Battle brewing over methane drilling

Denali Borough opposing state over Usibelli’s plan to explore for gas in the borough; company seeking state exploration license

Elizabeth Bluemink

Anchorage Daily News

Another battle over coalbed methane exploration is bubbling up in Alaska — this time near one of the state’s most iconic spots.

On one side is the Denali Borough, taking up the cause for some residents worried about water contamination, noise and other drilling-related nuisances in their neighborhoods.

On the other is the state, which owns a large potential gas resource under the northern part of the borough.

Two Alaska industries also have a big stake in the battle’s outcome. These are Usibelli Coal Mine Inc., a respected local employer, and the growing group of tourism operators who capitalize on the nearby Denali National Park.

It’s a replay of a similar dispute that raged in the Mat-Su a couple of years ago, when angry Valley homeowners launched a public outcry to keep coalbed methane explorers from drilling on their land.

Denali Borough not dealing with strange company

Usibelli is seeking a state license to explore 208,630 acres for both coalbed methane and natural gas in the northern part of the borough.

The state hasn’t granted the company a license yet.

Instead, the state put its license review on hold last year while the borough studied the development. The borough assembly acted last fall: It voted to block gas exploration west of the Parks Highway — about 40 percent of the state land in the proposed license area.

State officials contend that the borough’s new rule is probably illegal.

“This is a landmark issue that needs to be straightened out,” said Steve Denton, Usibelli’s vice president for business development.

No one wants gas explorers on their land, says Amanda Austin, treasurer of the Panguingue Creek Homeowners Association.

Austin — who hauls water to her cabin in the rural subdivision and works at the Tri-Valley community library — says she’s involved in the fight to protect the environment and her home.

Yet under state law, oil and gas explorers may drill through private property to access state-owned oil and gas deposits underneath.

State has proposed guidelines

The license would allow exploratory drilling for both natural gas and coalbed methane gas.

Coalbed methane is a gas created when decayed plants turn into coal. The gas remains trapped in coal seams but pumping water out of the seams allows the gas to be released.

Unlike natural gas wells — which extract vast quantities of gas from a single, deep drill hole — coalbed methane extraction requires numerous shallow wells and roads to connect the drill sites.

Usibelli wants to power mine operations

The mining company also says it might be able to distribute gas to Southcentral utilities pinched by Cook Inlet’s diminishing gas supply, if even larger quantities are found.

Drilling success isn’t guaranteed. No one has ever drilled for gas in the Healy basin, said Usibelli’s Denton.

Borough assembly members said in December that they hope to reach a compromise with the state.

“We haven’t heard from (the state) other than they are pretty unhappy,” said Gerald Pollock, the assembly’s presiding officer, who works as a Teamster at the mine.

Usibelli officials also are unhappy.

“Essentially, the borough is taking resources for itself that belong to the rest of the State of Alaska,” Denton said.

“There’s a conflict between what’s best for the state as a whole and each individual property owner. We in the borough are having a hard time treading that fine line,” Pollock said.

The conflict involves more than just a few homeowners, he said.

The Denali Borough’s largest taxpayer is the tourism industry, which is growing rapidly along the Parks Highway.

The borough’s hotel-room tax provides nearly 86 percent of its annual revenue.

“There is a line here. If you want to drill a natural gas well in front of the Princess (cruise company-owned) lodge, we are going to have a problem with that. You’ll destroy the revenue coming into our borough,” Pollock said.

But Usibelli claims it could lose out under the borough’s new rule.

The company doesn’t want to risk its money to demonstrate that the basin contains viable gas only to face another company swooping in later to claim the area Usibelli wasn’t able to get access to, Denton said.

“It might be the best part of the basin,” he said of the area the borough voted to close off.

State hasn’t indicated what it will do

Just before the assembly passed the law to block exploration, a state official told Talerico in a letter that it was probably illegal. The borough’s attorney gave similar advice to the borough after the vote.

A game of cat-and-mouse has developed, with the borough and the state waiting for each other to make the next move, Talerico said.

DNR spokesman Dan Saddler said the dispute is high on acting Natural Resources Commissioner Marty Rutherford’s agenda but nothing has been decided yet.

There are statewide implications in the dispute.

It shows that the state’s recently revised rules for gas exploration still aren’t meeting the needs of private property owners, some observers said in late December.

“It all goes back to the split estate,” which gives private landowners the surface rights and the state the subsurface rights, said Nancy Bale, with the Denali Citizens Council, an environmental group fighting the leases.

“People want the option to say (no gas exploration on) my property,” she said.

A similar chain of events unfolded in the valley a few years ago: The Mat-Su Borough enacted its own rule to restrict coalbed methane development. State officials alleged it was illegal.

The Mat-Su rule became moot, however, when Pioneer Resources, the company that had obtained leases to explore the area, pulled out of the project.