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OPEN LETTER TO LEGISLATORS

Daniel L. Apted
Jul. 14, 2006

Daniel L. Apted
8280 Pokey Circle
Anchorage, Alaska 99507
242-2538 cell ph.

July 14, 2006

Dear Legislator,

I own a small technology company in Anchorage, mostly involved with computers. You may know of my computer company, CustomCPU. I am not expert in Trains or Oil and Gas companies, but I do know how to add, and it looks to me like a lot of money is being left on the table in the current gas line proceedings. Please consider the following option, which I think bears at least some consideration before spending 25 to 50 billion dollars on a gas pipeline.

Our objective is to sell our Natural Gas at the highest possible price. The gas pipeline as proposed has limited ability to move its terminus once it is built. Thus limiting where the gas can be sold to somewhere in the upper middle part of the USA.

Consider now building a large scale gas liquefaction plant on the North Slope and using the railroad to send Liquefied Natural Gas in Rail Cars. I spoke momentarily with former Governor Bill Sheffield about such a project the other day. His admittedly “back of the napkin” estimate was that it would cost 2.5 billion dollars to extend the Alaska Railroad to the North Slope, and another 2.5 Billion to expand the Alaska Railroad into Canada to connect with the Canadian Railroad at Whitehorse. By spending the first 2.5 billion to expand to the North Slope we could ship railcars of Natural Gas to the ports at Seward, Whittier, Anchorage and Wasilla. This would allow us to sell gas to many communities along the major rivers that cross the railroad right of way as well as service Anchorage, Fairbanks and all other cities along the rail belt, and sell gas to any overseas buyer or to the west coast of the United States via the Natural Gas facilities in Mexico or Canada. We can also benefit by saving the Agrium plant at Nikiski.

This relatively small expenditure could be bringing in major money to the state in short order, but that is not all. We could then extend the railroad into Canada for another 2.5 billion and connect via Canada into the grid of Railroads in the lower 48 and thus gain access to the relatively under-served east coast where prices are very high for natural gas. Even though it will cost more to ship to some of these areas, the prices are so much higher there that it will offset the price of shipping. If you don’t see a map below this paragraph please refer to this link to see the relative prices for Natural Gas across the nation. http://www.enstarnaturalgas.com/CompanyInfo/rate_info.htm . It is this unique ability of the railroad to access so many different markets that makes them the best choice if we want to maximize profits while minimizing expenses.

There are a number of questions that need to be answered, but my studies have shown me that we can expand our existing railroad to the north slope for 2 to 2.5 billion dollars. Simple math shows that a one mile long train, carrying the equivalent of 1 mile of 8 foot diameter pipe will carry somewhat more than 250,000 cubic feet of liquefied natural gas. Pi times Radius squared yields the area of a one foot long section of the Tank to be carried on the rails so an eight foot diameter tank has a 4 foot radius. So Radius Squared is 16 and Pi is 3.14 thus each foot of tank is 16 x 3.14 or 50.24 cubic feet. So assuming the train carries the equivalent of one mile of these tanks we get 50.24 x 5280 yields 265,267 cubic feet.

The proposed gas pipeline is intended to carry 4 billion cubic feet of natural gas each day. Gas when liquefied is 1/600th of un-liquefied. Thus 4 billion divided by 600 yields 6,666,666.66 cubic feet equivalent in liquefied Natural Gas. Thus it would take 25.1 trains each a mile long each day to haul the equivalent amount of Natural Gas per day. I suspect each train could be lengthened by 5% to make it an even number of 24 trains that haul the equivalent of the pipeline. Thus we need at least 48 trains eventually to carry the equivalent amount of gas to market. 24 empty headed north, 24 loaded headed south.

Remember please, that I am a computer technician, not a knowledgeable train person. So everything I am saying needs to be verified by somebody who actually knows what they are talking about.

The beauty of the train proposal is that we can start out with one train per day and expand as we go, allowing the profits to dictate how fast we expand the train schedule. Liquefied Natural gas weighs approximately 1/2 as much as water or 31 lbs per cubic foot. For ease of calculation I have rounded off to 3 cubic feet per 100 lbs to calculate the charges the railroad might make. I used the current rate schedule posted on the Alaska RR site and extrapolated to arrive at 1 dollar per thousand cubic feet of natural gas to haul the gas from the North Slope to Seward, Whittier, Anchorage, or Wasilla. This is an extravagant extrapolation, due to the volume and frequency of the haul, I am certain that this number will be reduced dramatically, but for the purpose of this discussion lets keep the number at $1.00 per thousand cubic feet of natural gas. 4 billion cubic feet divided by a thousand is 4 million dollars per day income to the Alaska railroad for hauling 48 one way trains to/from the North Slope. (24 coming down loaded, 24 going back empty.) This yields an income to the railroad of $83,333.33 per train. Assuming it takes 12 men for each train- three shifts of 4 men to transport each train, and each man gets $350 per 8 hour day leaves 4200 for labor to move each train, leaving 79,000 per train in Gross income to the Railroad to amortize the cost of the locomotives, rails and crews. Locomotives and railcar costs need to be considered, but those costs are insignificant in the long term.

If we assume a 500,000 cost of operation to run these trains per day (remember they can run on the LNG they are carrying thus fuel costs approach zero.) we are left with 3.5 million/day x 365 days per year yields 1.277,500,000 per year, which allows amortization in less than 3 years for the North Slope extension. The pipeline project as proposed doesn't amortize until 30 years from now. Over that same 30 year amortization period planned to pay off the pipeline, the railroad would show a 33.5 billion dollar profit.

All of the above, assumes we are moving the LNG from the North Slope to any or all of the available ports in South Central Alaska that have rail access, and then via ship, on to Mexico, or Canada to service the West Coast of the United States, or off to some other foreign port.

If the proposed rail link to Canada is completed the equation changes dramatically. There are too many variables for me, with my limited access and history with rail traffic to contemplate or communicate to you with any accuracy or detail. But here are the high points.

If we expand the Alaska Railroad to the existing Canadian Railroad, at an estimated 2.5 billion dollars, we can expect total transportation cost to go to $3.50 to $5.50 per thousand cubic feet of natural gas to any rail accessible city in the United States or Canada. Thus instead of selling it locally for 6.70 per thousand cubic feet, we can sell it for nearly $20.00 per thousand cubic feet in New England, or Florida. We can't say the same for the Natural Gas pipeline project; it will have to sell to one of the Midwest sections for at least $5.00 less per thousand cubic feet, thus negating any shipping savings the pipeline might have over rail transport. Please refer to the map above to resurrect the numbers. By taking the gas to the east coast via rail, the price we receive per barrel fully extinguishes any cost of transportation, and actually increases the net return to the state and to the gas producers.

The bottom line is Mr/Ms Lawmaker, I only know enough to entice me to want to know more. I am wrong about technical and political things with disturbing regularity. But I can add. The railroad project not only outperforms the pipeline project in profits, it also costs much less to build, can be totally owned and operated by the state, at least for the Alaska portion of the transportation, bringing all the transportation profits for the Alaska section back to the state, instead of splitting them with the other owners of the pipeline, and can be built and online in a fraction of the time it will take to build a pipeline.

Furthermore, there are many other projects that could benefit from the proposed rail improvements such as: Coal, 50% of our nation’s coal is in Alaska, Zinc as per the Red Dog Mine (largest zinc mine in the world), Bauxite, totally undeveloped but with huge capability, plus with the railroad we could haul and sell petroleum condensates that are totally wasted right now. Also we would see much more economical backhaul of products to Alaska.  All this, plus being more profitable than the gas pipeline, and being more economical to build and quicker to start up.

We really need a comprehensive examination of benefits to the state if we use a railroad to haul the natural gas to many potential markets.

One last tantalizing possibility exists for the railway plan. Once the railroad exists on the north slope it would not take a great deal to imagine a railway extending along the shore east to Canada adding their commodities to the mix, and if extended all the way along the north shoreline of Canada to Hudsons Bay we would have a circum polar railway that would be highly economical to “short cut” pacific marine freight bound for the Atlantic Nations and States, this small rail link would lessen the cost to ship from Pacific to Atlantic and vice-versa. We would truly become a “cross roads” of the Northern Hemisphere.

Thanks again for listening to me, please let me know if there is any formal study group set up for such a project. I would be happy to serve on such a panel.

Dan Apted.
GM Apted Technologies Inc.


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