State regulators have approved a gas supply contract between Enstar Natural Gas and ConocoPhillips that lets the Alaska utility buy non-firm supplies as soon as January.
The contract approved by the Regulatory Commission of Alaska on Oct. 11 provides another avenue for Enstar to buy natural gas on days when local demand spikes, as in winter cold snaps, but does not create any guarantees that natural gas will be available.
Under the contract, called CPAI-3, Enstar can ask ConocoPhillips for additional volumes and ConocoPhillips can in turn decide whether it has the volumes available to sell.
The contract runs from Jan. 1, 2011, to March 31, 2013.
The price of the gas will be negotiated at the time of the sale, but is subject to a cap based on heating oil futures on the New York Mercantile Exchange. Enstar used a similar formula to price excess volumes in a contract with Marathon Oil earlier this year.
Five options for peak demandThe contract gives Enstar a fifth non-firm option on peak demand days in 2011 and 2012.
In addition to the new ConocoPhillips contract, Enstar can ask for peaking gas from Union Oil Co. of California, excess gas from Marathon under two contracts and non-firm gas supplies from Anchor Point Energy, a subsidiary of Armstrong Cook Inlet. The Anchor Point contract won’t become useful until Armstrong and Enstar complete a pipeline project to connect the North Fork unit into the Southcentral transmission grid.
Those five contracts give Enstar some protection against cold snaps, but no guarantees.
Enstar believes it could face a 900 million cubic foot shortfall in 2011 and a 1.1 billion cubic foot shortfall in 2012, about 3 percent of total demand. Enstar also projects a 40-mmcf shortfall in deliverability — or available gas — on the coldest days of the year.
Those shortfalls may not come to pass, if weather and consumption stay mild. If they do come to pass, and if the five non-firm contracts can’t meet demand, Enstar and other regional utilities will have to enact emergency measures created to reduce demand.
The new contract, though, also provides a sixth option. In an emergency, it requires ConocoPhillips to divert supplies bound for the liquefied natural gas export terminal in Nikiski for use in the local grid, as long as the diversion won’t harm the LNG plant.
The U.S. Department of Energy recently extended the export license for the terminal for another two years, until March 31, 2013, which is also the end of the CPAI-3 contract.