Cook Inlet Energy LLC plans to start marketing natural gas directly to commercial customers for space heating.
Direct marketing appears to offer the best opportunity for gas sales at present, company representatives told the Regulatory Commission of Alaska on Nov. 27.
“CIE’s vision for direct gas marketing is that we’ll provide some competition and that will be an improvement for the consumers,” said Mark Slaughter, commercial manager for Cook Inlet Energy.
Slaughter and company President JR Wilcox told commissioners Cook Inlet Energy already had lined up its first customer, the O’Malley Sports Complex in Anchorage.
Cook Inlet Energy, however, would appear to face serious resistance to its direct marketing plan from Enstar Natural Gas Co., the main gas utility serving the greater Anchorage area.
Just hours before the Cook Inlet Energy managers made their presentation to the RCA, Enstar filed revisions to its tariff that likely would make it harder for direct marketers to grab customers.
Growing gas production
Anchorage-based Cook Inlet Energy is a subsidiary of Miller Energy Resources Inc., of Tennessee. Miller itself is a small company, but its shares are listed on the New York Stock Exchange.
Cook Inlet Energy launched as an Alaska producer in late 2009, acquiring a collection of west inlet oil and gas assets out of the bankruptcy of California-based Pacific Energy Resources Ltd.
Since then, the company has aggressively worked to revive shut-in wells and to explore for oil and gas.
The company produces gas from its Osprey offshore platform, and has drilled on gas prospects such as Otter and Olsen Creek, both in the vicinity of the ConocoPhillips-operated Beluga River gas field.
Cook Inlet Energy also is setting up for exploratory drilling on its state-licensed acreage in the Susitna basin, north of Cook Inlet.
And on Nov. 25, the company announced it had a nearly $65 million deal to acquire the producing North Fork gas field on the southern Kenai Peninsula. That deal with current operator Armstrong Cook Inlet LLC is expected to close by March 1.
Few sales options
In their presentation to the RCA, the Cook Inlet Energy managers explained that options for selling gas are now quite limited.
For years, electric and gas utilities hustled for supply as a gas shortage loomed in Cook Inlet.
But now, the utilities seem to have ample supply available from producers or from newly developed gas storage, the Cook Inlet Energy managers said.
What’s more, the region’s major industrial uses such as the Agrium fertilizer plant and the ConocoPhillips liquefied natural gas export facility remain shut down, they said.
Independent producers face a situation where there are “no significant openings” for gas, Slaughter told the commission.
And so, Cook Inlet Energy is now looking to match up its gas production with the commercial space heating market, Slaughter said.
But the company has been unable to reach agreement with Enstar on metering equipment, he said.
Cook Inlet Energy has proposed installing an accurate and inexpensive network of metering gear, while Enstar is insisting on a prohibitively expensive $5,000 unit at each location, said Slaughter, who formerly worked for Enstar.
Cook Inlet Energy would not be the first company to use Enstar’s regulated distribution network to market gas directly to customers.
Aurora Power once served hundreds of commercial customer locations, and Marathon also had customers including the military in Anchorage. But Aurora dropped many of its customers in 2006 due to lack of supply, Enstar’s Nov. 27 filing with the RCA said. And Marathon has exited Cook Inlet.
Enstar told the RCA that “the unpredictable coming and going” of customers dealing with direct marketers can harm Enstar’s customer base. For example, when customers opt to take gas from an alternative supplier and then return to Enstar unexpectedly, the utility might have to buy expensive new gas. This has happened in the past, the Enstar filing said.
Enstar is asking the commission to approve a requirement that customers provide at least a one-year notice when switching between alternative suppliers and Enstar.
That idea isn’t expected to sit well with Cook Inlet Energy.
In general, Enstar sounded less than enthused about a resurgence in direct gas marketing.
“Enstar remains very concerned about the wisdom of permitting direct marketing to Enstar’s gas sales customers,” the Enstar filing said.
“Contrary to the assertions of some,” the filing said, direct gas marketing doesn’t encourage efforts to develop Cook Inlet gas resources or expand the market.
Rather, it merely reshuffles the market and has the potential to disrupt settled, RCA-approved gas sales contracts, Enstar said.
