Cook Inlet gas cost to consumers still compares favorably

Petroleum NewsOctober 14, 2013 

Sticker shock over gas prices for Southcentral Alaska gas consumers in recent years, as prices have risen in response to tightening gas supplies from the Cook Inlet basin, has led to comments about Alaska gas transitioning from being the cheapest in North America to the most expensive. But while this perspective on the price of gas at Cook Inlet wellheads may be true, the situation for the prices that consumers experience is more nuanced.

Take, for example, the rates that Enstar Natural Gas Co., Southcentral's main gas utility, charges its residential customers.

According to data presented on Enstar's website the average cost of gas to residential customers in 2013 has been $8.47 per thousand cubic feet for gas, with that figure dropping a bit in the third quarter.

Between April and the end of June, Enstar paid an average price of $6.33 for the gas that it purchased from gas producers to deliver to its customers, with the remainder of the residential gas price consisting of Enstar's fees for managing and operating its system for transporting and distributing gas to consumers.

These figures make an interesting comparison with data for the Lower 48.

According to information presented on the Energy Information Administration's website, the average price of natural gas for residential consumers in the United States varied between a minimum of $9.19 per thousand cubic feet in January 2013 to $16.15 in July.

An EIA official explained to Petroleum News that the disparity in prices between winter and summer is an artifact of the way in which the prices are calculated. Essentially, the agency divides the total cost of the gas to consumers by the volume of gas used.

And, since a significant component of that cost consists of fixed utility service fees, low gas usage in the summer compared with the winter results in the same service fees being spread over fewer cubic feet of gas in the summer, resulting in a higher per-thousand-cubic-foot cost.

However, assuming that the utilities plan to remain solvent, the average price that they charge their customers must be somewhere in the $9.19 to $16.15 range. By comparison, EIA quotes the average cost of residential gas in Alaska as ranging from $9.18 in February to $9.84 per thousand cubic feet in July, numbers that are a bit higher than those of Enstar but lower than those for the U.S. as a whole.

Apparently this disparity in prices between Alaska and elsewhere in the U.S. arises from the high transmission and distribution costs for gas delivered to many Lower 48 residents. Unlike in Southcentral Alaska, where residents live a relatively few miles from Cook Inlet gas wells, Lower 48 consumers may in some cases live hundreds of miles from where gas is produced, with gas having to be transported through a network of gas transmission lines. EIA says that factors such as regional competition in the gas market, regional gas consumption levels and state regulations also impact gas prices.

And unpacking that U.S. average price data into price data for individual states shows a wide variety of price levels. In Alabama, for example, prices ranged from $14.44 in January to $22.06 in July, while, in gas-endowed Texas, prices ranged from $7.75 to $12.16 between January and May.

EIA data also shows wholesale gas prices at the Lower 48 Henry Hub market varying between $3.33 and $4.16 per thousand cubic feet, prices below Enstar's average cost of gas during the summer and prices that analysts view as too low for profitable natural gas development.

The price situation for gas sold to power stations for electricity generation is also interesting. According to a tariff advice filed in May by Chugach Electric Association, a major Southcentral Alaska power utility, Chugach Electric's contracted gas supplies at that time for its gas-fired power stations ranged in price from $3.44 to $7.75 per thousand cubic feet, with the higher pricing within that range relating to more recently initiated contracts.

According to EIA the average price of gas delivered to power stations in the United States this year has ranged from $4.34 to $4.85 per thousand cubic feet. The agency says that the average price for gas used for power generation in Alaska ranged from $4.43 to $4.82 in that same period.

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