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Cold will make propane pricier Regional supplier Tesoro must use its own product to power refinery as less natural gas is available from Cook Inlet Brandon Loomis Anchorage Daily News
Southcentral Alaska’s cold snap is sucking up natural gas and curtailing supply to a second Kenai industrial user this winter, and soon propane consumers will pay for it.
Tesoro announced Nov. 20 that its North Kenai refinery, the region’s largest in-state supplier of propane, will start burning propane in place of natural gas to run basic plant functions such as heating and producing the hydrogen it needs to make jet fuel, diesel and gasoline.
The result is that Tesoro will reduce by 30 percent its supply to Southcentral propane distributors such as Suburban Propane and Amerigas starting Dec. 15.
Distributors around the region declined to discuss the likely effects of the announcement, but the Kenai Peninsula Borough’s oil and gas liaison said it is sure to increase prices. The suppliers will have to turn to the spot market and ship pricier Canadian propane to Anchorage in place of the Kenai gas, which has stable pricing under long-term contracts, Bill Popp said.
“It’s going to be a ding,” Popp said. “This will have a cause-and-effect influence all over the state, wherever propane is used.”
Tesoro supplied half of Alaska’s propane The U.S. Department of Energy this summer reported that Alaska uses 1,000 barrels of propane a day, and Tesoro supplies half of it. Popp said about half of that propane is burned in Southcentral.
The cushion of excess Cook Inlet natural gas supply has been getting smaller for some time, Popp said. “With this prolonged cold spell that we’ve had, I think we’ve shown pretty clearly that we’ve reached the end of that cushion.”
The announcement comes after Agrium’s winter closure of its Nikiski fertilizer plant for lack of gas. When supplies are tight, industrial consumers in the region fall behind utilities and other priorities for natural gas.
Tesoro spokesman Kip Knudson said the company had to cut its propane output because Marathon Oil, its contracted natural gas supplier, turned off 50 percent of its supply. The refinery will operate at full capacity for its other products, and Tesoro won’t lay off any of its 200 workers, he said. But the supply shortage will be passed on to propane distributors.
“We’ve given them a month’s notice so they can go out and procure additional supply, which would mean Canada,” Knudson said.
He said it was unclear to Tesoro officials why there should be a gas shortage this winter even after Agrium’s suspension of manufacturing, and deferred the question to Marathon officials.
Winter-long reductions Marathon spokesman Paul Weeditz said the region’s early string of subzero nights is to blame. The company has had to pull gas away from Tesoro to feed Enstar, Chugach Electric and others. He was unsure how long that would happen.
“It’s hard to tell how long this cold spell will last,” he said.
Tesoro, whose natural gas supply is down 50 percent for now, is planning on winter-long reductions.
Popp said the propane crunch might affect outlying areas the most, because in cities the fuel generally is not as cost-effective for home heating as natural gas or heating oil. Where heating oil is available but natural gas is not, many Alaskans use propane for cooking.
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