January strained gas supplies but help's coming

ECONOMYFebruary 11, 2012 

Things are still interesting on the natural gas front. We made it through a very cold January with no gas supply problems, but barely. Enstar Natural Gas Co. told me it was worried on one or two of the coldest days. We're not out of the woods yet, because we could still see another cold snap or two. Let's hope there's enough gas in the pipe.

Let me recap the problem: Our supply of gas in Southcentral Alaska is running down. In a serious cold snap the system is stretched thin and any equipment malfunction, like a compressor failure, could endanger the sole source of our heating and a big part of our power generation.

We've known about this for some time and there have been some narrow escapes in the past, although until recently we had the Kenai natural gas liquefaction or LNG plant as a backup. Several times in years past the plant operator, Conoco Phillips, stopped making LNG for export during cold weather and shifted its gas to the utilities.

This winter we don't have the LNG backup (the plant is mothballed), and a gas storage facility now under construction near Kenai won't be ready until next winter. For now we're in a kind of limbo.

However, things have been done to add strength to the system. The Municipality of Anchorage and the electric utilities have an emergency plan to reduce power use to preserve the gas supply for Enstar, which has no fuel alternative. Also, Enstar and the Beluga gas field owners, which include Conoco Phillips, Chevron and our city-owned Municipal Light and Power, have invested in new compression facilities to keep the gas pressure high. We also have some new Cook Inlet gas producers selling to Enstar, such as Buccaneer Energy with its new gas well near Kenai.

We'll scrape through another winter, it's likely. Next year things will be better. We'll have gas storage, which stores surplus gas in the summer for the winter peak demand, and we may have more gas from new producers.

Things should get even better after that. Escopeta Oil returns to Cook Inlet with its jack-up rig in late spring to test a promising offshore gas discovery the company made last fall, and Buccaneer itself will be drilling oil and gas prospects in the Inlet with a second jack-up rig.

NordAq Energy, a local company, has made an onshore Kenai gas discovery too, although it must also be tested.

Meanwhile, we're still working on the idea of bringing North Slope gas to Southcentral Alaska. The state-owned Alaska Gas Development Corp. (AGDC) is proceeding with engineering and planning for a 24-inch "bullet line" from the Slope, which also would go through Interior Alaska, where people badly need more affordable energy.

The bullet line was conceived as a backup in case a large-diameter pipeline built through Interior Alaska doesn't go, which now appears to be the case.

Gov. Sean Parnell also hopes to persuade the large North Slope producing companies to build the larger pipeline to a "south Alaska port" (either Valdez or Kenai) to a possible large new LNG plant. The governor has asked for a general commitment from the companies by late March.

If this happens and the destination is Kenai, the big pipe will come right by Anchorage. If it's Valdez, the state's AGDC can switch gears and build a spur line from Glennallen. Fortunately, another state corporation, the Alaska Natural Gas Development Corp. (ANGDA), has already done a lot of work on a Glennallen-to-Matanuska-Susitna spur line.

If none of these pipelines is built, we still have those plucky explorers drilling in the region.

A lot of people are wondering why we have two state gas corporations and why we're talking about spending a lot of money, possibly, on a 24-inch pipeline from the Slope when private sector drillers are having good luck finding gas closer to home.

Good questions. On the latter question, the new gas isn't confirmed yet and we need to have a contingency -- the bullet line from the Slope.

On the former question, one of the two corporations, ANGDA was created by voter initiative in 2002 to build a large pipeline to Valdez. Since other entities are working on that, ANGDA switched to a second mandate, supplying gas to Alaskans. It planned the Glennallen spur line and undertook a number of other activities related to gas supply.

AGDC was formed two years ago to focus solely on the North Slope-Southcentral bullet line. While ANGDA has broad authority to tackle gas supply issues, including purchasing and selling gas, AGDC is purely a construction outfit.

The Legislature may decide to join these organizations under a common board but with different functions: ADGC to build a pipeline and ANGDA to do gas acquisitions (for utilities, for example) or to market gas.

What about those Cook Inlet explorers? If Escopeta, Buccaneer and NordAq have anything close to what they think they have discovered on the Kenai and in the Inlet, we'll be back in a gas surplus situation. That's the best outcome and if it happens we won't need either a bullet or a spur pipeline.

Still, to be prudent, we need to continue work on the backup plans. We don't want to be wrong on this one. Without natural gas, we're back to fuel oil or coal. Or wood.

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 Daily News.

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