Is Cook Inlet running out of gas, Petroleum News • Alaska asks area gas producers

Kay Cashman

PNA Editor-in-Chief

In recent months, concern about a shortage of Cook Inlet gas supplies has surfaced. It is not a new concern, but has emerged in conjunction with discussion of a gas pipeline route from the North Slope.

Proponents of an all Alaska route say that because gas supplies in Cook Inlet are running out, the first North Slope gas line should run from Prudhoe to Valdez or Nikiska to ensure southcentral residents have a long-term supply of gas.

PNA decided to go directly to the Cook Inlet gas producers and ask them about the likelihood of a diminishing supply of gas from Cook Inlet fields. Here is what they were asked:

• Are we in danger of running out of gas in Cook Inlet in the next 10 years?

• Are we in danger of running out of gas in Cook Inlet in the next 15 years?

• Are we in danger of running out of gas in Cook Inlet in the next 20 years

Here is what Marathon Oil Co.. had to say. In part two, a response from Phillips Alaska Inc. and Unocal will be published.

John Barnes, president, Marathon Oil Co.

By way of introduction I’d like to mention that Marathon Oil Co. has been an active player in the Cook Inlet for over 30 years. For the last several years we have focused our efforts on the gas market.

We have a unique history of selling into all market segments and have maintained an active exploration and development program.

Marathon has maintained this commitment because we recognize a market demand for new gas opportunities in the Cook Inlet.

As you are aware, the lack of new market opportunities combined with a large reserves to production ratio has resulted in limited exploration for gas in the Cook Inlet for many years.

Over two years ago Marathon recognized the opportunity to sell new gas reserves to the local markets.

We also realized the historic low gas prices in the Cook Inlet could not continue indefinitely; but would, however, remain an important financial parameter for some time.

Accordingly, we committed to building and bringing into the Cook Inlet our Glacier No.1 drilling rig to reduce both costs and environmental footprint.

To date we’re pleased with performance on both counts.

Now to your questions:

Are we in danger of running out of gas in Cook Inlet in the next 10 years?

In a word, no. I believe the current Cook Inlet reserves to production ratio (R/P) is around 10 to 1. While this is lower than it was 10 years ago, I’d like to first mention this is about 30 percent greater than the current R/P ratio in the Lower 48. On a pure reserves basis, the ratio would lead you to believe we have ten years of reserves.

This is not the complete story.

First, a portion of these reserves are contracted to be sold outside the 10-year window. Seasonal swing in demand will also need to be addressed. These two factors lead to a need for additional reserves and/or deliverability to be added over the next decade. This is already happening as evidenced by the recent Moquawkie announcement and Marathon’s Wolf Lake project.

Various state and federal agencies have published estimates of the Cook Inlet undiscovered gas resource potential. The most recent Potential Gas Committee estimate includes a probable reserve of 1050 BCF. At the current Cook Inlet consumption of something over 200 BCF per year, this represents about five years worth of gas. This will most likely come from smaller fields with less than 100 BCF of reserves, although there may be some larger discoveries.

Are we in danger of running out of gas in Cook Inlet in the next 15 years?

Going back to the Potential Gas Committee report, they included 2100 BCF and 3400 BCF for their respective estimates of possible and speculative resource potentials. This is where some portion of the gas requirement for the Cook Inlet in the next five years will come from.

It is important to mention that this potential is not limited to pure exploration. The oil and gas industry has a history of reserve growth within existing fields. I believe the reserves required during this timeframe can come from the Cook Inlet. The trick will be deliverability, or the rate at which the gas is delivered to the customers.

At the current time, when the temperature drops and the local utilities require additional gas, this deliverability comes from the gas fields. In the Lower 48, gas storage facilities are in place to provide this short duration, high daily gas rate service.

At this time, no equivalent service exists in the Cook Inlet whereby gas is injected into a reservoir specifically for storage and redelivery at a later date at a higher rate. I believe some version of this service will be important to meeting Cook Inlet overall gas requirements.

Are we in danger of running out of gas in Cook Inlet in the next 20 years?