
JUNEAU — In his annual address to the Alaska Legislature, Gov. Mike Dunleavy said the state may have to take “painful” short-term measures to bridge a gas supply gap from Cook Inlet.
“We’ll address the short-term shortage of natural gas for Southcentral, and we recognize that some of those solutions may be painful and certainly won’t be popular, but they will be temporary,” he told lawmakers in his address Tuesday evening.
At a Friday news conference, Dunleavy said imported gas could possibly be needed as a “backup” to Cook Inlet gas, though that is the solution utilities are now pursuing.
As utilities warn of the possibility of rising costs and rolling blackouts, Dunleavy and key lawmakers say they are instead focused on longer-term energy solutions, and returning to Alaska-based fuels for the region.
However, power and heating costs for Railbelt residents are expected to rise. Chugach Electric Association — Alaska’s largest electric utility — warned last year that imported gas could see power bills increase by 10%.
That comes after Hilcorp, by far the dominant producer of Cook Inlet gas, said in 2022 that it did not have enough gas reserves to sign new contracts in coming years. That set off a panic among the five electric utilities in the Railbelt, and Enstar, Southcentral Alaska’s natural gas utility. They rely on Cook Inlet gas for more than 80% of their fuel needs.
Since then, the utilities have discussed importing gas as the best available alternative.
[Enstar tangles with Hilcorp Alaska in court over gas supply requirements]
Enstar recently announced it was developing an import facility in Nikiski as a “bridge” solution. But regulators recently warned plans are not being advanced fast enough for a shortfall that could start as soon as 2027, Northern Journal reported.
Alaska legislators have broadly said energy reforms are a top priority this year, but they say the Legislature’s role could be limited in addressing a looming shortfall of Cook Inlet gas.
Anchorage Republican Sen. Cathy Giessel, chair of the Senate Resources Committee, suggested critical decisions, such as importing gas, should largely be left to the utilities and the private sector.
“It’s a business case. I don’t think the Legislature should insert themselves. We’re just going to gum it up,” she said.
During a previous period when Alaskans feared another shortfall over a decade ago, the Legislature gave billions of dollars in credits to oil and gas companies to incentivize new production in the Inlet. Lawmakers last year broadly criticized that program as costly and wasteful, and said there is no appetite to repeat it.
With little interest in direct investment, legislators have said there are few policy levers to pull to get new gas from Cook Inlet.
In an interview last week, John Sims, president of Enstar, suggested the utilities would take the lead to fill the supply gap.
“That’s our obligation — to make sure that we have continuous and reliable service,” he said.
‘Glimmer of hope’
Dunleavy spoke enthusiastically last week about President Donald Trump’s recent executive orders that were intended to expand resource development in Alaska.
But it’s unclear whether Trump’s actions can help Alaska’s immediate energy needs in Cook Inlet.
Alaska Department of Natural Resources Commissioner John Boyle suggested last week that changes to federal permitting and endangered species laws could potentially see more gas produced locally.
“Unfortunately, those beluga whales create a lot of headaches for anyone that wants to do anything in the Cook Inlet,” he said. The Cook Inlet population of beluga whales is federally listed as endangered.
Asked what his plans are to address a looming Cook Inlet gas shortfall, Dunleavy did not name measures he would introduce this year.
“We introduced some initiatives last year. Those initiatives failed. We’re going to have discussions again with the Legislature,” he said last week.
Dunleavy and Republicans in the previous House majority backed a plan last year to reduce state royalties paid by gas producers as a way to incentivize more production. But the legislation failed to pass.
Sutton Republican Rep. George Rauscher introduced a similar measure this year — the one Cook Inlet gas bill introduced so far this session. He said that would help get “the conversation going again.”
Opponents of blanket royalty reductions note the state Department of Natural Resources can already reduce state royalty rates unilaterally.
The department is in the process of reducing state royalties for Furie Operating, an Alaska-owned independent gas company, that recently signed a five-year gas supply contract with Enstar.
Representatives from BlueCrest Energy, a Texas-based independent, and Hilcorp have said that reducing their royalty rates will not necessarily increase their gas production from Cook Inlet.
Instead, the owners of BlueCrest and Furie are seeking state financing to develop gas from the Alaska Industrial Development and Export Authority, or AIDEA.
Mark Slaughter, Furie’s chief commercial officer, said last week that Furie had secured a commitment for a $50 million revolving line of credit from AIDEA. That would allow the independent to be more “aggressive with development” in the massive Kitchen Lights Unit, he said.
Meanwhile, Benjy Johnson, president and CEO of BlueCrest, said he filed a loan application with AIDEA based on gas reserves under lease in the Cosmopolitan Unit.
Johnson declined to disclose the amount of the proposed loan, but he said it would cover the total cost of acquiring a gas platform. Last year, he told the Daily News that BlueCrest was seeking $400 million for the platform that will also need permitting.
Randy Ruaro, head of AIDEA, declined to immediately provide copies to the Daily News of the loan commitment with Furie or BlueCrest’s loan application. He said AIDEA has strict “confidentiality protections” in place for deliberative processes.
“Having said that, I can say that we have made great progress working with Hex/Furie on financing drilling and production work in Cook Inlet and look forward to being able to make an announcement when all documents are complete,” he said by email.
Reserve-based loans were part of a suite of energy bills the Legislature approved last year after working closely with the Dunleavy administration.
Anchorage Democratic Sen. Bill Wielechowski echoed colleagues who said the Legislature approved critical energy reforms last year. He said that reserve-based loans to companies like BlueCrest could potentially generate more gas from Cook Inlet.
“There’s a glimmer of hope there,” he said last week.
But Wielechowski bristled at the state royalty reductions set to be approved for Furie. As part of the company’s 2020 bankruptcy proceedings, royalties are paid to the private owners of the Kitchen Lights Unit’s overriding royalty interests. Those owners have refused to cut their royalty share.
”We keep socializing the risk and privatizing the profit. It’s something we see again and again and again in this state,” Wielechowski said.
‘Nothing cooking’
Like Dunleavy, several key legislators said that they don’t have measures prepared this year to directly address a Cook Inlet gas crunch.
“At this point, I have nothing cooking,” Giessel said.
She said the Legislature could potentially help buy a second jack-up rig for Cook Inlet, which could help producers like Furie develop more gas.
Earlier in the month, Dunleavy and Frank Richards, head of the Alaska Gasline Development Corp., revealed that Glenfarne was set to lead development of the state’s long-sought $44 billion Alaska LNG project.
The New York-based company is set to work on creating “legally binding development agreements” that both parties can agree on, Richards said.
Legislators have broadly expressed skepticism about the viability and costs of the 800-mile gas pipeline and said they want more information from the Dunleavy administration on the current plans for the project.
Anchorage Democratic Rep. Andy Josephson said Wednesday one of his concerns is that the state could be saddled with debt if the project fails to be built.
”Do we then have to buy out Glenfarne’s interest in some way?” he asked rhetorically on Wednesday.
Several state lawmakers said they were looking at other long-term energy solutions this year, such as by incentivizing more renewable energy on the Railbelt. But those measures have not been introduced yet this year.
Anchorage Democratic Rep. Donna Mears, chair of the House Energy Committee, said Monday that was a topic of discussion she expected soon.
“We’ve been in the building for a week, so we’re still figuring all that out,” she said, adding, “once we all get together, things start happening pretty quickly.”