Alaska officials on Friday approved a major expansion of the Point Thomson gas and condensate project east of Prudhoe Bay on Alaska's North Slope, according to Governor Bill Walker.
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Walker said the expansion represents another step in the ultimate development of a large North Slope gas and liquefied natural gas export project being led by the state.
Preliminary planning is now underway on the Point Thomson project, which would expand production of liquid condensates to 50,000 b/d and gas production to 920 MMcf/d from the field, which now produces about 10,000 b/d of condensates and 200 MMcf/d of gas.
Point Thomson owners, mainly operator ExxonMobil and BP, will make a final decision to construct the project in 2019, at the conclusion of planning, engineering and commercial agreements, the companies have said.
The initial objective of the expansion is to increase condensate production and take gas to Prudhoe Bay to help produce more crude oil.
Friday's approval of a new Point Thomson Plan of Development by the state Division of Oil and Gas is a key step forward for the project, the governor said in a statement.
The Plan of Development is basically a work commitment by the companies and includes the expansion project planning.
"The preferred future development for the Point Thomson resource is through a major gas sales project, and ExxonMobil remains committed to making our natural gas available to the state's LNG project through bilateral negotiations of mutually agreed terms," ExxonMobil said in a statement.
Until a North Slope gas project is built, however, the Point Thomson expansion will allow the gas and condensate to be produced.
The expanded gas production would flow to Prudhoe Bay through a proposed 60-mile new gas pipeline and would be injected in that field, pending approval of the Prudhoe owners, into the underground reservoir for pressure maintenance as an aid to crude oil production.
A 12-inch oil pipeline already connects Point Thomson with Prudhoe to carry condensates and has ample capacity to handle the increased liquids production.
Meanwhile, the infrastructure for the project would also support Point Thomson gas production for a major Alaska gas pipeline and LNG export project, if that is built, and is therefore seen as critical infrastructure needed to support the planned Alaska LNG Project, Walker said.
"Our approval of the Point Thomson to Prudhoe Bay pipeline plan adds to the momentum of the Alaska LNG Project and demonstrates the commitment of the Point Thomson working interest owners to move gas from Point Thomson into Alaska Gasline Development Corp.'s [proposed] 800-mile pipeline," Walker said in the statement.
No cost estimates for the Point Thomson expansion have been given, but the project is expected to cost several billion dollars.
"The expansion project also helps build a stronger Alaska because it will increase oil production out of Point Thomson by 50,000 barrels per day," the governor said.
This will result in more oil royalty and production tax payments to the state treasury.
Alaska's finances have been hit hard by declines in oil revenues resulting from the 2015 drop in crude oil prices.
Earlier this year, the state withheld approval of the Plan of Development because ExxonMobil, the Point Thomson operator, had conditioned planning work on successful commercial negotiations with the Prudhoe owners on the gas injection.
The state objected to that and wanted a firm commitment on the project planning. ExxonMobil came back with the approvals for planning through 2017, which satisfied the state oil and gas division, according to the letter of approval by Chantal Walsh, the director.
If it proceeds, the expansion of gas production and the new gas pipeline will solve a key technical problem that has plagued Point Thomson.
The project is a gas cycling project that currently involves production of liquids-rich gas, stripping off the condensates and injecting the lean gas back underground.
The problem is that the Point Thomson reservoir is under high pressure, at about 10,000 psi, which means produced gas now injected back underground must be done at a pressure greater than 10,000 psi.
That is at the edge of leading compression technology, and the two compressors built for Point Thomson, which are the first of their kind, have experienced technical problems.
Those have limited the present injection of gas and prevented ExxonMobil from reaching its goal of an average of 10,000 b/d of liquids until recently.
The compressor problems are being worked out and liquids production has largely met the goal in November and December, according to industry and state government sources.
With the expansion project, however, a gas pipeline will be available, so there is no longer a need to inject the gas underground. Gas production can be expanded along with liquid condensate production.
Meanwhile, the commercial issues over the Prudhoe Bay gas injection arise because while ExxonMobil and BP, the majority owners of Point Thomson, are also owners at Prudhoe Bay, ConocoPhillips is a Prudhoe owner with no share of Point Thomson.
That means ConocoPhillips must be satisfied that its interests in Prudhoe are not diminished in some way by the gas injection.
The Alaska Oil and Gas Conservation Commission, the state's petroleum regulatory commission, must also give approval to the gas injection as well as the plan to increase liquids and gas production at Point Thomson.