A looming shortage of Cook Inlet natural gas means a majority of Alaska residents are likely to see a jump in costs in the coming years to heat and power their homes, according to a new report prepared by Railbelt utilities.
Industry watchers and some utility representatives say importing liquefied natural gas to Southcentral Alaska is one of the most viable options to help fill the supply gap. Some policymakers have disputed that, suggesting that more Cook Inlet gas production is economically feasible. Others, while frustrated, say importing gas may be inevitable.
“It’s so discordant for Alaskans to think about importing natural gas when we know there’s gas still left in Cook Inlet,” said Anchorage Republican Sen. Cathy Giessel, co-chair of the Senate Resources Committee. “And, of course, we have the massive stranded gas reserves up on the North Slope, but it’s stranded, again because of economic reasons.”
Hilcorp, by far the largest producer of Cook Inlet gas, told utilities last May that their current contracts would not be extended. Homer Electric Association’s contract is set to expire next year, followed by the other five Railbelt utilities and Enstar over the next decade.
A small unmet demand for natural gas is expected to start in 2027, steadily ramping up as producers draw from Cook Inlet’s remaining reserves.
The Alaska Utilities Working Group issued a 58-page report last week, ranking potential solutions, with one or multiple options set to be chosen by the end of the year for further development.
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All of the options selected by the working group came with the warning of higher prices for the more than 550,000 Alaskans living in Anchorage, the Kenai Peninsula, the Mat-Su and Fairbanks.
Ranking solutions
The first-phase assessment of potential solutions was presented on June 28 to the Regulatory Commission of Alaska — the state agency in charge of regulating public utilities. Ten options were considered, with the highest-ranked falling into three categories:
• Sourcing additional natural gas from Hilcorp and other producers. This was narrowly the highest-scoring option, but is said to be a short-term fix at best, according to the utilities, with shrinking economically recoverable reserves from the nearly 70-year-old basin. The cost of drawing more gas from the Cook Inlet basin was estimated to be one of the cheaper options, but it was projected to cost more to supply than under current contracts.
• Importing natural gas, potentially from Canada and Mexico. The working group is considered retrofitting a former LNG export facility in Nikiski for import or using a floating facility to store and process natural gas. The cost of supplying imported gas was estimated at approximately 50% higher than current rates.
• Constructing an 800-mile pipeline from the North Slope to Southcentral Alaska and Fairbanks. The working group said a $9 billion pipeline could be built to supply LNG to Alaska consumers, instead of a much-larger, long-sought $43 billion project, which would be primarily for export. Officials said a pipeline would likely be explored as a longer-term solution.
In the past, state officials have said an in-state pipeline would likely not raise enough revenue to offset the project’s costs, but it was projected to be among the cheapest options to deliver gas. The working group suggested the pipeline could be subsidized by the state, which Giessel said the Alaska Legislature would be unlikely to support.
Officials from the Railbelt utilities said the quoted supply costs in the paper are high-level and rough estimates, and that the working group will work to get more specific numbers in the next assessment phase.
What about renewables?
Threats of Cook Inlet natural gas shortages are not new. The most recent crisis, more than a decade ago, arrived due to a need for new producers to develop the basin’s resources. The utilities say this time, there may not be enough gas that is economically viable to produce for a small market, and that any additional supplies would likely only provide a short- to medium-term fix.
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The Alaska Department of Natural Resources reported earlier in the year that “there are significant gas volumes potentially available through additional investment and development in currently producing fields,” but that uncertainty remains about how much the rate of return would need to increase to induce additional production from the aging basin.
Renewable energy currently supplies approximately 15% of the Railbelt’s power needs. Industry watchers said clean power is expected to have a substantial role in reducing gas demand. But a major challenge is supplying Enstar, the state’s largest natural gas utility, which has no easy alternatives to replace LNG for home heating.
The utilities, in a frequently asked questions page posted online, said renewable power would likely take many years to meaningfully displace natural gas for the Railbelt.
Chris Rose, executive director of Renewable Energy Alaska Project, disputes that timeline. He said that there could be delays with permitting and finding locations for projects, but that substantial wind and solar installations could be built in four or five years.
Chugach Electric Association and Matanuska Electric Association installed a giant Tesla battery system in Anchorage last month that was expected to provide power more efficiently and reduce the utilities’ demand for gas. Rose said more projects like that are needed in Alaska, noting that in the next five years, renewable energy projects are set to count for more than 90% of global electricity expansion.
“We can do that and we can certainly do it in a way that is economic for consumers, because our fuel prices keep going up,” he said.
An ‘extremely, extremely difficult situation’
Larry Persily, former deputy commissioner of the Alaska Department of Revenue and former head of the Office of the Federal Coordinator for Alaska Natural Gas Projects, attended the utilities’ presentation late last month.
“We’ve got two problems to solve: Short-term and longer-term,” he said in an interview. “In the short-term, everything points to importing LNG.”
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Chugach Electric and Enstar account for three-quarters of the Railbelt’s natural gas. Arthur Miller, CEO of Chugach Electric, said in a prepared statement that the working group had found “that importing liquified natural gas is likely the least cost, earliest option available for the near term.”
However, there would be significant capital expenditures to importing gas, the working group said. A Nikiski LNG facility is operated by Marathon, which has its own gas importation plans, and 50-year-old tanks would likely need to be replaced.
There were also some logistical questions how a floating LNG import facility would work in winter with shallower sections of Cook Inlet subject to freezing conditions.
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The idea of importing natural gas to Southcentral Alaska has been anathema for frustrated policymakers, even as a temporary solution.
Republican U.S. Sen. Lisa Murkowski raised the possibility in her address to the state Legislature in February and said, “In my view, it’s the definition of aiming low.”
Anchorage Democratic state Sen. Bill Wielechowski, co-chair of the Senate Resources Committee, also bristled at the prospect of importing gas, with untapped reserves in Cook Inlet and the potential of higher prices for consumers.
“It is going to put the people of Alaska in an extremely, extremely difficult situation in the coming years,” he said.
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Wielechowski said he was not surprised that the cheapest and fastest option flagged by the utilities was to produce more gas from Cook Inlet. He wrote to state officials on June 26, arguing that Hilcorp has failed to meet its lease obligations to explore and develop the basin, and suggesting that the Texas-based producer could be at risk of litigation.
“The State is currently reviewing Senator Wielechowski’s concerns, and we do not have a response at this time,” a spokesperson for the Alaska Department of Natural Resources and Law said Wednesday in a prepared statement.
Luke Miller, a spokesperson for Hilcorp Alaska, did not address emailed questions about Wielechowki’s letter. Miller said the company has planned to make hundreds of millions of dollars of investments in new and existing wells over the next five years, and that Hilcorp has been working closely with the Railbelt utilities to devise solutions to the looming shortages.
“These solutions include significant new capital investments, new commercial arrangements, new Cook Inlet platforms, advancing North Slope natural gas options, and exploring opportunities to repurpose existing infrastructure for renewable energy,” Miller said in a prepared statement.
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As Cook Inlet gas shortage looms, Alaska's biggest utilities assess their options — and none are cheap - Anchorage Daily News
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