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Vol. 15, No. 29 Week of July 18, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Progress on CI storage

CINGS seeking RCA approval for gas storage facility before major construction

Alan Bailey

Petroleum News

Semco Energy is confident that a new natural gas storage facility on Alaska’s Kenai Peninsula will start pumping gas into an underground storage reservoir on schedule in June 2012, George Schreiber, president and CEO of Continental Energy Systems, Semco’s parent company, told the Regulatory Commission of Alaska July 14.

“We think the project is on track,” Schreiber said. “… We have the expertise on board now to be able to move forward with the construction.”

But RCA approval of the new facility by year end will be critical to the project timing, given the need to complete construction in time to store gas during the 2012 summer, he said.

ANR Pipeline Co., a TransCanada subsidiary, has been working with Enstar Natural Gas Co. on the facility concept and had formed an ANR subsidiary called Cook Inlet Natural Gas Storage LLC, or CINGS, to build and operate the facility. But in April Semco exercised an option to buy out the project from TransCanada. Semco subsequently decided to retain the CINGS name for the facility’s operating company, with CINGS becoming a Semco subsidiary, alongside but independent from Enstar, the main Southcentral Alaska gas utility and another Semco subsidiary.

Third party storage

Unlike existing gas storage facilities in the Cook Inlet basin which are operated by gas producers for their own use, the CINGS facility will offer storage services to third party companies, including gas and power utilities.

Enstar opted out of the agreement for ANR to build and operate the Kenai Peninsula storage facility because Municipal Light & Power, one of the Southcentral utilities slated to use the facility, felt very strongly that the facility should be regulated by RCA, Enstar President and CINGS executive Colleen Starring told the commissioners. The other users of the facility will be Enstar and Chugach Electric Association.

Enstar wants to be able to use the new facility in 2012 to prevent potential shortfalls in natural gas deliverability in the winter of 2012-13. A deliverability shortfall for utility gas could cascade into outages in the regional electrical power supply, much of which comes from gas-fueled generators.

In the longer term, the storage could also help in the overall Southcentral gas supply situation, providing insurance against supply interruptions and helping to balance pipeline loads, Starring said.

“We (also) think that storage is a critical component of being able to negotiate our gas supply contracts going forward,” she said.

The storage facility, sited in the Sterling C sands of the Cannery Loop gas field, on the immediate south side of the city of Kenai, will have an initial capacity of 11 billion cubic feet, expandable in the future to around 16 billion or 17 billion cubic feet, Starring said.

RCA regulation

In April Alaska lawmakers passed state legislation requiring RCA to regulate gas storage facilities.

And, with that June 2012 startup being contingent on prompt RCA approval of the new facility, to provide regulatory certainty prior to the start of major construction activities, CINGS plans to file its RCA approval application on July 26 of this year in the hope that RCA approval will be forthcoming by December.

“We would respectfully request that the commission act on that application in December,” Schreiber said. “That is an important timeline for us because … if we don’t get to injecting gas into the facility in June of 2012 the delay is not a couple of months. It’s basically a year.”

CINGS is in the process of discussing with its customers potential tariff terms and conditions, Starring said.

Semco anticipates sinking $12 million to $14 million into the gas storage project in 2010, with the majority of the project expenditure, another $166 million to $188 million coming in 2011 and 2012, as construction swings into high gear and gas is injected into the facility.

“We have the capital for the project,” Schreiber said, also commenting that his company sees the storage facility as an exciting opportunity to expand its business in Alaska. The capital cost of the project includes the purchase of so-called “pad gas,” the gas that maintains pressure in the storage reservoir but which is not delivered to customers, he said.

But Semco has been talking to potential partners that have appropriate expertise for the construction and operation of the facility, and the company has also been looking into opportunities for local investors to participate in the project, Schreiber said.

Moving ahead

TransCanada has sold its complete work product for the facility to Semco and has been working with Semco to transition out of the project, Starring said. And two highly experienced, newly retired TransCanada engineers have now joined the new CINGS company to continue working on the project, she said.

Land has been purchased from the University of Alaska for surface facilities, while a gravel well pad will be constructed on adjacent state land, Starring said. The total surface impact will be about 13 acres, she said.

Notices regarding the use of state land will go out at the end of July, with a public hearing in early August, Starring said.

“We have to get in there this fall and do some clearing,” she said.

And as part of the first phase of the project, ending in December, Petrotechnical Resources of Alaska is doing subsurface engineering and well design, while AECOM is doing the surface civil engineering. DOXCO Service Co. is doing land acquisition and title work. Enerflex will supply the gas compressor for the facility.

Semco picked up the permitting arrangements for the project from TransCanada and, having worked with the Alaska Department of Natural Resources on the permitting, CINGS filed the permitting package on June 18, Starring said.

Reservoir integrity

In response to a question from RCA Chairman Robert Pickett about the risk of gas migrating out of the subsurface storage reservoir, John Lau, Enstar’s director of transmission operations, said that PRA is addressing issues such as the integrity of abandoned wells in the reservoir and that both CINGS and Marathon, the operator of the still-producing Cannery Loop field, would monitor reservoir integrity, once the storage facility is in operation.

Commissioner Janis Wilson asked about the process for identifying customers for the facility, while Commissioner Kate Giard asked about any intent to operate the facility as a common carrier style of operation, perhaps with an open season to bid for capacity.

Starring said that TransCanada had originally approached potential customers and had found that Chugach Electric Association and Municipal Light & Power had storage needs (Enstar originally approached TransCanada with the gas storage concept and, so, would presumably have been viewed as a facility user from the outset).

The facility’s initial capacity is now fully subscribed by the requirements of its three initial customers, Starring said.

Nan Thompson, Enstar vice president and general counsel, said that the facility would be operated as a public utility. It is important to move ahead with the facility and then address future expansion after the facility has gone into operation and the expansion possibilities are better understood, Thompson said.

And will the scale of potential withdrawals of gas from the facility eliminate any possibility of power blackouts in Southcentral Alaska, asked Commissioner Paul Lisankie.

The facility will meet Enstar’s deliverability needs in 2012 but the situation is unknown beyond then because the utility is still short of contracted supplies for 2013 and 2014, Starring replied.

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