Railbelt utilities again scramble to fill expected Cook Inlet gas shortages

JUNEAU — The Alaska Department of Natural Resources has forecast that under current conditions, there will be supply shortfalls of Cook Inlet gas starting around 2027. Railbelt utilities are increasingly looking at alternative options to bridge supply gaps, such as importing gas from outside Alaska.

As of 2018, more than 70% of power generated across the Railbelt came from Cook Inlet natural gas; it was also used to heat over 140,000 homes and businesses. But production from 60-year-old fields has steadily declined.

The largest Cook Inlet gas producer is Hilcorp. The Texas-based operator has indicated to the state that it would not automatically extend contracts to provide gas to Railbelt utilities as it has done in the past.

In recent years, there has been little incentive for producers to increase their output. Alaska has not exported LNG from Cook Inlet since 2015, meaning the market has been effectively fixed. Increased production means depressed prices.

Veteran Alaska state legislators have heard concerns about shortfalls of Cook Inlet gas before. More than a decade ago, there were warnings of “crippling” shortages unless production increased, but the Legislature’s ability and willingness to incentivize more output may be limited. The state has largely phased out tax credits, and it is still paying down a now-defunct scheme which ended in 2017.

[Could oil-rich Alaska be forced to import natural gas? Two utilities are looking into it.]

Furie Operating LLC., a small Homer-based gas producer, has pushed for legislation to reduce its tax burden, arguing that current rates are stifling increased production. The bill was introduced last week in the state Senate, and then quickly withdrawn when oil-producing municipalities said those changes would significantly diminish their revenue.

Enstar and the electric utilities are studying ways to bridge the supply shortfall but they don’t have recommendations or requests for the Legislature yet — those are expected to be ready in the summer.

There are plans for longer-term fixes, which include infrastructure improvements to reduce a high dependency on a single source of fuel. Prices may need to rise for consumers in the meantime, the utility managers said.

“There’s no question that additional discoveries in the Cook Inlet will help, but we are on the downward trend. Additional discoveries, so to speak, kick the can down the road,” said Arthur Miller, CEO of Chugach Electric Association. “But at the end of the day, there is a finite supply of natural gas in Cook Inlet.”

Like ‘farmed salmon’

Importing oil and gas is like convincing Alaskans that farmed salmon is good for you, said Brad Janorschke, general manager of Homer Electric Association. But the managers of the Railbelt utilities told the Senate Resource Committee that it could — unfortunately — be the best alternative.

A long sought-after natural gas pipeline from the North Slope is being touted as an option to supply Southcentral Alaska, but the utilities say they cannot rely on that project until it’s built. Importing gas could be a transition option until longer-term solutions are implemented, the utility managers said.

A lingering question is how natural gas would be imported. Options are being evaluated, but a spokesperson for Chugach Electric said LNG would most likely be brought to Alaska by tankers and delivered somewhere in the Nikiski area.

Marathon Petroleum Corp. owns and manages the Kenai LNG refinery, which had been used to export natural gas for almost 50 years. The plant has been mothballed since 2017.

Marathon has permits to convert the export terminal into an importation facility. The Ohio-based company has been granted an extension to finish the conversion by 2025.

With shortfalls looming, decisions about securing supply need to be made in the next year or so, Miller said. “Every month that passes, our options start getting narrower,” he said.

‘Shift the paradigm’

Railbelt utilities provide power from Homer to Delta Junction, serving roughly 75% of population. Each of them have a different level of reliance on Cook Inlet gas for generating power.

For Matanuska Electric Association, natural gas provides just under 85% of its power needs.

The utility has a contract to get 100% of its gas needs until the end of March of 2028, said Tony Izzo, general manager of MEA. But after that, it has no assurance of supply.

Chugach Electric is in a “vastly different situation” to the other Railbelt cooperatives, Miller said. It owns two-thirds of a working interest in the Beluga River Unit gas field, which provides 50% of its gas requirements. But its supply contracts are also set to expire in 2028.

For Homer Electric Association, which sources 90% of its power from Cook Inlet gas, the deadline to secure more gas is coming sooner. Janorschke said the cooperative’s current contracts expire next April — but he is optimistic producers won’t leave the Kenai Peninsula without a source of power.

“Our first priority is to keep the lights on,” he said. “Secondly, is to keep the upward pressure off of rates.”

Izzo said Southcentral needed to “shift the paradigm” of power generation. The utilities are looking at longer-term plans to modernize the Railbelt’s electrical transmission system and add redundancies.

“We have one of the most fragile systems in the United States,” Izzo said. “I don’t refer to the Alaska Railbelt as first-world, because it’s not.”

The utilities are seeking federal funding to improve the electrical grid, which could take longer than a decade to be completed. A modern transmission system could better integrate other sources of power, such as from renewables. But alternative sources of energy can only do so much for now, the utility managers said.

“It’s not a panacea,” Miller said. The electric cooperative, which serves 90,000 Anchorage-area residents, is studying the viability of one solar and one wind project as it moves to reduce its carbon footprint by 50% by 2040.

Miller said those projects would only make “a small dent” on its reliance on natural gas as the utilities try to diversify their sources of energy. They are agreed on working together to avoid a cycle of looming Cook Inlet gas shortages every few years.

“We want a long-term, permanent solution that benefits Alaskans,” Miller said.