Southcentral utilities lean toward the use of diesel fuel

Petroleum NewsJanuary 13, 2013 

Southcentral Alaska utilities are considering the use of diesel for power generation in the event of a predicted natural gas supply shortage around 2014-15, Robert Gibb, associate director of Navigant Consulting, told the Mayor's Energy Task Force in Anchorage last week.

Gibb is helping the utilities and the planned Donlin Creek gold mine evaluate options for coping with a gas supply crisis.

The utilities have been investigating the potential import of liquefied natural gas or compressed natural gas to cover a shortfall. But with significant uncertainties surrounding these options, the utilities now tend to favor diesel as a safe short-term solution, despite the relatively high cost.

"There's a short-term ... and then there's a long-term shortage, and we've recognized that they don't need to both have the same solution," Gibb said.

Diesel for power generation would seem a low-risk way to ensure the lights stay on and buildings stay heated, as gas supplies from Cook Inlet fall below demand levels.

"From a technology standpoint it's not very challenging. From a sourcing standpoint it's pretty realistic. And from a cost standpoint it's fairly well known," Gibb said.

Although on an "energy equivalent basis" diesel may cost five times as much as gas, diesel power generation would, at least initially, represent a relatively small proportion of total generation.

However, quite a bit of work remains to be done to clarify all the issues involved in diesel use.

Lee Thibert, senior vice president of Chugach Electric Association, said neither the Beluga power station on the west side of Cook Inlet nor the new gas-fired power station being completed in south Anchorage can run on liquid fuel. If the utilities move ahead with the diesel option, one of the power plants in the new south Anchorage facility would probably be converted for liquid fuel. Municipal Light & Power can already use diesel in its Anchorage power station. Golden Valley Electric Association in Fairbanks also has diesel generation capacity, with the possibility of shipping electrical power south on an electrical intertie that connects with Anchorage.

Longer term, which Gibb characterized as 15 years into the future, the utilities are still considering all possible options, including the import of liquefied natural gas or compressed natural gas by ship from out of state. The longer-term arrangements would take over from the short-term solution, once those longer-term arrangements are in place. In evaluating long-term solutions, utilities assume the gas shortage will level out after 2020 as new Cook Inlet gas fields come on line after a resurgence of interest in Cook Inlet exploration.

Asked whether the implementation of a short-term solution could provide a couple of years of breathing space, to see whether new gas fields in the Cook Inlet basin bring on line sufficient gas to avert a long-term gas supply shortage, Gibb said it's unfortunate but an early decision will be needed for an option to import gas.

Any import option will require a commitment to building the necessary ships, with a two-year window for such construction, he said. And, with production declines from the basin at about 20 percent a year, drilling out of the supply shortage would be tough.

The possibility of trucking LNG from the North Slope is on the table, but that option would require hundreds of LNG trucks to travel down the Haul Road from the Slope every day, with gas supplies coming to a halt if for some reason the road had to be closed, and with the possibility of weather causing delays in truck movements.

"Logistically, it may be very, very challenging," Gibb said.

Imported gas, whether in the form of LNG or CNG, would likely come from western Canada, with a price linked to North American markets. At present there is no practical source for the LNG or CNG from the West Coast of the U.S., and shipping from a U.S. port would involve complications around a federal law that requires the use of U.S. ships to carry cargo between U.S. ports.

The utilities had been veering towards the import of CNG as an apparently simpler and more cost effective solution than LNG, although both require dedicated ships. The utilities are close to determining the best shipping arrangement for CNG, Gibb said.

But the utilities have realized they need to take a closer look at LNG.

The facilities for importing the CNG or LNG would probably be at the port of Nikiski on the Kenai Peninsula. Unlike the use of diesel for power generation, there would be a significant permitting requirement. Either import option, because it would involve moving gas across the U.S. border, would require a presidential permit, adding more uncertainty to the process, Gibb said.

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