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What does an LNG project mean to Alaska?

By Rhonda McBride 6:39 PM February 8, 2014

An interview with Steve Butt, a manager with a mission.

EDITOR’S NOTE: The following is an interview KTVA’s Rhonda McBride conducted with Steve Butt, the project manager for the Alaska LNG Project, a partnership between three major oil and gas producers, TransCanada and the State of Alaska.

Butt made presentations to lawmakers in Juneau last week on the project – which includes a gas treatment plant on the North Slope and an 800-mile pipeline to Nikiski — where a gas liquefaction plant will be built, to turn the gas into liquid so it can be shipped for export. The price tag for the project?  An estimated 45 to 60 billion dollars.

Both the questions and answers have been edited for length.

Rhonda McBride:

At your presentations you talk about something called the ARC of success.  Can you explain that?

Steve Butt:

It’s a phrase I use to help folks understand some of the key principles we use to evaluate the project at this stage. We call it the ARC of success. It’s alignment. Risk reduction. Cost reduction.

If you can get all the parties aligned to understand and reduce risks, mitigate them to the best of your ability and reduce costs you can be very successful. When you have misalignment among the parties or high risks or high costs, it’s very difficult to be successful.

 

Rhonda McBride:

So speaking of alignment, we have alignment with producers and the state and TransCanada, which is a milestone we’ve never reached before. How unusual is this project from the get go?

Steve Butt:

I think the governor’s recent introduction of legislation to have the state take equity is a real step forward. It’s different than any other project. And it brings all the major resource owners together.

The state is a very important resource owner in Alaska. You have Exxon, BP ConocoPhillips and ExxonMobil as also large resource holders, but now you have all four working together. And that alignment allows you to be more successful. And that’s a big step forward that’s very different than any other previous projects.

 

Rhonda McBride: 

It seems like in our history we have not been partners. We’ve often butted heads, trying to figure out who is cheating, who is getting the upper hand, who is winning the poker game? Alaskans have a lot of doubt about whether a scenario like this will change the game.

Steve Butt:

Well I think folks learn from their experiences, and over the history of the oil and gas business here in Alaska, you have the different parties trying to make sure their interests are being fairly represented. And legislators are doing their best for their constituents. Folks who are the investors and the producers are doing the best they can for their shareholders. Fortunately a lot of the shareholders and constituents are really the same people. We’re all invested in some of these resources.

And these resources bring us together. So I think what we can do is learn from our history, and learn that by working aligned, we’re more likely to be successful, whereas in the past we’ve been misaligned, we can spend a lot of time and energy trying to work things out but it really doesn’t help us move a project forward. It doesn’t really deliver gas to Alaskans. It doesn’t really create a project that will export gas to the world.

 

Rhonda McBride:

One of the things you keep telling people is that an LNG project is not just a pipeline.

Steve Butt:

This project is very different. Previous projects in Alaska have been about, “How do I build a pipeline to move gas from the resource to some market?”

This is a fundamentally different project where the resource owners, the state, BP, ConocoPhillips and ExxonMobil are working together to build an infrastructure to liquefy that gas and sell it to an export market.

So you have the resource owners working together to meet a market demand to provide gas to the world. And that’s different. It’s not just about moving the gas. Now you’re physically modifying it and creating a product that the market wants to buy. It’s a different regulatory structure and it’s a different business model that allows us to be much more integrated, and that integration allows us to reduce risk and reduce costs.

 

Rhonda McBride: 

Normally the oil and gas producers are competitors — at least that’s what we’ve always believed in Alaska, that it’s in the state’s best interest to have competition.

Steve Butt:

In previous pipeline projects, there are regulatory rules that require those pipeline projects to firewalled off so they don’t create an anti-competitive structure to producers.

Because you have the producers working together now, you can be much more integrated. And because you’re much more integrated, the pipeline project can be built and a treatment plant can be built, so that it’s integrated with the producing fields. And you can really leverage one of Alaska’s biggest advantages, which is a healthy oil business underpinned by Prudhoe bay and the growth of Point Thompson.

And you can take those assets, where we have wells, we have infrastructure, we have compression — and you can use that as a foundation of a gas project.

A lot of gas projects have to drill wells, they have to create infrastructure. Alaska has a lot of that. As long as oil business is healthy, we can leverage that resource, use it to underpin the gas project, maintain that alignment to reduce our costs and that’s really the success. It’s a commodity business, and in a commodity business, the low cost operator wins.

 

Rhonda McBride: 

One of things people enjoy about your presentations is the examples you give to make this project understandable, like the weight of the gas treatment plant on the North Slope weighing 253,000 tons, the equivalent of 140,000 Ford F-150’s.

Steve Butt:

It’s hard to think about, because what you’re trying to do is make the gas get very, very cold. It’s minus 260 degrees Fahrenheit, and none of us will ever experience anything that cold. We couldn’t.

At that temperature, gas physically changes. It goes from a gaseous state through a phase change to a liquid state. And when gas gets really, really cold — and goes through that phase change it gets 600 times smaller.

And the reason you build an LNG plant isn’t because LNG is different than a gas project, it’s because moving gas in a liquid state is 600 times more efficient than moving it in a gaseous state.

 

Rhonda McBride: 

Can you give the analogy you give at your presentations? If you’re making something 600 times smaller, what are you doing?

Steve Butt:

You basically taking any space you can think of and shrinking it by a factor of 600. It’s hard for people to conceptualize that. People can look at themselves, and think if I were to be shrunken down by a factor of 600 I’d be about the size of my heel.

If you want do it room, the gas in a very, very large conference room gets shrunken down to about the size of a trashcan

Any time you make the gas, liquid, you make it 600 times more dense. Therefore, I only have to move 1 boat instead of 600 boats. And in some ways, those boats are just a pipeline on the water. If you can deliver gas through a pipeline, it’s very efficient.

Pipelines are a good business model — and that’s why Alaskans talked about them for a long time. But with the evolution of shale gas and increased recovery in the Lower 48, pipeline models are not going to be as effective for Alaska as an LNG plant, because now I need to move my gas, not across the land.  I need to move my gas across the water. If I want to move my gas across the water, I need a liquefaction plant so that I can make it small and move one boat instead of 600 boats.

 

Rhonda McBride: 

What other projects have you worked on?

Steve Butt: 

I was lucky part of the project team that worked on the teams in Qatar. We brought on four of the world’s largest LNG trains. I was involved with the Al Khaleej gas plant. It’s the world’s largest gas plant for treating gas for instate for use.

 

Rhonda McBride: 

What do you think about this project?

Steve Butt: 

This is an iconic project. Folks have been working it a long time. Before I worked with ExxonMobil, I was very briefly with Sohio on Mukluk. Folks in that group were actually working on how do we monetize gas. This is 1984. And how do we move the gas from Alaska? I’ve been around it a long time. I think it’s time for Alaska to work together and find a way to monetize this gas.

 

Rhonda McBride:

What excites you about the logistics, the technical aspects of this project?

 Steve Butt: 

Engineers and technical people, we’re all about problem solving. And we enjoy challenges and there are a lot of challenges in this project.

If we can work it together, we can put together one of the largest LNG projects in North American history. It’ll be one of the largest investments in the energy industry. And it’ll be a first of it’s kind here in Alaska, plus it really underpins an Alaskan economy, the folks here in Alaska talk about wanting.

You provide gas to Alaskans all across the state. Folks in the Interior would have access because the pipeline would run straight down the state from Prudhoe Bay into the Cook Inlet. That puts it right on the Railbelt, gives a lot of folks access to gas.

It also creates of jobs, and it also creates a tremendous amount of revenue, because we’re selling the gas by having all the resource owners work together. You have the ability to generate revenue for taxes. That’s unique. Instead of just building an infrastructure to deliver gas, this infrastructure not only delivers gas but it generates tax revenues.

 

Rhonda McBride: 

For so many years we looked at a gas line to the Lower 48. But with so much infrastructure involved in LNG, maybe we’re better off because we would have more jobs and benefits for the state.

Steve Butt: 

Well, maybe. The folks involved in the projects to get gas into Alberta worked really hard. They did it with the understanding the Lower 48 needed gas.

That concept fundamentally changed, as producers in the Lower 48 were able to get better producing gas, they no longer need that gas in the Lower 48.

Some of my friends call it taking coals to Newcastle. I call it taking sand to the beach. They’ve already got a lot. They don’t need any more.

We’ve still got this tremendous resource in Alaska. Folks in the Far East want their economies to grow. They need gas. Through this more integrated project, we can work it very differently and meet the needs of a different market.

 

Rhonda McBride: 

How unique is this project?

Steve Butt: 

This project is going to be much larger than most of its contemporaries. No other project has a resource of this magnitude, that’s going to need an 800-mile pipeline, plus a large gas treatment plant and a large LNG (Liquefaction) plant.

Normally an LNG plants are very near the source, very near the water. So we’ve got some complex challenges that make this a little bit special, a little unique. And that’s exciting because we can solve those challenges. It’s a little bit more difficult though, and that’s a little bit more expensive.

 

Rhonda McBride: 

You’ve said we do have so advantages, such as having a cold climate.

Steve Butt: 

When we produce gas and we move it, we keep it about freezing. It’s about 32 degrees above zero, Fahrenheit. That’s a temperature where water freezes, but gas still moves as a gas.

As we get it into a liquefied state, we get it 260 degrees below zero. We drop it almost 300 degrees.

Here in Alaska, in the winter, you have cold temperatures, so you kind of get a head start.

Where I worked in the Middle East, you rarely have cold weather. It’s uncommon to have anything below 50 degrees Fahrenheit. Summer temperatures are usually over 120 degrees Fahrenheit, so you’ve got to offset all that tremendous heat in the atmosphere, in the environment — and still get it down to minus 260 degrees F. So you’ve got a much longer way to go. Here in Alaska, the cooler temperatures, the dry air, helps the LNG process be more efficient. We think it’s about 10 to 15 percent more efficient for the same amount of machinery, for the same design of a plant.

 

Rhonda McBride: 

While there are a lot of up front costs for LNG, world gas marketing consultants who spoke here recently at the legislature said once you get an LNG facility in place, you can pretty much ride on your investment.

Steve Butt: 

Alaska has some really important benefits. It’s close to the Asian markets, so you don’t have to ship the gas as far. You’re in the Northern Hemisphere, so when it’s cold here, it’s cold for your buyers. It’s easier to make the product. It’s more efficient when it’s cold.

Most importantly, the advantage here is you have existing infrastructure. You can leverage the oil business at Prudhoe Bay. You can leverage the investment that the Point Thomson operator is making — and you can ride on that healthy oil business to underpin the gas investment.

Those investments are important and they offset the need to put in large gas treating to offset the carbon dioxide and the 800-mile pipeline. So those things help you be competitive.

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