Could oil-rich Alaska be forced to import natural gas? Two utility companies are investigating this.

hilcorp heart

Amid warnings of dwindling natural gas supplies, utilities in Alaska, one of America’s largest fossil fuel producers, are looking at imports of liquefied natural gas from out of state to meet demand as contracts expire in the next decade.

Two of Anchorage’s biggest utilities have hired consultants to explore the rollout of liquefied natural gas, or LNG, likely from British Columbia — although executives said they are also looking at using renewable energy to fill gaps.

The two utilities are Enstar, which provides natural gas for heating homes and businesses in south-central Alaska, and the Chugach Electric Association, the 90,000-member cooperative that generates electricity in the Anchorage area.

Alaska ranks fourth in oil production out of all 50 states, behind only Texas, New Mexico and North Dakota.

Cook Inlet, Alaska’s primary natural gas basin for consumer production, has served Anchorage and the surrounding area for heating and power for decades.

But Hilcorp, which produces the majority of Cook Inlet’s gas, warned utilities this year that the company may not be able to meet future demand when supply contracts expire in the next decade.

These expiration dates for most utilities are not at least five years, and there is no immediate risk to the utilities’ operations or residents’ ability to heat their homes.

But it will not be easy to maintain the natural gas supply in the future either.

Experts say the Anchorage-area market size is too small and the cost of drilling exploratory wells in Cook Inlet is too high to attract new industry players that could increase production. And although elected Alaskan officials want to build an export-oriented natural gas pipeline from the North Slope to near Anchorage, which could also meet local utility needs, construction is pending commitments from Asian buyers and investors that have yet to materialize.

“We can’t rely on that. We need to find a way to close this gap between Cook Inlet gas and the future,” Enstar president John Sims said in a phone interview Thursday. “That’s really the purpose of this study.”

Enstar’s consultant, Berkeley Research Group, is studying and evaluating “gas supply options from outside of Alaska,” including LNG, the company said in a filing with the Regulatory Commission of Alaska (RCA) last week.

Chugach has hired its own consultant, Black and Veatch, to evaluate LNG as an alternative source of natural gas, said Chugach CEO Arthur Miller.

“We are the largest electric utility in Alaska. And gas supply is 30% of our cost structure,” Miller said in a phone interview Thursday. “It is important that we have the expertise and resources to effectively evaluate LNG as a potential option.”

Cook Inlet is Alaska’s oldest oil and gas reservoir and produced fuel for Anchorage and the surrounding area after it was first discovered in the 1950s.

The region faced looming gas shortages about a decade ago, but attracted new business and development through a subsidy program that one advocacy group estimates has cost the state more than $2 billion.

Now these subsidies have largely expired. And while gas still exists in Cook Inlet, new production projects face obstacles due to environmental permits and the relatively small size of Anchorage’s natural gas market.

The lack of large industrial customers makes projects in other areas, such as on the North Slope and outside of Alaska, more attractive investments for companies, experts say.

A call for transparency

In order for utility companies to receive and store LNG shipments, they may need to build or modify infrastructure. And Ben Boettger, who closely monitors the Cook Inlet gas industry for advocacy group Alaska Public Interest Research Group, said it’s wise for utilities to study the problem and assess the relative costs.

The Enstar consultant’s report should be released, Boettger said, because Cook Inlet’s energy is “affecting everyone’s lives.”

Meanwhile, a utility working group with members of the state government investigating Cook Inlet’s gas supplies has held non-public meetings instead of public meetings. Its members, including Enstar and Chugach, are meeting under a “non-disclosure agreement,” according to Enstar’s regulatory filing, though the attending representatives from the Alaska Department of Natural Resources have not signed, an agency spokeswoman said.

Boettger and Antony Scott, an analyst with the nonprofit Renewable Energy Alaska Project, both questioned why the meetings aren’t public.

“These are political decisions that shouldn’t be made by private companies,” Scott said. “We should really do this together.”

Sims, Enstar’s president, said he expects the utility company to present its consultant’s findings at a public meeting and for the information to be shared with other members of the working group.

He and other utility executives said one of the reasons for the confidentiality is that details of their natural gas needs, if made public, could weaken their position in contract negotiations with suppliers.

Scott, the renewable energy analyst, said coordination between utilities is key in the planning process for Cook Inlet’s energy future. That’s partly because it avoids duplicate planning and study costs, and partly because Enstar, as a supplier of residential heating oil, doesn’t have obvious alternatives to natural gas like the electric utilities.

Because utilities can more easily integrate renewable energy sources into their generation mix, they should quickly switch to these technologies to maintain Cook Inlet’s gas supply, Scott said.

The cost of shifting homes and businesses in south-central Alaska away from burning natural gas to heat homes “is just catastrophic to consider a replacement,” Scott said.

“It’s a conservation story,” he added. “We really should conserve these hydrocarbons as much as possible to protect our economy with cheaper natural gas for as long as possible.”

The role of renewables

Utility executives said they are aggressively moving towards using energy sources such as solar and wind, even though those sources have not appeared in public discussions or disclosures about the working group’s work.

“It’s unacceptable that as a plant manager I have to rely on one fuel 85% of the time. You won’t find that anywhere else,” said Tony Izzo, executive director of the Matanuska Electric Association, in an interview on Wednesday. “So we have to change it.”

At the same time, said Miller, CEO of Chugach, natural gas remains the cornerstone of the Anchorage area’s energy economy and a stable supply must be assured.

“In no way, shape or form, should this discussion of natural gas presume that serious efforts are not being made to evaluate alternative sources of generation,” he said. He added, “We’re doing this somewhat simultaneously by looking at utility-scale wind and solar projects, but recognizing that natural gas is critical to meeting the need for long-term profitability in the future.”

Both Chugach and Enstar said it’s too early to know how much their advisors will cost. But Enstar last week asked the RCA for permission to separately track what it called “potentially significant” expenses for its adviser. Those costs could eventually be factored into the tariffs it charges customers for gas – but only with the Commission’s approval in a separate proceeding.

This article was originally published in Northern Journal, a newsletter edited by Nathaniel Herz. Subscribe to here.

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