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Pfoff: Aurora Power on life support
Alan Bailey Petroleum News
Southcentral Alaska natural gas marketing company Aurora Power has since its foundation in 1994 provided gas consumers with an alternative gas supply option to major gas utility Enstar Natural Gas Co. But a Cook Inlet gas supply crunch has pushed Aurora Power’s business model into life-threatening territory.
“We have rapidly over the past few years transitioned into a market that I characterize as being an undersupply. Others might say we’re just in balance,” Scott Pfoff, president of Aurora Power, told Petroleum News March 9. “… That has certainly been a big challenge for Aurora Power.”
Lower prices Pfoff explained that Aurora Power has in the past been able to supply its customers with gas at lower prices than Enstar by purchasing gas from producers who sought to increase their share of the Southcentral Alaska gas market.
Enstar’s weighted average cost of gas from its suppliers determines its gas prices to its customers. But the various Enstar gas supply contracts encompass a wide range of price levels. So, a producer with one of the lower priced Enstar contracts might be interested in selling excess gas to Aurora Power at a higher price than that producer’s Enstar contract price, but at a lower price than the Enstar’s weighted average cost. Aurora Power could then sell that gas to consumers at competitive price levels.
In the past, Chevron, selling gas from its interest in the Beluga River field, constituted Aurora Power’s main supplier. But all that changed in 2006, following Chevron’s 2005 purchase of Unocal. Included in that takeover were Unocal’s Cook Inlet assets and Unocal’s gas supply agreement with Enstar. And, of course, the takeover took place at a time when excess gas in the inlet was drying up.
“We knew (the takeover) would either be really good for us or really bad for us,” Pfoff said. “It turned out to be really bad for us, because Chevron basically decided to stop selling us gas. Despite our best efforts we were unable to find a replacement supplier and we were unable to successfully negotiate something that Chevron was able to do with us.
“… So we were faced last fall with a situation of doing some major cutting in our customer base. We pretty much cut, I believe, 70-75 percent of our load.”
Supplies from Aurora Gas In fact, Aurora Power’s only source of gas now is Aurora Gas’s set of west Cook Inlet gas fields. Some of that gas became available after Aurora Gas suspended its gas deliveries to Enstar in October 2006, although Pfoff stressed that the situation with the Enstar supply developed before Chevron said that it was terminating supplies to Aurora Power. Aurora Gas did not stop selling gas to Enstar to make gas available to Aurora Power, he said.
“In the short term, if we weren’t going to sell it to Enstar, we had no other places to sell it, other than Aurora Power,” Pfoff said.
One of the casualties of Aurora Power’s supply problems in the fall of 2006 was Fairbanks Natural Gas. Aurora Power had been supplying FNG with gas for liquefaction near Point MacKenzie on the northern side of the Cook Inlet, so that FNG could truck LNG to Fairbanks. When Aurora Power announced that it would have to terminate its supplies to FNG, Enstar agreed to step in and provide gas temporarily. Since then FNG has decided to source its gas from an LNG plant it is building on the North Slope.
The perfect storm
The termination of the FNG supply coming at about the same time as Aurora Gas’s suspension of its deliveries to Enstar caused a public relations “perfect storm” for the Aurora brand. But Aurora Power and Aurora Energy are independent companies with different ownerships, and dealing with different and independent business issues, Pfoff stressed.
“We were getting tag teamed as Aurora defaulting on all of its contracts,” Pfoff said. “… People sometimes perceive us as one company, but we’re really not.”
So how about the future? “We’re at a point where we may decide to pull the plug if we simply cannot line up the supply,” Pfoff said.
Aurora Power shopped for gas in the summer of 2006 but producers were nervous about committing supplies over the winter, when gas demand peaks, Pfoff said. However, the suppliers did say to contact them again in 2007 “because everybody plans to be out there doing a lot more drilling for gas,” Pfoff said.
Pfoff thinks that it would be a shame to lose a small, independent gas marketer from the Cook Inlet scene, if Aurora Power goes under.
“Aurora Power did provide savings to its customers and it was the closest thing there was to a spot market,” Pfoff said. “We were in a position where we could buy gas from anybody who came on the scene that drilled a new well.”
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