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Uncertain future for Southcentral gas Utilities take stock of the evolving gas supply situation, with declining production from aging fields and new gas storage planned Alan Bailey Petroleum News
As fall gales blow the leaves from the trees in Southcentral Alaska and local residents prepare for the oncoming winter, the power and gas utilities face what is becoming an annual spin of the natural gas supply roulette wheel, assessing the possibility of a winter cold snap sufficiently severe to push gas demand beyond the delivery capabilities of aging Cook Inlet gas fields.
A gas shortfall, perhaps precipitated by an equipment failure during peak winter cold, would likely trigger rolling power blackouts in the region, as the power utilities reduce gas usage to ensure that adequate gas pressure is maintained in the gas distribution pipeline infrastructure.
On Sept. 28 at the Alaska Oil and Gas Congress in Anchorage, executives from Southcentral gas and power utilities spoke about the current gas supply situation.
Positive developments Mark Slaughter, manager of gas supply for Enstar Natural Gas Co., the main Southcentral gas utility, told Congress attendees that, with the Regulatory Commission of Alaska having quickly approved several new utility gas supply contracts in the past couple of years, the regulatory environment for Southcentral Alaska has changed dramatically — regulatory review of new supply contracts had previously reached something of an impasse, as RCA commissioners declined to approve new contracts amid controversy over equable gas pricing.
At the same time state incentives for gas storage development passed into law during this year’s legislative session are encouraging the construction of new storage facilities, Slaughter said. By storing excess gas produced during low summer gas demand, storage facilities can boost gas delivery during periods of high winter gas loads.
Uncertainties remain But although there have been these positive developments in the gas supply situation, many uncertainties remain and the next two to three years will be very challenging, Slaughter said.
Uncertainties include the question of whether the U.S. Department of Energy will extend the export license for the Kenai Peninsula LNG plant beyond 2011, given the ability of that plant to bolster winter utility gas supplies by curtailing LNG production. The fact that the LNG plant owners have already halved production at the plant, despite making good profits from LNG exports, demonstrates how tight Cook Inlet gas supplies have become, Slaughter said.
And the ever-changing abilities of individual wells to deliver gas introduce further uncertainties into the gas supply arrangements; there are decisions in the offing about potential gas pipelines that might deliver North Slope gas into Southcentral Alaska; gas producers, including new producers, face future uncertainty in the Cook Inlet gas market; and there is continuing uncertainty about the pricing of utility gas from the Cook Inlet basin, Slaughter said.
Impending shortfalls Current estimates indicate that, without new gas wells, annual utility gas demand could start to exceed annual gas supply somewhere around 2013-14, Slaughter said.
But if those estimates are wrong, the shortfall could happen in 2012 or earlier, he said.
“We don’t know what the reservoirs really are capable of,” Slaughter said. “We’re just projecting forward based on public information.”
Everyone involved in utility gas issues, including utilities and regulators, will need to cooperate, to head off a gas shortage, he said.
Meantime, Anchor Point Energy is bringing the North Fork gas field online in the southern Kenai Peninsula, with Enstar building a new pipeline to Anchor Point. Enstar is also carrying out infrastructure upgrades in other parts of its gas distribution system, Slaughter said.
Plenty of gas And a study conducted by the Alaska Department of Natural Resources, later supported by another study done for some Southcentral utilities by Petrotechnical Resources of Alaska, indicated that there is still quite a bit of as-yet undeveloped natural gas remaining in the Cook Inlet basin.
“There’s still a lot of gas left,” Slaughter said. “In their analysis of the major fields there’s over 800 billion cubic feet of gas, almost a trillion cubic feet of gas, which really is a 20-year supply.”
And those figures do not include additional uncertain, undiscovered gas resources, he said.
But part of the current challenge is finding price incentives for the producers to seek new gas, given that the easy gas has already been found, Slaughter said.
However, having been unable to contract for all of its future gas supplies, Enstar is moving into a situation where it will have to buy some gas on a daily basis, thus for the first time creating a spot market for gas producers in the Cook Inlet basin, Slaughter said.
“We have a very small amount of gas … that we will be buying every day… this coming winter,” he said.
CINGSA gas storage And Enstar’s sister company, Cook Inlet Natural Gas Storage Alaska, or CINGSA, is moving ahead with joint venture partner MidAmerican Energy Holdings Co. to develop a new gas storage facility on the Kenai Peninsula; CINGSA has asked for RCA approval of the facility by December.
Future initiatives to alleviate the gas supply situation include the possibility of bi-directional flow on the gas pipeline that runs east-west under Cook Inlet, and further development of the CINGSA storage facility.
On the other hand, attracting new Cook Inlet gas producers or achieving an attractive tariff on a pipeline delivering North Slope gas into Southcentral will require a higher demand for gas from new industrial gas users and perhaps from other gas applications, such as the use of natural gas to fuel vehicles, Slaughter said.
Decision needed “You need a larger market and basically any spur line or bullet line isn’t going to be a successful project without some type of industrial demand,” Slaughter said. “… Otherwise you’re really looking at LNG importation.”
And it is now necessary to make a decision on future capital intensive energy supply options — the longer people wait in choosing options, the narrower those options will become, Slaughter said.
Lee Thibert, senior vice president of strategic planning and corporate affairs for Chugach Electric Association, a major Southcentral power utility that generates 90 percent of its electricity using natural gas, also commented that, with multiple options for future Southcentral Alaska energy supplies, the time for a decision has arrived.
Thibert said that the gas reserves behind Cook Inlet gas wells have been steadily declining and that it would take the drilling of 13 to 18 new wells per year to maintain gas production in the future.
“The (gas) market is really depressed … so what’s the incentive for the developers to go out and produce? … There’s been a real problem in trying to get the producers to drill holes in the ground,” Thibert said.
Higher prices Tightening gas supplies and shorter-term gas contracts have pushed up the price of Cook Inlet gas, and with it the cost of electricity, with utility gas in Southcentral Alaska now becoming more expensive than in the Lower 48 states. Southcentral utilities have also started to have to pay premium prices for peak winter supplies, Thibert said.
Options for future energy supplies include the development of new Cook Inlet gas resources, the construction of a “bullet” gas line from the North Slope, the building of a spur line from a future North Slope gas line, the development of coal gasification and importing LNG into the region. There are also potential renewable energy sources.
“We need to pick one or two (options) and move forward,” Thibert said.
In the short term, Chugach Electric has established new gas supply contracts with ConocoPhillips and Marathon, and the utility has a gas storage agreement with CINGSA waiting for RCA approval. And, given that natural gas will likely remain a primary energy source for a long time, Chugach Electric and Municipal Light & Power, an Anchorage power utility, are planning to construct a new state-of-the-art gas-fired power plant in south Anchorage that will generate power 30 percent more efficiently than Chugach Electric’s veteran main power plant on the west side of the Cook Inlet.
More diversified But Chugach Electric’s board of directors has set a longer term strategic goal of achieving a more diversified portfolio of energy sources, potentially including a major new hydropower system at Lake Chakachamna or on the Susitna River, and with other possibilities such as wind projects, waste energy, geothermal energy and the boosting of existing hydropower systems all in the cards.
The state has said that it wants 50 percent of energy coming from renewables by 2020, Thibert said.
“We said (that) we can’t put a timeline on it yet, but we do know one thing — we have to start today,” he said.
Contingency planning Meantime, the Southcentral utilities have been engaged in joint gas shortage contingency planning, considering various options to head off the possibility of power outages during the coming winter. Those options include the temporary transmission of power from Fairbanks, the short-term use of diesel generation by Municipal Light & Power and adjustments to the relative use of different power plants, Thibert said.
“(Power) interruptions, they’re a very last resort,” he said.
And the Energy Watch Program initiated in the winter of 2009-10 is coming into action again, to enlist the public’s help in reducing energy demand, should a severe cold snap hit the Southcentral region, Thibert said.
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