomline, this is just another scheme to get something for nothing. There are some excellent comments below. Thanks for taking the time to inform. -TomClark "50,000 to 75,000 barrels of propane a day is re-injected back into the ground without helping produce more oil." I doubt that it is not helping to produce oil. But if that is true, Bingo! You have it right, Gasman, Harold Heinze has it right, bluesriff (below) has it right! Those in the legislature and our governor that are working for the oil companies have it wrong. We have a big election coming up next Fall, please find out where your legislators stand on these issues and vote accordingly. I would like to make two points, as briefly as possible, that involve changing our approach and outdated way of thinking about how to solve “the other half of Alaska’s” energy needs. The first misconception we operate under is that Anchorage is the population center and thus has all the legislative power. This has been the case over the years on many decisions, and I feel it has played a major role in more not being done to address the Interior and Rural Alaskan’s energy problems. It is time for “the other half of Alaska” to formally caucus together to get us back on track to immediately resolve this energy issue once and for all. There were 138,000 Alaskans that voted to do this in 2002. Some quick math the other day shows that the combined population of Anchorage, Wasilla, Palmer, Kenai, and Juneau is around 340,000. I picked these locations because of their access to cheap energy. That is less than half of the 710,231 that live in the state. I would hope to think that there would be a few representatives in the Mat-Su districts that would provide support. There is a second 40 year old misconception that is obstructing our ability to plan and make logical decisions. We are all guilty of assuming that since we built one pipeline a certain way we will have to build another one the same way using the same materials, methods, and technology. How logical is that? In the seventies, when TAPS was started, no one had a desktop computer or cell phone. You cannot simply assign a cost based on TAPS and adjust it to 2012 dollars. There are new materials, equipment, and technologies that are available today that we have simply not considered when determining project costs. But, it is the method or logistics that I would like to focus on, and more importantly the fact that, we need energy now not 20 years from now. The biggest objection people have to the project is the cost. Here is an idea that would 1) lower overall construction costs, 2) provide immediate customers that will defer costs, 3) provide added revenue to the state, 4) most importantly it would provide relief to the maximum number of families in the shortest time frame. We need to trench in a 6”-8” “temporary” propane poly pipeline from the North Slope to Fairbanks. Every fifty miles, or according to logistical needs there should be a fueling site for equipment. At the Yukon Bridge there should be a large off take station and facilities where barges can transport LPG to all of the villages along our major river systems. ANGDA has completed extensive studies that point to propane as being the most economically feasible way to get affordable energy to remote villages. A huge portion of the costs for the larger pipeline project will involve fuel for equipment and facilities and the labor and transportation costs associated with moving that fuel over long distances. Why haul diesel that is only produced in Kenai, hundreds of miles when your equipment could be running off of propane and you could have fuel practically at the work site. The second part of the plan, which involves building a polypipe manufacturing facility, would lower project costs even further, and it would lower delivered fuel costs and our ability to build the infrastructure that is needed. Propane would be used for the feed stocks of the plant and for operations. We can manufacture all of the pipe needed to build the Alaska Gas Line instead of importing it from outside of the State. This would create many long term jobs and value added products from our natural resources. After Alaska has satisfied its need for polypipe, which initially will be huge, we can then manufacture and export polypipe on empty backhaul ships leaving the State. Fairbanks has some of the highest energy costs in the Nation. There are about 100,000 people in the North Star Borough that would benefit from cheaper fuel both for home heating and it would help lower electrical costs which are at 23.5 cents per kwh. Currently the local electrical coop is planning to truck propane in which will provide little savings to customers. Yes the villages are higher in cost, but the State subsidizes their electrical usage. For many people in Fairbanks, their monthly utilities exceed their mortgage payments. If this smaller propane line were to be made more permanent, the State of Alaska could realize major savings on DOT maintenance costs along the haul road. By transitioning equipment and facilities over to propane use, they could use the original fuel take off points that were put in for the propane pipe line construction. The Dalton Highway or Haul Road is a vital link for supporting North Slope oil production and what will hopefully be gas production in the near future. This highway will continue to play a major role in resource development, which there will be more of, when an economical fuel source is in place. Propane is a wonderful fuel. It transports easily, if used properly it is safe and relatively very clean. I use it to heat my boat, remote cabin, generator, RV utilities and fork lift. The down side is the current price of propane is way to high. If this Alaskan natural resource is tapped for use by and for Alaskans we all will benefit and coincidentally actually abide by our State Constitution! When are Alaskans going to wise up to the fact that these companies do NOTHING unless its profitable to THEM. Meaning if it would save money for you its not profitable to them. They dont care one bit what matters to Alaskans because Alaska is too expensive for them to do their business when they can go anywhere else in the world and do the same activity for 1/2 the cost and three times the profit by exporting it to Asia. Alaska over taxes. Yadda yadda yadda I hear it all the time working in the field. I am humiliated and silent as I sit working on their technology needs knowing such things are not for my ears. I know Alaska is walking a road to desolation because the industry has no interest in Alaska for NEW High risk endeavors. Regardless of value to the people of the region. And without big oil industries Alaska has ZERO sustainable economic outcome with its current population levels. No way tourism could make up the difference. Its Flint Michigan all over again when the auto industry left them. When that happens here with Oil as its close to being the case now, were all screwed... I agree that the oil companies won't do anything unless it is profitable for them, but that is where our agreement ends. The rest of your post sounds like you were listening to the propaganda Steve Forbes was shoveling during his visit to Anchorage or the standard RDC crap. Alaska has its own mini oil cartel and they run the state while they bleed it dry. I came across this ND article as I was attempting to research and learn about Alaska oil and gas production I found more unanswered questions: 1) Who if anyone pays for the natural gas that is flared-off during oil production in Alaska? 2) Do the oil company's in Alaska pay for the initial produced natural gas portion that is then injected to the producing oil formation to cause more production or is it like a basketball game where the winning team keeps the ball in play until the clock runs out? I believe that Alaska needs to keep the current oil tax in place or even increase it. My reasoning is that with the current oil tax in place Alaska at least has a little bargaining power to accomplish gas pipelines and other developments, without it we start looking like big oils development projects in Nigeria "natural gas that is flared-off" is a part of the production per se. What most people fail to realize is that the oil companies are using that gas to inject for more oil, rather than sell for more profit. If, it was profitable, don't you think the oil companies would be doing this on their own? In most States flared off production gas is measured and paid for by the producing oil company. Many State have laws whereas a new oil well cannot produce more than 100 barrels of oil per day as long as it is flaring off production gas, but once on a flowline and no longer flaring off the gas the well can increase its daily production to its maximum capability. I feel that Alaska should be paid for the gas that is flared off and if we had a law similar to the States mentioned above, we might be closer to getting the gas into a pipeline. As for the injected gas, it could be considered the cost of production, but the flared gas should be compensated for The oil companies have been re-injecting the gas for years. BP et al is/was getting more value from that injection than they would make selling the propane. I am surprised it has taken this long for someone else to figure this out. Now, build a pipeline to Fairbanks for the propane w/a take-off point at the Yukon river. |
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