Wednesday, August 14, 2013

Alaska Oil| Is the Governor undermining SB 21 …

By Brad Keithly As thoughts begin to turn to the now-certain referendum on SB21 it is important to understand that there is one scenario under which the Governor himself could end up significantly undermining a key argument for maintaining the statute. The scenario relates to the interplay between SB 21 and the budget. Interestingly, the Governor likely has complete control over whether the adverse scenario develops. Unfortunately, current indications are that he is headed down the wrong path. The Reasons Supporting SB 21 On the surface, there are two major arguments supporting SB 21. The first is that it produces greater long term value to Alaskans from oil than ACES, the Continue reading →

Sunday, August 11, 2013

Anchorage Democrat (who supports Sarah Palin's centerpiece legislation to tax private industry and give awzy $500M) calls SB 21 a massive giveaway!

Anchorage Democrat calls SB 21 a massive giveaway, says state stands to lose too much under Gov. Parnell’s new tax regime By Steve Quinn House Rep. Les Gara has never been shy with his opinions, especially when it comes to the longstanding debate over oil taxes and efforts to rewrite the 2007 tax code Alaska’s Clear and Equitable Share, or ACES. Well, with ACES rewritten Gara remains vocal and believes a referendum to overturn Gov. Sean Parnell’s SB 21 not only has merit, but also has a chance of winning at the polls next August. Those supporting the referendum say they collected more than 50,000 signatures, nearly 20,000 more than needed. Gara believes the Legislature went too far, well beyond the intent of making a tax policy fair at high and moderate market prices. Gara spoke to Petroleum News about the prospects of a successful referendum and what he would like to see in advancing a natural gas pipeline project. Petroleum News: What is the thinking or the strategy behind the referendum to overturn SB 21? Gara: My view is SB 21 is a disaster for the state. It’s going to result in massive layoffs across the state. The give to the oil companies is way more than was necessary. We should have incentivized more with a better piece of legislation. So if the SB21 referendum passes, hopefully the Legislature will get the message, and Gov. Parnell will get the message, that giving away somewhere between $800 million a year to $2 billion a year to Exxon, Conoco and BP, the way they did it isn’t the way to do oil tax reform. It’s going to hurt the economy in the long run. After the referendum passes, obviously we need to go back and write something that makes sense. Instead of the provisions of SB 21 that basically give the money away on the premise that it hopes the oil companies will invest all of that back in Alaska, and invest enough money to offset what we are going to lose, so we at least break even. We can do something smarter. Something smarter is you get investment credits if you invest in Alaska. The biggest problem is you get a huge tax break – upwards of $1 billion to $2 billion a year – even if you don’t invest that money in Alaska. Petroleum News: Critics of the referendum say that this could have a chilling effect on investment. What are your thoughts on that? Gara: SB 21 is a huge disaster for our state. We need to come out from under this. We are not going to have money for schools. We’re not going to have money for new construction and energy projects around the state. You can’t pass something that is harmful to the state and say gosh we better not change this. Petroleum News: OK, but how do you answer the criticisms that the referendum will have a chilling effect on investment? Gara: People are just coming up with arguments. The pro-SB 21 people will say anything they can to stop the initiative. They claimed credit for production that was already going into effect. Mustang, that was a project by Brooks Range Petroleum. They announced two years ago they were going to produce that oil. The pro-SB 21 people say, hey Brooks Range is coming on line because of SB 21. Repsol announced two years ago they were going to invest at least three quarters of a billion dollars in Alaska, and if they found oil, more than that. Well they found oil in the spring and the governor said, hey this is because of SB 21. Folks who are going to try to stop the referendum will say anything they can. Petroleum News: What other provisions do you not like about SB 21? Gara: We went from roughly an effective production tax rate at 37 percent — something that was too high at high prices, and that should have been fixed — we went from that to a production tax on new oil that is going to be in the $110 somewhere at 10 to 14 percent. This state cannot run on 10 to 14 percent oil tax. At some point all oil will qualify as new oil. We will have a whole generation that will not have the schools, not have the services they need in the state because we will have vastly under-taxed the state’s oil resource. A 10 to 14 percent tax on $110 barrel of oil makes no sense. That’s a giveaway. That’s the second part of the giveaway. The first part is you get $800 million a year to $2 billion a year that goes to Exxon, Conoco and BP just for existing. They don’t have to invest in Alaska. Those are two major parts of the giveaway that need to be changed. The rate of 10 percent to 14 percent is way too low, and the give away of $800 million to $2 billion a year depending on whether oil is $100 or $130 a barrel. Those two parts are going to harm the state immensely. In other words, under SB 21, if prices are the $100 range, the state loses about $800 million a year in revenue compared to ACES. If prices are in the $120 barrel range, then we lose about $2 billion a year. That’s all related to the elimination of the state’s windfall profit share that says when companies are making record profits, the state should share in a more fair tax rate. We should have done smart oil tax reform. Petroleum News: Both sides of the argument say their position is driven by the constitution. How do you reconcile that? Gara: (Former Gov.) Jay Hammond would say the constitution is the first place you look. You’re supposed to get maximum benefit for our resources. The constitution doesn’t require any particular statute. My view is it should be driven by logic. Logic says we shouldn’t tax too high. We should tax in a way that requires investment in Alaska if you’re going to give incentives. We should tax in a way that is fair to the industry and fair to the people of Alaska. We could have done that. Many people in the hallways – Republican and Democrat – said we should have tweaked ACES instead of gone with this brand new system that frankly is a giveaway. The oil companies used to say the only problem with ACES was that at high prices the tax was too high. And I agree, at very high prices – $130, $140, $150 a barrel – we taxed a little too high. We should have tempered that down. All of the sudden the story changed this year, and we had a bill that had nothing to do with reducing taxes at high prices. It reduced the rate at almost all prices. We reduced it from an effective rate (minus credits and deductions) of about 37 percent to an effective rate on legacy field oil of about 20 percent, and an effective rate on new oil of about 10 to 14 percent on $110 a barrel. That’s going to hurt the state badly. Petroleum News: If that’s how it played out, then how do you think it got this way if the initial issue was the progressivity? Gara: We have a governor who sees things the same way as the oil company executives at the oil companies. He got rid of experts who would have treated Alaska more fairly. They were never allowed to show up in the Capitol (Bob George and Rich Ruggerio). They state had them on contract so nobody else could hire them. They hired folks who promoted a much lower tax, someone whose view was taxes can never be low enough, so what we had was a race to the bottom. Petroleum News: Do you believe there was an honest debate over the issue of oil tax reform? Gara: I feel the legislators had a very honest debate. I don’t feel like the administration’s expert (Econ One’s Barry Pulliam) was very forthright. I found him to be very evasive. I found him be very argumentative. I found him to be wedded to promoting what the administration wanted instead of being wedded to providing the Legislature with accurate information that was objective and balanced. They hired an advocate, not someone who objectively consulted with the Legislature. Petroleum News: How much faith can you place in a referendum effort when you think of how the coastal zone management ballot failed so handily? Gara: If we had a vote today, the referendum would pass. The public understands this was a giveaway. If you’re Exxon, Conoco and BP, and (you) see new oil tax at $120 a barrel, which is a reasonable high-end price that we can expect the next couple of years, then this bill gives them about $2 billion in tax breaks even if they do nothing in Alaska. For $2 billion, and if you’re an oil company, you’re going to find a way to spend millions and millions of dollars to convince the public to defeat the referendum. And we know in this world of political advertising, they tend to be very misleading. Political ads, by and large, especially when money is involved, tend to be deceptive. I think we are going to see a lot of deception over the next year and a half. Right now the polling I’m seeing is that the public does not support this oil tax giveaway. They understand that an oil tax giveaway gives money to companies who don’t have to reinvest in Alaska and can take their money to another country like Libya and Azerbaijan and Russia. They understand it’s not a good idea. That’s today. Even next August is a long time from now and memories fade. The folks who want a fair oil tax for the people for Alaska, we are not going to have a huge amount of money, so we’re going to have to try and educate the public without much money against the money Exxon, Conoco and BP, and their allies can. Their goal is going to be to sway the public to their side and that can happen with money. Petroleum News: Moving onto natural gas, what would you like to see happen to advance a pipeline project? Gara: If we can make the big line work, that is the thing that helps Alaska the greatest in terms of lower gas prices for Alaskans and revenue for Alaskans. The small line won’t result in any or much revenue because we don’t tax gas that’s used by Alaskans. If it’s just an instate line, we won’t get any revenue. More importantly it’s not cost efficient. It’s an 800-mile line that delivers very little gas. It’s like the difference between transporting lumber by train, where you can transport a lot of lumber, or transporting lumber with a series of trips by a Volkswagen. That’s why gas delivered by a small line is about twice the cost to Alaskans. If we are going to treat Alaskans fairly so they can afford gas, a big line makes the most sense. It’s cheaper gas. Second point is that it produces revenue for Alaskans. We lost oil revenue. We need revenue in this state to fund roads, schools and hopefully savings. Exporting gas from Alaska produces income. The gas sales produce revenue. And a big line, which would export about seven times as much gas as a small line, will produce cheaper gas, and make it more likely that we will get an export contract. We won’t get an export contract if we are shipping expensive gas. Right now, we’re spending a lot of money on analyzing a bunch projects. Susitna hydro we are subsidizing to analyzing to the tune of $100 million a year. Some people want to subsidize the small line that produces very expensive gas to the tune of $3 billion. I would like to see an analysis that says what happens if we put that money into a big line. What happens if we put a portion of that money into the big line? Does that make the project a go. Maybe it involves state ownership with that amount of money. Maybe it involves state financing. One thing we can do is take ownership of a portion of that line and only require an 8 percent rate of return. Trans Canada – a pipeline owner – will require a 12 to 14 percent rate of return. The math on that is if we get an 8 percent rate of return, we would make money, but less money, and that would reduce the transportation costs on the big line. That would reduce the cost of gas. Maybe that would make a big line a go. The big line has to produce cheap enough gas to export it and the export market is Asia. Everybody used to think the export market was the Lower 48, but that was until shale gas came along. Now it’s Asia. We have to act quickly. I don’t see anybody doing an analysis like that. I’m not sure what the governor is doing. I’m not sure if he’s analyzing his options. I hope he is. Petroleum News: So what do you think can be done? Gara: What’s going on behind the scenes is they are using their nuclear options. They are saying they are not going to let go of the gas unless we come to our knees and give them as low a gas tax as possible. They have all the negotiating power in the world unless we use our leverage, and our leverage is that every gas lease in this state is called a duty to produce. You can’t just warehouse gas if producing it would be economical. You can’t go to a gunfight with a pocketknife and right now we are in a gunfight with a pocketknife. The oil companies are using their leverage by saying unless you lower your gas tax to almost nothing, we aren’t going to produce. The state is not saying unless you produce gas, which is economical, we are going to litigate transferring those leases to a company that will produce the gas. I’m not saying the duty to produce legal argument will work 100 percent. We don’t know how that litigation will go. It will take a while, but it’s leverage. I don’t say we should file a lawsuit tomorrow. You have to negotiate in a sophisticated manner when you are dealing with sophisticated companies.

Sunday, July 28, 2013

Alaska gets pipeline, just barely

July 17 marked the 40th anniversary of a pivotal moment in Alaska history. It came in 1973 in the U.S. Senate. “Vice President Spiro Agnew cast the tie-breaking vote on an amendment offered by Senators Mike Gravel and Ted Stevens to remove all environmental and legal impediments to the pipeline carrying oil south from Alaska’s North Slope,” the Senate’s official Alaska timeline says. The vote capped an epic environmental battle over the pipeline. Later that year, the Arab oil embargo would provide the final push needed to bring about the long-delayed construction of the 800-mile line. Daniel Yergin, in his book “The Prize,” talks about the complicated road to the pipeline after the elephant Prudhoe Bay field was confirmed in 1968. Lots of ideas were considered to get the remote, arctic crude to market: icebreaking tankers, trains and trucks, jumbo jet tankers, nuclear-powered submarine tankers. A pipeline route into Canada also was considered, but ultimately the choice was for an “all-American route” to the ice-free port of Valdez, where the crude could be loaded aboard conventional tankers that could go to the Lower 48 or to Asia. An oil company group including ARCO, BP and Standard Oil of New Jersey (Exxon) organized to build the line. The consortium “rushed out and hurriedly bought 500,000 tons of forty-eight-inch pipe from a Japanese company; they did not think there was time to wait for American manufacturers to gear up,” Yergin wrote. “They were wrong. The pipeline was to come to a dead halt before it even started.” Alaska Native land claims and “wrangling among the partners” slowed the project. But the real impediment was an effective legal challenge from environmentalists. Tens of millions of dollars of stockpiled pipe and heavy equipment languished for years in the cold. The Native claims were mostly settled in 1971, and eventually the environmental battle came to Congress. Construction finally begins On a vote of 50 to 49, with Agnew casting the decisive vote as the body’s president, the Senate passed the Gravel-Stevens amendment declaring that the Interior Department had met all the requirements of NEPA, the National Environmental Policy Act, for the pipeline project. Three months later, in October 1973, the Organization of Petroleum Exporting Countries, or OPEC, would impose an oil embargo that shocked the nation. Not long after, on Nov. 16, 1973, President Nixon signed right-of-way legislation, the Trans-Alaska Pipeline Authorization Act, into law. Construction began in 1974, first oil flowed from Pump Station 1 in 1977, and the pipeline has since moved more than 16 billion barrels of crude. Oil revenue utterly transformed Alaska and its economy. And the hope is that the pipeline can continue to operate for many years to come, although throughput has declined to around 550,000 barrels per day, or roughly a quarter of the peak of more than 2 million barrels in 1988. Alaska Sen. Lisa Murkowski, the top-ranking Republican on the Senate Energy and Natural Resources Committee, commemorated the historic 1973 vote with a July 17 press release. “It was a monumental decision that has shaped the trajectory of Alaska to this day,” Murkowski said. She added: “A vast amount of oil remains as yet untapped in Alaska, most of it trapped on federal lands. It’s my hope that on this 40th anniversary of the pipeline, we’ll start to pay greater attention to the looming problem of losing a major portion of our country’s domestic oil production if more federal lands in Alaska aren’t opened to responsible development.” Click here to go directly to this story within the full PDF version of this issue, with any maps, photos or other artwork that appears in some of the articles.

Sunday, January 27, 2013

53 senators urge approval of Keystone XL pipeline

WASHINGTON (AP) - More than half the Senate on Wednesday urged quick approval of the Keystone XL oil pipeline, ramping up pressure on President Barack Obama to move ahead with the project just days after he promised in his inaugural address to respond vigorously to the threat of climate change. A letter signed by 53 senators said Nebraska Gov. Dave Heineman's approval of a revised route through his state puts the long-delayed project squarely in the president's hands. "We urge you to choose jobs, economic development and American energy security," the letter said, adding that the pipeline "has gone through the most exhaustive environmental scrutiny of any pipeline" in U.S. history. The $7 billion project would carry oil from Canada to refineries along the Texas Gulf Coast. "There is no reason to deny or further delay this long-studied project," said the letter, which was initiated by Sens. John Hoeven, R-N.D., and Max Baucus, D-Mont., and signed by 44 Republicans and nine Democrats. Another Democrat, Jon Tester of Montana, supports the pipeline but did not sign the letter. At a news conference Wednesday, senators said the pipeline should be a key part of Obama's "all of the above" energy policy, in which he has expressed support for a range of energy sources from oil and natural gas to wind, solar and coal. The Obama administration has twice thwarted the 1,700-mile pipeline, which Calgary-based TransCanada first proposed in late 2008. The State Department delayed the project in late 2011 after environmental groups and others raised concerns about a proposed route through environmentally sensitive land in Nebraska. Under pressure from congressional Republicans to make a decision on the pipeline, President Barack Obama blocked it in January 2012, saying his concerns about the Nebraska route had not been resolved. TransCanada submitted a new application last spring. The State Department said Tuesday it does not expect to complete a review of the project before the end of March. The State Department has jurisdiction over the pipeline because it crosses a U.S. border. The renewed focus on the pipeline comes as Obama pledged during his inaugural address to respond to the threat of global warming. Environmental groups and some Democratic lawmakers argue that approving the pipeline would directly contradict that promise. "If we are going to get serious about climate change, opening the spigot to a pipeline that will export up to 830,000 barrels of the dirtiest oil on the planet to foreign markets stands as a bad idea," said Anthony Swift of the Natural Resources Defense Council. The pipeline would carry heavy oil derived from tar sands in western Canada. The heat-intensive process uses more energy than traditional oil, producing more heat-trapping gases that contribute to global warming. Environmental groups have been pressuring Obama to reject the pipeline, citing the oil's high "carbon footprint." They also worry about a possible spill. At a news conference Wednesday, senators from both parties said the Nebraska decision leaves Obama with no other choice but to approve the pipeline, which would carry up to 800,000 barrels of oil a day from tar sands in western Canada to refineries in Houston and other Texas ports. The pipeline also would travel though Montana, South Dakota, Nebraska, Kansas and Oklahoma. "No more excuses. It's time to put people to work," Baucus said. "Back home, we call this a no-brainer," added Sen. Joe Manchin, D-W.Va. Hoeven, of North Dakota, said the tar sands oil will be produced whether or not the U.S. approves the project. "Our choice is, the oil comes to us or it's going to China," he said. Nebraska's approval of the pipeline means all six states along the proposed route now support the project, said House Speaker John Boehner, R-Ohio. Majorities in the House and Senate also have endorsed the pipeline. National polls repeatedly show a majority of Americans back the project. Boehner said he recognizes the political pressure Obama faces from environmental groups and other opponents, but said "with our energy security at stake and many jobs in limbo, he should find a way to say yes." White House spokesman Jay Carney said Tuesday that the State Department was reviewing the project and he did not want to "get ahead of that process." Once that review is completed, "we'll obviously address that issue," Carney said. Meanwhile, Secretary of State nominee John Kerry said he plans to divest holdings in dozens of companies in his family's vast financial portfolio to avoid conflicts of interest if he is confirmed by the Senate. Kerry, a Massachusetts Democrat, said he would not take part in any decisions that could affect the companies he has holdings in until those investments are sold off. Among the investments are holdings in two Canadian companies, Suncor and Cenovus Energy Inc., both of which have publicly supported the Keystone XL pipeline. Kerry's investments are in family trusts.

Sunday, June 17, 2012

Murkowski comments on U.S. energy policy

In a speech to an energy policy forum hosted by George Washington University and Arent Fox LLP on June 5 Sen. Lisa Murkowski, R-Alaska, spelled out her ideas on the needed goals for a U.S. energy policy. Murkowski is the ranking Republican on the Senate Energy and Natural Resources Committee. Commenting that the nation does not currently have a coherent or long-term policy at the federal level, Murkowski said that a policy should be non-partisan and should address the need for energy that is abundant, affordable, clean, diverse and secure. “One thing I won’t do is stand here and tell you which resources, which technologies — or even which exact policies — will enable us to meet our energy goals,” Murkowski said. “Some of that will be laid out in the energy plan I intend to release this summer. For now, I’ll simply say that it’s inappropriate for the federal government to focus on one technology, to the exclusion of others. Markets and consumers will make the choice far better than anyone else. What policymakers should focus on instead is outcomes, and we should be open to a number of routes that could help us get there.” Six factors Murkowski outlined six factors that she said would underpin the successful development of legislation to address the energy policy question. First, legislation must be developed through the Congressional committee process, rather than through some other group of lawmakers brought together to work on energy legislation. Second, there needs to be a balance between different energy technologies, encouraging oil and gas production on federal lands while also focusing on innovation. Third, people need to “make some hard decisions” on the extent of the government’s role in technical innovation. “The federal government can help fund research that would otherwise not be undertaken, but our job is not to offer subsidies that never end or subsidies that prop up a technology every step of the way to commercialization,” Murkowski said, citing Department of Energy involvement in North Slope methane hydrate research as a good example of government research funding. Fourth, energy policies must pay for themselves, Murkowski said, commenting that federal economic stimulus funding for clean energy had resulted in a lower payback than anticipated. Fifth, legislation should not directly or indirectly increase the price of energy. And sixth, the energy legislation needs to be brought for consideration on the Senate floor, rather than languishing low down in the legislative priority list as has tended to happen in recent years. Loan guarantees Murkowski later commented in response to a question that, despite the recent tainting of the use of government loan guarantees, with funds going into unsuccessful renewable energy development, she believes that the government does have a role in encouraging new technologies but that “there has to be a kind of glide path out” of a project. “Some are suggesting the plug just needs to be pulled (on the loan guarantee program),” Murkowski said. “I don’t think that needs to be the case. I think we need to make sure that the loan guarantee program operates as Congress intended.” —Alan Bailey

Sunday, June 3, 2012

NPR-A draft plan comment period extended

NPR-A draft plan comment period extended The federal Bureau of Land Management has extended the comment period for the National Petroleum Reserve-Alaska draft plan to June 15. comments for the NPR-A sale should be mailed to: State Director, Bureau of Land Management, Alaska State Office, 222 W. 7th Ave. Mailstop 13, Anchorage AK 99513-7504. BLM-Alaska State Director Bud Cribley said in a statement that the agency received requests from several stakeholders to extend the comment period. “The plan is complex,” Cribley said, and the agency “... decided that we could balance the need to complete the plan in a timely manner and the need to be responsive to our stakeholders by extending the comment period for an additional two weeks.” Four alternative future management strategies are proposed in the draft plan, which is the first to cover the entire NPR-A, including lands in the southwest portion of NPR-A not included in previous plans. The plan includes decisions on availability of acreage for oil and gas leasing, surface protections, Wild and Scenic River recommendations and Special Area designations. The comment period began March 30 and with the extension will run 77 days.

Sunday, May 20, 2012

A piece of the methane hydrate puzzle

Known to exist in vast quantities in many parts of the world but with as yet no means of commercial production, methane hydrate could eventually become a prolific source of natural gas. This winter’s test of the production of methane, the main component of natural gas, from the Iġnik Sikumi No. 1 methane hydrate test well on Alaska’s North Slope represents a notable step for methane hydrate research in that, among other achievements, it succeeded in producing methane from hydrate for a record-breaking duration of 30 days. However, determining the next steps in researching gas production from hydrates will depend on the analysis of data obtained from the test, David Schoderbek, ConocoPhillips director, gas hydrates, told Petroleum News May 10. A team involving ConocoPhillips, the U.S. Department of Energy, and the Japan Oil, Gas and Metals National Corp. conducted the test. Methane hydrate consists of a white crystalline substance that concentrates natural gas by trapping methane molecules inside an ice-like lattice of water molecules. The material is only stable within a narrow range of temperatures and pressures: Move the temperatures and pressures outside that range, and the material dis-associates into methane and water. Using carbon dioxide Researchers have been investigating the possibility of extracting methane from hydrate by de-pressuring a subsurface hydrate accumulation, thus moving the hydrate out of its stability range and causing dis-association of the material. However, ConocoPhillips with its partners has been researching an alternative approach involving the injection of carbon dioxide into the hydrate, causing the carbon dioxide to exchange with methane in the hydrate lattice. The process releases methane while also trapping carbon dioxide inside the hydrate. Schoderbek said that in laboratory tests scientists had successfully displaced all methane from hydrate samples by flooding the samples with carbon dioxide over an extended time period. This technique, if replicated in the field on a commercial scale, might provide a means of sequestering unwanted carbon dioxide as well as enabling natural gas production from the hydrates. According to information in the Department of Energy website, the use of carbon dioxide for gas production from methane hydrates could present additional benefits: The procedure does not liberate water from the hydrates, would not impact the mechanical stability of the hydrate deposits and, unlike de-pressurization of the hydrates, would not cause the formation of pore-clogging ice or secondary hydrates as a consequence of dis-association-induced cooling. The purpose of the test with the Iġnik Sikumi well was to see if the results from the laboratory test could be replicated in field conditions, Schoderbek explained. Test location The North Slope is an especially suitable location for this type of test because of the known existence of hydrate accumulations in cold rocks under the permafrost, with a high saturation of the hydrates in clean sandstone close to an existing oil and gas infrastructure, Schoderbek said. ConocoPhillips used log data from existing wells to home in on a suitable site for the test well, eventually opting for a location next to an existing well pad within the Prudhoe Bay unit. The test location was close to wells known to have passed through methane hydrate deposits under the permafrost, in a situation where subsurface pressures and temperatures appeared close to those used in the laboratory tests. The well location was conveniently close to infrastructure on the existing well pad. At the same time the use of an ice pad as a base for the drilling would avoid any conflict with regular oilfield operations, Schoderbek said. The research team used subsurface and seismic data to extrapolate the position of hydrate bearing sands from under the existing well pad out to the location of the test well. Drilled in 2011 ConocoPhillips drilled the well in April 2011 to a depth of 2,597 feet, 900 feet below the permafrost and also below the base of the hydrate accumulations. Subsequent well logging with gamma ray, resistivity, sonic, density, and magnetic resonance imaging logs provided necessary data for the characterization of the methane hydrate reservoir, in particular for determining the hydrate and water saturations in the pores of the subsurface reservoir sands. “That allowed us to make a higher quality estimate of what conditions would exist during the test,” Schoderbek said. “So we were able to narrow down what the basis of the (test) design needed to be.” This winter, having completed the test design, the team rebuilt the ice pad; re-entered and perforated the well; and installed a downhole screen to prevent sand from clogging the well bore. The team then injected a mixture of nitrogen and carbon dioxide into the methane hydrate reservoir over a period of 13 days, thus replicating what had been done on a smaller scale in the laboratory. Gas mixture For this phase of the test, the nitrogen and carbon dioxide were transported in liquid form to a built-for-purpose gas mixing skid at the well site. In the skid the liquids were gasified and pressurized for injection down the well. The team also mixed in a couple of other gases to act as markers, used later to determine how much of the injected gas returned to the surface during the production phase of the test. After injecting the gases into the subsurface rock formation, the team spent a couple of days converting the well for production by, among other things, re-directing the gas injection equipment and installing a downhole pump in the well — the pump, powered by produced water from the Iġnik Sikumi wellbore, would be necessary to cause fluid to flow to the surface from the producing formation. In the production test the downhole pump drove a mixture of methane, carbon dioxide, nitrogen and tracer gases to the surface, where the production of the various gas types was measured. No delay The team had determined that there would be no technical advantage to shutting in the well long enough to allow the complete replacement of methane in the hydrate by carbon dioxide as had been done in the laboratory test, Schoderbek explained. By the time that the gas injection process had been completed, the reservoir close to the well bore — the section of the reservoir that would likely produce first — would have already been permeated with carbon dioxide, he said. The measurement of what came out of the well in comparison with what was pumped in would enable the effectiveness of the carbon dioxide replacement to be determined. With the pressure in the reservoir drawn down by the downhole pump, the procedure transitioned from a test involving carbon dioxide replacement of methane to a multi-day test of methane production through depressurization. Data analysis Chemical engineers, reservoir engineers and reservoir modelers are now analyzing the huge volumes of data obtained from the test to determine the extent to which methane production resulted from carbon dioxide exchange rather than depressurization, Schoderbek said. Until this data analysis has been completed and the results of the test assessed it will not be possible to say what might be an appropriate next step, or for that matter what the research timeframe might be, he said. And, with many uncertainties remaining regarding the practicalities of large-scale methane hydrate development, the possibility of commercial gas production from the resource is still many years away. “The hydrate resource, globally, could be larger than all conventional hydrocarbons, but turning it into a reserve is far into the future,” Schoderbek said.