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Northwest Alaska Minerals Potential

Transportation needed for a century of development


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During the last several years, various media outlets in Alaska have been rife with discussion of the potential for economic development in the US Arctic, which is essentially northern Alaska. Much of this discussion has been tied to opportunities for resource development and has included numerous policy forums on development and the impact it will have on Alaska’s environment, people, and economy. Infrastructure is pervasive in all of these discussions, and there is much conjecture on exactly what should be built where. Topics raised in brainstorming sessions include the need for an Arctic port (or several of them), building roads to resources, the possibility of Adak as a gateway to the Arctic, ardent pleas for a new icebreaker (or a few), and the list goes on.

This leads to examining the pivotal question: “What should be built where?” It’s important to construct a framework for an objective assessment of what infrastructure will be needed where for a given development scenario, given that there is such vast resource potential in northwest Alaska.

 

Resources

The North Slope holds a vast amount of resources, including the following:

  • Chukchi offshore lease area (oil, gas)
  • Northern Alaska-Slope Coal Province (coal: bituminous, subbituminous)
  • The Ambler District (copper, zinc, lead, gold, silver)
  • Red Dog Mine (zinc, lead, silver)
  • Lost River prospect (fluorspar (fluorite), tin, tungsten)
  • Graphite Creek (large flake graphite)

 

Coal

A truly vast (inferred) supply of coal is located in the Northern Alaska-Slope Coal Province—over 120 billion tons of bituminous and subbituminous coal by one study—so much so that for a developer, given the ton/year rates, mining all the coal in even one hundred years is unrealistic. The disparity in value between bituminous and subbituminous coal is significant. Omitting the subbituminous coal reduces the development tonnage to about 19 billion tons of the highest quality coal in the Northern Alaska-Slope Coal Province. (There is also coal located at Kobuk, unaccounted for in this figure, known to be bituminous coal of significant quality; it was omitted from this discussion due to lack of information about the deposit.) Based on production rates in Australia, an indicator of what can be achieved with respect to production rates, and the limitations of transportation infrastructure that could be built in this region, a theoretical target production rate of between 400,000 and 240,000 tons per day (about 132 million and 77 million tons per year, based on a 330 day production year) could be expected. This extends the development horizon for the inferred bituminous coal deposit from the Northern Alaska-Slope Coal Province to about 150 to 250 years, respectively.

 


A New Look at Coal

 

The extraordinary resource that lies in the Northern Alaska-Slope Coal Province is difficult to grasp, conceptually. At 400,000 tons per day, 330 days per year, it would theoretically take about 900 years to move the inferred quantity of coal. Could coal play a significant role in the long-term economic security of Alaska long after North Slope oil has been depleted? Given the abundance of coal in Alaska, investigation of the following might benefit the greater Alaska community:

 

Processes for On-Site Decontamination of Coal

Currently, contaminates within coal products are distributed with the coal. The prevailing philosophy is to capture contaminates after the coal has been burned, as if catching smoke from a campfire. However, mining processes for most other types of materials separate undesirable material from the product and then contain that non-commercial material at the site. Can this be accomplished with coal in Alaska?

 

Custom Coal Products

It might be possible to mass produce coal briquettes that are designed to burn more efficiently or to specification. This concept is similar to charcoal-grill briquettes, only the product would be designed for combustion in an industrial furnace. By varying the grain size, bulk density (the amount of space/air between grains), and geometry of the briquette, could combustion of the product be tailored to needs of coal customers? It would be a significant benefit to Alaska if coal could be processed to add value in stat. Could this concept dovetail with the concept above? Coal briquetting technology already exists. Alaska my benefit from improving it.

 

Liquefied Coal Products

Processing coal into liquid fuel, like gasoline and jet fuel, is technically feasible. Are there markets for liquid fuel derived from Alaskan coal?

The Northern Alaska-Slope Coal Province is located in an area where a subsea pipeline from the Chukchi lease area could make landfall. Thus, it’s worth exploring if it is possible to inject a liquefied coal product into the crude oil stream to the benefit of the producers and state tax revenue.


 

Crude Oil and Natural Gas

Despite the recent, and drastic, change in the position of Royal Dutch Shell, the fact remains that a 2006 assessment by the Minerals Management Service, now known as the Bureau of Ocean Energy Management and the Bureau of Safety and Environmental Enforcement, in the Chukchi Offshore Lease area there are 15.38 billion barrels of oil and 76.77 trillion mcf (thousand cubic feet) of gas that are technically recoverable, figures which are higher than what is economically recoverable.

Based off of the technically recoverable figures, the development horizon for both oil and gas is forty years. These horizons are based on cited sources, taken anecdotally from persons active in industry, or inferred from previous development. The latter has been used primarily relative to crude oil production based on TAPS (Trans Alaska Pipeline System) history.

 

Mines

For the Red Dog Mine, which is already in production, it will be assumed the mine is approximately halfway through its development life, and it will again yield the amount it has formerly produced. Thus another 13.6 billion pounds of zinc, valued at $0.95 per pound; 3.7 billion pounds of lead, valued at $0.82 per pound; and 6.7 million pounds of silver, valued at $256 per pound, are available for future production for approximately another twenty-five years.

The Nova Copper prospect in the Ambler District, in addition to 1.8 billion pounds of zinc, 288 million pounds of lead, and 1.9 million pounds of silver, also contains copper and gold. The amount of copper estimated to be available for production is 1.5 billion pounds, valued at $2.72 per pound, and gold is 21,750 pounds, valued at $18,912 per pound. It’s estimated the prospect would have a development horizon of twelve years.

Fluorspar, tin, and tungsten are located at the Lost River prospect, which is estimated to be in operation for twenty years. Fluorspar is valued at $400 per ton, and there are an estimated 6.4 million tons available; for tin, valued at $6.50 per ound, there is an estimated 222 million pounds; and tungsten, with estimates of 34.7 million pounds, is valued at $34 per pound.

The final mining prospect is Graphite Creek, which would be a large flake graphite mine. There estimated tonnage is 11.4 million, valued at $1,600 per ton with an estimated development horizon of one hundred years.

 

Comparative Market Value

All monetary values contained within this article are estimates at press time. This assessment of North Slope commodities and their values indicates there is on the order of $3.3 trillion of commodities available at the major deposits cited. The total value of the “developable” commodities for the major deposits considered is about $1.3 trillion at a development rate of approximately $13.2 billion (gross value) per year. The latter value is intended to be a lower bound estimate for the value of known and inferred commodities. The actual value of what can be developed is likely somewhere between the two estimates.

 

Needed Transportation Service

These values provide an assessment of what could theoretically be realized by developing northwest Alaska mineral resources. These figures are vital as they would be compared to costs of building a transportation system to see if it makes sense to do so. Estimating the cost of building a transportation system is beyond the scope of this article, but we can now begin to delve in to what its requirements may be, based on commodities available.

Oil and gas prospects represent a need for bulk transportation of fluids—both liquid and gas. The quantities are of such magnitude that road or rail would be cumbersome and inefficient. Pipelines are the most practical solution here. The empirical evidence for this is TAPS; approximately 17 billion barrels of crude oil have been transported over thirty-eight years, with an average conveyance of about 1.2 million barrels/day. These figures are consistent with the mean technically recoverable quantity for the Chukchi lease areas and the level of production that might be expected.

Mining products require dry-bulk transportation. Overland, this may be achieved via road or rail. However, it has been demonstrated that moving large quantities of dry bulk material over an extended development horizon, and in a regional transport mode, is far more efficient by rail than road. On a ton-mile/gallon (of fuel) basis, rail is on the order of five-times more efficient; on a fuel cost/ton-mile basis, rail is about six-times more efficient, according to “Analysis of Alaska Transportation Sector to Assess Energy Use and Impacts of Price Shocks and Climate Change Legislation,” a 2013 report produced by the Institute of Social and Economic Research (ISER) at the University of Alaska Anchorage. There is also considerable anecdotal evidence supporting rail. Basically, this is what “everyone else” is building for Arctic resource development; for examples, look at the ongoing development of the Northern Latitudinal Route railway in Russia, the Churchill Gateway rail corridor in Canada, or proposals for a Finland-Norway rail corridor.

At some point, the products will have to be transported to market. Currently, there is considerable demand for mining products in Asia. In addition, given the nature by which oil is currently transported from the state, and the business plan for proposed LNG (liquefied natural gas) export, infrastructure to support shipping will be required.

In conclusion, the major components of a transportation system to support comprehensive development in northwest Alaska will include:

 

  • Oil pipeline infrastructure
  • Natural gas pipeline infrastructure
  • Rail infrastructure
  • Port infrastructure

 

An Integrated Approach

A pipeline following a north-south transportation corridor in northwest Alaska would track through areas of great mining potential. With a thoughtful corridor layout, the economic prominence of one commodity could make development of others possible. Where would the oil and other commodities go in this scenario? To a port on the west coast of Alaska. One reasonable choice for exporting bulk materials as described is Port Clarence. Being naturally deep-draft at its mouth, along with the natural protection afforded by Point Jackson (the actual port site in this scenario if one considers the natural bathymetry of Port Clarence) makes this location a strong candidate for an export port on the west/northwest Alaska coast. The benefit of this location is augmented by the fact that, being south of the Bering Strait, vessels transporting products would avoid the most severe ice conditions that can occur in US Arctic waters.

Such a port would have to operate year-round. Some question the feasibility of that, but a Canadian interest has worked out a strategy to move iron ore nearly year-round in an area that experiences ice cover in eastern Arctic waters. In addition, there are already examples of ice-class commercial vessels (e.g. an ice-class LNG tanker), and more merchant vessels are being planned. This may be the beginnings of a polar class commercial fleet that could service a location like Port Clarence. The critical question for the arctic port/polar class fleet scenario is whether it can it be accomplished economically in Alaska. In order for that to be possible, developers will need to consider a long-term economic strategy. Combined, the known and inferred mineral resources of northwest Alaska represent potential economic returns for a century or more. Development scenarios should be tabled with this in mind. A fifty to one-hundred year planning horizon is appropriate. “Long-term shipping contracts build polar class ships.”

To realize the potential of the region, a transportation system that can accommodate the needs of the major sources of revenue will have to be contrived. It will require pipeline, rail, and port services. What exactly that would look like is an in-depth question, based on what levels of service would be required, and best addressed in a future article.

What can be said, in conclusion, is that natural resource development should not be a series of one-off projects, but will require a web of commodity-based transportation infrastructure. On the North Slope, coal, oil, and gas would be anchors of the system, adding stability. Red Dog, Ambler, and Lost River projects can be seen as enablers, representing a near-term source of revenue assisting with starting-up the system. Coal and graphite are both long term, adding a sense of longevity to the value of development. Developing a port authority in the region isn’t just an opportunity for shipping, but creates an entity to manage build-out and administration of a transportation system themed on exporting natural resources.

 

Initial Glance at Funding

It would be a mistake to assume federal funds will contribute to a commercial transportation system in the Arctic. Page six of the National Strategy for the Arctic Region states the federal government plans to carefully tailor regional infrastructure to evolving commercial activity. In other words: federal sources will not capacitate development. Strategies of state and private funding would be necessary. At least conceptually, an option for this could be in the form of a bond syndicate formed by the state partnering with private investment banks. This represents a public-private partnership that could underwrite bonds offered by a separate third party, say a Western Arctic Port Authority.

The bond sale would be used to raise funds necessary to build the transportation system. Bonds would then be redeemed at maturity with revenue from tariffs on commodities that pass through the transportation system. With an assumed $950 billion worth of commodities available over a fifty year period, this is a solution that might pencil out.

 

 

This article first appeared in the November 2015 print edition of Alaska Business Monthly.

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