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North Fork tilting south for pipeline As tests continue at North Fork 34-26, Enstar and Armstrong lean toward a new pipeline to take natural gas to Homer Eric Lidji Petroleum News
Early talks about how best to market natural gas from the southern Kenai Peninsula are leaning toward a new pipeline to Homer, according to an Enstar Natural Gas official.
Enstar, the largest natural gas utility in the state, met with Denver-based independent Armstrong Cook Inlet on Nov. 13 to discuss initial results from the North Fork 34-26 well Armstrong drilled this summer north of Homer and east of Anchor Point.
“They talked more about going to Homer than going north,” said Enstar spokesman Curtis Thayer, who did not attend the meeting between the companies.
Should the companies ultimately decide to ship the gas south, it would allow Homer to enjoy the lower cost fuel so prevalent throughout most of Southcentral Alaska. Currently, most buildings in the coastal community of around 4,000 people are heated with fuel oil.
The switch has been a goal in Homer for nearly 25 years because using natural gas instead of fuel oil could cut heating costs for the community in half or more.
“The first thing to getting gas to Homer is to find a supply,” Thayer said. “There’s a supply now.”
But discussions remain in their infancy. Armstrong CI is currently testing the 9,000-foot North Fork 34-26, and has yet to publicly release firm figures on the results of the well.
“I am 100 percent positive we have a gas well — in any other part of the world that’s what I would say, but we still have to get a pipeline to it,” Ed Kerr, vice president of land and business development for Armstrong, told Petroleum News in September.
Before construction on a 6-inch line could begin, though, Armstrong CI and Enstar would need to negotiate a contract through state regulators and conduct environmental studies.
Two options for North Fork Like previous North Fork operators, Armstrong CI knew it would face a transportation dilemma if it discovered commercial quantities of gas at North Fork. Currently, the gas field is not connected to the infrastructure grid crisscrossing the upper Cook Inlet.
Working with previous operators over the past decade, Enstar indentified two options for marketing North Fork: Either connect it to the larger grid through an extension to the Kenai Kachemak Pipeline, the KKPL, or build a new pipeline running south to Homer.
Both options require building a roughly 10-mile pipeline, either running north to the current end of the KKPL in Happy Valley, or a 6-inch line south to Homer. Shipping gas to Homer would also require a new distribution grid built out from the city center.
A large enough gas find at North Fork — Thayer used 1 trillion cubic feet as a rough figure — could allow the companies to connect both south to Homer and north to Happy Valley.
But regardless of which direction the companies ultimately choose, Thayer estimated that commercial gas production at North Fork is unlikely to start before 2010.
Pricing issue on horizon Should Enstar and Armstrong decide to ship gas to Homer, they would almost certainly use the previous negotiations between Enstar and former North Fork operator North Star Energy Group as a framework for negotiations about contract terms and proposed rates.
The Regulatory Commission of Alaska added Homer to the Enstar service area in November 1997 under the condition the utility start supplying gas by the end of 2000.
“Homer will get gas if Enstar gets a certificate,” Enstar attorney Julian Mason said during those 1997 hearings. “It’s never failed to deliver and it doesn’t plan to start with Homer.”
But a string of unsuccessful attempts to develop North Fork forced Enstar to extend the deadline four times over the following three years. The RCA indefinitely extended the deadline in 2003 when Enstar signed a 20-year contract with North Star Energy Group.
The regulatory proceedings for that contract centered on how to price gas in an isolated market, an issue sure to reappear if Enstar and Armstrong sanction a project to Homer.
The debate in 2003 over the hypothetical pricing model in Homer roughly echoed the debate playing out today over gas pricing across the Cook Inlet, specifically about whether or how to use Henry Hub as a starting point for pricing gas in Alaska.
Enstar is currently facing similar challenges as it tries to price natural gas for most of its service area, which covers the population center of Alaska but is disconnected from the continental pipeline grid covering the Lower 48 and parts of Canada and Mexico.
Opponents argue Alaska consumers shouldn’t have to pay prices based on an outside market with no direct relevance to Alaska, while proponents believe using a national pricing model allows Alaska to compete nationally for investment.
Ultimately, the RCA used a Henry Hub pricing index for Homer with a floor on the wellhead price of gas set at $2.75 per thousand cubic feet. Although state regulators approved the contract, North Star never brought the North Fork field into production.
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