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Enstar sues Hilcorp in dispute over supply contract, citing potential for ‘catastrophic’ gas shortage

Workers pour concrete to expand the Cook Inlet Natural Gas Storage Alaska compressor facility on Monday, July 1, 2024 in Kenai. The facility takes natural gas from producers, including Hilcorp, and stores the gas underground in a depleted gas field until it is needed by its customers, which include Enstar and Chugach Electric. (Loren Holmes / ADN)

Southcentral Alaska’s natural gas utility is suing Hilcorp over concerns that a cold snap could see imminent supply shortages.

Enstar, which provides gas to more than 150,000 customers, argued in a complaint filed Jan. 22 that Hilcorp has failed to deliver gas under contract to be stored for periods of high demand.

”If ENSTAR is unable to meet its customers’ demands for gas because of Hilcorp’s failures to supply the gas volumes it is contractually required to supply, the results will be catastrophic for Southcentral Alaska,” the utility said in its request for a preliminary injunction.

Enstar is requested that Anchorage Judge Herman Walker order Hilcorp to start delivering the contracted gas by Jan. 28. Walker scheduled oral arguments for Jan. 31.

A spokesperson for Enstar declined to comment on the lawsuit.

In correspondence attached to the utility’s complaint, Hilcorp, which supplies roughly 90% of gas production in Cook Inlet, effectively accused Enstar of violating its contract by improperly storing natural gas, risking supply for other users.

“Despite various efforts to resolve an ongoing contractual dispute related to the delivery of natural gas and an agreement related to natural gas supply protocols, Enstar has chosen to initiate legal action. We strongly disagree with their interpretation of the contracts and look forward to resolving these issues in a timely manner. We hope Enstar will come back to the table and work with us to develop a reasonable resolution that takes into account the needs of all Alaskans that depend on Cook Inlet natural gas,” said Matt Shuckerow, a spokesman for Hilcorp Alaska, by email.

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A looming shortfall of Cook Inlet gas has led to concerns of an energy crunch, and an increased risk of rolling blackouts on the Railbelt, Northern Journal reported.

This dispute is largely unrelated, and potentially more immediate.

In its complaint filed in Anchorage Superior Court, Enstar said that its contract requires Hilcorp to deliver 25 billion cubic feet of gas per year.

Additionally, Hilcorp is required to deliver another 4 billion cubic feet per year of “Daily Call Option Gas” through 2033, the utility says.

Enstar said that additional gas is required to be stored for winter and spring — periods of higher demand to heat homes and businesses.

John Sims, president of Enstar Natural Gas, speaks to the Alaska Senate Resources Committee in Juneau on January 24, 2025. (Marc Lester / ADN)

After a cold snap last year, John Sims, president of Enstar, told lawmakers that the utility was “extremely close” to being unable to deliver gas with its systems under unprecedented strain.

The utility says it currently has less than its target volume of gas stored in Cook Inlet Natural Gas Storage Alaska, or CINGSA.

Under current conditions, Enstar says by December it will have half its target level of gas stored for winter.

Attached to Enstar’s complaint was correspondence between Hilcorp and the utility.

In early December, Hilcorp requested suspending delivery of that additional gas to Enstar, with a pledge that the two parties would devise a delivery schedule in January.

Later in the month, Enstar told Hilcorp that it was requesting the extra gas to be stored in CINGSA.

The dispute continued between Enstar and Hilcorp over the next few weeks.

On Jan. 8, Enstar said that Hilcorp “expressed its new position” that the additional gas supply would not be delivered if the utility continued its storage practices.

Luke Saugier, senior vice president of Hilcorp Alaska, appears before the Alaska Senate Resources Committee on January 23, 2025, in Juneau. (Marc Lester / ADN)

In a Jan. 9 letter, Luke Saugier, senior vice president of Hilcorp Alaska, said that Enstar was effectively violating its contract by improperly storing gas.

”If we deviate from these procedures, it can lead to supply imbalances, causing shortages for other customers,” he said in a letter to the utility.

However, Enstar has argued its storage protocols were “heavily negotiated” with Hilcorp, and that those protocols did not change gas volumes Hilcorp was obligated to deliver in an amended contract signed with the Texas-based producer last year.

Enstar submitted emails with Hilcorp in its complaint that the utility says show its storage plans were part of the amended gas delivery agreement.

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Enstar says that it needs all “unpurchased volumes” of gas delivered by April 1. If Enstar faces a cold snap, the utility says it may not have the storage capacity to “meet customer demand.”

The utility threatened legal action against Hilcorp on Jan. 16, and filed its complaint Jan. 22.

Anchorage Democratic Sen. Bill Wielechowski, vice chair of the Senate Resources Committee, has long bristled at Hilcorp’s “monopoly position” in Cook Inlet, and the producer’s strident opposition last year to a proposed tax increase.

“In addition to the concerns about them failing to explore and develop gas as they are legally required to do, they now appear to be using their monopoly position to squeeze the consumers of Southcentral and potentially cause an energy catastrophe,” he said.

Sims with Enstar presented to the Senate Resources Committee on Jan. 24 about its plans to import gas. But the utility’s lawsuit was not discussed. Neither Sims nor lawmakers brought up the lawsuit in the meeting. Republican Anchorage Sen. Cathy Giessel, chair of that committee, said that day she was unaware of the utility’s lawsuit. She said that she would be tracking it closely.

“Very interesting,” she said. “We’ll see where this goes.”

Contact Sean Maguire at smaguire@adn.com.