An agreement announced this past week between the state and oil industry officials addressing energy security for Alaska was hailed by both sides as a win-win situation. We couldn't agree more.
The agreement, announced Thursday by Gov. Sarah Palin, effectively keeps the North Kenai liquid natural gas facility, co-owned by ConocoPhillips and Marathon Oil, open for business. The state has agreed to support a two-year extension of the facilty's export license, while ConocoPhillips and Marathon have made assurances that adequate natural gas will be made availble to meet demand in Southcentral Alaska.
"Extending the life of the Kenai LNG facility will help manage gas deliveries during peak winter demand and encourage new development," said Steven B. Hinchman, senior vice president of worldwide production for Marathon. "This agreement is clearly a win-win for the state of Alaska, the economy of the Kenai region and the local utility needs."
This agreement will benefit the Kenai Peninsula in multiple ways. First and foremost, it ensures continued operation of the plant, which opened in 1969 and employs 58 people. Plant operations support another 128 jobs and contribute approximately $50 million in royalties and taxes to the local and state economy good news indeed, considering the Agrium nitrogen facility next door has shut down due to natural gas supply issues.
As part of the deal, Marathon and ConocoPhillips each agree to continue negotiations with ENSTAR Natural Gas Company and Chugach Electric on gas supply agreements; if certain gas supply milestones are not met, the companies have agreed to reduce exports below quantities requested in the application.
The most important part of the agreement could very well be the promise from ConocoPhillips and Marathon to continue to explore and develop Cook Inlet's natural gas. It's a much-needed shot in the arm for industry on the peninsula.
"This agreement improves the prospects for future drilling in the Cook Inlet and supports continued operation of the Kenai plant," said Jim Bowles, president of ConocoPhillips Alaska. "This new level of cooperation is a very positive outcome and is essential for a solution to the natural gas development issues facing Southcentral and the state as a whole."
The two companies have agreed to drill seven new wells in 2008 and will make seismic and well data available to other companies for potential exploration and development. Additionally, they agreed to purchase gas from other producers for LNG production when practical.
With another potential market available to producers, that means more incentive to explore in the Cook Inlet basin.
"Now we're going to see a resurgence of drilling for gas in Cook Inlet," said Sen. Tom Wagoner, R-Kenai.
Energy security and investment in the Kenai Peninsula's industry and economy: we couldn't have asked for a better way to kick off the new year.
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