Liquefied natural gas might flow into Alaska to tame a shortage, before any North Slope gas reaches tidewater, if Enstar’s recent analysis holds true. The company says imported LNG is increasingly likely to fill the gap for Cook Inlet area users as Cook Inlet production falls, and the market waits for a gas line from the North Slope or Nenana.
The LNG import idea is not new, but it is getting more attention after Enstar President Tony Izzo told a meeting of the Alaska Natural Gas Development Authority board imports are a likely option in the future.
Enstar spokesman Curtis Thayer told Petroleum News the idea of importing LNG has been discussed before, but what’s new is that the company is actually penciling LNG into supply gaps it sees in its scenarios for the future.
“It’s the first time we’ve put it on a calendar,” Thayer said.
“We have gas contract into 2009; beyond that, we’re running into gaps in our supply,” Thayer said. “All options are on the table.”
Thayer said the utility will explore the LNG idea because it can’t be sure when and if a North Slope natural gas pipeline will provide enough gas to meet customer demand.
“North Slope gas is a moving target,” Thayer said.
Negative impact
A June 2004 U.S. Department of Energy study listed LNG as a possible solution for Cook Inlet gas shortages, but with caveats for the state.
“Importing natural gas into Alaska would have negative impact on the region and state through lost revenue from royalty gas and taxes and the economic drain of capital from the region to pay for imports,” the report said. It would also make Alaska part of the worldwide LNG market and subject to worldwide LNG prices for gas to serve local markets.
Prices could turn out to be higher or lower than gas can be found and developed in the Cook Inlet basin or delivered from the North Slope, the report said, adding that existing LNG export facilities at Nikiski would require equipment to re-gasify the LNG and increase pressure to levels necessary to input gas into Enstar’s system. According to DOE, about 39 percent of Cook Inlet production is currently exported through the LNG plant which has an export license due to expire in 2009.
Thayer said Enstar has spoken to ConocoPhillips about using the Nikiski LNG plant for imports.
“There have been some passing conversations with ConocoPhillips; they asked if we were interested and we said yes,” he said. “The plant’s 2 bcf storage capacity would be clearly beneficial to the utilities.”
The gas storage at the LNG terminal would help ease stress on the system during periods of peak demand.
“We have excess capacity to move gas, so the problem is getting the gas out of the wells fast enough on cold days,” Thayer said.
Future sources
Thayer said it is hard to predict whether North Slope gas or Nenana gas would be the first to reach Cook Inlet
“Either would be a long-term solution that will be out generations,” Thayer said. “Andex and Doyon are cautiously optimistic on Nenana, but it is a five, 10, 15, 20 schedule.”
Thayer said LNG is probably not the least expensive source of gas in the long run; the great unknown of the LNG idea is conversion cost.
“At first blush, Nenana looks cheapest, because of the lower tariff,” Thayer said.
If the gas finally comes to the region from the North Slope, Thayer expects that to be a bargain compared to other places in the United States, as much as 20 percent cheaper than the price of North Slope gas delivered in Chicago.
No matter what happens, natural gas will cost the Cook Inlet consumer more in the future — but it stacks up well against alternatives, Thayer said, adding that in Anchorage, gas is $5.11 per mcf delivered to the burner tip, compared to prices of $7 per mcf to $8 per mcf in the rest of the country.
“Next to gas, the cheapest alternative available is fuel oil, at about $13 for comparable Btu values,” he said. “Propane is five time the cost of gas, electricity is even higher.”
Thayer said Enstar is in the business of transporting gas, but it doesn’t set the prices; market forces do — just as market forces are changing the Cook Inlet market from an excess supply market, to a supply and demand market.
