ECON 919 - A changing Cook Inlet natural gas market

Aug 2, 2019

 


The latest LNG project proposed on the Kenai is the Kenai Cool Down Project. It’s currently going through the federal review process and a public comment period is now open for the environmental review.

 


 

 

 

If approved, it would reopen a portion of the now-idle Kenai LNG Plant, but not for gas exports, which were sent from there for almost 50 years. Marathon now owns that plant. It allowed the plant’s export license to expire in 2018, but now, wants to import natural gas to help power the nearby refinery.

 

To help break all this down, we checked in with Larry Persily, who was a federal coordinator for gas transportation projects during the Obama administration, to talk about what gas imports say about Cook Inet’s major players, like Hilcorp and the broader natural gas market.

“They picked up the existing plant at a pretty low price and it seems to be they’re looking at it as an option. The refinery Marathon bought from Andeavor (formerly Tesoro), the cost of the crude oil they bring into the refinery, the energy they have to consume to run the refinery is their next highest cost. So, they’re looking at, I would assume, the options of continuing to pay Cook Inlet prices for natural gas or maybe there’s a choice. Maybe we can run that existing LNG plant, bring some LNG (in), cool it down, bring it back to its gaseous state, maybe use it. That’s the only that comes to mind when I look at their pre-application to federal regulators.”

On changing market conditions for Cook Inlet natural gas

“As we know, Cook Inlet natural gas is a lot more expensive than it was 20, 30 years ago to consumers; consumers being industry and utilities. And if there’s the possibility that you could get energy in Cook Inlet at a lower price than what the market is charging now, it makes good business sense to look at it.

Hilcorp is the dominant player in south central, doesn’t mean they’re bad, they’re just the dominant player. They bought up the legacy assets from the players that were there. They put hundreds of millions of dollars into reworking wells, expanding production, meeting the needs of customers, but that comes at a cost...It’s an expensive market to buy gas in.”

On the notion of a fading Cook Inlet gas renaissance

“There was talk several years ago of a renaissance. And there’s been work. Fury built a platform in Cook Inlet. First new one in decades.... I think the renaissance, as it were, was oversold by politicians and the reality is it’s tough economics, limited market, high cost. It’s just something we have to accept no matter who tells us the next renaissance is coming.”

 

 

This week’s number: five, as in years. The National Marine Fisheries Service and National Oceanic and Atmospheric Administration just approved Hilcorp for survey work in plans to do in Cook Inlet over the next five years that will include the incidental take of marine mammals. As defined in the Marine Mammal Protection Act, a taking covers a range of impacts to marine life, including harassing, hunting, capturing or killing or attempts at those things. Among other activities that could interfere with marine life, Hilcorp will be shooting 2 and 3-D seismic surveys, mostly in Lower Cook Inlet, in the coming years.