Plans to deliver gas to southern Kenai Peninsula moving ahead

Homer Bound

Posted: Wednesday, February 21, 2007

Homer and the lower Kenai Peninsula could be consuming natural gas by the end of the decade if Enstar Natural Gas Company sees its plans come to fruition.

“We’ve already started the regulatory process,” Enstar spokesperson Curtis Thayer told a Alaska Support Industry Alliance in Kenai on Tuesday. “We have a draft application that we are going to submit in the next six weeks to the Regulatory Commission (of Alaska) looking at the transmission (line) right of ways.”

Thayer said Enstar holds a certificate of need to serve Homer, and is assessing the pros and cons of two potential routes for delivering gas to the region — one, a 23-mile line directly south from a Chevron exploration area called Red Well, which would also connect to the Kenai-Kachemak Pipe Line (KKPL) at Ninilchik, the other, a longer route of about 38 miles that would follow the Sterling Highway from Ninilchik into Homer.

A possible contributor to a decision about which route to pursue will be how Pioneer Natural Resources’ Cosmopolitan development offshore of Anchor Point pans out. Thayer said PNR’s exploration for oil had found quantities of gas, leading PNR officials to approach Enstar saying they had gas — exactly how much is still to be determined — and inquiring whether Enstar was interested.

“We are obviously interested,” Thayer said, adding that the result could be a gas line north from Anchor Point, and a branch south to Homer if the economics pencil out. Cost is the crux of the issue, Thayer said.

Homer is “a mature system,” meaning it has a long-established infrastructure of roads, buildings, utilities and such, all of which present greater difficulties for constructing a distribution system than would exist if pipes were being laid in virgin territory. Indeed, building the system would require planning for road bores, pavement and concrete cuts, and landscape repairs, and engineers would face challenging rights of ways and have to deal with surface and ground water in generally poor soil conditions, Thayer said.

Current estimates put the cost of transmission lines at $16 million, with another $14 million going into distribution main lines. Fully developing the distribution system could take five years.

“Really, for Homer alone, that’s a tough egg to crack — $30 million to bring natural gas to Homer. But if we are able to connect this system into the Southcentral (gas) grid and to the lower Cook Inlet, there is a good possibility that we can do what we call postage-stamp rate-making, where all of our customers ... would help share those costs for bringing it from Anchor Point or Red Well north so we can cut the transmission costs to Homer by half, if half that gas is going to benefit our consumers on the other end.”

Enstar, however, is expert at delivery and distribution of gas, Thayer said, and a company analysis shows gas in Homer would likely generate some 3,000 residential and commercial customers within five to 10 years of its availability, Thayer said.

Homer consumers would likely find gas attractive, Thayer said, suggesting it could lower energy costs enough to amount to an economic shot in the arm.

In 2006, the Homer area’s total heating bill (produced from fuel oil, propane and electricity) was $15.8 million. If gas had been available, that cost would have amounted to less than a third, around $4.3 million, Thayer said.

Putting that kind of money back into consumers’ hands would “be a local boom in the economy,” he said.

Each of the possible pipeline routes to Homer has pros and cons, Thayer said.

The highway route would follow an existing and proven right of way, would make access and maintenance easier and less costly, could immediately reach more customers, face reduced permitting needs and a faster permitting schedule. It is, however, the longer route, would require a feeder line to the Red Well Pad, would have to overcome encroachment problems, be open to public view and impact wetlands.

The direct route would be far shorter, need no feeder line, and face no encroachment problems. It would initially reach fewer customers, build on an unproven and remoter route, involve state refuge land, and require a more detailed permitting review and longer schedule.

The success of either will depend completely on the available gas supply. That, of course, is completely out of Enstar’s hands. It will be up to the producers.

Several companies — Chevron (Unocal), Marathon Oil Company, Pioneer Natural Resources, and Aurora Gas — are actively exploring for gas in the Cook Inlet region, while three others — Escopeta Oil Company, Northstar Energy, and Storm Cat Energy — are developing plans to explore for gas.

“There are a lot of players out there,” Thayer said. “It’s a matter of who can come up with the biggest discovery.”

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