The Southcentral natural gas market is an island. Unlike the Lower 48, where natural gas utilities have pipeline connections to gas from other areas, Alaska has no such connections.
When natural gas was discovered in Cook Inlet during the search for oil in the late 1950s and 1960s, producers had to find ways to process gas for export by ship — as fertilizer and as liquefied natural gas — because the local market was too small to absorb all the gas and there were no pipeline connections to other markets.
Southcentral Alaska is still an energy island and as deliverability of natural gas for utility use becomes problematic, moving energy in by ship is being discussed.
While it raises a furor in some quarters to discuss importing LNG into a state which has such plentiful natural gas resources, most of those resources are not available to meet heating needs in the state.
LNG has been leaving Southcentral Alaska via tanker since the late 1960s; within the next few years tankers may be bringing LNG into Cook Inlet.
Not all forecast needs coveredEnstar Natural Gas Co., the utility for Southcentral Alaska, contracts for natural gas supplies locally, but as of the end of this year it no longer has firm contracts for 100 percent of its forecasted needs.
That’s a first, Enstar spokesman John Sims told Petroleum News Dec. 13.
And it’s significant for local residents, since Enstar has 95 percent of the space heating market in Southcentral Alaska.
The amount of forecast gas needed for 2011 not under firm contract is not large, Sims said, only about 1 billion cubic feet (see black sliver on chart for 2011) out of a total of more than 30 bcf.
By 2012 that unmet need — forecast gas not under firm contract — has grown to some 1.5 bcf.
The unmet need is larger in 2013, about 10 percent of supply needed; by 2014, some 45 percent of Enstar’s forecast gas need is not currently under firm contract; and by 2017 Enstar’s unmet need has grown to the majority of its forecast need.
So where is the gas going to come from?
Local gas a possibilityA study done earlier this year by Petrotechnical Resources of Alaska for Enstar, Chugach Electric Association and Municipal Light & Power concluded that gas producers would have to drill an average of 13.6 successful new gas wells per year in the Cook Inlet basin at a cost of some $2 billion, to extend adequate gas supplies through 2018.
But, Sims said, there were only eight successful gas wells this year, so next year the required number would be closer to 20. “And the problem keeps compounding,” he said.
House Bill 280, sponsored by Rep. Mike Hawker, R-Anchorage, and passed last year, offered incentives and there is some activity and some interest, Sims said, “but the problem is that it takes more than one-two years to get those leases and the production to market.”
What about meeting those immediate needs that aren’t covered by firm contracts?
Enstar has options to purchase excess gas and has a gas supply bidding system in place, Sims said.
That will change the game a bit, he said, because Enstar is not sure what the costs will be for gas in excess of firm commitments. There is a ceiling in most of Enstar’s contracts for excess gas which is the equivalent of heating oil, but Sims said Enstar doesn’t anticipate that the cost will be that high.
The LNG potentialThere is a significant gap in Enstar’s gas supplies, Sims said. “There’s no indication that the market’s going to be able to … sell it to us, so what do we do? And that’s where our gas supply team is going out, along with the rest of the electric utilities — and LNG is a probability.”
Sims said LNG has been a topic of conversation, but last year Enstar started “actively seeking out some information from companies.”
While the gap in the company’s supply is significant in 2013, “it’s probably not realistic to get LNG here in 2013,” Sims said, because Federal Energy Regulatory Commission approval is needed, and that’s a six-month pre-application process and then an 18-month process once the application is submitted.
Similar to energy watchSims said planning for LNG is similar to the local energy watch campaign in that “it’s better to be prepared than panic.”
Enstar could get 12 months of work into how to bring LNG in, “and then somebody will find something out in the Cook Inlet and it will all go away,” he said.
And as for discoveries from a jack-up offshore in Cook Inlet, Sims said Enstar is estimating it could be four to six years before that gas comes to market.
The best case, he said, “is there’s some additional drilling at existing fields: That would be a quicker turnaround.”
Sims said the only real options in the short-term are current exploration and LNG.
A bullet line from the North Slope or a spur line off of a mainline to market won’t help in the mid-term.
Enstar is working on storage and that will help it meet peaking needs — when gas demand spikes on cold days.
Additional gas in the short-term (shown on Enstar’s forecast in pink beginning in 2011) is from the North Fork field on the southern Kenai Peninsula.
Enstar will complete an extension of its line to Anchor Point in the first quarter; Armstrong Cook Inlet will complete the line from North Fork to Anchor Point in March, and then Enstar will have the option of purchasing that gas.
Sims said Enstar hopes that in the future its supply forecast will include a number of slivers of production from independents. We’ll buy gas from independents who find it, Sims said, “but nobody’s knocking on our door.”