As reserves in the Cook Inlet Basin dwindle, Alaska leaders are warning of natural gas shortages as early as 2027.
Natural gas production in the basin has fallen to about 70 Bcf/year, according to the Alaska Department of Natural Resources (DNR). The reduced production was cited for shuttering operations at the Agrium Kenai Nitrogen Plant in 2007. The Kenai LNG facility also suspended operations in 2016.
Enstar Natural Gas Co. President John Sims in a recent interview said supplies near-term could provide enough gas for the 150,000 customers. However, Sims told the Anchorage Daily News that he is “really, really concerned” about having enough supply around 2028.
Securing gas supplies has been a concern for Enstar for at least two years. In June 2022, Enstar warned that Houston-based Hilcorp, the country’s largest private exploration and production (E&P) company and considered the largest gas producer in Cook Inlet, “did not have ‘line of sight’ to produce gas beyond its existing contracts,”
Two years ago, DNR issued a forecast for Cook Inlet gas. It estimated at that time that about 843-1,404 Bcf was probable, which could be developed, aka PDP, “with no economics factored.” The economics of drilling for gas in the basin, however, has been an issue for E&Ps.
E&Ps face a market that is “separate and isolated from…more liquid and heavily traded gas markets, such as Henry Hub in the Lower 48,” according to the report.
In October, natural gas prices at Alaska’s citygate traded for $8.35/Mcf, about 105% higher than the U.S. average, according to the latest data from the U.S. Energy Information Administration (EIA). In addition, some production “would experience negative cash flows,” leading E&Ps to “shut down these fields and thus cease the production of gas to the market,” DNR forecast.
Joined by other utilities, Enstar formed the Utility Working Group two years ago to explore ways to secure more gas for consumers. In the first phase of the Cook Inlet Gas Supply Assessment by the Berkeley Research Group, additional drilling was “viewed only as a short-term fix, given the challenging market conditions limiting the economically recoverable volumes of gas remaining.”
The report suggested that importing liquefied natural gas from the Kenai LNG facility could meet utility gas needs by 2027. Marathon Petroleum Corp., which acquired Kenai LNG from ConocoPhillips, has said it is evaluating whether to convert the terminal to import gas.
Sims in the recent interview said, however, that gas-fired power plant operators looking to import LNG to fill supply gaps could face federal and state permitting delays.
As Alaska’s legislative session kicked off this month, Rep. George Rauscher, a Republican, filed state House Bill 223 to alleviate the financial burden of drilling in the Cook Inlet. The bill calls for reducing royalties to zero on gas produced in the basin if it were delivered to an in-state electric or heating utility.
Cook Inlet gas royalty taxes are as high as 12.5% for the value produced, according to the legislation. Removing the royalties from the state’s revenue stream would have “minimal” impact, as they averaged about 3.6% of the royalty income from fiscal year 2013-2022, according to Gov. Mike Dunleavy’s office.
Utilities across the Railbelt region, which spans from Fairbanks to Anchorage and the Kenai Peninsula, “are facing an energy supply gap in the coming years, and Cook Inlet’s untapped natural gas reserves can help fill that gap,” Dunleavy said last year. “If we maintain the status quo, much of that gas will be left untapped because it doesn’t make good business sense for operators.”
At the local level, a group of mayors headed by Anchorage Mayor Dave Bronson late last year formed the Southcentral Mayors’ Energy Coalition to evaluate solutions.
“As the aging Cook Inlet basin becomes even more challenging for oil and gas companies to operate in, we once again face a serious natural gas shortage,” Bronson said last month. “If we don’t take action soon, energy prices in south central Alaska could double.”
“As the aging Cook Inlet basin becomes even more challenging for oil and gas companies to operate in, we once again face a serious natural gas shortage,” Bronson said last month. “If we don’t take action soon, energy prices in south central Alaska could double.”
“As the aging Cook Inlet basin becomes even more challenging for oil and gas companies to operate in, we once again face a serious natural gas shortage,” Bronson said last month. “If we don’t take action soon, energy prices in south central Alaska could double.”
