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CINGSA files for sale of native gas Kenai gas storage operation wants to clarify the circumstances and procedures under which it would sell gas found in its reservoir Alan Bailey Petroleum News
When in 2011 Cook Inlet Natural Gas Storage Alaska purchased Marathon Oil Co.’s interests in the Sterling C reservoir of the Cannery Loop gas field on the Kenai Peninsula, the gas storage company thought it was purchasing an empty gas reservoir, readily usable to store customers’ gas. Little did CINGSA realize that lurking within its purchased series of gas sands lay an untapped unit, brim full of unused “native” gas.
Now the storage company has asked the Regulatory Commission of Alaska to approve a tariff modification for the CINGSA facility, setting out the circumstances and procedures for the sale of some that unexpected gas windfall. CINGSA operates its storage facility on the south side of the city of Kenai, to enable Southcentral power and gas utilities to warehouse summer-produced gas for use in the winter, when utility gas demand is especially high.
Discovered in 2012 The bonus gas in the Sterling C reservoir came to light in early 2012 when CINGSA encountered an unexpectedly high downhole gas pressure when drilling the storage facility’s No. 1 well in the northwestern sector of the storage reservoir, according to a CINGSA tariff advice letter filed with the commission. Subsequent data collection and analysis revealed that the well had very likely encountered a pressure-isolated section of the reservoir. Although during a maintenance shut-in of the storage facility in the fall of 2013 it became clear that CINGSA had discovered some new gas, it took until the spring of 2014 to conduct the data acquisition and data analysis required to estimate the size of that discovery: CINGSA is now reasonably certain that the discovery amounted to 14.5 billion cubic feet of gas, the tariff advice letter says.
But, by partially filling the CINGSA reservoir with unanticipated gas, the new gas presented CINGSA with an unanticipated problem. The company had already injected what is referred to as working gas into the reservoir, to maintain the reservoir pressure and thus allow customers’ gas to be retrieved. In effect, by further heightening the reservoir pressure, the total gas capacity of the facility dropped, leaving CINGSA short of sufficient storage capacity to meet its contractual obligations with its customers.
CINGSA resolved this problem in June 2014 when it obtained commission approval for an increase the maximum allowable pressure in the reservoir, in effect compensating for the additional gas by allowing additional pressure in the facility.
A net benefit In its tariff advice letter CINGSA says that, in fact, the discovery of the native gas has brought a net benefit, because without the additional gas CINGSA would have had to reduce the maximum injection and withdrawal rates available to its customers, as a consequence of some unexpected characteristics of the reservoir and the related well performance. Apparently the additional native gas in the reservoir has enhanced the reservoir performance, thus enabling the storage facility to operate with the full contractual well flow rates.
The maintenance of those contractual injection and withdrawal rates will require CINGSA to keep much of the native gas in the storage reservoir, but CINGSA will be able to sell up to 2 billion cubic feet of the extra gas, the tariff advice letter says. CINGSA says that it can conduct the gas sales without impairing the storage facility’s performance.
Transfer of title CINGSA says that it would sell gas under the terms of sales agreements that would be subject to reviews by a qualified engineer, who would verify that the sale would not compromise CINGSA’s ability to meet its contractual obligations to its various customers. And rather than delivering sold gas from the CINGSA facility, the sale would take the form of a transfer of title to some of the gas inside the facility’s reservoir. Upon completion of a sale of this type, the gas would remain stored in the reservoir for the purchaser, with the gas subject to the tariff provisions and facility usage rates that apply to any of CINGSA’s customers, the tariff advice letter says.
A public utility customer who purchases the CINGSA native gas in this way would gain the benefit of having the gas immediately available for withdrawal, if required, rather than having to purchase gas elsewhere, transport the gas to the facility and then incur injection costs, the tariff advice letter says. And CINGSA would segregate the accounting for its gas sales from the accounting for its gas storage services.
The CINGSA proposed revised tariff says that purchased native gas may be subject to production taxes and royalties. However, CINGSA commented to the commission that, under state law, the native gas will not be considered produced from the storage reservoir for tax and royalty accounting purposes until all non-native gas has been withdrawn from the reservoir.
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