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Study finds North Slope gas would be pricey for in-state use
Allen Baker
Alaska doesn’t have major new markets that North Slope natural gas could fill, at least at this point. And the gas wouldn’t be particularly cheap compared to current energy sources, and more expensive in most cases. Those are conclusions of a new study prepared by Econ One Research Inc. of Los Angeles and Acadian Consulting Group of Louisiana for the Alaska Division of Oil and Gas.
“When viewed individually, few applications for supplying ANS gas for in-state usage ‘pencil out,’” says the study, whose text runs about 145 pages.
Residential and commercial gas service to about 11,000 customers in the Fairbanks area might be feasible, but would cut bills there by only about 20 percent compared with fuel oil. The study assumes the gas would be heading to the Lower 48 along the current oil pipeline route and the Alaska Highway, and would thus be in close proximity to Fairbanks. New power plant studied The study also looked at the idea of building a huge new generating plant near the gas pipeline and delivering energy through the grid as electricity.
But while it would be a bit cheaper than some current power sources, there’s no need for additional generating capacity in the Railbelt for a dozen years or so.
If a new power plant is built, other plants will be shut down, with customers of the publicly owned utilities eating the costs. “Developing creative policies for recovering those costs would be needed,” the report notes.
A spur pipeline to Southcentral Alaska might improve the economics of Interior gas uses, including switching some electric generating plants to burn gas. But the savings in generating costs are fairly small — a third of a cent per kilowatt-hour or less.
Southcentral Alaska could eventually need additional gas supplies as demand increases and the Cook Inlet fields play out. But supplying that gas with a pipeline running from the big North Slope gas pipeline would mean substantially higher costs for consumers.
“The decision of supplying ANS gas to Alaska communities should be left to the market,” the report says. “If reserves fall low enough in currently served regions, prices will have to increase to ration demand. Once prices increase, signals will be sent to the market for the development of either new resources, or new means to bring other resources (i.e., ANS gas) to the region.” Southcentral shortfall by 2015 Even if a trillion cubic feet of additional reserves is discovered in the Cook Inlet region, Southcentral Alaska could still have a shortfall in the neighborhood of 30 to 40 billion cubic feet annually sometime between 2009 and 2015, the report said. At that point, a spur pipeline might make sense.
But residential consumers in the Enstar system would pay significantly more for the gas — 37 to 56 percent more than Enstar’s 1999 average of $3.66 per thousand cubic feet. The cost would still be 17 to 33 percent lower than the U.S. average for that year.
Other potential uses of ANS gas in Alaska are the large North Slope Internet facility proposed by Netricity LLC and a major petrochemical plant near North Pole as proposed by Williams Cos.
With the Internet boom receding, a “server farm” might seem unlikely in the near future, and in any case the study estimates a million-square-foot facility which would consume only about 4.3 billion cubic feet a year — about what the proposed gas pipeline to the Lower 48 would move in a day. Chemical plant potential A major petrochemical plant could use as much as 27 billion cubic feet annually, based on comparisons with similar operations on the Gulf of Mexico. It would use natural gas liquids, which would have to be separated out of the stream of methane.
Overall, the study projects Alaska’s baseline natural gas usage, currently 233 billion cubic feet a year, will grow about 1 percent a year through 2020, with residential demand growing 1.8 percent annually, commercial demand going up 1 percent, electric utility demand adding 0.7 percent a year, and industrial demand inching up 0.5 percent a year.
Lead author for the study was David. E. Dismukes.
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