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Vol. 19, No. 33 Week of August 17, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

Hilcorp gas sales to Chugach extended

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Electric utility secures supply into 2019 but gas volume and price remain commercially confidential in new tariff revision

Alan Bailey

Petroleum News

In an Aug. 6 filing Chugach Electric Association has requested Regulatory Commission of Alaska approval of a revised tariff that extends the electric utility’s gas supply agreement with Hilcorp Alaska LLC for a year, from April 1, 2018, to March 31, 2019. The current supply agreement terminates on March 31, 2018.

But, although the proposed supply extension gives reason for optimism over continuing supplies of utility gas from the Cook Inlet basin, the extension does not account for all of Chugach Electric’s gas supply needs through the first quarter of 2019. In its tariff filing, Chugach Electric said that other gas producers are not able to fully meet its gas supply requirements. And, citing a need for commercial confidentiality, Chugach has removed both the contracted gas volumes and the agreed gas pricing from the public tariff filing.

In a request to the commission for confidentiality, Chugach said that, with few sellers and buyers in the Cook Inlet gas market, public knowledge of the pricing and volumes in its revised Hilcorp agreement could compromise the utility’s ability to negotiate supply agreements with other gas producers. Potential gas suppliers would have a strong incentive to seek pricing identical to that in the Hilcorp contract, thus undermining Chugach’s ability to seek advantageous pricing for its customers, the utility wrote.

A need for additional gas in 2019, assuming that Hilcorp does not fully meet Chugach’s needs, would presumably come as welcome news for other Cook Inlet gas producers, several of whom have expressed concern about the way in which Hilcorp has tied up the utility gas supply market through to the first quarter of 2019 after signing supply agreements with several Southcentral gas and power utilities. The producers have said that they need markets for their gas to justify the cost of gas exploration and development.

The new Hilcorp gas supply agreement includes agreed volumes and pricing for both firm gas supplies and for interruptible supplies. It also includes a new provision for “discretionary gas,” gas which may be requested or sold, depending on gas demand and availability. While the agreement spells out a minimum firm gas supply volumes, Chugach Electric says that it anticipates managing supply volume variability by using gas storage services provided by the Cook Inlet Natural Gas Storage facility on the Kenai Peninsula.

The proposed gas supply agreement extension also includes a provision allowing for the possibility that some owners of gas rights leased to Hilcorp may request gas royalties “in kind,” thus making the gas unavailable for sale under the agreement with Chugach Electric. The payment of royalties in kind involves allocating an appropriate volume of gas to the rights owner in lieu of making royalty payments in cash.



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