InIn--State Natural Gas State Natural Gas

& Value Added & Value Added

ManufacturingManufacturing

Harold Heinze (ANGDA) & Bill Popp (AEDC)

Mayor Sullivan’s Energy Task ForceOctober 6, 2010 –Anchorage

North Slope North Slope Gas To MarketGas To MarketGas To MarketGas To Market

Projects For Delivery of North Projects For Delivery of North

Slope Natural Gas Inside AlaskaSlope Natural Gas Inside Alaska

� Spur Gas Pipeline Off Large Inter-State Gasline

� TransCanada & ExxonMobil - APP

� ConocoPhillips & BP – Denali

� Bullet Line -- NS To Cook InletBullet Line -- NS To Cook Inlet

� ASAP – Alaska Stand Alone Gas Pipeline Project

� Alaska Gasline Development Corp (AGDC) & HB 369

� All-Alaska Gas Pipeline -- NS To Valdez

� Alaska Gasline Port Authority (AGPA)

� Fairbanks Pipeline Company (FPC) -- NS To Fox

� Trucking LNG and/or Propane From The NS

Large Diameter Large Diameter Gas PipelineGas Pipeline

•48-inch diameter

•X80 grade steel

•734 miles to border

•6 compressor stations

•4.5 BCFPD capacity

•Max 6 BCFPD

•Operates at 2500 psi

Denali–Alaska Gas Pipeline & Alaska Pipeline Project Have Similar Designs

$35 B Price Tag

The “Open Season” ProcessThe “Open Season” Process

� Sealed bid auction of volumetric shipping capacity in gas pipeline

� Tariff to delivery points known - cost estimate

� Shipper makes a firm multi-year commitment in a “ship or pay” contracta “ship or pay” contract

� Creditworthiness of shippers is essential since committed capacity is the basis of design

� APP closed 07/30/10 & Denali closed 10/04/10

� Results of process are public & regulators hear complaints before certification of the project

30 % Discount on Shipping Rates30 % Discount on Shipping Rates

“Negotiated Rates” Not Available

In Future Offerings

InIn--State Natural Gas DemandState Natural Gas Demand

� Cook Inlet

� Electric Power Generation = 100 mmscfpd

� Home Heating (ENSTAR) = 100 mmscfpd average

� Kenai LNG Plant Export = mmscfpd

� Potential Gas Value-Added Manufacturing = ??� Potential Gas Value-Added Manufacturing = ??

� Interior

� Golden Valley Electric = 20 mmscfpd

� FNG & Doyon Military Utilities = 5 mmscfpd

� Flint Hills Oil Refinery = 25 mmscfpd

� Mining Operations = mmscfpd

ANGDA Spur Line ProjectANGDA Spur Line Project

Spur LineSpur Line

� 300 miles of 20- to 24-inch high pressure (2500 psi) X-80 pipeline connecting Delta Junction to Palmer

� Conditional right-of-way for Glennallen to Palmer (150 miles across State land) issued to ANGDA in 2008

� Natural Gas Supply Company (NGSC) is a gas supply � Natural Gas Supply Company (NGSC) is a gas supply cooperative of Homer to Fairbanks electric utilities and ANGDA-aggregated short and longer term gas needs

� ANGDA bid on behalf of NGSC members for capacity in APP open season that closed on July 30, 2010, and Denali open season that closed on Oct 4

Bullet Line Direct Bullet Line Direct To Cook InletTo Cook Inlet

•800 miles of 24-inch X80 pipe

•Includes CO2 removal & NGL handling facilities

•Cost estimate $6B to $11B

•HB 369 set up Alaska Gasline•HB 369 set up Alaska GaslineDevelopment Corp (AHFC)

•EIS for ASAP project underway

•Project execution plan to Legislature by July 2011

•GTL, LNG, & NGL projects being studied separately

Bullet Line To Cook InletBullet Line To Cook Inlet

� 800 miles of 24-inch X-80 pipeline direct from Prudhoe Bay to ENSTAR 20-inch line around Cook Inlet

� Includes CO2 removal and potential NGL handling facilities

� HB 369 formed Alaska Gasline Development Corp (AGDC) as a subsidiary of AHFC to continue work of the (AGDC) as a subsidiary of AHFC to continue work of the Alaska Stand Alone Pipeline (ASAP)

� Screening cost estimates completed ($6 B to $11 B) and EIS document in the drafting phase

� Project execution plan to Legislature by July 1, 2011

� RFP on GTL awarded to Hatch with LNG RFP just issued

Port Authority Port Authority –– Valdez LNGValdez LNG

� 800 miles of large-diameter gas pipeline from NS to Valdez paralleling and in proximity to TAPS oil line

� All-Alaska, All-American gasline based on “updated” Yukon Pacific right-of-way alignment, Bechtel design, completed EIS, and Export Licensecompleted EIS, and Export License

� Major sponsors are Fairbanks & Valdez supported by Bechtel, Sempra, Mitsubishi & Mitsui

� Review of Valdez LNG facility design is underway

� Pipeline to Valdez included in current TransCanada AGIA work (APP)

Interior Interior GaslineGasline From NSFrom NS

� Energia Cura announced a non-binding open season in late August 2010, to close on October 1, 2010

� Fairbanks Pipeline Company project is a 10-inch pipeline from Prudhoe Bay to Fox

� Secondary transmission network of 5-inch high-� Secondary transmission network of 5-inch high-pressure, steel-coiled flow lines emanating from Fox terminus

� Currently seeking nominations of volume & delivery locations along the corridor extending to Eielson AFB

� Few details released in support of $500 million cost

Trucking LNG From North SlopeTrucking LNG From North Slope

� In early 2008 Fairbanks Natural Gas (FNG) proposed constructing a 25 mmscfpd LNG plant at Prudhoe Bay, with the LNG to be trucked to Fairbanks utilities with Golden Valley Electric (GVEA) as anchor gas user

� Interior Alaska uses fuel oil and distillate at a comparative cost over $20/mmbtucomparative cost over $20/mmbtu

� ExxonMobil will be providing the feed gas under contract (not publicly filed)

� The Alaska Gasline Port Authority (AGPA) has made a deal to acquire FNG for $64 million and is currently arranging a $250 million financing for LNG plant, storage, & trucks

InIn--State Gas Pipeline ProjectsState Gas Pipeline Projects

Cost Flowrate Tariff

($ million) (mmscfpd) ($/mmbtu)

Mainline In Alaska 22,600 4,500 1.88

Spur Line

Delta Junction 1,500 250 3.50Glennallen 750 250 1.75

Bullet Line 6,400 250 14.70Bullet Line 6,400 250 14.70

Mainline To Valdez

Pipe To Valdez 22,300 3,000 2.56LNG Plant 10,000 2,750

NS To Fairbanks 500 33 9.00Truck LNG 250 25 6.00

Mainline to Alberta 36,000 4,500 2.78

Includes Gas Conditioning --- US $ in 2009

Project Comparison OverviewProject Comparison Overview

� The “gas conditioning” facility to reduce CO2 to meet pipeline specifications is very expensive (40- to 50-% of the total project cost) and sets the critical path timeline

� Mainline proposals have very low tariffs because of economies of scale and sponsors offering incentives to anchor shippers (approximately 30% discount)

NS gas is rich in NGL’s and offer a major In-State opportunity � NS gas is rich in NGL’s and offer a major In-State opportunity for manufacturing� C2 Ethane 7.2% 200,000 bpd

� C3 Propane 3.7% 100,000 bpd

� C4 Butane 0.7% 25,000 bpd

� Gas value-added manufacturing plants cost several $B and the investment decision would have to be made simultaneous to a gas supply pipeline sanction decision

InIn--State Gas Delivery CostsState Gas Delivery Costs

Fairbanks Valdez Cook Inlet

($/mmbtu) ($/mmbtu) ($/mmbtu)

Mainline To Alberta 1.65

Spur Off At Delta Junction 5.15 5.15

Cost of Service To Deliver NS Gas

Bullet Line To Cook Inlet 12.00 14.70 Mainline To Valdez LNG 2.40 2.58

Spur Off At Glennallen 4.15 Small Line - NS To Fairbanks 9.00 Truck LNG From NS 6.00

Tariff From NS to Alberta = $ 2.78 /mmbtu

Includes Gas Conditioning --- US $ in 2009

Project Links on the WebProject Links on the Web

www.angda.state.ak.us

Denali – the Alaska Gas Pipelinewww.denalipipeline.com

Alaska Pipeline Projectwww.thealaskapipelineproject.com

Fairbanks Natural Gaswww.fngas.com

Alaska Gasline Development Corporationwww.gasline.us

Alaska Gasline Port Authoritywww.allalaskagasline.com

Energia Curawww.energiacura.com

North Slope Propane DistributionNorth Slope Propane Distribution

� ANGDA has proposed the construction of a propane separation facility and wholesale propane outlet on the North Slope

� A 2,000 bpd (propane) facility to process Prudhoe Bay residual re-injection gas is estimated to cost in excess of $200 million$200 million

� Propane distribution from the North Slope would involve trucking & barging (including use of iso-containers) to service rural, river, and maritime communities and industrial plants

� Prudhoe Bay Unit owners are considering modifications to existing facilities for additional propane recovery

ISO-Container Propane Tank

LPG’s & NGL’s in North Slope PipelineLPG’s & NGL’s in North Slope Pipeline

North Slope Gas Pipeline Flow --- 4.5 BCFPD

ComponentMole

PercentBbls/Day

Thousand Tonnes Per

Year

Composition Based on ANGTS – Alaska ROW Application (June 1, 2004) – Page 9 of 34

C2 Ethane 7.23 206,000 4,250

C3 Propane 3.76 110,250 3,250

C4 Butane 0.76 26,250 900

C5+ Pentanes 0.03 1,250 45

Dry Gas(Methane)

NH3/Urea Plant

LNG Plant

Enstar LDC

Export

In-State Use

Alaska Gas & NGL Potential UsesAlaska Gas & NGL Potential Uses

GTL Plant

Ethane

Propane

Butanes

Ethylene Plant

Propane Tank Farm

Butane Tank Farm

Export

In-State Use

Export

Polyethylene Plants

Value Added ManufacturingValue Added ManufacturingAcceptable Gas Prices in Constant $

Maxim

um Gas Price $/M

MBtu

10

9

8

7

JapanLNG

Maxim

um Gas Price $/M

MBtu

Quantity MMcfd

6

5

4

3

2

1

0 100 200 300 400 500 600 700 800 900 1000

LPG (Propane)

WestCoastLNG

PetroChem

(Ethane)

GTL

Market Prices in South Central Alaska (2015-2035)

Fertilizer

GTL to Japan

Source Separation Product Use

Spur Pipelinewith

North SlopeNatural Gas

NGL Separator Plant :

1) “Raw” stream

2) NGL 2) Methane

3) De-ethanizer

4) De-propaneizer

Dry Gas(Methane)

NH3/Urea Plant

LNG Plant

Enstar Pipeline

Export

In-State Use

ExportPolyethylene

Alaska Gas & NGL Potential UsesAlaska Gas & NGL Potential Uses

GTL Plant?

4) De-propaneizer

5) De-butaninzer

Ethane

Propane

Butanes

Pentane

Ethylene Plant

Propane Tank Farm

Butane Tank Farm

Pentane Tank Farm

Export

In-State Use

Export

Local Refinery

Polyethylene (& MEG) Plants

Petrochemical Critical Success FactorsPetrochemical Critical Success Factors

Every Petrochemical Project Needs:

� Low Cost of Production

� Driven by availability & cost of feedstocks & energy

� Low Logistics Costs for RM’s & Finished Products

� Proximity to feedstocks and end use markets

� Infrastructure availability and quality� Infrastructure availability and quality

� Low Capital Investment Versus Other Locations

� includes site & logistics capital

� Channel to Market (Commercial Strengths)

� Good, Stable Investment Climate

� Taxes, cycle timing, regulations, incentives, etc.

Alaskan Natural Gas & Ethane PricesAlaskan Natural Gas & Ethane Prices� Natural Gas price in Alberta is

usually lower than the Chicago price, based on the cost of pipeline shipment, since Alberta is long on gas, (as is the US Gulf Coast).

� North Slope gas and ethane will be priced based on their netback after pipeline shipments to Alberta while Cook Inlet prices will be the North Slope price plus tariff.

� Ethane prices in Alberta are based on its BTU value in its

Site comparison Table here

North Slope Prices:NG = $5.51Ethane = $6.01

Alberta Prices:NG = $7.06Ethane = $7.56

Cook Inlet Prices:NG = $6.81Ethane = $7.31

Differential to USGCNG = (- $0.92)

Differential to USGCNG = (- $2.57)Ethane = (-$5.83)

Differential vs USGCNG = (- $1.17)Ethane = (-$4.53)based on its BTU value in its

only alternative use, as natural gas shipped to the US.

� However, US ethane has to compete against crude oil based cracker feedstocks on the USGC, so its price is higher than its BTU value there when crude oil is high relative to gas (as it is now).

� Ethane at Cook Inlet will have a greater discount to the USGC than natural gas will.

Note: The 2018 prices and differentials to the USGC shown here are in Constant 2009 $/ MMBTU.

USGC Prices:NG = $7.98Ethane = $11.84

Chicago Price:NG = $7.92

NG Diff to USGC= (- $0.06)

NG = (- $0.92)Ethane = (-$4.28)

Ethane = (-$4.53)

Possible Plant Sites at Cook InletPossible Plant Sites at Cook Inlet

� Port MacKenzie near Anchorage (Greenfield Site)

� Fire Island near Anchorage (Greenfield Site)

� Tyonek (Greenfield Site)

� Nikiski on the Kenai Peninsula (Brownfield Site)

All except Fire Island are on or within a few miles of the existing natural gas pipeline infrastructure.

Port Port MacKenzieMacKenzie Site AttributesSite Attributes� Port MacKenzie is opposite

the port of Anchorage on Cook Inlet, with its own deep water port and surface road connections to Anchorage and the communities to the north of it.

� A rail spur is to be built in the next couple of years, next couple of years, connecting it to the container ship port at Anchorage and the rail barge port at Whittier, which provides weekly rail service to the US West coast.

• The site has good access to power, and is located at a central location within the natural gas pipeline grid, although the pipeline is 9 mile from the plant site.

• An improved surface road is also being built into the site, which is within commuting distance of the suburban communities north of Anchorage, where large numbers of well trained former military and oil industry workers live.

Nikiski Site AttributesNikiski Site AttributesNikiski is a brownfield site, with

several existing gas fed industrial plants:

� LNG export plant built in 1969 that is still operating, with its licensed recently renewed through 2011.

� Agrium Ammonia/Urea plant, built in 1968, which was shut down in 2007 due to lack of down in 2007 due to lack of affordable local natural gas.

� BP Gas to Liquids pilot plant is still in operation.

A Tesoro refinery, built here in 1969, is still the most sophisticated one in Alaska as the others are crude topping facilities. There is also a former Chevron refinery site there, which was closed down years ago.This area was chosen by Dow Chemical for a potential petrochemical plant in the 1980’s, but the land was never purchased by them, and the project died.The site has a cogeneration power plant that doesn’t utilize the steam section.It also has significant natural gas infrastruture and a port facility, with surface roads to Anchorage, but no railroad.

Logistics to Asia & US West CoastLogistics to Asia & US West CoastCook Inlet has advantaged logistics to the US West Coast and Asia due to its location in the middle of the great circle route, with the potential for additional backhaul freight rate reductions to Asia.

>3,000 vessel passages/ year

Channel to Market IssuesChannel to Market Issues

� An Asian company would be considered a domestic supplier in the US market if it has production capacity in Alaska, which could help in marketing to customers and in its dealings with the government.

� An Alaskan plant would not only have duty free access to the entire US market, but would also be able to participate in the North American Free Trade Agreement with in the North American Free Trade Agreement with Canada and Mexico, as well.

� The first mover on petrochemical investment in Alaska will understand the local situation better than latecomers will, and is better positioned for additional future petrochemical and downstream investments.

� Partnering with or buying a US company could facilitate market development activities for an Alaskan plant’s owner (IPIC bought Nova, and SABIC bought GE Plastics).

Investment Climate IssuesInvestment Climate Issues

� Political stability of the US government and tax system.

� A weak dollar could favor a US investment that is based on domestic capital, operating costs and raw materials.

� Environmental permitting can be difficult, but this will be eased somewhat by sharing work done for the pipeline.

� Cycle timing is favorable for manufacturers. The Open � Cycle timing is favorable for manufacturers. The Open Season negotiations are taking place at the bottom of the chemical cycle trough occurring in 2010. Investment in productive assets now is a way to use funds that might be underperforming in financial investments.

� Alaska will be an ally in this process. This is not an acquisition of an existing company, but rather the establishment of a new presence/company in Alaska. Alaska will strongly support that endeavor.