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Looking at the gas options for Alaska Heinze outlines the business aspects of delivering NS gas within the state; pushes for NS propane sales to rural communities Alan Bailey Petroleum News
When it comes to piping natural gas from Alaska’s North Slope most eyes have been focused on gas delivery to distant venues.
But not so the Alaska Natural Gas Development Authority. Formed originally by voter initiative as a state corporation to promote an in-state gas line to a proposed LNG terminal in Valdez, ANGDA under the leadership of its CEO Harold Heinze has adopted a more general role of looking out for Alaska gas supplies.
“Our focus is what’s going on in the state of Alaska,” Heinze told a Sept. 8 meeting of the Anchorage Chamber of Commerce. “Very frankly there are more than enough folks worrying about gas to Chicago and other things like that.”
Short term issues The long term prospects for gas in Alaska look bright, but there are some difficult issues in the short term, he said.
In Alaska, mainly in Southcentral Alaska, natural gas is used for heating, electricity generation and LNG exports. But that usage only represents about 5 percent of the possible North Slope pipeline capacity, Heinze said.
At the same time, Southcentral Alaska has seen a major investment in an energy infrastructure that is designed to use gas.
“You’ve got to have gas molecules to make it work,” Heinze said.
ANGDA is concerned about obtaining gas for use in Alaska from a future North Slope gas line. Consequently, it has been focusing on plans for a spur line that would connect to the main line at Delta Junction and run through Glennallen to the Matanuska-Susitna Valley, Heinze said.
And, with the Denali Pipeline and TransCanada pipeline projects moving ahead, the prospects for construction of a North Slope gas line are becoming ever rosier.
“We’ve ended up at a good spot,” Heinze said. “We’ve got two very capable sponsor groups who are capable of designing, building and executing a big pipeline. … They will probably move faster than any of you think.”
At the same time there are several things happening that are also important for in-state gas. Enstar Natural Gas Co. is working on a project to bring North Slope gas to Southcentral Alaska — six to nine months from now Enstar should be able to evaluate its project, Heinze said. And the export of LNG from an “all-Alaska” line is still on the table as part of the AGIA process.
At the same time, a recent Regulatory Commission of Alaska hearing on Enstar’s new Cook Inlet gas supply contracts proved very contentious and a pending RCA decision on the Enstar contracts will become very important in setting the stage for the future of the gas industry in the Cook Inlet region.
And under the agreement for the extension of the export license for the Nikiski LNG terminal on the Kenai Peninsula, ConocoPhillips and Marathon Oil are both going to drill five new Cook Inlet wells, Heinze said.
“Again, it will play into the whole Cook Inlet situation,” he said.
Close balance However, there is now a close balance between gas production and consumption in the Cook Inlet region. Gas delivery during peak winter demand has become a concern, with peak deliverability depending on curtailment of production at the LNG terminal.
“Without the Kenai LNG plant we wouldn’t have made it through the last two winters,” Heinze said. “And we’re not in much better shape this coming winter.”
Drilling more wells and implementing gas storage can deal with the deliverability issue, but it will be a long time before a spur line with high deliverability can come into the area, he said.
Meantime, gas prices in Southcentral Alaska will continue to increase, Heinze said. “That’s a reality of the blend of contracts and their ages, and more importantly the way the contracts are indexed in price,” he said.
But although gas prices are on the rise, Heinze expects that gas will continue to trade at a discount to oil on an energy content basis. There is a similar trend in the United States as a whole because the United States has huge domestic gas resources but limited internal supplies of oil, he said.
World of hurt Interior and rural Alaska are currently in a world of hurt when it comes to energy prices.
Fairbanks residents face utility bills four to five times the size of those in Southcentral Alaska, with dependence on oil for heating a major cost factor, Heinze said. Fairbanks is looking forward to what will likely be about the cheapest gas in the United States once the North Slope gas line passes close to the town, but still has to face an immediate energy price problem.
“The problem is what will their economy look like. What will be the citizenry, the population, the demographics of who’s left there? What will happen to the military bases?” Heinze said.
Gov. Sarah Palin has issued a challenge to the organizations involved in Alaska gas supplies, Heinze said. ANGDA has interpreted that challenge as a call for near term assistance for the people in Fairbanks, be said.
“Our response was that we can take the basic spur line we’ve been working on … and we could tack onto the (Delta Junction) end of it high-density plastic pipe, and run it all the way on up to North Pole where Golden Valley (Electric Association) makes the electric power for the Interior basin,” Heinze said.
The shipment of gas north from Cook Inlet through the extended pipeline could save hundreds of millions of dollars in Fairbanks utility consumer costs over several years, he said. And this arrangement could piggy-back off pre-building the spur line before construction of the main North Slope line starts, at which point construction costs are likely to escalate.
Although Cook Inlet gas supplies are tight, Fairbanks demand is relatively small and would only add 10 percent to Southcentral demand, Heinze said.
Spur line progress Meantime, ANGDA fieldwork for assessing wetlands along the spur line route has been in progress.
“That work will be completed, if not already completed, this summer,” Heinze said. ANGDA has initiated an environmental impact statement for the spur line construction, as well as the federal right of way procedure and other activities. Work on the spur line route is 12 to 18 months ahead of other gas line projects, Heinze said.
ANGDA is also developing gas supply contracts and a gas purchase strategy — as North Slope gas comes to market there will be opportunities for Alaska utilities to buy gas in the ground on the Slope, Heinze said.
“ANGDA intends to pursue that vigorously,” he said.
But because of the impracticality of building long-distance gas pipelines to small rural communities in Alaska, Heinze thinks that the distribution of propane from the North Slope to these communities by road, river and coastal barge will be a key to future rural energy supplies.
“We’re also looking at the immediate installation of a propane wholesale facility on the North Slope,” Heinze said.
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