Cook Inlet oil and gas proves boon to Southcentral Alaska

The natural gas of Cook Inlet does a lot for the hundreds of thousands of Alaskans who live in Southcentral. It heats their homes, cooks their food, powers the lights and recharges cell phones. The gas is so prevalent that those residents utilize it almost every minute of their lives, and that's been the status quo for at least two generations, according to JR Wilcox, co-founder and CEO of Cook Inlet Energy and chairman of the Cook Inlet Subcommittee for the Anchorage Chamber of Commerce.

"The only time Cook Inlet gas doesn't support me is when I'm in my car," he said, acknowledging that even then, the inlet still produces oil that maybe -- in a less-than-direct way -- powers his drive to work.

Wilcox presented the Northern Economics study "The Importance of Cook Inlet Oil and Gas to Southcentral Alaska," in an Anchorage Chamber of Commerce luncheon Monday. The study examines the economic impact of Cook Inlet natural gas in Alaska.

It's a relevant topic, especially as production has ebbed and flowed throughout the years. Most recently, production seemed to be declining -- and sharply. Despite incentives, production is nowhere near what it was a decade ago. Starting in the 1990s and through 2005, Cook Inlet annually produced more than 200 billion cubic feet of gas a year. But in 2007, things started to slip. Aging wells meant less production, ultimately leading to closures of the Agrium fertilizer plant and the eventual mothballing of the ConocoPhillips LNG liquefaction plant, both located in Nikiski on the Kenai Peninsula.

So what to do to keep people on the ground interested in the role Cook Inlet natural gas plays in their lives? Let them know the importance of the resource, according to Wilcox.

"(The study) is useful to (Chamber of Commerce) members in the case of what happens if Cook Inlet can't keep up," Wilcox said.

It's another phase in the up-and-down history of natural gas in Southcentral Alaska. Two years ago utilities and lawmakers warned that unless there was a turnaround, residents in Alaska's largest population center would find themselves left out in the cold, literally, with gas supply unable to meet demand.


But earlier this year, Conoco reapplied for its LNG export permit, and local utilities announced they had shored up natural gas contracts up through 2018, signaling a resurgence in the region.

ConocoPhillips will resume exports of liquefied natural gas from the Kenai Peninsula after the Department of Energy granted the company export permission for two years. The announcement on Monday comes after local utilities announced that their natural gas needs were met through 2018, and after the state in September asked Conoco to renew those exports from its liquefied natural gas facility in Nikiski. The resumed exports will open market opportunities for excess quantities of natural gas, ConocoPhillips said in a statement. The state has offered incentives to boost natural gas production in Cook Inlet, but the gains so far have been somewhat modest, meeting needs in Anchorage for a just a handful of years. However, state officials pressed for the renewed exports to foster continued investment in Cook Inlet by oil and gas companies that will need new markets if production continues to increase. The Energy Department's approval will allow exports to both free-trade and non-free-trade countries. Conoco will be able to export about 40 billion cubic feet of liquefied natural gas during the two-year period. How much is that? By comparison, Enstar's 136,000 customers -- from the Matanuska Valley to Anchorage the Homer -- use about 33 billion cubic feet of natural gas a year. Conoco's LNG facility operated for decades, shipping LNG overseas to Asian markets, until it was mothballed in 2012 because of limited gas availability in Cook Inlet. At its peak, the facility produced 64 billion cubic feet a year.

That, along with economic incentives from the state legislature and the construction of CINGSA, short for Cook Inlet Natural Gas Storage, Alaska -- a facility designed to hold 17 billion cubic feet of natural gas -- have shored up supplies, at least for the time being. Though Enstar, the regional natural gas utility, has expressed concerns about deliverability, gas supply contracts have been negotiated and suppliers insist they will be able to meet demands.

But beyond the give and take of utilities, and the basic needs they provide, Wilcox suggests it goes deeper than that. Specifically, he noted the economic benefits Southcentral receives because of low energy prices. The study quantifies exactly how much that is, with up to $350 million coming to Southcentral Alaska directly from jobs related to oil and gas.

That doesn't take into account all the "stuff" Cook Inlet jobs pay for -- aka, the industrial output. The study said that in 2011 the economic output on Kenai Peninsula Borough from oil and gas production was $2.8 billion. Most of that came from the Tesoro refinery, mostly refining crude from outside of Cook Inlet. Increases in oil production could mean fewer imports and big gains for the refinery.

It even suggests that regardless of how much natural gas is being extracted from Cook Inlet, even if it declines to the point where alternative fuel sources need to be considered, Alaskans should stick to natural gas.

Even if it was imported, natural gas would still be significantly cheaper than propane or fuel oil to heat Alaskans' homes, the study says. Importing natural gas would run about $12 per thousand cubic feet -- about double what those customers pay now. If Southcentral Alaskans were forced to use propane, the cost for the average homeowner would skyrocket -- an estimated $7,053 a year for heat, instead of about $1,386 a year currently. Fuel oil -- already a primary heat source for many communities in Alaska that don't have natural gas -- would run about $4,385 a year.

Plus, Wilcox noted, that doesn't even take into account the costs people would incur in having to install new heaters and boilers for their homes for those other types of fuel.

Ultimately, Wilcox believes there is hope in Cook Inlet. The study notes that the amount of recoverable oil and gas in the inlet -- 600 million barrels and 19 trillion cubic feet, respectively -- are worth, at today's prices, $173 billion.

And while there will always be the back and forth, for the most part, there's plenty of reason to be optimistic about the future, he said.

"This is a very serious issue, but let's not panic," he said. "Let's quantify it."

Suzanna Caldwell

Suzanna Caldwell is a former reporter for Alaska Dispatch News and Alaska Dispatch. She left the ADN in 2017.