Utilities move forward on two options for gas imports

Petroleum NewsOctober 27, 2012 

With natural gas supplies from Cook Inlet set to fall short of local gas demand by 2014 or 2015, the time has come to start arranging imports to supplement that gas, Southcentral utility executives told the Regulatory Commission of Alaska last week.

"I'm personally done wringing my hands," Bradley Evans, CEO of Chugach Electric Association, told the commissioners. "We've got to move down this path. We've got to spend this money."

Chugach Electric currently generates about 90 percent its power in gas-fueled power plants.

A consulting firm, Petro-technical Resources of Alaska, or PRA, has been assessing and monitoring the Cook Inlet gas supply for the utilities. PRA has reported there is little likelihood that development in existing fields will significantly delay a gas shortfall. And new fields discovered from an upsurge in Cook Inlet exploration are extremely unlikely to produce enough new gas quickly enough to avoid a shortfall, PRA says.

So the utilities are looking at two options: Import liquefied natural gas from overseas or import compressed natural gas from the West Coast. Lee Thibert, senior vice president of Chugach, said the utilities have asked potential shippers about their interest in importing gas.

Another consulting firm, Northern Economics will analyze the merits of the two options and likely present its analysis by year's end. The utilities will decide in the first quarter of 2013 which option to pursue. Before a final decision on implementation, the utilities expect to spend about $5 million on the preliminary engineering of gas-import facilities, Thibert said.

High fuel oil cost

Thibert explained that without the option to import gas, the only way to keep power plants running would be to switch to fuel oil. But fuel oil is much more expensive than imported gas.

It will be important to import gas slowly at first, Thibert said, because "we have to avoid discouraging new Cook Inlet production."

Import arrangements will also need to be flexible, allowing volumes to increase or decrease, depending on the health of Cook Inlet gas production.

LNG versus CNG

For several years, a group of utilities and other stakeholders in the Southcentral gas industry studying the potential gas shortfall has leaned toward the import of liquefied natural gas, or LNG, rather than compressed natural gas. LNG enjoys a well-developed market, as well as economies of scale in its shipping arrangements, Thibert said. There has been much talk about the possibility of converting an LNG export facility on the Kenai Peninsula into an LNG import terminal, although people have also been looking at other options and sites for bringing LNG into the state.

With no access to pipeline capacity for delivering North American gas to a suitable port, and with no ships licensed or approved for transporting compressed natural gas, or CNG, compressed gas seemed like the worse option, Thibert said.

But the situation has changed in the past year, he said. There is now a shipbuilder with a permit to build CNG ships. And Pacific Northern Gas, owned by AltaGas, the company that has recently taken over Enstar Natural Gas Co., operates a pipeline system for delivering Canadian gas to tidewater at Prince Rupert and Kitimat, B.C.

Pacific Northern Gas has expressed its willingness to support a CNG project, either through the use of existing pipeline capacity, or possibly through additional capacity, Thibert said.

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