Tim Bradner: Southcentral faces running short of natural gas

Tim Bradner

The natural gas supply situation in Southcentral Alaska is anything but secure. True, we have people drilling exploration wells in Cook Inlet. We also have a natural gas storage project now constructed and being filled with gas to cushion our supplies this winter.

But no significant discoveries have yet been announced from the new exploration. And while gas storage is helpful, assuring that gas flows during cold weather, it doesn't add to the overall supply, which is the problem.

Here's the issue: Tens of thousands of residences and commercial buildings in Southcentral depend on natural gas for space heating. About 90 percent of our electricity is generated with gas too.

But our gas fields in the region, discovered in the 1960s when explorers were looking for oil, are running down. Gas production is about half of what it was a decade ago.

Unless some big gas discoveries are made soon by those explorers, we'll actually be short of what we need by 2014, and by 2015 for certain.

That's according to a study by Petrotechnical Resources of Alaska, a consulting firm contracted to assess the situation by regional utilities Enstar Natural Gas, Chugach Electric and Municipal Light and Power.

PRA did its first report in 2010, finding we'd be short of gas by 2013. In a 2011 update, the day of doom was pushed to 2014. This year's update, just now being released, looks at new drilling so far in 2012 and finds the 2014 doomsday unchanged.

PRA is looking only at the big producing fields and new production wells drilled in those fields. It finds that the number of new production wells is about half of what is needed to sustain production.

Exploration wells aren't counted because at this point their success is unknown. That's appropriate because the utilities have to look at what gas we know is there, not hypothetical new gas from exploration.

Will the explorers find new gas? Certainly they will. Will they find enough, and in time? That's the question.

Things are even a bit dicier because even if offshore exploration wells find gas, the producers won't be able to deliver it fast enough because of the time required for permitting and construction. Exploration wells onshore -- and there are some -- might be able to meet the deadline if they discover gas but only if they are near an existing pipeline. Any discovery needing a long pipeline, or in a sensitive area, won't meet the deadline.

Some exploration wells do meet the criteria to deliver soon, but not many. Buccaneer Energy, an independent company, is drilling a new gas well near Kenai. NordAq Energy, another independent, is exploring on Cook Inlet's west side near a pipeline, as is Cook Inlet Energy, another independent.

One bit of good news is that Cook Inlet Region Inc.'s new wind project at Fire Island is up and running. Electricity from wind will reduce by a little the amount of gas burned. As technical problems of integrating variable wind power into the local grid get worked out, CIRI's wind project can be expanded over time, further reducing gas demand for power.

Other good news: Hillcorp Energy is developing a small gas discovery made several years ago east of Anchor Point. Hillcorp and Conoco Phillips, both of which operate the big producing fields, are also drilling other production wells.

This is encouraging. A series of small, incremental gas finds might let us squeak by but it's high risk to count on these. What's still sobering is that so far the utilities have been able to contract for only half the gas they'll need in 2015.

There are people who say the regional gas producers know they have more reserves and will bring them into production as they're needed, but others say that if those reserves existed, more would be under contract to the utilities by now and the gap in 2015 would be smaller.

If we don't find enough new gas, we'll have to import gas as liquefied natural gas or in compressed form. We need gas because switching to another fuel, like oil or coal, is impractical for us. Our Southcentral energy system is built on gas.

Imported LNG will cost about twice what we are now paying for gas. Compressed natural gas might be a bit cheaper.

What about a pipeline from the North Slope, where there is lots of gas? The project furthest along is the 24-inch gas pipeline proposed by a state corporation, the Alaska Gasline Development Corp. It could have had gas here by about 2018, which is too late for 2015 but still an assured supply. Unfortunately, the project is behind schedule because the state Senate blocked funding for engineering work needed to be done this year.

How about the big pipeline? The three big North Slope producers and TransCanada Corp., a pipeline company, are indeed making progress on a large pipeline and LNG project but there's no guarantee it will be built.

If it is built, it wouldn't deliver gas until 2024 at the earliest.

We have a problem: More than 90 percent of our energy in this region is supplied by gas and we now know we won't have enough of it by 2015 unless there are substantial gas discoveries at places conveniently near existing pipelines. Not a good situation.

Is there even time to get an LNG or compressed natural gas system set up and operating? I don't know. Someone had better know, though. We're two or three years away from this and energy systems require engineering, permits and time to build.

I'd like to know if people are seriously working on this.

Our public utilities are required to ensure energy supplies are adequate and our state regulatory commission is responsible for ensuring the utilities do their job.

Are the utilities doing their job? Is the regulatory commission doing its job?

We need to know.

Tim Bradner is a business and economics writer in Anchorage.


Tim Bradner
EconomyBy TIM BRADNER