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Providing coverage of Alaska and northern Canada's oil and gas industry
May 2010

Vol. 15, No. 20 Week of May 16, 2010

Gas supply search ongoing for SC Alaska

ANGDA continues to help find ways of filling gaps in short term natural gas deliverability and longer term supplies for Southcentral

Alan Bailey

Petroleum News

Electric utilities in Southcentral Alaska have three main concerns when it comes to the continuity of natural gas supplies, Tony Izzo, a contractor for the Alaska Natural Gas Development Authority, told the ANGDA board on May 5.

The immediate short-term focus is finding ways of obtaining sufficient gas to keep the power plants running during peak demand on cold winter days. A close second in the priority list is obtaining sufficient overall gas supplies beyond 2014, with the utilities having a large gap in currently contracted supplies for 2015. And the third concern is TransCanada and Exxon’s North Slope gasline open season that started on April 30, with the possibility of bidding for future shipments of North Slope gas for utility use, Izzo said.

The electric utilities currently generate the majority of their power from Cook Inlet natural gas. But gas supplies from the aging Cook Inlet gas fields have tightened in recent years, with winter deliverability — the maximum rate at which gas can be flowed from the gas fields to gas consumers — becoming a particular issue.

Izzo has been working with ANGDA to facilitate startup of the Natural Gas Supply Co., an ANGDA-initiated co-op that can help utilities aggregate their natural gas purchases and gas pipeline transportation space.

LNG plant

A key factor in gas deliverability is the LNG plant, located at Nikiski on the Kenai Peninsula and owned by ConocoPhillips and Marathon. The plant is engaged in the export of Cook Inlet LNG to Japan, but during periods of extreme winter utility gas demand, the gas producers divert gas otherwise destined for the plant to boost the flow of Southcentral utility gas.

And the utilities have viewed very favorably a recent announcement by the LNG plant owners that they plan to apply for an extension to the federal export license for the plant, Izzo said. The current export license expires in 2011 and the owners want an extension to 2013, to export gas already approved for LNG production during the current license term.

“We have heard a unanimous, growing unified voice around the desire to ensure that the LNG export facility stays in operation, because it provides that 100 million or so cubic feet per day backstop that can be diverted,” Izzo said.

Cook Inlet gas producers already store some summer-produced gas in depleted gas fields to bolster winter supplies, and there are plans to build more underground storage facilities of this type.

But there’s an important difference between the short bursts of “needle peaking” demand that the electric utilities run into while they battle to keep the lights on during some frigid winter mornings, for example, and the more sustained winter demand that typifies average winter conditions, Izzo explained. And, whereas gas stored underground can be released at a moderate rate to meet the sustained winter demand, the utilities need the rapid delivery of gas from a facility such as the LNG plant to meet the needle-peaking requirements.

“So, they (the utilities) don’t view it as an either/or equation,” Izzo said. “They view development of underground storage in the Cook Inlet as something that’s necessary … but they also need something that they can use for peaking.”

Regasification

Izzo said that ANGDA and the utilities have been discussing with the LNG plant owners the possibility of regasifying a small amount of the LNG stored at the Nikiski plant as an option for boosting needle peaking supplies to the power plants. But people need to be aware that the plant owners may be reluctant to invest in new capabilities for a plant that may now have a very limited remaining life, said ANGDA CEO Harold Heinze.

On the other hand, people have talked about the possibility of converting the LNG plant for the import of LNG to Southcentral, as at least an interim solution to the region’s potential utility gas shortage.

There could be a phased transition from the present mode of plant operation, Izzo said. The plant would gradually tail down its export volumes, keeping the Cook Inlet gas wells operational for LNG production during the warmer seasons of the year. During the winter, some gas could be diverted for utility use, as happens at present. Then, winter regasification of some LNG would gradually ramp up.

Gasline open season

A longer-term concern is the lining up of utility gas supplies through a spur line from a possible future North Slope gas line. There is a “tremendous amount of enthusiasm” by the electric utilities in bidding during the 90-day TransCanada and Exxon open season that has just begun, Izzo said.

“There’s a tremendous amount of interest in wanting to work together to aggregate, not only to participate in the open season …but to establish a gas source with a producer,” he said.

In fact, finding gas producers willing to sell North Slope gas to in-state utilities is an essential part of the North Slope gasline option for long-term gas supplies.

“Probably our biggest issue is lining up a gas supply,” Heinze said. “We’re not going to be able to reach any firm contractual agreement with anybody at this point, but we certainly need to identify somebody who is really interested in supplying the in-state market. That hasn’t happened yet.”

State royalties

The State of Alaska is presumably one possible supplier of North Slope gas to the utilities — the state has the option to take royalty payments for North Slope gas production as gas rather than as dollars. However, the state wants to see gas shipment commitments and commercial arrangements such as producer stipulations about state fiscal terms for gas production before deciding on how to take its gas royalties, said Marcia Davis, deputy commissioner of the Alaska Department of Revenue.

There are several options for dealing with gas royalties and the state sees the decision making process for choosing between these options as longer term than a pipeline open season, Davis said. Meantime, companies have been feeling out the range of options that the state would consider, she said.






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