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So far, so good for CINGSA gas storage Facility averted potential Southcentral Alaska gas delivery shortfalls during the past winter; utilities seek new supply contracts Alan Bailey Petroleum News
The new natural gas storage facility operated by Cook Inlet Natural Gas Storage Alaska, or CINGSA, near the city of Kenai on Alaska’s Kenai Peninsula played an essential role in filling what would otherwise have been shortfalls in Southcentral Alaska’s utility gas deliveries during the past winter, Colleen Starring, president of CINGSA, told the Regulatory Commission of Alaska, or RCA, on April 24. Starring expressed relief that the storage facility had fulfilled its role of ensuring adequate utility gas supplies during cold winter weather.
“We’ve made it through the winter of 2012-2013,” Starring said.
CINGSA’s initial customers were Enstar Natural Gas Co., Chugach Electric Association and Municipal Light and Power, with Homer Electric Association signed up to use the facility, starting in November 2013. Starring said that in March ConocoPhillips signed up as a customer for an interruptible storage service.
Market flux Starring, who is also president of Enstar, the main Southcentral gas utility, commented that the Cook Inlet gas market is in a state of flux, with Hilcorp Alaska, the company that has taken over Cook Inlet gas fields previously owned by Chevron and Marathon, being a significant player in that market, and with the Southcentral utilities now being involved in new gas supply contract negotiations.
“We have some good news on the horizon,” Starring said. “We’ve been working very closely with Hilcorp.”
In early February Hilcorp completed its purchase of Marathon’s Cook Inlet gas fields and shortly afterwards Hilcorp’s president, Greg Lalicker, told the Alaska Legislature that his company was in the process of figuring out new gas supply arrangements with Southcentral utilities.
Game changers “There have been a number of game changers in just the last month,” Starring told the RCA commissioners. “We can’t say enough about working with the folks over at Hilcorp and some of the early indications of what they can do.”
Enstar officials later told Petroleum News that the utility is in a holding pattern over future Southcentral gas supply decisions while new supply contracts with Cook Inlet producers are being negotiated. Southcentral utilities have been investigating the possibility of importing gas from out of state, to fill looming shortfalls in Cook Inlet gas supplies as gas production from aging local gas fields declines.
Starring told the commissioners that in the future Enstar will have to manage for itself the extreme swings in Southcentral utility gas demand between summer and winter, rather than depend on the gas producers to deal with those swings. And next winter the utility expects to have to pull very hard on the CINGSA facility for sustained periods of time, she said.
On schedule Starring said that the CINGSA facility had gone into operation, on schedule, on April 1, 2012, at which point the facility started accepting deliveries of gas for storage. After some initial difficulties with some of the wells in the facility, operations settled down. And the performance of all of the wells has steadily improved with use, to the point where the total capability of the facility is somewhat unclear. CINGSA had been deliberately conservative in its initial performance expectations, in the absence of a track record for the wells, Starring explained.
CINGSA customers waited expectantly around Nov. 9, the date at which stored gas was first withdrawn from the facility, as winter cold started to push up Southcentral gas demand. The gas did indeed flow from the facility, as planned, with subsequent storage reservoir pressures confirming that gas was being contained within the reservoir as expected.
“It’s a good reservoir,” Starring said, adding that severely cold weather in December had challenged utility gas supplies, making the availability of stored gas from CINGSA essential.
“But for CINGSA we might have had a very different outcome this winter,” Starring said.
December withdrawals Starring said that during December, with gas demand across all Southcentral utilities peaking at 312 million to 313 million cubic feet per day, CINGSA had to deliver anywhere from 18 million cubic feet per day to nearly 70 million cubic feet per day from storage, to ensure adequate gas continued to flow through the gas distribution system. Enstar itself was already obtaining about 240 million cubic feet per day direct from Cook Inlet gas producers, volumes that encompassed all possible gas from the utility’s contracted supplies and as much gas as possible from a daily gas supply bidding system that the utility operates.
Somewhat warmer weather in January saw for the most part a significant drop in gas withdrawals from CINGSA, with even the occasional opportunity to inject excess gas back into the storage reservoir. It proved possible to switch the facility from gas withdrawal to gas injection in less than an hour, Starring said.
“Our philosophy at Enstar was whenever we could purchase gas we were going to grab it and put it in that facility,” Starring said.
Financial success As well as meeting all expectation for performance as a gas storage facility, the CINGSA project has proved successful from a financial perspective. An original cost estimate of around $180 million for the facility had dropped to a little over $160 million by the time facility construction was nearing completion in February 2012, Starring commented. And the final cost numbers look to be coming in close to that lower figure, she said. CINGSA anticipates reconciling final cost figures in April 2014, in preparation for the filing of a revised rate for facility use, based on actual cost data, Starring said.
Expansion possibility CINGSA’s storage capacity could be expanded at some point in the future, an exercise that might take 30 to 36 months to complete and that might cost somewhere between $25 million and $80 million, Starring said. But any expansion decision would depend on the outcome of new gas supply contract negotiations and the future gas market situation, she said. In the event of a facility expansion, CINGSA would hold an “open season,” to provide potential customers with an opportunity to sign up for service, she said.
Starring characterized the CINGSA facility as a prime example of a utility success story and thanked the RCA commissioners and the leadership of the state Legislature for their decision making, to facilitate the fast and successful development of the storage facility. The Alaska Department of Natural Resources had also worked closely with CINGSA, and the facility’s customers had set aside some of their individual interests, to ensure the facility’s success for the benefit of all, Starring said.
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