Oil Company Aims to Lay Subsea Cook Inlet Pipeline

26 June 2012

Executives with Cook Inlet Energy LLC are looking to lay a subsea pipeline across the Inlet to carry west-side crude oil to Tesoro's Kenai Peninsula refinery.

The Anchorage-based independent, a subsidiary of publicly traded Miller Energy Resources of Tennessee, has been pursuing the project for a couple of years and is deeply engaged in design, engineering and permitting efforts.

"We've spent a fair amount of time, energy and money," David Hall, Cook Inlet Energy chief executive, said.

The small company is among oil producers operating on Cook Inlet's remote west side.

At present, its oil production moves on the Cook Inlet Pipe Line Co. system to the Drift River terminal, where tankers pick up oil for a short voyage across the inlet to the Tesoro refinery at Nikiski.

Houston-based Hilcorp took over CIPL and the terminal Jan. 1 as part of its purchase of Chevron's Cook Inlet oil and gas properties.

Hall said he sees two big reasons for building a subsea pipeline across Cook Inlet.

First, nearby Redoubt volcano is a threat to the existing oil transportation infrastructure. A series of eruptions in 2009 idled west Cook Inlet oil production for months.

Second, a new subsea pipeline could alleviate the high pipeline transportation and tanker costs that west Cook Inlet producers now face.

Hall's team has enlisted engineering consultant Michael Baker Corp. to help with the proposed pipeline.

Already, some key numbers have been hammered out.

The trans-Foreland pipeline, as Hall calls it, would be 25 miles long and run from Cook Inlet Energy's Kustatan production facility to the Nikiski area. The Kustatan facility is near West Foreland point, while the Tesoro refinery is near East Foreland point.

The pipeline wouldn't run straight across the inlet; rather, it would horseshoe to avoid an area of deep water, thus making the line more accessible to divers.

The pipe would be 8 inches in diameter, and would have a capacity of 90,000 barrels per day.

A number of financing options are being explored, and "numerous parties" are interested, Hall said.

"Pipelines are generally low risk from an investment standpoint," he said.

The trans-Foreland pipeline would be open access with a regulated tariff, Hall said.

Most likely, a separate entity would own and operate the line, following the CIPL model, he said.

The pipeline would feature a state-of-the-art leak detection system, and could accommodate "smart pigs," devices that slide through the pipe to check for corrosion or other problems.

The hope is that engineering and permitting can be completed by year's end, with procurement beginning in early 2013, Hall said. The pipeline would be installed in the summer of 2014, creating an estimated 130 construction jobs. The line could be operational by fall 2014.

Permitting agencies would include the state Department of Natural Resources, the Department of Environmental Conservation and the Army Corps of Engineers, Hall said. Only waters in state jurisdiction would be affected.

Hall couldn't say whether an open season might be held to secure shippers on the line. He also declined to say whether Tesoro is a potential investor in the project.

"We have made sure the active players in the inlet are aware of our intentions and plans," Hall said. "We're trying to rally support."

The pipeline would not be the first oil industry line laid beneath Cook Inlet's tidally turbulent waters. It likely would eliminate the need for running tankers across the inlet. Environmental organizations such as Cook Inletkeeper favor a subsea pipeline over tankers.

The pipeline's 90,000-barrel capacity would be very large relative to current west Cook Inlet production, and certainly far above Cook Inlet Energy's current production, which averaged about 1,600 barrels a day in April.

But the company is aiming to greatly increase production from its Osprey offshore platform, where a new drilling rig is nearly ready to start working.

Likewise, Hilcorp is aiming to grow production, and Apache Corp. is aggressively exploring on the west side of Cook Inlet.