Natural gas demand for space heating and power generation over the next decade or so appear to fit comfortably within a 500 million cubic feet-per-day limit the state of Alaska has accepted for gas for Alaska communities from a gas pipeline built by TransCanada Corp., according to a study of in-state gas demand commissioned by TransCaanda.
The wild card, however, is potential future industrial demand for natural gas from plants that would most likely built in Southcentral Alaska. There is strong interest in industry using gas because jobs are created that pay high wages and the plants provide significant tax base for local governments.
Any significant new development of natural gas-based industry, such as if the liquefied natural gas plant near Kenai, is expanded or a new development occurs, such as a gas-to-liquids plant, it could push the in-state demand up to 1 billion cubic feet per day, which exceeds the limit in the contract with TransCanada.
The state agreed to the limit as part of its Alaska Gasline Inducement Act contract with TransCanada, in which the pipeline company accepted a number of state conditions for a pipeline in return for a $500 million state subsidy and the limit to gas taken off for use within Alaska.
If there are good prospects for industrial development that would exceed the limit the state will be presented with a thorny problems in having to negotiate a change in the contract with TransCanada.
The pipeline company wants to limit the gas "off-take" in Alaska to keep as much gas volume as possible flowing the entire length of the pipeline. That is important to the economic viability of the pipeline and TransCanada's ability to finance its construction.
It's also likely that new gas reserves will be found on the North Slope that will allow the pipeline to be expanded and making more gas available for in-state use, state officials point out.
The in-state gas study assumes a continuation of gas production from gas fields in the Cook Inlet region at an average of about 150 million cubic feet per day.
Northern Economics Inc., an Anchorage-based consulting company, led the team doing the in-state gas demand analysis for TransCanada. Science Applications International Corp. and the University of Alaska Anchorage's Institute of Social and Economic Research were also part of the team.
TransCanada is required to do the in-state demand study as part of its application to the Federal Energy Regulatory Commission to conduct an open season for its pipeline project this summer.
The Denali pipeline group, which is developing a competing pipeline project to TransCanada's proposal, has said that it will use the Northern Economics study as a part of its open season application to FERC later this spring. The study is a public document.
Denali is not bound by the limits on local gas deliveries because the company has not signed an AGIA contract and is receiving no state funds.
The study led by Northern Economics estimated future gas demand with a series of probabilities. For example, residential and commercial space heating is estimated to require 100 million to 150 million cubic feet of gas daily with a high degree of certainty over the next 10 to 15 years but that could also reach 175 million to 200 million cubic feet per day under certain circumstances.
Similarly, gas demand for power generation is estimated at 90 million cubic feet per day with some certainty in the five- to 10-year timeframe, but the amount could drop in the years beyond if a large hydroelectric project is built, such as a project on the upper Susitna River north of Anchorage or one at Lake Chakachmna, on the west side of Cook Inlet.
Industrial demand could stay essentially at current levels if no new gas-based industry is developed, but if two or three projects are built that demand could reach 1 billion cubic feet per year in 15 years, the study shows.
The industrial demand estimates do not include gas needed for a large liquefied natural gas (LNG) plant at Valdez which would "anchor" a pipeline to Valdez, an option which TransCanada will offer in its open season this summer along with a pipeline to Alberta.
If the Valdez pipeline is built the development of the LNG plant at that city is a given because that pipeline would be built only to serve such a plant.
Mainly, the industrial demand possibilities considered in the study are mainly in the Matanuska-Susitna Borough and Kenai Peninsula Boroughs that would be served by a spur pipeline from the big pipe, whether to Alberta of Valdez.
Possible projects include the continuation, or an expansion, of the LNG plant now operating near Kenai, a possible restart of the Agrium fertilizer plant also near Kenai (the plant is now closed) and a gas-to-liquids plant that would use the Fischer-Tropsch chemical process to convert natural gas to high-value liquid fuels for sale on the U.S. west coast or in export markets.
Tim Bradner can be reached at firstname.lastname@example.org.
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