We are slowly but surely running out of the Cook Inlet natural gas that keeps our lights on and buildings warm. Sometime in the next several years, the supply of gas from the established fields of Cook Inlet will not be sufficient to meet current demand. By 2040 if not earlier, the existing Cook Inlet gas fields will be totally depleted.
Unfortunately, we denizens of the Railbelt are left in the dark and out in the cold about our future energy supply -- where it will come from and what it will cost.
To make sense of our energy situation and the appropriate path to energy security and affordability, we especially need to know the dollars and cents we can expect to owe on our future energy bills. Bear with me here, as this will take some explanation.
If you think a new dam on the Susitna River is the ticket to energy security and affordability as promised by Alaska Energy Authority (AEA), get ready to go down that river without a paddle. Meanwhile, don't get your hopes up about oil companies finding new gas in Cook Inlet, state leases and incentives notwithstanding. Neither the dam nor Cook Inlet lease program is the path to a secure energy future.
AEA estimates building the 700-foot-high dam and blocking the Susitna River at Watana creek (river-mile 184) will cost $4.5 billion. At this cost, the price of Susitna electricity will be at least $0.13 per kilowatt-hour (Kwh), nearly double the current cost of electricity of $0.07/Kwh. About 60 percent of the cost of electricity at the generating plant is the fuel cost. Chugach Electric Association (CEA) generates with natural gas now costing about $6.70/Mcf. Supposedly the price of electricity from the dam will be relatively stable, because the "fuel "(water) is priced at $0.00. Consequently Susitna electric power will become cheaper than electricity from gas-fired generators only when the cost of natural gas increases to more than $13.00/Mcf. Even if natural gas costs were to ascend past $13.00/Mcf, Susitna will have only a minor effect on your energy bill, because energy from Susitna will provide at most one quarter of the energy we currently use for heating our buildings and lighting up our lives.
Our gas and electric utilities use about 70 billion-cubic-feet (Bcf) of natural gas annually; about 32 Bcf are piped to our buildings for heating, and about 38 Bcf combusts in gas-fired turbines for electric-power generation. Supposedly the Susitna dam will generate about 2,600 gigawatt-hours annually, about half of the total Railbelt electric-utility generation. So, natural gas will remain the dominant energy supply, and if Susitna were built, the Railbelt will require at least 50 Bcf, from somewhere.
Bottom line: A Susitna dam does not solve our energy-supply problem nor does Susitna have any effect at all on the volatility and pricing of natural gas.
Therefore, with or without Susitna, the questions are the same: where will new gas come from and what will it cost? What's the plan?
Despite what you've been led to believe there is no systematic effort to find new conventional gas in the Cook Inlet Basin. Companies are spending their money looking for oil, not gas, in offshore Cook Inlet. Consequently, the utilities are resigned to importing LNG (liquefied natural gas) as the only reliable source of supply. Imported LNG will cost between $11.00-$14.00/Mcf, and the necessary regasification infrastructure will cost up to $500 million, which should not require state financing.
Now, if any oil company, such as Escopeta, finds and produces gas as a byproduct of drilling their oil prospect, the gas will be priced at what the market will bear, which is the price of imported LNG, and, adding insult to injury, there is nothing to prevent the company from exporting their gas as LNG to Asia, which is a far larger market than the Railbelt.
So, even if new gas surfaces in Cook Inlet, that gas won't be cheap or necessarily long lasting.
Like the utilities, the State of Alaska is not counting on the private sector to develop an in-state gas supply.
In 2010, the legislature authorized a feasibility study for a bullet line from the North Slope to Southcentral. This year Alaska Gasline Development Corporation (AGDC) estimated a $7.5 billion capital investment plus the cost of financing ($4 billion) for a 737-mile-long, 24-inch-diameter pipeline from the North Slope to Southcentral, with a spur to Fairbanks. Due to lack of interest by any private company, AGDC concluded that the pipeline would have to be entirely financed by the state. The bullet line would transport enough gas to supply the Railbelt for at least the next 100 years at current demand, but it, too, would have no ameliorative effect on natural gas pricing.
Therefore, when comparing the three options of a dam, bullet line and imported LNG, none will ensure stably priced energy. Both imported LNG and the bullet line would provide a secure energy supply, however. When comparing the capital investment of importing LNG to the bullet line -- $500 million vs. $12 billion -- imported LNG is the optimal choice of the three supply alternatives.
There is one other option that merits consideration -- state-financed, -owned, and –operated natural-gas supply:
Given an estimated 15 Tcf (trillion cubic feet) of conventional gas in Cook Inlet remaining to be found and no significant interest by the private sector in doing so, the state of Alaska should develop its Cook Inlet gas resource. Just as the state would invest in a Susitna River dam and sell the electric energy based on the total investment, the state would sell the state owned gas based on the total investment to find and produce the gas (the gas, like the water, would also be priced at $0.00). Based on the cost of drilling new wells in existing Cook Inlet gas fields, the estimated cost of finding and developing 1.5 Tcf of the gas resource is $3.6 billion, enough for 20 years at current demand. Under this scenario, the gas would cost the utilities $3.35/Mcf. The revenues from this block of gas supply would be recycled to finance the next multi-year supply, and so on. Further, as more cost-effective, less-impact energy sources become available, investment in developing more gas can be appropriately scaled, which is not an option for the sunk investment in the dam or the bullet line.
For far less investment than a Susitna dam and a bullet line, state-produced Cook Inlet natural gas would provide a long-term secure, stably priced and affordable energy supply for the Railbelt.
In 2007-2008, households paid an average of $1,900 for gas and $1,200 for electricity annually, that could double by 2030 around the time Susitna River dam is slated to come online, which is also when almost all the gas will be supplied by the bullet line or imported LNG. On the other hand, if state-owned Cook Inlet were to be available, our energy bills would be half of what they are now and one quarter of what they will be with a Susitna River dam.
The total savings will be about $250 million annually, much of which will circulate in the Railbelt economy. Talk about maximum benefit from Alaska's resource development.
If the state is willing to spend billions on energy security and affordability, isn't this the best plan to keep the lights on and the indoors warm?
Jan Konigsberg is Alaska Hydropower project manager for the Natural Heritage Institute, a non-governmental, non-profit organization founded in 1989 by a group of conservation lawyers and scientists. Its core mission is to restore and protect the natural functions that support water-dependent ecosystems.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch. Alaska Dispatch welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com.