With government approvals moving ahead for Aurora Gas’ planned new storage facility in its Nicolai Creek gas field on the west side of Alaska’s Cook Inlet and with the passage earlier this year of state legislation designed to encourage the development of new natural gas storage facilities in the Cook Inlet basin, Aurora’s plans for storage at Nicolai Creek have regained momentum, Aurora Gas President Scott Pfoff told Petroleum News July 21.
“We’re back interested in pursuing this project,” Pfoff said.
Pfoff said that negotiations with the Alaska Department of Natural Resources over the terms of a storage lease are now progressing well and that Aurora has a potential customer for the facility. And in April the Alaska Oil and Gas Conservation Commission issued its approval for the injection of gas into the Nicolai Creek facility.
“We’re actually very encouraged by the developments that have occurred after the last six months at the legislative level and the DNR level. Physically everything is still in good shape, ready to go,” Pfoff said.
Aurora’s gas storage project is one of several initiatives addressing growing concerns that winter shortfalls in gas deliverability in Southcentral
Gas deliverabilityAlaska could trigger power outages in the region — much of the region’s electricity is generated from ever-tightening supplies of natural gas from the region’s aging gas fields. Many people see a ramp up of gas storage capacity in the region as a key means of alleviating the deliverability crunch: Storage facilities can hold excess gas produced during the summer and then make that gas available during periods of high gas demand in the winter.
Gas producers Marathon and Chevron already operate gas storage in the Cook Inlet basin, but the producers operate these facilities for their own use, to support their gas supply contracts. Aurora anticipates offering its facility for third-party use, perhaps for example by local utilities that want to store summer purchased gas for winter use.
Semco Energy, the parent company of gas utility Enstar Natural Gas Co., is fast tracking the development on the Kenai Peninsula of another third-party storage facility, but Pfoff feels confident that there’s more than enough storage demand to support multiple facilities.
“We’re not concerned that our project’s going to get shut out,” Pfoff said.
Still producingAurora’s Nicolai Creek field still actively produces gas. However, in typical Cook Inlet fashion, the field contains several distinct reservoirs in various sand bodies. Aurora wants to use a relatively depleted reservoir in three upper Tyonek sands for storage, while also continuing to produce new gas from other reservoirs in the field.
With a total capacity of about 1 billion cubic feet, the storage facility would be quite modest in size and would likely be most useful in supporting peak demand on especially cold days, when short bursts of high gas flow are needed. This would likely fill a different niche in the gas storage market than the Semco facility, which appears to target a more seasonal-scale demand level, Pfoff said.
Operation of the facility would start by using a single, existing well, the Nicolai Creek No. 2. This particular well penetrates the reservoir steeply. So, in a second phase of facility development Aurora plans to drill a horizontal well in the reservoir, to boost the rate at which gas could be both injected into the reservoir and retrieved from it — a horizontal well would be in direct contact with a much larger volume of the reservoir than a steeply inclined well.
Aurora expects phase one of the storage development to go into operation in 2011. However, completing phase two of the project in that same year would be very challenging, Pfoff said.
Open seasonIn August 2009 Aurora conducted an open season for the facility, to determine the level of commercial interest. The company offered the possibility of 800 million cubic feet of firm storage.
“We had one strong expression of interest,” Pfoff said.
But Aurora cannot negotiate specific terms and conditions with its prospective customer until the DNR lease is finalized. Negotiations with DNR had become stuck over lease terms that would have allowed DNR to determine how Aurora would charge for the storage services, Pfoff said. However, with DNR now having backed off that requirement, discussions are moving ahead again, focusing on determining an appropriate lease rental for the facility, he said.
On July 27 AOGCC issued its certification of the Nicolai Creek storage reservoir, thus enabling Aurora to claim the tax credit incentives available under the state gas storage legislation enacted this year — Pfoff had explained why Aurora had applied for this certification.
“We had to certify that the reservoir was a certain size so that it could qualify for some of the incentives that were being offered,” he said.
AOGCC has certified that the storage facility has a capacity of 700 million cubic feet, with a minimum gas withdrawal rate of 10 million cubic feet per day.
Regulatory clarityAurora will also need clarity over potential regulation of the Nicolai Creek facility by the Regulatory Commission of Alaska: The company plans to talk to the commission about this issue, Pfoff said.
“I think there’s still a little bit of uncertainty out there as to whether or not we would be a regulated facility,” Pfoff said. “We would want to resolve that and work with them.”
And Pfoff confirmed that Aurora does plan to make the storage facility available for use by third-party customers.
“Everybody agrees that we need storage and I think the mindset is ‘what do we need to do to make it happen?’” Pfoff said. “… We’re just very appreciative of the legislative efforts to provide incentives for us to do storage and exploration and development in the Cook Inlet. Now it’s on us to run with it and make it happen.”