Relief for nowEnstar and Hilcorp sign new gas supply contract through to March 2018 Alan Bailey Petroleum News
Enstar Natural Gas Co. has asked the Regulatory Commission of Alaska to approve a new gas supply contract with Cook Inlet gas producer Hilcorp Alaska. The new contract, which runs from April 1, 2014, to March 31, 2018, will ensure that Enstar can meet all of its customers’ gas supply needs through to the first quarter of 2018, Enstar has told the commission.
With declining gas production from aging Cook Inlet gas fields, Enstar and other Southcentral gas and power utilities had been considering importing natural gas into the region within the next couple of years or so, to supplement local supplies. However, Hilcorp, now the dominant gas producer in the Cook Inlet basin, has been pursuing an aggressive development program in the Cook Inlet gas fields that it has purchased from Chevron and Marathon over the past couple of years.
In mid-July power utility Chugach Electric Association announced a contract with Hilcorp filling Chugach Electric’s unmet gas supplies, also through to the first quarter of 2018. And about a week later Enstar announced an agreement with ConocoPhillips for the supply of some gas in 2016 and 2017.
Enstar’s new contract with Hilcorp provides for the supply of volumes of gas ranging from 10 billion cubic feet in the first year of the contract to 21.5 billion cubic feet in the last year. However, the terms of the contract allow some flexibility in supply volumes, to accommodate the vagaries of factors outside of Enstar’s control such as changing customer needs and changing weather conditions. Essentially, with prior notice, Enstar can opt to change the committed gas purchase volumes within a specified range of volumes for years two to four of the contract. And within each of these years the volume of gas purchased can range from 97 percent to 105 percent of the volume committed for that year.
Gas prices Gas prices for “base load gas,” the gas delivered year round on a regular basis, start out at $6.86 per thousand cubic feet, rising progressively to $8.03 per thousand cubic feet in 2018. Higher prices would apply to additional gas purchased to meet high winter demand, or to meet any emergency gas needs. The contract prices do not include the cost of transportation of gas around the Cook Inlet gas pipeline network.
The prices match gas price caps set in a consent decree agreed between Hilcorp and the State of Alaska following Hilcorp’s purchase of Chevron’s and Marathon’s Cook Inlet assets.
Enstar uses the new Cook Inlet Natural Gas Storage Alaska, or CINGSA, facility on the Kenai Peninsula to store excess gas purchased in the summer to help meet high gas demand during the winter, thus reducing concerns about winter gas availability and avoiding some of the high cost of purchasing “swing gas” during cold winter weather. And under the terms of the new contract with Hilcorp, the utility will be able to request up to an additional 1 billion cubic feet of gas from Hilcorp during the summer for storage in CINGSA.
Gas deliverability The contract allows some variation in gas delivery rates, known as “deliverability,” between summer and winter, with the ratio of winter delivery rates to summer delivery rates limited to a factor of three during each year of the contract and with Enstar committing to purchase some winter “swing” gas. During the first year of the contract committed delivery rates range from 19 million cubic feet per day in the summer to 38 million cubic feet per day between the beginning of January and the end of March.
“We are very pleased with the volumetric commitment we have received (in the new gas supply agreement),” John Sims, Enstar’s director of business development, told Petroleum News in a July 26 email. “From a (daily) deliverability perspective during the term of the contract we are cautiously optimistic and strongly feel the need to continue awareness of the deliverability challenges faced here in Southcentral Alaska.”
Enstar will continue to evaluate any need to expand the CINGSA facility, Sims said.
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