Railbelt utilities move closer to decisions on importing natural gas as legislators debate energy bills

JUNEAU — Utilities in Alaska’s Railbelt are getting closer to importing natural gas as legislators debate energy bills intended to bridge a looming shortfall of Cook Inlet gas.

Natural gas is used to generate more than 80% of the Railbelt’s heat and power. Since Hilcorp told utilities in 2022 that its contracts would not automatically be extended, utility managers have discussed importing natural gas as likely the best available alternative. Power and heating prices would be expected to increase substantially.

The Alaska Department of Natural Resources expects a Cook Inlet gas shortfall by 2027. The supply gap is expected to grow exponentially larger in subsequent years without new gas production.

Large-scale imports of gas will likely not be available until 2030 due largely to federal permitting requirements, according to consultants for Enstar. John Sims, president of Enstar, told legislators last week that small-scale LNG imports by barge are possible sooner. But, he said, “They’re much more expensive.”

Chugach Electric Association and Matanuska Electric Association, the region’s two largest electric utilities, want to make a decision about importing gas by July. Matanuska Electric spokeswoman Julie Estey said a collaborative approach is being taken between the utilities to chart a path forward.

“As MEA reviews options with our utility partners, our goal is to develop a solution that provides near-term certainty and long-term flexibility as we continue towards our energy diversification goals,” she said.

While electrical utilities have options other than gas, Enstar does not. The region’s natural gas utility has spent more than $3.5 million examining LNG imports, but the results of that study have not been made public yet.

Enstar spokeswoman Lindsay Hobson said the gas utility is not necessarily operating on the same timeline as the electric utilities for making a decision on gas imports. But, she said, “We absolutely feel the urgency.”

Energy bills

There are more than a dozen energy bills before the Legislature that fall into four main categories: those intended to boost Cook Inlet gas production; bills to modernize the Railbelt electrical grid; those intended to increase renewable energy production; and measures to regulate the storage of natural gas.

Discussions are ongoing between House and Senate members about passing a package of bills this year. Sutton Republican Rep. George Rauscher, co-chair of the House Energy Committee, said the goal behind an energy package is to prevent heat and power bills from rising exponentially, increase gas supply from Cook Inlet and help diversify sources of power for the Railbelt.

A recent UAF study suggested a coal-fired power plant with carbon capture technology could be a viable option for the region.

Commissioner John Boyle of the Department of Natural Resources told lawmakers Thursday that diversifying sources of energy was critical. He said coal-fired power with carbon storage could feasibly be permitted, and not run afoul of environmental standards.

The Dunleavy administration introduced legislation last year to monetize the storage of carbon dioxide underground, potentially in depleted natural gas reservoirs in Cook Inlet. The measure has advanced to a vote on the House floor before it would then head to the Senate.

Chris Rose, head of the Renewable Energy Alaska Project, said Friday that carbon capture and storage is not economically feasible currently. He has long advocated for utilities to have mandatory requirements to generate certain percentages of their power from renewable energy sources. But those measures have not passed the Legislature.

As prices for gas could soon skyrocket, Rose said it was critical to expand renewable energy generation. And he said that mandatory standards set in law would incentivize investment.

“This is the least-cost option,” Rose said, pointing to a report recently published by the U.S. Department of Energy that said a sharp expansion of wind and solar power in Southcentral could save ratepayers well over $1 billion by 2040.

New production

Hilcorp, which currently produces around 90% of Cook Inlet gas, is the only operator to have drilled in the Inlet since 2019. The Texas-based producer told legislators in February that all of its efforts to develop fields are to fulfill its existing contracts.

Small Alaska-based operators have faced challenges to produce significant quantities of gas, including getting gas platforms, permitting and financing.

A December royalty-free Cook Inlet lease sale on new fields drew a lackluster response from the industry. The state received bids on 15,000 acres out of over 3.2 million acres available.

“There’s not necessarily a lot of interest for outside producers to come in and do more exploration in the Cook Inlet,” said Derek Nottingham, director of the state Division of Oil and Gas, on Thursday.

The Dunleavy administration had proposed a measure last year to cut royalties to incentivize production.

A new set of measures being considered by the Legislature would go further, allowing royalty reductions on new gas fields in Cook Inlet, and also for oil production. Rauscher said reducing royalties “aims to elevate Alaska’s competitiveness and attractiveness” for investment.

Cutting royalties would cost the state revenue, Boyle told lawmakers Thursday. But he said that could help “squeeze out” more gas from the aging basin, and help delay a supply gap.

“If we tweak some of the fiscal structures, that might be sufficient to get them across the line,” he said in a brief interview about incentivizing new production.

The amount of state revenue that would lost by reducing royalties cannot be determined because the scale of potential new investments is uncertain, along with the timing of when new gas production could be brought online, according to the state Department of Natural Resources.

Several legislators have noted that operators already can apply for royalty reductions from the state. Alaska’s state-owned investment bank can also issue loans to producers.

Rep. Donna Mears, an Anchorage Democrat and member of the House Resources Committee, said she thinks lawmakers should be focusing more on measures to encourage greater renewable energy production. Mears said there was has been little evidence presented that subsidizing new gas production would help prevent price hikes for ratepayers.

“There’s no proof of that,” she said. “It’s just this wild hyperbole.”

‘Massive time crunch’

During a February cold snap, there was unprecedented demand for Cook Inlet gas for heating. Enstar was “extremely close” to being unable to deliver gas with a critical storage facility operating at maximum capacity.

Anchorage Republican Sen. Cathy Giessel, co-chair of the Senate Resources Committee, has proposed legislation for the state to regulate all gas storage facilities in Alaska to prevent price gouging. She has said expanding gas storage will be critical to deal with periods of high demand.

Giessel said it would be key to modernize the Railbelt’s electrical grid to build redundancies, eliminate tariffs charged by utilities and better integrate renewables. She added Thursday that “it seems inevitable” that utilities will need to import some natural gas to bridge supply gaps.

Utilities want “firm” contracts that guarantee supply, but utility managers say those are not being offered by producers. They could potentially sign less secure “interruptible” contracts, which can see gas supply halted at times. But those are not wanted by utilities, and even they are not certain.

The Legislature hasn’t passed any energy bills yet this year. Both House and Senate members have said that is key priority. With less than six weeks left in the legislative session, time is running out.

Time is also running out for Railbelt utilities to make decisions and sign contracts for new supplies of gas. Sims, Enstar’s president, said the utilities are facing a “massive time crunch” as a looming shortfall of Cook Inlet gas moves ever closer.