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HomeMy WebLinkAboutA Feasibility Study for the Nuiqsut LNG Project, Polarconsult Alaska 1984a feasibility study for the NUIQSUT LNG PROJECT } 4 et ! evi : 7 y \ \ 5 ’ polarconsult alaska, inc. LIBRARY COPY _ June 1984 a feasibility study for the NUIQSUT LNG PROJECT prepared by polarconsult alaska, inc. for VORTH SLOPE BOROUGH Office of the Mayor EUGENE BROWER, MAYOR STATE OF ALASKA BILL SHEFFIELD, GOVERNOR polarconsult Section oN OM FW NY Fe wo 10 et 12 13 14 15 Appendix A Append!Ix B TABLE OF CONTENTS Summary Introduction Study Methodology Basic Data Energy Use Assumptions Alternatives Considered Alternatives Not Considered Kuparuk Liquefacation Facility Nulqsut FacIility Retrofitting Facilities for Gas Estimated Costs Economic Analysis Social Effects Project Implementation Conclusions and Recommendations Project Schedule and Village Meeting Information Letters regarding this project polarconsult Section 1 12 Appendix A LIST OF TABLES AND ILLUSTRATIONS Table 1-1 Summary of 20 Year Projected Cost Annual Cost of Selected Alternatives Range of Present Values North Slope Borough Location Map Extsting Roadways Gubic Gas Field Well and Petroleum Resource Map Well, Site Plan Well, Site Profile LNG Tank Photograph Nulqsut, Proposed LNG Storage Nuiqsut, Site Plan Nulqsut, Site Profile Nulqsut, Proposed Distribution Network Table 12-1 Energy Demand Forecasts North Pole Refinery Fuel Price Forecasts Nulqsut Diesel Fuel Price Forecasts Table 12-2 Typical Cost EstImates CCases 1 thru 5) Table 12-3 Summary Table of Annual Costs Project Schedule Meeting Announcement Energy Questlonnalre LNG Brochure Letters SUMMARY polarconsuit SECTION 1: SUMMARY General The village of Nufqsut on the North Slope has very high fuel costs. As a consequence, this report is directed toward an analysis of the potential use of liquefied natural gas CLNG) In reducing these costs. The authority for this study Is the North Slope Borough. Funds for this study are provided through the Borough by the State of Alaska which asks sIx questlons as outlined [In Section 2. This report answers the questions on "What technology is needed to make the experiment successful?" and to a large degree, "What will the user costs be?" Questions of ownership and Investment decisions will be addressed In a separate Executive Summary Report and Finance Package and will be based on the Information contained In this report. This sectIon of the report contains a brief description of the village, surrounding area, population = and energy use, a description and economic analysis of the recommended project and Its Implementation, some of the social benefits which may be derived from the project and a brief statement of the conclusions and recommendations. Village and Area Description The village of Nuiqsut Its located on the North Slope and Is about 158 miles east of Barrow and 58 miles west of Prudhoe Bay. The village Is sited on the left bank of the Nechelik Channel near Its juncture with the Colville River. The village is located on mostly low rellef terrain which Is characterized by tundra and permafrost features. The village Is not connected to the state road system. The closest road Is located about 23 miles to the east, but the intervening terrain is not passable to large vehicles even In the winter. polarconsult Most of the supplies brought Into the village by wheeled vehicle are hauled over the Ice from near Oliktok Polnt up the Colville hence to Nulqsut. The branch of the river on which the village Is situated is essentially non-navigable. The distance to the Colville where navigation ts possible, is about three miles. Recently, an airstrip was constructed at Nuiqsut. This airstrip is 5,000 feet long and Is capable of handling C-130 aircraft. The village fs modern as it was established In 1973. There are about 12 public bulldings and 76 residences In the village. The utilities for the village consist of water and sewage hauled by truck with the sole exception being the school, which has conventional piping. Heat and electricity are produced by burning ofi1l and cooking Is generally done with bottled propane gas. In the past, fuel and bottled gas have been hauled by the Individual residents. A delivery service is contemplated for heating oil. Population Growth and Energy Use The present population Is estimated to be 305 people and for this analysis it Is expected to grow to 607 by the year 2005, which is the selected 20 year economic life of the facility. The consumption of energy Is based on current usage of fuel of] and bottled gas and Is projected forward based on population growth which determines the number of residences and on the "North Slope Borough Capital and Energy Plans" which provides the basis for the increase in public facilities. The high demand case in this report used the fuel demand derived from the preceding analysis, whereas the low demand case was based on energy reductions predicated on the use of waste heat from the electric generators. This waste heat would be supplied polarconsuli to, and totally consumed In, adjacent public bulldings which Include the existing school, and mobile equipment’ storage bullding. The waste heat to be utilized was conservatively estimated to be equivalent to the energy In the generated electricity. Conservation In the homes was not Included as this would be controlled more by the Individual and would be less likely to occur unless there was a concerted public policy to provide this service, I.e. energy audits, equipment, instal- latlon, and long term low Interest loans. The use of LNG for vehicles was also not Included in any of the demand forecasts or cost estimates. It Is considered an "extra" which would not have a significant effect on the project. Description of Recommended Alternatives The capital and operational costs for 20 years of each case are brought back to 1984 dollars for compartson purposes. The present value of the costs Incurred by implementing each of the alternatives allows a comparlson of the alternatives on an equal footing: that Is, the calculations adjust for differences in timing of costs and all costs reflect price levels In 1984 by bringing back future expenditures to 1984 dollars. User fees can recover the capital, Installation and operation and malntenance costs of the liquefier and transport system. Also, operation and maintenance costs of the storage and distributIon system at Nulqsut can be recovered through user fees. A summary of the present worth costs of projects with different sized liqueflers, different transportation modes and several liquefier locations is presented In Table 1-1. The least expensive project Cand thus best case alternative) for the polarconsult village over 20 years was a liquefler located at Kuparuk. This liquefier Ccase number four) would be capable of liquefying 400 MCFD of gas or a nominal 4,800 gallons per day of LNG. A gallon of LNG contains about 63% of the energy of arctic diesel, therefore this output would be equivalent to 3,018 gallons of diesel oil per day. The LNG from the liqueffler would be stored In vacuum tanks until It was picked up for transport. The least costly transport method would be overland. For this study, it was assumed that a rolligon carries 10,000 gallons of fuel on the deck and pulls 10,000 gallons behind it on a sled. The route would be from the Kuparuk Industrial Center to Oli ktok point and then south up the Colville River to the village. The tIme when deliveries are possible is estimated to be between December 15 and April 15. This time ts based on the requirement for a sufficient ice thickness on the river. After the LNG reaches the village, it will be unloaded Into a large storage tank. A 690,000 gallon LNG storage tank at Nulqsut would be able to store the substantial quantity of LNG needed during the months from April 15 to December 15 when transport over land is not possible. This storage capacity represents slightly more than 50% of the maximum demand In the year 2005 (1,318,000 gallons). Since demand for LNG will be higher In the winter months due to the demand for LNG for space heating, this provides the village with additional reliability because of the large storage capability. As needed by the village, the LNG willl be converted from a less than -259°F liquid to gas by heat from the air. The gas will then be odorized so It can be detected in the event an appliance is left on or there Is a leak. The gas will be transported In plastic pipes throughout the village In a manner similar to that polarconsult Table 1-1 NUIQSUT SUMMARY OF 20 YEAR PROJECTED COST LNG PROJECT (discounted at 9% to 1984 dollars) loan present MARINE GRANTS value = HIGH LOW| yey, cost MKT.| ( $1000's ) LAND % refer to graph entitled, “ANNUAL COST OF SELECTED ALTERNATIVES’ for comparative analysis of highlighted cases. polarconsult used at Barrow. The existing facilities at Nuiqsut will be converted to burn gas. The ofl burning guns will be replaced with ones designed for natural gas. Stove orifaces will be replaced with larger sized units. The few pot burner o!1 stoves will be replaced by gas burning types. The second best alternative project is the same sized liquefier located at Kuparuk (case number 2). It uses a combination of winter overland transportation and summer boat transport. The LNG Is shallow draft barged from OlIktok point up the Colville River to the river entrance. After floating through the Necheltk Channel the LNG would be hauled over a road to the village. rt would be a more complex and expensive system to operate but would offer some added advantages which might be attractive to the village. These advantages include the use of the boat for frelghting, and the addition of a 3 mile road between the Colville River and Nulqsut which could serve as a launch area for local boats. It also would require less storage at the village than case number 4. Description of Remote Gas Well Prospects A search was conducted to determine If there were abandoned exploration wells which could supply sufficient gas to the village and were no further away than 60 miles. The areas considered consisted only of the west side of the Colville, with the exception of the Kuparuk and the Gubic flelds. There were no wells found which would supply sufficient gas to be of Interest. The closest location for gas reserves of substantial quantity, other than Kuparuk - Prudhoe, Is the Gubic field which was discovered by the Navy In their exploration of the Naval Petroleum Reserve in Alaska. The surface and subsurface rights polarconsult for the fleld are now controlled by the Arctic Slope Regional Corporation. In this analysis, It was assumed that a 400 MCFD liquefier would be sItuated at this site. It Is also assumed that there will be the construction of an airfleld for all-season access. A liquefier at this location based on the present worth costs shown In Table 1-1 would be about 4 milllon dollars higher than for one located at Kuparuk. However, If the price of the gas were too high at Kuparuk, and if It were destrable to also serve the community of Anaktuvuk Pass from this site as well, this could be the more favorable location. It may be possible to reduce the capital and operational costs of this site provided a well were drilled on the west bank of the Colville, if an air- strip were not needed and if the existing well could be used without redrilling, as was assumed In this cost estimate. Economic Analysts The table and graphs presented [In this section show the results from computer runs of a number of options which Include project locations, lilquefler sizes, transportation modes, financial options and fuel olf] prices. The "Summary of 20 Year Projected Cost" Is presented In Table 1-1. The present value costs presented are composed of the capIital cost and the operating cost of the project for each year. These Individual costs are brought back to 1984. These present worth costs are added to arrive at the total present worth costs for each project. The lowest cost project, a liquefler at Kuparuk with land transportation has yearly capital and operational costs which are plotted on the graph entitled “Annual Cost of Selected Alternatives". This case, number 4, Is based on the assumption that the caplItal expenditures for Nuiqsut storage and distribution are provided as polarconsult a grant, which Is typically done on the North Slope for village facilities. The l!quefaction and transportation systems are paid for assuming private sector ownership with 13% debt financing over a 20 year project life. On the graph, these values are compared to high demand, high fuel of1 cost and low demand, low fuel oll cost alternatives. The fuel ofl costs used In these analyses were arrived at by usIng current costs and escalating them based on projections made for world fuel oll prices which are currently used by the State of Alaska In thelr economic analyses. The high cost case was based on "Data Resources, Inc." values, and the low cost case was based on mean values from the Department of Revenue. The project present worth costs of fuel are presented separately In the graph entitled "Range of Present Values for Purchased LNG", This graph presents two sets of lines representing two analysis' assumptions. The lower one Its for constant gas prices and Is based on the unit cost of gas times the amount used by the plant each year. These yearly costs are then brought to a 1984 present value and added together for a total. The gas cost In dollars per MCF used for each year is constant [In 1984 dollars. As an example, consider the cost of wellhead gas at the plant's capacity, which, at 500 MCF per day, Includes In plant consumption as well as feedstock gas. Assume plant operation for 330 days per year and that wellhead gas prices escalate at 6% per year to Incorporate Inflation. The 1986 gas cost is $46,350 for gas that would sell today at $0.25 per MCF. If gas were priced at $1.00 per MCF In 1984, total plant consumption would cost $185,400, or four times as much, In 1986. polarconsult The projected gas cost Is small relative to the fuel cost of the diesel alternatives. As an example, at $3.00 per MCF the present value cost of the gas used by the project for 20 years would be less than $3 million dollars for the low demand case. The higher two lines are based on the yearly unit cost of the gas being escalated at the world price of oll. The high line is at the high demand and uses the rate of world oll prices projected by Data Resources, Inc. and the lower IIine Is at low demand and uses the mean value of world of1 prices projected by the Department of Revenue. Using the same example as above of $3.00 per MCF the escalating gas cost scenarlo would yield a present value of less than $5 millfon. The present value sums of the operating and the capital costs of the project plus its fuel costs should be less than the alternative present cost of fuel ol1l to make the project economically viable. The basic interest rates that were assumed for this project were that prices would escalate at 6%. For present value calcula- tions, a 9% figure was used based on a 3% real value of money, and for commercial loans a 13% Interest rate was used over a 20 year financing pertod. Although the assumed economic life of this project is 20 years, the equipment should last for a much longer time. There Is a sufficlent amount of money Included In operating expenses to overhaul the systems each year. Because Individual pleces of equipment will be repaired or replaced, the operating life should be Indefinite extending many years beyond the initial 20 year period. Implementation Based on this technical feasibility report, the Finance Package and the Executive Summary, the State of Alaska, the North Slope Borough, the village of Nuiqsut, and Interested private parties should decide what level of thelr financial Involvement In the present dollar value (millions) Escalating Gas Cost ¥* High Demand, High World Oil Price Escalating Gas Cost ¥* Low Demand, Low World Olli Price Constant Gas Cost ** © High Demand Constant Gas Cost ** Low Demand * *x ESCALATING VALUE OF GAS BASED ON INCREASING WORLD ENERGY COSTS PLUS A 6% RATE OF INFLATION. CONSTANT VALUE GAS BASED ON A RATE OF INFLATION OF 6% $ / thousand cubic feet, million BTU dollars (millions) NUIQSUT | ANNUAL COST OF SELECTED ALTERNATIVES LNG PROJECT ( IN MILLIONS OF DOLLARS ) 0 Diesel low demand, low cost alternative. pe ‘LNG Case 4 alternative. @ 1-400 MCFD Liquefier @ Kuparuk, (Gas Purchase Price Not Included) polarconsult project Is desirable. Because the project will reduce Nuiqsut fuel costs and because It will provide a demonstration project to prove the usefulness of this technology to Nuliqsut as well as Its stster North Slope communities, the project Is worthy of careful consideration. In order to meet the 1986 heating season Cassuming an affirmative decision), project equipment selection, engineering and purchase commitments will have to be Initltated immediately. In addition, permit requirements will have to be outlined and the processes begun to acquire them. A schedule for these activities is given In Appendix A. Social Effects There are a number of soctial benefits which will result from this project. The most prominent one Is the reduction In hardship to the Individual In malntatining an adequate fuel supply. Currently, consumers Individually have to haul of1 In barrels and have to transport and hook-up their own gas bottles. sits; especially difficult for aged or IiInfirmed people. An Important premise to this project Is the use of a _ local Indigenous resource. Instead of money going out of the state for refined diesel products, It will stay within the Borough and provide an economic multiplier. In addition, the project can reduce the dollar cost of fuel to the village not only In terms of its costs based on Its heating value and lower electric rates, but because of reduced equI pment maintenance and delivery costs as well. polarconsult Conclustons and Recommendations Generally, It Is concluded that an LNG plant Is technically and economically feasible and desirable as compared to the diesel of] alternatives. It Is recommended that the State and Borough provide the modest sums needed to encourage the growth of this technology In Alaska. The private sector Is to provide the majority of the capital requirements for this. project. The village is to pay for all operations and maintenance costs as well as service the debt on the transportation and liquefaction facilities. A liquefaction plant at Kuparuk Ccase number 4) shows the lowest present worth costs, 13.6 million dollars, whereas, the cost of the probable priced, high demand diesel o!1 alternative (Ccase number 11) exceeds 21.0 million dollars. The $13.6 million covers the capital for the liquefler and transport system and operation and malntenance on the liquefler, transportation, and Nulqsut storage and dIistributIon; additional expenditures for the LNG alternative [Include $4.024 milllfon In capital facilittes for Nulqsut storage and distribution, a reprogramming of $500,000 for LNG storage and $174,000 of additional costs for purchase of electrical generators which can utilize LNG as the primary fuel. Also, an annual amount for wellhead gas cost needs to be added to these figures, depending on the negotiated price at the wellhead at Kuparuk. This latter [tem Is relatively small compared to the capital expenditures for the project. As discussed In the Finance Package, the economics of the project Improve with sales of LNG at Kuparuk. This 1986 cost per gallon of LNG attributable to the liquefaction component drops’ from $1.85 per gallon when the liquefier Is beltng operated only to meet Nulqsut demand, to $1.12 per gallon when the nominal output of the liquefier can be used by selling the surplus at Kuparuk. 1 - 10 polarconsult To provide benefits to the village for their Involvement In accepting the Increased problems of a new technology, there should be a significant savings In thelr fuel costs. Therefore, In order for the project to be viable a substantial portion of the over seven million dollars present value money will need to be passed on as reduced fuel cost. This will be possible If there Is a grant for Nuliqsut storage and distribution, provided a favorable price can be negotltated for the wellhead gas. Although under some conditfons the LNG facIlity does not show a positive benefit over diesel oll for the first few years, the long term outlook Indicates that the LNG alternative's yearly cost Is about one-half of the least cost diesel oil] alternative In Its 20th year. Therefore, over the long term, the Implemen- tation of this technology will have substantial benefit to the community. In the event gas cannot be acqulred at Kuparuk, or if its price is too high, It Is recommended that the Gubic option be further explored in order to reduce its cost to the people of Nuliqsut. NORTH SLOPE BOROUGH [—]_ [7] [7] ZS NUIQSUT relative location of sites 0° ‘6Omi. Ca LNG PROJECT | discussed in this report scaLe 1:2,600,000 INTRODUCTION polarconsult SECTION 2: INTRODUCTION General The village of Nuiqsut, located about thirty miles south of the mouth of the Colville River on the North Slope of Alaska, suffers from high fuel costs. These costs are high due to the expense of transportation added to the base fuel price. The dominant fuel used at the village Is diesel oil produced at the North Pole Refinery near Fairbanks. It is transported overland by Ice road or by alr to storage at Nuiqsut. This fuel has cost the village as much as $3.11 per gallon when flown In. This report analyzes the feasIbIility of supplying the village with natural gas from wells on the North Slope. The scope of the study is limited to the transportation of the gas In a liquefied form. As a result of the distances between Nuiqsut and known gas reserves, It Is proposed that gas be liquefied at the well, transported overland in cryogenic tanks, and stored to later be regasified at the village. A local distribution pipeline system would distribute gas to the residents of the village. Two advantages of this concept are: 1) the village can have an assured source of fuel which will have little or no escalation In costs, and 2) although the Initial facility Is costly, the operating costs will be relatively’ low. Additionally, the village will be free from the problems of acquiring liquid fuel In the event a natlIonal emergency arises. Also of importance Is that overland transport of liquefied natural gas CLNG) Is more acceptable environmentally than fuel ofl. When LNG spills it evaporates, whereas fuel oi1] spills have proven detrimental over the long term to plants and other blological life. Considering this advantage, there should be fewer restrictions on passage of LNG over tundra, rivers and polarconsult water bodies than those required for diesel fuel. In the recent past, these transportation restrictions have forced air delivery of diesel fuel to Nulqsut by C-130, which has escalated the costs substantially. This was the case in the winter of 1982-83 and 1983-84, which recently culminated In a $3.11 per gallon cost to the village for diesel fuel. Purpose The purpose of this study Is to determine whether it is feasible to utilize an LNG system to reduce the costs of energy now borne by Nulfqsut. The results of this study, If favorable, may be extended to other villages that have similar conditions. This study fs funded by the State Legislature through the Office of the Governor. The Governor asks the following questions: Ls What technology Is needed to make the experiment successful? 2. Who will be the owners and operators of the lIiquefier? 7. Who wlll distribute the final product? 4a, What will the user costs be? 54 Who else should invest in the project? 6. How will the project be financed? This section of the study is Intended to provide the answers to the technical and financial questions. It does not, however, deal with the operation and ownership fIssues dlIrectly. These issues are explained in further detail In the Executive Summary Report and Finance Package. polarconsult Authority The North Slope Borough, has commissioned Polarconsult Alaska, Inc. and Its team members to perform the analysls. Geosource/ Ukpeagvik and Ukpeagvik Inupliat Corporation provided technical and logistics support. Geosource Is an energy company that manufactures, among other things, lIiquefaction plants. It had gross receipts of 700 million dollars In 1982. Ukpeagvik Inupliat Corporation CUIC), a profit making corporation, is owned by the natives in Barrow. As explained earlier, the State of Alaska has made avallable funding through the aforementioned organizations to provide an analysis of the feasibility of utilizing LNG as fuel for the village of Nulqsut. Scope of Study Generally, the study consists of an analysis of the costs and benefits of providing LNG to the village. The study compares the results of this analysis to a base case which Is predicated on the contInued use of diesel fuel of] and bottled gas (Cpropane) as Is the present practice. To accomplish the analysis, the team engaged in the following activities: 1. Background Data Accumulation - Data was collected on the current use of energy in the village. This Included the use of diesel fuel for heating, vehicular use, and electric power generation. Additionally, the figures for the present consumption of propane were acquired. Where possible, storage requirements) and demand rates were collected. The cost of providing these fuels to the users (Ccosts including labor, transportation, and material) were added to the data. Potential gas sources were located and data on their accessibility was collected. polarconsult Cost Data - Costs of diesel fuel, which’ Include transportation and distribution costs, were collected as were the escalation factors for diesel fuel. Gas costs from selected sites were acquired. Tax rates, both property and severance for gas production, were gathered. Well drilling and reopening costs were estimated from Industry supplied data. Costs of liquefler, storage tanks, and fuelling stations were supplied by manufacturers. Gas distribution facllity cost data was provided by BUECI (Barrow Utility) based on their Barrow experience. Village Summary - The villages of Nulqsut and Barrow were visited to collect data on current practices. A village meeting was held at Nulqsut to acquaint local residents with the study project and to ask for their views on using LNG. These views were solicited orally and by questionnaire. A summary copy of this questionnaire Is presented In Appendix A. Village Requirements - From the data, estimates were made on the Increases In population and demand for energy In Nulqsut. As Is typical, it Is expected that the use of energy will be elastic In terms of price. However, the village probably cannot reduce current individual consumption greatly and will not exhibit as great elasticity as can communities fin more moderate climates. There are ways the village could, through conservation and district heating, reduce their usage of energy for some public facilities. The district heating measures have been’ incorporated into the studies. polarconsult 6. Base Case - The base case for comparison of the LNG plant Is predicated on the continued use of diesel fuel by the village for heating and electric generation, as well as the continued use of bottled propane for cooking. The base case uses the same growth and demand factors as the LNG alternatives. The cost of diesel fuel is based on world oll price forecasts utilized by the Alaska Power Authority In Volume 2A of the license application submitted to the Federal Regulatory Commission for the Susitna Hydroelectric Project. The low curve is based on Alaska Department of Revenue mean values. The probable curve Is based on a study by Sherman H. Clark and Associates. The high curve is based on values provided by Data Resources, Inc. Equipment - Liquefaction equipment efficiency, repair costs, and operation requirements were provided by Geosource. Thelr data was used exclusively as a basis for the estimates. Ancillary equipment such as large storage tanks and related facility equipment’ was gathered from one or two sources. For the purposes of this report, no attempt was made to find the best or least costly equipment. The capacity of the equipment selected was based on study load growth projections. Further refinement of capacity and exact specifications will need to await preliminary design _ selection. Because of the non-optimization of the equipment, which 1s most of the capital cost, it Is expected that this study will be somewhat conservative. Gas Sources - There Is limited knowledge on gas sources within close proximity to Nuiqsut. There may exist small gas bearing formations reasonably close to Nulqsut which could supply the village for years. polarconsult However, [It Is not economically feasible for this small community to finance exploration’ for these energy sources. Nulqsut's best hope lles In exploiting the data gathered from governmental and private exploration In the vicinity. Government exploration, which started In 1944 and terminated In 1981, resulted In the discovery of a gas formation at GubIic, 50 miles to the South. This potential gas formation was not explored tn sufficient detail to determine the extent of the resources. However, based on estimates, it Is Probable, that with no additional users, the Gubic fleld would supply Nufqsut for many-~ years. For estimation purposes, Gubic has the most probable larger scale gas reserves, so It was used as the base case for a remote well site. It also Is more distant and would represent a higher transportation cost than a nearer site. For the basis of estimation it was assumed that a new well or wells would be drilled to the gas sands. It Is not known from available data whether the old wells could- be reentered and completed for’ gas production. An additional advantage of the Gubic field, In terms of Nuiqsut, is the that the mineral and surface rights are owned by the Arctic Slope Regional Corporation. Another source of gas which has been investigated and which has been conditioned both for pipeline use and for the Kuparuk Industrial Center CKIC), Is the Kuparuk field. Kuparuk gas currently ts sold to the Trans Alaska Pipeline System, used for fuel In equipment or relInjected. polarconsult The final source of gas investigated was In Barrow. Although the gas reserves that are avallable In the South and East Barrow flelds are limited, substantially greater quantities of gas lie a few miles to the south In the Walokpa flelds. Should It be the decision to develop these resources at Barrow and should It further be decided to install a LNG plant in Barrow for peak shaving, vehicle fuel, and supply of energy to Atkasuk and Wainwright, then It may be economical to haul LNG 200 miles along the fast ice of the Beaufort Sea to Nulqsut. This would be brought about since capacities of the gas wells, pipeline, liquefaction plant, storage and the operation costs will be little changed due to the modest increase In demand for LNG with the addition of Nulqsut. Therefore, the greater increase in haul distance may well be offset by the economies of scale of the plant. Alternatively, It may be economical to haul LNG from Kuparuk to Barrow where It could be used for peak shaving and vehicle fuel. It also may be feasible to fly LNG to Atkasuk and Walnwright for less than thelr current diesel costs. If this were done, It would use excess Initial plant capacity and would reduce the capital and operating cost of producing LNG for Nulqsut as well as fuel costs at the other villages. Distribution - Distribution within Nuiqsut [Is assumed to be by small diameter plastic pipe (Csimilar tn material and design to that used In Barrow), where it has proven to be very successful. It Is also assumed that this system Is Installed by BUECI crews from It's sister village. For a small operation In this polarconsult 10. location, the local crews would be more than adequate and could do the project more economically than outstIde contractors. Furthermore, they would be responsible for maintaining a portion or all of the systems. This wlll increase the operational rellability. Nuiqsut fs lald out more conventionally than Barrow with no other underground utilities. Therefore, It Is expected that the construction should prove relatively easy in comparison to Barrow. Retrofitting - It Is assumed for this study that all utilities will be converted to natural gas, the cost of which Is included In the study. This entails changing out or rebuilding the engines for the electrical generators and converting all oil burners to natural gas. It also Includes changing the orifices and making reconnections to stoves which currently use propane. There are undoubtedly some appliances which may not be capable of retrofitting to natural gas. It Is assumed that this equipment will be replaced. Social Benefits - Social benefits relate directly to the savings In fuel cost that obtaining a reliable source of fuel, (Cless subject to escalation factors than the diesel fuel fn current use), would provide. In addition to the savings In fuel costs, there will be some reduction In the labor used to deliver diesel fuel to the Individual residences and tanks. This reduction in labor may or may not be viewed as a benefit based on the perspective of the village and other organizations which are engaged In fuel distribution. polarconsult Further benefits to the use of natural gas are a reduction In repair costs to furnaces and boilers, and cleaner air In the village. Also, many people are sensitive to the odor of diesel fuel and gas will help eliminate this problem. However, the use of LNG Is not totally without risk. If there ts a major failure In the LNG system, the village may not be able to get additional sources of LNG. The development of a back-up supply Is important to insure that such a fallure cannot result In the loss of energy In the village for a protracted period of time. Such a back-up system Is proposed In this study. polarconsult Acknowledgements The cooperation of federal, state, and local agencies as well as local residents of Nulqsut contacted during the course of this study was especially appreciated. This parttal list tncludes: the Department of Transportation; the Bureau of Land Management; U.S. Geological Survey; and the State of Alaska's Department of Revenue, Conservation Division, Division of Minerals and Energy Management, O!1 and Gas Royalty Board, Alaska Power Authority, Department of Natural Resources, and Alaska Public Utilities Commisston. Local agencies’ include: the Ukpeagvik Inupiat Corporation, the Barrow Utility Electrical Cooperative, Inc., the Barrow Department of Utilities, and the Kuukpik Village Corporation. Companies contacted which provided valuable data Include Geosource, Inc., Chicago Bridge and Iron, Enstar, Southern California Gas, CATCO, Mukluk Frelght Lines, Richmond Lox, M and W Drilling, Dresser Industries, ARCO Alaska, Inc., ARCO Pipeline, and N.C. Caterpillar. Individuals who provided invaluable data and advice were Jim Hoss, a consultant; Rick Thompson and Eli Nukapigak of Nuiqsut; Jim Carress, Manager of Barrow Utility Electric Cooperative, Inc.; Jerry Cogdi1l1l, Village Operations Manager for the North Slope Borough Utilities; and Bob Whisenhunt, Director of Business Operations for U.I.C. This study was performed under the direction of Earle Ausman, project engineer and Mark Newell, project manager. Pat Burden was the lead economist, James Barkshire the principle editor, Lauren Berglund the lead graphic artist, and Judy Balley the main word processor operator. STUDY METHODOLOGY @ polarconsult SECTION 3: STUDY METHODOLOGY General The study methodology used to determine the feasibility of LNG for Nulqsut Is described In this sectlon. Generally, the study was conducted In the following phases: Data gathering, field survey, public meeting and office study and analysis. Data Gathering The data gathering phase consisted of visits to the Geosource LNG facility located at Vancouver, British Columbia, and the Chicago Bridge and Iron LNG plant in Roanoke, Virginia. Collection of data from various governmental agencies was obtained with regard to gas prices, taxes, safety regulations, gas sources, land and gas ownership. Data on Nuiqsut was acquired from Kuukpik Corporation, North Slope Borough Utilities, and from Barrow Utility Electric Cooperative, Inc. The document, "North Slope Borough Background for Planning, Nuiqsut"™ also served as a resource. Information on reserves was acquired by the project team from the U.S. Geological Survey and vartous professional Papers published on the subject. Using this data, the team prepared preliminary lists of questions that would be used during the field survey phase. Field Survey A field survey was conducted at both Barrow and Nuiqsut. The survey was conducted to fill in data gaps left by telephone conversations and to review published information. In addition to speaking with Individuals who are concerned with current village operational practices and projections, the team conducted an extensive field survey of the village's utility systems. The polarconsult generation facility, fuel storage, fueling facility, and Individual homes were surveyed. The characteristics of public bulldings were observed with conservation measures such as district heating In mind. Conversion requirements and problems were noted. ° Public Meeting A public meeting was held on November 15, 1983. The purpose of this meeting was to explain the project to the local residents and to determine their interest In an LNG system. The public meeting was also used in part to determine the number of furnaces, bollers, and stoves which might be converted to gas. The results of this public meeting are presented on _ the questionnaire In Appendix A. Out of the 48 responses, 47 stated they thought using gas was "good.'"' Most felt the meeting was useful and all were concerned about saving money on electric and fuel bills. Question 12, which was inserted to determine If the questlons were being deliberated over, had only three "yes" votes and two "don't care" votes, indicating a high level of under- standing and consistency. Of considerable ald at the meeting was the translation of each question Into Inupiat by David Brower. Office Study and Analysis The office study was the most extensive phase of the project. The accumulated data and input from fleld visits to facilities was brought together and analyzed. Cost estimates were made for the selected alternatives. These estimates were used as a basis for the total project economic analysis and provided for the polarconsult selected conditions which might take place. The selection of ranges was used to provide a form of sensitivity analysis. This approach was taken to aid In the determination of what might happen if the selected, most probable situation did not take place or changed. These economic analyses were presented on a year-by-year basis to show the results of the project over a time period, which was based on a 20 year economic life. BASIC DATA @ polarconsult SECTION 4: BASIC DATA General This section describes the general basic data used In _ the compilation of this report. Included in this section are: climatology, winds, geology, and land status, which encompasses subsurface ownership rights. Physical Setting Nulqsut is situated on moist tundra on the left or west embankment of the Nechelik Channel - the westernmost water course of the Colville River Delta. The village is located approxi- mately 30 miles to the south of the Beaufort Sea. The land surface in the vicinity of Nufiqsut Is generally flat except for an embankment, overbank levee, adjacent to the Nechelik Channel. A small beaded stream, which runs generally easterly, divides the village and drains Into the Nechelik Channel. The Nechelik Channel Is said to be too shallow for large barge transportation. This restricts the size of the equipment which can be brought Into the village and the season tn which It Is delivered. However, a boat with a shallow draft, less than 3 feet, can ascend the Colville River during the summer and land supplies at the entrance to the Nechelik Channel at its juncture with the Colville. Summer flooding can occur In low lyIng areas below the channel's embankment and In the stream which bisects the village. Evidence of the overbank levee suggests, however, that there have been floods sufficient to deposit that material. Therefore, in terms polarconsult of an Important project such as an LNG storage facility, proper hydrological investigation should be done prtor to determining the final site location and designing the embankment or other structures which support the facility. Climate There Is no long term climatic data for Nuiqsut. Therefore, data gathered from other representative coastal areas has been used. The climate at Nulqsut Is typical of the coastal plain regions bordering the Beaufort Sea. This climate Is characterized by long cold winters accompanied by persistent strong winds and cool short summers. The Arctic Ocean, although frozen during the winter, moderates the temperatures both low and high. Further Inland, such as at Umiat, temperatures are colder in the winter and warmer during the summer. The average temperature between December and March is 0°F, whereas the minimum temperature Is below O0°F for about 163 days per year. The lowest historical temperature In the area Is about -50°F. Precipitation at Nuiqsut is low and averages about five or sIx Inches per year. It is estimated that the average annual. snow fall is 20 Inches per year. Wind Persistent winds blow at Nufqsut and are generally from the north or northeast. The estimated mean annual wind speed Is 11 miles per hour. One source states that sustained winds of 35 miles per hour are not uncommon for Nuiqsut and that sustained winds of 48 polarconsult miles per hour have been recorded at Deadhorse. Gusts would be of higher speeds which would be dependant on thelr duration. Wind velocity and direction are Important In locating an LNG storage facility. It should be sited so that in case a failure occurs (Ca rare event) any gas cloud wlll be blown away from people, bulldings or other facilities. Geology The surface of the area Is characterized by polygonal patterned ground with low centered polygons, beaded streams, and slump lakes. A vegetation mat of moist tundra and decayed organics overlies alluvial deposits. These deposits are mostly composed of coarse sands with some silts In the overbank levee vicinity. Much of the surface solls are Ice rich and large frost wedges, and other Ice forms are abundant. Permafrost depth, which ts based on a well record 30 miles to the west, Is approximately 600 feet. Further south at Umiat a recorded depth was 1,056 feet, whereas depths recorded at Barrow and Prudhoe were 1,329 feet and 2,132 feet respectively. Villagers report the depth of the active layer in the area to be 24 Inches. Seismic There are no active tectonic features near Nuiqsut nor Umiat. The maximum earthquake recorded In the area was 4.8 on the Richter scale. Extensive surveys were conducted for basic data for the DiapIir lease sale which Is off the mouth of the Colville. It was stated In the Final Environmental Impact Statement, "There is no historical evidence of any earthquake activity in the proposed sale area. The only area of the Beaufort shelf with recordable seismic activity Is located east of the proposed sale area off Camden Bay." (CGravity et. al., 1980.) The Untform polarconsult Bullding Code gives the area a seismic risk of 1. The result of this low sefsmic activity level and risk ts that substantial additional money will not be required for the tanks, their anchors and foundations. Land Status Lands In the victInity of Nuiqsut have been selected by the KuukpIk Corporation. The area for the village takes up nine square miles, which was conveyed to the corporation under the terms of the Alaska Native Claims Settlement Act CANCSA). Kuukpik Corporation under the requirements of Section 14(€c)(C3) of the Claims Settlement Act as amended, must convey up to 1,280 acres of land to the City of Nuiqsut. In terms of project siting, there is sufficient land under control of the residents to assure that a satisfactory project location for storage and regasification can be found. ENERGY USE ASSUMPTIONS “G Oo 9 = ©) o wb cs SECTION 5: ENERGY USE ASSUMPTIONS General This section describes current population and use of energy and then makes projections over the life of the project. There are several generally accepted methods of estimating energy consumption for a community. One method uses historical trends, a second utilizes the estimated demand of new projects and a third assumes energy use will change with population size. Significant Vartables For Nuiqsut all of these methods have serlous’ flaws. For example, Nulqsut has a very short modern history, so historical trends may not be valid. Further, new local construction projects are proposed but the certainty as to funding and the method of providing energy to these projects is not’ known. Therefore, project based estimates are subject to question. Population growth for the village is dependant on many factors. For example, If of! production facilities are built nearby to service the Diapir field, the village could grow greatly over the current estimates. The opening of Kuparuk Industrial Center, the Increase of facilities at the Kuparuk field, the extension of the road system and the potential labor requirements of the Ugnu formation could all be very significant as to growth of labor demand from the village, and therefore village growth as a whole. Further, generally traditional estimates of energy used frequently do not take Into account conservation measures. Because Nulqsut is new and because the people have a high level of cooperation with each other, and because energy Is. subsidized locally, there Is an Increased possibility over many locations to institute substantial savings in fuel usage through conservation measures. These inciude district heating, air to air heat exchangers and more efficient furnaces, to name a few. polarconsult A detailed energy demand forecast Is given in Section 12 (Table 12-1). It Is composed primarily of electrical generation, space and water heating, and cooking. Conversion of vehicles was not Included In any of the forecasts - sensitivity analysis showed no significant impact was made on the demand or economics by this use of LNG. Growth Assumptions Used Because of these deficiencies, this report has combined the varlous methods of estimating the use of energy. For the base case It has been assumed that energy growth is generally in conformance with the North Slope Borough "Fuel Impact Study". However, the low case is based on conservation measures as were previously outlined. The high case Is based on an _ tIncreased population growth which could be created by modest Increases in activity In the of] fields in the area. By providing this range of estimates, a determination can be made on how the changes in energy use affect this project. ALTERNATIVES CONSIDERED i?) Y mane $39) sy © 6 os w & SECTION 6: ALTERNATIVES CONSIDERED General There are many possible alternatives to consider when discussing the proposed use of LNG at Nulqsut. This coupled with the potential variations In assumptions Cfor example, fluctuations In population, Interest rates, fuel consumption and fuel price) may have resulted in an unmanageable study. Therefore, the most Probable, representative alternative was selected from each Particular case of assumptions. Selection of the alternatives was based on: 1) whether the project could be started Immediately; 2) whether It appeared to be most economical; and 3) whether there was sufficient Information available on the area and resources to Insure a successful project. Base Case - Diesel The base case presumes the continued importation of diesel of! and the utilization of propane In cooking stoves at Nuliqsut. The base case considers consumption of fuel based on population growth and the consequential addition of housing and _ public facilities to the village. This is presented in Section 5. The base case further assumes that cost of fuel is in accordance with production of fuel at the North Pole Refinery and that shipment of the fuel to the village is by the most economical means. Based on statements by the manager of the refinery, it Is assumed that the cost of diesel will follow the world price of oil. The world prices are based on studies done for various State of Alaska Agencies and represent a reasonable range of potential prices. i} | © © = w” fs These assumptions may be subject to future market actions. For example, If there was competition, the refinery could hold their fixed costs constant and only Increase their fuel stock prices as they went up. This would have the effect of lowering the assumed prices of fuel used In this study. Currently, there are about 7,000,000 gallons of fuel being shipped to Prudhoe Bay from other sources such as the North Pole Refinery. The cost of this fuel prior to delivery Is about $.99 per gallon and Is about $1.51 per gallon after delivery. The of] to produce this fuel Is conditioned at Prudhoe, pumped to Falrbanks in the Trans Alaska Pipeline System (TAPS), and then trucked back to Prudhoe for use. Current fuel costs paid by consumers [In Prudhoe for fuel from the Prudhoe topping plant are reported to be $1.52 per gallon. Of even greater potential consequence is that both ARCO and SOHIO are in the planning stages preparatory to building topping plants. If excess fuel Is avallable from these plants and is sold to commercial companies and villages such as Nuiqsut, {ft could have a price as low or lower than the $.99 per gallon price at North Pole, since the feed stock will not have to be increased by tariff to the Trans Alaska Pipeline and there will be no costs for transportation to Prudhoe or Kuparuk. In a case such as this, It will be unlikely that a LNG plant would be competitive. However, based on the history of oil company actions, it is more probable that fuel oil] prices for commercial users, and for Nuiqsut If they are allowed to purchase, will remain competitive with that of fuel trucked from the North Pole Refinery as in the past. Attempts have been made to determine whether and at what cost diesel fuel would be made available to Nuiqsut from the topping plants but these were to no avail. Recently fuel costs for Nuiqsut have varied widely due to several means of Importation. These Include trucking over Ice roads and alr delivery by C-130 aircraft. The latest fuel used by the village cost $3.11 per gallon for the 44,000 gallons flown In durtng November 1983. Organizations which use considerable fuel base their estimates on fuel delivered both by truck and air. For example, the budgetary figure used for 1983 by Barrow UtlIlity is $2.28 per gallon. Local utilities do not have sufficient storage to carry them over the summer, so they must elther purchase fuel, if avallable, from KuukpIk corporation or fly fuel In. The local utilities plan to construct a 160,000 gallon tank, estimated at $500,000 capital cost, to alleviate fuel shortages at the power plant. This tank, which Is tncluded in the base case economics, would not be needed If the large LNG storage tank that Is part of the LNG facility was constructed. In the past, fuel could be hauled rather economically tnto the village over an ice road. The Ice road, with a reported yearly cost of $100,000.00, was built and matntained to provide a method of transporting construction equipment and supplies to the village for thelr large building program. StInce this program is almost completed, it Is not probable that an ice road will be constructed each year for this_ purpose. If the village constructs the road primarily to haul fuel, the greatest freight requirement, It will result In about a 25 cents per gallon increase on the fuel. For this reason, It has been assumed In the base case that all fuel Is hauled to the village by rolligon, which does not require ice roads, and that permission is granted each year by the surface owner to cross. The transport by rolligon is based on figures from CATCO which results In costs slightly higher than the constructlon cost of an Ice road. This then becomes a low estimate of the base case costs as it assumes: “3 ©, +33) g ©) th 1) permission Is given to haul across state land; 2) this permission does not require an Ice road; 3) CATCO does not raise Its prices based on its exclusive ownership of this equipment; and 4) the most efficient transportation methods are used. It Is possible that for environmental reasons it will be decided to no longer allow the crossing and skirting of the Colville River with toxic fuel such as diesel. If this occurs, the only alternatives the village has with the base case are a small diameter pipeline or air transportation. Both of these will cause substantial Increases in fuel costs. In the economic analysis, a LNG option is compared against a high base case with alr transported diesel fuel In one of the scenarios. LNG From Kuparuk The manufacture of LNG at Kuparuk and Its transportation by cryogenic tank to Nuiqsut represents the most probable LNG case. Kuparuk has large amounts of gas associated with o!1 production. The gas must be conditioned and reinjected, causing substantial capital and energy costs to the oil companies. An infrastructure also exists at Kuparuk with highways, alrflelds, docks, supply organizations, and housing available to aid the LNG project. There are possibilities at Kuparuk of selling excess LNG to commercial users, the fleld operators, or to other villages such as Barrow and Kaktovik. Finally, the haul distance from the Kuparuk facility to Nulqsut is only 42 miles. However, this haul Is over roads controlled by the oil companies and over state land and the route must also cross the Colville River. An unknown situation Is whether and for what price the oil companies will sell gas to the village. Although numerous contacts have been made with ARCO representatives, formal Prudhoe Bay Field Deadhorse Airport © EXISTING ROADWAYS NUIQSUT Dalton Highway and roads connecting Prudhoe Bay Field, LNG PROJECT | i uparuk Industial Center & Vicinity polarconsult commitments as to avallability of gas from this source have not been made and gas pricing Is even further Into the future. However, It Is reported that verbal commitments to supply gas to Nulqsut have been made by the president of ARCO to concerned native leaders. Therefore, as a basis of this analysis, It Is assumed that the gas will be avallable to the village. The outstanding question which remains is its price. The price could range from zero dollars per million Btu, as currently ARCO must spend money reinjecting marketless excess gas, to the maximum rate set by the Natural Gas Petroleum Act which could be In excess of three dollars per million Btu. It was assumed for the purposes of this study that a site for the liquefaction plant could be found somewhere on the road system near the Kuparuk Industrial Center. Furthermore, the plant would be close to a source of conditioned gas and close to a power line. It Is also assumed that there will be no costs associated with using the land. LNG From Gubic Analysis of the gas wells within the National Petroleum Reserve disclosed that the Gubic site Is the closest’ containing suffictent known quantities of gas to make siting a project feasible. Due to the location of gas at shallow depths It Is less expensive to drill a well at Gubic. The Gubic case was developed based on mobilizing a small drilling rlg from Anchorage, and drilling and completing a shallow well to a 2,000 foot depth. Drilling was assumed to take place In the winter. MobI1Ization was based on supplying larger material from Prudhoe or Kuparuk with rolligons and providing light subsistence and personnel transport by use of Beaver Aircraft landing on a polarconsult scraped tundra airstrip. This scraped tundra strip would then become the location of a 1,000 foot by 50 foot Insulated embankment fleld that would be used to support the liquefaction plant operations. During the construction of the airfield, an Insulated pad would be bullt for the liquefaction plant housed in one or two separated 40 foot by 40 foot Insulated metal bulldings. There would also be a 20 foot by 40 foot bullding which would supply storage for spare parts and supplies and would house a Snow Trac or sImilar vehicle which would be used for emergency transportation, and for getting water during’ the winter. In addition, there would be a 10 foot by 52 foot staff quarters bullding which would house two operators permanently and two extra malntenance personnel on a temporary basis. This bullding would be entirely self contained with the exception of a small nearby external water treatment and storage tank. All of the buildings would be separated for fire protection and the buildings housing the liquefier would be equipped with a Halon fire system. Bulldings wlll be orfented to reduce problems with drifting snow. Operators are assumed to put in 12-hour days while the lique- faction process Is underway. Alarms for the liqueffier, tanks and other critical equipment will be repeated at the housing unit and possibly at Barrow or Nuiqsut. The loading facility will be designed for a one-man operation and will have devices which will Insure that mobile tanks are not over filled. The loading ramp will be sloped toward the contalnment structure for the main storage tanks. polarconsult Storage at the site will be sized so that: 1) sufficient LNG wlll be on hand to fill a rolligon with a 10,000 gallon Insulated tank on the bed and a 10,000 gallon tank trailed behind on a sled; and 2) the plant can provide enough LNG prior to and during the haul period to carry the village through untI1 the next haul season. It Is estimated that the haul period Is during the months of December, January, February, March, and April. For the purpose of this study It Is assumed that the village must be supplied over a 121 day period. The reason the pertod Is limited Is due to the necessity of crossing the Colville River, use of its Ice for transportation and In the case of the Kuparuk liquefaction location, use the fast Ice [In the delta region as well. Currently, the state requires that there be five feet of Ice on the Colville River prior to making a crossing. Were It not for the river crossing requirements, the "on tundra date" for over- land travel could be In early November. Should gas be found in a well which Is located so passage on or crossing of the Colville River is not required, storage at the well site and at Nulqsut could be substantially reduced. Such a well could be similar to the SOHIO Fish Creek well which Is planned for drilling several years from now. As discussed previously, the cost estimate at the Gubic site Is based on drilling an entirely new well. However, It may be possible to re-enter the old well recomplete and produce it. In this event costs could be lowered substantially. At this time, It Is not known what the long term production rate will be of a well In the Gublic structure. Based on data from the Geological Survey Professional Paper 305-C, a test on Well No. 1 from 1,681 to 1,738 feet yielded about 2,000,000 cubic feet per day. At test Well No. 2 at 1,792 to 1,841 feet, the well ran In excess of 8,000,000 cubic feet per day and had a bottom hole pressure of polarconsult 1,050 psi gas. Gas quality at test Well No. 1 appears good with a methane content of 97.05 percent and ethane or heavier gases at 2.95 percent. There was neither carbon dioxide nor oxygen shown by the tests, as these two gases would require expensive pretreatment requirements. Estimates of gas in the fleld are given In Geological Survey Professional Paper 301 and range from a low of 22 to a high of 295 billfton cubic feet (Cbcf) of recoverable gas. If the amount of gas avallable Is the minimum of 22 bcf and the usage by the village is at the rate estimated for the year 2005, the reserve will last for 170 years or more. If the larger amount, the field would last the village in excess of 2,000 years. Prior to drilling a well at Gubic and siting liquefaction and storage facilities and the airfield, a hydrological analysts wll] be required to assure that structures are protected If they must be located In the flood plain. The land and mineral rights at Gubic are owned by the Arctic Slope Regional Corporation. Because this facility is for arctic residents, it has been presumed that land, gas and the minor amounts of needed gravel will be provided to the village at little or no cost. Transportation of the LNG from the GubIc well site will be mostly on grounded ice along the Colville River, where running Is faster and less environmental damage can occur. It Is estimated that at 20,000 gallons per trip the first year of operation will require about 43 trips and the last year of analysis, 2005, will require about 66 trips. After each year or so of operations on the tundra, the route wlll be offset slightly to allow the vegetative mat to recover. posed. ooowe® 2/0« Test Well Paes GUBIC GAS FIELD. Test Well No. 2 32/) Ea GAS FIELD topography, well sites and ° proposed development NUIQSUT | GUBic LNG PROJECT 1/2 Tmile SCALE 2"°=1 mile ALTERNATIVES NOT CONSIDERED polarconsult SECTION 7: ALTERNATIVES NOT CONSIDERED General The scope of this study was strictly limited to the manufacture, transportation, and storage of gas in Its liquefied form. Although possible alternatives are mentioned briefly as follows, It Is outside the scope of this report to provide cost estimates or advise on the relative merits of these alternatives. Gas Pipeline A gas pipeline could be bullt from a close gas source such as the most westerly wells In the Kuparuk field. A small diameter low pressure line from that fleld would be required to cross the Colville River. This crossing would be expensive. A major question Is whether the of1 companies would make gas avallable this far west, and when the most westerly portion of the field would be developed. A gas line from the Gubic field, over 60 miles away, would also have to cross the Colville and would be costly due to the distance. Electric Transmission Electrical energy could be generated at the Kuparuk Industrial Center and carried by transmission line to Nuiqsut. This option has been studied in the "North Slope Borough Energy Plan." This option would require a retrofit of substantial magnitude on all bulldings In the village. Additionally, the power system would probably require rebullding to handle the Increased amperage. polarconsult Other Wells There are additional wells selected for NPRA. SOHIO planned one at Fish Creek for this winter. This schedule Is now delayed several years. If such a well hit gas in sufficient quantity for Nulqsut and the companies were willing, gas could be brought from the Nuiqsut side of the Colville River. In a case like this, there could be substantial savings to the village, as transpor- tation and storage would be simpler and less costly. LNG From Vicinity of Nulqsut Analysis of well records within a 60 mile radius of Nuiqsut on the west side of the Colville River has disclosed no wells containing sufficient gas with the exception of the Gubic field. Compantes such as SOHIO were contacted on the status of NechIilik No. 1 and other wells which proved not to have gas _ In "pbroduciIble" quantities. On the east side of the Colville River there are a number of drilled wells which contain gas and oll. Maps show the Kuparuk oi1 pool reaching to within eight or so miles of Nuliqsut. It is assumed that gas from these locations has been picked up near the Kuparuk Industrial Center, about 34 alr miles from Nulqsut, for collection and conditioning. Whether or not well owners would allow gas to be taken off Individual wells remains unresolved. Point La CHUKCHI A SEA Wainwright oc AOLAK BEAUFORT Barrowm So. BARRO! GAS FIELD, 1KO QWALAKPA 3° SKULL CLIFF SIMPSON REW POINT FORANO' KUPARUK CAPE HALKET TOPAGORUK ° So. MEADE Teshekpuk Lake e. toPAGORUK COLVILLES So. HARRISON BAY, PELTA = NECHALIK ° we No. KALIKPI ° \ FISH ReeK KOOKPU NUIQSUT# BAtqasuk G W. SAK 4 ReiuK RU. oun N.P.R.A. eKOLUKTAK SENTINEL HILL, SQUARE LAKE QTKILLIK ° UMIAT GAS FIEL TITALUK &, ce - o.rcreek 86 § é o © KUPARUK Ft cae °scHRADER LITTLE TWIST QKNIFEBLADE Pa ores, . BS So = ‘ GRANDSTAND” TULUGAK ow. KURUPA °., . KURUPA i : i ! i ‘ Jd LISBURNE ° ° BEER TIGLUKPUK i § s : Anaktuvuk ! @Pass 1 i WELL and PETROLEUM NUIQSUT | ResouRCE LOCATION MAP LNG PROJECT Jo a5—30 som, SCALE: 1”=30miles Ss UNIT, onk'S MEKEUK ATIGARU E. HARRISON Po HEMI S) < © TOOLIk ° ° SEA PRUDHOE "MILNE Pt. UNIT AY UNIT ws BEECHEY PT. (2-70 GWYDYR BAY UNIT t | DUCK ISLAND UNIT W. MIKKELSEN UNIT p+. tHomSON ~ OZ Suit A ° 9 W. CANNI OKADLER ST. W. STAINE : © Lake 7 “KAD RIVER N. FRANKLIN BLUFFS W. KAVIK W. KADLEROSHILIK O gee ° BUSH OSHAVIOVIK NORA OFIN CK. ° NIT SUSIE oECHEOKA OKEMIK U! ° KAVIK UNIT) Sere OvisHak °, Aveeee LUPINE OsHALE WALL coBBLESTONE ¢—unit boundary > 92s and oil field o abandoned well egas well KUPARUK LIQUEFACTION FACILITY polarconsult SECTION 8: KUPARUK LIQUEFACTION FACILITY General It appears that the most viable liquefaction alternative will be a gas source and liqueflier at Kuparuk, somewhere near the Kuparuk Industrial Center. Transportation would be by cryogenic tanks, with a storage and distribution system at Nuiqsut. The basis for this reasoning assumes that gas costs to the project will be low because of the low value of gas to the oiji1 companies. Since there Is Interest In LNG at Kuparuk and Prudhoe, (Cfor vehicle fuel and potentially for other field uses as well), there will exist a market for excess LNG purchased during the project years. Project Description Liquefiers at Kuparuk, will receive natural gas from ARCO or the Kuparuk Industrial Center. The gas will be supplied at pressures greater than 350 psi and will have been conditioned by ARCO to pipeline quality, Cl.e., low molsture content, heavy ends stripped and sand removed). The gas at Kuparuk does contain some co’, so absorbents wlll be required. Flve LNG systems were Investigated for Kuparuk. Cases 1, 2 and 3 are summer marine and winter overland haul cases with the liquefler being Installed at Kuparuk. Case 1 uses two 150 MCFD liquefler, nominal output 3,600 gallons of LNG per day (gpd). Case 2 uses one 400 MCFD liquefier, nominal output 4,800 gpd. Case 3 has two 400 MCFD liqueflers, nominal output 9,600 gpd. Case 4 Is a winter haul case only and uses one 400 MCFD liquefler. Case 5 Is a winter haul and uses two 400 MCFD liqueflers. These winter haul cases are most similar to the system now used In the case of diesel oil transport and storage. polarconsult A brief summary Is presented which provides some basic project data and gives an Indication on the differences between the systems. For all entirely winter haul cases, a Gubic liquefier location can be substituted for Kuparuk. Larger amounts of LNG storage are needed at Nuiqsut for the winter cases, because of the restricted haul period and the need to store about one half the yearly demand. This storage Is most economically met by a sIngle large tank. A brief summary of the differences between the projects Is given on the following page. polarconsult These liqueflers could be Is a single large storage tank built 20-year estimated quantity of LNG. A third 150 MCFD Liquifier will be required about 17 years YSTEM CASE 1 2 3 4 5 System Capacity/MCFD 2-150) 1-400 2-400 1-4005}) ~~ 2-499!) Mominal gallons/day 3,600 4,800 9,600 4,800 9,600 clquefier Location KUP KUP KUP KUP KUP aul Trips, 1986 Marine ae 32 32 Land 26 26 26 45 4S _aul Trips, 2005 Marine 47 47 47 Land 39 39 39 61 61 Liquefier/gallons C4) Storage-1986 126,000 126,000 63,000 63,000 63,000 Storage-2005 252,000 189,000 63,000 189,000 63,000 Nulqsut, gallons (2) (2) Storage-1986 315,000 315,000 315,000 690,000°55 690,000¢55 Storage-2005 378,000 378,000 378,000 690,000 690,000 “Igh, gallons Yearly Demand-1986 895,000 - - - - Yearly Demand-2005 1,820,000 - - - - ow, gallons Yearly Demand-1986 835,000 - - - - Yearly Demand-2005 1,230,000 - - - - located at Gubic without change In Initlally to hold the Into the project as two 150's cannot supply entire requirements. C1) Note: table values. 2) Note: This “3) Note: C4) Note: added In movements of 63,000 gallons. All tanks, other than the 690,000 gallon, are assumed to be polarconsult Liqueflers of different capacities and numbers were Investigated to determine their effects on storage and system costs. Where system costs of comparative plants are close to equal, that Is within estimating accuracy, It would be logical to select the liquefier with the greater capacity. The reason for this Is that a liquefier with more output, If down for repairs, can more likely provide the LNG needed for the village. What appears to be excess capacity can provide a cushion for more rapid Increases In demand than anticipated. Also, in choosing the liqueffier with the greater capacity, any excess LNG can potentially be sold locally or hauled to other villages. In the comparisons, the output of the liquefiers influence the storage requirement at Kuparuk or Gubic for the overland cases. It has however, no Influence on the capacity requirements at Nulqsut. These volumes are determined strictly by the length of time, and the demand for LNG for the period between the end of haul and the beginning of the next haul. For Kuparuk, storage is not required for the two 400 MCFD plant systems, cases 3 and 5. However, for reasons of operating flexibility, It is assumed that a single large sized 63,000 gallon tank will be needed to allow continuous operation of the plant if transportation of LNG Is delayed for weather or mechanical reasons. The liquefaction facility at Kuparuk offers the advantage of several potential modes of transportation of LNG. One of these modes Is by water during the summer and the second is during the winter over land and ice. By combining the two modes, the storage requirements at Nuiqsut are reduced to approximately one half of the winter only haul case. However, the capital and operational costs of fuel transportation are increased. And, there Is the Increased complexity of being dependant on several contractors, sets of weather conditions, and additional permit requirements to transport the fuel. This ftncreased complexity polarconsult results In increased risks. It will also result In the need for added management time which wlll tend to Increase costs. Based on the cost analyses for which 16 cases were run, as presented In Section 1; the all land transport cases numbered 4 and 9, with a 400 MCFD stngle liquefier unit are supertor in operational costs to the other alternatives over the 20 year economic perlod. A 400 MCFD lIiquefier can produce about 1.58 million gallons per year at peak output. Nulqsut will need approximately 0.964 millfon gallons of LNG the first year. This will leave a net of approximately 600 to 700 thousand gallons of LNG which would be avallable for sale or could be transported to other villages. There will be some excess capacity avallable even after 20 years based on the high demand case, but not a great deal. For the low demand case, the projected demand Is such that a constant supply of LNG can be guaranteed for other uses. It could be argued that a smaller plant should be purchased rather than one of 400 MCFD capacity, but these plants In this size range are only avallable In Incremental sizes of 100, 150, 250, and 400 MCFD. The 250 and 400 are almost Identical plants except for the sizes of certain critical equipment such as high pressure compressor and the freon refrigerator unit. Purchasing the larger plant, 400 MCFD, results In an Increase In capital cost of 25 percent which results in a gain In output of 60 percent. The Increased output can be used to provide a cushion for Increases in demand that cannot be adequately foretold with such a short village history. With a larger plant, the daily output per unit of labor is considerably lower as It would take an equal number of people to keep a 250 MCFD plant operating as it would a 400 MCFD. There- fore, when the plant has produced all of its required LNG, It can be shut down and the employees reassigned to other work or released for vacation. This reduces the operating cost of the larger plant to about 38 percent per gallon of LNG as compared to the smaller one. polarconsult The plant operates at an estimated 80 percent fuel efficlency, and the 400 MCFD liquefier will produce an estimated 4,340 gallons of LNG per day. A gallon of LNG has about 83,000 Btu's and weighs 3.4 pounds as compared to a gallon of Arctic grade diesel which has about 132,000 Btu's and welghs 6.8 pounds. This means that for each gallon of diesel hauled or stored, 1.6 gallons of LNG must be hauled or stored. At Kuparuk or Gubic, the gas will be stored after liquefaction In 63,000 gallon cryogenic vacuum tanks, similar to those used to keep nitrogen and oxygen liquefied. Initially there will be one of these storage tanks, but two additional tanks will be added as the demand for LNG increases at Nulqsut or depending on the purchase requirements of the LNG users. The amount of storage required will be based on the minimum probable production during the haul time subtracted from the storage and usage requirements of the village until the next haul perltod. The minimum winter haul perltod is estimated to be 121 days and the summer period Is estimated to be 40 days. This is discussed In more detail In Section 4. The storage perlod for the only winter haul system is from April 15 to December 15. For the marine summer case, the storage perlods are from April 15 to August 1 and from September 11 to December 15. To select the optimum system, It Is intended that all storage figures be refined when better data Is available on monthly usage of energy by Nulqsut. For this study, all storage tanks are assumed to be placed in ditked enclosures which are designed to meet the State and Federal codes. Where a two lfiquefier plant Is used as shown on the plate, the preliminary layout of the plant Is arranged to reduce fire hazards with the separation of the liquefier bulldings from polarconsult each other, and the separation of Individual tanks. A single liquefier would require a pad with somewhat reduced dimensions. All facilities will be equipped with alarms and the liquefler bulldings equipped with Halon extinguisher systems. Safety will be of paramount Importance In the design, construc- tion, and operation of all LNG facilities. Risk analysts will be a part of the engineering for this project. Construction Construction will first consist of bullding the pad. The pad wlll be composed of gravel over Insulation. The gravel will be hauled from local sources. The metal bulld!ing housing the liquefler will be set on treated timbers embedded in the gravel. Each liquefier, 400 MCFD, Is comprised of two 12 foot by 12 foot by 31 foot skid mounted modules. The modules will be located In a building, set five feet apart and Interconnected by piping. The two units will be bolted to treated cross timbers embedded in the compacted gravel floor. The bulldings will be equipped with a thermostat and louvered ventilation fans which will keep the structure cool except when maintenance Is taking place. This will reduce the heat flow to the floor and help prevent melting the permafrost foundation. The prefabricated buildings will be Insulated double wall metal panels and steel frames. All interior electrical equipment will be designed and constructed in accordance with building and fire codes to eliminate the possi- bility of explosion. A garage and storage facility will be constructed with a similar prefabricated metal building. It will also have a gravel floor. A large 10 by 52 foot ATCO type bullding will be used to house the two operators. An extra room Is available for temporary housing for overhaul mechanics. The polarconsult unit Is equipped with kitchen and washroom faclIlities. It wlll have a waterless toilet. A large water tank will be located In a small adjacent bullding. The operator bullding will sit = on timbers above the pad to provide alr circulation. Alarms from the plant will be repeated In this bullding. Transportation tanks will be by baffled, perlite-vacuum Insulated double wall design with 10,000 gallons capacity. These tanks will be capable of storing LNG and gas at pressures up to 63 psl. For summer haul the tanks will be tractor mounted and a fifth wheel tractor will be used to haul the trailer to the loading ramp at OlTiktok Point. For winter haul, a CATCO rolligon pulling a sled Is proposed for the LNG haul vehicle. The speed of haul Is restricted by the effect of the surface on the sled. A rough surface can slow down the haul substantially. Therefore, the Proposed equipment will run on Ice, which results In faster trips as was assumed In this study. For the diesel base case, the haul was restricted to 7,000 or 10,000 gallons of diesel only, without a sled. CATCO stated they would not haul diesel on a sled. It could turn over, spill and result [In trouble with the state government. They also stated that olf] cleanup would be expensive. Equi pment The liqueflers, as described, are manufactured by Geosource. Larger liqueflers are manufactured by other companies. Some of which use similar and some of which use dissimilar processes to achieve the same _ result. The process used by Geosource's liquefiers Is as follows. The gas is brought In, dried and has the co2 removed In a molecular sieve. Then the gas Is compressed to about 2,300 pounds per square Inch Cps!I) and cooled by a freon refrigeration unlit to -60°F. It Is then allowed to expand to = ig a ¢ PREVAILING WINDS , NUIQSUT] SITE PLAN - WELLHEAD iP al A anmeiegel liquefier, housing, garage a 50 100 feet LNG PROJECT } and storage tank facilities ee ae LOADING PUMPS CRYOGENIC AND HOSES STORAGE TANKS LIQUEFIER ENGINE GRAVEL PAD CONTAINMENT AREA GRAVEL EXISTING oaeer y BERM GROUND NUIQSUT | SITE PROFILE - WELLHEAD liquefier, housing, garage and 50 ") a Wicial LNG PROJECT § storage tank facilities SCALE 1" - 40° polarconsult near atmospherlc pressure (35 psi). Some of the gas Is turned to a liquid at -259°F or below. Part of the gas stream which Is recirculated at 300 psi Is heated by engine exhaust heat and then is used to remove molsture and co? from the molecular sieve. This gas Is used as fuel for the engines. This system has many of the same elements as a_ household refrigerator. That is a compressor, heat exchanger (condenser) and expanston valve and cooling colls Cevaporator). It requires about 1,000 horsepower to liquefy 1,000,000 cubic feet of gas per day (cfd). Therefore, a 400,000 cfd plant such as these will need at least 400 horsepower. Thus, they wlll require two 200 horsepower or greater spark Ignited natural gas fueled engines. One of the engines will drive a two stage low’ pressure compressor, freon compressor and hydraulic pump. The second engine drives a two stage high pressure compressor and hydraulic pump. The drivers use belts which will have a minimum life In excess of 8,000 hours. In addition, 24 volt alternators are driven from a belt, the alternator supplies energy to a 450 amp-hour battery bank which powers the electric control and =MIights. Major Instrument controls are powered by air which Is supplied by a Pneumatic compressor driven off the hydraulic system. The hydraulic pumps power hydraulic motors which are used to drive fans, transfer pumps and other devices. On the roof of the bullding Is a large heat exchanger which is used to reduce the temperature of the freon. This Is the unit which transfers the heat from the process. polarconsult Transportation It has been assumed that the liquefiers and all heavy freight are transported to Nulqsut by barge on sea lift. This would require that the tank be manufactured and shipped to Seattle by uJune 1984. The liquefiers would need to be available by June 1985. Production Production from the liquefiers is calculated on the basis of 330 days operating time. This Is based on 35 days per year betng used for overhaul and repair. This is a figure obtained from Geosource and is based on their experience operating a liquefier In Vancouver, B.C. This figure Is used to compute an average dally output, which is in turn used In the determination of costs. These costs are somewhat conservative as repairs and overhauls are greatly dependant on operating time. Furthermore, LNG plant production figures given by Geosource are based on operation at an ambient outside temperature in a warmer climate. Colder ambient temperatures in Alaska will decrease fuel usage and Increase production. Operation The liquefiers will be operated each year prior to the haul season to build up the storage tanks. Generally, unless being run for gas sales, it is better to run the liquefier just before the LNG Is needed. The reason for this is that LNG weathers. That Is the methane boils off to keep the tank and Its contents cool and leaves behind the heavy gases such as ethane, propane, butane, and electra. The plant will operate for a pertod prior to the earliest haul then shut down for a while unt!I1_ the polarconsult Colville River tce ts thick enough on which to haul for both Systems (1) and (2), and for System (2) prior to ice out time In the bay and river. At that time the plant will run at full production untI1 the storage at Nulqsut Is full. The plant will then be run Intermittently to keep this storage topped off untiI1 transportation Is shut down due to thawing conditions on the tundra, river ice, or low stage over the Colville bar. After plant shut down, equipment which requires maintenance will be prepared for the next seasons activity. With sales of LNG the plant will operate contInuously with scheduled malntenance based on times which create the least risk to the village. Operation personnel requirements will be discussed [In the maintenance section, which follows. Malntenance The plant, as proposed, does not have an extensive operational history. It Is a refinement of several earlier plants, one of which successfully produced LNG for Hudson Bay Company, and the second built In 1983, which has produced LNG for use In vehicle tests. Each 4,800 gallon per day Cgpd) plant Is powered by two Cummings natural gas burning spark flred engines. The 1,800 gpd plant is powered on a single engine. These engines burning gas should be quite reliable with an estimated overhaul schedule of 24,000 hours. The engines drive main low pressure and high pressure gas compressors which are equipped with teflon rings. Geosource estimates the ring life of the high pressure piston at 2,000 hours with a down time requirement of two hours to change it. Discusston with two LNG plant operators using teflon ringed compressors disclosed that one plant had early problems which called for a change of rings per month later extending to a polarconsult change of rings per year, while the second plant reports having to change every 3,000 hours of operation. One plant reports several hours to change rings, the second reports elght to ten hours. One operator of a plant which uses pneumatic (Calr) controls as proposed, Is very enthusiastic about’ them. He reports no Instrument failure over 11 years of operation. The plants proposed for this project will have stainless steel piping and valves In areas where low temperature strength and/or corrosion resistance Is of Importance. A plant in this size range has an advantage as low temperature components can be obtained "off the shelf" because there are many l!iquid oxygen and nitrogen plants which use sImIilarly sized equipment. Because of the critical nature of rellability, spares of all major or vital equipment will be on hand. For example, a spare engine will be avallable and ready to Install. Spare major components will be available for the low and high pressure compressors. Replacement hydraulic pumps and motors will be on hand as well as hoses and hose connections. There will be supplies of all gaskets, seals, rings, bearings, and other components. Spare critical valves and stalInless steel pipe wlll be stored. The plant located in Kuparuk will have the advantage of the many Industrial supplies stored for the operation of the oll flelds. Generally, on the North Slope there is cooperation between companies In sharing equipment and supplies in the event of emergencies. polarconsult Of substantial Importance In the operation and maintenance of this plant Is the personnel. It Is proposed that two people operate the plant. These people will perform both the operation and malntenance. They will need to have knowledge and ability equivalent to that of a heavy duty mechanic because they must deal ‘with many different types of mechanical and electrical machines. The Intention Is to send them to school on the plant's operation prior to Installation. They should also be Involved In the Installation and start-up. It Is also proposed that each year additional training be provided. As the plant runs for longer periods other operators will need to be trained to provide rellef and back up of the Inittial_ two. The two operator / mechanics willl be supported during the overhaul periods by factory personnel. The plant manufacturer will provide an extensive operation and maintenance hand book for each plece of equipment. Additionally, he will provide a comprehensive diagnostic system which will aid the operator In locating rapidly any malfunctions or control problems. This dlagnostic manual is critical as it Is said that operation of these plants requires some skI11. The fact that for Systems (1), (3), and (5) there are two Identical plants which will be maintained and operated by two operators should Increase rellabIility and help speed the learning process. LNG Transportation, Land Systems (4) and (5) are based on exclusive use of land transpor- tation. Although It has been assumed In this study that CATCO type rolligons will be used, it Is known that trucks and large- tired, low ground pressure vehicles such as the Delta Foremost polarconsult are avallable on the North Slope. These vehicles and thelr operating costs are lower than that of the CATCO rolligons so they may prove to be the more economic selection. LNG Transportation, Marine A number of attempts have been made to bring o!f1 and other freight into Nulqsut via the Colville River. For diesel fuel It would even appear that transportation by C-130 aircraft with it's attendant high cost Is the preferred option over a water route. Blackstock brought In the materials for homes up the Colville River. These homes are currently under construction [In the village. Investigation disclosed that these materials were lightered by helicopter from an ocean going barge over the bar to a smaller vessel which ascended the river. The barge was unloaded where the entrance of the Nechelik Channel and the Colville River Jotn. From there some of the material was transported by helicopter to the village while some was transported about three miles overland using an all-wheel drive vehicle. It was reported that the channel was shallow, however the Colville was not at a high water level. Further Investigation, principally based on discussions with Jim Helmertcks, who lives on Anachlik Island at the mouth of the Colville River, disclosed navigation was possible with a shallow draft vessel. Therefore, for the purposes of this study It was assumed that a shallow draft vessel could haul a trailer mounted 10,000 gallon LNG tank from Oliktok Polnt up the Colville River to-the south bank where the Nechilik Channel meets the river. Each year a landing ramp would be dozed Into the river bank for unloading the traller which would be hooked to a fifth wheel tractor. The tractor would then proceed to the village, unload, and return the empty tank. polarconsult To accomplish this trip, a one way gravel road with a 5 foot thick embankment and a 12 foot top width was assumed. It Is expected that a portion of this road will be damaged each year during breakup of the Colville River. This factor is reflected In the maintenance estimate. An alternative to the above scenarlo was also Investigated. In this case the storage facilities would be built on the bank of the Colville and a gas pipeline would be constructed rather than a road. The low pressure gas plIpeline of 3 to 3 1/2 Inch diameter would have an estimated cost of about eight dollars per foot and would be about 45,000 dollars less expensive than the road. However, the added operational costs, Inconveniences, and risks of having the facility sited near the river outweighed the minor cost and logistic gains. Without a road, service to the tanks would need to be by all-terrain vehicle and there are times during flood stages when access could not be assured. A facility near the Colville would have to be designed to withstand the breakup of the river. To quote one source, "Ice chunks the size of a hotel move down river and the channels switch and change each year." Further, the Nechellk Channel is very shallow and road access to the Colville would provide the village with a better boat launching location for hunting and fishing In Harrison Bay and the Beaufort Sea, and for fight summer freightIng. Discussions with local residents on marine transportation disclosed the following Information. The problem with getting up the Colville Is the bar which Is about one half mile long. This bar has a number of small, 100 feet wide, winding channels through it which have to be relocated each year and marked. The depth of water over the bar ranges from 3 to a maximum of 4 1/2 feet. Charts of Harrison Bay Itself show water depths of 3 feet. polarconsult Once In the Colville Itself, depths are 6 to 8 feet until 15 miles above the entrance to the Nechelik Channel where the river becomes gravelly and depths go to the 2 to 2 1/2 foot range. Currents are from about 3 to 4 miles per hour. The times when the river and bay are reported to be ice free and open to navigation Is from July 15 to late September by one source, and from August to September 10 by a reputable source at the village. The critical time for determination of storage capacity Is In the fall so the more conservative shut off time was used. This Is because the village can not afford to hit a low water year and be forced to stop transport before the storage tanks are full. A manufacturer of shallow draft vessels was contacted for the requirements for a maneuverable, 3 foot draft, reliable vessel with good speed and low maintenance. The proposed vessel would be about 60 feet in length and 22 feet wide. It would have a landing ramp and an overhead bridge for navigation purposes. The vessel would be powered by twin Caterpillar engines and would drive twin screws. These screws, about 28 inches in diameter, would be set [In a special hull configuration to give a shallow draft. The top speed of the vessel would be about 14 miles per hour which would enable it to make a round trip each 13 hours with a 10,000 gallon trailer of LNG. To get to the 3 foot draft limit and to reduce hull maintenance, the vessel was assumed to be constructed of aluminum. Because of dense summer fogs the vessel would be fitted with two quality radar units to enable it to navigate using radar reflector channel markers. It would also have quality radar, fathometers and other navigation devices. polarconsult The crew on the vessel would be composed of a captain and two deck heads. Although It may be possible to use only one deck hand after operational experlence Is gained on running the river, evidence dictates the additional man Is needed to ald in kedging off bars and spelling the Captain during the operation on the river where the slightest [nattentlon can result In serlous damage to the vessel. Because the LNG plant for System (2) has limited storage capacity and production, the summer haul the first year will need to be about 32 trips. After the Kuparuk storage has been hauled, the time between trips will be based on the liquefier output rate which will result In a trip each 2 1/2 days or so. The ltquefler output will be some- what less during the summer as compared to the winter as the outside alr used for cooling Is warmer. There will also be a reduction In plant efficiency because of the greater temperature differential between the air and the LNG. No account has been taken of temperature differentials In this study. Sy] NUIQSUT FACILITY =: polarconsult SECTION 9: NUIQSUT FACILITY General The major elements of the Nulqsut facility Include; unloading colls, storage tank, pumps, regasifier (Cvaporlizer), odorizer, pipeline to the village, village distribution system, and emergency gas system. The liquefier sizes and locations will have no bearing on the storage at Nulqsut. The storage requirements at Nuliqsut will be reduced for the marine, summer and winter haul, transportation mode as compared to the mode which uses only winter haul. The only other variation would occur If a gas source were discovered reasonably close to the west side of the Colville River. Assuming a longer haul period, the storage tank size could be somewhat reduced. Alternatives Several storage and distribution alternatives were explored for Nuiqsut. For the waste heat’ case, a storage alternative Investigated would use smaller, 63,000 gallon tanks In place of a large single tank. This proved to be more expensive. For the case where summer haul Is used, the storage volume Is _ reduced. Because of this, smaller multiple tanks are used in the estimate. An alternative for the distribution system was considered. This alternative employed a series of small cryogenic tanks for each residence or groups of several residences. These tanks were to be filled from a truck mounted tank and transfer coll. This option was discarded for cost and safety reasons. Storage and Regasification The storage facility at Nuiqsut for the winter only haul case is one of the major construction projects on the Job. The amount of storage is great as the tank must supply LNG to the village over an estimated 244 days. It Is also great as it takes 1.6 gallons polarconsult of LNG to equal the energy In one gallon of diesel fuel. The storage facility must also be sized to supply the project toward the end of its repayment period. The reason this fs true is that there are large fixed costs In constructing a tank and for a larger tank, such as at Nulqsut, the addition of a little more metal can provide large Increases in storage. This means that making the tank somewhat smaller or larger does not greatly Influence the cost. For a 690,000 gallon tank, such as at Nulqsut, the diameter of the outer steel shell would be about 58 feet. Between the outer shell and the Inner tank almost 3 feet of expanded mineral material, perlite, will serve as insulation to prevent the LNG from boiling and escaping as gas. The inside tank would be 52 feet in diameter and about 39 feet high. This tank would be about 2/3 the outside diameter of the existing 2,000,000 gallon water tank. The Inner storage tank material would be nickel bearing steel or aluminum. Both of these materials exhibit superior low temper- ature toughness. A steel to withstand cold winter temperatures would be used for the outer shell. The plates would be welded and radtographed or tested by ultrasonic means in accordance with recognized standards. Transporting the large tank to Nuiqsut is a challenging propo- sition. If the tank is brought in by barge during 1985 and unloaded at Oliktok Point, It cannot be transported across the Colville River until mid December, which would make It too late for operation during 1985. An alternative is to land the tank on the shore somewhere on the west side of the Colville River and bring It across tundra in early November. Another alternative polarconsult would be to ship all plate and basic perlite material on the 1984 sea lift, truck it to Nulqsut the spring of 1985, then fly or truck In tools, perlite expander and lighter miscellaneous Items in the spring or early summer of 1985. Construction would then ready the tank for early winter LNG delivery. Tank maintenance Is relatively simple. The only complication Involves the compaction of perlite when the tank expands and contracts. The major compaction occurs in the Inner tank which warms when emptied. However, it Is not expected that the tank wlll be emptied during Its life. A tank manufacturer, Chicago Bridge and Iron, has a system of successfully dealing with this problem. If all else fails, additional perlite may need to be placed between the two shells. The tank will receive LNG from mobile cryogenic tanks. There wlll be two unloader colls, one for each mobile tank. These will be stzed to unload 10,000 gallons in less than one hour. This unloading Is done by using heat from the surrounding alr to cause the liquid to boll (Cgenerate gas), which forces the LNG out of the mobile tanks to the main storage tank. During operation as heat Is gained by the LNG, some of the LNG willl "boll off." The boll off helps keep the tank cool and because it Is pure methane, It will be compressed and Injected into the gas main. The tank will be designed so the boll off rate does not exceed the minimum demand which will occur during the summer. The estimated maximum rate for this tank Is 480 gallons per day. Additlonal gas will be needed besides that which bolls off the tank. polarconsult From the storage tank, LNG will be pumped Into a regasifier. The regasifler, or vaporizer, will use heat from the air to convert the liquid to gas. This will save energy. The colls will be designed so they can be alternated. Thus, if ice builds up on one because moisture Is frozen from the atr during the warmer months, the colls can be cycled, so the unused one will thaw. A manual timer will serve as the control for the thaw cycle. There will be two pumps used for pumping the boil-off gas from the tank top to the line and two from the liquid section of the tank. The pumps will be arranged so that If one malfunctions, the other will run. The pumps will be alternated to even out the wear. At this point, Mercaptan, a strong odorant, will be Injected Into the gas. This odorant is needed because methane is odorless and an undetected leak In an enclosed area could be hazardous. A gas generator will be located at the facility to provide emergency power for the system in the event of a power fallure. The generator will be located in the building where it will be warm and ready to operate when requlred. The entire facility will be designed and constructed in accordance with the latest flre and safety codes and standards. The storage facilities will be equipped with various level, pressure, and temperature sensors. These will read out in the auxIllfary building as well as In the public safety building or stmilar location. Because the LNG will "weatherize", the system will be designed to pick up the heavier gases as well as the methane so as to provide a uniform product to the village. Because the tank is of such critical importance, all efforts will be made to select a reputable designer and manufacturer that has a proven record of successful arctic and LNG tank construction expertence. polarconsult The tanks for the marine transportation cases will Initially be comprised of five 63,000 gallon vacuum perlite Insulated cryogenic storage tanks. The total storage volume Is predicated on the volume of gas required between the time of the last shipment of gas In the summer, assumed to be September 10 and the first shipment during the winter, assumed to be December 15. For the purpose of this study it is assumed that the use of gas during this period Is close to the average yearly consumption. These Individual tanks would be sited In a diked enclosure. They would be hauled in during the winter since they probably weigh too much to be brought [In over the bar up the Colville River during the summer. They would sit on their individual skids. Insulated stainless steel pipe and valves would be provided to feed gas to the vaporization system, which would be similar to that used for the larger tank. In the case of these tanks the Internal tank wall matertal would probably be Increased In thickness so the Internal pressure could drive the gas through the lines without pumps. With this system most of the pumps, and boiloff compressors could be eliminated thereby simplifying maintenance. It's probable that additional tank maintenance would be required on this system because there would be times when individual tanks would be emptied. When empty, the Inner shell warms up and expands, compacting the perlite. After a number of these thermal cycles the tanks need to be opened, more perlite added and a new vacuum pulled. An advantage of an Individual tank system of this type is that if there Is difficulty with a tank, It can be isolated and repaired. A disadvantage Is that there are more pliping and valves in use which can add to operation problems and Increase risks of a loss of product. polarconsult With proper -rotation [In the use of tanks weatherization of LNG will not be a problem with the multiple tank system. This system will be similar in layout to that shown for the liquefaction plant. Site and Contalnment A site for an LNG facility is controlled by a number of factors. Of the greatest Importance is public safety followed by safety of the product Itself. If the system falls under the regulations of the Department of Transportation, "Part 193 - Liquified Natural Gas Facilities: Federal Safety Standards," and a waiver Is not applied for and granted, the tank will have to be located over 20,000 feet from the Nuiqsut airstrip. If it Is not, the Increased costs of protection from a direct hit from the largest aircraft using the field, a C130, would be so onerous as to Preclude the project. There are no roads which will give clearance of 20,000 feet from the airstrip. A letter has been written to the Department asking if they have jurisdiction In this case Csee Appendix B). If they do, then a walver will be requested for locating the storage tank closer to the alirfleld. The proposed location, which was based on: 1) proximity to exIsting roads; 2) safety for the public; 3) maximum distance from the airstrip; and 4) the prevailing wind directions Cmostly north-east or east and west), which would blow an LNG spill away from public facilities and from local residents. The information on wind direction was taken from data collected at Barrow and Umit at and from information provided by local residents. When final engineering Is Initiated, this information wlll need to be expanded to Include data from other coastal areas. Ps x Ss ¥ Zz. LANDFILL a = > a ° e a < ° tl proposed permanent LNG storage tank facility proposed mobile LNG storage tank facility AIRPORT LAGOON polarconsult In addition to checking the prevailing winds for the tank location shown on the drawing, a hydrologic study will be needed to assure that spring floods cannot threaten the integrity or operations of the facility. The foundation materlals at the site are presumed to be comprl!ised of an organic matt overlying Ice and rich fine grained materials, which overlies coarse sand and gravel. It Is expected, based on evidence from aerial photos, that Ice wedges are in abundance. To reduce construction costs, the structure will be destgned to keep the ground frozen and to generally not create any greater thaw depths than occur at present. The active layer In this area based on local observations is estimated at a maximum of 2 feet. Construction of the pad will occur In the spring of 1985. Under the Insulated sections, the tundra will be scraped down to a uniform surface, 2 Inches of 60 psi styrofoam Insulation applied, over which will be a tough plastic fllm to shed moisture. Gravel will then be end dumped on the film and compacted. After summer thaw of the gravel pad, final compaction and grading will be accomp!1 ished. In construction of the site, It Is assumed that the tank can be set on an Insulated pad anywhere on the tundra. The reason for this assumption is that the load on the pad and underlying tundra will be light Conly about 1,600 pounds per square foot under the center) and the tundra and pad will always remain frozen because the tank will extract heat from the foundation. In the non- permafrost areas, when a LNG tank is founded on frost heave susceptible ground, special foundations are required to prevent differential heave from damaging the tank. The tank diking will polarconsuit not require Insulation as the dikes are more than five feet In height, which should Insure their stability. If there fs too much thaw settlement at any location, additional gravel will be added in the winter. : The contalnment area will be designed to handle all of the winter precipitation plus a freeboard allowance required by DOT for Class 2 impoundments, which Is 150 percent of the tank's capacity. The Impoundment will be equipped with a sump pump capable of handling precipitation from the maximum ratn_ storm predicted over a ten year return period. Sump pumps will be under manual control, and will be equipped with an automatic shut off sensor to restrict their operation when LNG is present. The unloading pad will be graded so as to slope toward the Impound- ment area. In addition to the pad for the large storage tank, a smaller pad for the mobile tank will be _ provided. These tanks will be located closer to the village so if a flre or other catastrophic event occurs at the main tank, they are accessible. Distribution After the LNG fs vaporfzed and an odorant Is applied. It wlll run through a 3 inch diameter polyethelene plastic IIne to the village. This line will be placed In a ditch excavated by a trencher and back filled with natural matertal. This pipe ts similar to that used In Barrow. There exists in the north however, a problem with weak underground structures near the ground's” surface. These structures can be torn apart when contraction cracking caused by cooling of the ground takes place. In many villages underground power cables have not_- proven rellable because of this cracking. To alleviate this problem, a Maia EDD PERMANENT STORAGE TANK FACILITY wea regasifier, oderizer Pe] B=\ unloading heat exchanger UL TO NUIQSUT Scale 1” = 50’ TO DUMP landfill OH \) NUIQSUT DUMP RD. airport NUIQSUT | SITE PLAN - ot permanent and mobile LNG PROJECT storage tank facilities TO NUIQSUT MOBILE STORAGE TANK FACILITY LNG STORAGE TANK EXISTING GRAVEL GROUND BERM GRAVEL PAD NUIQSUT | SITE PROFILE-NUIQSUT permanent and mobile LNG PROJECT J storage tank facilities REGASIFIER, — UNLOADING HEAT EXCHANGER GRAVEL EXISTING BERM ROAD GRAVEL RAMP EXISTING GROUND EXISTING EXISTING GROUND ROAD GRAVEL PAD EXISTING GROUND scale 1 = 40’ polarconsult pipe made of a slippery plastic Cwlth a low Internal pressure so It contracts when stretched) will be used. Because of it's contractIon when stretched, enough of the pipe will break the adhesive bond between its wall and the frozen ground freeing a suffictent length so It can stretch without fallure. Burying the power cables and communication line In the same trench was considered, but there was concern that a cable fallure could cause dig In damage to the plpe which would decrease the reliability of the gas supply. Therefore, as a basis’ for estimating, It Is anticipated that a single-phase overhead distribution line will be run to the facility. The main plipeline comes Into the village and after passing through above ground valves Is branched into two, 3 Inch IInes to the village distributIon system. As soon as enough connections are made from the 2 Inch main distribution systems to carry the entire gas supply, the 3 inch legs will be reduced to 2 inches. The 2 Inch system will run along all of the alleys as shown In the plan view of the village. Each leg will be provided with valves so each can be fed from either end. This gives the village a full loop system. Valve stations wlll be brought out of the ground and protected by appropriate enclosures for safety and ease of operation. When the 2 Inch system Is laid, all stub outs for future connections will be constructed. The 2 Inch line will be laid in a ditch dug by a trencher In the early winter after freeze up or In the spring several months before thaw. Construction of the pipelines through roads will! be by trenching and threading the pipe through a 4 or 6 Inch plastic condult pipe. Laterals to each bullding will be dug and laid. The plastic pipe for laterals will generally be 1 Inch tn diameter. The lateral will terminate at the building in a polarconsult stalInless steel riser pipe which will connect to a high pressure flexible hose which will then connect to the combination meter and pressure reducer mounted on the house. Valves and connec- tions will be provided so an emergency gas supply can be made to the dwelling or building In the event of a gas shut-down due to construction or system repairs. All gas lines will be traced by a conductor cable which will terminate at the valve station and stub outs. This conductor will make it possible for a signal to be put on the wire which can be picked up by a receiver which will enable an operator to easily locate the pipelines. Truck Fueling If the village desires, all larger mobile equipment can be converted to LNG instead of gasoline or diesel. In this event it is envisioned that a local service station would be provided. The station should have a cryogenic tank and transfer pumps which would require a trained operator. LNG spilled on flesh can be dangerous due to Its extremely low temperature. The danger of fire hazard due to unavoidable vapors also exists. The conversion of existing gasoline vehicles would be relatively simple. Kits can be purchased that modify a gasoline engine to burn natural gas, propane, butane, etc. In addition, a cryognic tank would be required. This tank would be a double walled tank with a vacuum between the walls. The walls would also contain many turns or layers of aluminized mylar plastic, about 75 per Inch of thickness. This wlll provide a super insulated tank which can hold fuel for weeks and months. For a typical vehicle, such as a pickup, the kit and tank would cost about $1,600. >t ‘ * CEMETERY i ‘ E 1 \ Lee L « » 1 1. j >| 1 A Se VILLAGE coRP.| FUEL STORAGE; proposed ga Sb VY pustic | SAFETY ft el scHoo.l) TELEPHONE WAREHOUSE en VILLAGE CORP. OFFICES CITY OFFICE VO. -><trt<b- ‘ Mel cine: DISTRICT Raa a GENERATOR | ees - SEWAGE OUTFALL LINE y wager OLD GENERATOR ro [| ~ BUILDING sive \WATER TREATMENT * O° es EQUIPMENT LAUNDRY & SHOWERS — = NSB.” ! ; ‘ CONSTRUCTION ‘ CAMP PRIVATE - | GONSTRUCTION ‘CAMP CLASSROOMS ROAD TO WATER SOURCE polarconsult Labor would be In addition to this’ figure. Conversion of existing diesels is more difficult. These engines must Ignite their fuel by compression, which Is timed by the Injection of oll. Therefore, some diesel ofl, about 15 percent, will be required In addition to gas from LNG. Currently conversions systems have worked on Cummings, Mercedes, Caterpillar, and General Motors engines and these will be avallable. Many new vehicles can be ordered with engines which burn natural gas without retrofitting. The only additions would be the tank or tanks, vaporizer, and necessary piping and connections. There Its a considerable base of experience for operating vehicles In Alaska with natural gas. Barrow Utility Electric Cooperative, Inc. CBUECI) operate a number of vehicles on compressed natural gas as does Enstar In Anchorage. Taxi cabs In Fairbanks are mostly run on LPG or propane, which Is similar to LNG. All operators of these systems are very enthusiastic about Its use and claim greatly decreased fuel and maintenance costs. Emergency Gas Supply Included In the estimate Is provision for an emergency gas supply. This gas supply Its predicated on an analysis of risks to the village after conversion to the gas system. Although very Improbable, events such as the ones listed below could occur: te A valve is left open or a pipe ruptures at the main storage tank, alarms do not work and most of the LNG Is lost. 2. A fire starts at the tank due to sabotage or vandalism (to damage the tank would require the use. of explosives) and LNG Is lost. polarconsult 3. The liquefiers are burnt up and are not available during the haul perltlod. These examples serve to illustrate the need for a failure mode and effects analysis and the Importance of some backup or fall back systems. Backup systems using propane and LNG were investigated. Because of transportation problems, both systems Involved a specially designed 5,000 gallon tank which fs FAA certified to carry fuel In a C130 alrcraft. One such tank now exists for propane use. If the system used LNG, it is assumed that it would be hauled from the Philips Plant located on the Kenal Peninsula or from other liquefaction facilities on the north slope Cassuming they are installed as planned). Propane needed for those systems would be flown from Prudhoe, where it Is now available, to Nulqsut. It would be stored In mobile LNG tanks and then vaporized and mixed with air to reduce the Btu value to less than 1,300 Btu's per cubic foot to make It compatible with methane burning equipment. The operation of the system would be expensive. An estimated $173,000 per 14 days, but it would in all probability never be used. Emergency Gas Supply Finally, a large 10,000 gallon air transportable tank was considered. This would be a cryogenic, double wall vacuum tank which would be equipped with skids so It could readily be loaded and unloaded from a C-130, Hercules aircraft. The tank would be winched directly from the aircraft onto a tratler and hauled by a truck either to storage or to the LNG supply for refilling. The polarconsult tank would be designed to hold LNG for a number of days before the pressure would bulld up to a point where It would need to be released. This tank would be constructed from a light, strong material such as aluminum. The tank would require testing and certification by the Federal Aviation Administration. The advantages of using this large tank are as follows. five The LNG can be vaporized and run directly into the system at any polnt on the distribution plipeltne. Ze The LNG tank can be used for emergency supply if there Is a shortfall caused by inadequate storage or supply during the preceeding haul period. This gains considerable project feasibility as every system does not need to be sized for the maximum demand or most Improbable contIngency. 3. The tank can be used for storage, as a mobile supply tank for a service station or for marine transport. 4, This special tank may also be used to fly LNG to other villages such as Anaktuvuk Pass, Kaktovik, Atkasuk, Walnwright or even Barrow. Last year diesel fuel was flown Into Kaktovik. RETROFITTING 10 FACILITIES FOR GAS polarconsult SECTION 10: RETROFITTING FACILITIES FOR GAS General The retrofitting of most facilities for natural gas In Nulqsut will be fairly simple because of the design of the houses and the commonality of most of the equipment. It Is envistoned that all the piping of the facilities would be done during the summer and fall prior to hook up. Therefore, the only tasks remaining would be to select a building, move In, convert equipment, connect piping and test the system. This would be done after LNG in suffictent quantity had been delivered to Nulqsut's main storage tank. It Is anticipated that a single contractor would retrofit all the buildings. This would insure the quality of work and the economics of scale by buying materials In larger quantity which Is critical to the safety and well being of the residents. Retrofitting Homes All of the homes in Nuiqsut are elevated above the ground on piling. This allows easy access under the house to each appliance. Most houses now have a diesel fired furnace or boller and hot water heater, and additionally they are equipped with a gas stove. Frequently, the gas stove Is plumbed with black iron pipe. To retrofit a house, black tron pipe would be run from the meter-pressure reducer under the floor to a position near the appltance which would be served. A hole would be bored through the floor and the pipe run to the appliance where it would terminate in a valve. When It becomes time to retrofit a gas type appliance, the old oil burning gun would be removed and a new gas burning one installed. The connection would then be made similarly to the hot water heater. For the stoves a larger ortfice would be installed as natural gas operates at a lower pressure and does not have as many BTU's of heat in a given 10>) 1 polarconsult volume as does propane. The fuel-air mixture valve would be adjusted and, In the case of a pilot type stove, the pIlot relit. The job would then be complete. Retrofitting Electric Generation Discussions with utilities disclose that there are plans to Install two larger generators In Nuiqsut. The size of these generators Is contemplated to be about 440 Kw. The North Slope Borough runs Caterpillar equipment in thelr generation plants so all of the investigated units were from this manufacturer. SInce new generators will be purchased, whether gas or diesel, It is assumed that they will be spark fired gas fueled engines and no retrofitting would be required. The only engines which will be retrofitted would be the remaining 210 and 155 kW units Cwhich will be used during low demand pertods). The 90 kW unIt will be left as a diesel for emergency power. The retrofitting of these units wlll be similar to that described under "Truck Fueling" In Section 9. There needs to be some diesel fuel kept as It takes about 15 percent diesel to ignite the gas. Investigations were made into completely changing the engines to run exclusively on gas. The cost Is almost as much as purchasing a new engine. If this Is contemplated, then new engines should be purchased and the old ones elther installed elsewhere or sold. Effect on District Heating The addition of liquefied natural gas will have some effects on the desirability of a complete district heating system. The actual Incremental energy cost for LNG is fairly low, with its major elements of varlable cost composed of feedstock cost, production labor, and hauling. Until the capacity of the major 10 - 2 polarconsult capital factlities, (Cl.e., liquefaction plant, storage and transportation equipment), are exceeded, analysis would generally not include these costs. Because energy costs are low, district heating would not be quite as desIrable as with diesel fuel for the base case. However, district heating on a limited basis to the major users only using waste heat recovery can be Inexpensive and efficient in Nuliqsut because the locations of the major public buildings and contemplated new buildings are close to the powerplant. ESTIMATED Costs 4 polarconsuli SECTION 11: ESTIMATED COSTS General Costs for the project were based on manufacturer's Information, the cost of doing similar work In similar areas, and _ the estimated labor and materials required to do the work after breaking the job down into Its constituent parts. Since the system [fs not optimized as to the minimum sized equl pment needed, nor as to the least cost of manufacture, it Is probable that the estimate has conservative factors in it which will overcome any items omitted. Basis The cost estimate for liquefiers was made on the basis of Information supplied by Geosource. They provided data on capital costs and estimates on material and labor costs for parts and malntenance. In addition, Geosource Included an estimate of yearly down time for each plant. This down time, which Is comprised of scheduled and unscheduled maintenance and forced repair, was used to derate the nominal plant output. This method is conservative, as scheduled maintenance can usually be accomplished during a period when the plant is not required to operate. Because of this derating assumption, and because the plant should produce more methane In the winter than the estimated production which was used, malntenance costs should be somewhat lower than estimated. Plant overhaul Is assumed to occur each year regardless of run time. Maintenance Is generally related to operation time. However, the project start up and first year of operation may require additional maintenance expenditures, which have been considered In the cost projections. As experience Is galned, these should be eliminated through malntenance and operating procedures changes which will result In a more reliable per hour operation. Li 1 polarconsult Geosource figures were checked against other operating LNG facilities, which were manufactured by Chicago Bridge and Iron CCBEI). Although these plants are somewhat larger and have gas turbines or electric motors as thelr prime power supply, they do have many common elements. Discussions with the operators showed they were generally in agreement with the figures given by Geosource. The estimate for the large storage tank at Nuiqsut was obtained from CB&I. CBEI gave the estimated range of contingencies on thelr estimate as plus 15 to minus 35 percent. This was revised on the spread sheets to reflect a plus 25 to minus 25 percent figure. CB&I provided a turnkey price with all erection, labor, and materfals costs included. CB&I has built many tanks for the TAPS project, which Include quite a few on the North Slope. Due to thelr experlence, the estimate for the storage facility Is probably quite solld. The prices for the tanks at Kuparuk, Nufqsut, and the mobile tanks, came from Richmond Lox, a cryogenic tank manufacturer. Transportation Is one of the major cost Items. The assumption has been made that overland transportation of gas is by CATCO type rolligons. These machines cost $1,000,000 or more each. If the less expensive low ground pressure machines available on today's market are used, It Is probable that the costs of hauling fuel can be reduced. This would have the largest impact on the supply of LNG from Gubic, since a reduction In transportation costs from Kuparuk to Nuiqsut would effect LNG or diesel almost equally. On the other hand, there is more uncertainty in hauling fuel over the longer distance as the route and the transportation time with the projected loads has not been verified by actual running. Il - 2 polarconsult Transportation by water in the summer was based on using a shallow draft dlesel engine driven boat. To get shallow draft and reduce malintenance an aluminum tunnel type hull was specified. Costs were obtained from an Alaskan manufacturer who stated he had supplied boats to the North Slope Borough previously and his costs were within one percent of Seattle prices. As a basis of this estimate, It has been assumed that both oil and LNG are hauled efficiently. If Inefficiency forces air transport of oil, It is further assumed that similar Ineffi- ciencles will effect the LNG case as well. This can be minimized by proper planning and implementation of the land transport component of the project. There is substantial uncertainty In drilling a well in a new location. Most well costs are based on the rental rates of the rig and Its associated expense. If a bit Is stuck, or some event of a similar nature occurs, the cost of the well increases. As a basis for the cost of a well at Gubic, the estimate was broken down into rig costs, labor costs, material costs, and varlous transportation and support items. The more expensive services and materials, such as blow out prevention, casing, wire lining, and well engineering were priced. The total of the figures were compared against a similar well drilled to a similar depth. This comparison showed the estimate was valld. As menttoned previously, the assumption Is that the existing well cannot be reentered. If it can be reentered, it Is possible that the cost could be reduced by one third or more. However, there Is also the possibility that a new well could end up In a more Impervious part of the formation, which could result in too low a polarconsult production during the later project years. In this event, a second well might be required. These risks were not evaluated, and would awalt a more definitive analysis In the event of the decision to proceed on this portion of the project. ConstructlIon costs for the well site were based on estimating the mobilization of men and equipment, and the production of gravel based on the haul capability of the trucks. A minimum construc- tion spread was contemplated to do the work. The numbers dertved from the work at Gubic were used at Kuparuk because it was assumed that even though larger equipment could be used, longer haul distances, unlon labor, and royalty costs for gravel would equalize the cost. The costs for insulation were based on dealer figures’ for Prudhoe, transportation cost to the site, and labor factors from TAPS, and NPRA experience. The assumption was made that an Insulated embankment was the least costly. Refinements based on an actual site may show an embankment section Is better. It was also assumed that an airfield would be constructed for the Gubic site. A possibility would be to scrape out a strip ona river bar or to use a helicopter from Umiat. If elther of these solutions are feasible, most of the cost assoclated with the airfield could be saved. Bullding costs at the liquefier plant were minimized by using Insulation rather than plle foundations or concrete floors. It is believed that, with proper engineering, an Insulated gravel floor {ts a good economic solution. Since the units are skid mounted, checks can be made each year to assure the equipment remains level and fixed In_ position. If not, the timber foundation can be raised and tamped. It Is assumed that the piping between the skids will be designed to accommodate some differential movement of the skids. 11-4 polarconsuit The price for individual cryogenic storage tanks was acqulred from one manufacturer. These prices Included an estimate for a plant complete with piping installed In Sacramento, California. The piping figure for this plant was used to represent the connection of each tank to the other. It Is belleved this figure will, as a result, be conservative. Freight costs were all based on shipment of major items by barge from Seattle. These freight rates are based on current dock rates at Prudhoe and Oliktok Point, plus an allowance. There Is speculation that dock charges will be ralsed to $150 per ton. This would have some Impact on the estimate, but not to a large extent, as the total tonnage of freight used by this project is not great. Distribution system costs of a two Inch line In Nuiqsut were based on figures gathered from Barrow for recent construction. They were then factored to account for the longer run of pipe at Nuiqsut. The estimate for single 4,000 foot run of 3 Inch pipe to the storage tank was based on equipment rental, labor, and material costs, as were the Individual runs to the houses. A profit margin was then added because the work done in Barrow was done by Barrow Utilitles Electrical Cooperative, Inc. CBUECI), which is a non-profit organizattion. It was assumed that any Increase In cost caused by transportation would be pald for by the vastly simpler straight runs of pipe without the compli- cations of other utilities as found in Barrow. Profit can be removed if BUECI does the work. The estimate for retrofitting of Nulqsut buildings from oil heating systems to gas was based on data gathered on the field survey. A typical house was used to estimate the cost of materlals and labor for all houstIng. Factors were used to determine costs of connecting public bulldings such as_ the school. LCi polarconsult Labor was generally figured at $40 per hour. This Is based on the price VECO charges the oll Industry for temporary workers such as mechanics. It is possible that less could be paid. Many of the jobs are of a more permanent nature and It Is possible that village residents who hire out would be avallable to work for less money. Therefore, the labor figures in the estimate are on the conservative side. No allowance was made for strikes or work slow downs. All labor and material figures were escalated on a 6 percent compounded basis for each year of project life to incorporate changes in price levels due to Inflation of goods and services. Project engineering and management was based on analysis of major tasks and costs of personnel to accomplish these. It was assumed that a project manager would take the operation through from start to finish, and would also make requisite field inspections to assure that work was done in accordance with plans and speci- fications. It was also planned that a petroleum engineer would be retained to design the drilling program, prepare the needed permit documentation, assemble the plant and related equipment, and site the well. Engineering for the liquefier and storage tank was taken Into account under the Individual cost estimates for those Items. One major task will be the acquisition of the permits that are needed for the project. A preliminary list was made of these permits (Section 14), and an estimate made of the labor to acquire them. 11 - 6 ECONOMIC ANALYSIS polarconsult SECTION 12: ECONOMIC ANALYSIS General This section presents the major assumptions and basic data used to determine the economic feasibility of the Nulqsut LNG project. Also discussed herein are some of the results and findings from these analyses. All of the potential LNG scenarios were compared to a base case situatlon of diesel fuel space heating and power generation. From this comparison a worksheet was generated listing the major system components and detailing, by component, the cost differential per annum between the base case and LNG alternatives Cexcluding the cost of feedstock). The present value of this annual differential was calculated for the 20 year pertod to evaluate the feasibility of each alternative and thelr relative order in terms of greatest benefit to the community at Nuiqsut. Analysts Assumptions and Data For the purposes of this report, the major assumptions and basic data used in the analyses are categorized Into four groups: 1) Inflation factors and value of money; 2) load forecast; 3) diesel fuel price and escalation; and 4) cost estimates. Each of these categories is discussed in the following text. ie Inflation - Inflation rates can have a significant effect upon the annual operation and maintenance costs of a facility over a 20 year time frame. A long term general Inflation rate of 6 percent was used for this analysis, based on discussions with individuals from the State of Alaska Office of Management and Budget. The value of money for present value calculations was fixed at a 9 percent (3 percent above the long term inflation rate). polarconsult 3. Load forecast - Estimates of energy demand are an important element in determining the optimum size of a facility and the amount of fuel required. Table 12-1 was generated from Information contained In planning documents for Nuiqsut, the North Slope Borough Energy Plan, and conversations and correspondence’ with knowledgeable persons In the community and the Borough. Diesel fuel price - The price of diesel fuel delivered to Nuiqsut was escalated over time in the base case analys!Is. This price was composed of two elements: 1) the cost of transportation, and 2) the cost of diesel fuel F.0O.B. the North Pole Refinery. Diesel fuel prices were escalated in parallel with the world prices of oll. The assumptions for world price of ofl were based on studies run for the Alaska Power Authority and the Alaska Department of Revenue. The range of oil prices used In this feasIbility study fs included In a range of forecasts done for the Alaska Power Authority's submissions to the Federal Energy Regulatory Commission for licensing the proposed SusItna project. The world oll price forecasts of Data Resources, Inc., Sherman H. Clark and Associates, and the Alaska Department of Revenue were used as the basis for projecting the cost of diesel at Nulqsut. Two cases, a U.S. Department of Energy forecast and an Alaska Department of Revenue case with a 50% probability were considered but omitted from the diesel sensitivity analysis because, In our opinion, these cases are much less likely to occur than are those that were used for the Nuilqsut economic analysis. 12 - 2 rr polarconsult TABLE. 12-1 ENERGY DEMAND FORECAST Years Calculations Calculation Element 1983 1984 1985 1986 1987 ' o1. ANNUAL POPULATION 385 346 396 424 | 2. PERSONS PEF HOUSEHOLD 4.6 4.8 4.6 So. Soo Digit 3.8 3.8 3.6 = Sia) ' 5S. ESTIMATED NO. OF HOUSEHOLDS ve Me os 162 169 111 116 118 138 157 Tea 4. TOTAL RESIDENTIAL SPACE HEATING REQUIREMENTS COIES. GAL? 168528 114848 122768 1354646 143888 146528 153128 155766 162166 267246 228368 . CAPITAL PROJECTS ! SPACE HEATING REQUIREMENTS CDIES. GAL» 99686 1136868 115954 118275 126636 125651 125512 128822 1413547 = 156858 172381 ao 6. SCHOOL DISTRICT SPACE HEATING REQUIREMENTS CDIES. GAL> 65668 65888 65886 6568868 65888 65888 65688 65868 65666 65668 65688 (B.+5.+6.)9 = ?. TOTAL COMMUNITY SPACE HEATING REQUIREMENTS (DIES. GAL? 265886 293528 383714 317915 329518 3354571 3436352 348782 388567 428298 465661 ' §. RESIDENTIAL ELECTRICAL ' LOAD DEMAND KWH» 547268 626466 669686 734468 784866 799288 835288 849666 993684 11358468 1245686 ' 9. NON-RESIDENTIAL ELECTRICAL ' LORD DEMAND KWH» 655268 7ea5c6ea 798888 798888 93492868 949288 349266 949266 974488 9996858 1824868 (8.49.9 = | 18. TOTAL ELECTRICAL LOAD DEMAND CKWH> 1282468 1332666 1467688 1552486 1734868 1748468 1784486 1798886 1968868 2158688 22784665 t 11. DIESEL FUEL EQUIVALENTCGAL> 156211 175263 193185 2616352 228158 238853 2354789 236684 258947 286265 298737 ‘+ 12. BOTTLE GAS ' “DIESEL GAL. EQUIVALENT> 1955 2238 2392 2624 2864 2655 2984 3836 3558 4833 4458 + 13. WASTE HEAT RECOVERY FROM ' ELECTRICAL GENERATION «DIESEL GAL» 29738 32943 36237 37agd 42885 43241 44132 44488 48672 52679 56151 €7.-135.3 = | 14. LOW SPACE HEATING REQUIREMENTS <OIESEL GAL» 235262 268577 267417 286814 2866335 291338 299588 364294 333834 375619 489516 Ct-til.Fi2s> 15. HIGH DEMAND LOAD FORECAST <OIESEL GAL? 425166 471821 499211 522168 56a46a 567479 581485 S885a2 651684 712688 766848 C115+12. 424.9 16. LOW DEMAND LOAD FORECAST “DIESEL GAL? 395428 438678 462915 484269 517595 524238 Sar2r4 544014 662332 659921 712697 " HREHHHAKERAEAARHHHRHERAAREAE KERR EE ERE ERE SEETHER R EAE RHAEER ERE ERREERE ARETE RHEE AER EE EERE SR EERE EE RE SER EEE GREE E EAE ERA E AEE EREEEE EERE ER EERE 17. HIGH DEMAND CLNG GALS? 726641 885668 855548 8947765 Sbh4i?4 975988 999557 1811457 1117968 1222719 1318654 18. LOW DEMAND “LNG GALS» 679358 752629 7397628 8545148 895987 987155 929398 548722 1848571 11389959 1226735 ' SHHHRAEEHAHREHRHERHHHERE SEES EEE E RHR REREENERHREERAEE EER RR ESERESR EAHA RHEE ERS SEES ES EE NEES ERA EE EHRERE EERE EEE EE REERRRER EERE RHEE ER EERE EERE RR RRR S 14.00) 12.00) 10.00) dollars per gallon of fuel (delivered) 8.00 $e Py 3S ey 2 a 6.00 a 7 + “ CN Kod 4.00 oe Sy b 2.00 .00 1983 11985 1990 1995 2000 2005 2010 years NUIQSUT NUIQSUT DIESEL FUEL PRICE FORECASTS based on delivery by rolligon LNG PROJECT assuming an annual inflation factor of 6% on all transportation costs. 2.20 | 2.10 | RS 2.00 2 } 1.90 os r [ rl ea | : o = 1.70 3 oe" c oe 2 1.60 ° = T oe © Qe = 1.60 - 3 o a e S tag o 2 e 3 o 3 1.30 1 PO o © ” @ 1.20 | « re eo o 1 ts 983 11985 1990 1995 2000 2005 2010 years NUIQSUT NORTH POLE REFINERY FUEL PRICE FORECASTS this price tied directly to OPEC crude price. LNG PROJECT 99¢/gallon is the price currently charged to truckers. polarconsult Tables 12-2, 12-3, and 12-4 show the cost of diesel at the North Pole refinery and the delivered cost of diesel at Nulqsut for a low, probable price, and a high price case. The price at the North Pole refinery, in 1983 dollars per barrel, Is assumed to be highly correlated with world oll prices (there may be a minor, upward adjustment to reflect the Btu content of arctic diesel at 132,000 Btu per gallon relative to a benchmark crude, such as Saud! Arabian light). A set of graphics Is provided In this sectton which shows those base prices of fuel, with the transpor- tation costs between the refinery and Nuiqsut added In. An inflation factor of six percent was used to escalate both of the diesel fuel price elements. 4, Cost Estimates - The cost estimates shown In Table 12-5 are for the typical LNG alternatives and the diesel base case. The estimated costs [Include profit = and contingency (Cgenerally 15 percent and 20 percent respectively), on constructIion Items. Findings Table 12-3 and Table 1-1 present information on the differential In annual costs between selected LNG alternatives and the diesel cases, and the present value of the differential for 20 years. As Indicated In Table 12-5, typical cost estimates for Case 4, the siting of a 400 MCF per day liquefier at Kuparuk has the advantage of being able to maximize the benefits obtainable over the diesel base case. This occurs because the capital cost of the liquefaction plant and the total transport costs are less, on a gallon of LNG produced basis, than if another liquefier is added or marine transport is used. polarconsult The Finance Package, a separate document, shows that the Case 4 project is viable using a combination of grants and loans at commercial interest rates. Spreadsheets for each of the selected alternatives were developed and a summary of the annual costs Is presented In Table 12-3. Detailed spreadsheets and economic analysis of the selected alternative and the base case are given In a companion document the "Finance Package". 12 - 4 polarconsult TABLE 12-2 COST PER GALLON OF DIESEL AT NUIQSUT HIGH PRICE CASE CDATA RESOURCES, INC.) 1983 - 2005 _ North Pole Price Per Gallon Delivered To Year Refinery Price Nulgsut by Rolligon 1983 99 1.91 1984 86 1.89 1985 +92 2.07 1986 -98 2.26 1987 1.04 2.47 1988 1.12 2.73 1989 1.19 2.99 1990 1.26 3.28 1991 1.32 3.57 1992 1.38 3.89 1993 1.44 4.23 1994 1.50 4.59 1995 1.57 5.01 1996 1.62 5.42 1997 1.67 5.86 1998 1.72 6.33 1999 1.75 6.78 2000 1.83 7.41 2001 1.85 7.91 2002 1.87 8.44 2003 1.89 9.01 2004 1.92 9.65 2005 1.93 10.27 12 - 5 polarconsult TABLE 12-3 COST PER GALLON OF DIESEL AT NUIQSUT PROBABLE PRICE CASE CSHERMAN H. CLARK & ASSOCIATES) 1983 - 2005 North Pole Price Per Gallon Delivered To Year Refinery Price Nulgsut by Rolligon 1983 99 1.91 1984 94 1.97 1985 -90 2.04 1986 -90 2.17 1987 -90 2.30 1988 -90 2.44 1989 93 202 1990 -96 2.83 1991 -98 3.03 1992 1.01 3.26 1993 1.04 Es Fi 1994 1.07 3.78 1995 1.11 4.08 1996 1.14 4.39 1997 a b7/ 4.73 1998 dee 5.10 1999 1.24 5.49 2000 1.28 aot)? 2001 isan 6.39 2002 1.36 6.90 2003 1.40 7-44 2004 1.44 8.02 2005 1.49 8.68 L25—16 polarconsult TABLE 12-4 COST PER GALLON OF DIESEL AT NUIQSUT LOW PRICE CASE CDEPARTMENT OF REVENUE, MEAN PRICE PROJECTION) 1983 - 2005 North Pole Price Per Gallon Delivered To Year Refinery Price Nultqsut by Rolligon 1983 -99 1.91 1984 ao2 1.84 1985 77 1.90 1986 76 2.00 1987 75 2.11 1988 -76 ZiZ5 1989 -76 2.38 1990 eULE, 2.54 1991 -78 2.71 1992 79 2.89 1993 -80 3.08 1994 281 3.28 1995 82 3.50 1996 83 Sic7/5 1997 84 3.98 1998 86 Hea, 1999 -88 4.57 2000 -89 4.87 2001 -90 5.19 2002 91 5.54 2003 92 5.90 2004 93 6.29 2005 95 6.74 12 -7 polarconsult TABLE 12-5 TYPICAL COST ESTIMATES CASE 2 CASE 3 CASE 4 1-400 MCFD LIQ. Land O High Demand 1-400 MCFD LIQ. 2-400 MCFD LIQ. 2 i Marine, High Demand CASE 5 2-400 MCFD LIQ. and On i Demand CASE 4G -400 MCFDLIQ. Gubic and Only, High Demand) CASE 1 Gone MCFD LIQ. DIESEL COST ITEM BASE CASE Liquefaction Capital | LIQUEFACTION PLANT $2,868,000 $283,0004$335,000x (4@o, 9 & 14yrs) $3,250,000 | $3,465,000 $5,355,000 $333,000 + $335,000 x 42@Oyrs, 1@2 & 13yrs) $283,000 + $335,000x | $283,000 + $342,000x (2@0yrs, 1@ 10yrs) 179,000+$335,000 ” (2@oyrs, 1@10 SITE AND STORAGE * $179,000+$335,000 TRANSPORT (LNG): LAND MARINE PROJECT ENGINEERING AND MANAGEMENT Oper. & Maint. LIQUEFACTION PLANT TRANSPORT (LNG): LAND MARINE Nuiqsut Storage and Distribution Capital STORAGE * DISTRIBUTION CONVERSION AIR TRANSPORTABLE TANK GENERATOR ** PROJECT ENGINEERING AND MANAGEMENT Oper. & Maint. STORAGE DISTRIBUTION GENERATION *¥*X SPACE HEATING MANAGEMENT Well Capital Oper. & Maint. $500,000 $5,000 22¢/gal $252,000 7,14,21yrs 10¢/heating unit+fuel cost +bottled gas cost 10¢/gal * Additional tanks added as needed at intervals shown ** 26252 = Overhaul schedule given NUIQSUT LNG PROJECT Additional Conversion needed after 4 Years $330,000 $990,000 $418,000 $379,000 $6,000 + 14¢/gal 36.000 + 22.9¢/gal $785,000 + $340,000x (S@O, 1@1 tyrs.) $613,000 $194,000 $200,000 $78,000(2@0yrs, 1()11yrs) $369,000 $19,000 $20,000 $330,000(1(@)1 tyrs, & 22yrs) 5 ¢ /heating unit $50,000 $330,000 $990,000 $418,000. $364,000 $6,000 + 14¢/gal $36,000 + 22.9¢/ga $785,000 + $340,000x (S@Oyrs, 1@1 tyrs) $613,000 $194,000 $200,000 $78,000(2@oyrs, 1@4yrs) $369,000 $19,000 $20,000 $330,000(1@11 & 22 yrs) 5¢/heating unit $50,000 — Row shows Difference in Cost of Gas Vs. Diesel Generators $330,000 $990,000 $418,000 $439,000 $6,000 + ae $785,000+ $340,000x (S@Oyrs, 1@11 $613,000 $194,000 $200,000 $78, 000 2@0yrs, 1@4yrs) $369,000 $19,000 $20,000 $330,000(1@11 yrs & 22 yrs) 5¢/heating unit $50,000 $330,000 $418,000 $364,000 $6,000 + 14¢/gal $2,957,000 $613,000 $194,000 $200,000 ‘| $78,000(2@oyrs, 1@ 4yrs) $369,000 $19,000 $20,000 $330,000(1@11 & 14yrs) 5¢/heating unit $50,000 $330,000 $443,000 $364,000 + 12.25¢/gal $6,000 + 23.3¢/gal $2,957,000 $613,000 $194,000 $200,000 $78,000(2@0yrs, 1@4yrs) $369,000 $19,000 $20,000 $330,000(1@11 & 22 yrs) 5¢/heating unit - $50,000 $1,006,000 $2,400+ $100,000 (1@ 10 & 20yrs) $330,000 $418,000 $19,000 $20,000 $330,000(1@11 & 22yrs) 5¢/heating unit $50,000 Values in this table are truncated between years 10-15&20 TABLE 12-35 SUMMARY TABLE OF ANNUAL COSTS YEARS 1 2 3 4 a 6 7 1986 1987 1988 1989 1998 1991 1992 Alternatives CASE $1,745 $1,789 $1,873 $1,915 $1,955 $1,996 $2,045 CASE $1,658 $1,761 41,783 $1,822 $1,861 $1,995 $1,949 CASE $2,086 $2,128 $2,216 $2,260 $2,305 $2,555 $2,406 CASE $1,376 $1,417 $1,499 $1,537 $1,576 $1,617 $1,662 WONDUSD AUN CASE 46ubic $1,881 $1,937 $2,022 $2,065 $2,106 $2,151 $2,201 $1,858 $1,895 $1,993 $2,627 $2,071 $2,119 $2,170 CASE $2,373 $2,416 $2,500 $2,540 $2,596 $2,639 $2,686 CASE $2,285 $2,328 $2,411 $2,449 $2,504 $2,546 $2,591 CASE $2,708 $2,748 $2,836 $2,880 $2,941 $2,989 $3,042 CRSE $2,089 $2,129 $2,212 $2,250 $2,304 $2,345 $2,390 CASE 96ubic $2,584 $2,639 $2,724 $2,767 $2,824 $2,869 $2,919 CASE 10 $2,552 $2,597 $2,685 $2,729 $2,789 $2,837 $2,983 CASE 11 $1,348 $1,511 $1,608 $1,751 $1,895 $2,047 $2,277 CASE 12 $1,172 $1,300 $1,399 $1,493 $1,598 $1,720 $1,903 CASE 13 $1,395 $1,605 $1,772 $1,965 $2,158 $2,369 $2,661 CASE 14 $1,254 $1,398 $1,489 $1,621 $1,755 $1,896 $2,112 Economic Assumptions: Cost Estimates were based on material summarized in the previous sections of this Document including: 1) 20 Year Life with no assumed salvage value. 2) 20 Year Mortgage 3) General Inflation = 6% 4) Value of Money = 9% 5) Intrest on Market Rate Loans = 13% 8 1993 $2,891 $1,995 $2,468 $1,788 $2,251 $2,224 $2,734 $2,638 $3,096 $2,436 $2,969 $2,942 $2,478 $2,044 $2,917 $2,291 S 1994 $2,143 $2,045 $2,517 $1,848 16 1995 $2,198 $2,579 $1,901 $2,454 $2, 342 $2,841 $2,742 $3,215 $2,538 $3,081 $3,059 $2,998 $2,436 $3,620 $2,783 15 2668 $2,579 $2,471 $2,999 $2,383 $2,979 $2,758 ae $3,737 $3,111 $3,574 $3,475 $4,576 $3,558 $5,631 $4,247 20 2085 $3,040 $2,918 $3,511 }Nsuooejod SOCIAL EFFECTS 4x3 polarconsult SECTION 13: SOCIAL EFFECTS General The major social effect of the project will be to reduce the hardships to the Individual that are associated with maintaining an adequate fuel supply. The practice at the village Is to take a barrel or tank by snow machine or other vehicle to the storage factlity where it Is filled. An on-duty operator must be at the storage facility to fill the barrels and provide the required billing. The barrel Is returned to the residence, where the of] Is pumped Into the tank. A disabled or iInfirmed person may be unable to get fuel and must rely upon neighbors, friends, or the corporation for heat. With natural gas and a distribution system, each family will recelve all the energy they need by simply turning up a thermostat, running hot water, or turning on a gas stove burner. No longer will they be required to haul and pump fuel or disconnect, haul, and reconnect heavy gas cylinders. Further, should they leave the village for a vacation, to work at the oi] flelds, or to hunt, they need not be concerned that they will run out of fuel. There are some additional disadvantages of the current practices In handling fuel, which the use of natural gas would eliminate: Le Diesel fuel Is more apt to spill and create a cleanup problem in the village. At Nulqsut, the people take great pride in their community and keep their village clean. an Rust and water can get Into the oil barrels and clog the pumps and nozzles, creating wear and a greater Incidence of repairs and outages. 13 y= polarconsult 3. Connecting and reconnecting propane gas cylinders has the potential for error through an improper connection. This could have consequences which range from a simple loss of an expensive product to an explosion with all Its related hazards. Discussion with the villagers dtsclosed that they Intend to provide a fuel tank truck to deliver oll on a scheduled basis. While this is superior to requiring an individual to use a barrel to transport fuel, It still has some of the negative elements which are overcome with a natural gas distributIon system. Energy Cost Savings There are a number of areas where energy cost savings take place: 1. Currently, [It is the individual's responsibility and cost to have and run a vehicle to get fuel. 2. It is less expensive to deliver fuel by pipeline than It is to deliver it by tank truck. 3. Burners and appllances will have a longer life. 4, Btlling Is much simpler and cheaper. 5. The supply to the village is more consistent, less likely to be cut off by permit requirements, and more likely to use the least expensive transportation system. 13 - 2 polarconsult 6. The basic fuel will undoubtedly remain at a lower cost than oll, as It will probably always cost considerably more per Btu to transport an equivalent amount of gas to an outside market than It will to transport oll. Therefore, the well head price of gas, which requires no refining, will undoubtedly remain lower than that of liquid fuel. die Although the economic life of the facility has been set at 20 years, based on the longest available loan payback period, the actual operational life Is very much longer. The component which runs the most, the liquefier, will constantly be overhauled with worn out parts being replaced. Therefore, its life should be very long. What this means to the village ts a reduction in fuel costs because the basic cost of gas will be less than ofl per Btu over time and then a very large reduction In capital payback will occur when the plant Is paid off, as only operation and maintenance costs will be required. Si An additional and important advantage is that gas Is an Indigenous fuel, and is in excess supply. Because of this, the supply should not be limited by cutoff by foreign countries such as has occurred In the case of oil. Labor Reduction When a gas distribution system is installed, there will be a considerable non-paid labor reduction In the village when fuel Is no longer hauled by Individuals. There will also be a reduction In paid labor as compared to a fuel delivery system. In the case Uy NE) polarconsult of a gas distribution system, meter reading will only require half a day or so per month. Whereas fuel delivery will take much longer, especially when consideration is given to the operation and maintenance of a fuel truck. Since there will be one storage facility, one product location, one haul system, and = one contract, substantial labor will be saved. Some people who are now employed may not be when the gas distri- bution system Is installed. Hopefully, they can be hired to Operate’ the liquefaction plant and run the’ transportation equipment. There will however be construction labor requirements for constructing the pad, tank, distribution system, and retro- fitting the buildings. When consideration ts given to these other labor requirements, It may be that there is no appreciable short or long term loss of employment, but rather a shift from unskilled labor towards more trained and higher paid jobs. Pollution Reduction Natural gas burns cleaner and leaves less excess carbon than does most o!I1 burning systems. There Is less soot, so clothes and houses stay cleaner. Diesel of] also leaks from fittings and from filling tanks, and It has a pervasive odor which Is disliked by many people. Diesel ofl frequently kills plants when It spills on them. Spillage of diesel oil can cause damage to the tundra around homes, which creates increased heat Input to the underlying soil and tice. This heat may cause an Increase In slump ponds, which make the yard of a home less usable. This situation Is, perhaps, unsafe for children as well. Lastly, there Is less air pollution when natural gas is consumed. 13 - 4& polarconsult 6. The basic fuel will undoubtedly remain at a lower cost than oll, as It will probably always cost considerably more per Btu to transport an equivalent amount of gas to an outside market than It will to transport oil. Therefore, the well head price of gas, which requlres no refining, will undoubtedly remain lower than that of liquid fuel. Ze Although the economic life of the facility has been set at 20 years, based on the longest available loan payback period, the actual operational life Is very much longer. The component which runs the most, the liquefier, will constantly be overhauled with worn out parts being replaced. Therefore, its life should be very long. What this means to the village ts a reduction in fuei costs because the basic cost of gas wlll be less than olf! per Btu over time and then a very large reduction In capital payback will occur when the plant Is paid off, as only operation and maintenance costs will be required. 8. An additional and Important advantage is that gas Is an indigenous fuel, and is in excess supply. Because of this, the supply should not be limited by cutoff by foreign countries such as has occurred In the case of oll. Labor Reduction When a gas distribution system is installed, there will be a considerable non-paid labor reduction In the village when fuel Is no longer hauled by Individuals. There will also be a reduction In patd labor as compared to a fuel delivery system. In the case polarconsult of a gas distribution system, meter reading will only require half a day or so per month. Whereas fuel delivery will take much longer, especially when consideration is given to the operation and maintenance of a fuel truck. Since there will be one storage facility, one product location, one haul system, and = one contract, substantial labor will be saved. Some people who are now employed may not be when the gas distri- bution system Is_ installed. Hopefully, they can be hired to operate the Jliquefaction plant and run the’ transportation equipment. There will however be construction labor requirements for constructing the pad, tank, distribution system, and retro- fitting the buildings. When consideration is given to these other labor requirements, It may be that there is no appreciable short or long term loss of employment, but rather a shift from unskilled labor towards more trained and higher paid jobs. Pollution Reduction Natural gas burns cleaner and leaves less excess carbon than does most o!I1 burning systems. There is less soot, so clothes and houses stay cleaner. Diesel oi] also leaks from fittings and from filling tanks, and It has a pervasive odor which Is disliked by many people. Diesel ofl frequently kills plants when it spills on them. Splllage of diesel oil can cause damage to the tundra around homes, which creates increased heat Input to the underlying soil and Ice. This heat may cause an increase In slump ponds, which make the yard of a home less usable. This situation Is, perhaps, unsafe for children as well. Lastly, there Is less air pollution when natural gas Is consumed. 13 -4& PROJECT IMPLEMENTATION 14 polarconsult SECTION 14: PROJECT IMPLEMENTATION General Implementation of this project should begin no later than the last quarter of 1984, if LNG is to be avallable by the winter of 1986. To meet this date will take a cooperative effort with the State of Alaska to make commitments for grants or any other financial assistance that may be needed. Further, it is assumed both the State and Federal Government agencies will cooperate in getting permits through on a timely manner. Although it is burdensome for large projects to cope with difficult requirements and delays, {ft could kill a project of this size. In addition, on the critical path Is the commitment or non-commitment by ARCO to supply gas for Nuiqsut and the establishment of a price for the gas. In the event ARCO refuses to supply the gas or sets the price too high, a commitment Is needed from the State of Aalska for Royalty Gas at a reasonable price. Project Scope Once the proper project Is selected, the critical scoping Items will be the selection of the type and size of the facility for Nuliqsut. If there Is a delay In tank selection, the tank materials will not be able to be transported by sea lift, and wlll have to be moved over the highway from Anchorage or Valdez. In that event, there will be a freight difference of approxti- mately $30,000, and may well be a difference tn construction costs if smaller plate sections are specified because of highway haul restrictions. Another critical item will be the selection of the liquefier size. This size will be based on the possIi- bility of sales and storage costs. 14 - 1 polarconsult -Project Design Once major equipment requirements and capacities are established, specifications and orders wll] be Issued for equl pment engineering. Simultaneously, survey crews will be dispatched to the fleld to survey the sites selected for liquefaction and storage facillitties. Applications for critical permits 9 and walvers will be then started. This process must begin early, as soon as a site location Is finalized. Upon completion of the site surveys, Cwhich Include solls and hydrologic analysis, where needed), design of pads, dikes, and foundations will proceed. If a well at Gubic is to be drilled, a well plan will be produced for permits to be acquired from the State Conservation Division. Well drilling equipment will be located and scheduled, and contracts negotiated and signed. Arrangements will also be made for services, tools, supplies, and support equipment. Coordi- nation efforts will take advantage of construction operations, providing some of the support requirements for the drilling program. The start of LNG haul route layout and the planning for archaeo- logical clearances will be needed. If some of the haul is on federal land, a requirement for an Environmental Impact Statement or, as a minimum, an Environmental Assessment may be mandated. Project Funding A project of this magnitude normally requires funding from a variety of sources. In our study we focused on three matin financing options: polarconsult ve Private sector - conventional loans, limited partner- ships with profit motives. Assumes market rate for funds (13 percent) and shortest reasonable loan term (15 years). 25 Municipal Bonds - tax free revenue bonds tied to user: fees which would be guaranteed by the NSB or state. Assumes a low interest rate (5 percent) and 20 year life. CNote: These could also be low Interest state loans). 3. Government Sector Grants - Borough, State, or Federal grants Tn assistance to be combined with term financing. Assumes no Interest and principle charges due to it's pilot project nature. These options were applied to each gas scenario with several Iterations. The goal was to finance each option with as much private sector involvement as_ possible. To this end, three financing cases were used: 1) all private financing; 2) all low Interest loans; 3) private financing for wellhead facilities, Including liquefier, plus grants for all facilities In the community. It was decided to distribute financing in item three above, so the facility at Nulqsut was funded by a grant. In very small communities on the North Slope utilities are funded by grants. Bulk fuel storage for diesel Is traditionally funded by grants. It was assumed LNG storage and regasification would recelve the same treatment. The distribution system from the regasification facility to the outlet side of the pressure reducer / meter was assumed to be f Inanced by grant as well. polarconsult Retrofitting of the homes and businesses was assumed to be Included In distribution similar to the service traditionally provided by private companies such as Enstar and others. Whereas most of the production facilities have been private sector developed and since UIC has expressed an Interest In the lique- faction process, It was logical to hold that portion of the project to private financing. All reasonable combinations of scenarios and options were run on the computer with only the most [Interesting presented In this report. Project Permits, Licenses, and Walvers One of the first requirements of implementing this project will be to determine the permits, licenses, and waivers required. A schedule must be set up for obtaining them, so steps’ for acquiring them may be taken. The location of the liquefaction plant, whether or not a gas well is drilled, and the haul route location will all have substantial effects on the permitting requirements. A list of some of the actions dealing with governmental requirements Is as follows: Kuparuk Purchase leasing of state land: State of Alaska Department of Natural Resources CDNR). Wetlands permit: U.S. Corps of Engineers CUSCE). Permisston to use state highway system for transport of LNG: Alaska Department of Transportation and Public Factlities CDOTPF). 14 - 4 polarconsult Permit to haul over state land without designated road systems: DNR. Permit to discharge grey water: Alaska Department of Environmental Conservation CADEC). Permit for solid waste disposal: ADEC. Archaeological clearance and environmental assessment: Department of Interior CDOI), Bureau of Land Management (BLM). Special use permits: DNR, BLM. Mineral material sales: DNR, BLM. Clean Air Act: U.S. Environmental Protection Agency CEPA), or DEC. Storage of LNG Cpotential waiver), Requirements of Part 193: United States Department of Transportation, DOT. Nuigqsut Wetlands permit: USCE. Walver, Part 193 - Liquefied Natural Gas Facilities: Federal Safety Standards: DOT. Gas rates in village: Alaska Public Service Commission CAPSC). 14 = § polarconsult Transportation from Kuparuk Permit to cross state lands: DNR. Permit to cross federal lands: DOI/BLM. Permit to cross coastal and Colville River: Coastal Commission. (There is a possibility that the Nattonal Marine Fisherfes [NMFS] and Alaska Department of Fish and Game [ADF&G] would need to be consulted.) Archeaological clearance: State Office of History and Archaeology. Transportation from Gubic Permit to operate on federal Lands: BLM Environmental Assessment or Environmental Impact statement: Interior Department. Archaeological clearance: State Office of History and Archaeology. Clearance for peregrine falcons: Endangered Species Act, United States Fish and Wildlife. CUSFW) Gubic Well Site Well permit: Alaska orl and Gas Conservation Commission. Water use permit: ADEC. 14 - 6 polarconsult Discharge permit: ADEC. Water withdrawl permit: DNR. Solid waste permit: ADEC. Endangered Species Act: Wildlife. Wetlands permit: USCE. U.S. Clean Air permit: EPA/ADEC. Walver Storage Part 195: 14-7 DOT. Department of Fish and CONCLUSIONS AND 15 RECOMMENDATIONS polarconsult SECTION 15: CONCLUSIONS AND RECOMMENDATIONS General Conclusions After welghing the alternatives, the conclusfton to be made ts that an LNG plant Is feasible and desirable compared to the analyzed diesel oll alternatives. Specific Conclusions A liquefaction plant at Kuparuk leads to the lowest present worth cost as shown In Section 1, Table 1-1. The case Including one liqueffier plant with government grants for the Nulqsut facility and commercial loans for the balance appears to be the best option Ccase 4). This scenario Involves $4.2 millfon In private financing, $0.7 millflon In NSB grants, and $3.7 million In State grants. The residents of Nulqsut would’ pay for fuel to cover operations and malntenance and debt retirement for the lIique- faction plant. If gas Is not obtainable from the Kuparuk - Prudhoe complex, Gubic under the right conditions, would lead to positive long term benefits to the village (case 4G). These conditions would entail grants, commercltal loans and no cost for the gas over the 20 year pay back pertod. Present Worth Values The present worth values presented In the tables are there for comparative purposes between alternatives. They overstate the Income In the sense that they do not Include costs of profits, taxes, (severance, Income, property), or the wellhead cost for gas, purchase of land, etc. They understate Income In that there are no values given for sales and there Is no value except that Intrinsic In the grants for the value of this technology for other Alaskan communities. polarconsult Influence of Events There are study assumptions which If altered by events could have considerable effect on the outcome of this project. Events which would make the project more desirable are as follows: Le A sales contract for all extra LNG where a profit In addition to the capital and operational costs Is paid. 25 A lowering of Interest rates from those used [In this study. 3 An Increase In dlesel costs over those projected. 4, Increased village growth over that projected. 5. Increased funding by the state to gain operational experience from this pilot project. Events which could lessen the project's desirability are as follows: 1. Sales by the oll companies of excess fuel from their topping plants at North Pole or lower prices. 2. Sales to the village of low cost LNG which Is produced by the oI1 companies. The ofl companies are contem- plating producing LNG for thelr own use and could have a surplus In which event the liquefler portion of the system would not be needed. 36 Refusal to sell gas to Nulqsut at Kuparuk or Prudhoe or requiring such a high price for the gas that purchase becomes undeslIrable. 15 _—2 polarconsult 4a, Discovery of a well close to Nulqsut which would make It more economical to transport gas via plIpeline. 5. An extreme rise In interest rates with a lack of subsidy from governmental bodies. 6. Refusal of companies to purchase LNG at Kuparuk which Is excess to Nuiqsut's needs. ye The refusal of the Arctic Slope Regional Corporation to make avallable, at a low enough cost, gas well and plant sites at the Gubic location. Financtal Risks It should be recognized that all projects In the energy field face financial risks from factors as presented In the preceding sectlon. Many of the risk factors can be eliminated by contracts and letters of Intent which would be part of final determination to proceed with the project. Some however, will always accompany a project of this nature and cannot be easily eliminated. However, they are balanced by the opportunities for gain. Financial risks for this project can be reduced by the amount and conditions of the grants and low Interest loans. Recommendations It Is recommended that the responsible parties determine how they wish to Implement this project. It Is recommended that first consideration be given to a plant at Kuparuk. The economics must then be updated based on a determination of whether, at what price, and under what conditions gas may be available from Kuparuk. Further, preliminary determinations are required on whether sales of LNG are possible and over what price range. Given this data and also flnancial requirements of the market as OE polarconsult to Interest rates and the individual financial situation for the owners and operators of the system a new and detailed financial analysts will be run. From this analysis it can be determined to what extent grants or low Interest loans are needed. At that point the State and Borough can determine what type of financial support is In their Interest. It Is recommended that these modest sums, if needed, be granted based on the potential experience gains from thIs pilot project which can help Nuiqsut and many other Alaskan communities solve some of thelr fuel problems. With the economic factors firmly In hand, a start can be made on project selection and engineering. If a plant at Kuparuk Is not feasible because of Inability to get gas, it Is recommended that the Gubic option be given further consideration. It may be possible to somewhat reduce the costs of this project by drilling on the west side of the Colville River, piping the gas across the river, or by modifying or eliminating the airfield. It may also be possible to transport gas to Anaktuvuk pass about 100 miles to the south which could help distribute capital costs. It Is also recommended that If the GubIic location is selected that the State increase thelr aid to make the plant viable. Justification for this Is that the GubIic case would potentially serve two villages plus the airfield at Umiat, and more closely represents what would be probable In other Alaskan communities. 15 - 4 APPENDIX A cert co q a 2 ‘et 8 3 a O Basie CS a 2 se MUITQSUT LNG PROJECT PROJECT SCHEDULE i 1 tt 1984 1 1985 t _ i986 nAJOR ELEMENT {ITEM «SPECIFIC ACTIVITY 11 ~ —t { - : ' 11 JantFebi lar Apr iMayt Jun: Jul ! Aug! Sep! Oct Nov! Dec! Jan! Febi Mar Apr !May! Junt Jul Aug! Sept Oct Nov! Dect Jani FebiMar pray! dat Ja ug t--—-1- -— ttt tt at ttt 7 1.Technical Report/Finance Package ! ENG iRevien,Decide,Finance {} xxixx}wodeeemiex of of oft 2.Project Engineering 3.Pernits - KIC & Nuiqsut 4.Pernits - KIC & Nuiqsut 5.Tanks - Nui.& KICCon fast tr. 6.Tanks - fal - & KICCon fast tr. ?.Tanks - Nuit KIC(on fast tr. lab 8.Tank - Nuigsut 9.Tank - KIC 11.Liquifier 12. Liqui fier 13.Systen Test - KIC 14.Distribution Networks - Nuiqsut ttt tit i Mp MG} on} OORT ttt ttt feed ead 1 “bit —-t-—- tt 1 ENG {Detailed Design 6: Spacet| Be ae Ue cInAe. f------t- “tt 407) Fie ie “tt iu <i ieee ft $ “At “TANK iMobilize Nui.- ice roadti TANK tErect c! & 2 ip 2 = = Be g x y § 15. Distribution Netuorks - Nuigsut 16.Civil Works - Nuigsut 17.Civil Works - Huigsut 18.Retrofit Appliances - Nuiqsut - NUL {Design,fuard Contract $f i 4 --—-1--—--- ~ t—-1- NUIT {Construct io ——-t- “tt {—-t- NUL iDesign,fuard Contract 4% —-—-i- tt ide { NUL {Construct | faaennn ha EE aoe] ee ood me i$ t NUL lesan mere Construct ti of ft toot PASIESEID E88! | entree eed ender | i— $$—t—-t-—t Bt tt tt tt ttt 19. Transportation Equipnent i s¥s tuard Contract,Supply $i $ $ ¢ t teee $ beeheneeqmapecde | of fF of bot ot ic $ 11-1}? i—-1-—$ th I tt tt tt tt bt ht tt tl i 20.Systen Operation - KIC & NUI 1 SYS {Training eee Le ee Ce $800 80¢ 2060) }0¢) 300¢) 180¢ 80) 106¢ 9800} 80) 1060 9000) 9001 100C) }86C) 1800 1064 188C) I6AK 10 —_——— eh faa heda—t: h—— =f ———f le a lh 21.Systen Operation - KIC & NUI 1 SYS {Start-up Pee (Tilia alike =. 3 fob f EKE Cee eed send NUL} weed eevee ft 4 4 $3 —1—-1-—1 t—-1-—-1 + St tt tii /Ukpeagvik, Inc. and Polarconsult Alaska, Inc. invite you to discuss AN ALTERNATIVE SOURCE OF ENERGY FOR NUIQSUT at the Community Room of the NUIQSUT HIGH SCHOOL TUESDAY, NOVEMBER 15, 1983 at: 7:30 P.M. ENERGY QUESTIONNAIRE Filling out this questIlonnalre wlll help us provide you, the people of Nulqsut, with the energy system you want. DON'T DON'T YES. NO KNOW CARE ae, Have you seen a gas stove or up| furnace? 4 Le Have you used a gas stove or | ge furnace? 42 6 as Would you IItke a gas furnace In { { 2 | | your house? 46 i ces Would you like a gas stove to 45 | 3 | cook on? > 55 Would you like to save money on 4g | ie | your electric and fuel bills? L 6. Would you Il!ke to save most on 45 far] a your eTectrie bills? your fuel bills? cs Do you IIke the idea of buried sisabidtias 1 Tis Would you like to save most on | 4s | | 1] gas lInes in Nuiqsut, lIke they us | 2|- use in Barrow? A LNG wI11l have to be stored near the village somewhere for this | | | | project. Would putting It out oy) 5 D 1 the dump road be o.k. with you? 10. Are you satisfied with your present .uttiiltttes Cthat ts - 10| 36 1] fuel and electricity)? ils I think using: gas at Nutqsut ts | ] good. ; 47 1 | 22. I think usin as at Nulqsut Is 2 = Meg tee 3} | 41 2 LS. I understand my furnace must be 43 ii ; changed to burn gas. The: pido not mind: If my: furnace: Is 38 4 | 3 changed to burn gas. 15. I think’ this meeting: 1s useful. ] 45} Lad q@ XIQGNAddV NATURAL GAS TO LIQUID NATURAL GAS for use in your community The liquid natual gas or LNG is transported to the community in tanks. At the community, LNG is transferred to a main storage tank. gas powered equipment ,such as, generators, gas furnaces and gas stoves. Special vehicles with adapted fuel systems can also run on LNG. polarconsult alaska, inc. ENGINEERS, ARCHITECTS, ENERGY CONSULTANTS grrielo oF «nn STATE OF ALASKA Orrice OF THE GOVERNOR ‘Jun EAU August 29, 1983 Mr. Jerry C. Larsen General Manager L.N.G. Operations GEOSOURCE, Inc. 6909 Southwest Freeway P.O. Box 36306 Houston, TX 77236-6306 Dear Mr. Larsen: Thank you for the information provided on L.N.G. as an alternative fuel source and for the information about your company, GEOSOURCE. As you probably are already aware, I have authorized $200,000 to start the liquefied natural gas project in Nuiqsut. This amount of money will allow the project to proceed in an orderly manner. I consider locating the liquefaction of natural gas, near the ultimate users, a worthy effort to reduce high energy costs in remote areas. For this coming year, I would first like to see an analysis done, by someone not connected with the project, to answer the following questions: (1) What technology is needed to make the experiment successful? Emphasis should be on approaches that have a proven track record. (2) Who will be the owners and operators of the compressors? (3) Who will distribute the final product? (4) What will the user costs be? (5) Who else should invest in this project? The North Slope Borough may well want to participate and consider financing such units in other parts of the North Slope, if this one proves successful. (6) How will the project be financed? It may well turn out that user fees could finance this and other units in the borough. The Commissioners of Commerce and Economic Development and Community and Regional Affairs will be working closely with UIC, the North Slope Borough, and the City of Nuiqsut in the coming months to start this project. Mee Jerry C. Larsen -2- August 29, 1983 I am glad to see your interest in providing energy alternatives to the rural areas. I will be following the progress of this study closely to see if the L.N.G. methods can be used in other parts of Alaska. Please contact me if you have any questions. Sincerely, Bill Sheffiétd Governor Ww e <x a foe | = | re | Oo oe a uu oO Indust ry_ Feature JV Pians to Convert North Slope to LNG Power Energy costs for North Slope Borough resi- dents — costs which currently consume as much as 40 percent of a family’s yearly in- come — could drop significantly if a plan to switch to liquefied natural gas from diesel and gasoline is adopted. The Ukpeagvik In- upiat Corp. of Barrow and Geosource Inc., Houston, Tex., have teamed up in a joint ven- ture to develop a compact, transportable LNG plant for use in Nuiqsut, a North Slope community of nearly 300 people. The joint venture, Geosource/Ukpeagvik Inc., estimated LNG could be produced for as little as 40 cents to 60 cents per gallon if shut-in gas sources were tapped. If state roy- alty gas from nearby fields — a source which also is under consideration — were purch- ased, the cost probably would hover around 31 per gallon. By comparison, diesel used to power electrical generators costs about $2.80 per gallon and gasoline commands a price of $4.50 per gallon, making LNG an attractive alternative. A typical Alaska village of 300 could save $1 million a year by burning gas instead of diesel and gasoline. According to Jerry C. Larsen, general manager of Geosource’s Development Ser- QA Al anlen Qamntensatinn 2 O01 vices Group, Nuigqsut will be the pilot com- munity for the project, which eventually may produce enough LNG to convert the en- tire North Slope to gas usage. The turn-key transformation from diesel- to gas-powered generators in Nuiqsut is estimated to cost about $750,000, a sum requested from the Alaska Legislature by the North Slope Borough this year. An LNG operation servicing the entire North Slope Borough would cost about $4 million, Geosource estimates. If the Nuiqsut project is successful, the borough will seek additional funds from the Legislature to ex- pand the LNG project The natural gas liquefier to be used by Geosource is a fully automated, self-con- tained skid-mounted plant capable of being transported to the North Slope on trucks The liquefaction plant, designed to produce 150 mef of LNG per day, would be 11 ft. wide by 30 ft. long by 10 ft. high. Weighing about 20 tons, the liquefiers are shop-built and tested prior to shipment and are ready for production in the field when connected to gas wells or ventilation holes and the LNG stor- age tanks. Cantan han 1009 The company has developed two types of liquefiers: methane liquefiers, which will liquefy natural gas from pipeline or gas wells and methane gas from landfills and anaerobic sewer plants: and gob liquefiers, which will separate and liquefy the methane from the methane air mixtures vented from coal mining operations In the methane liquefier, if the gas has a greater carbon dioxide ‘CO,) content than approximately 1.5 percent, as with landfill gas, digester gas and some natural gas, the stream must first pass through a CO, pre- cleaner. Prior to entering the liquefier, the CO, and HO are removed. The gas is compressed to 2,300 psig (pounds per square inch gauge) and cooled to -90 degrees F. The gas is ex- panded to 15 psig in two stages in which it is cooled to -245 degrees F. and a given ratio is liquefied. The gas which is not liquefied is re- turned to the compressors for recycling and the LNG is fed into a storage tank The units are designed for fully automatic operation. The system shuts down automati- cally in case of emergency, a leaking gas line, for example gas Installation of the liquefier involves con- necting a feed gas line to the unit and two in- sulated ‘1-in. stainless steel lines (one for liquid and one for vapor) from the unit to the storage tank at 15 psig and -245 degrees F The units are being built in four standard sizes: 80, 100, 150, and 600 mef per day. The figures represent the capacity of the plants to produce liquefied gas. One thousand stan- dard feet of gas will liquefy to 12 U.S. gallons of LNG, and the units consume between 15 percent and 20 percent of the gas they take in to power themselves. Consequently, a 100-mef-per-day liquefier uses 125,000 cu ft. of gas per day to produce 1,200 gallons of LNG per day Geosource also is developing a dual fuel diesel conversion kit which can be retrofitted onto a diesel engine, enabling it to burn a mixture of 85 percent methane and 15 per- cent diesel. The company said it is negotiat- ing with Sohio Alaska Petroleum Co. to con- vert its North Slope personnel transporta- tion vehicles to methane. Converting a about $4.000. while con- diesel engine cos verting a gasoline engine costs about 31.800 North Slope Borough fleet vehicles could eventually be also converted over to cheaper and cleaner burning methane fuels Using transportable LNG units drilling rigs also could be run by gas The first phase of the Nuiqsut project will involve replacing diesel-powered generators with LNG-powered generators for electricity production. In the second phase of the pro)- remote ect, LNG will displace costly heating fuel in residents’ homes Keeulgil Cys GENERAL DELIVERY NU!QSUT, ALASKA MEMORANDUM LO): Sam McBonalds Ukpeagvik Inupiat Corp. P.o. Box 427 Berrow, Alaska 99723 rl Ausman lar Consultant Alaska Inc. 35 Tudor Road chorage, Alaska 99723 FROM: Eli Nukapigak °~ Land Manager Nuiqsut, Alaska T9723) RE: Special Shareholders Meeting DATE: November 25, 1983 Gn behalf of the village of Nuigqgsut, we would like to thank you for coming to the Special Shareholders meeting to discuss the Liquic Natural Gas System. We are looking forward to this project to begin in Nuigsut in the near future. Again -we appreciate your time with us for the shareholders neeting. EK/aa . RECEIVED Polarconsult Alaska, [2. _|LL SHEFFIELD GOVERNOR STATE OF ALASKA OFFICE OF THE GOVERNOR JUNEAU January 5, 1984 Mr. Sam McDaniel Alaska Manager Geosource/Ukpeagvik, Inc. P.O. Box 36827 Houston, TX 77036 Dear Mr. McDaniel: I am sorry for the delay in responding to your letter re- garding the Nuiqsut L.N.G. Pilot Project. I appreciate your progress reports on the Project and your efforts on behalf of the people of Nuiqsut and the rest of the North Slope. It would be most beneficial if the abundant gas supplies of the North Slope could be tapped for local use. The Nuiqsut Project sounds very promising. We are looking forward to receiving the completed feasibility report in January. My staff will review the analysis, and we will make recommendations at that time. Sincerely, Bill LAs Governor at L i LI Vv bk yD ING OPERATIONS Q 400 Seventh Street. SW pe te aa Wasnington,D.C 20590 Research and Special Programs Administration Mr. Earle Ausman Nuigsut LNG Facility, Project Manager Polarconsult Alaska, Inc. Suite 201 2735 East Tudor Road Anchorage, Alaska 99507 Dear Mr. Ausman: This responds to your letter to Mr. Furrow of this office, dated November 28, 1983, regarding LNG facilities and an associated gas pipeline distribution system proposed for construction in the village of Nuiqsut, Alaska. You asked whether the village would have to comply with 49 CFR Part 193 with respect to the proposed LNG facilities. The Part 193 regulations were issued under the Natural Gas Pipeline Safety Act of 1968 (NGPSA) (49 U.S.C. 1671 et. seq.). The regulations apply to LNG facilities used in the transportation of gas by pipeline that is subject to the NGPSA and 49 CFR Part 192 (§193.2001(a)). The transportation of gas that is subject to the NGPSA and Part 192 is defined in the Part 192 regulations to include the distribution of gas by pipeline in or affecting interstate or foreign commerce. Although the degree to which the proposed distribution of gas in Nuiqsut would affect interstate or foreign commerce is difficult to determine, Supreme Court cases have held that only a slight relationship to such commerce is sufficient to extend jurisdiction under Federal statutes and regulations to purely intrastate matters. The facts you have presented do not distinguish the proposed distribution of gas from similar pipeline transportation systems that affect interstate or foreign commerce. Therefore, we believe the LNG facilities proposed for construction in the village would be subject to Part 193. Although you have not said so, we presume the village of Nuiqsut would own or operate the proposed LNG facilities. Section 10 of the NGPSA_ requires each Person who owns or operates LNG facilities that are subject to regulations issued under the NGPSA to comply with those regulations. Section 2 of the NGPSA defines "person" to include a "municipality" or "cooperative association" and further defines "municipality" to include any political subdivision of a State. In the absence of any information to the contrary, it appears that the village of Nuiqsut is a "person" under the NGPSA and would have to comply with the Part 193 regulations. I would like to point out, however, that Section 3 of the NGPSA would permit the village to petition us for a waiver of any of the Part 193 regulations that it considers inappropriate to meet. Such a petition would have to show that a waiver would be consistent with pipeline safety. I trust this provides a satisfactory response to your inquiry. Sincerely, ) Ka ek ( { “a Richard L. Beam Associate Director for Pipeline Safety Regulation Materials Transportation Bureau RECEIVED re Qe WIA Polarconsult Alaska, inc. Barrow Utilities and Electric Cooperative, Inc. P.O. Box 449 Barrow, Alaska 99723 907-852-6166 RECEIVED oul e84 February 17, 1984 Polarconsult Alaska, inc. Mr. Mark Newell, President Polarconsult Alaska, Inc. 2735 East Tudor Road Suite 201 Anchorage, AK 99507 Dear Sir, I have reviewed your firm's feasibility study for Nuigsut LNG and am impressed with the scope of the draft. All considerations have been addressed in a very concise manner and an excellent foundation has been laid for selection and engineering of a chosen implementation plan. Having been in the supply of energy industry for over twenty years, I firmly believe that an LNG project would greatly enhance this community and provide modern standards of energy security and convenience. The minor notes I address are strictly construction orientated; address the position of a convex installation of Typar or plastic film under pad construction to prevent a quagmire and possibly the use of turbines rather than a piston type engine at the liquefier site to reduce maintenance and operation costs. Other than this, I await the outcome of our governments viewpoints and decisions. If I may be of help to you in any manner, please feel free to contact me at your convenience. Respectfully, A. Quid James R. Caress General Manager BUECI JRC :dmm cc: Mayor, NSB NORTH SLOPE BOROUGH OFFICE OF THE MAYOR P.O. Box 69 q Barrow, Alaska 99723 7 -852-2611 Prene: S07-s82ic8 Eugene Brower, Mayor ? RECEIVED AK 05 1984 Polarconsult Alaska, Inc. March 1, 1984 z Mark Newell, President Polarconsult Alaska Inc. 2735 E. Tudor Road, Suite 201 Anchorage, Alaska 99507 4 Dear Mr. Newell: I am pleased to offer the following comments and recommendations from the North Slope Borough on a draft A Feasibility Study For The Nuiqsut LNG Project you submitted for my review on February 8, 1984. Before conducting our review, we first developed what we considered as the statement of purpose for the report. Based upon the knowledge and experience of the energy issues we gained as a result of the Barrow Energy a Study and the Draft North Slope Borough Energy Plan documents, we identified three (3) problems this statement should address: 1. How can the residents of Nuiqsut best lower their user energy costs? 2. Would converting Nuiqsut to an LNG energy system lower user costs for energy? 3. Can the installation of an LNG unit at Nuiqsut be used to determine the economic feasibility of LNG over diesel as an energv source for remote villages in Alaska? Our conclusion is that the draft report does not address the first problem statement, it discusses but does not conclusively answer the second, and offers a recommendation to do the third. It is apparent that the necessary information and data to support the conclusion and recommendation presented in Section 15 is lacking. The Mark Newell, President March 1, 1984 Page Two conclusion in this Section is that Case 4, Installation of an LNG System, represents the best solution to meet the energy needs in Nuiqsut. I submit that the recommendation that orders be placed with Geosource for LNG tanks and equipment for use in the winter of 1985 may be premature. Because the data is not presented to support those conclusions, it appears that if the recommendation is implemented as presented in the draft report the resi- dents of Nuiqsut could be at risk of having to pay higher energy costs and perhaps being without a reliable energy source. The justification used for Case 4 (LNG System) over Case 11 (continued Diesel) is a present worth differential between $13.6 million to $20 million. For projects on the North slope, it may be erroneous to lump capital costs, operating costs and user feed into a single figure to identify a clear present worth differential. It may be more accurate to determine this differential with separate consideration given to cash flow, the various types of funds, the appropriate risk factors for each type of funding, using different time values for each type of funding and more consideration given to the life-cycle costs. Because justifications are not included with the cost estimates presented in the study, they are very different to verify and the present worth differential conclusions are difficult to support. Furthermore, because all capital costs for storage, distribution, conversion, transpor- tation and emergency back-up power systems were not included in the cost analysis, we are left with the conclusion that they may be erroneouslv considered to be zero. In addition, based upon the description of the facilities proposed for Kuparuk and Nuiqsut, it seems they are not given adequate allowances for risks in operational or Arctic environmental problems. These could significantly increase the cost estimates for Case 4 and narrow its cost advantage over Case ll. It is understandable that the current high cost of diesel fuel makes Case 1] to be economically unfeasible at this time. Furthermore, the price of diesel fuel is directly related to the price of oil in the world market. Although the diesel fuel cost assumptions presented in the report may be appropriate for an analysis of absolute energy costs, thev seem an inappro- priate basis for the analysis presented in the draft report. Specifically, the diesel fuel cost is compared to an assumption that free gas will he obtained for the LNG plant. Currently, the maior North Slope oil producers are in federal court to settle a dispute over the sale of natural gas produced and consumed at the North Slope oil fields. The result is likely to establish a cost for Mark natural gas. Furthermore, it is unlikely that the natural gas for public use, even that owned by the State, will be priced any lower than any precedent established by the producers in court. Therefore, it seems that the same market forces will eventually apply to the costs for both diesel Newell, President March 1, 1984 Page Three and natural gas. In addition, it seems imperative that the report fully address and resolve the issues involved in the U.S. Department of Transpor- tation's federal safety standards and regulations for LNG facilities and the necessary federal and state permits and license before any firm commit- ment could be made. Among the items that should be considered in greater depth in the final draft are the impacts the recommended LNG system will have on the community. The proposed changes in the energy distribution infrastructure (a community-wide pipeline system, the conversion of home heating equipment and electrical power generators to LNG) represents a very strong commitment to LNG as the source of energy for the community. Further, the LNG technology for the Geosource liquifier system, the transportation systems and the operation of air-to-air heat exchangers for revaporization are not well enough demonstrated in Arctic conditions to justify not having a complete back-up energy svstem also in place. Therefore, perhaps the best approach to protect our interests would be to prepare formal Requests For Proposals, complete with performance specifications and guarantees, to select a supplier on a competitive basis should the final report sustain the conclusions contained in the draft. I appreciate the opportunity to comment on your draft report and look forward to receiving a copy of the final document. If you have anv questions, please contact my office directly. Sincerely, ’ e Es , rah # Ltr iz gr ale | / Eugene Brower, Mayor * polarconsuit alaska, inc. ENGINEERS ¢ ARCHITECTS e ENERGY CONSULTANTS April 17, 1984 Mayor Eugene Brower Office of the Mayor North Slope Borough P.O. Box 69 $ Barrow, Alaska 99723 Dear Mayor Brower: We are pleased to respond to your comments on the draft of "A Feasibility Study for the Nuiqsut LNG Project". Your comments and recommendations enhance the- planning for a successful demonstration of LNG technology at Nuiqsut. This feasibility study deals with many projected variables, such as world oil prices and the wellhead price of natural gas at the Kuparuk and Gubic gas’ fields. By refining financial and technical assumptions, we intend to derive better estimates of user costs for Nuiqsut' residents. In addition, we plan to outline North Slope Borough participation options for your consideration. With this purpose of refining user cost estimates and partici- pation options as our ultimate goal, we are pleased to offer the following response to your letter of March 1st, to answer . directly the concerns mentioned therein. Your comments are addressed in the same order that they were discussed in the March 1, 1984 letter. Again, we appreciate your thoughts on these matters. Pg. 1, Point 1: You are accurate in your conclusion that we did not address how to best lower the costs for Nuiqsut. The feasibility study's scope per Governor Sheffielid's request compares LNG and diesel. Of the two, our analysis shows that LNG is the better alternative. Residents of Nuiqsut can lower their energy costs by relying on LNG to serve the total energy needs of the community, from cooking with LNG to using it as the fuel source for water heating, space heating, and electrical generation. In addition, we noted the potential for using LNG as a vehicle fuel. Another promising option to lower costs to residents for energy is to use waste heat from electrical generators for heating public buildings and possibly contemplated new buildings. 2735 EAST TUDOR ROAD ¢ SUITE 201 ® ANCHORAGE, ALASKA 99507 ® PHONE (907) 561-1933 © TELEX: 26708 PCA AHG Mayor Eugene Brower April 17, 1984 Page 2 Ragelely,iserO lites. The analysis in our report shows that with appropriate financing (see Section 15, Page 1), conversion to LNG at Nuiqsut can save the residents substantial sums of money over the life of the project when compared against the diesel case now in use. However, user costs to Nuiqsut residents are quite sensitive to assumptions about participation and financing from the private sector, State of Alaska, and North Slope Borough. The uncertainty over the availability and price of natural gas at the wellhead at Kuparuk is another example of an issue affecting Private sector and State participation in the project. Still another consideration is whether $700,000 of NSB funds could be reprogrammed if the LNG alternative #4 is chosen by interested parties Csee pages 10-2 and 15-1 of the draft report). A policy review by State agencies has been suggested to narrow some of these uncertainties. Pagel) Polnt 3: The installation of LNG facilities at Nuiqsut will be an important first step in proving the economic viability of LNG in remote villages. As a pilot project, costs of training locals to operate the facilities and some of the "learning curve" costs are unique. The experience in) Nuiqsut will provide valuable economic data to allow for more detailed and accurate assessments for project expansion to other villages. Because of each community's unique location and layout, each village will require analysis as a separate case. Page 2, Paragraph 1: Based on the savings to the village, it was recommended that action be taken immediately to start the project. Each year's delay represents another year of high energy costs to Nuiqsut. Because the project will take two years to build, and because construction and transportation is seasonal in the Arctic, a schedule was proposed to avoid delay. One major timing factor tn this type of project is the manufacture of custom equipment, which requires substantial lead time because of transportation considerations. Otherwise, costs may be’ increased. It will take about 15 months from. the initiation of an order to provide the liquefier portion of the facility, including the storage tank. We are assuming that the liquefier will be financed privately, thereby minimizing any risk to Nuiqsut for this type of commitment. Mayor Eugene Brower April 17, 1984 Page 3 A very important part of the finance package currently being put together is the issue of guarantees. The private sector must be willing to guarantee the residents of Nuiqsut that the LNG will at all times be cheaper than their present fuel source, or else the residents wouldn't agree to a hook-up. We have included in the preliminary design a totally redundant source of fuel. Thus the reliability issue's proper focus is on the distribution system which will be as reliable Cif not more) as that in Barrow. Pg. 2, Paragraphs 2 and 3: We agree wholeheartedly that single present worth figures may overshadow important elements of the capital, installation, operation and maintenance, and fuel costs of the LNG and diesel alternatives. Tables 12-1, 12-2, and 12-3 specifically address this concern by noting assumptions and presenting individual cost items for summary in Chapters 1 and 1536 The present value results are aggregated in order to corre- spond with State agency project evaluation methodology, which is a standard economic practice for evaluations done by’ the Department of Commerce and Economic Development, Alaska Power Authority, and Department of Natural Resources CDNR). The Financial Package currently under development is designed to answer questions of ownership, investment decision timing and participation, and financial criteria for project implementation. We will make our analysis easier to read by breaking out the various fund types as you request and clearly identifying the life cycle costing methodology used. Additionally, we intend to identify costs, with clear footnotes in the tables and charts. In the analysis of diesel and LNG cases, which are summarized in Tables 1-1, 12-1, and 12-2, and further detailed in the spread- sheets found in Appendix B, all of the costs of all of the facilities have been included. There was thorough cost consideration for risks in construction and operation. The costs of storage and distribution at Nuiqsut ($3.7 million) was assumed to be financed by a State grant. This grant concept is in keeping with the State's electrification and bulk fuel storage grant programs, so as not to penalize the LNG alternative. Additionally, the LNG storage will eliminate the need for planned expenditures on additions to the diesel storage tank farm at Nufqsut. Pg. 2 Paragraphs 4 and 5: As stated in the report, we were unable to obtain a wellhead price for gas at that time. There- fore, we prepared a chart (Section One: Range of Present Values for 20 Year Gas Purchases) which enables one to arrive at a total present worth cost when the price of gas becomes known. We are Mayor Eugene Brower April 17, 1984 Page 4 refining our assumptions in this area for the financial package, with the help of the State DNR, ARCO, and SOHIO. It is a fact that it now costs the oil companies money to reinject gas, and reinjection also uses up a portion of the gas. Also, some of the gas that is produced belongs to the state. The range of gas costs discussed in the report incorporates these facts. We do not expect that "free gas" will be available for the LNG plant, but are having difficulty arriving at a single, representative wellhead price. Because there is no current market for the gas, it is conceivable that the oil companies could provide the small amount needed at Nuiqsut at a wellhead price well below that established on the open market in Cook Inlet. Gas from Tyonek was sold to Chugach Electric Association for a price that started slightly above 15 cents per million Btu and was escalated at roughly 1 cent each 5 years when there was no regional market for the gas. If 50 cent gas were available at Kuparuk, it would subtract approximately one-half of a million dollars from the project net benefits; which is not a significant impact over 20 years, considering all investment costs for the project. We are in agreement that the same market forces will operate on both gas and diesel. Because of this, gas will remain at a reduced price on the North Slope. The wellhead price for gas cannot exceed the price the market will pay, less the transpor- tation costs. These transportation costs of gas on the open market are so high that if the gas were given away at the wellhead there would not be the demand to buy it. Because of this, gas represents the fuel with the least cost for the North Slope. This is why we believe natural gas can be a very favorable fuel for the village, as it is feedstock for LNG and should remain low in price. An example of these market forces is that even with over 30 trillion feet of proven natural gas reserves on the North Slope, investors have not been willing to finance the ANGST proposal to build a gas pipeline to the western and midwestern U.S. Pg. 3: We are satisfied that the project can be built within the cost estimate to meet the federal safety standards and regula- tions of the U.S. Department of Transportation. However, there remains some question of whether part 193 applies. Even if it does, assurances have been given that a waiver will be looked at in a kindly manner for the tank location by D.O.T. This can be resolved in the design stage of planning the facilities. Mayor Eugene Brower April 17, 1984 Page 5 Pg. 3, Paragraph 2: The report discusses the positive and negative social effects on the village in Chapter 13. The steps required to convert the village to LNG are also elaborated upon in some detail Chookups, programming funds, and backup systems). Because Nuiqsut is a modern village, and because of the opportunity to use the experiences from its sister community of Barrow, the conversion to natural gas will benefit from that at Barrow. The results of the questionnaire which were translated into Inupiat by David Brower strongly indicate that the people of Nuiqsut favor LNG over continued dependence on diesel fuel and diesel fired electrical generation. We agree that moving from dependence on diesel fuel to an LNG system at Nuiqsut represents a firm commitment to developing the North Slope natural gas with the proposed technology. Therefore, the considerations on air-to-air heat exchangers, operation of the liquefier in Arctic conditions, and backup systems will be addressed in detail during the design stage of the project. The liquefier utilizes the Joule-Thomson process, which is the same process used in hospitals around the world in their oxygen systems. This process is used by Geosource because of its dependability and reliability. The two major pieces of equipment on the Liquefier are a Cummins Natural Gas Engine and a RIX Compressor. The Cummins Natural Gas Engine has a life expectancy between overhauls greatly exceeding the life of the diesel generators now in use in the villages. RIX has been building the compressor used in the liquefier for over 100 years, and it is a very proven and reliable piece of equipment. Parts for both are readily available. The transportation of cryogenic fluids, Cespecially oxygen and nitrogen which is quite a bit colder than liquid natural gas) in double walled insulated tanks CDEWAR) is a proven technology that has existed since before World War II. Today it is used in overland transportation, ocean transportation and in space transportation. There has never been a single lost life accident from the transportation of LNG. The use of air heat exchangers for the vaporization of cryogenic fluids is a technology that is as old as cryogenics itself. The process is very simple and effective in all climates. Liquid natural gas will vaporize at atmospheric pressure at -260°F. The principal behind air heat exchangers is to simply run the LNG through an uninsulated aluminum coil exposed to the ambient temperature, allowing the LNG to warm to the point that it Mayor Eugene Brower 2 April 17, 1984 Page 6 vaporizes. Even if the ambient temperature is -100°F, the LNG needs only to warm to -260°F to vaporize, a 160° temperature difference. An air heat exchanger actually performs much better in a cold climate. Because of the lower moisture content of the air, there is less external ice build-up around the coils. We greatly appreciate your interest in, and support of this project. Thank you again for your comments on the report. Sincerely yours, POLARCONSULT ALASKA, INC. Alb Mark Newell President /jkb cc: George Ahmaogak, UIC Sam McDaniels, Geosource/Ukpeagvik Bob Whisenhunt, UIC BILL SHEFFIELD GOVERNOR ee RECEIVED OFFICE OF THE GOVERNOR JuUNEAU 4 March 5, 1994 Polarconsult Alaska, inc. Mr. Sam L. McDaniel General Manager Geosource/Ukpeagvik Inc. 9800 Town Park Drive P.O. Box 36827 Houston, TX 77036 Dear Mr. McDaniel: This will acknowledge receipt of your recent correspondence regarding the Nuigqsut L.N.G. project. I have forwarded a copy of your letter to my Commissioner of the Department of Natural Resources, Esther Wunnicke, and have asked her to personally review your request and report to you directly. You may expect to hear from Commis- sioner Wunnicke in the near future. Sincerely, Bill Sheffiel Governor om, om | : ; 13 laalym le polarconsull alaska, inc. ENGINEERS ¢ ARCHITECTS * ENERGY CONSULTANTS March 20, 1984 Governor BI11 Sheffield Office of the Governor Pouch D Juneau, Alaska 99811 Dear Governor Sheffield: We appreciate your interest in, and correspondence on, the Nulqsut LNG Project. As the project engineers, we are completing the feasibility study for the State of Alaska and the North Slope Borough. Every effort is being made to address the questions you put forth in your August 29th letter to Geosource. In order to finalize the Draft Feasibility Study for the Nuiqsut LNG Project, we would like to have technical comments from State agencies (CDCED, DNR, and DCRA) by April 2nd. Coptes of the report were distributed on February 10th to your office and DCED. There are also several important policy issues which we do not need addressed by April 2nd, such as potential use of royalty gas, gas pricing, taxing policies, and State financing of the distribution system and storage at Nuiqsut. These issues could be resolved with input from your Administration. An outline of these Issues is attached for discussion purposes. If we could be provided with perspectives on these ftssues by Monday, April 30th, these could then be referenced in the Executive Summary of the report. We appreciate the efforts of your staff to coordinate this technical and policy review. A timely response will enhance the decision time frame for this project. The residents of Nuiqsut and other remote communities may then be able to benefit from this fuel source at an earlier date. Sincerely, POLARCONSULT ALASKA, INC. Not ntl! Mark Newell President enclosure cc: Sam McDantels, Geosource George Ahmaogak, Ukpeagvik Inupiat Corporation 2735 EAST TUDOR ROAD ¢ SUITE 201 ¢ ANCHORAGE, ALASKA 99507 ® PHONE (907) 561-1933 ® TELEX: 26708 PCA AHG ISSUES FOR CONSIDERATION BY THE STATE OF ALASKA NUTQSUT_LNG PROJECT Project Economics Overview As noted in Section 1: Summary of the Feasibility Study, the LNG Project can save the village of Nulqsut considerable sums of money over the dlesel alternatives evaluated In the study. Table 1-1 shows that diesel alternative #11, the probable diesel fuel price case, has a present value of $21.06 million versus the best LNG case, #4, which has a present value of $13.59 million. Although there will be some additions to the LNG cases to recover items such as the cost of gas at the wellhead, the results show LNG to be attractive compared to diesel. We are refining the financial and technical assumptions used In evaluating project feasibility. Your review of State of Alaska Participation options in this pilot project will facilitate Production of our final report. The results will be presented in an Executive Summary and Financial Package. These documents can then resolve the Issues raised by Governor Sheffield in his letter to Jerry Larson of Geosource, dated August 29, 1983. Issues For Consideration In particular, reviews are needed to address the following technical assumptions: I We assumed the wellhead price of gas at Kuparuk, would range from zero dollars per million Btu to the maximum rate set by the Natural Gas Petroleum Act, which could be in excess of three dollars per million Btu. This is equivalent to $0 to $3.00+ per thousand cubic feet. The of] companies must spend money reinjecting this marketless excess gas -- although a small portion of the gas fs used to generate electrical power, provide space heat and power TAPS pump stations. Each $1.00 per million Btu In gas price at the wellhead would add $1 million to the present worth of the LNG alternatives [In Table 1-1. This impact of gas prices on the present worth of LNG costs is shown graphically In the Summary, preceding page 1-7. In our estimation, a "best estimate" cost of natural gas should be determined; the rate may be closer to zero rather than $3.00 per million Btu's considering the present market for the gas and recent estimates for transporting the gas to regional or lower 48 markets. Price disputes are presently being litigated In federal court. The dilemma is that a more accurate calculation of user costs to Nuiqsut residents Is not possible without a representative natural gas price at the wellhead. As an example of a local market for gas, consider the case of Tyonek. As there was no market for the gas outside of southcentral Alaska, the gas in Tyonek was sold to Chugach Electric Association for a price which started slightly over 15¢ per million Btu and escalated at roughly 1¢ each 5 years. If 20¢ gas were available to Nuiqsut, %t would subtract $200,000 or so from the project net benefits. Do you agree In principle that the present value of natural gas at the wellhead should be equal to, or less than, $1.00 per millfon Btu's for the "best estimate" case? What is the probability that royalty natural gas would be available for this pilot project? When could it be made available and at what price? Can the potential benefits to be derived for residents of Nuiqsut, other North Slope communities, and possibly other areas of remote Alaska be considered more important than a potential rise [In the In-situ value of this tiny amount of natural gas? The latter benefit depends not only on future oi! price increases and a commensurate increase In the marketability of natural gas, but also the economics of developing a multi-billion dollar transportation system to the lower 48. The Nuiqsut project is a pilot project of small. scale compared to major gas line proposals such as ANGST and TAGS. The total present worth of the costs of the best LNG alternative (#4) are $13.6 million, with an additional $3.7 million State of Alaska grant for the storage and distri- butlon system at Nuiqsut, reprogramming of $.7 million by the North Slope Borough to replace diesel-fired electrical generation with LNG-based electrical generation, and $1 million for every $1.00 per million Btu's in gas feedstock costs. Considering the fact that this is a demonstration project, are there any State severance, sales, or property taxes that would be levied on the privately owned portions of the LNG plant and storage and distribution systems, or the product Itself? Each year of delay In the project has a substantial cost in diesel fuel consumption. Lowering these costs for Nuiqsut Cand possibly other villages as well) depends on the commitment of resources to the LNG project. Decisions Include reprogramming of funds to purchase additional diesel generators and_= storage facilities for Nuiqsut. This involves requests for funding by the North Slope Borough. Your In addition, the State appropriations process for the distribution system and the permitting process have substantial lead time requirements once a favorable decision is reached to proceed with the best LNG case, #4. Does the Administration support financing the LNG distribution system at Nulqsut for this pftlot project with a grant of $3.7 million? Pages 14-2 through 14-4 briefly state the financing options used in the draft feasibility study. Is this approach agreeable? Thirdly, will funding be available for preliminary engineering design and obtaining required permits from this year's budget? Input will be used to produce a concise final report, Executive Summary and Financial Package for the Governor's review. We appreciate your Interest In this pilot project. cc: Governor Bill Sheffield, Office of the Governor Mr. Dick Lyon, Commissioner, DCED Mr. Peter McDowell, Director, OMB Mr. Emil Notti, Commissioner, DCRA Ms. Esther Wunnicke, Commissioner, DNR Mr. Jack Roderick, Director; Office of Energy, DCED Mr. George Matz, Special Assistant, Commissioner Lyon's Office, DCED Official Business Alaska State Legislature Senate Pouch V State Capitol Juneau, Alaska 99811 March 22, 1984 To Whom It May Concern: We have reviewed the Liquified Natural Gas Project Proposal as developed by Polarconsult, Inc. working with the City of Nuiqsut, Utkeagvik Inupiat Corporation of Barrow and Geosource, Inc. Our conclusions are that the project as- sumptions and forecast are reasonable which makes the project economically viable. We wholeheartedly endorse and support the LNG Project for Nuiqsut because of the potential relief the project can bring to the residents in terms of significantly lower electric rates which currently are the highest in the state. We will provide whatever assistance which may be needed to see the project become a reality. Sincerely, Albert P. Adams "ran eFguson Alaska State Representative Alaska State Senator B-H19LH of t feo (nV im s !, = Petpok BILL SHEFFIELD, GOVERNOR 15 i Wabi JuMU ib Yu DEPARTMENT OF COMMERCE & / POUCH D ECONOMIC DEVELOPMENT PHONE: (907) 62001 OFFICE OF ENERGY April 10, 1984 RECEIVED jo Polarconsult APR 16 1984 2735 E. Tudor Road, Ste. 201 P Anchorage, Alaska 99507 olarconsult Alaska, inc. Attention Mark A. Newell, President Gentlemen: We have received a copy of the March 22, 1984 letter signed by Repre- sentative Albert P. Adams and Senator Frank R. Ferguson regarding the liquefied natural gas project proposal for the City of Nuiqsut. We wish to cooperate as fully as possible by supplying you with all available data and, to this end, have furnished you with the March 7 analyses of the project by the Division of Oil and Gas, Department of Natural Resources, and the April 6 comments by the Division of Finance and Economics, Department of Commerce and Economic Development. We will continue to pass on what data and technical analyses we receive. As we have indicated to you in the past, the economic viability of the project will, in large part, depend upon the cost of the available natural gas. In this regard, it would seem appropriate to investigate further the availability and cost of using the Gubic gas field for this project. Sincerely, [.~ . Jack Roderick Director JR/wfs1/1 41084b cc: Bill Sheffield, Governor Representative Albert P. Adams Senator Frank R. Ferguson COMMENTS ON "A FEASIBILITY STUDY FOR THE NUIQSUT LNG," (Division of Finance & Economics ) Population is expected to increase from 305 to 607 by the year 2005. This is an increase of 3.5%/year, and may be optimistic given the lack of an economic base. How would the economics of the project change if population growth was a more modest 20%/ year? Summary Table 1-1 is not clear. First, the table compares the present value cost for LNG project of different size. Are the costs shown for equal production or production based on capacity? Second, the LNG alternatives don't include fuel costs. Inclusion could substantially alter the conclusions and recommendations. Third, the entire study depends on the assumption that fuel oil prices will increase at 8%/year. How would the conclusions of this study be altered if prices rose at 6%? On page 1-4, the report indicates that LNG would supply only 53% of the village's energy needs during certain periods. Are the costs of supplying diesel to make up the difference included in the costs for the LNG alternative? What problems in retrofitting occur if LNG can only be used part of the year? The present worth of gas quoted on pages 1-7 doesn't seem to correspond to the graph on the previous page. For example, at $3.00/MCF, the text quotes $4.1 million. The graph seems to be about $4.8 million. Of particular concern is whether all alternatives supplied the same amount of fuel. Other concerns include the exclusion of gas costs and high escalation rate for oil. The spread sheets in Appendix B are also not clear. The text indicates the numbers represent comparisons with diesel, yet the spreadsheet numbers don't seem to confirm this. RS/kkk/C20 4684a While the feasibility study for the Nuiqsut LNG project by Polarconsult addresses the major factors affecting the project's viability, the narrative Teaves some doubt as to how certain highly important variables have been handled. The first area of interpretive difficulty is found on page 1-7, paragraph 2. The opening statement addresses the assumed inflation rate. The term "basic interest rate" should not appear in this sentence since it is not the topic of discussion. The next sentence refers to a 3% "real value of money". This seems to refer to a real (inflation adjusted) interest rate. This is apparently how the 9% discount factor is derived. From that point on, however, it is not clear as to whether a 9% (6% inflation rate plus 3% real interest rate) discount rate is being applied to the overall project or if 13% (6% inflation rate plus 7% real interest rate) is the effective discount rate. This needs to be clarified and justified. It should at least be aknowledged that the long term interest rate, relative to long term inflation expectations, is at a historically high level. Hopefully, money borrowed at 13% is not being discounted at 9% in the report. The opportunity cost to the State for making a grant must be measured by the interest foregone (i.e. 13%). A comparison of Case #4, the optimum case, and Case #9, which differs from Case #4 only in its financing method, reveals a difference in the total present value outlay of about 5.5 million dollars. This presumably represents government assistance. If the present value of government contributions has been discounted at 9%, then the value of the government's outlay must have been understated if a 13% rate of interest is indeed foregone. Some sensitivity analysis along this line is in order. For instance, if the cost of storage at Nuiqsut is being discounted at 9% and the cost of transportation carries a 13% discount rate, the economics will naturally favor greater storage for reduced transportation, due to the different interest rates attached to those activities. The tradeoff analysis between these items must be put on equal footing, either 9% vs. 9% or 13% vs. 13%. Otherwise, the effect is to shift costs to the 9% (government grant) category and away from the 13% (private loan) category. From the State's point of view, an economic analysis of the project with and without government assistance would be most useful. Case #4 without government participation is not found in the report. The nearest approximation of it (Case #9) is understated because of the discount rate and the absence of profits, taxes, and a wellhead price for gas. The approach of determining total project costs but not total revenues is understandable but unusual. It would be helpful if some lower and upper bound revenue approximation were established so that the project could be evaluated in a more conventional manner. At minimum, an attempt to look at the demand response to price should be made. The real rate of price increase for diesel fuel, as provided by the Alaska Power Authority and the Department of Revenue, should be stated numerically, although it can be surmised from the graphs found between pages 12-2 and 12-3. An uncautious reader might conclude from the last paragraph on page 12-2 that diesel prices and transportation costs are being at escalated at the inflation rate and that no real price increases are anticipated. The graphs do, however, dispel] that notion. Among the variables reviewed on page 15-2, items 1, 2, 3, and 6, which are described as downside risks of the project, need further analysis. With ( respect to item 1, how does the project look should excess topping capacity develop on the North Slope? Some effort at projected diesel prices should be made under that scenario. It could easily prove inappropriate to presume f.o.b. MAPCO prices plus transportation to Nuiqsut. The possibility that the oil companies will develop excess LNG capacity of its own (item 2) could also be very harmful to the project. More needs to be said about the liklihood of that event. Of no less importance is the purchase price of the gas, as mentioned in item 3. At what price does the project become inviable and how does the project's economics respond to a sampling of prices within the feasible range? The extent: to which the project's economics depend on oi] company purchases of excess LNG from Nuiqsut is not mentioned in item6. It is not self evident that the sale of interuptable LNG to the oi] companies is mutually beneficial. The oil companies are no less adverse to constucting facilities to utilize an undependable source of LNG than is Nuiqsut. Nobody likes excess capacity. The extent to which excess capacity is disliked is reflected by the substantial discounts given for interuptable power sales throughout the nation. How much can Nuiqsut discount its LNG? In summary, the Polarconsult feasibilty study for the Nuiqsut LNG project explores, in varying detail, most of project's aspects which relate to government participation. Without too much effort, one can extract the costs not traceable to the private sector from the tables shown. However, these costs are unduly imbedded in the calculations and the State must, in its deliberations, confine its attention to a comparison of Case #4 to Case #4 without gcvernment assistance, and to the most likely diesel fuel alternative with the same government advantage given to Case #4. As mentioned, a uniform discount rate must be applied to convert the above scenarios to comparable terms. vd A TEUEIVEU Xuubpik Cmte JUN 4 1984 GENERAL DELIVERY Polarconsult Alaska, inc NuIasuT, ALASKA May 25,1984 Polar Consult Alaska Inc. 2735 East Tudor Road,Suite 201 Anchorage,Alaska 99507 ATTENTION: Mark Newall-President Dear Mark, First of all,I would like to thank you and your staff of your warm reception we've received during our meeting with you. The people of Nuiqsut and Kuukpik Corporation are very enthusiastic and are fully supportive of the upcoming Nuigqsut LNG fuel porject. Kuukpik Corporation is fully able to manage and service the local gas storage and distribution systems. This project will have a direct affect on every individual of Nuigsut,not only by creating jobs but by providing a cheap,clean,easy to use fuel in every home in the village. The burden to the individual to pick-up and transport their own fuel will be greatly eliminated, and the economy of the village will be improved. The LNG Fuel Project will make the village that we are soproud of.The show place of Alaskan village. Kuukpik Corporation and its shareholders are most appreciative that Geosource/Ukpeagvik,Inc. and Polar Consult Alaska,Inc. chose village of Nuiqsut as the site of their pilot project. Let us work together to make this project successful to all parties involve. Again ,Thank you for your hospitality. Sincerely, Doe Mess & e Nukapigak/President cc; Files BILL SHEFFIELD, GOVERNOR DEPARTMENT OF COMMERCE & POUCH D JUNEAU, ALASKA 99811-0800 ECONOMIC DEVELOPMENT : PHONE: (907) 465-2591 OFFICE OF ENERGY May 30, 1984 Mr. Mark A. Newell, President Polarconsult Alaska, Inc. Geosource/Ukpeagvik, Inc. 9800 Town Park Drive P.0. Box 36827 Houston, Texas 77036 Dear Mr. Newell: We will be pleased to receive your final Nuiqsut LNG feasi- bility study and executive summary showing your new financial projections. We note that part of the private sector equity may include AIDA involvement, and that you are seeking a grant from the State to Nuiqsut of several million dollars to construct the gas distri- bution system and storage facilities at the village. It is not clear from your letter of May 17, 1984 whether you require the State's royalty gas at Kuparuk Industrial Center (KIC), or whether Piquniq Management Corporation has been guaranteed Sohio gas at KIC at $0.25/mcf. Please let us know when your final report is available, and the Administration will promptly respond. Sincerely, Richard A. Lyon Commissioner RAL/mst0085m 053084b cc: Esther Wunnicke, Commissioner, Department of Natural Resources Emil Notti, Commissioner, Department of Community and Regional Affairs Sam McDaniel, Alaska Area ilanager, Geosource/Ukpeagvik, Inc. 38-H19LH polarconsuli alaska, inc. ENGINEERS ¢ ARCHITECTS * ENERGY CONSULTANTS June 14, 1984 Commissioner Richard A. Lyon Office of Energy Department of Commerce & Economic Development Pouch D Juneau, Alaska 99811-0800 Reference: Nuiqsut LNG Project Dear Mr. Lyon: Thank you for your letter of May 30, 1984. We have enclosed two copies of the "Finance Package for the Nuiqsut LNG Project" for your Information and review. The "Finance Package" includes the text of the "Executive Summary" document which fs at the typesetters presently. The Final Report is complete as well and undergoing a last review before being printed. There are no significant changes in it relative to the draft copy your office has reviewed in detail. All of the comments made by your staff have been considered and incorporated where appropriate. To specifically answer your question on source of supply for this project: To date no firm agreements have been reached and only concepts have been discussed. Regarding gas at K.I.C. there is a lot of uncertainty surrounding the private sector gas supply and who ultimately the project will be dealing with. Speaking as Project Manager for the study, I would certainly not close the door to the possibility of using State Royalty gas, in fact I would think it to be very much in keeping with state policy to offer its gas for sale at an agreeable price. We have enumerated these reasons in our letter to the Governor which is attached. 2735 EAST TUDOR ROAD ¢ SUITE 201 ® ANCHORAGE, ALASKA 99507 ® PHONE (907) 561-1933 © TELEX: 26708 PCA AHG Commisstoner Richard A. Lyon June 14, 1984 Page 2 The project appears technically and financially sound based on the criteria we've been given. It has the support of the local people and the area legislatures. How would you advise the private sector participants to proceed from this point forward? Thank you for your time and energy spent helping this project to date. Sincerely, POLARCONSULT ALASKA, INC. Nal. by / Mark Newell President /jkb enclosure cc: Bill Sheffield, Governor George Ahmaogak, UIC Esther Wunnicke, DNR Emil Notti, CRA Sam McDaniel, Geosource/Ukpeagvik oe a > Loaoils 5 oa polarconsuil alaska, inc. ENGINEERS ¢ ARCHITECTS ¢ ENERGY CONSULTANTS June 14, 1984 Governor Bill Sheffield Office of the Governor Pouch D Juneau, Alaska 99811 Reference: Nuiqsut LNG Project Dear Governor Sheffield: Attached is a copy of the "Finance Package" for the Nuiqsut LNG Project. With this "Package" is the text of the Executive Summary Cin Section B) which answers all of your questions to date. We would like to highlight for you a few of the elements of this project which make it worthy of your support. The benefits outlined on page C - 13 revolve around the use of an indigenous resource to provide a permanent solution to the energy problems [In Nuiqsut. Perhaps the most telling aspect of this project which locks in its success is the high degree of local involvement. Not only is the responsibility for the operation, maintenance and ownership local but 71% of the user fees stays in the North Slope Borough, with only 12% going out of state for hardware. The balance of user fees is for financing - which under an investor funded scenario or AIDA loan would also stay in-state. The breakdown of private vs. public funding as assumed in this report is as follows: STATE PRIVATE $4,024,000 Storage/Distribution $4,260,000 at KIC at Nuiqsut NSB +1,618,000 for transport Cincludes $1 million + 674,000 generators and tank for rolligon) $4,698,000 TOTAL - GOVERNMENT $5,878,000 TOTAL - PRIVATE 2735 EAST TUDOR ROAD ® SUITE 201 ® ANCHORAGE, ALASKA 99507 ® PHONE (907) 561-1933 ® TELEX: 26708 PCA AHG Governor Bill Sheffield June 14, 1984 Page 2 The pilot/demonstration nature of this project with its high level of private sector Involvement insures that the application of this technology to other villages will happen without further state involvement. The only portton of this project with any risk associated with it is the operation of the liquefier. This is to be owned by the private sector and a back-up supply ts available to be flown/ trucked In from Kenai. The project appears technically and flnancially sound based on the criteria we've been given. It has the support of the local people and the area legislatures. How would you advise the private sector participants to proceed from this point forward? We thank you for the support you and your commissfioners have given the project to date and look forward to meeting with you to discuss it further. Sincerely, POLARCONSULT ALASKA, INC. Nak Ve] Mark A. Newell President /jkb cc: Eugene Brower, Mayor, NSB George Ahmaogak, UIC Arnold Brower, Sr., UIC Bob Whisenhunt, UIC Sam McDaniel, Geosource Dick Lyon, Commissioner CED Esther Wunnicke, Commissioner, DNR Emil Notti, Commisstoner, CRA Official Business Alaska State Legislature Senate Pouch V State Capitol Juneau, Alaska 99811 June 28, 1984 Mark Newell, President Polarconsult Alaska, Inc. 2735 East Tudor Road, Suite 201 Anchorage, AK 99507 Dear Mr. Newell: Thank you for your letter of June 14, 1984 concerning the Nuiqsut LNG Project. Representative Al Adams and I are still in support of the project even with the new cost estimates. However, in light of the new cost figures, I believe it is incumbent upon you or U.I.C. to secure an LNG sales contract with the supplier as well as a power purchase agreement with the North Slope Borough Utilities to purchase the generated power before proceeding with the funding. This is the same requirement the legislature has placed on the Susitna River project as well as future energy projects. As we found out with the "Four Dam Pool," building energy projects without power purchase agreements, in hand, prior to construction creates enormous downstream problems. Once the LNG sales and power purchase agreements have been consummated, please let me know and we can proceed with state funding. The Nuiqsut LNG Project holds great promise to meet the energy needs of the North Slope communities and I look forward to assisting you in this worthwhile endeavor. If you have any questions, please let me know. Sincerely, wy # ‘ a eee ee Frank R. Ferguson Alaska State Senator cc: Governor Bill Sheffield Mayor Eugene Brower, North Slope Borough Mayor Sam Taalak, Nuiqsut George Ahmaogak, U.I.C. Joe Nukapigak, Kuukpik Larry Crawford, Alaska Power Authority Jack Roderick, Dept. of Commerce & Economic Development