OPINION: No easy solutions for Southcentral Alaska gas shortage

We could be running low on natural gas from Cook Inlet. This is not something to blow off.

Natural gas is needed to heat homes and other buildings in Southcentral Alaska, and if we can’t produce enough locally, it will have to be imported as liquefied natural gas, or LNG. We won’t like that, but winters are cold.

The cost of imported LNG could also be double what we pay now, Enstar Natural Gas Co. warns. Enstar is the natural gas distribution utility serving Anchorage and other Southcentral communities, where most of the state’s population lives.

Natural gas heats our buildings. Not just homes, but for businesses and institutions like hospitals, schools and the university — and don’t forget Joint Base Elmendorf-Richardson.

Enstar has no alternative to natural gas. Renewable energy like wind and solar provides electricity, but gas provides heat. As Cook Inlet’s gas fields start winding down in 2027, which our state Division of Oil and Gas says they will, we need to make sure we have enough.

The shortage may hit earlier, too. Enstar says it still doesn’t have all the gas it needs under contract for the winter of 2025-26.

Electric utilities like Chugach Electric Association and Matanuska Electric Association are in better shape. They largely depend on gas too, but they have alternatives like hydropower along with some wind and solar. Large wind and solar projects, and expansion of hydro, are planned that will reduce the need for gas, but they won’t replace it in the near- or even mid-term.

We’ve known about this for a long time. Utility CEOs like John Sims at Enstar and Arthur Miller and Tony Izzo at Chugach Electric and Matanuska Electric, have been almost shouting from the rooftops about this. Hilcorp Energy, the major gas producer, has warned of it. Is anyone listening?

Some have. Last winter’s intense cold snap and near breakdown of the natural gas system were related to mechanical issues and not gas supply but it did focus attention on the problem. Last spring, the Legislature built up a head of steam to do something.

Legislators did do important work on energy, particularly in streamlining rules for power transmission and renewable energy. This is important because without it development of new wind, solar and hydro power would likely be uneconomic.

We solved that, and it was a big accomplishment. But not much was done about natural gas. There are known undeveloped gas deposits in the Inlet and at least one of them could have been drilled and producing in time to blunt the 2026 and 2027 gas shortfall. What happened?

It’s a little complicated. The quickest way to get new gas flowing is to lower the state’s one-eighth royalty on Cook Inlet gas, at least for gas sold to public utilities. But legislation to do it got bogged down. This included a bill in the state House by Rep. George Rauscher, R-Sutton, and one by Gov. Mike Dunleavy that moved in the Senate. The House delayed passing its bill until just two days before the required session adjournment on May 15. The Senate bill seemed on a slow track, too.

Why? There is room for criticism, but I think legislators wanted to be cautious and not give public resources away too quickly. But it’s unclear why it took so long. The royalty bill sat in the House Finance Committee for two months. The Senate version was in the Senate Resources Committee for about as long.

To be fair, legislators wanted to have an independent analysis of whether royalty reductions were justified. They didn’t want to depend just on analytical work by the Department of Natural Resources.

Fair enough, why did it take so long to get consultants under contract to do independent analyses? GaffneyCline Associates, the firm hired, didn’t present its work to legislators until May 5. That was 10 days before adjournment.

I don’t think a temporary royalty reduction should have caused such hesitation. We’ve dropped the royalty before in Cook Inlet to help keep aging platforms operating and we’ve done it for small oil fields on the North Slope. The Department of Natural Resources can also administratively reduce the royalty, although this is a complex process.

But royalty reduction is just a short-term fix. It could buy a little time, but Cook Inlet’s problems are more complex. Most important, the market for natural gas is very small. It’s mostly only the utilities. Those buy gas under contract and contract openings happen every so often.

If explorers get lucky and make a larger discovery, what will they do with the gas? The former ConocoPhillips LNG plant was used to ship to Japan, providing an export market, but it has long been closed. This is a big disincentive for new investment.

We are lurching toward solutions, however.

While it doesn’t address the key market problem, the Legislature did pass a bill that reinforces the ability of the Alaska Industrial Development and Export Authority, or AIDEA, to finance Cook Inlet gas projects. But this can’t be done quickly. It could help larger, long-term projects but it won’t address the shortfall in 2026 or 2026. A temporary royalty reduction would likely have done that. We’ve basically lost a year in Cook Inlet drilling.

That’s not a pretty picture.

Tim Bradner is publisher of the Alaska Legislative Digest and Alaska Economic Report.

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