Sunday, October 16, 2011

Enough gas — just; Enstar will continue to need ‘just in time’ bid gas during coming winter

Alan Bailey
Petroleum News

Southcentral Alaska gas utility Enstar Natural Gas Co. continues to face a tight gas supply situation but anticipates having sufficient gas to see it through the coming winter, Mark Slaughter, Enstar’s manager of gas supply, told the Regulatory Commission of Alaska on Oct 12.

Enstar obtains the bulk of its gas through what are termed “firm” contracts, in which gas producers guarantee to supply contracted volumes of gas. Under this type of arrangement, the producers are responsible for ensuring that gas flowing from their gas fields and available from their gas storage facilities is sufficient to meet contractual obligations.

Bid gas

During the winter of 2011-12 Enstar anticipates obtaining 97 percent of the gas that it needs through these firm contracts, with the utility obtaining the remaining 3 percent of its supply through a new gas bidding system introduced in January 2011. Under this system, on a day-to-day basis the utility requests bids from qualified gas producers to supply additional gas, with the utility normally accepting the lowest price bid. The bid system operates, in effect, as a small scale spot market for Cook Inlet gas, allowing producers to compete for gas sales and set market-based gas prices.

A producer participating in the bid system requires an RCA approved contract with Enstar for that participation. Last winter three producers participated and the system worked quite well, with bid gas accounting for 4.3 percent of Enstar’s gas demand in the first quarter of the year and accounting for 10 percent of the demand on a typical cold winter day, Slaughter said.

Although the gas supply contracts assumed a bid gas price of $12 per thousand cubic feet, competitive bidding resulted in an average price around $9, he said.

Declining production

Gas production from gas fields in the Cook Inlet basin continues to decline, but a new source of supply from Anchor Point Energy’s North Fork gas field on the Kenai Peninsula, coupled with the availability of gas put into storage by gas producers during the summer, will offset that decline. However, there is uncertainty about the situation regarding the closure of the Nikiski LNG plant on the Kenai Peninsula — closure of that plant could make available more gas for utility use, Slaughter said.

Chevron subsidiary Unocal is bringing a new gas storage facility on line in the Ivan River field. Cook Inlet Natural Gas Storage Alaska is building a new gas storage facility near Kenai, but that facility will not be available to support winter supplies until the winter of 2012-13.

Enstar also has agreements with power utilities Chugach Electric Association and Municipal Light & Power to curtail sales of gas-generated power to Fairbanks utility Golden Valley Electric Association during days of high winter demand. And in October there will be a test of the Energy Watch system, in which Southcentral gas consumers are encouraged to reduce demand as much as possible during severe winter cold.

Demand and supply

In the coming winter, the new supply contract with Anchor Point Energy will add up to about 7 million cubic feet per day of gas to Enstar’s firm supplies. However, that increase will be somewhat offset by a natural increase in gas demand from Enstar’s customers and an increase in demand resulting from the return to Enstar on Oct. 1 of some commercial gas supply contracts with the military. The upshot of all of this is that Enstar expects its overall usage of bid gas on a typical winter day to drop from 10 percent to about 7.9 percent of its overall demand in the first quarter of 2012.

However, because Enstar’s annual gas demand is increasing, the utility anticipates purchasing an overall slightly higher total volume of bid gas in 1012 relative to 2011.

At the same time, the number of producers participating in the bidding system has increased to seven, thus presumably reducing the risk of a shortfall in gas supplies.

Available gas

New participants in the system all potentially have gas supplies available for bid at some point in the winter, Slaughter said. Buccaneer Energy, for example, is in the process of hooking up its new Kenai Loop gas field, with production from there expected to start in December. Cook Inlet Energy plans to drill several new gas wells in the basin during the fall and has interests in fields operated by Aurora Gas. Anchor Point Energy already has an Enstar contract that includes provision for the supply of bid gas, and Aurora Gas operates several gas fields.

As part of its winter planning Enstar has to model a possible but very unlikely worst-case winter day, in which severe cold would drive absolute peak utility gas demand. Under this type of scenario, Enstar anticipates the possibility of needing somewhat more bid gas in 2012 than the utility had planned on for a similar scenario in 2011.

Republished with the permission of the Petroleum News