Natural gas study released: Demand expected to outpace supply

Posted: Thursday, April 25, 2002

Alaska's use of natural gas is expected to grow slowly but steadily over the next two decades, but even a modest rise in demand may create a shortfall in supply by as early as 2009, according to a study conducted for the Alaska Department of Natural Resources.

The vast majority of Alaska's reserves of natural gas come from the Cook Inlet basin, an aging field where major petroleum players have begun aggressively searching for new supplies. However, according to the study, the rate of decline of Cook Inlet gas fields, together with a steady growth of demand in the Southcentral and Interior regions of the state, suggests that even the discovery of a trillion cubic feet of additional Cook Inlet reserves might not forestall a lack of supply of as much as 30 to 40 billion cubic feet per year sometime between 2009 and 2015.

"What we find is that as we look ahead and think about the rate of decline of existing Cook Inlet fields, and making assumptions about new discoveries to supplement existing reserves, by 2010, there will be a shortfall in terms of what Cook Inlet reserves can supply and what consumers are asking for," said William Nebesky, a commercial analyst with the department's Division of Oil and Gas.

All of that is contingent on price, however. If prices rise significantly, demand could fall, and vice versa, he said.

"What's important, when we talk about demand, is that implicit in that is the relative price of gas staying consistent with what we see today," he said.

The DNR study was a collaborative effort of Econ One Research Inc. of Los Angeles, Calif., and Acadian Consulting Group of Baton Rouge, La. It analyzed recent trends in Alaska's retail natural gas markets, created baseline gas demand forecasts and determined how demand could be influenced by price, and looked at the effects of various expansions in the gas demand, such as might be created by a new industry or pipelines to areas previously not supplied with gas.

According to the study's conservative predictions, statewide annual demand -- the combined use by residential, commercial, industrial and power utility consumers -- could jump by 27 billion cubic feet, reaching at least 182.2 billion cubic feet annually by 2020, an increase of 25 percent over gas use in the baseline year 2000. That's assuming prices stay steady and no new major demand, such as a large petrochemical plant, is built.

The preceding figures do not count the gas removed from in-state supply by the Phillips-Marathon Liquefied Natural Gas plant in Nikiski, which used 78.5 billion cubic feet in 2000. That gas is exported and not considered part of the in-state demand. The study indicated, however, that LNG in Southcentral Alaska "is important since it accounts for close to 36 percent of total gas dispositions in the Cook Inlet area."

However, the study also showed a potential for demand to increase to as much as 299 billion cubic feet annually, an amount current Cook Inlet reserves cannot supply. New demand could come from development of more residential use in Southcentral, upping retail demand in Interior Alaska, an internet

facility, a petrochemical facility, existing industry switching to gas from other energy sources, high demand at LNG and urea plants, urea plant expansion and burning gas at a new electricity production facility.

An examination of the opportunities to expand gas service in Alaska showed, "The largest concentrations of new service opportunities appear to be in the Southcentral and Interior regions."

Two ways natural gas use might expand were specifically highlighted in the document -- Internet server farms and a petrochemical plant, both energy-intensive industries. While an Internet facility might be expected to have a relatively small impact on total in-state usage, the impact of a major petrochemical facility could be "more meaningful," the study said.

Gas and oil activity in Cook Inlet began with discovery at Swanson River in 1957. In roughly 10 years, nine major oil or gas fields containing 9 trillion cubic feet of gas had been discovered. Over the next quarter century, low-cost and plentiful supplies fed residential and commercial users as well as the industrial giants, Unocal (now Agrium) Ammonia-Urea plant and the Phillips-Marathon LNG plant.

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