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Providing coverage of Alaska and northern Canada's oil and gas industry
May 2018

Vol. 23, No.20 Week of May 20, 2018

PRA Cook Inlet gas forecast indicates more development needed

Alan Bailey

Petroleum News

In response to a commission by Enstar Natural Gas Co., Petrotechnical Resources of Alaska has updated its 2012 assessment of Cook Inlet gas demand and supply. The revised assessment indicates that at current rates of gas well drilling, gas supplies will start to fall short of demand in 2021. In the absence of the drilling of new wells, the shortfall would begin in 2019.

Originally, in 2010, PRA prepared a Cook Inlet study, analyzing the ability of the local gas industry to continue to meet utility customers’ needs. Utilities Enstar, Chugach Electric Association and Municipal Light & Power commissioned that initial study in response to growing concerns at that time about the possibility of imminent shortfalls in utility gas supplies, as gas production from the Cook Inlet basin declined. PRA revised that original assessment in 2012.

The new revision to the PRA report appears to indicate a need for continued vigilance regarding the future adequacy of Cook Inlet gas supplies.

PRA prepares its assessments by analyzing the production trends and forecasts for gas producing units in the basin, and the production rates and decline curves of individual gas wells.

Crisis averted

At the time of the original PRA study there was talk of having to import liquefied natural gas to bolster local gas supplies. However, significant gas development in the Cook Inlet basin, supported by a state tax credit program, subsequently alleviated the gas supply situation. In particular Hilcorp Alaska has been pursuing an active development program. Furie Operating Alaska has brought on line its offshore Kitchen Lights gas field. And the development of the Cook Inlet Natural Gas Storage Alaska facility on the Kenai Peninsula has enabled the use of stored gas to support high gas deliverability needs during the winter.

The original 2010 study had found that, in the absence of new gas development, gas supplies would fall short of demand as early as 2013. That shortfall could be delayed until after 2018 by the sustained drilling of an average of 13.6 wells per year, the study found. And a total of 185 new wells would be needed to meet demand through 2020. The study also pointed to the need for gas storage, to ensure that gas deliverability could be sustained at high enough rates to meet peak winter demand.

The 2012 update to the original study suggested a gas supply shortfall by 2015 but indicated that the shortfall could be avoided through the addition of 31 million cubic feet per day of production from new wells completed in the years 2013 to 2019. The study estimated that 157 new gas well completions would be needed to satisfy gas demand through 2020.

Slight demand decrease

In its new revision to the 2012 study, PRA has reported a slight decrease in gas demand, thanks to more efficient electricity generation in Southcentral Alaska. This presumably reflects the startup of several new, modern gas-fired power stations in the region. Overall annual demand appears steady at a little over 77 billion cubic feet per year. There is a potential uptick in demand to more than 88 billion cubic feet per year in 2024-25, if the Cook Inlet basin starts to supply gas to a planned gold mine at Donlin Creek - that forecast has been delayed by several years relative to what was projected in the previous version of PRA’s study.

PRA’s new analysis of gas supplies from existing gas wells indicates total production of 92.1 billion cubic feet in 2017, dropping to a projected 86.8 billion cubic feet this year and falling to 73.5 billion cubic feet in 2019. Production would fall to as little as 23.8 billion cubic feet in 2026. That projection represents a delay in the decline that had been projected in 2012, as production levels flattened in recent years. However, the forecast production in 2019 would be some 4 billion cubic feet below projected demand, in the absence of further drilling.

No major developments

The revised PRA report says that a review of recent plans of development filed with Alaska’s Division of Oil and Gas indicates that Cook Inlet gas producers do not have any major new gas developments in the offing. However, Hilcorp does plan to continue delineation and development in its Ninilchik unit through drilling from its Pearl pad. And the company has demonstrated an ability to develop infill opportunities through its drilling program in its other fields, the PRA report says.

Furie Operating Alaska also plans to complete a third production well and potentially drill a fourth well in its Kitchen Lights field, the report says.

These new developments indicate that drilling is being conducted to ensure that gas producers can fulfill contractual obligations, thus moving any gas shortfall beyond 2019.

To assess the potential impacts of new development, the PRA assessment considered the potential addition of 21.9 million cubic feet per day, as had happened in the period 2015 to 2016, and 36.3 million cubic feet per day, as had happened in 2014 to 2016. The 21.9 million cubic feet per day increment defers the gas supply shortfall to 2021, at which point the annual production would be 1.1 billion cubic feet below demand. The 36.3 million cubic feet per day increment would defer the shortfall to 2025, with annual production 0.7 billion cubic feet below demand.

Additional gas supply increments, beyond 36.3 billion cubic feet would be required to sustain adequate supplies through to 2030, the revised report says.

- ALAN BAILEY






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