Where's the natural gas for Railbelt electric power and heat going to come from when the existing Cook Inlet fields are depleted?
The answer for now can only be multiple-choice: New Cook Inlet fields; North Slope reserves; imported LNG from Canada, Russia, Australia or the Lower 48!
Fifteen years ago anxiety surfaced over the prospect of running out of natural gas in Southcentral. About 70 percent of all the Railbelt's electric power and heat is generated with natural gas, so high anxiety is more than justified.
At that time, energy experts predicted Cook Inlet gas reserves might not be sufficient to supply demand by 2014. However, because investment in additional wells has kept supply stable in existing Kenai gas fields, the supply-deficit date has been pushed back to around 2019. Regardless of how many new wells are drilled in the next few years, gas production will begin to steadily decline about 8 percent per year, until the existing fields go bone-dry sometime around 2040.
While having a few more years of stable gas supply is good news, the announcement of new gas fields in offshore Cook Inlet is potentially better news. Furie Operating Alaska and Buccaneer Energy each found new gas while exploring their leases for oil (Buccaneer recently went bankrupt and sold its property to Blue Crest). Furie claims it will be able to produce about 30 billion cubic feet (Bcf) a year from the Kitchen Lights field for up to 35 years. Blue Crest's preliminary development plans call for producing up to 22 Bcf a year, although the company has not disclosed its estimate of total reserves.
Still, the question is how much of this yet-to-be-produced gas will actually be available to meet Railbelt electric power and heat needs?
As things stand now, much of this new gas might not make it to the Southcentral market. Since Railbelt gas and electric utilities have enough supply through 2018 and because Furie and Blue Crest need to sell as much gas as fast as possible in order to maximize return on investment, most of their gas would have to be exported and/or sold to major industrial customers such as the Donlin mine.
Consequently, by the time Southcentral demand for gas from Furie and Blue Crest fields grows substantial enough -- in 10 years or so -- that gas may already be committed to other customers.
It is conceivable still more new gas fields may be found in the next several years, but there is currently no ongoing exploration for gas elsewhere in offshore Cook Inlet, and with one of the jack-up rigs poised to depart Alaska for South Africa, there will be less exploration capacity. Incongruously, the state of Alaska characterizes this as the Cook Inlet gas exploration "renaissance."
So, there is good reason for continued anxiety about the future of in-state natural-gas supply. Because the Railbelt gas market is so small, there is little profit to be made developing an in-state, natural-gas supply.
Hence, the state of Alaska has intervened financially to secure an in-state energy supply: $38 million in drilling tax credits to Buccaneer ($20 million more pending), plus a $23 million ownership investment in Buccaneer's drill rig; up to a $300 million ownership investment in North Slope LNG-to-Fairbanks; a $7.7 billion ownership investment in the Alaska Stand Alone Pipeline; a multibillion dollar share in the Alaska LNG project; and a $5.5 billion ownership investment in the Susitna hydropower project.
Of the state's solutions to the in-state, energy-supply problem, the one with highest cost and least benefit would be damming the Susitna River. With a $5.5 billion price tag, the dam would provide only slightly more than one quarter of the Railbelt's annual energy need.
For just an additional $2 billion the Alaska Stand Alone Pipeline would supply up to twice the amount of gas the Railbelt uses -- that's more than eight times the energy of the Susitna dam and with less environmental impact than the dam.
The larger pipeline would have even more capacity, but with the recent crash in LNG prices in Asia, the Alaska LNG project is a much more risky proposition than all the other projects in which the state has invested.
Speaking of risk, the impending fiscal crisis demands the state commission an impartial review of all available options, including the option of buying Furie's and Blue Crest's Cook Inlet gas properties. This option is a logical extension of the state's direct investment strategy and in this case, there would actually be some actual energy to show for the money invested. Of course, while this option alone won't solve the long-term supply issue, it would buy between 10 and 20 years of energy-supply security.
If none of the above alternatives pencil out, however, then Alaska will have to rely on market forces alone and be thankful it can import LNG from Canada, Russia, and yes, even Louisiana! LNG from a foreign country or from the Lower 48 is the only source of supply Railbelt utilities can definitely count on. This may be equivalent to "importing coal to Newcastle," but it has the advantage of costing the state of Alaska little to nothing, and importing LNG would have the least environmental impact of any of the supply options.
Jan Konigsberg, a long-time energy analyst, is the director of Alaska Hydro Project. He has worked on energy policy and planning for both government and non-government agencies in Alaska and Montana.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com