Two of Southcentral Alaska’s biggest natural gas companies want to dramatically expand their storage capacity, and they’re eyeing city-owned land in Kenai as the place to do it. It’s new territory for city officials.
You might not know it, but when you fly into the Kenai Municipal Airport, you’re landing near hole-y ground. No, not religious property – porous property. The earth has spacious layers of rock underneath – the depleted remains of where natural gas was extracted. And for a few of Southcentral’s energy companies, that means opportunity.
ENSTAR Natural Gas Company and Hilcorp Alaska have both applied to lease that pore space from the City of Kenai. The companies want to store natural gas there by reinjecting it into the ground to draw from later, as needed.
John Sims is the president of ENSTAR and of Cook Inlet Natural Gas Storage Alaska, or CINGSA. The two operations are related – they share a parent company – but they’re distinct businesses.
“We have been evaluating another sort of CINGSA project that would be owned and operated by ENSTAR,” Sims said.
CINGSA can hold about 13 billion cubic feet of natural gas. Under the airport, there’s room to store another 17 billion cubic feet. For perspective, the generally accepted number for Southcentral’s annual natural gas demand is around 70 billion cubic feet.
Efforts to add natural gas storage capacity have been top of mind as utilities warn they could run out of Cook Inlet gas by the end of the decade. For most of recent history, CINGSA has been the only commercial natural gas storage facility in Alaska. Today, the market is a little more crowded.
That’s after Hilcorp last year created a subsidiary exclusively focused on natural gas storage, called Hilcorp Alaska Gas Storage. Since it was created, the company has two plans to store natural gas for Chugach Electric and Matanuska Electric associations.
ENSTAR and CINGSA are expanding, too. Last year, CINGSA added two new wells to its Kenai operation. And in January, ENSTAR asked the Regulatory Commission of Alaska to sign off on its proposal to store gas under the Kenai Airport.
Hilcorp Corporate Manager of Government and Public Affairs Matt Shuckerow says the company would use private money to fund a storage project at the Kenai airport. That means Hilcorp doesn’t need advanced approval from regulators, because development costs wouldn’t be recovered from ratepayers.
“Hilcorp Alaska remains committed to advancing practical, long-term gas storage solutions to support reliable and affordable natural gas supply for Southcentral Alaska,” Shuckerow wrote. “Gas storage is a core component of our business, and as a cost-effective developer and operator we continue to pursue projects that enhance system reliability, particularly during periods of peak demand or unexpected disruption.”
Both Hilcorp and ENSTAR said they’ve been eyeing Kenai’s pore space for about a year. ENSTAR estimates it could start injecting gas by the end of the year for around $240 million. Hilcorp says it could do it for less money, around $100 million.
To help determine which proposal would be the best fit for Kenai, the city is hiring a consultant. Kenai City Council members approved $30,000 for that position last week.
Terry Eubank, the city’s manager, says city staff have some experience with natural gas storage because CINGSA is located inside city limits. But the city does not have experience leasing its own pore space.
Historically, the issue has been a point of disagreement.
A decade ago, the Alaska Supreme Court ruled against the city in a case brought by CINGSA. The dispute arose after the city said it owned the rights to underground areas CINGSA was injecting gas into, and therefore the city should be compensated for use of the pore space. CINGSA, and ultimately Alaska’s Supreme Court, disagreed.
Eubank says this new proposal is different, and that the city has learned from the Supreme Court decision.
“The reservations on things were different with this land, which is, I think, what gives us ownership of the pore space,” Eubank said.
Sims, ENSTAR’s president, wants to start injecting natural gas under the airport by the end of the year. He’s long sounded alarm bells about the dire nature of dwindling natural gas for Southcentral.
In January, after a spate of ultra-cold weather, Sims told KDLL that ENSTAR came so close to running out of natural gas that he contacted the governor about possibly asking the U.S. military to reduce its use. Thankfully, he says, Anchorage never quite hit the forecast 22 below that had him worried.
“This has been one of the coldest winters that we've seen in over four decades, and this is what we have to make sure we have gas, not only in storage, but under contract to prepare for,” he said. “And because of these cold temperatures, we have some of the lowest volumes in storage today, so much so that I am significantly concerned about what's going to happen for the rest of March.”
March has brought its own frigid temperatures, with windchills on the central Kenai Peninsula dipping past 30 below on some days. Sims says this year’s close calls underscore the need for more storage. And he says there are companies trying to sell natural gas ENSTAR doesn’t have room to store.
“If we can go forward with this project, we can communicate to them, ‘Hey, if you produce it, we can buy it, and we’ll put it in storage,’” he said. “And then we can maintain certain levels at CINGSA so that we can ensure deliverability for our customers over those cold spells.”
But even if state regulators sign off on ENSTAR’s ask, it’s not guaranteed it will get exclusive rights to the pore space. That’s because the City of Kenai ultimately gets the final say on which company it grants a lease. Eubank, the city manager, says the city hasn’t decided whether it will lease the pore space on an all-or-nothing basis. Multiple companies, for example, store natural gas at CINGSA.
For the city’s part, Eubank says he’ll welcome a consultant’s expertise. But he agrees bringing more storage online is a priority.
“I just think it's a great opportunity for the city, and, you know, it's very much a needed resource in Southcentral Alaska,” he said.
Kenai will advertise for the consultant position for 30 days. Sims expects state regulators to rule on ENSTAR’s application by the end of the month.
