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A Southcentral Alaska natural gas shortage unlikely, but still possibleAlaska News & FeaturesA natural gas shortage that leaves tens of thousands of Alaskans huddling in homes without electricity and heat seemed like a real possibility a few years ago, so much so that utilities and local governments crafted emergency plans to prevent such a scenario. It called for such things as gas-fed power plants to employ rolling brownouts and for homeowners to voluntarily reduce heat if a perfect storm of events -- including frigid temperatures and an equipment failure -- meant there wouldn't be enough natural gas for Southcentral Alaska. Those days might seem like a distant memory. Think again. Things have greatly improved, no doubt. Gas demand is down, thanks to a state program that's made homes more energy efficient. Gas supply is up, thanks to newly producing wells in the Cook Inlet basin. Also, utilities and natural gas producers have beefed up compression so a shortage is less likely. (The topic of Southcentral energy security is on the agenda at the Chamber of Commerce's weekly luncheon at noon Monday in Anchorage.) But the cruxes of the problem remain. For one thing, Southcentral Alaska can be hellishly cold. And second, Anchorage's gas comes from just one place: Cook Inlet. If a portion of that system fails, Alaska's biggest city could go dark. Experts agree that's unlikely, but possible. Some say it nearly happened a few years ago, when a compressor failed at the Beluga River Unit on the north side of Cook Inlet near the village of Tyonek. ConocoPhillips avoided a crisis by bringing the compressor back to life quickly. Tony Izzo, a natural gas consultant who worked for Enstar Natural Gas five years ago, believes Southcentral came within two hours of a tragedy. Such a calamity is less likely today, but only somewhat so, he said. "I think things have in the short-term stabilized, but we're only one failure away from catastrophe," he said. "If there's an interruption to a pipeline or a compressor were to fail and break during a cold snap, we still have no real material backup. That's a concern." This winter isn't helping. It's been especially brutal, with waves of subzero stretches increasing natural-gas use as Alaskans crank up thermostats. Through Jan. 26, Anchorage's average temperature for the month was 14 degrees below normal, thanks to a stubborn high-pressure system hanging over mainland Alaska. With another chilly streak settling over the city last week, the last five days of the month wouldn't bring much relief, said Dan Peterson, a National Weather Service meteorologist in Anchorage. "And we still have February. That's normally the coldest month," he said. All of this frigid weather means Enstar Natural Gas has kept a wary eye on its transmission and distribution lines, an underground network that ties into the producer-owned lines and wells that pump natural gas from the Cook Inlet basin. Does Enstar think a massive failure remains a possibility?"If someone asked me if we're out of the woods, not hardly," said John Sims, Enstar spokesman. Ironically, Southcentral's natural-gas crunch stemmed not from a shortage of resources -- Cook Inlet has vast amounts of proven gas reserves -- but of dwindling "deliverability" from aging fields that have lost pressure like a deflating balloon, meaning each field produces less gas than it once did. Now, brutally cold days strain the system as people call on more heat to stay warm. Like Izzo, Sims worries that trouble could start with a failed compressor or some interruption in gas transmission. As usual most of what I read and nearly all of what I see is ANCHORAGE-centric.. infected with the mega Avaricious Anchorage virus. Anchorage often mentions charitably sharing energy fairly with other communities, but how much real progress do we actually see after 40years of oil-boom.... Homer for example sits frustrated while the gasline from Nikolaevsk turned right at Anchor Point and not even a little gasline turned left for 40miles.. Homer should look into trucking LNG from Nikiski. Trashcan HB09,U. - HB189 - HB203 - HB215 .. and an angel of mercy will descend from the sky and bless all of Alaska with Good Luck and a strong future. Alaska's oil&gas industry is maybe slightly more efficient than the global average.. and the global efficiency is terrible. The total amount of energy delivered to the wellhead is more than double the total amount of energy delivered to the average American consumer... Huge amounts of economic and social progress can be achieved with small improvements of petrochemical system efficiency. ..oh brother, hear we go again. This is more Hawker and Chenault spin in support of the tax give-away as well as the bullet-line-to-nowhere. Do we even have an operating "plan" to get efficient energy off OUR slope? to our own people? Just what the heck have our reps been doing to ease this eventuality? This is more smoke and mirrors on behalf of the ones "passin` the dough" under the table. Keep focused on gas to Valdez folks, along with the ANGDA spur to Cook Inlet and Southcentral, thereby fixing this contrived "shortage". It`s the only plan that will get this state back on track for the long hall. The "smoke and mirror show" is building to the big Chenault/Hawker/Conoco conclusion... The completion of the "extortion" of two billion dollars a year in perpetuity(till the oil runs out) from the good hard-working people of Alaska, without what any "partner" would demand.. a contract outlining the quid-pro-quo for the state for it`s investments. Are we partners or NOT? What have we got from the majors on the slope for the four billion in credits and write-downs just since ACES was put into place? New oil or gas?? Don`t count on it. ACES is working or the cartel on the slope wouldn`t be stumbling in the dark to regain the initiative on the spin of the facts here in Alaska. Their reputations have preceded them. I was happy to see that Rep Kerttula called bs on the ASAP line today. http://newsminer.com/pages/full_story/push?id=17353379&need_to_add=true&content_instance=17353379#cb_post_comment_17353379 When is south Central, going to pay the rest of the state for the gas they are using. That belongs to the rest of the state equally? Oh please. The producers pay the State for the gas. The producers, in turn, sell the gas to Enstar. The users of the gas pay Enstar, covering all their cost, including the taxes and royalties paid to the State. The State pays a power equalization subsidy for bush communities, and built 7 dams in the panhandle and on Kodiak more than 30 years ago. The State is funding $200 million in renewable energy projects, the great bulk of them outside southcentral with Bonds. Most of the fuel storage tanks around the state come from the Feds and the State. Etc, etc, etc. OldHat....You might want to check the facts. Mit is correct. You are wrong. Triple or quadruple your heating costs then you will putting your fair share into the big black bucket. Enstar gas $8.00 mbtu Fairbanks Natural Gas $23.35 Fuel oil and diesel $4.00 gallon two-thirds of that goes into the bucket in Juneau. I am having to pay almost $29.00 for the same ammount of heat you pay $8.00 for and most of that goes to the State. How logical is that? By having natural gas available you are not having to pay anywhere near the RIK prices for fuel oil that 370,000+ Alaskans have been paying for 30+ years. So Mit is correct when he asks "When is Anchorage going to start putting its fair share into State revenue?" The RIK contract must be awarded to the prospective buyer whose proposal offers maximum benefits to the citizens of the State. The statutes and regulation list criteria that DNR is required to follow. Significantly, DNR must sell RIK for no less than-and when selling to outside customers, more than-the amount the state would received if the state takes royalty in value. Their definition of "offering maximum benefit to the citizens of the State" means that royalty oil is sold at the highest price as possible. That money goes into the State coffers. "Since North Slope production began in 1977, the State has sold nearly half of its royalty oil share to in-state refineries and, during the 1980's, occasionally auctioned royalty oil to customers in the Lower 48. Currently, only Flint Hills Resources Alaska buys RIK oil for its refinery at North Pole. FHR currently buys an average of about 30,000 barrels per day from the state under a ten-year contract whose term will expire in 2014. The other in-state refineries at North Pole, Valdez, and Nikiski are supplied directly by North Slope producers; the Nikiski refinery is also supplied by oil producers in the Cook Inlet." Per your comment on the Sep 16th PFD article in the News Miner you appear to understand some things so here I can only conclude you are not making a clear presentation of all relevant facts in an effort to gain a State subsidy for the cost of living outside of southcentral. The retail cost of energy is not the same as an equitable payment to the State for consumption resources jointly owned by the State’s citizens. Enstar and Fairbanks Natural Gas purchase Cook Inlet NG. The price difference consumers of gas pay in southcentral vs the interior is because the southcentral delivery system is massively cheaper per unit of delivered gas, not because of different rates of payment to the State for the gas. For petroleum distillates, the same fundamentally holds true in that all citizens pay the same rate for use of a unit of the common resource. It boils down to a difference in revenue to the state for a unit of heat derived from oil vs gas. I don’t know the State’s “take” per heat unit of NG but it appears to be the same as the heat unit from raw petroleum (a pointer to a clear and authoritative source on this would be appreciated). If it is different, and the State’s share on gas is less you have a very good point. But, besides the processing and distribution cost difference, the other 900 lb gorilla is the relative market price for fuels at the wellhead where the State collects revenue. Currently, and likely for the near to mid term at least, NG's market price for a unit’s worth of heat is multiple times less than petroleum's for the fuel itself. OldHat.... No I don't want any handouts, just want the State to develop its' resources "for the max benefit of the people like the constitution says. And I don't agree with "max revenue" being "max benefit" at this juncture. The rub is that Alaska sells a barrel of oil based on North Slope Crude and West Tex crude prices. They should get fair market value for our oil, BUT if they are not willing to make cheaper fuels available to the whole State, then there is a problem when 370,000+ residents are putting four times more into the bucket then the other 340,000. I have found most of the files on DNR DOR site, but no exact breakdown. I would suspect Fairbanks Natural Gas prices are based on local fuel oil per btu costs. It does not cost $23.35 per unit for transportation even with a truck. Good point you made about equal by fuel type. Natural gas users put some revenue in. Not sure how much, but it is a drop in the bucket compared to fuel oil users. I won't even bring up gasoline, diesel, and jet fuel. My pick-up doesn't have a 1000 gallon tank on it. Unfortunately we have not discussed the revenue equation when your local electric is generated with RIK fuel as opposed to Natural Gas. GVEA burns about 250,000 gallons per day. The State loves them. Matanuska Electric natual gas. Drop in the revenue bucket. The favorable tax terms the State has made for new gas produced in the Cook Inlet Basin can rightly be seen as a form of subsidy. That applies to ~5% of the gas that Enstar’s currently selling (and that percentage will increase over time), but that goes to the producers, not Enstar (or Fairbanks NG), or the end consumers. There’s no serious alternate buyer for Cook Inlet NG other than possibly the ConocoPhillips LNG plant, and thus the Regulatory Commission of Alaska manages the market through Enster. For about the past decade, the price the RCA allows Enstar to pay the producers is tied to the US market price for gas plus “phantom freight” to transport it to that market. Something to remember is that Cook Inlet started with Oil. From top of the Hilton and then the Captain Cook and Westward Hotels, the 30-50 foot tall flames of the gas being flared by the platforms were visible from the late ’60s through the ’70s. The gas was “just lying around” till the building of the Enstar distribution network, the Nikiski LNG plant, and the Agrium urea and ammonia plant. The current tax subsidy is an effort to get somebody to produce gas at all with oil only a dribble now. The State gets nothing for NG still in the ground. Enstar’s weighted gas cost is $6.71/Mcf as of Jan 4th, and US’s NG price (Henry Hub) on Jan 2nd was $2.30 per million BTU (the units are very, very nearly the same) or almost 3 times the market. Southcentral consumers pay a premium over market equivalent to ~$350/barel oil in order for the state to make anything. They more than make-up that from the huge spread in the market price between oil and gas for a BTU and because they provide enough consumers, with an existing distribution system to service them, that it makes economic sense to produce the gas. The price of Fairbanks NG is regulated by the RCA I believe. There’s liquefaction (10-20% of the gas just to power the process) + cost of the plant, cryogenic(?) trucking, storage tanks and re-gasification plants (and fuel for them), then the piping and pumps for distribution, and lastly profit, all for ~1,000 users. Enstar has 130,000 meters and none of the cost in going to liquid and back or the tucking. And, Enstar’s charge to customers is currently ~$10-11 mbtu; nor is there any break on heating oil, diesel, or gasoline for southcentral. You say you “don’t want any handouts”. Ok, we’ll just use the term subsidy. You want the residents who have a cheaper cost of living, because of where they live (warmer winters, cheaper shipping, economies of scale, access to cheaper fuel), to forgo money that pays, in part, for things like road maintenance and education and use it to lower your cost of living because of where you chose to live. Alex DeMarban lies as usual. If he did not lie he would not have anything to say because he does not know much and understands less about oil and gas. The is now ample gas in Cook Inlet the quest is where can they new producers sell their gas? conoco? enstar is tring to lock them out of the market! Antitrust A niggle in an otherwise excellent and important article. On the first page: during “subzero stretches” Alaskans don’t “crank up thermostats” in response, at least the vast majority of Alaskans who have an inkling of how the things work. True, there is increased NG use as temperature dips but it’s not from setting thermostats higher. Another piece in the effort to make SouthCentral more resilient is the new Chugach / ML&P 163 megawatt generating plant that is scheduled to be operating in less than a year. Its fuel use will be ~1/4 less than Chugach’s current generator fleet average. Continuing the State’s efficiency program, or making it better, is needed. The built environment here suffers from much of it being constructed during boom cycles. That doesn’t lead to much consideration of its cost of use over the long term. People relearning to turn off the lights when nobody’s in the room would help too. I wonder if the LNG plant on the Kenai again becomes viable? The area’s demand for NG varies greatly with the season and the wells produce steadily. Thanks for this article. I had been wondering about whether or not we might face a shortage with this spate of cold weather. If we get through this winter - and it looks like we should be able to do so thanks to reduced use and a modest increase in supply - we will likely be home free. The new storage facility coming on line this coming fall, fills up in the summer months for use during cold snaps. With a capacity of 150 million cubic feet per day, it gives the system supply headroom of more than 50%. The coming drilling season may bring more good news. Escopeta's Cook Inlet exploration, Buccaneer continued on shore as well as new Cook Inlet exploration and CIRI/Nordaq's recent discovery may take our daily supply capacity to over 500 million cubic feet, more than twice what we have used on our coldest day this winter. |
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