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Enstar submits new Cook Inlet gas contract to RCA for 2009-13
The second time had better be the charm, because Enstar Natural Gas can’t wait for the third time. On April 11 the company submitted a proposed tariff and contracts to the Regulatory Commission of Alaska for Cook Inlet natural gas supplies covering 2009 through 2013.
Enstar, the local natural gas distribution company for Southcentral Alaska, needs the gas to meet a shortfall in its gas supplies for next year. In 2006 the commission rejected a contract with Marathon that Enstar negotiated in 2005, a contract that would also have started in 2009.
This time around Enstar has two contracts — with ConocoPhillips Alaska and Marathon — which cover a shorter period of time, five years rather than the eight years proposed in the earlier Marathon contract.
Colleen Starring, Enstar’s regional vice president, told the commission the company hopes to begin purchasing under the new contracts on Jan. 1. She said the contracts fill a gap of some 2.1 billion cubic feet in Enstar’s gas supply portfolio for 2009.
Following the rejection of the 2005 contract, Enstar moved as quickly as it could, but she said “the process of attracting new suppliers and negotiating new agreements was slow and difficult.”
The ConocoPhillips and Marathon contracts fill Enstar’s “unmet requirements through 2010, but not all of those requirements through 2013.”
No ‘unmet provider’ Starring said that Chevron has committed enough gas to meet Enstar’s needs through the end of the year and has further committed to supply 19.5 bcf per year through 2012, the maximum it can commit. The company faces a gas shortage Jan. 1 without the ConocoPhillips and Marathon contracts.
Previously one supplier has typically filled the role of “unmet provider,” she said, providing gas to fill the “inevitable variations” between the company’s annual forecasts and its actual purchases. That role has become more challenging as deliverability has declined in Cook Inlet, Starring told the commission, and said that despite the company’s “best efforts, no supplier would agree to be an unmet requirements provider for any year after 2008.”
To meet that challenge the ConocoPhillips and Marathon contracts are slightly different than previous all-requirements contracts. Beginning next year Enstar’s contracts will cover 100 percent of its projected requirements and the company will attempt to purchase from its suppliers, on a pro rata basis, gas to meet variations from forecasted weather and load growth — spreading the unmet provider responsibility proportionately among suppliers.
Gas storage by 2011 Starring said the new contracts anticipate that Enstar will develop its own gas storage capability by 2011 to assist in meeting seasonal fluctuation in demand. Because of that the contracts have “tiered” pricing reflecting the higher value of gas consumed in peak periods. The company expects — in the future — to be able to draw lower priced gas from storage and substitute that gas for higher-priced seasonal and needle peak price tiers.
Features of the rejected Marathon contract have been avoided in the new contracts, Starring said, and the new contracts have pricing mechanisms “keyed to diverse pricing points, which are different from each other and also different from Enstar’s other supply contracts.” Neither contract includes the Henry Hub index used in the previous contract.
She said basket pricing “will help protect ratepayers from price volatility,” responding to concerns the commission expressed in 2006 “that Alaska ratepayers should not be subjected to market fluctuations caused by natural disaster or other market disruptions that can occur when the contract price is tied to a single geographic point.”
These contracts are focused on meeting Enstar’s own customers’ needs and do not include volumes to cover the needs of large commercial, power plant and industrial end users such as Chugach Electric Association, Municipal Light & Power, Fairbanks Natural Gas, Tesoro or the U.S. Department of Defense.
The ConocoPhillips contract Key features of the ConocoPhillips contract include total expected volume for the term of the contract of some 12 bcf; price is the weight-averaged price of three price categories or tiers.
The Cook Inlet composite index is used to calculate the energy price. Starring said this is the index recommended in the previous proceeding and is based on indices including Canadian and West Coast gas price points as reported in Platts Gas Daily.
Under certain conditions ConocoPhillips would cooperate with Enstar in “exploring possible storage and peak shaving options using the LNG Facility, including but not limited to the potential addition of regasification facilities,” she said.
The Marathon contract The total expected volume of the Marathon contract is 25.6 bcf over the life of the contract. The price in the Marathon contract is the weighted average of six price categories including prices for base load gas, two levels of seasonal peaking gas, needle peaking gas and two levels of summer gas for injection into storage. Three geographically diverse indices are used to develop an annual index, including Chicago and two West Coast prices.
There is a standby fee — the price for Marathon to be ready to serve Enstar with seasonal peak gas.
Reliable, diversified sources Starring said the contracts with ConocoPhillips and Marathon provide Enstar with “reliable, diversified sources of gas at reasonable, market-based prices” and help to meet the demands of its customers over the next five years.
The contracts are also part of a larger agreement involving the continued export of LNG, per the agreement reached by ConocoPhillips, Marathon and the State of Alaska in January, she said. Each of the companies agreed to negotiate new gas supply agreements with Enstar under that agreement, and to approve 2008 drilling plans.
Starring said the LNG facility “serves an important reliability role in the supply and demand balance of Cook Inlet gas,” and noted that both contracts provide that operation of the LNG facility “will be curtailed if necessary” to meet the suppliers’ commitments under their Enstar contracts.
—Kristen Nelson
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