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Aurora working storage at Nicolai Creek Faces challenges of developing first third-party Cook Inlet gas storage, doing it at operating gas field with new gas well planned Kristen Nelson Petroleum News
Aurora Gas is working on a plan to provide third-party natural gas storage at its Nicolai Creek field — the first third-party storage available in the Cook Inlet basin. And this isn’t a depleted field: Aurora plans to drill another development gas well at the field this year and believes it has oil potential beneath the gas.
While the company is satisfied it has a technically feasible project, there are both commercial and regulatory uncertainties, Aurora Gas President Scott Pfoff said June 24 at a presentation the company made on the storage proposal to potential customers and regulators.
Nicolai Creek is one of five small gas fields on the west side of Cook Inlet that the company has developed since it was formed in 1999, he said. The company’s deliverability has dropped from some 25 million cubic feet a day to about 10 million cubic feet a day, Pfoff said, but the company is drilling again and hopes to have two new wells by the end of the year and increase its deliverability again.
Nicolai Creek Unit No. 2 In phase one of the gas storage project, Aurora would use the existing Nicolai Creek Unit No. 2 well. This well, said Noah Matthews, senior reservoir engineer with PB Energy Storage Services Inc., is a deviated vertical well. It was drilled in 1966 and plugged and abandoned in 1991. Aurora re-entered the well and re-completed it in 2002. PB Energy Storage Services is doing work for Aurora on the project.
In phase two of the project, Aurora would drill a horizontal well into the top of three zones of gas reservoirs at Nicolai Creek with a 500-foot lateral.
The reservoir has a total capacity of 1 billion cubic feet in three Carya, or upper Tyonek, sands, and is some 65 to 70 acres, not more than a mile across.
Matthews said that with a producing gas field they’re pretty confident that the geology for storage exists.
The reservoir has good permeability and porosity, he said, and could be used for peaking operations — supplying gas to meet needs on the coldest days in winter, when demand for natural gas it at its highest.
Because of the small size of the reservoir, use in peaking might involve taking 100 million cubic feet out for a few days and then re-injecting that gas to build the reservoir back up. For a day’s flow it would typically take about a day and a half or two days to put the gas back.
Commercial, regulatory issues Pfoff said Aurora is convinced that Nicolai Creek is physically and technically a good storage reservoir, “… but here’s the kicker: We’ve got commercial and regulatory uncertainty.”
Aurora has never done a storage field before and Pfoff said he has to determine whether there’s money to be made in the project.
“My gut feel is yes. I mean everybody in the inlet can agree we need more storage, so there’s got to be money to be made in it. But I don’t know that for sure,” he said.
There is also regulatory uncertainty.
“We don’t know if we’re going to be allowed to charge market-based prices; we don’t even know what the market will bear.”
Open season next Aurora is going to continue working on the project.
The company plans to hold a nonbinding open season, soliciting interest from potential customers to find out what customers think the facility might be worth.
A storage facility open season in the Lower 48 would involve a lot of options, Pfoff said.
“And we could do that, but I think that that’s only going to complicate things.
“Realistically I think this is most likely suited to peaking operations. And what we’ll offer is capacity: Here’s the tank; here’s what we think it can do. We’ll make the physical modifications — the piping, the compression.”
Pfoff said Aurora won’t get into the market function of saying it can deliver gas, but will just offer storage capacity and customers will supply gas to put into that capacity.
Still negotiating lease Aurora is still negotiating a storage lease with the state and is looking for a lease comparable to what Unocal got for the Pretty Creek field, a storage reservoir of about the same size, Pfoff said.
He said the company has a philosophical difference with the state, which wants to protect its interest in the event Aurora makes a lot of money from providing storage.
It would be simple if “this was just a single reservoir under a single lease off by itself and we had depleted it, and then everybody looked at it and said this would be a great storage facility.”
In that event, he said, Aurora could just sell it to a utility or a producer that’s done storage, “because it’s really not our area of expertise.”
“But this operation is intermingled and intertwined with existing operations,” Pfoff said.
Aurora is getting ready to spud another gas well at Nicolai Creek and “we’ve got oil potential below a lot of this acreage.”
A utility wouldn’t want to pay for the upside potential on the acreage — and it’s not their business, he said. And a producer might only be interested in the storage and not in potential oil and gas, “so it makes it difficult for us to come to terms with … a larger company that’s interested in the storage.”
“So we’re kind of in this quagmire where realistically Aurora has to be the one that develops and operates this project and figure out a way to make it happen. It’s not simple,” Pfoff said.
“But, having said that, we’ll entertain any and all offers,” he added.
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