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Vol. 17, No. 36 Week of September 02, 2012
Providing coverage of Alaska and northern Canada's oil and gas industry

CINGSA, Marathon resolve base gas issue for new storage facility

Marathon Oil and Cook Inlet Natural Gas Storage Alaska, CINGSA, said Aug. 24 that they have resolved an issue of base gas for the new CINGSA facility at Kenai.

The companies said in a joint statement that they had reached “a resolution toward meeting CINGSA’s base gas supply shortfall.”

The base gas shortage surfaced in mid-August when CINGSA told the Regulatory Commission of Alaska that it was short of the base gas it needed for optimal operation of the facility in the upcoming winter season. CINGSA is just completing work on the facility; injection began in April. Base gas allows customer storage volumes to be removed as needed.

CINGSA blamed an unnamed Cook Inlet producer for failing to meet the terms of a March 2011 contract to provide base gas for the facility.

CINGSA said it needs 7 billion cubic feet of base gas to “allow the project to operate as designed,” but said in mid-August that it had secured only 5 bcf of base gas, including 0.5 bcf of bas gas under a July 11 contract with ConocoPhillips Alaska.

The 2011 contract

Marathon Oil responded, saying it had a March 2011 contract with CINGSA, but denying it was required to supply all of CINGSA’s base gas requirements. In a statement Marathon called the CINGSA statements “false allegations,” and said it had “complied fully with the terms of the agreement and will continue to do so.”

Marathon said it was not required to supply all of CINGSA’s base bas requirements.

CINGSA told RCA it believed that natural gas “intended to be sold to CINGSA has instead been exported to Japan as LNG at a substantially higher price than CINGSA had agreed to pay.”

Marathon also said in its statement that it had sold its interest in the LNG plant in 2011 and no longer has an export license.

Volumes from Kenai gas field storage

In the Aug. 24 joint statement, the companies said that Marathon’s wholly owned subsidiary, Marathon Alaska Production LLC, “has begun transferring gas from its storage facility at the Kenai Gas Field to CINGSA’s nearby storage facility.”

“We appreciate Marathon’s offer to sell additional gas volumes that help CINGSA meet our ‘base gas’ requirements,” Colleen Starring, CINGSA vice president, said in the statement. “Given the nature of the two companies’ storage facilities, these gas transfers will result in a new increase in gas deliverability for the winter peak demand period thus increasing confidence in meeting winter peak energy needs this year,” she said.

“CINGSA believes that we will have most of the base gas required to provide contractual rates of deliverability and operate efficiently,” CINGSA spokesman John Sims told Petroleum News in an Aug. 27 email.

No breach

Wade Hutchings, Marathon Oil’s Alaska asset manager, said in the joint statement that Marathon affirms the company’s “previous statements that there was no breach of the gas sales agreement between Marathon and CINGSA.” He said he was “pleased that Marathon is able to make available to CINGSA additional supply from our storage.”

“Marathon has built and maintained our Kenai Gas Field storage facility in such a way that it can be used in the event of shortfalls, and has relied on these reserves to meet both peak contractual commitments and other emergency gas needs in the region since the facility was commissioned in 2005,” Hutchings said.

He said Marathon honors its contractual commitments, “and with the storage we have in place we strive to go above and beyond during times of need.”

Marathon is in the process of selling its Cook Inlet assets to Hilcorp Alaska LLC, which has already acquired the Cook Inlet assets formerly held by Chevron.

—Kristen Nelson



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