Natural gas reserves not meeting rising needs

Posted: Friday, February 17, 2006


  Natural gas, pumped from beneath the waves of Cook Inlet and the taiga of the Kenai Peninsula, is a key ingredient of the local economy. Photo by M. Scott Moon

Natural gas, pumped from beneath the waves of Cook Inlet and the taiga of the Kenai Peninsula, is a key ingredient of the local economy.

Photo by M. Scott Moon

A steady supply of natural gas is vitally important to the economy of the Cook Inlet region and the Kenai Peninsula.

But that gas is running out, though recent discoveries and reworked older fields have pushed back earlier projections for when production in the Cook Inlet region would decline below a threshold of 200 billion cubic feet per year from 2005 to 2007.

According to a variety of state and industry sources, roughly 85 percent of all electricity generated in Alaska’s Railbelt relies on Cook Inlet natural gas, and inlet reserves supply heat and light to the homes or businesses of 70 percent of all Alaskans.

The average natural gas demand runs around 330 million cubic feet per day (mmcf/day) in the summer, and reaches as much as 900 mmcf/day on the coldest days of winter.

According to the Alaska Division of Oil and Gas, Cook Inlet’s natural gas system currently can deliver a peak supply of about 720 mmcf/day. That represents an improvement over 2004, but supply is not keeping up with peak demand, and industrial users may face shortfalls during peak winter periods.

In an August report to the Kenai Peninsula Borough, Bill Popp, oil and gas liaison, said Cook Inlet’s known natural gas reserves stood at 2.08 billion cubic feet. The Alaska Department of Natural Resources reported in late 2004 that Cook Inlet had an estimated 13-17 trillion cubic feet of natural gas reserves yet to be discovered.

According to Popp, without new discovered reserves or a source of gas from outside the region, current proven reserves are projected to begin a steep pattern of decline in 2007, and by 2009 could severely curtail industrial consumption.

Several companies actively are engaged in exploration for new deposits, he said, including Marathon Oil Co., Aurora Gas LLC, Aurora Gas and Forest Oil Co., and have made discoveries on the peninsula and the inlet’s west side. These companies have announced plans to explore in 2006, as Storm Cat Energy, Northstar Energy and Pioneer Oil Co.

According to the U.S. Department of Energy in a report issued at the end of 2004, residential users were paying $4.39 per thousand cubic feet (mcf), a 21 percent increase since 1999. Commercial users saw their price jump 64 percent in the same period to $3.58/mcf, while industrial users were paying $1.75/mcf, a 40 percent jump. Electrical utilities were buying gas for $2.33/mcf, a 47 percent increase since 1999.

The price of gas continues to rise. In Alaska, Enstar Natural Gas Co., which transports and distributes gas, buys the commodity from gas producers for $5 per thousand cubic feet, said Enstar spokesman Curtis Thayer.

Enstar does not mark up the price of the gas itself, but charges fees to deliver gas through its distribution systems, Thayer said. Those fees cover Enstar’s various overhead costs and include a margin of profit. The Regulatory Commission of Alaska regulates what Enstar charges.

By late January residential customers were paying $1.70 per mcf on top of the commodity price, a rate that has remained relatively flat for the past decade, Thayer said. Commercial customers pay a few pennies more in transport fees than residential users do.

Industrial users typically negotiate their own gas prices with producers and negotiate transport prices with Enstar separately, Thayer said.

The rising price of gas sometimes puts the company in a difficult position with customers, he said. Enstar, not the producers, must handle the calls from irate consumers complaining about the rising cost of gas. It also has to deal with slow payments and bad debt issues.

“We get all the negatives,” Thayer said.

Alaska’s natural gas prices are directly affected by the price in the Lower 48 and are likely to continue rising in 2006, Popp said.

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