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RCA hears testimony on CINGSA facility Utilities present the case for moving ahead with gas storage development as Cook Inlet gas deliverability continues to decline Alan Bailey Petroleum News
With possible shortfalls in utility gas deliverability from Alaska’s Cook Inlet basin causing increasing concern in Southcentral Alaska, Cook Inlet Natural Gas Storage Alaska, or CINGSA, has been pushing forward to fast track development of its new gas storage facility on the Kenai Peninsula. And following a request from the company to the Regulatory Commission of Alaska to expedite an application for a certificate of public convenience and necessity for the facility, the commission held a hearing between Nov. 9 and 12 to cross examine witnesses who had submitted testimony documenting the pros and cons of moving ahead with facility development.
CINGSA has said that it needs RCA approval of the facility in December to be able to move ahead with development in time for completion of the facility around April 2012, to head off a projected gas deliverability shortfall in 2012-13 that could trigger electricity power outages during the coldest days of the winter.
A big deal The development of CINGSA’s storage facility is a big deal, and not just from the perspective of ensuring the continuity of gas supplies by warehousing excess gas produced during the summer for use when gas demand peaks during the winter. The facility represents a near doubling in size of the Alaska operations of Semco Energy, the parent company of both CINGSA and Enstar Natural Gas Co., the main Southcentral Alaska gas utility. And for RCA, this is the first Alaska gas storage operation designed to serve third-party customers and the first that the commission has been asked to regulate — there are other gas storage facilities in the region, but these facilities are all operated privately by gas producers as part of the producers’ arrangements for meeting contractual obligations for gas supplies.
CINGSA, operating as a joint venture between Semco and MidAmerican Energy Holdings Co., has signed up three initial third-party customers: Enstar, Chugach Electric Association and Municipal Light & Power. These customers have reserved space in the storage facility’s initial 11 billion cubic feet of storage capacity, with each customer having the right to withdraw a specified portion of the facility’s 150 million cubic feet per day of delivery capacity.
$180 million CINGSA has estimated the total construction cost of the facility to be $180 million, with that cost ultimately being recovered from the usage rates that it will charge its customers, and with the facility customers in turn passing the storage fees onto Southcentral electricity and gas consumers, as part of electricity and gas rates. In testimony to RCA Mark Slaughter, manager of gas supply for Enstar, the facility’s largest prospective customer, said that use of the storage facility might on average add about 70 cents per thousand cubic feet to the cost of the gas that Enstar delivers.
Normally RCA would review and, if appropriate, approve both the facility certificate and the facility tariff, including the usage rates, as a complete package. However, in response to a request from CINGSA, the commission has split the approval process, dealing with the facility certification by early December, to enable facility construction to proceed, and then dealing with the tariff in January in a separate hearing.
So, with the Nov. 9-12 hearing dealing primarily with facility certification, much of the testimony and cross examination focused on whether the facility is needed and on whether CINGSA is a credible facility developer and operator. And, although one intervener in the hearing raised safety concerns about the facility site, most organizations involved in the hearing supported CINGSA and its plans.
Enstar: urgent need Slaughter expressed Enstar’s urgent need for gas storage. In January 2009, when Anchorage temperatures dropped to minus 15 degrees F, Enstar’s gas delivery peaked at a rate of 235 million cubic feet per day, Slaughter said in his testimony to the commission. But, while demand for gas has been slowly rising since then, Enstar has not secured under contract all of the gas needed to meet peak winter demand after the beginning of 2011. Enstar forecasts potential peak winter demand to climb from 276 million to 298 million cubic feet per day between 2011 and 2015, with the utility’s shortfall in contracted supplies rising from 33 million cubic feet to 157 million cubic feet on peak days during that same period, Slaughter said.
“If the proposed CINGSA storage facility is completed and it operates as designed, the use of services from that facility is projected to meet 100 percent of the projected deliverability shortfall in the fourth quarter of 2012 and throughout 2013,” Slaughter said. “CINGSA’s facility is thus critical to meeting the needs of Enstar’s customers beginning in the winter of 2012-13 and thereafter.”
In the absence of sufficient gas storage, Enstar will have to meet any gas supply shortfall by trying to purchase additional gas through what are termed “non-firm contracts,” contracts in which the gas producer is under no obligation to supply gas, Slaughter explained.
Other storage uses And, although the use of gas storage is particularly critical to meeting the needs of peak gas demand, Enstar also anticipates using the CINGSA facility to store summer-purchased gas to help support the more routine “base load” winter demand, Slaughter said.
If RCA approves the CINGSA facility, Enstar will seek new gas supply contracts that involve a relatively constant year-round rate of supply, with attractive pricing for these steady gas supplies perhaps offsetting the cost to customers of the gas storage usage, Slaughter said.
In fact, in the absence of gas storage, the extreme swing in Enstar’s gas needs between summer and winter now make the negotiation of new gas supply contracts very difficult, given the technical problems associated with the temporary shutting in of wells in the Cook Inlet’s aging gas fields during the summer, he said.
And other future possibilities for obtaining Southcentral utility gas, such as the import of liquefied natural gas or the construction of a gas line from the North Slope, will also require the use of gas storage to accommodate the steady delivery of gas into the region throughout the year, or perhaps to take periodic deliveries from LNG carriers, Slaughter said.
Chugach’s needs As well as needing the CINGSA storage facility to help with gas supplies during periods of high winter demand, Chugach Electric Association needs the facility for contingency support during periods when there are gas supply problems, and to support short-term fluctuations in power demand, said Lee Thibert, CEA senior vice president, strategic planning and corporate affairs, in testimony to RCA. CEA generates 90 percent of its power from gas-fired power stations.
If the gas storage facility does not go into operation Chugach would have to seek additional gas deliverability from gas producers or, failing that, take alternative measures such as curtailing some energy sales, using liquid fuels to replace some gas, or perhaps buying some power from Golden Valley Electric Association in Fairbanks, Thibert said.
“At this time there is no substitute for a reliable supply of natural gas,” he said. “Without it, Chugach cannot supply the needs of its members. … Losing the ability to meet peak gas demand could cause Chugach to seek other alternatives, ask customers to voluntarily reduce demand or, as a last resort, curtail demand on a rotating basis.”
After 2012
Under its current gas supply contractual arrangements CEA will need gas storage services to meet peak demand after 2012, Thibert said. And the use of the CINGSA facility is the most cost effective of the possible options that CEA has investigated to address the pending peak gas deliverability shortfall, he said.
Like Enstar, CEA anticipates the CINGSA facility providing a means of buying gas at a relatively constant rate year round, an arrangement that ought to hold down the price of gas while, by stabilizing well flow rates, enabling gas producers to maximize ultimate gas production.
Brian Davies, a gas-supply consultant for Municipal Light & Power, presented testimony about the ML&P need for gas storage services. ML&P is a co-owner of the Beluga gas field on the west side of the Cook Inlet, with the Beluga field being the primary source of fuel for the gas-fired power generation that accounts for 87 percent of the utility’s generation capacity, Davies explained. The utility does have the capability to fall back on the use of diesel fuel rather than gas on an emergency basis, but this mode of power generation is very expensive, he said.
Declining Beluga gas Although until recently gas supplies from the Beluga field have proved adequate to meet ML&P’s needs, steadily declining production from the field is causing the utility to have to purchase some gas from elsewhere to meet peak power demand in the winter: This need for peaking gas will grow, probably starting in the winter of 2012-13, Davies said.
“This peaking gas is quite expensive now, and threatens to become more expensive and even unavailable within a few years,” Davies said.
ML&P is participating in the construction of a modern, efficient gas-fired power plant in Anchorage that should come into operation in 2012, he said. But, even with improved fuel efficiency at this plant, the utility will need to be able to withdraw up to 10 million cubic feet of gas per day from the CINGSA facility, to cover winter peak demand and to allow some contingency for unanticipated problems with gas supply or power generation equipment, Davies said.
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