Gas supply options
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Imported LNG to Kenai included in phase 1 of Railbelt utilities assessment
Kristen Nelson Petroleum News
Imported LNG is on the table as Railbelt utilities look at ways to meet natural gas demand later this decade. So is North Slope gas, but the challenges to moving that gas to the Railbelt in time to meet expected shortfalls in supply present a major stumbling block. And there is more gas in Cook Inlet but developing that gas is challenged and it would probably only provide a short-term supply.
(See chart in the online issue PDF)
Those were major results of phase 1 of an assessment of Cook Inlet natural gas supply and demand released by the Alaska Railbelt utilities working group June 28.
In a statement the working group members - Enstar Natural Gas, Chugach Electric Association, Interior Gas Utility, Homer Electric Association, Matanuska Electric Association and Golden Valley Electric Association - said the assessment is part of a multi-phase project to find near- and long-term solutions for Cook Inlet gas supply users.
Enstar is the major direct user of Cook Inlet natural gas followed by Chugach Electric.
The assessment results were presented at a Regulatory Commission of Alaska hearing June 28 by Enstar President John Sims and Lieza Wilcox of the Berkeley Research Group, which was contracted by Enstar to conduct a planning assessment of options.
The utility working group was formed in May 2022 after Hilcorp announced that it would not be extending its current gas contracts.
The Cook Inlet supply issue The assessment confirmed that Cook Inlet natural gas supplies "begin to taper as early as 2027," the companies said, allowing little time for Railbelt gas users to assess solutions and make decisions, with timing a critical component to avoid a shortfall in gas supplies. The companies said they also focused on reliability "as a key factor to ensure the project predictability meets area needs for several years."
Ten options were explored, then narrowed "to three categories of projects which could meet the expected gas shortfall in 2027 and beyond."
Those categories are additional Cook Inlet gas production; importing gas from outside Alaska; and bringing gas from the North Slope.
Pros and cons The companies said developing additional supplies from Cook Inlet "is viewed only as a very short-term fix, given the challenging market conditions limiting the economically recoverable volumes of gas remaining."
That option continues to be pursued in confidential negotiations with producers.
Importing liquefied natural gas "was identified as a leading project" because it could meet the gas needs of the utilities by 2027 and will continue to be explored in the next phase of the assessment, which is underway and expected to be completed by the end of the year.
North Slope gas was also considered - both a small-diameter line for in-state use and a larger diameter line for export, but "the permitting and construction process may not be compatible with the utilities' timeline," the companies said, but will continue to be explored as part of a longer-term supply solution.
RCA presentation In a package prepared for the June 28 presentation to RCA, supply and demand assumptions were analyzed.
The forecast demand was supplied by the utilities with high, medium and low gas demand were considered.
On the supply side, the study used the Alaska Department of Natural Resources' "2022 Cook Inlet Mean Truncated supply forecast," with Cook Inlet reserves not yet contracted estimated at some 290 billion cubic feet in the 2027-40 period. DNR, the presentation said, expects a gas supply gap to develop in 2027.
DNR's gas availability study from 2018 was used "to estimate incremental Cook Inlet supply and price levels beyond base case."
Existing gas cannot fully meet demand beyond 2026 based on current proved reserves "or beyond early/mid 2030s assuming incremental local supply development."
BRG assessment The assessment by Berkeley Research Group, BRG, recommended that, based on scoring of the options considered in phase 1 of the assessment, the working group select one permanent solution or multiple short and long-term options by the end of 2023 and target first delivery of gas in 2027-28. Ten options were considered and ranked by the working group, with options falling broadly into four categories, BRG said: Cook Inlet supply; Alaska North Slope supply; LNG options; and renewable and low-carbon gas.
In the assessment each option was analyzed based on:
*Year when first gas would be delivered
*Maximum annual supply and how long supply would meet expected demand
*Total estimated capital investment required
*Direct investment required by utilities
*Estimated cost of supply
Assessment of alternatives BRG said some 188 billion to 220 billion cubic feet of incremental production might be developed by 2040.
However, the assessment said, new capital is difficult for Cook Inlet operators to secure for a number of reasons, and while utilities are best positioned to gauge availability and pricing of additional Cook Inlet gas, "it is our opinion that it would be risky and unadvisable under current market conditions to count on sufficient Cook Inlet or other regional gas supply to fill the Unmet Gas Demand beyond 2026 without developing alternative supplies."
While North Slope gas, either through an in-state pipeline or from a large line providing gas for export as LNG, would provide stable long-term supply, BRG sees issues, primarily around those projects being unfunded and, especially with the LNG project, unlikely to be available in time to meet Cook Inlet needs.
The assessment looks at several options for bringing in LNG: using the existing Marathon-owned Kenai LNG export facility for import and regasification; building a new LNG import terminal in the area; using a floating storage and regasification unit, FSRU; and using a small-scale FSRU serviced by vessels smaller than typical LNG carriers.
British Columbia and Mexico would be potential sources of LNG for an import and regasification facility, BRG said.
The assessment also looked at trucking LNG from the North Slope, involving between 28 and 35 daily truck deliveries (depending on trailer size) to move LNG from the North Slope to the Matanuska-Susitna area for unloading, storing and vaporizing as needed.
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