State predicts higher prices for inlet gas

The Associated Press

Industrial, commercial and residential consumers will see steadily rising prices for Cook Inlet natural gas for the foreseeable future, according to the Alaska Division of Oil and Gas.

Simple supply and demand are putting upward pressure on the local price of gas, a trend that reflects market conditions in the Lower 48, Will Nebesky told the Alaska Support Industry Alliance Dec. 16 in Kenai, Alaska.

Adding to the local upward pressure is a revised method of pricing to be used in a new contract between Unocal and Enstar Natural Gas that goes into effect in January.

Based on a 36-month moving average of a pricing index used in the Lower 48, called the Henry Hub, the new contract means higher prices for Enstar, which has filed with the Regulatory Commission of Alaska for a tariff revision to increase what it charges commercial and residential customers.

If approved, a residential consumer’s monthly bill of $65 would jump by $8.50. A small commercial user would find a current $152 bill rising to $170.90.

Projections for that moving average show the wholesale price of gas under the Unocal-Enstar contract drifting between $3.50 and $4.25 per thousand cubic feet through the end of the decade, well above historic prices that averaged between $2 and $3, Nebesky said.

Higher price should stimulate exploration

“Hopefully, it will stimulate exploration,” Nebesky said.

There already is a healthy mix of exploratory and production drilling in the Cook Inlet region that is indicative of the interest production companies have in meeting the local demand, Nebesky said. Those companies include Aurora Gas, Marathon, Pelican Hill, Unocal and NorthStar, which either intend to or have drilled exploratory wells on Cook Inlet’s west side or in the Anchor Point-Ninilchik corridor.

Some wells already are in production in the Ninilchik area, and gas is moving north through the new Kenai-Kachemak Pipeline. Additional drilling is planned in the area. Nebesky called the Ninilchik area “one of the rising stars” in the gas industry.

From an explorer’s standpoint, it is good news to see prices rising, he said, but it’s a double-edged sword. Higher prices mean higher costs for consumers, including industrial users such as Agrium, which buys gas from Unocal and has an ongoing dispute over supply.

A gas production forecast offered by Nebesky indicated a steep decline over the next two decades. However, those projections do not take into account gas discoveries on the southern Kenai Peninsula. If those discoveries pan out into significant production, the steepness of the decline could be gentler, he said.

“We are right in the process of updating this forecast for the next year, and I think we are going to see some promising expansion of this area,” he said.