More than a year after Cook Inlet’s largest oil and gas producer warned of a looming natural gas shortfall, consultants released a report this week detailing possible ways to fill in the gas gap after 2027, from natural gas imports in the short term and a pipeline down from the North Slope in the longer term.
Most of the options outlined in the report will come at a higher price tag than what utilities get for Cook Inlet gas today. But with the sun setting on the basin’s gas producing lifespan, they won’t have much choice as they look for new ways to meet demand.
“The bottom line is, we’re at a point here in our state’s history [when] we have the opportunity to develop a long-term plan that sets up future generations for success,” said John Sims, president of natural gas utility Enstar, at a hearing Wednesday. “And there is no doubt that it’s going to take all of us working together to make that happen.”
Enstar is part of a working group of Alaska utilities from Homer to Fairbanks that get the vast majority of their power supply from Cook Inlet natural gas.
That available supply is running out. Last year, Cook Inlet's primary producer, Hilcorp, said it couldn’t guarantee future gas contracts with utilities. And now, despite decades of warning and previous close calls, demand for gas could outstrip supply in as few as four years, according to the state. Homer Electric Association has the earliest expiring contract with Hilcorp, in 2024.
After Hilcorp’s announcement, utilities started meeting to talk about possible steps forward and commissioned a report from Berkeley Research Group. Project Manager Lieza Wilcox presented the report to the Regulatory Commission of Alaska Wednesday, following hours of testimony from Aniak residents about spiking power prices there.
Wilcox told regulators she’s not as concerned about the long-term picture for utilities, since she thinks Alaska could import liquified natural gas at a reasonable price from the world market.
“But it’s the short to medium term that I think we’re all concerned about,” she said.
Wilcox said utilities will need to find new sources of gas from a mix of places.
She said the first option would be to attract more investment in Cook Inlet. But with little interest there from producers, that option won't satisfy long-term needs.
Another preferred alternative outlined in the report is to import natural gas from overseas, by turning the existing gas export facility in Kenai into an import facility. That could start as soon as 2028, the report said. Another would be to bring gas down from the North Slope with an in-state pipeline — which the report says would only be cost-effective with state subsidies. But that pipeline wouldn’t be ready until 2030 at the earliest.
In all cases, costs will go up for Alaska ratepayers, who already see some of the highest energy costs in the country. The Kenai LNG plan would cost about $12 per mcf of gas, versus the $8 gas utilties get in Cook Inlet, now. The in-state pipeline could more than double gas costs for consumers at $28 to $37 per mcf.
“Unfortunately, in this case ... the cost of transportation for this level of demand, on a privately owned project and privately modeled project, is very significant and higher than many of the other options,” Wilcox said. “And that’s just volume, is what it is.”
At $4.4 per mcf, the cheapest gas option outlined in the report would come from the big Alaska Liquified Natural Gas export project — which would ship gas down from the North Slope for use in state and export overseas.
AK LNG has been decades in the making and has long stalled due to high costs. (Wilcox, the consultant, was formerly a vice president of the company that is overseeing that project.) Consultants also say that the project wouldn’t start delivering gas until 2030, a few years after Cook Inlet gas demand is estimated to outstrip supply.
Ben Boettger, with the Alaska Public Interest Research Group, said he worries about the state committing to big projects, like a pipeline.
“And if the state is going to be subsidizing energy, I think it makes less sense to subsidize projects that prolong our dependence on gas instead of energy projects that make us less dependent on gas, more energy independent with a more diverse grid,” he said.
The report accounts for alternative gas supply options, only. As a natural gas utility, Enstar doesn’t have many more options to diversify its portfolio.
But renewables advocates say electric utilities need to start ramping up their renewable portfolios as solar and wind projects become cost competitive with natural gas.
Boettger said he wants to see more analysis of how renewables can reduce Alaska’s demand for gas.
“There are long-term solutions that would really double-down on our gas dependence, and others that would reduce it,” he said.
The report was the first from the consulting group. Wilcox said the next report will hone in on a shorter list of local gas replacement options and cost estimates.
She said a decision on at least one alternative could be made by the end of 2023.
