Last year, it was hard not to miss the message Southcentral Alaska utilities and political leaders were shouting: a natural gas shortage was just around the corner, and with that, residents should begin thinking about austerity measures. Based on supplies of the day, customers using natural gas to heat and power their homes -- nearly all of the roughly 400,000 people who live in the state's main population center -- were cautioned to take heed. At every public meeting, warnings were made that gas supplies after 2014 were questionable, and residents should be prepared for potential hiccups at times of peak demand. A media blitz to highlight an awareness campaign that color-coded the voluntary measures customers should take was everywhere. But then everything changed.
In spring, the utilities announced that natural gas contracts for Southcentral utilities are shored up through 2018 essentially pushing the concerns out at least another four years. But past that, “black holes” still remain.
Producers are still working toward solving the riddle of delivering that gas to the customers they're contractually bound to serve. Now, the concern has switched from whether there’s enough gas to warm Southcentral Alaska to how gas can get from Cook Inlet into your furnace room and kitchen.
“Between now and 2018, it's a distinction between volumes and deliverability,” said Moira Smith, vice president and general council for Enstar, the state's largest natural gas utility, which provides the natural gas that heats thousands of homes and businesses in Southcentral Alaska every day. Having a volume of gas committed, she said, "doesn't actually mean that we're OK on a day-to-day basis” because it still needs to be delivered.
Smith and her counterparts from other utilities -- including Chugach Electric, Matanuska Electric Association and Municipal Light & Power -- presented updates on their current and future natural gas contracts to the Mayor's Energy Task Force on Wednesday.
For the last decade, utilities and producers have warned of possible natural gas shortages in Southcentral Alaska. Aging wells in Cook Inlet have steadily waned in production. Despite the possibility of trillions of cubic feet of gas remaining undeveloped in the region, new wells haven't come online fast enough to keep up with needs. Last year, fearing a gas shortage that could cause a catastrophic line failure and leave thousands of Alaskans in the cold, utilities warned that importing natural gas could be the region's only option.
“The urgency has gone away, but the emergency has maybe been put off a bit” said Tony Izzo, task force member and supply manager for Matanuska Electric told the body Wednesday.
With the announcement of set contracts this summer, Hilcorp Alaska is set to deliver over 25 billion cubic feet of natural gas to Enstar alone in 2014, with similar commitments over the next four years.
But those agreements, and other future ones, are constantly being considered as part of the bigger picture, according to the utilities. Progress has been made -- including the construction and operation of the $180-million CINGSA -- the Cook Inlet Natural Gas Storage Alaska -- which is capable of holding gas and injecting it into the main line as a safeguard against line failures and low gas supplies during times of peak demand.
Smith noted the “Herculean” effort the producers make in getting gas out of Cook Inlet, especially ones contending with aging wells that are producing less gas as time goes on.
Last year, utilites announced they would be exploring import options in the event that regional natural gas supplies could not meet demand. With the new contracts, Smith noted that importing liquefied natural gas is still being considered as an insurance measure for the company. Liquefied natural gas customarily sells for a much higher price than gas produced in Cook Inlet.
While importing gas would be new for the Cook Inlet basin, the discussion comes on the heels of a recent request from the state to open the currently mothballed ConocoPhillips LNG facility and resume exports to Asia. The state cites the current assurance of natural gas markets in Southcentral as a compelling reason for the company to resume exports.
In Enstar's presentation, Smith said the company had no position on supporting and disapproving possible exports. When asked specifically whether the company thought such an avenue would be good or bad, Smith demurred.
“I'm not trying to be cute (in my answer), but it's a bit of both,” she told the task force.
Smith touted the progress that CINGSA has made in assuring against failures in Southcentral gas lines. But CINGSA can only hold so much in reserve. Currently designed to hold 11 billion cubic feet of natural gas, that could be upped to 18 billion cubic feet if producers and utilities were interested in those reserves. Even increased storage has its own limitations on how much it can help with supply shortfalls.
“The question is how long will CINGSA be able to absorb that swing as deliverability from producers decreases?” she said. “Barring an unforeseen discovery -- and we hope there will be one -- there will be a point at which CINGSA will no longer offer enough deliverability on daily basis to make up for what producers are no longer willing to sell us out of their wells.”
Producers making good
Big players in Cook Inlet so far aren't concerned over their ability to deliver gas this winter and into the future.
“We wouldn't have made commitments we weren't confident we couldn't make good on,” said Hilcorp spokeswoman Lori Nelson.“We really don't take our role lightly in the way we supply the largest population base in the state.”
Houston-based Buccaneer has made strides in Southcentral. Spokesman Jay Morakis said the company has drilled and is about to test an additional well at its Kenai Loop project and will soon begin work at its West Eagle Unit soon. He said the latter unit is primarily a natural gas play that the company expects if successful, will easily hook into the current natural gas distribution system. Morakis said the company has no concerns about fulfilling its gas sale contracts.
Apache Alaska is one of a handful of new producers on the Cook Inlet scene, looking to take advatange of possible gas reserves. With its 300 square miles of leased land in Cook Inlet, Apache is hoping it can be a player in helping shore up those contracts past 2018. The company is exploring leases it has acquired through the state, Alaska Mental Health Trust and Cook Inlet Regional Inc., according to Lisa Parker, manager of government relations for the Alaska producer. The Houston-based company, which has holdings all over the world, has begun conducting seismic work in the region, and last year finished drilling one offshore well in Cook Inlet. While that well has delivered no oil or gas as of yet, the company is still optimistic about its prospects.
“Based on the schedule we're working on, by the time (the utilities') needs arrive, we will have identified places to help fill some of those needs,” she said Wednesday.
CORRECTION: An earlier version of this story incorrectly detailed the leases Apache Alaska holds. The company has leased 900,000 acres in Cook Inlet. Of that, 300 square miles have been the site of seismic testing. The company's only well was drilled onshore, not offshore.