Time is now to ensure year-round LNG supply

Lockhart discussed Cook Inlet's gas supply challenges. She mentioned that we have just a few years left until demand in the region exceeds available supply on a year-round basis.

The number of years varies depending on who you talk to. A consultant report funded by local utilities said 2014 is the year annual production falls below annual demand. Whether it's two, four or even six years, this is a wake-up call.

We've heard a lot about winter "deliverability" problems or the difficulties aging gas wells now have delivering gas and keeping up with high demand in cold weather. During cold snaps there are shortfalls in supply, but we've kept the heat on with gas diverted from the liquefied natural gas plant near Kenai. The LNG plant is being mothballed, however, so we won't have that backup next winter.

We're doing something about winter deliverability with a gas storage project now under construction by Enstar Natural Gas Co. parent, Semco Energy, and its partner, MidAmerican Energy Holdings Co. Let's give a hand to those companies, and state legislators who passed a bill facilitating this project.

When finished in late 2012, this will give us storage for surplus gas produced in the summer, when demand is low, for use in winter, when demand climbs and exceeds what the wells can produce. With the LNG plant gone, this should take care of us for the winter of 2012-2013, but we are exposed -- without the LNG backup -- this winter. Let's hope it's a warm one.

Gas storage costs money, though. Gas must be pumped in during summer and extracted in winter, and the benefit of that security of supply will add to consumers' utility bills.

An annual supply deficit is different, however. It means we'll need more gas overall than can be produced in both summer and winter. At that point, gas must be brought in from somewhere else unless we want to convert our homes and office buildings to fuel oil or coal.

There is new exploratory drilling under way, again thanks to new incentives put in place by the Legislature. The incentives are working in Cook Inlet (the North Slope is another matter). Two exploration wells for gas were drilled last fall and this winter, and drilling on a third is about to start.

A jack-up rig is also on the way to Cook Inlet to drill offshore prospects in the Inlet, and a second rig will be on the way. Companies bringing these rigs north believe sizeable discoveries can be made in untested parts of Cook Inlet. Let's wish them luck.

The three onshore exploration wells, if there is gas profitable enough to produce, can get gas into our system fairly quickly. If the offshore Inlet tests find gas, it will take several years to get the deposits into production. But unless the drillers get lucky and make a really big discovery, it may not be enough to make up the deficit.

Where else could gas come from? A small "bullet" gas pipeline from the North Slope, assuming the big pipeline is delayed, could bring in new gas. It will be expensive even with a large state subsidy, and it will take several years to build the pipeline. We'll need gas before the pipeline can be finished.

Realistically, liquefied natural gas imports may be our only alternative, the utilities say. Those will cost money too, but we need the secure gas supply.

Renewable energy projects being planned could help, including the Fire Island wind and Mount Spurr geothermal projects. New electricity from these projects could reduce the gas needed to generate power. This could stretch out the supply. Fire Island and Mount Spurr could help. They don't solve the problem, but if they push back the need to import LNG for a few years, it benefits us all.

As for Fire Island, the utilities are worried about the technical problems of integrating variable wind power into the regional grid and the costs this might impose. It's a realistic concern, but the project is at least ready to go. Developers at the Mount Spurr geothermal project need to do more work to confirm the sources, and the project requires construction of a long-distance electrical transmission line, an expense the state will likely have to help with.

If renewable energy gains us a couple of years on LNG imports, we need to weigh the cost of wind or geothermal power against the cost of importing gas. If wind is less expensive, and Mount Spurr meets expectations, consumers will be better off.

We need to have a sense of the cost of importing LNG. Being realistic, we're a small market for an LNG supplier. We'll have to build the infrastructure, mainly an LNG regasification plant. Also, most of the LNG sold in Asia, where we would buy ours, contains natural gas liquids. Those will have to be extracted before the gas can be used.

All that will cost. How much? With these deadlines looming, consumers need to know. Let's hope those drillers are lucky, too.

Tim Bradner writes for an Alaska economic reporting service. He also consults for private clients and writes for business publications. His opinion column appears every month in the Anchorage Daily News.