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Utilities make first draw from gas storage

Posted: November 29, 2012 - 9:40pm

Just in time for recent cold weather, Southcentral Alaska utilities are now making their first withdrawals from a new natural gas storage facility near Kenai.

“We’ll be depending on gas storage for 20 percent of our estimated peak needs this winter,” Chugach Electric Association spokesman Phil Steyer told the Anchorage Chamber of Commerce Nov. 26.

The storage project, completed this year, “is just in time” for the winter, Steyer said. Other utilities are withdrawing gas from storage also. Enstar Natural Gas Co. said colder weather has resulted in more gas demand from its customers.

The new Cook Inlet Natural Gas Storage Alaska, or CINGSA, facility is critically important this winter because the ConocoPhillips natural gas liquefaction plant near Kenai is no longer able to divert gas to the utilities as it has been in past winters.

“We are now selling all the gas we produce to the utilities. We are not making LNG at the plant, which is in a “warm shutdown,” ConocoPhillips spokeswoman Amy Burnett said.

Chugach Electric, Anchorage’s city-owned Municipal Light and Power and Matanuska Electric Association made presentations to the chamber on new electrical generation and power distribution projects they have under way, but uppermost of the minds of utility managers are looming long-term shortages of gas, the need to meet peak-demand periods this winter, and rate increases needed to pay for new projects and for rising prices of gas.

Steyer recommended to chamber members that they plan for electric rate increases of 5 percent to 10 percent in 2013, although final numbers won’t be known for some time.

Enstar Natural Gas Co. rates will rise, too. Although Enstar was not at the chamber Nov. 26, its spokesman John Sims said the utility has advised the Regulatory Commission of Alaska that its cost for natural gas will increase by 14 percent in the first quarter of 2013, an amount that will have to be passed on to consumers.

Enstar’s gas costs are expected to average $7.24 per thousand cubic feet, or mcf, in the first quarter of the year, up from $6.16 per mcf in the last quarter of 2012 and $6.71 per mcf in the first quarter of 2012.

The major challenge for Enstar is simply getting enough gas for its needs in 2013, however. Sims said the utility still faces a gap of about 4.2 billion cubic feet of its expected 2013 requirement of about 33 billion cubic feet, although negotiations are continuing with producers in the region.

“The fact that we are going into the new year with a gap this large puts us into an uncomfortable position,” Sims said.

If Enstar is unable to secure its supplies the utility will have to ask the electric utilities to share gas they have under an agreement between the Southcentral utilities. This would be expensive, but the electric utilities have capabilities to shift to alternatives for some of their needs, such as using diesel to some extent, halting sales of power outside the region or even importing power from Golden Valley Electric Assoc. in Fairbanks.

“The electric utilities will bear the brunt of any fuel shortage because you can shut us off,” from gas, Joe Griffith, Matanuska Electric Association’s general manager, told the Anchorage chamber. Enstar has no alternatives, however, and its system must be protected, he said.

Steyer reviewed the gas supply situation for chamber members. Although Enstar’s gap is immediate, Chugach faces its own gas supply gap in 2014 and 2015, and ML&P faces future gaps as well.

Steyer cited findings from a consulting firm hired by the utilities that has forecast an annual supply gap, between total gas demand and estimated total supply, of 6.2 billion cubic feet in 2015, 11.4 billion cubic feet in 2016 and 16.6 billion cubic feet in 2017.

The utilities are working together now to meet those gaps with either imported liquefied natural gas or compressed gas. Suppliers of LNG and compressed gas have now responded to Requests for Proposals from the utilities, and an economic consulting firm will be hired soon to compare the proposals and make recommendations.

“Some are saying ‘no, no’ to gas imports, but we will have to have some kind of new gas in the pipeline by the winter of 2014 and 2015,” ML&P’s general manager Jim Posey said.

It’s too early to know the additional cost of importing gas but at the chamber meeting Posey said it might cost 30 percent to 40 percent more than what is now being paid to gas producers in the region.

LNG prices in Pacific markets are now trending downward.

“There’s a lot of gas on the water,” he said.

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