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Marathon manager: ASAP challenges Cook Inlet projects Hutchings says bullet line could tie up un-contracted future gas market, putting local developments at risk Kristen Nelson Petroleum News
Tax reforms and process improvements within the Regulatory Commission of Alaska are positive improvements in the Cook Inlet oil and gas investment environment, Marathon Oil’s Cook Inlet business unit manager, Wade Hutchings, told Senate Resources Oct. 20.
But the possibility of a bullet line bringing in North Slope natural gas, or other projects to address the upcoming shortage of Cook Inlet natural gas, create uncertainties for future investment, he said.
On the positive side, “The tax reforms have allowed us to make our projects more competitive on a global scale and to continue to ask for investment dollars from the corporation,” Hutchings said.
And process improvements at the RCA “have created a lot better stakeholder alignment and timeliness of decisions,” and has been critical to helping Marathon plan its business better, he said.
He thanked legislators, noting that most of those changes came from legislation or legislative support.
Hutchings said Marathon is also pleased by the work the Department of Natural Resources is undertaking to look at streaming the regulatory process. He said Marathon supports those efforts, “because at the end of the day, a predictable transparent regulatory and fiscal regime is critical to continue to attract investment dollars to the state and to the Cook Inlet.”
Hutchings said that in 2010 Marathon averaged natural gas sales of 104 million cubic feet per day, roughly 34 percent of total Cook Inlet gas sales.
Marathon sees a “crossover point in the Cook Inlet, where supply is below demand on an annual basis, sometime in the next two to three years.”
Investments in maintenance and new equipment are necessary for the company to meet its current and anticipated future contractual commitments, Hutchings said.
He said Marathon recognizes opportunities to develop additional resources and capture incremental gas sales, and said the company’s “capital investment plans reflect a pace that is fairly in line with our recent investment history.”
Investments will include: new wells to go after deeper or new targets; additional development wells within the fields the company operates; and “trying to add additional productive capacity within the well base that we currently have.”
ASAP implications Hutchings said Marathon has some concerns about the in-state bullet line proposal, ASAP (the Alaska Stand Alone Gas Pipeline) being developed by the state under the Alaska Gasline Development Corp.
He said the state needs to strike a balance between meeting natural gas demands in Southcentral Alaska and “encouraging a vibrant Cook Inlet E&P environment.”
The two objectives are not mutually exclusive, “but care will need to be taken to balance between and achieve both.”
The concern, he said, is that in addition to the potential for resources and regulatory and fiscal certainties, “investment in exploration and development requires a high degree of market certainty.”
“Simply put, we often ask the question, will there be a market for new gas production within the inlet?”
Historically there has been a lot of gas under production in the inlet and a limited market, a combination that “inhibited robust natural gas exploration and development,” he said.
Contractual issues Projects like ASAP introduce new uncertainties because of the possibility that significant long-term contracts required to make ASAP viable could possibly “tie up all the un-contracted future local market in the inlet,” Hutchings said.
He said the local consumption market in Cook Inlet is estimated at 90 billion cubic feet a year, and ASAP would have a capacity of roughly 180 bcf a year, 500 million cubic feet a day.
Marathon questions if that volume will be sufficient on a seasonally adjusted basis to “sustain or create industrial consumption centers” similar to those that have existed in the past. Hutchings said Marathon also questions the impact of a project like ASAP on the market price of natural gas within the inlet.
“A lack of certainty in these areas creates uncertainty for long-term gas exploration and production projects,” he said.
If ASAP — or a project like it — creates a situation where there is very little industrial gas consumption and all of the local market is tied up in long-term contracts, “then there is low incentive for future inlet gas exploration and development.”
Hutchings said Marathon thinks there is a solution which can meet both objectives — gas supply for Cook Inlet and a healthy oil and gas industry in the basin.
ASAP hasn’t been a significant part of day-to-day discussions, Hutchings said, but is an issue of “longer-term uncertainty for us, for bigger-picture investment projects in the inlet.”
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