Compass: New natural gas from Cook Inlet? Fat chance

By JAN KONIGSBERGMay 29, 2013 

DNR commissioner Dan Sullivan, by proclaiming there is a "renaissance" in Cook Inlet natural gas exploration due to 2010 tax incentives (Compass, May 18), chooses to obfuscate rather than to educate.

The fact he conveniently chooses to ignore is that natural-gas wells drilled in the last few years are simply sucking what gas remains in the existing fields that were developed in the 1950s and 1960s.

So, the gas hissing from those new wells does not trumpet a rebirth but is actually the death rattle of the expiring gas fields.

More than a decade ago, Alaska DNR and others sounded the alarm that the existing Cook Inlet gas fields were drying up.

The most recent prediction of supply falling short of demand is 2018, albeit just 6 months ago utilities were planning for a shortage by 2014.

The difficulty in forecasting the supply shortfall is mainly due to the uncertainty about the number of new wells that will be drilled and how much of the remaining gas can be recovered.

Nonetheless, it is a certainty Cook Inlet's gas gauge will register empty about 2040.

As the Department of Natural Resources has long recognized, but commissioner Sullivan fails to acknowledge, the only feasible way to maintain an adequate supply of Cook Inlet gas is production from yet-to-be-discovered gas fields.

The U.S. Geological Survey estimates there is from 7 to 11 trillion cubic feet of gas to be discovered offshore in upper Cook Inlet, about a 100-year supply at current demand, and believes these yet-to-be-discovered gas fields are not associated with oil, as was case with the legacy fields.

Finding this gas requires jack-up drilling rigs, which is why the legislature enacted Cook Inlet exploration incentives bill in 2010 to provide $67.5 million in tax credits to bring a jack-up rig into the Inlet.

Subsequently, Escopeta Oil (now Furie Oil) and Buccaneer oil have brought jack-up rigs to the Inlet.

The problem is they are drilling for oil not gas.

You don't have to be a petroleum economist to know investment in oil production is much more profitable than in gas.

Even if gas were discovered when drilling for oil -- as Furie did in the Kitchen Lights unit in 2011 (no surprise here, since the unit has been drilled 4 times previously, all with gas shows) -- it is not likely to be produced because the industry pegs the Cook Inlet market as too small to be profitable.

Commissioner Sullivan also fails to point out jack-up rigs are not required to be drilling for gas to qualify for the tax credits.

So with both jack-up rigs going after oil and tax credits, the state is unnecessarily enhancing the profitability of oil exploration. In fact, Cook Inlet's tax regime is below every other major producing state: Cook Inlet oil is assessed no production tax and a 12.5 percent royalty rate!

Even with all the tax breaks, the industry does not consider development of the Cook Inlet gas resource to be profitable.

Why then has the state been selling leases for oil and gas in offshore Cook Inlet when it knows that the gas resource is not considered profitable by the lessees, especially in light of its experience with industry having impeded development of North Slope gas from state leases?

Why then has DNR not restructured the Cook Inlet leases to prevent the lessees from locking up the gas resource? Instead, the agency has continued to issue leases with terms that actually ensure the gas will remain stranded and thereby unavailable to the Railbelt.

Consequently, DNR's assurance that exploration on state leases in Cook Inlet will solve our natural-gas quandary is wishful thinking and misleading, not only lulling the public into a false sense of security, but failing miserably to utilize the resource for the maximum benefit of Alaska.

Clearly, when it comes to transparency and candor, the Parnell administration has been on a backward trajectory -- careening back through the Age of Enlightenment, past the Renaissance and into the Dark Ages.


Jan Konigsberg directs Alaska Hydro Project with the support of the national Hydropower Reform Coalition.

 

 

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