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Storing Cook Inlet gas steadies production, price Basin’s natural gas demand varies seasonally for residential and utility needs, while industrial users take a steady stream of gas Kristen Nelson Petroleum News Editor-in-Chief
The Cook Inlet basin is going to need natural gas storage — probably on the order of five times the amount available today — to meet demands during cold weather, ensuring energy and well productivity by allowing for steady production.
This is a result of a transition in the Cook Inlet natural gas market “from a state of abundance to a state of decline,” said University of Alaska Anchorage finance and economics student Ben Vandorn, who presented results in Anchorage May 18 of a semester-long research project he did on a scholarship from the Anchorage chapter of the International Association for Energy Economics. Vandorn is an intern in the commercial section of the Alaska Department of Natural Resources Division of Oil and Gas.
Storage “is essentially an underground reservoir that’s used to bank gas for use at some later date,” said Vandorn. Natural gas storage is common in the Lower 48, and while there are many types, there are “only two configurations: a base load system or a peak load system.” Base load stores gas for response to seasonal demand, while peak load responds to “more instantaneous shifts in supply or demand,” Vandorn said. The difference is how fast you can fill the reservoir and then empty it to deliver the gas: peak load systems are designed to respond quickly.
Storage is traditionally done in the summer when prices are lower and gas is more plentiful. Base gas vs. working gas But not all of the gas stored can be sold. The most common types of storage require base gas which remains in the reservoir and maintains pressure, he said. What is sold off is called working gas.
Most storage in the United States is in depleted reservoirs, aquifers and salt caverns. Not all of these, Vandorn said, would be applicable to Cook Inlet.
“Depleted reservoirs are the most common method of storage,” he said. Depleted oil or gas reservoirs are filled with gas, and while they are the least expensive type of storage to develop, deliverability is poor. “They’re typically designed for one storage cycle per year — one fill up and one depletion,” Vandorn said.
Aquifers, more expensive to develop, are “typically designed for five-plus storage cycles per year, which makes them a better candidate to respond to the peak delivery issues,” he said. An aquifer is a naturally occurring, permeable and porous rock formation that contains water. Because there has never been gas in the aquifer, base gas — to provide reservoir pressure — must be purchased, adding to the development expense.
Salt caverns are developed by flushing them with water to dissolve and remove the salt, making them expensive to develop. But, he said, salt caverns require only small amounts of cushion or base gas, and have high deliverability — “they can be cycled full to empty upwards of 50 times a year.”
Liquefied natural gas is also used for gas storage, particularly to meet peak needs, and a “spin-off of LNG is a refrigerated cavern” which is mined out of bedrock and filled with cooled gas. The gas isn’t cooled enough to form LNG, but the volume is reduced. Refrigeration requirements and mining make refrigerated caverns an expensive alternative, but, like LNG, the caverns have high deliverability.
And in the research phase: gas hydrates to store natural gas. Vandorn said research at “Mississippi University determined that gas hydrate storage would be economical to use if more than 54 cycles per year occurred and would actually be less expensive per cycle than depleted reservoirs if more than 100 cycles per year were used.” That option, however, is not yet being used commercially, he said.
The majority of natural gas storage in the United States is depleted reservoirs and the majority of that storage is in heavy consuming areas — the Midwest and Northeast. One depleted reservoir in use in Cook Inlet Cook Inlet has one gas storage facility, Vandorn said, run by Unocal at Swanson River, a depleted reservoir with more than 1 billion cubic feet of storage capacity. Unocal started injecting gas in 2001 to provide peak shaving service to Enstar. The facility tops out at about 1.2 bcf, he said, including both the base gas and the working gas.
In addition, Cook Inlet has additional natural gas available on a seasonal basis from the Agrium fertilizer plant. The fertilizer plant and the ConocoPhillips-Marathon LNG plant, both at Nikiski on the Kenai Peninsula, are Cook Inlet’s two large industrial gas users. Vandorn said the fertilizer plant provides “production backstop” to natural gas deliveries in Southcentral Alaska. In the winter months, when natural gas demands for home heating and power generation peak, gas going to the Agrium plant can be curtailed. Because of declining gas supplies, however, Agrium has said it may be forced to close the plant.
“With the potential plant closure on the horizon, this means the removal of this production backstop, and this could create even more of a need for additional backstop capacity, i.e. storage,” Vandorn said. Values of storage Additional storage for Cook Inlet gas “could provide for steady production year round,” he said. “It’s unreasonable to expect that we should be able to shut in wells to reduce the amount of production. With the aging climate of the Cook Inlet fields it’s difficult to get wells back on line and it’s very important that we’re able to produce at full steam year round.”
With storage available, production that isn’t immediately used could be stored for needs in the winter.
Storage would also “help to define price” for natural gas in Cook Inlet, Vandorn said, because “it’s expensive to develop storage and therefore there is going to be a premium paid for gas that comes out of storage or when storage gas is used to meet peak demand.”
Comments from the audience after the presentation indicated an expectation that storage might add a dollar per thousand cubic feet to the cost of natural gas.
Vandorn said that based on volumes of gas used in the Cook Inlet area he believes that 5 bcf of working gas storage is needed, not necessarily one big facility, but more likely “several smaller storage facilities such as Swanson River.” Enstar delivery swings range from 150 million cubic feet a day to more than 250 million cubic feet a day, he said, and the 5 bcf estimate is based on the premise that the Swanson River storage can deliver some 10 million cubic feet a day for 80 days, “not enough gas to ease peak deliveries here in the basin” especially if a long cold spell were coupled with other fuel emergencies or with field problems such as loss of a compressor.
Who would develop storage? Both Unocal and Marathon are researching additional storage capacity, he said, although in the Lower 48 it is typically interstate pipeline companies that own and operate storage facilities, which would make Enstar a likely candidate in Cook Inlet.
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