Utilities review gas supply situation
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New Cook Inlet supplies have brought welcome relief but future remains uncertain until sufficient new reserves established
Alan Bailey Petroleum News
A relative boom in exploration activity in the Cook Inlet basin coupled with several new utility gas supply contracts coming in quick succession from gas producer Hilcorp Alaska has produced a sense of euphoria over what had until recently been viewed as an emergency over pending shortages in Southcentral utility gas supplies. And, with both the Alaska Department of Natural Resources and the U.S. Geological Survey having published reports indicating the likelihood that substantial volumes of as yet undiscovered and undeveloped gas remain in the basin, some people view the gas supply situation as having been resolved.
But the utilities, with a duty to ensure supplies of gas and electricity to their customers for years into the future, require certainty in the form of adequate proven, commercially viable gas reserves, behind pipe and linked to firm gas supply contracts with producers, if their officials are to sleep soundly at night, assured that lights will stay on and that buildings will remain heated.
And, on that basis, the Southcentral utilities still see significant future uncertainty, despite emerging news about gas discoveries and gas field developments in the Cook Inlet basin.
During a meeting of the Anchorage Mayor’s Energy Task Force on Oct. 2 the utilities overviewed their current gas supply situations.
Gas to 2018 Moira Smith, Enstar Natural Gas Co. vice president and general counsel, explained that a new contract between Enstar and Hilcorp, coupled with several other existing contracts, provide Enstar sufficient gas under contract to meet its anticipated annual gas demand through to the first quarter of 2018. However, Enstar does not have sufficient contracted gas to meet all of its 2018 needs and has no gas under contract beyond the end of 2018, Smith said.
A new gas storage facility, the Cook Inlet Natural Gas Storage Alaska, or CINGSA, facility on the Kenai Peninsula, now provides a key service for all of the utilities by storing excess summer-produced gas to support high levels of gas demand during the winter. However, the withdrawal of gas from CINGSA during the winter requires careful management, Smith explained, because gas withdrawals reduce the reservoir pressure in the facility, thus reducing the maximum rate at which gas will flow from the facility to support gas deliverability needs.
And meeting those deliverability needs remains tight.
Deliverability gaps? Currently, with the ConocoPhillips liquefied natural gas export facility on the Kenai Peninsula having closed its doors, there is an excess gas supply from the Cook Inlet basin. But, based on its existing firm gas supply and gas storage contracts, Enstar does see theoretical gaps in its ability to deliver gas sufficiently rapidly to meet possible peak winter demand in future winters, Smith said. However, the utility anticipates being able, in practice, to meet that demand by obtaining additional gas through a gas bidding system that it has established, potentially supplemented by some contractual arrangements for the supply of gas that is not guaranteed. It is also typically possible to add gas into CINGSA during some of the warmer winter weather, she said.
CINGSA is likely to hold an open season next year, to explore the possible need to expand its storage capacity, Smith said.
Insurance options With annual gas supply volumes projected to fall short of demand less than five years into the future, the utilities are still looking at “insurance” options for guaranteeing continuing energy supplies beyond early 2018. And, with continuing uncertainty about the future construction of a pipeline system that might deliver North Slope gas into Southcentral Alaska, the import of gas, probably from Canada or the Pacific Northwest, remains a possibility. Although the utilities had considered the import of gas in compressed form they now view the import of liquefied natural gas as a more practical option, Smith said.
The utilities are discussing with ConocoPhillips the potential to import liquefied natural gas at Nikiski, the port where ConocoPhillips’ mothballed LNG export facility is located. And, with the likely need for an environmental assessment or an environmental impact statement for the import arrangements, establishing these arrangements would likely be a multiyear project, Smith said.
Lee Thibert, senior vice president of Chugach Electric Association, said that the ability to bring in or store extra gas at Nikiski would be an excellent backstop for winter gas supplies. An import facility might cost somewhere in the range of $50 million to $135 million, he said.
Chugach Electric The gas supply situation for Chugach Electric, a major Southcentral electric utility, appears somewhat similar to that of Enstar, with existing gas supply contracts and a new contract with Hilcorp carrying the utility through to the first quarter of 2018, but with no gas currently under contract beyond the end of that year.
Chugach Electric wants to offset its gas consumption by diversifying further into renewable energy resources, including increased hydropower capacity from the Kenai Peninsula and, eventually, power from a planned major hydropower facility at Watana on the Susitna River, Thibert said. However, the Watana-Susitna system, potentially a supplier of a significant portion of Chugach Electric’s needs, is not expected to come on line until 2024-25, he said.
Matanuska Electric Association Joe Griffith, general manager of Matanuska Electric Association, said that his utility also now has secured gas supplies through to 2018 for the new gas-fired power plant that the utility is building at Eklutna, north of Anchorage. The engines being installed in the new plant are dual-fuel reciprocating engines, rather than turbines, with the capability of switching instantly from gas to diesel fuel, should need arise, Griffith said.
A key issue that now needs to be addressed is ensuring a healthy gas market for the several companies that are currently engaged in Cook Inlet exploration, given the small size of the local utility gas market in relation to the investment required to find and develop Cook Inlet gas, Griffith commented. He said that the ability to export LNG from the basin seems the only obvious way to resolve this conundrum.
Municipal Light & Power Jim Posey, general manager of Anchorage electric utility Municipal Light & Power, commented on the importance of finding new gas supplies from Cook Inlet and having a means of ensuring gas supplies beyond 2018. ML&P obtains most of its gas through its partial ownership of the aging Beluga gas field on the west side of Cook Inlet. The utility also has a small gas supply contract with Hilcorp through to the first quarter of 2014 and has requested RCA approval of a new contract with ConocoPhillips that would run from April 2014 to December 2019, Posey said.
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