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Vol. 11, No. 40 Week of October 01, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

Stocking the natural gas larder

Natural gas storage facilities in Southcentral Alaska help balance the supply needs in a region of strong seasonal demand swings

Alan Bailey

Petroleum News

A glance at the natural gas bills for any Southcentral Alaska household reveals an obvious truth: people use much more gas in the winter than they do in the summer. Not too many years ago, when the region enjoyed a large surplus of cheap natural gas from Cook Inlet, balancing summer gas needs with peak mid-winter demand was essentially a question of turning some gas production wells off or on.

But with maximum field output now falling short of peak winter demand, ensuring adequate supplies during the winter has become a difficult exercise, sometimes involving minute-by-minute decisions on what gas to obtain from where. Consequently, gas storage facilities that store surplus gas in the summer to meet potential gas shortages in the winter are starting to become key components of the gas supply infrastructure.

At the Southcentral Alaska Energy Forum in Anchorage in September Brian Havelock, a natural resource specialist with Alaska’s Division of Oil and Gas, explained that there are now three gas storage facilities in the Cook Inlet area.

One of these facilities in Chevron’s Swanson River oil field on the Kenai Peninsula has been in operation since 2001 and was expanded in 2005, Havelock said. Another facility in Chevron’s Pretty Creek gas field on the west side of Cook Inlet received a state gas storage lease in 2005. The third facility in Marathon’s Kenai gas field, south of the town of Kenai, received its state lease in May; Marathon has been injecting gas into this facility over the summer.

Although people use a variety of structures, including salt domes and aquifers to store natural gas, all of the Alaska facilities consist of depleted oil or gas fields.

“The best candidates for (oil or gas field) storage are reservoirs that are trapped and capped, with tank-like characteristics, distinct structure and evidence of pressure depletion without a supporting drive, like water,” Havelock explained.

Cushion gas and working gas

Gas storage operators distinguish between what they call cushion gas and working gas. The cushion gas consists of a permanent reservoir inventory, used to maintain reservoir pressure and thus achieve required delivery rates through production wells. Working gas is cycled in and out of the reservoir in response to varying gas injection and gas withdrawal rates. The volume of gas that can be withdrawn from the reservoir in a day is termed the deliverability of the storage facility, Havelock said.

Storage optimization includes questions of balancing the volume and pressure of the cushion gas with the volume of the working gas, Havelock said. For example, maintaining a relatively high volume and pressure of cushion gas increases deliverability but also increases operating costs and reduces the volume of saleable working gas. Smaller reservoirs (such as the facility at Swanson River) tend to be suited for meeting peak loads over relatively short periods, because they can easily support the maintenance of relatively high pressures. Larger reservoirs (such as the facility in the Kenai field) are better suited to support more moderate base loads over longer timeframes.

Havelock said that the peak deliverability for the three Cook Inlet storage facilities under optimum conditions is about 88 million cubic feet per day (20.8 mmcf from Swanson River, 60.3 mmcf from Kenai and 7.3 mmcf from Pretty Creek). But he said that this peak level was unlikely to be attainable at the moment and that a more realistic deliverability was an average value of about 43 million cubic feet per day (7.4 mmcf from Swanson River, 33.3 mmcf from Kenai and 2.4 mmcf from Pretty Creek). The storage facilities may become able to deliver at the maximum design rates once some operational experience has been gained, Havelock said.

But what do those deliverability figures represent when it comes to addressing the gas supply problems in

Southcentral Alaska?

Projections of Southcentral Alaska gas supplies show supply volumes dropping over a cliff in the next few years, as existing oil and gas fields deplete. But Havelock cautioned that this cataclysmic view of the future might be somewhat unreal because it is based almost entirely on proven reserves — “gas touching well bores.” If you take into account additional gas that almost certainly exists, the future doesn’t look quite so bleak, especially as the producers always try to balance supply with market demand,

“The Cook Inlet market is saturated. … The producers are only producing what can be sold.” Havelock said.

But this balancing of supply with market demand probably means that the days of gas surpluses are over.

“In 2006 DNR forecasts production to be about 206 billion cubic feet,” Havelock said. “That comes to an annual average of 564 million cubic feet per day.”

Consistent gas usage

Gas usage has remained fairly consistent in the past few years and averaged 572 million cubic feet per day in 2005 (that usage level would have been higher had the Agrium fertilizer plant at Nikiski not cut back its operations).

The demand for industrial gas for fertilizer and LNG production on the Kenai Peninsula tends to be fairly constant throughout the year. However, commercial, residential and power generation demand varies significantly between summer and winter. And were the gas to be supplied at a constant rate throughout the year, the swing in demand would cause supply shortages in the winter and a supply surplus in the summer.

In practice, Havelock said, the producers have been throttling back the summer gas production and then producing at high rates in the winter. However, even at maximum production, the oil and gas fields struggle to keep up with the peak winter gas demand.

And that is where the gas storage comes into play, with the storage facilities supplying gas to fill production shortfalls. In fact, Agrium has said that it only managed to keep its Nikiski fertilizer plant open through the winter of 2005-06 as a result of the Swanson River gas storage facility boosting gas supplies during peak winter demand.

Boosting summer production

It is also possible to use gas storage to reduce the need to cut gas production during the summer — the excess production can be stored and used to help meet the winter base load demand. And theoretically that could increase the total annual gas production by a small amount, because the gas production wells could produce at a higher rate for more of the time over the course of the year.

Unfortunately, however, the realistic current deliverability of the gas storage facilities of about 43 million cubic feet per day isn’t sufficient to fully fill the shortfall of supply relative to demand during the colder parts of the winter. According to division estimates, the demand for base-load storage is 90 million cubic feet per day during the winter; demand during the coldest days requires an additional 47 million cubic feet per day from peak shaving facilities.

And, depending on the location of the storage facility, it may or may not be possible to channel gas through the pipeline network to meet peak demand at some specific time and place.

The bottom line on all of this is that, although the existing gas storage facilities will help balance gas supplies across the peaks and troughs of winter and summer demand, some additional storage is really needed.

“Cook Inlet needs additional working gas capacity and daily, especially peak deliverability, to meet current seasonal demand swings,” Havelock said.

And, of course, the availability of gas storage doesn’t help with the overall issue of having enough gas supplies to meet the total annual gas demand.

“You can’t inject gas you don’t have,” Havelock said.

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