An Anchorage-based development company says there are other ways to market North Slope natural gas rather than put it in a pipe and ship it to the Lower 48 or to a liquefied natural gas plant in Valdez.

If U.S. markets are too saturated with natural gas and world markets have a surplus of LNG, Alaska gas could instead be converted to high-quality liquid products like ultra-clean diesel or petrochemicals.

The state could receive several times the value for its royalties than it would if it were sold just as natural gas, says Richard Peterson, president of Alaska Natural Gas-to-Liquids Co., an organization formed by Peterson and several partners in 1998 to pursue such a project.

Peterson has years of experience in the natural gas business. He presented his ideas to the Alaska Support Industry Alliance in Anchorage Oct. 22.

Peterson said a gas-to-liquids plant built in Southcentral Alaska could provide the much needed large industrial customer for a bullet line pipe built from the North Slope to Southcentral, a fallback plan the state is now investigating in case a big pipeline is delayed.

It would help get North Slope gas to Southcentral Alaska even if the big pipeline is built because large industrial customers are needed even for a spur pipeline built to Southcentral off the big pipe.

Peterson said a bullet-line would be unaffordable for consumers to pay for without a major new industrial customer, and large state subsidies would be needed. The same may be true for a spur line.

A gas-to-liquids plant would eliminate the need for state subsidies for either pipeline, he said.

That caught the attention of Rep. Mark Neuman, R-Big Lake, co-chair of the House Resources Committee. Neuman said he is familiar with Peterson's work and believes a GTL project could help bring North Slope gas to Southcentral Alaska.

The project doesn't compete with the big gas pipeline because it would be a customer for gas delivered through that system from the North Slope to at least Fairbanks or even for new Cook Inlet gas production if large discoveries were made in the Southcentral region.

Peterson's company is working to attract a major company with commercial experience with GTL. South African energy company Sasol and Shell are leading candidates, he said.

Sasol and several other companies are interested in prospects for an Alaska bullet line and GTL plant, but are uncertain as to the state's position on major value-added industries, Peterson told the Alliance.

This is Peterson's biggest obstacle for now.

"The perception in many circles is that when it comes to gas, Alaska supports only a pipeline to the Lower 48 or an LNG project in Valdez, and is not open to other ideas," he said.

That perception may be incorrect, and state officials need to make explicit statements that Alaska is "open for business" for other approaches, particularly ones that add value to the state's raw resources and create jobs, he said.

A large gas-to-liquids plant manufacturing 70,000 barrels a day of liquid products would cost several billion dollars to build and could employ several hundred people. A plant could be located in Cook Inlet, perhaps in Nikiski.

But Peterson's base case for his project is Port Mackenzie in the Matanuska-Susitna Borough, because that location ties in with bullet line studies the state now has underway.

One of the criticisms of gas-to-liquids plant is that the Fischer-Tropsch process is inefficient because it consumes a third of the gas in making liquid products when compared to pipelines and LNG plants, which deliver 80 percent to 90 percent of the gas to customers.

Peterson said this is technically true, but what's important is thermal efficiency: how much of the energy content is used and the value of the products sold in the market.

A large amount of waste heat is given off from that third of the gas used in the process, and if this energy is captured as waste heat for power generation, as would be the case with an Alaska plant, the energy efficiency rises sharply.

Waste heat from an Alaska GTL plant making 70,000 barrels per day of products could generate 300 megawatts of power, Peterson said.

Modern GTL plants being built by Sasol and Shell have total energy efficiencies approaching 90 percent, Peterson said. This is superior even to a modern combined-cycle gas-fired power plant, which achieve about 50 percent thermal efficiency.

Besides, even if a third of the gas is used to make the liquid products that are manufactured, the point is that the products are worth far more in the market than the natural gas consumed to make them.

"In July, diesel was being sold on the West Coast for a price of $15.38 per million Btus (British Thermal Units), compared with the price of natural gas of $3.53 per million Btus," Peterson said.

In other words, the sales price of the product made, the diesel, is more than four times the price of gas consumed in making the diesel.

Another criticism is that the process produces substantial amounts of carbon dioxide.

Again true, Peterson said. However, the Fischer-Tropsch process also requires carbon dioxide to be concentrated into a stream, in a pipe, so that it can be sequestered or used.

That's different than gas used in a turbine for a power plant, for example, where the carbon dioxide goes up the stack and is much more costly, and difficult, to capture.

Most important, however, is that a key advantage of locating a GTL plant in Cook Inlet is that the carbon dioxide can be injected into depleted oil or gas reservoirs in the region, or used in enhanced oil recovery to produce more oil from fields nearing depletion.

There were questions taken during the Oct. 22 Alliance meeting, some of them from employees of major oil companies, about why the big three North Slope producers weren't pursuing gas-to-liquids themselves.

Actually they are, Peterson said, although they have felt so far that a conventional gas pipeline is better for the bulk of North Slope gas. In fact, a GTL plant could help a pipeline, amid the current gas market uncertainties, because the liquid products would sell into a different fuels market, displacing imported oil and not adding to the gas glut in the Lower 48.

Peterson said major companies have varying levels of comfort with the Fischer-Tropsch process.

Because different companies have or are pursuing their own process for Fischer-Tropsch, typically involving the catalysts used, there are patent issues involved that create commercial obstacles for widespread use of Fischer-Tropsch, although these can be overcome.

The three North Slope producers may also have other reasons for being less than enthusiastic about an Alaska GTL plant, Peterson said. All three companies own major conventional crude oil refineries on the West Coast and may see a GTL plant as competing with these, he said.

There are only two major companies, Sasol and Shell, with operating plants and commercially proven Fischer-Tropsch processes, Peterson said. Sasol has operated Fischer-Tropsch plants for decades in South Africa using coal and more recently gas in Qatar.

Shell has substantial gas-to-liquids experience and operates a GTL plant in Malaysia that manufactures ultra-clean diesel and petrochemical feedstocks. The petrochemical feedstock is sold in Asia and some of the diesel is sold to refiners in California who blend it with conventional diesel to meet strict air quality standards.

The U.S. West Coast would be the major market for an Alaska gas-to-liquids plant, Peterson said.

Other companies, like ExxonMobil, have done a lot of research with their own Fischer-Tropsch processes but do not yet have operating Fischer-Tropsch plants. ExxonMobil considered GTL its leading candidate for commercializing North Slope gas in the late 1990s until the company was persuaded by BP and ConocoPhillips to join them in re-examining a conventional pipeline to the Lower 48. The three companies' work on a Lower 48 pipeline resumed in earnest in 2000.

Peterson said he doesn't know what plans North Slope producers may now have for their gas. The Lower 48 energy market is awash in gas from new shale gas production and there is a surplus of LNG on world markets with more plants now coming on line.

In such a changing environment, North Slope producers will not discount any potential market for their gas, including GTL, Peterson said.

"Most people are focused on the big gas line to the Lower 48 or Valdez, but we see a Southcentral GTL program starting the big line today, at least from the North Slope to Fairbanks," he said.

The Denali or the TransCanada/ExxonMobil pipeline groups could work with ANGTL to build a 48-inch line from the North Slope to Fairbanks, "a pre-build if you will, with only one compressor station to move about 1 billion cubic feet of gas per day," Peterson said.

A smaller pipeline would be built to carry the gas from Fairbanks to Southcentral Alaska. That amount of gas would be sufficient for the Interior and Southcentral utility markets and a GTL plant, he said.

"If the gas market in the Lower 48 or an LNG market justifies the big gas line to be built to Alberta or Valdez from Fairbanks down the road, the pipeline company can just add compression to increase capacity on the northern segment from 1 bcf to 4 or 5 bcf," Peterson said.

Tim Bradner is a reporter for the Alaska Journal of Commerce.