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Vol. 15, No. 52 Week of December 26, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

CINGSA approval

RCA grants gas storage certificate but CINGSA says conditions can’t be met

Alan Bailey

Petroleum News

On Dec. 17 the Regulatory Commission of Alaska approved a certificate of public convenience and necessity for the natural gas storage facility that Cook Inlet Natural Gas Storage Alaska wants to build on the Kenai Peninsula, to support the winter deliverability of gas to Southcentral Alaska utilities. In early November the commission held a public hearing to listen to testimony over whether the certificate should be granted.

“After considering the legislative record, the unanimous agreement of the parties in our hearing that gas storage services are needed, and the record presented in this docket, we find that natural gas storage service is required for the convenience and necessity of the public,” the commissioners wrote in their order granting the certificate. “We further find that CINGSA is fit, willing and able to provide natural gas storage services subject to certain conditions.”

Property rights

But CINGSA has not yet acquired the property rights that its needs to gain the use of the Sterling C sands of the Cannery Loop gas field, on the south side of the City of Kenai, for the storage facility, and the company is still negotiating a deal with Marathon Oil Co., operator of the Cannery Loop field. As part of its conditions for the certificate, the commission requires CINGSA to file an application to amend the certificate once the company has acquired the necessary reservoir property rights. And the commission said in its order that the CINGSA certificate does not approve any specific facility, but that the facility must be located in reasonable proximity to the Cook Inlet natural gas pipeline system.

RCA has scheduled a hearing, starting on Jan.7, to hear testimony on CINGSA’s proposed tariff for its facility. However, the commission says that it will cancel that hearing if CINGSA has not acquired the facility property rights by Dec. 30. And the certificate is also conditional on CINGSA acquiring all of the necessary permits and approvals for its facility, the commission says.

Impossible conditions

But CINGSA says that it is impossible to meet property-rights conditions that the commission has attached to the certificate, thus making the certificate worthless in its current form and potentially delaying completion of the gas storage project by at least a year. Continued financing of the project requires resolution of any tariff and rate issues by Jan. 31, thus making a January tariff hearing essential, CINGSA says.

In a petition to RCA filed Dec. 21 CINGSA asked the commission to remove all conditions attached to the certificate, other than requirements that CINGSA abide by all applicable laws, regulations and agency orders, and to approve a service territory for the specific storage facility in the Sterling C sands.

“Even with an unconditional certificate and defined service territory, CINGSA could not possibly complete by Dec. 30, 2010, the process of acquiring all of the necessary surface, mineral and storage rights of the 45 private individuals and corporations who claim ownership of mineral, storage or other interests in the Sterling C reservoir,” CINGSA said in its petition.

Without the power of eminent domain that would come with a certificate for the specific facility that CINGSA plans to build, CINGSA will not be able to negotiate workable deals with all of the relevant property owners, CINGSA said.

“By conditioning the certificate, the commission has ceded its power to determine whether the proposed storage facility should be built to the over 45 holders of fractional property interests in the reservoir who, by refusing to sell, can effectively veto the project,” CINGSA said. “In other words, the conditions in the (commission’s) order make it impossible to satisfy those very conditions, not just by Dec. 30, but forever.”

Deliverability crunch

With production from the aging gas fields of the Cook Inlet basin continuing to decline, Enstar, the main Southcentral gas utility, says that without gas storage to warehouse summer-produced gas it is unlikely that the utility will be able to supply gas at a fast enough rate to meet all of its customers’ needs during peak cold conditions in the winter of 2012-13. So CINGSA is trying to fast track the development of its storage facility, to enable the facility to start filling its storage reservoir during the summer of 2012. And, to meet that deadline, the company asked RCA to approve the facility certificate in December, so that construction can proceed.

Both Enstar and CINGSA are subsidiaries of gas company Semco Energy, but Semco has established CINGSA as a joint venture with MidAmerican Energy Holdings Co. The $180 million CINGSA facility will provide third-party gas storage services, with customers hiring storage space in the facility reservoir and paying for the injection and withdrawal of gas. Southcentral gas and power utilities Enstar, Chugach Electric Association and Municipal Light & Power will be CINGSA’s initial customers. The facility will have an initial capacity of 11 billion cubic feet per day, with the possibility of future expansion.

The maximum total gas delivery rate from the facility will be 150 million cubic feet per day. Enstar projects peak winter utility gas demand rising from 276 million to 298 million cubic feet per day between 2011 and 2015, with some of that gas coming directly from operational gas wells and some coming from gas storage. Enstar will probably have to add compression to its dual gas line from the Kenai Peninsula to Anchorage, to support the delivery of gas into Anchorage from the CINGSA facility.

First regulated facility

Although there are already three underground gas storage facilities in the Cook Inlet basin, these facilities are owned and operated by gas producers who use the facilities to ensure that gas deliverability commitments in gas supply contracts can be met. As the first third-party storage facility in the region, the CINGSA facility is the first gas storage to be regulated by RCA. And, by providing third-party access to storage, the facility may provide new opportunities for gas producers to sell gas year-round to local utilities.

On Nov. 19 the Alaska Oil and Gas Conservation Commission approved the future injection of gas into CINGSA’s planned Sterling C sands storage reservoir.

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