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Utilities: Inlet gas may be temporary fix Enstar, Chugach Electric, tell House Resources closed Cook Inlet natural gas market a continuing supply, deliverability challenge KRISTEN NELSON Petroleum News
The House Resources Committee, considering House Bill 247, the governor’s tax credit revision proposal, heard from two of Cook Inlet’s major utilities that while natural gas supplies are in hand for the short term, long-term supplies and deliverability are still an issue.
Enstar Natural Gas Co. and Chugach Electric Association representatives told the committee at a March 2 hearing that the crisis years when they were discussing importing natural gas have passed, but that in the closed market of Southcentral Alaska no long-term fix is in sight.
Enstar President Jared Green said to be a supplier of natural gas to Enstar is challenging because Enstar, the inlet’s largest gas purchaser, has demanding needs which could go as high as 287 million cubic feet per day on a very cold winter’s day, or drop to less than 100 million on a warm winter day. Enstar uses some 33 billion cubic feet of natural gas a year, Green said, but that can drop to as low as 30 bcf in a really warm year or rise to 35 bcf in a really cold year.
Costs higher Asked by Rep. Paul Seaton, R-Homer, about an estimate by the Legislature’s consultants enalytica that $5 to $7 per thousand cubic feet was sufficient to produce the world’s most expensive gas, Smith said those numbers would be drilling and lifting costs, with the assumption that the company could put a well on full volume and sell the gas immediately.
In the Lower 48 producers can just drill a well and open it up and let it flow into the market, he said, and utilities have suppliers lined up to sell to them. Cook Inlet, he said, is a very small illiquid market with a handful of buyers and an even smaller group of suppliers, and producers have to sit on wells and not produce them for substantial periods of time, particularly in the summer months.
When there was regular export of liquefied natural gas there was a better balance for producers to produce relatively evenly throughout the year, but that’s effectively gone now. Enstar would love to be where it was a couple of decades ago, he said, with its volume essentially “noise” - a blip against the big industrial loads.
Limited service Phil Steyer, director of government relations and corporate communications for Chugach Electric, said the gas situation has changed in Cook Inlet. In the 1960s through the 1980s, producers provided full service, there were long-term contracts and inexpensive gas. By the 1980s, he said, long-term contracts were still available at reasonable prices, but by the 2010s, contracts were for smaller volumes, had shorter duration and with limited service.
In the early days, he said in response to a question from Rep. Andy Josephson, D-Anchorage, producers provided all the needed gas to the plant where Chugach burned it. Today, he said, it’s the utility’s responsibility to have contracts with pipeline owners to move the gas, and to better define hour-by-hour needs and do delivery.
Mark Fouts, Chugach’s director of corporate planning and analysis, characterized a long-term contract for 250 billion cubic feet of natural gas the utility had 25 years ago, with gas delivered when it was needed. When that 250 bcf was used up and the utility asked for another contract, it was offered two years with an option for two more years.
He said the utility was stunned. The reality had changed, Fouts said, and the gas producer had found a place it could make more money and was moving on.
ConocoPhillips, another producer, offered a contract, but it was flat gas, with no swing.
Hilcorp The gas supply decline identified in 2010-11 was basically a lack of investment, Fouts said: The inlet wasn’t running out of natural gas, it was running out of people willing to invest in Cook Inlet. Hilcorp has stopped the decline in gas, he said, by investing $200-$300 million a year.
When a company gets ready to pack their bags, the first thing they do is stop investing, Fouts said. If in two to three years Hilcorp, Furie, BlueCrest and other companies stop investing the inlet will be back to where it was in 2010 - five to six years away from running out of gas.
Deliverability is the other big issue in Cook Inlet, he said. And while Enstar uses CINGSA storage to meet peak needs in winter, Chugach uses it daily, putting gas into the facility at night when power usage drops and drawing it back out when power usage rises.
He said the supply issue will be solved when Chugach can contract out 15 to 20 years. Deliverability, Fouts said, requires more flexibility. There should be at least two new platforms in Cook Inlet that can deliver 50 million cubic feet a day.
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