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A Cook Inlet Catch 22

Energy companies eye effects of gas shortage on own production, exploration abilities

Posted: November 29, 2012 - 9:39pm  |  Updated: November 30, 2012 - 10:15am
Platforms work in Cook Inlet in this file photo. Some producers are concerned that natural gas shortages could affect power needed for their operations.   Photo by M. Scott Moon
Photo by M. Scott Moon
Platforms work in Cook Inlet in this file photo. Some producers are concerned that natural gas shortages could affect power needed for their operations.

A recent hiccup in oil production at two Cook Inlet platforms caused by a natural gas shortage has brought to light a question the local oil and gas industry might be forced to ask itself in the near future.

How will a forecasted shortage of natural gas affect the ability of Cook Inlet energy companies to power their own operations?

Industry officials said oil production from some smaller area oil and gas companies could be affected by the looming Cook Inlet gas shortage and newer exploration companies likely would take shortages into consideration when developing their plans. But other larger producers could fare better at maintaining operations.

Although those effects aren’t yet certain, officials from several local energy companies, including Tesoro’s oil refinery, are either eyeing the situation closely or have adjusted their operations to hopefully skirt the ramifications of a gas shortage.

On Nov. 15, XTO Energy had to suspend oil production at two Cook Inlet platforms due to a lack of natural gas used to power the platforms, a company spokesman confirmed in an email. Since then, XTO has purchased enough gas to start up oil production again, but the two platforms were not fully operational as of Tuesday.

Henry Haney, an assistant professor of process technology at Kenai Peninsula College, said the two XTO platforms that stopped oil production do not produce from wells that contain high levels of natural gas, unlike some other Cook Inlet platforms. Most of the Cook Inlet platforms produce enough gas to power themselves and then send the excess to shore, Haney said.

“They use that gas for powering the platform, but they also use it for gas lift, which is a secondary recovery system for producing oil out of a formation,” Haney said. “So if there is not enough gas, then, just like you do in your home, you have to start backing up on some things.”

Cathy Foerster, chair of the Alaska Oil and Gas Conservation Commission, said she has not heard any industry concerns about the effects of looming gas shortages to arrive by 2015 if Cook Inlet production doesn’t drastically increase.

But, Foerster said smaller, independent operators who focus on only oil production would likely feel most of the gas shortage consequences.

“Most of the people that are out there who are producing oil are producing gas also,” she said. “So they’ll be using their own sources of gas to fill their production operations needs. But it would be the little guys, and XTO would be a good example.”

Cook Inlet Energy CEO David Hall said his company rearranged recent drilling plans from repairing an old oil well to reviving a natural gas well after considering gas shortage forecasts.

“On the Osprey (platform) we decided to put a work over gas well in front of a crude oil well and we hope that will be successful,” he said. “We want to make sure we are not going to be without gas to support and maintain our own operations. If all goes as planned we hope to be a net gas exporter as well to alleviate some of the gas deficit that many people are currently experiencing in the inlet.”

Hall said he has heard of several other area companies seeking gas but finding it hard to come by “at any price.”

“We do have emergency back up generation that can support our current operations and we think we are protected there and we are not going to see any disruption in production,” he said. “But we do understand the heightened concerns of fuel gas and that’s why we want to put our fate in our own hands and have our own source.”

Tesoro External Affairs Manager Matt Gill said officials at the Nikiski refinery have “significant concerns” about Cook Inlet natural gas supply and price.

“It is going to have some substantial impacts on the cost to produce the transportation fuels that we make,” he said.

Gas is used to process and heat crude oil and run the refinery’s generators, Gill said. Tesoro has a base natural gas contract but also buys spot market gas from Cook Inlet producers as needed.

“Since July of 2012 that gas has been largely unavailable regardless of price, which is of big concern to us,” he said. “When it did become available, it was somewhere three to five times higher than it was prior to July.”

When the refinery is short on natural gas supply, Gill said Tesoro has to burn the propane and butane it produces as a by-product of the crude oil refining process to run the facility.

“It is a whole lot more expensive than going out and buying natural gas normally,” he said. “One of the problems with that is if we are burning the propane, the propane market here in Alaska is short and our customers have to go out and find it elsewhere.”

Gill said when the refinery is forced to burn its own butane it takes away what would normally be blended into gasoline. That in turn makes it harder to produce the same amount of gasoline “so we end up having to import gas to keep the market supplied,” he said.

Kara Moriarty, executive director of the Alaska Oil and Gas Association said gas shortages are an industry concern, but an industry-wide solution would be hard to identify.

“I know companies have talked about what gas supply and gas price could do to the operation of their businesses, whether it is a production business or an exploration business, that’s all cost of doing business is how you power yourself,” she said. “So it is something everybody is looking at but we don’t have a solution or any certain path that at this point as an industry we are either advocating for or against.”

Moriarty said low gas supply and high gas prices would not necessarily be a deterrent for exploration in the area even though those items factor into a company’s decision to invest in an area.

“Nobody has said to me, ‘Well, I’m not bidding on a lease sale because there is no gas supply and there is no way I am going to power my operations,’” she said. “... I have heard folks say they are worried about what the cost increase (would be) because of the gas situation ... what that does to their economics and for the refinery what that will mean to the consumer.”

When asked if the fear that exploration companies will be scared off by gas shortages and the high cost of powering operations in the area, Foerster said any such fear that “might exist for that will be offset by the comfort that if you go exploring for oil and instead you find gas, you’ll be able to sell it.”

 

Brian Smith can be reached at brian.smith@peninsulaclarion.com.

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ziggyak
82
Points
ziggyak 12/01/12 - 06:04 pm
0
0
Natural Gas

All this talk of shortages makes me remember the flares from Swanson river field’s throughout the 60s and early 70s. The big focus was on oil not gas are all those fields really gone or is there still plenty of gas in our own back yard hidden in the "Moose Range"?

Watchman on the Wall
2893
Points
Watchman on the Wall 12/01/12 - 07:17 pm
0
0
No shortage at all

I think this is a scam of some sort and don't believe it at all. I do wonder whats up their sleeves though with this propaganda. All one has to do is look at all the oil & gas related building to know that they already know something Big is about to break and have been preparing for it come 2013.

Sam Von Pufendorf
1088
Points
Sam Von Pufendorf 12/01/12 - 08:05 pm
0
0
Speculation

WoW, just as you are speculating about all of the building in the oil and gas sector that is going on, those oil and gas related business are speculating on future development. Nor development that is going to aid us in the short term. There are definitely reserves of gas remaining in the inlet. But questions remain. #1 the reserves are in smaller than historical pockets which means they may or may not be commercially viable. #2 Some of these pockets are not near existing infrastructure #3 We are capitalists!!! Would the investment be worth the return? Gas is at a 10 year low. Gas is plentiful in the lower 48 and we are tied to the Henry Hub. The Would you develop a resource now and risk a loss on your investment?
At any rate, a shortage is looming and we can continue to believe it to be nothing but propaganda or we can pull our heads out of the sand and do what we can do to preserve what developed energy resources we have left. If you decide to do otherwise, I suggest you start cutting firewood in addition to your stocks of beans and rice. I suspect you already have several cords put up!

Watchman on the Wall
2893
Points
Watchman on the Wall 12/01/12 - 11:19 pm
0
0
Got Wood?

I do need a couple more cords and in fact a Bro in Christ called me this morning and is gonna bring me some already cut to length, but he said he ain't gonna split it, go figure.
I know what your saying about us being capitalists and understand the idea of it, but you have to have money to be a capitalist and keep it going and that is getting harder to get ones hands on daily is it not?
As for a shortage on oil & gas you know my opinion on that and just maybe your right about eazily excessable supplies being the problem, i don't know. As for speculation being done by all the oil & gas business related building every where, i personally don't buy that theory and think they know exactly whats coming soon and are gearing up for the next boom out of cook inlet and even possibly swanson river.
Have a gr8 sunday and buy some spam also to go with rice and beans cooked over a wood fire if we do run out of gas or electric some day.

bob99507
361
Points
bob99507 12/02/12 - 10:24 am
0
0
Gas

There are trillions of cubic feet of gas on the north slope we need a in-state pipeline

Sam Von Pufendorf
1088
Points
Sam Von Pufendorf 12/02/12 - 07:12 pm
0
0
Bob

You are correct Bob, but that still does not address the looming near term gas shortages. A pipeline requires permitting, design and most importantly, materials. To supply just the materials for such a venture would take three years if we would want to make it a commercial venture (36" line).
Then there is the value added factor. Once you start blowing down the gas (stop re-injecting to pressurize the Prudhoe formation) from the north slope, our oil production will start to fall faster. With that production decline is an immediate revenue decline.
At any rate, an in state gas line, at break neck speed, wouldn't physically start for six years.
Regardless of when a pipeline would be completed, it is reasonable to assume there will be a shortage prior to the commencement of any project. The best option for short term fixes are: 1) develop existing pockets within Cook Inlet 2) conserve the resources currently available 3) Explore a coal option for short term (10 years) power generation 4) Explore the possibility of a LNG gasifying plant at tide water.
I agree we should continue to press for a natural gas pipeline from the slope, but we should be focusing more on near term fixes that address the issue at hand ... looming gas shortages in the not so distant future. Once we find the near term fix, we must not rest on our laurels, but continue to pursue a long term solution to our energy needs.

bob99507
361
Points
bob99507 12/03/12 - 08:28 am
0
0
SVP

The trouble is some of us have been spouting off for a instate pipeline for 8 or 9 years and it is the same story 6 years away. As for the gas lift for the north slope wells I believe that for the most part they are all ready on water flood so the gas lift should be mute.I do agree we need to explore all the options you mentioned

Sam Von Pufendorf
1088
Points
Sam Von Pufendorf 12/03/12 - 09:26 am
0
0
Bob A big difference

Bob there, is a big difference between gas lift and gas injection. Miscible Injection (MI) is a form of Enhanced Oil Recovery (EOR) of oil and Natural Gas Liquids (NGL) from the formation. It is still very much used on the north slope and plays a big roll in EOR. Some formations produce up to 30% more oil when MI is used in conjunction with water flood. So, it would have an impact on production.
Thanks for your input on this thread.

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