Saturday, February 2, 2013

Utilities still deciding on gas solution

—Alan Bailey

The Southcentral Alaska power and gas utilities are still assembling the information they need to decide on how to deal with pending shortfalls in utility gas supplies from the Cook Inlet basin. The utilities anticipate the total supplies of utility gas from the basin to fall short of annual demand around 2014-15 and are anticipating having to bolster those supplies from other energy sources.

Although there is a proposal to build a gas line to bring North Slope gas into Southcentral, this line cannot come into operation in time to head off the gas shortfall and it is not yet known whether the line will in fact be built.

Utility group

Members of the Long Term Gas Supply Study Group, a group of utility executives that has for several years been assessing the looming gas supply crisis and determining how to deal with it, talked to the Alaska House Energy Committee on Jan. 23.

The utilities are seeking a short-term fix that can head off any energy shortage in, say, a couple of years’ time, and a longer-term, perhaps more cost-effective, solution that can provide future supply flexibility, on the assumption that Cook Inlet supplies will remain tight. Unlike gas markets elsewhere in North America, the Cook Inlet gas market is isolated, with no current means of obtaining gas from elsewhere, should local supplies fall short.

The utilities have received information on possible solutions to the gas supply problem from three companies that could potentially bring compressed natural gas to Southcentral by sea from elsewhere, and from three potential liquefied natural gas providers, Moira Smith, vice president and general counsel of Enstar Natural Gas Co, told the Energy Committee. The utilities are also considering the option of trucking LNG from the North Slope, Smith said.

Cost challenges

Ideally, the utilities would like a solution that would avoid discouraging new Cook Inlet gas production while being scalable to market needs, with the option to turn the spigot off if new Cook Inlet gas comes on line, Smith said.

But, achieving those ideal objectives would be very expensive, primarily because of the high cost of amortizing project costs over a short timeframe, Smith said. The utilities have previously said that any marine import option would likely involve the construction of ships.

“Any import project would involve capital investments that would have to ideally be amortized over a significant period of time,” Smith said. And any “escape clause” in the contract, allowing the contract to be terminated, would be very expensive, she said.

Diesel?

The utilities have been considering the use of diesel power generation as a short-term measure when the utilities run short of gas. Anchorage utility Municipal Light & Power has standby diesel generation capacity, but Chugach Electric Association, the other main supplier of gas-fired power, has no generators that can run on diesel. Jim Posey, general manager of ML&P, cautioned that ML&P’s diesel generation system is more than 35 years old and would have to be shut down every five or six days for maintenance, were it to be needed on a continuing basis. The utilities are considering retrofitting diesel generation capabilities into a new gas-fired power plant that is about to come into operation in south Anchorage. But a retrofit of this type would run into issues with the facility’s air quality permit, Posey said.

The utilities are also considering the possibility of spot market liquefied natural gas purchases as a short term measure, Smith said.

State’s concerns

During a presentation to the Regulatory Commission of Alaska on Jan. 23 Dan Sullivan, commissioner of the Alaska Department of Natural Resources, expressed the state administration’s concerns with the concept of importing gas into Alaska from elsewhere. The import of gas could undermine the economics of local gas production in the Cook Inlet, and could result in reducing the state’s credibility as a liquefied natural gas exporter relative to other gas producing regions, especially western Canada, Sullivan said.

Sullivan said that the state administration does support the concept of building an in-state pipeline from the North Slope to Southcentral.

Room for CI producers

In response to questions during an Alaska House Energy Committee meeting on Jan. 23, Bill Van Dyke, a consultant with Petrotechnical Resources of Alaska, the firm that has been assessing the gas supply situation for the utilities, said that he did not think that imported gas would put Cook Inlet gas producers out of business.

“Exploration and production in the Cook Inlet is always going to be competitive against the price of imported gas,” Van Dyke said. Van Dyke also said that trucking liquefied natural gas from the North Slope would present a huge challenge, given the hundreds of trucks that would need to ply the route to Southcentral.

Asked whether he thought there is a political dimension to an aversion to importing gas to Alaska, Van Dyke alluded to the potential for power blackouts if Southcentral runs short of gas.

“Maybe importing gas to Alaska gives us a bit of a black eye,” Van Dyke said. “I’m not sure whether it does or whether it doesn’t. But if it’s a choice between a black eye and a blackout, I’ll take the black eye.”