Southcentral Alaska gas storage, LNG imports discussed

Printer-friendly versionPrinter-friendly versionSend by emailSend by email
Researcher/Writer, Office of the Federal Coordinator
Release Date: 
September 26, 2011

Construction is on schedule for an estimated $180 million natural gas storage facility in Alaska's Cook Inlet region. But local utilities think liquefied natural gas imports still might be necessary in a few years, even after storage smoothes the flow of gas supply.

These were among the messages delivered by panelists Sept. 22 at an Alaska In-State Energy Supply Summit in Anchorage, an adjunct event to the annual Alaska Oil & Gas Congress held earlier in the week.

The new Kenai Peninsula storage site should be ready to take injection of its first natural gas in April 2012, said Colleen Starring, chief executive of ENSTAR Natural Gas Co., an Anchorage-based utility. Withdrawals could start in November or December that year, as winter demand picks up from utilities such as ENSTAR, she said.

ENSTAR's parent company, Michigan-based Semco Energy, is 65.5 percent owner of the venture, called Cook Inlet Natural Gas Storage Alaska. Iowa-based MidAmerican Energy holds a 26.5 percent interest. The partnership is expected to announce soon that two Alaska investors have taken 4 percent stakes each, Starring said.

Spending has totaled $57 million so far, with one of the five wells completed, two more under way and a fourth expected to be started during the week of Sept. 26. The wells bore down 4,200 feet, then out horizontally for a total length of 8,600 feet, she said. Gas will be injected and withdrawn via the wells.

The project is the first independent, third-party-owned storage site in Alaska - some Cook Inlet gas producers own storage they use themselves to ensure steady flows to their customers. Starring said the storage will provide multiple benefits:

  • It will smooth the seasonal supply-demand imbalance for Southcentral Alaska utilities. At present, Cook Inlet area gas fields produce more gas than utilities need in summer and less than is used in the cold of winter.
  • It will provide a stockpile of gas - an insurance policy, Starring called it - should local supply be disrupted by a production platform shutdown or pipeline maintenance problem.
  • It could store gas piped from the North Slope to Southcentral, whether via a spur pipe off the proposed 1,700-mile mainline linking North Slope fields with the North American pipeline network in Canada, or via an in-state gas line from Prudhoe Bay.

Four customers have signed up to use the storage. ENSTAR wants 5 billion cubic feet of storage initially, ramping up eventually to about 9 bcf. Chugach Electric Association in Anchorage has reserved 2.4 bcf of space. Municipal Light & Power in Anchorage has 500 million cubic feet of space. Homer Electric Association has 125 million cubic feet of storage. The utilities will pay a fee for the storage service, a cost they will pass through to consumers.

In all, the storage capacity will be 11 bcf, expandable to 17 bcf, Starring said. She mentioned talk of investors eventually adding an additional 20 bcf of storage in Cook Inlet, enough to ease for many years the utilities' worries about reliable supply.

Gas storage is commonly used in the Lower 48 to balance steady year-round gas production with wild seasonal swings in consumption.

But Southcentral utilities generally have avoided winter supply shortages since the first Cook Inlet fields began production in the 1960s. Cook Inlet historically has had so much production that excess supply was exported as liquefied natural gas or fertilizer. But local electricity and heating demand has risen with population growth, and Cook Inlet production has fallen, so much that the fertilizer plant closed a few years ago and the last tanker is expected to sail this fall from the LNG plant, which is closing for lack of reliable, affordable gas supply.

Now a region that has exported LNG for 42 years might become a place that imports it.

ENSTAR, Chugach Electric and ML&P are studying whether to start importing LNG if local gas demand outstrips local production.

In June, they told state regulators they might need their first LNG imports in 2014. In presentations at the Energy Supply Summit, they pushed that date back to 2015.

Starring said the utilities think they'll need 2 billion to 3 billion cubic feet of LNG imports a year initially. That's not much - a 10- to 15-day supply at today's consumption rate. But, utility managers said, the power companies could need those imports to avoid the doomsday option: rolling blackouts for their customers.

No decisions have been made whether to proceed with LNG imports or any of the details, such as where to receive the LNG, how to regasify the liquid, and whether to ship foreign LNG to Alaska or truck it in from the North Slope.

LNG is an expensive option for consumers, noted Joe Griffith, general manager of Matanuska Electric Association in Palmer. The region's electric utilities now pay an average $6.84 per million Btu of gas. Price estimates for imported LNG are $16 per million Btu from Russia's Sakhalin Island, $13 to $15 for Canadian LNG, and $12 for trucked North Slope LNG, he said.

Trucked LNG already is an option being chased in the Fairbanks area. Golden Valley Electric Association and the Flint Hills oil refinery announced in August a $200 million plan to start trucking LNG from the North Slope in 2014. Between them they plan to replace the expensive oil they burn now with about 7 bcf a year of gas. Brian Newton, CEO of Golden Valley, said he hopes his utility will save $1 million a month in fuel costs by buying the LNG.

Meanwhile, the electrical utilities are taking a variety of steps to ease their appetites for Cook Inlet natural gas, especially in light of concerns that production might fall short of demand within a few years.

Two small wind farm projects are in play, one in Anchorage and the other at Eva Creek south of Fairbanks. The two Anchorage power companies, Chugach and ML&P, are jointly building a 183-megawatt gas-fired plant in Anchorage; the three new turbines will burn 25 percent less gas than the turbines they'll replace, said Jim Posey, ML&P general manager.

The electric companies also are urging the state to pursue a multibillion-dollar Susitna River hydroelectric dam that would meet some of the region's electricity demand in lieu of fueling turbines with natural gas.

The utilities also are hopeful that revived interest in drilling exploration wells in Cook Inlet will find fresh reserves of gas, and that a North Slope gas pipeline eventually will get built. But those efforts might not deliver gas soon enough.

"My guess is we're going to import LNG before we ever get additional supply," Griffith said.

More News >

Syndicate content