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Gas challenge for Cook Inlet utilities With days of abundant supplies gone, storage developed to meet winter deliverability, but long-term supply availability an issue Alan Bailey Petroleum News
In January 2009 a severe cold snap in Southcentral Alaska coupled with the failure of two gas compressors in Cook Inlet gas fields caused the rate at which gas could be supplied to local gas and power utilities to come close to falling below the rate at which gas was being consumed. In some ways this event marked the beginning of a new era for utility energy in Southcentral, with once over-abundant gas supplies from the Cook Inlet basin finally dropping to levels close to the level of gas demand, as production declines from the aging Cook Inlet gas fields.
With Southcentral residents and businesses being dependent on natural gas for heating their buildings and for generating electricity, the sustenance of adequate gas supplies during the cold sub-Arctic winters is critical to life in the region. And, unlike elsewhere in North America, the Southcentral utility gas supplies are isolated, with no opportunity to supplement local supplies with supplies from elsewhere.
Events in 2012, some three years after that 2009 incident, saw a continuing tightening of the gas supply situation coupled with several moves to try to head off a mounting gas supply crisis.
Supply and deliverability The evolving gas situation needs be viewed from two distinct but related perspectives: the total supply in terms of the total volume of gas available over the course of a year, and the deliverability, the rate at which gas can be flowed to gas consumers at any particular time. The crisis in January 2009 was one of gas deliverability, although it also flagged pending problems on the supply side.
And by 2012 the deliverability situation had hit the limit of what could be achieved from the existing gas infrastructure.
So, with gas deliverability heading for a shortfall in the winter of 2012-13, Enstar Natural Gas Co., the main Southcentral gas utility had been spearheading the development of gas storage facilities for utility use. By warehousing summer-produced gas for use in the winter, a storage facility can bolster winter deliverability.
For several years the gas producers had been operating their own storage facilities, to manage gas deliverability needs under their gas supply contracts. But, with contracted deliverability commitments starting to fall short of what would be required, the time had come for the utilities to establish their own storage arrangements.
CINGSA completed Cook Inlet Natural Gas Storage Inc., or CINGSA, a subsidiary of Enstar’s parent company, fast tracked the development of a new storage facility, using depleted gas reservoir sands in the Cannery Loop gas field, immediately south of the city of Kenai on the Kenai Peninsula.
Construction of the CINGSA facility was completed by the spring of 2012, with the facility taking its first deliveries of gas April 1. The three main gas and power utilities serving the Anchorage area — Enstar, Chugach Electric Association and Municipal Light & Power — had all booked space in the facility to ensure the availability of sufficient winter gas, with gas delivery from CINGSA forming an essential component of utility gas supply portfolios.
To ensure winter gas deliverability the utilities need to ensure not only that they have a sufficient gas supply but also that the gas can be transported at a sufficient speed through the Southcentral gas pipeline network — gas transportation has become something of an issue in recent years as the center of gravity of gas production has tended to shift from the west side of Cook Inlet to the Kenai Peninsula, on the east side. The opening of the CINGSA facility on the peninsula has put further pressure on a pipeline network, the layout of which has remained fairly static amid a changing gas production scene.
Bi-directional flow in CIGGS A significant breakthrough in the gas shipment scene came in January 2012, when the Regulatory Commission of Alaska approved bi-directional flow in the Cook Inlet Gas Gathering System, known as CIGGS. CIGGS, a gas pipeline system that runs under the middle of the upper Cook Inlet, was built several decades ago to ship gas from the oil and gas fields on the west side of the inlet to the gas infrastructure on the east side. But with Chugach Electric’s power station at Beluga, on the west side of the inlet, now wanting to be able to ship some of its gas supplies from the Kenai area, with CINGSA coming on line and with concerns about maintaining adequate gas flows through a major Enstar gas line from the Beluga area into the Matanuska-Susitna Valley, enabling gas to flow east to west through CIGGS had become a priority for gas shippers.
Modifications to CIGGS to enable bi-directional flow included the installation of a new gas compressor on the Kenai Peninsula and modifications to the pipeline’s gas metering system.
From the perspective of total gas supplies, tax incentives introduced by the Alaska Legislature coupled with a market demand for more gas have encouraged a resurgence of gas exploration in the Cook Inlet basin. And, having already added to its supply portfolio the gas coming from Anchor Point Energy’s new gas field at North Fork in the Kenai Peninsula, in early 2012 Enstar started taking delivery of gas from Buccaneer Energy’s new Kenai Loop gas field in the city of Kenai.
In September Chugach Electric started accepting power from a new wind farm built on Fire Island, offshore Anchorage, by Cook Inlet Region Inc. The Fire Island power makes a small but welcome dent in the total utility demand for natural gas.
PRA supply projection Consulting firm Petrotechnical Resources of Alaska, or PRA, has been keeping watch on the gas supply situation on behalf of the utilities. PRA uses analyses of actual field and well production decline rates, coupled with anticipated likely production and production decline rates for new gas wells, to project future gas supply rates and volumes.
In March 2012 the firm came out with a new supply projection, indicating that the utility gas supplies are likely to run short of demand around 2014-15. PRA said that the essential problem is that, despite the resurgence of interest in Cook Inlet gas exploration and development, gas drilling is not happening fast enough to sufficiently stem the gas supply decline. And although there are several gas exploration programs under way, new gas cannot be brought on line quickly enough and in sufficient quantity to head off the shortfall.
In addition, although there is a future possibility of shipping North Slope gas to Southcentral Alaska through some new pipeline, it will not be possible to design, permit and build such a pipeline before the gas shortage hits.
Enstar’s contracts tight An examination of the utilities’ gas supply contract situation reveals a supply situation eerily close to PRA’s projections.
Enstar finds itself in a particularly tight position. Since early 2011 the gas utility has been operating a bidding system, soliciting bids from gas producers on a day-by-day basis, to fill a growing gap between gas that the utility has under guaranteed contract and gas that it needs to fully meet winter gas demand. At the end of 2012 a Marathon gas supply contract came to an end, while the volumes of gas guaranteed under a Hilcorp Alaska supply contract stepped down at the same time that the Marathon contract ended.
Enstar has said that there will be enough gas available from the Cook Inlet basin to meet the utility’s needs through the 2012-13 winter. But, under the gas bidding system, there is unwelcome uncertainty regarding both the source and the cost of that gas.
Chugach’s needs dropping Chugach Electric anticipates its gas needs dropping in the next three years. Chugach Electric and Municipal Light & Power are bringing a new, high-efficiency power station on line in early 2013, thus reducing the amount of gas that needs to be burned for power generation. There will be further drops in demand in 2014 and 2015 when the utility stops supplying power to Southcentral utilities Homer Electric Association and Matanuska Electric Association.
Despite this drop in Chugach Electric’s gas needs, the utility has said that it is short of gas under contract in 2015, with that gas supply shortfall growing thereafter.
Homer Electric is building a new gas-fired power plant at Nikiski on the Kenai Peninsula, to generate power that from 2014 onwards will replace the power that the utility currently obtains from Chugach Electric. Homer Electric has said that it has gas supplies under contract through to March 2016, and that it optimistic about its needs being met through 2018.
Matanuska Electric finds itself in a particularly tricky situation. This utility is building a new gas-fired power plant at Eklutna, north of Anchorage, to generate power from 2015 onwards, after its power supplies from Chugach Electric come to an end. But Matanuska Electric does not yet have any firm gas supplies for the Eklutna power plant.
And all of the Southcentral power utilities are aware of a further potential problem. If Enstar were to run short of gas, thus causing the gas pressure in its transmission and distribution lines to fall below acceptable levels, the entire gas distribution system would likely have to shut down for an extended period, while gas engineers deal with the intricacies of shutting and later re-opening each individual gas meter. Rather than face a nightmare scenario of this type, especially in the winter, power utilities would redirect some of their gas supplies to Enstar to maintain the gas pressure. Thus, regardless of what supply contracts the power utilities have, a gas shortage for Enstar would cascade to a power generation gas shortage and consequent power cuts.
Importation coming Faced with what appears to be an inevitable gas shortage in 2014-15 the utilities are taking steps to import gas from outside Alaska, either in the form of liquefied natural gas or compressed natural gas. Liquefied natural gas would presumably come from somewhere on the Pacific Rim, while compressed natural gas would likely come by sea from western Canada.
During the fall the utilities viewed presentation from five potential shippers of imported gas. The utilities subsequently commissioned consultancy firm Northern Economics to assess the relative merits of liquefied verses compressed gas as import options, with the utilities anticipating a decision on an import arrangement by the end of the first quarter of 2013.
Meantime, some bells have begun to sound, apparently warning of the tight gas supply situation.
In November XTO Energy, operator of the Middle Ground Shoal oil field in the middle of the Cook Inlet, had to suspend oil production because of a shortage of gas to fuel the field platforms. And in December Cook Inlet Energy said that it was planning to revive a gas well in its offshore Redoubt Shoal field because of difficulties in purchasing fuel gas.
Also in December, following a cold start to the winter, Enstar had to come to an agreement with Hilcorp on how to pace the delivery of Hilcorp gas until the end of the year, to avoid hitting the contracted upper limit of Hilcorp’s contracted 2012 supplies for Enstar. Had that upper limit been reached, Enstar would have had to draw unanticipated gas from CINGSA, thus depleting Enstar’s stock of stored gas. Hilcorp did not want to deliver additional gas in 2012, for fear of compromising its ability to meet its contractual commitments in 2013.
And so, as the Cook Inlet gas industry moves into 2013, and as gas production from legacy fields continues to decline, interest will focus on just how much more gas can be squeezed from those old fields; the speed at which new fields can be brought on line; the size of those new fields; and progress in finding some way of bringing much needed additional gas into Southcentral Alaska from elsewhere.
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