Southcentral Alaska is facing a natural gas shortage. Demand from the state’s most populated region could outpace supply as soon as this winter.
Here’s what you need to know about the gas crisis.
What’s the problem?
In 2024, almost 60% of all the energy consumed by Alaskans came from natural gas.
On average, Alaskans use about 70 billion cubic feet of natural gas from Cook Inlet each year. The largest chunk of that is used by utility companies to make electricity – think Chugach Electric or Homer Electric. Another quarter goes to residential customers – that’s you. And about a fifth goes to businesses.
All of that’s at stake.
Because when it comes to getting natural gas out of Cook Inlet, one company is really running the show. Hilcorp Alaska has a near-monopoly in the region. And in 2022, the company said it didn’t have enough gas to enter into new contracts with buyers.
That set off alarm bells for companies like Enstar Natural Gas. The utility, which sells gas to almost half of Alaska’s population, gets nearly all of its supply from Hilcorp.
And Enstar isn’t alone. Homer Electric Association, a utility cooperative serving the Kenai Peninsula, also got around 85% of its power from natural gas through Hilcorp at the time of Hilcorp’s announcement.
Hilcorp has been clear that the so-called natural gas shortfall in Cook Inlet isn’t necessarily a lack of natural gas in the inlet. Rather, it’s a lack of cheap gas. The Cook Inlet basin has supplied Southcentral customers with natural gas for as long as Alaska has been a state – it was the discovery of oil in Swanson River that helped push Alaska into the union.
But now developers like Hilcorp have to work harder to find gas – and that process is expensive. And at the same time that natural gas is getting harder and more expensive to access, the market for natural gas has also shrunk – significantly.
The question is existential. Should Alaska find more natural gas to meet customers’ needs? Or move away from the legacy resource? Decisionmakers disagree.
How did we get here?
Cook Inlet is the state’s oldest producing oil and gas basin.
Larry Persily is a longtime Alaska journalist, former state revenue commissioner and Federal Coordinator of the Alaska Natural Gas Transportation Project. Companies were successful in the basin for a long time, he said.
“They found a lot of gas. And that worked great for decades,” he said.
But production started to fall by the mid-2000s.
Many large producers, like Chevron, began leaving the inlet around the 2010s saying it wasn’t economical. The State of Alaska has changed its leasing strategy to attract developers, although industry interest has been minimal in recent years.
For years, in-state customers benefited from the proliferation of cheap gas. But as the cheap gas ran out, activity died down. Natural gas exports plummeted. A major fertilizer plant – and customer – shut its doors when the price of natural gas spiked. Soon, Alaskans were the only customers left. And from Hilcorp’s perspective, that market isn’t valuable enough to take a chance on expensive, harder-to-find gas.
Starting in 2011, Hilcorp Alaska bought a swath of assets in the inlet. Just over a decade later, in 2022, the producer said it didn’t have enough gas to extend existing contracts with utilities.
John Sims is president of one of those companies – Enstar Natural Gas. He said it’s been challenging to replace the contracts Hilcorp won’t renew.
The utility was hopeful additional gas supplies would eventually come, but Sims said they’re not receiving as much gas as they’d hoped for. Sims has said Cook Inlet is no longer a long-term option.
“We've been trying to rely and remain reliant on the Cook Inlet, and as we forecast the next couple years, we just can't put ourselves in this position, because this is not fun,” Sims said. “Nobody likes to be in front of the newspaper saying we're not doing our job.”
Earlier this year, Enstar said natural gas supplies were “not looking good.” The utility later said if deliveries continue at the same rate, they won’t be able to supply the utility’s more than 150,000 customers for 18 days this winter. Southcentral residents will likely see costlier heating bills for winters to come, Enstar said.
Will my Enstar bill increase?
Yes, but not this winter.
The gas coming online is more expensive than what the utility is paying now, Sims said. Enstar adjusts rates each summer. And as long as Cook Inlet supplies decrease, the cost of natural gas is expected to continue rising.
"It's going to go up, zero question, and I'm hopeful that it will be less than 100%,” Sims said.
Sims said the import facility, called the Cook Inlet Gateway, would be subject to the global market, which comes with price volatility and can be impacted by geopolitical tensions.
Enstar said they’re currently paying close to $11 per mcf of natural gas, or thousands of cubic feet. The Japan-Korea market is the average cost of spot-buying natural gas, as opposed to the cost set in a firm contract, meaning it’s always going to be more expensive.
Right now, it’s trading at $24, more than double what Enstar is paying now. Although, Sims said prices likely wouldn’t be that high because they’d have a long-term contract.
“But it's not going to be $10.80, I guarantee that,” Sims said.
My house runs on electricity, does the gas shortage matter to me?
Yes, it does.
Southcentral Alaska relies on natural gas for more than 70% of its electricity, according to the Institute of Social and Economic Research. Sims’ home is included in that figure. Along with gas, he occasionally burns a wood stove throughout the winter, typically while drinking coffee in the morning. In an emergency, Sims said the stove could heat most of his house.
When supplies run low, electric utilities can burn diesel instead of natural gas to free usage for homes, but it’s more expensive. In 2008, an avalanche in Juneau cut a section of the city off from a hydroelectric power plant. Residents burned diesel to stay warm.
Persily said that caused power costs to skyrocket.
“Stuff tripled overnight,” he said. “The utilities said people were going to be on diesel for a long time, so people really conserved.”
If Enstar has to ask regional electric utilities to burn diesel, he said Southcentral residents could see similar impacts.
“If in January 2027 Chugach or MEA has to buy thousands of gallons of diesel that they hadn't budgeted for because they were short on gas, well, they're going to pass through those additional diesel costs right to customers on the next bill,” he said.
Whether your lights stay on depends on where you live.
Matanuska Electric Association alerted its nearly 60,000 members that rolling blackouts were possible this winter in a worst-case scenario.
Chugach Electric is not planning blackouts this winter for its more than 90,000 customers, spokeswoman Julie Hasquet said by email. She said the electric utility has “plenty of gas” to serve customers. Homer Electric Association has more than 25,000 members but didn’t immediately respond to a request for comment.
Persily is on the board of his condo association that has ten units. Homeowners evenly split the monthly gas bill. He said the complex is over budget for gas and will have to raise monthly dues to offset higher costs.
“There's just nothing else you can do,” Persily said. “We'll talk at our annual meeting about people turning down their heat. I could turn down my heat to 64 (degrees), but that savings gets shared between all 10 of us, so hopefully my other nine unit owners are all responsible.”
And higher heating costs could eventually cause residents to squeeze other areas of their budgets, he said.
“I realize there are some people whose income is so tight that if their bill goes up 10-20% and they have to spend another couple $100 a year, it's going to be hard,” he said. “I don't see any way out of it.”
As far as this winter is concerned, Sims, the Enstar president, is confident the region won’t go cold. A spokesperson said the utility doesn’t expect to cut off residential customers this winter.
If the region experiences rolling service interruptions, Matanuska Electric Association would conserve fuel by implementing temporary outages in groups, lasting up to 45 minutes, about once every five hours. But that’s unlikely, because MEA can generate electricity with both natural gas and diesel.
What can and should home and business owners do to help lower use?
Lowering your home energy usage helps save natural gas. It can also save you money.
There are a variety of weatherization tips residents can apply in their homes, including regularly swapping furnace filters, lowering your water heater’s temperature and plugging gaps around doors.
Enstar also recommends installing programmable thermostats that lower the home’s temperature when you’re away. It’s also a good idea to turn off lights and appliances when not in use.
Installing a heat pump is an energy efficient option, but would cost regional residents thousands of dollars more annually than natural gas heating.
A cost-effective option is installing Energy Star LED light bulbs that use significantly less energy than traditional bulbs. Homeowners can save more than $65 annually by replacing their five most popular bulbs with them, according to the government-backed program.
If the region faces a tight supply or extremely cold weather, utility companies may issue an Energy Watch Alert. You’ll see a color, either green, yellow or red, each with actions you can take to make a difference. Enstar may also ask customers to lower thermostats, postpone doing laundry and dishes, and lower water heater settings.
And Sims said people should fight the urge to jack up their thermostats ahead of cold weather.
What are the potential solutions in the short term?
As far as this winter, Sims, the Enstar president, said regional utilities are hammering out agreements to make sure the region doesn’t go cold and dark.
“We're working on exchange agreements where they're going to give us gas that they might have extra this year in exchange for us giving back gas in 2028 (or) 2029,” Sims said.
Sims said another option would be requesting electricity from Fairbanks to be sent to Anchorage through the Alaska Intertie, a high-voltage power transmission line that runs between Willow and Healy. But last winter in Fairbanks was the coldest on record and Sims said supplies wouldn’t have been available if Southcentral consumers needed it.
Sims said importing natural gas could be an alternative, but it’ll be a few years before that’s an option.
The utility is working with developer Glenfarne to build an LNG import terminal in Nikiski by 2029. The facility, which has faced mixed reactions from state commissioners, would import LNG, turn it into gas, then feed it back into Enstar’s system. The utility has no equity in the project.
Sims said the 2029 timeline is tight.
“That requires a regulatory filing and approval, and then we have to go through the permitting process and actually get construction up and ready,” he said. “There's a lot a lot to be done, and I question the 2029 time frame to be honest, but we'll see if they can do it.”
And when that project comes to fruition, it’ll result in higher gas prices, Sims said.
How hard is it to import gas?
Importing natural gas isn’t a turnkey operation. First, you have to find a supplier.
Persily, the oil and gas analyst, said Canada is an obvious candidate. But he said there’s an LNG export terminal starting up on Mexico’s Baja coast later this year that uses U.S. gas.
Utilities are likely to chase the least expensive gas on the open market, Persily said.
There’s also the problem of Cook Inlet not having the infrastructure to import LNG right now. For decades, Nikiski was an export terminal. In recent years, multiple companies have proposed dueling projects to revamp the existing Nikiski facility for imports.
One comes from a Hilcorp subsidiary, Harvest Alaska, that bought the old Nikiski export facility last year. That purchase closed last November. The company announced a planned partnership with Marathon Petroleum and Chugach Electric Association to rebrand the shuttered export hub.
As mentioned earlier, the other proposal comes from Enstar and Glenfarne Group, the lead developer of the would-be Alaska LNG Project. As proposed, the final phase of the gasline megaproject would be a liquefaction plant and export facility in Nikiski.
Are there other longer term options too?
As everyone scrambles to meet Alaskans’ short-term energy needs, the long-term plan is also murky.
John Hendrix said Alaska should stick with Cook Inlet. He’s a mostly-lifelong Alaskan who heads the only Alaska-owned oil and gas producer. He bought the company now called HEX out of bankruptcy in 2015. Last year, HEX doubled its Cook Inlet production and was the basin’s second-largest producer.
“Everybody always talks about potential reserves, and that's why we're out there in Cook Inlet,” Hendrix said. “We believe there's a lot of reserves left out there, but we have a limit on how much we could produce.”
HEX faces a similar dilemma as Hilcorp: does it make financial sense to hitch its wagon to Cook Inlet?
Looming large over the debate is the specter of the Alaska LNG megaproject. The $54 billion, 800-mile trans-Alaska pipeline would move North Slope natural gas to Southcentral, for in-state use and shipment overseas. The project has been floated for decades.
The last year or so came with a flurry of movement. A private developer took over majority ownership, toured the world in search of buyers, and spent months before state lawmakers pursuing a tax break to make it more economic. Part of the sell is a solution to the so-called Cook Inlet gas shortfall.
But a key piece of legislation fizzled after three special sessions, and it’s in a sort-of limbo now. Plus, critics have long doubted the project’s high price tag, market competitiveness and scale.
Across all stakeholders, reliability is a common theme.
Enstar Natural Gas said long-term contracts go a long way on that front. But Sims said those are increasingly hard to come by.
“That's the problem that we have with today's Cook Inlet market is there's no producer out there that's willing to say, ‘I will, on a firm commitment basis, deliver you X amount of gas on this day, on this year.’ It is all an interruptible contract where maybe you'll get it,” Sims said.
Hendrix, the smaller Cook Inlet producer, said fixed contracts are riskier for developers. That’s because his company can be penalized if it doesn’t deliver the gas described in a contract. And given the uncertainty around the future of gas in Cook Inlet, Hendrix said it’s even more of a gamble.
Why does storage matter?
Gas storage is sort of like a rainy day fund – it might come in handy later. (Think of a squirrel who stores nuts away for winter.)
Each year, Southcentral residents use roughly 70 billion cubic feet of natural gas. But people use more supplies on some days than others. Temperatures often impact demand, particularly when it's very cold.
That’s when utilities start seeing homeowners and businesses turn up the thermostat, Sims said, creating an uptick in demand. It’s common for people to have a sort-of panic reaction ahead of extreme weather that makes them crank up the heater more than they might otherwise, he said.
“You can tell people to turn down their thermostats and who knows what you're going to get in response,” Sims said.
Having gas in storage means utilities can supplement their existing supply to accommodate more demand without disrupting service.
The history of natural gas storage is as old as the Cook Inlet gas shortfall. The Alaska Legislature passed the Cook Inlet Recovery Act in 2010, the last time Southcentral faced an imminent shortage of natural gas from Cook Inlet. That legislation enabled Alaska’s first commercial natural gas storage facility – Enstar's Cook Inlet Natural Gas Alaska, or CINGSA, in Kenai.
In the same way Cook Inlet development has been competitive, storage is becoming competitive, too. Hilcorp and Enstar are both currently fighting for access to storage space under the Kenai airport.
Last year, CINGSA brought two new storage wells online, which eases the burden on the other six. After two wells were damaged in 2024, a spike in natural gas demand during a frigid winter pushed Enstar’s system to its limits.
