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March 2019

Vol. 24, No.10 Week of March 10, 2019

CINGSA order is out

RCA declines gas storage facility pre-approval request for reliability upgrades

Alan Bailey

Petroleum News

The Regulatory Commission of Alaska has turned down a request by Cook Inlet Natural Gas Storage Alaska for pre-approval of the technical prudence of some proposed modifications to the CINGSA gas storage facility on the Kenai Peninsula. CINGSA has proposed the modifications to enhance the reliability of the facility by eliminating some single points of failure. The idea was that, by obtaining pre-approval of the justification for the work, CINGSA would reduce the risk of spending money on the modifications and then being prohibited by the commission from recovering the estimated $41 million cost through the rates that CINGSA charges its customers for gas storage services.

CINGSA wants to drill two new wells, to reduce a high level of dependence on a single well that now accounts for about 44 percent of the deliverability of the facility’s five wells. The company also wants to install an additional gas dehydration train and install a new turbine gas compressor.

Mixed response to proposals

Of the facility’s customers, only Homer Electric Association has expressed outright opposition to the CINGSA proposal - HEA told the commission that, given CINGSA’s track record of reliable and uninterrupted services since the facility went into operation in 2012, the upgrades are unnecessary. Chugach Electric Association and Municipal Light & Power have taken a neutral stance, neither opposing nor supporting the proposals. However, these two customers and the state attorney general’s office of Regulatory Affairs and Public Advocacy argued that pre-approval of the technical prudence of the upgrades would not include pre-approval of the prudence of the cost of the project, nor of any mechanism for recovering that cost through gas storage rates: Any resulting rate increase would require separate RCA approval, after the project is completed.

Enstar Natural Gas Co. has supported the proposals. However, the commission expressed caution about Enstar’s position, given that the utility is an affiliate of CINGSA and operates the storage facility on CINGSA’s behalf. And, especially given that no other utilities had requested the CINGSA modifications, pre-approval of the modifications is not warranted, the commission determined. Instead, the commission recommended that CINGSA should offer enhanced reliability services through an open season, giving an opportunity to those utilities that want enhanced reliability to sign up while not burdening other utilities with additional costs.

However, the RCA did pre-approve one item in the package of proposed facility upgrades: a modification to one of the facility’s wells to deal with a problem associated with water accumulation in the well, causing the well to be shut in. This upgrade is supported by CINGSA’s customers and does not represent the addition of a new, redundant feature to the storage facility, the commission said.

Warehousing of gas

CINGSA enables gas and power utilities to warehouse gas during periods when they are able to obtain more gas than they actually need at the time. The utilities can then use this stored gas during periods of high gas and power demand, to meet any shortfall in gas supplies from gas producers. The storage facility also enables the deliverability rate of gas to be boosted, when heating and power use peaks during severe winter cold.

Gas is stored in what used to be a subsurface sand reservoir of the Cannery Loop gas field, south of the city of Kenai. The facility has five wells for the injection and retrieval of stored gas. Two compressors powered by reciprocating engines pump gas into the storage reservoir. A gas dehydration train removes water from retrieved gas, so that utility grade gas can be delivered into the gas transmission pipeline network.

Usage pattern

According to CINGSA’s latest plan of development, filed with Alaska’s Division of Oil and Gas on Feb. 26, monthly volumes of gas injected into storage in 2018 ranged from about 90 million cubic feet in January to 950 million cubic feet in August. Some gas was injected each month. Some gas was also withdrawn each month. Withdrawals ranged from about 57 million cubic feet in July to about 1 billion cubic feet in January.

CINGSA has previously suggested that the pattern of injection and withdrawal indicates that the utilities are using the storage facility for many purposes, rather than just the warehousing of excess summer produced gas for winter use.

RCA critique

As part of its critique of CINGSA’s upgrade proposal, the RCA said that, besides CINGSA, there are other providers of gas deliverability in the Cook Inlet region, including gas producers, some of which have their own gas storage facilities. Moreover, the precedent agreements and associated service agreements for the CINGSA facility, agreed with the facility’s customers, did not envisage the construction of redundant features, such as additional wells beyond the original five-well design, nor of the installation of a second dehydration train. And there is no clause in storage service agreements or the tariff obligating CINGSA to enhance its facilities, the RCA said.

In addition, the definition of firm storage services in the CINGSA tariff is couched in terms of priorities over other service types, and not in terms of the service availability, the RCA commented. To justify a need for some unilateral change to CINGSA’s services, it would be necessary to demonstrate that gas supply conditions or customers’ reliance on those services have changed in a manner that warrants the modification. And it appears that the Cook inlet gas supply situation is no worse than it was when CINGSA started up, and may even be better, the RCA said.

No compelling evidence

In terms of CINGSA’s proposal to install a redundant dehydration train, RCA said that the company had failed to present compelling evidence that its current dehydration arrangements are inadequate. And, in response to CINGSA’s proposal to drill two redundant wells, the RCA commented that to date the storage facility had never had to supply gas at the facility’s maximum supply capacity. Moreover, CINGSA has not demonstrated that the facility’s most productive well is likely to fail, such that two redundant wells are needed, the RCA said.

Nor does the installation of an additional gas compressor unit appear justified, the commission said.

“In conclusion, we are not convinced that CINGSA well performance is either so compromised, so outside the bounds of original expectations, or is so vitally necessary today, that a new standard of enhanced reliability is needed,” the RCA said.

On the other hand, if an individual storage customer determines a need for improved security of service, that customer could request and pay for additional delivery service provisions, for which it would have right of use, the commission said.






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