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Vol. 16, No. 2 Week of January 09, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

Gas by mid-February? Armstrong believes pipeline could be ready

Armstrong Cook Inlet believes it can bring the North Fork unit online as early as mid-February, if Alaska regulators give the independent permission to operate a new pipeline.

“The pipeline could be ready for operation as soon as mid-February and initial commissioning and testing cannot occur without operation of the pipeline,” Ed Kerr, vice president of Armstrong, wrote in an affidavit. “For this reason, Anchor Point Energy hopes to begin deliveries of gas via the pipeline as early as mid-February, 2011, or within several weeks thereafter. Enstar wishes to receive service as soon as possible.”

Anchor Point Energy, created by Denver-based Armstrong and its four partners, plans to market North Fork natural gas through a new pipeline, called the North Fork Pipeline.

The 7.4-mile dual pipeline will run from a production pad at the North Fork unit to Anchor Point, where it will connect to an extension of the Kenai Kachemak Pipeline.

The North Fork unit is in the southern Kenai Peninsula, 10 miles north of Homer.

More than a mile in place

Anchor Point Energy completed the first phase of the pipeline last year, according to the State Pipeline Coordinator’s Office. The first phase covered about one-sixth of the total length of the line, more than a mile of standard steel piping. Anchor Point Energy conducted hydro-testing on that portion of the pipeline in mid-December.

Surveying and pre-construction site work is already under way for phase two. The remainder of the pipeline will be constructed from Fiberspar LinePipe. That material is already onsite, and Anchor Point Energy is in the process of preparing the right of way.

Because the North Fork Pipeline crosses state land, the Alaska Department of Natural Resources is requiring it to be regulated as a common carrier pipeline, even though Armstrong and its partners would be the only customers on the pipeline for the foreseeable future, and Armstrong said the pipeline “functions as a gathering pipeline.”

That means Armstrong needs a certificate of public convenience and necessity, a process that can take up to six months to complete under existing regulatory timelines.

Armstrong wants the Regulatory Commission of Alaska to either expedite its decision or give Armstrong temporary authority to begin pipeline operations. Armstrong said that final testing requires the pipeline system to be entirely operational. If the RCA approves the CPCN by the end of January, Armstrong believes sales could begin in early March.

Gas online this winter?

Enstar Natural Gas certainly would prefer to have the natural gas as soon as possible.

For the first time in company history, Enstar is entering a new year without the full amount of natural gas it expects to need under contract. The Enstar-Armstrong gas supply agreement, approved in November 2009, provides firm base volumes as well as non-firm excess volumes that Enstar can request on the most extremely cold days of the year.

The contract allows Enstar to buy up to 1.2 billion cubic feet annually up to 10 bcf.

Before Enstar can buy that gas, though, it needs to complete a 21-mile extension of the Kenai-Kachemak Pipeline that will connect to the new North Fork pipeline.

“We should be completed with our end of the project in first quarter 2011,” Enstar spokesman John Sims told Petroleum News. “We’re expecting late January.”

Although Enstar doesn’t know exactly when gas sales will begin, Sims noted that Armstrong is contractually obligated to provide gas by the third quarter of 2011 and that Enstar did not include North Fork gas in its supply profile for the current winter.

Once gas sales begin, though, Enstar will not only have an additional source of base load gas, but also a fifth place to turn for non-firm volumes on days when demand peaks.

Gas inches closer to Homer

While Armstrong and Enstar are immediately concerned with bringing North Fork natural gas into the Southcentral Alaska distribution grid farther north, deliberations continue to bring natural gas to southern Kenai communities, especially Homer.

In 2010, the Alaska Legislature set aside $4.8 million for a gas pipeline to Homer, but Gov. Sean Parnell vetoed all but $525,000 of that appropriation, saying the rest of the project could be funded in the future after certain issues had been resolved. (Parnell did not include the additional funding in his recently released fiscal year 2012 budget.)

That reduced appropriation paid for a pressure regulation station in Anchor Point, needed to make gas from a regional pipeline usable in distribution grids, as well as the start of a pipeline heading south from Anchor Point. Sims said that Enstar completed the small pipeline last year, connecting it to both Chapman Elementary School and several local businesses, and is in the process of finishing up work on the pressure regulation station.

Officials across the Kenai Peninsula are now looking to fund the remainder of the project, which includes extending the transmission pipeline down to Homer and possibly to the city of Kachemak, and building out new distribution grids in those communities.

The City of Homer formed a Natural Gas Distribution Task Force last year to consider various ways of financing and building a distribution grid around the southern Kenai Peninsula. The five-member task force is next scheduled to meet on Jan. 10.

—Eric Lidji

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