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Export license extended for Cook Inlet liquefied natural gas Department of Energy says supplies in Southcentral Alaska should be adequate for projected needs during extension Kristen Nelson PNA News Editor
The U.S. Department of Energy Office of Fossil Energy has granted the export license extension requested by Phillips Alaska Natural Gas Corp. and Marathon Oil Co. for exports from the Nikiski liquefied natural gas plant.
Phillips and Marathon applied in late 1996 for a five-year extension of their existing export license for 2004 through 2009.
The extension was protested by Enstar Natural Gas Co., Union Oil Company of Calif., Northern Eclipse LLC and Fairbanks Natural Gas LLC jointly and Aurora Gas Inc. The Department of Energy said in its April 2 decision that the protestors argued, based in large part on supply and demand studies, that approval of the application would cause a shortage of natural gas in Southcentral Alaska during the five-year extension period.
By statute, DOE said, there is a “presumption in favor of approval of an export application, and the Department must grant the requested export extension unless it determines the presumption is overcome by evidence in the record of the proceeding that the proposed export will not be consistent with the public interest.”
DOE said that after review of data submitted by applicants and protestors and other available data, it found evidence of adequate supplies of natural gas in Cook Inlet during the proposed extension period. Reserve in Cook Inlet the big issue In evaluating the supply, DOE said that it “has carefully reviewed the Cook Inlet natural gas supply forecasts submitted, cited, or relief upon by the parties. The department said that natural gas resource estimates submitted by applicants and protestors used or referred to estimates prepared by the Colorado School of Mines Potential Gas Committee, the U.S. Geological Survey, the Energy Information Administration, the Minerals Management Service and the Alaska Department of Natural Resources.
In general, DOE said, “reserve estimates are revised substantially upward over time as demand for gas increases and new exploration and development technologies become available.”
In Cook Inlet, without any significant exploration activities since 1980, DOE said, “reserves have nonetheless continued to increase through reserve growth in existing fields.” Water influx and associated gas Enstar and Unocal, DOE said, raised supply questions “primarily regarding water influx and associated gas.” Enstar’s water influx issue, the department said, produced the greatest disparity in reserve estimates. Enstar estimated total gas supply at 3,003.9 billion cubic feet, compared to Unocal’s estimate of 3,376 billion cubic feet and Phillips-Marathon’s estimate of 3,949.4 billion cubic feet.
DOE rejected the water influx basis on which Enstar’s estimate is based, saying it believes “the reservoirs are compartmentalized and too discontinuous to permit a significant water drive to exist, and conclude water influx is not and will not be a major factor in reservoir performance.”
Unocal, the department said, did not include associated gas in its supply estimate, “contending associated gas is not available for production since it is often reinjected to optimize oil production.” Associated gas is natural gas which overlies or is dissolved in crude oil.
DOE said it considers associated gas to be part of the resource base “that will eventually be produced at the end of the oil production period, as well as during gas cap blow-down.” Availability of associated gas, DOE said, “is a matter of timing and economics, rather than the volume of available resource.” DNR, U.S.G.S. estimates used DOE used the proved reserves estimate of the Department of Natural Resources and the U.S.G.S. estimates for probable reserve growth and for potentially economically recoverable gas from undiscovered fields.
DNR’s “Historical and Projected Oil and Gas Consumption” report, DOE said, “provides an independent, unbiased estimate of proved reserves.” DNR’s estimate of proved reserve as of Jan. 1, 1998, was 3,066 billion cubic feet for the Cook Inlet area. DOE noted that the 2,957 billion cubic feet estimated by the Energy Information Administration is close to the DNR estimate.
The EIA goes field-by-field reserve estimates based on confidential filings by producers with the Security and Exchange Commission. The difference in the two estimates, 4 percent, may be explained, DOE said, by the fact that the EIA does not include associated gas.
Reserve growth and undiscovered fields numbers were taken from the U.S.G.S., which like DNR’ “is an independent, unbiased, governmental agency whose estimates have been cited and relied upon by the parties in the case,” DOE said. The U.S.G.S. estimate for “probably associated and non-associated reserve growth,” adjusted by DOE, is 1,038 billion cubic feet. And the U.S.G.S. estimate for economically recoverable gas from undiscovered fields is 441 billion cubic feet. Combining these figures, DOE estimated “the total volume of natural gas reserves and resources available to be produced in the Cook Inlet area between 1998 and 2009” to be 4,545 billion cubic feet. Cook Inlet natural gas demand DOE noted that all demand estimates fell within a range because all were based on demographic projections from the Institute of Social and Economic Research. Projected additional demands differed, with Enstar’s estimate of 3,104 billion cubic feet based upon an iron ore reduction facility and shipment of LNG to Southeast Alaska communities while DNR’s estimate only added LNG trucked to Fairbanks.
DOE said it used Enstar’s demand estimate, less the iron ore plant and LNG to Southeast — which DOE considered too speculative — and arrived at a demand estimate of 2,847 billion cubic feet.
With an estimate of 4,545 billion cubic feet available and a demand estimated at 2,847 billion cubic feet, DOE concluded “there are more than adequate regional natural gas supplies to meet the anticipated local and export demand.”
Phillips and Marathon are currently authorized to export up to 64.4 billion cubic feet per year, about 35 percent of the 1997 market for Cook Inlet natural gas.
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