Almost gone: Area in need of new gas supplies

Posted: Wednesday, February 25, 2004

For better than three decades, natural gas drawn from reservoirs beneath the surface of the Cook Inlet Basin has fed energy-hungry residential, commercial and industrial demands throughout much of Southcentral Alaska.

But the best estimates of known reserves strongly suggest that unless significant new sources are found and tapped, that gas supply will dry up in 10 years. The Cook Inlet region has proven gas reserves of about 2 trillion cubic feet, but uses roughly 200 billion cubic feet per year.

"You do the math," Sen. Tom Wagoner, R-Kenai, recently told his colleagues in Juneau as he pointed to the need for a gas spur line to bring North Slope natural gas to Southcentral Alaska consumers.

Gov. Frank Murkowski alluded to the need for gas in Southcentral Alaska in remarks he made in early February to a joint session of the Alaska Legislature. Two oil-company consortiums have so far proposed building a pipeline from the North Slope, through Alaska and Canada to the Lower 48 under terms of the Alaska Stranded Gas Act.

Murkowski mentioned a spur line off such a project to supply the most populated area of the state with a measure of that North Slope gas.

In 2002, Alaskans recognized the need to exploit North Slope reserves and make gas available to Alaska consumers, as well as to other domestic and foreign markets, when they overwhelmingly passed a ballot initiative to create the Alaska Natural Gas Development Authority. That public agency is charged with looking at the feasibility of a line from the North Slope to Valdez as a state-owned project.

Bills presently before the Legislature would expand the authority's mandate to also consider a line directly south along the Alaska Railbelt corridor to tidewater at Cook Inlet.

Bill Popp, the Kenai Peninsula Borough's liaison to the oil and gas industry, said gas is where the current push is on the peninsula.

"In general, oil is treading water at this point," Popp said, referring to last year's mothballing of two production platforms in Cook Inlet by Unocal, the recent announcement by Forest Oil downgrading expectations of recoverable oil from its Redoubt Shoals effort, and a reduction of jobs in the oil industry.

"Natural gas is where everything is at, especially on the lower peninsula between Anchor Point and Ninilchik," he said.

The interest shown by gas exploration and development companies drilling holes on the lower peninsula is due in large part to the successful completion of the Kenai-Kachemak Pipeline and "its ability to connect to the (Southcentral) delivery grid and bring a number of gas reserves on line that had been left off the shelf," Popp said.

Later this year, the federal Minerals Management Service will conduct an oil and gas lease sale on its Outer Continental Shelf holdings in the lower Cook Inlet area.

"There is a lot of resource potential based on the MMS's evaluation of the area," Popp said.

There is high demand for gas in Southcentral and particularly on the Kenai Peninsula. Gas heats thousands of homes directly and also helps generate electricity for residential use. Small and large businesses add to the gas demand. The largest users, however, are industrial plants, such as Agrium, which uses the gas to manufacture fertilizers.

Agrium officials have warned that unless an adequate gas supply can be secured to supplement what it receives under existing contracts, the Canada-based corporation may have to close the Nikiski fertilizer operation in 2005. That could mean the loss of 230 high-paying jobs.

In his address, Murkowski noted, "We must have the ability to get gas to Kenai to protect our billion-dollar petrochemical industry there. We need more gas for our consumers in Anchorage who face the loss of supply as Cook Inlet sources decline. And we need the opportunity to take gas from the line in Fairbanks and other communities for economic development opportunities there such as gas liquids and petrochemical."

He also noted that from the developer's point of view, determining the viability of a gas line project would depend on the wellhead price of gas, the state's fiscal terms and conditions under the Stranded Gas Act, federal fiscal terms and regulatory conditions, the cost of building and operating the line and the price gas brings at the market.

Murkowski pledged to work to make the pipeline a reality.

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