Natural gas for Southcentral storage may be Japan-bound

Marathon could sell supplies for Kenai facility overseas.

Alaska Journal of CommerceAugust 20, 2012 

Natural gas that could help keep Alaskans warm this winter could be exported to Japan as liquefied natural gas, although it's not yet certain.

A contract dispute has impaired gas supplies for the new $180 million gas storage facility being developed on the Kenai Peninsula, the operator of the facility, Cook Inlet Natural Gas Storage Alaska, or CINGSA, said Friday.

The producer, which has been identified as Marathon Oil Co., may have opted instead to sell the gas to Japan as LNG for higher prices, CINGSA said in an Aug. 13 letter to the Regulatory Commission of Alaska.

Marathon had committed gas to the facility in 2011 to be used as "pad gas" to provide pressure for gas withdrawals but says now it will not provide the gas, leaving CINGSA short of the supply it needs to operate efficiently, said John Sims, spokesman for CINGSA.

Marathon signed a contract in March 2011 to supply 3.24 billion cubic feet but now asserts that the contract is only an option and that it has no obligations to actually supply the gas.

"CINGSA disagrees with this contention," Dan Dieckgraeff, CINGSA's director of regulatory affairs, wrote to RCA.

A Marathon spokesman was unavailable for comment on Friday.

"We have obtained gas or commitments of gas for 5 billion cubic feet and we are actively seeking to purchase 2 billion feet in addition," Sims said.

Seven billion cubic feet of pad gas is needed to provide enough pressure for efficient withdrawals of stored gas. The facility can operate with less pad gas but its performance will not be optimal.

Alaska utilities that have contracted for gas storage and that will need the gas this winter are concerned. Brad Evans, CEO of Chugach Electric Association, said his association, the state's largest electric utility, is an anchor customer for the gas storage facility. Having sufficient pad gas to pressurize the storage reservoir is critical for Chugach and other utility customers being able to withdraw gas at rates they will need during cold weather, Evans said in an interview with the Journal.

Evans said the facility can operate with less pad gas but performance won't be optimal.

Lee Thibert, Chugach vice president for planning, said the utility will need to withdraw about 30 million cubic feet per day this winter to meet its needs for gas-fired power generation.

The storage facility, located near the city of Kenai, is designed to hold a maximum of 11 billion cubic feet. The facility has five wells for both injection and production of gas. It is located within the Cannery Loop gas field, which is operated by Marathon Oil.

Besides Chugach Electric, Anchorage's city-owned Municipal Light and Power, Chugach Electric and Enstar Natural Gas, the regional gas utility, are CINGSA customers. CINGSA is owned by Enstar's parent, Michigan-based Semco Energy, and Mid American Energy Holdings.

CINGSA is a regulated storage facility and must report any changes that will affect its operation to the state regulatory commission.

Conoco Phillips Alaska, which operates the LNG export plant at Kenai, said it cannot comment on the matter.

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