Plant shutdowns may hurt spur line

Posted: Sunday, January 30, 2005

The threat of industry leaving the Kenai Peninsula puts more at stake than just jobs.

Agrium announced that its North Kenai fertilizer plant will close later this year. The federal export license for the Kenai Liquefied Natural Gas (LNG) plant, owned by ConocoPhillips and Marathon, expires in 2009. A Department of Energy report speculated that the LNG plant will shut down at that time if new large supplies of gas are not found.

At Tuesday's Soldotna Chamber of Commerce luncheon, Jim Posey, general manager for Municipal Light and Power based in Anchorage, said there needs to be something to replace those users to make a spur gas pipeline to Cook Inlet a good investment.

"We all should work toward making sure (these plants) exist or something like that exists," Posey said. "We believe that without the industrial users, our options for a spur line are less."

Without industrial users, the burden of paying for and operating that gas line would fall exclusively on domestic users, raising their gas bill, he said. The cost is ultimately passed on to the customers, he said. Without the industrial users, it would be more difficult to make the spur line profitable, increasing the financial risk of investors and their customers, he said.

Agrium and the LNG plant use about two-thirds of all the natural gas consumed in Cook Inlet.

A Department of Energy report released in June projected proven gas reserves will run out by 2012 if Agrium and the LNG plant close. It said there could be shortages by 2009 if current usage is not reduced or if new gas reserves are not developed.

Posey said importing gas from other countries and exploration in the inlet are other options that could be used to address the projected shortage.

As the state has participated in discussions with private industry to build a gas line from the North Slope to Chicago, many view North Slope gas as a long-term solution to the inlet shortage.

The Alaska Natural Gas Development Authority (ANGDA) has conducted a study looking at building a spur gas line to the inlet. The Municipal Port Authority, formed by the Fairbanks North Star Borough and the city of Valdez, also have proposed pipeline projects.

Harold Heinze, CEO of ANGDA, a public corporation of the state, said without the industrial users, a spur line becomes more difficult to justify. If the LNG plant leaves, "we have some tough choices in Cook Inlet," he said.

ConocoPhillips spokesperson Dawn Patience said the company is considering various long-term options for the LNG plant. It is premature to speculate on the gas reserves that will be available after 2009, she said.

A study issued by ANGDA last year looked at building a spur line to the inlet that could handle double the amount of gas currently consumed. Heinze said ANGDA is charged to ensure that residential consumers have gas and to mitigate price increases. In addition, it is important to give industrial users the tools to continue operating and to expand, he said.

He said the LNG plant is a good investment and with a steady supply of gas, there would be plenty of incentive for it to continue operations.

Heinze said if there are industrial users, a spur line could decrease prices for residential customers. The more gas that is moving through the gas line, the cheaper the gas becomes, he said.

He said it is difficult to project when a spur line could be complete. There first needs to be a main gas line, he said. But ANGDA is taking preliminary steps, such as applying to the state for the right of way to build the spur line, Heinze said.

Taking preliminary steps will show ConocoPhillips there is a concrete plan to provide a steady supply of gas encouraging renewal of the export license, he said.

Enstar Natural Gas Co. has expressed interest in becoming part owner in a spur gas line. Costs have been estimated between $300 million and $600 million, depending on the size of the line. Curtis Thayer, spokes-person for the company, said building a spur line to the inlet is a long-term solution to supplying the region with gas.

To find half of the gas already discovered in the inlet would cost around $5 billion, he said. In addition, Thayer said the steady supply of gas from the spur line would provide price stability.

With a spur line, Enstar believes gas would still be about 25 percent cheaper than it is Outside, he said.

In recent years, the value of gas in the state has gone up. To generate interest in exploring for new gas supplies in Alaska, the Regulatory Commission of Alaska allowed the price of gas in Alaska to be tied to the Henry Hub, a Louisiana-based pricing index that is a major indicator of the cost of gas in the Lower 48.

The Department of Energy reported the average price of gas in Alaska was $4.39 per thousand cubic feet in 2003 for residential users — up by 21 percent from 1999. The average price Outside is higher.

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