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Vol. 14, No. 3 Week of January 18, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Nearing edge of the cliff

How close is Southcentral Alaska to the limits of Cook Inlet gas deliverability?

Alan Bailey

Petroleum News

At a Regulatory Commission of Alaska public meeting on Jan. 10 officials from Alaska Railbelt gas and electricity utilities described how peak demand for natural gas during a recent cold snap had tested the limits of gas deliverability from the Cook Inlet basin. RCA had called the meeting to review winter contingency plans for any gas supply interruptions for Railbelt utilities.

“We do know that our suppliers are working very hard. … They are at or near their capacity of being able to deliver to us,” Mark Slaughter, Enstar’s manager of gas supply told the commissioners.

The ConocoPhillips and Marathon Oil Co.-owned LNG plant on the Kenai Peninsula had been diverting gas for utility use during the cold snap but was starting to approach the limits of what it could deliver, Slaughter said.

“The LNG plant has been diverting gas and is scraping the bottom of the barrel of where it’s safe to be able to divert gas to us,” he said.

Major energy source

As well as being the main energy source for heating Southcentral homes and businesses, natural gas from Alaska’s Cook Inlet powers the majority of the region’s electricity generation.

But with much of the gas coming from declining oil and gas fields discovered many decades ago, gas supplies have dwindled to the point where supply is in balance with demand. Deliverability of gas on cold winter days now depends on the release of gas from storage facilities that are topped up during the summer as well as on the diversion of gas intended for processing through the Kenai Peninsula LNG plant at times when demand is especially high.

An Alaska Department of Natural Resources graph that has been doing the rounds for several years shows Cook Inlet gas production falling off a cliff as the field decline continues. But some have questioned the meaning of this diagram, since it only projects established production of proven reserves from known fields. And the current Cook Inlet reserves-to-production ratio has settled into a value not too dissimilar to values found in the Lower 48.

So just how tight is Cook Inlet gas deliverability in comparison to peak winter demand?

RCA Chairman Robert Pickett said that the commission had called the Jan. 10 public meeting in response to Cook Inlet utility gas supply and deliverability questions that had been raised in several commission dockets.

“We have had some issues raised that caused the commission to call this special public meeting and conduct a fact-finding enquiry as to current deliverability issues in the Railbelt with the utilities and what the current state of cooperation is among the various gas consuming utilities,” Pickett said.

Record demand

However, by coincidence, the meeting took place just a few days after Enstar Natural Gas Co. had reported a new record for both its gas deliveries to customers and for gas throughput in its pipeline system during exceptionally cold weather. And these record-setting gas volumes provided some data with which to review the gas deliverability situation.

The record Enstar daily throughput of 314.5 million cubic feet was set on Saturday Jan. 3, with another new record for Enstar deliveries to its customers nearly being set on the following Thursday, Slaughter said. On that record-breaking Saturday Enstar carried 21 million cubic feet in commercial gas transport, about 56 million cubic feet for the electric utilities and 4 million cubic feet for Fairbanks Natural Gas. The remaining gas was for delivery to Enstar’s customers.

To meet the demand on Jan. 3, Enstar asked Aurora Power to over deliver on its Enstar commercial throughput, while the ConocoPhillips LNG plant curtailed LNG production to divert gas for utility use, Slaughter said.

Enstar has two major pipelines delivering gas into Anchorage and the Matanuska-and-Susitna valleys. One of those pipelines carries gas from gas and oil fields on the west side of Cook Inlet. The other line, on the east side of the inlet, carries gas north from the Kenai Peninsula.

On the record-setting day 101 million cubic feet of gas flowed through Enstar’s pipeline on the west side of the inlet, while 213 million cubic feet flowed through the pipeline on the east side, Slaughter said. About 7 million cubic feet came from gas storage on the west side, with an estimated 55 million cubic feet from storage on the east side.

These volumes demonstrate a significant decline in gas delivered from fields on the west side of the inlet, compared with the 1990s when more gas came through the west side pipeline than through the east side pipeline.

Dan Dieckgraeff, Enstar’s manager of rates and regulatory affairs, said that besides gas going through Enstar’s pipelines, Chugach Electric Association’s Beluga power plant on the west side of Cook Inlet used 60 million cubic feet of gas on the record day.

Decline in deliverability

But “most dramatic” is what has happened at the LNG plant at Nikiski on the Kenai Peninsula, Dieckgraeff said. During a 1999 peak in utility demand the plant used 224 million cubic feet per day of Cook Inlet gas, in a 2007 peak they were down to 150 million cubic feet and they were at 40 million cubic feet on Jan. 3, he said. Meantime the Agrium fertilizer plant that had been consuming gas in 1999 has since closed down.

“I think the really striking thing here is that in a matter of two years we’ve lost essentially 100 million (cubic feet per day) in deliverability,” Slaughter said. “… The fields are aging. They’re getting harder to pull gas out of. … There’s not much more that you’re going to be able to pull out from diverting from the LNG plant. This is very serious as to where we’re going with the deliverability here.”

In the future, more gas could be made available from fields on the west side of Cook Inlet if tariffs on the Beluga pipeline that connects into the Enstar system on the west side are reduced, Slaughter said. Facilities for the re-gasification of LNG stored in tanks in the Kenai Peninsula LNG plant would also provide a greater buffer of deliverability during peak demand.

“That will allow us to take gas directly from the LNG plant … into the system at a high pressure,” Slaughter said. “We are working with Black and Veatch on that and we expect to get a report from them in the spring and then we’ll continue to work with Conoco and Marathon on that project.”

Enstar also wants to increase the compression capabilities in its system. More gas storage also needs to be developed in the Cook Inlet region, especially to cater for any short-term production or transportation problems, Slaughter said.

Power generation

Burke Wick, director of system control for Chugach Electric Association, one of the two Anchorage electric utilities, said that Enstar had asked Chugach to curtail sales of economy power to Golden Valley Electric Association, the Fairbanks utility, to reduce gas demand during the recent peak gas loads. Chugach generates 90 percent of its power from natural gas and experienced a near-record peak electricity load of 488 megawatts on Jan. 7, Wick said.

Chugach has not exceeded its contracted peak gas demand and the utility has the capability to redistribute its gas load if necessary, using different power plants, Wick said. The utility also has the ability to purchase power from the City of Seward or from GVEA, were it necessary to bolster Chugach’s own power generation, he said.

Henri Dale, power systems manager for GVEA, said that, if necessary, GVEA would generally be able to deliver about 80 megawatts of power through the power transmission intertie from Fairbanks into the Anchorage region. GVEA uses oil as its main fuel for power generation.

James Posey, general manager of Municipal Light and Power, the other Anchorage electric utility, said that ML&P uses its own gas that it obtains through its ownership interest in the Beluga gas field on the west side of Cook Inlet. Enstar ships the Beluga gas to the ML&P Anchorage power plant under the terms of a firm transportation tariff with Enstar, Posey said.

In the event of an interruption to the Beluga gas supply, ML&P could potentially draw on its share of gas line pack in the Enstar pipeline system, use commercial arrangements for alternative gas supplies, purchase power from other Railbelt electric utilities or fall back on the temporary use of diesel fuel stored at the power plant, Posey said.

Utility cooperation

In general the utility officials expressed confidence in the way in which the various utilities cooperated with each other and with the gas producers in dealing with both fuel supply issues and equipment outages. However the commissioners questioned whether there is a need for a formal protocol between the utilities for dealing with power and gas supply emergencies. In general, the officials seemed to think that discussions around a protocol would be helpful.

However, Chugach CEO Brad Evans said that he also sees access to information about the future of Cook Inlet gas supplies as critical to contingency planning.

“On an hour-to-basis … there is a lot of inter-utility cooperation,” Evans said. “… The vacuum that’s occurring to us here is that the resource is becoming scarce. … I think what we need right now in the inlet is a lot more transparency about what is the plan for the Cook Inlet. Who is going to be doing the drilling for gas that’s out there and not under production right now? We’d like to know that.”

But have Cook Inlet gas supplies already reached a crisis point?

Not yet, RCA chairman Pickett told Petroleum News. But a 30 percent decline in deliverability in a two-year period and peak deliverability approaching the floor of help from the LNG plant are causes for serious concern, he said.

On Jan. 14 ConocoPhillips spokeswoman Natalie Lowman confirmed to Petroleum News that ConocoPhillips has been diverting gas from the Kenai Peninsula LNG plant to meet “significant peaking requirements” from local utilities.

“The company is meeting all of its contractual commitments to provide gas to Alaska utilities,” Lowman said.

ConocoPhillips had a 2008 Cook Inlet drilling program consisting of two wells in the Beluga River unit and three wells in the North Cook Inlet unit and has a 2009 drilling program to increase gas deliverability and develop additional Cook Inlet resources, Lowman said.

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