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Vol. 17, No. 22 Week of May 27, 2012
Providing coverage of Alaska and northern Canada's oil and gas industry

Gas for southern Kenai: Parnell OKs partial gas line funding

Alaska’s southern Kenai Peninsula is finally getting natural gas.

Gov. Sean Parnell recently kept an $8.15 million allocation in the fiscal year 2013 capital budget for a transmission line to carry gas to Anchor Point, Homer and Kachemak City.

After vetoing the project for two consecutive budget cycles, the allocation survived this time around because those communities agreed to shoulder around a quarter of the roughly $11 million cost of the project, Parnell said during a May 14 press conference.

“There are about 400,000 people in the Southcentral area who, on their monthly billings for natural gas, in years past or today, are paying surcharges to pay back a portion of the cost of the capital investment needed to get gas to their homes,” Parnell told reporters.

Through a recent deal, Enstar Natural Gas Co. agreed to front $2.5 million for the project and recover it through a $1 per thousand cubic foot tariff on monthly bills over the next 10 years. The surcharge is a relic of a failed attempt to bring gas to the region in 2003.

“I thought that was a very positive change,” Parnell said.

With the tariff, the average Homer resident will now pay around $12 more per month than if the state had funded the entire project, but natural gas is still expected save consumers 65 percent over heating oil, according to estimates from the City of Homer.

Local distribution plans

Although the project could extend the regional transmission grid into the southern Kenai Peninsula this year or next year, the three local communities will be responsible for funding the distribution grids needed to serve public institutions, homes and businesses.

That process is already under way.

The community of Anchor Point previously approved a Local Improvement District to fund its build out and Kachemak City has passed a mil rate to pay for distribution lines.

Within hours of Parnell approving the capital budget, the Homer City Council passed a resolution to begin the process of bringing gas to the largest city in the region. The city is currently scheduled to hold a workshop on June 4 to discuss potential financing options.

It won’t be cheap.

Homer officials estimate full build out across 110 miles of local roads will cost around $20 million, a figure that doesn’t include the additional cost to build service lines to individual homes and businesses, but Homer also estimates taxpayers will save more than $1 million each year once all public facilities in the area make the switch to natural gas.

A long time coming

With the discovery of the Kenai Gas Field in 1959, cities and communities across the Southcentral region began converting their furnaces from heating oil to local natural gas, but the southern Kenai Peninsula was long considered too remote to share in the bounty.

Although local officials frequently pressed the issue, their efforts received new life when Armstrong Cook Inlet reported a successful well at the nearby North Fork unit in 2008.

That unit began delivering natural gas into the regional transmission grid in April 2011.

The Alaska Legislature approved a $4.8 million allocation in early 2010 to build a gas pipeline to Homer, but Parnell vetoed all but $525,000, saying the rest could come in a future funding cycle. Parnell didn’t include the project in his budget the following year, though, and vetoed a $10 million appropriation approved by the lawmakers that year.

The initial $525,000 paid for a pressure reduction station outside Anchor Point and 3,600 feet of 8-inch plastic pipe down the Sterling Highway, allowing Chapman Elementary School to convert to gas and setting the stage to quickly continue the line to the south.

An additional $447,000 grant will fund a pressure reduction station and 8,930 feet of 2-inch pipe into the tiny village of Nikolaevsk. The Armstrong subsidiary Anchor Point Energy LLC and Enstar are currently seeking regulatory approval for that project.

—Eric Lidji

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