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Energy

New natural gas deal by Hilcorp and Enstar could bring rate savings

Southcentral natural gas customers could collectively save $53.6 million under the latest contract between Enstar Natural Gas Co. and Hilcorp Alaska.

According to a letter containing the amended contract terms filed with the Regulatory Commission of Alaska, Enstar customers should save approximately 7 percent in gas costs from June 1 through March 2023, when the utility’s prior contract with the Cook Inlet producer was set to expire.

The new terms also extend the agreement through March 2033. According to Enstar’s filing, Hilcorp “reliably delivered” 82 percent of the utility’s gas in 2019 and is expected to cover 80 percent this year.

Enstar could purchase anywhere from 64 percent to 97 percent of its annual gas requirement under the new terms. The utility expects its demand to remain at roughly 33.6 billion cubic feet, or bcf, per year through 2025.

The contract has a base firm quantity of 25 bcf per year.

Enstar officials noted that multiple Cook Inlet producers have filed for bankruptcy in recent years. Furie Operating Alaska had its gas production halted in early 2019 when a production line froze, causing Enstar and other utilities to purchase gas elsewhere and draw on stored reserves for several months. Furie filed for Chapter 11 bankruptcy last August.

“This gas supply certainty is vital at a time of growing scarcity,” the letter states.

Enstar supplies gas to approximately 148,000 customers.

Gas will be sold at $7.55 per thousand cubic feet, or mcf, in the first year of the contract but will vary afterwards. According to Enstar’s filing, the price for gas in subsequent years will be set through a calculation based on three price indices published by the Bureau of Labor Statistics. However, the price cannot increase more than 1.5 percent or decrease more than 1 percent in any given year, meaning the deal has an effective price ceiling of $8.89 per mcf in 2033.

Prior contracts between the two had fixed price inflation rates of 2 percent to 4 percent, but “Enstar does not believe that an inflexible, always-positive inflation factor appropriately reflects how production costs increase and decrease over time,” the letter states.

The agreement amends and extends a contract signed in 2016. At the time most gas contracts in Cook Inlet were five years or less.

In 2018, the first year of that deal, Hilcorp sold to Enstar for an average price of $7.56 per mcf.

State Sens. Josh Revak, Shelley Hughes and Senate President Cathy Giessel all urged RCA to approve the contract in comments to the commission.

Hughes and Revak noted the combination of price reductions and long-term supply as needed benefits during a highly uncertain economic period and Giessel highlighted that it will ensure Alaska is developing and utilizing its own resources.

“When Alaska gas is on relative price parity with imports, this use of our own resource will support the direct and indirect jobs in the resource development industry that in turn support our communities,” Giessel wrote in her comments.

A public comment period for the contract is open through May 20 on the RCA website.

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