Natural gas utility seeks new supplies

Posted: Thursday, August 31, 2000

Enstar Natural Gas Co. is negotiating contracts for new natural gas to encourage Cook Inlet exploration and development.

Speaking Tuesday at the Soldotna Chamber of Commerce, Enstar President Barrett Hatches said Enstar recently signed a contract with Anadarko Petroleum Corp. for gas from the Moquawkie Prospect in western Cook Inlet. Later, Anadarko spokesman Mark Hanley said his company struck gas at Moquawkie with its Lone Creek 1 well in 1998 and plans to drill the Lone Creek 2 and 3 wells this fall.

"We're hoping those wells confirm what we think from some of the seismic stuff," he said.

Hatches said Enstar has contracts to fill parts of its natural gas needs through 2020.

"We don't have our entire capacity to 2020," he said. "... So what we're doing now is filling in the voids. Right now, we have contracts that take us out to 2005. The contract we just did, even with that contract, there is the possibility to go out to 2012."

Anadarko will know whether that is possible after more wells are drilled, he said. Meanwhile, Enstar is negotiating with another producer to fill other gaps in its supplies. Hatches said that company also is committing to drill for natural gas.

Enstar actually could use the commitments it has through 2020 to meet demand until 2008, he said.

"But we're not doing that," he said. "We want those commitments to stay where they are, and we'll just fill in the layers on top."

A questioner asked what role Enstar is taking in the effort to bring natural gas from the North Slope. Hatches said Enstar is not lobbying. When a pipeline comes from the slope, though, he said, he would like it to come close enough to the present Cook Inlet distribution system that Enstar can build a spur to reach it. He said local supplies are limited.

"At some point, what we have is going to run out unless we do something different," he said.

Enstar wants to bring natural gas to communities such as Homer and Seward, he said, but before it expands into a new community, there must be at least one large customer to support the project. Hatches said he truly believes that once a pipeline comes, the customers will follow.

"But we need to have someone on the end of that pipeline that can support it until they get there," he said.

Enstar will encourage economic development to bring the large commercial and industrial customers that make residential service possible, he said.

In response to another question, Curtis Thayer, director of public and governmental affairs, said Enstar will not bring service to the Tote Road and Echo Lake areas south of Soldotna without support of residential customers. He said Enstar has tried to facilitate formation of a borough special assessment district that would assess property owners for the cost of extending gas lines.

"If someone is interested in taking the lead on that, we can work on that," he said.

Hatches said SEMCO Energy, based in Port Huron, Mich., bought Enstar last year for $290 million because it needed a natural gas utility where winters will be cold.

"I can tell you, over the last three years, we have had unseasonably warm winters in the Lower 48," he said. "As the result of that, at SEMCO gas utilities, we have lost money. We lost $6 million one year, $7 million the next year, and you don't get that back. ... I can tell you, it was absolutely because we needed to be someplace where it was going to be cold."

SEMCO spent a year and a half writing its strategic plan, he said. In the last three years, it has grown from its former incarnation as Southeast Michigan Gas Co., with 230,000 customers, to the present company with close to 360,000 customers in Michigan and Alaska.

It has bought a propane company in upper Michigan, firms that can engineer and survey new pipelines and also several pipeline construction companies. It has consolidated those in Houston, Texas.

"What they do primarily is lay pipe in the ground for other utility companies," he said. "We do gas, we do some water, we do some fiber optics ... We can do pretty much a turn-key operation. We can also manage the pipeline for you. So what we built is an organization that can put the pipe in the ground, get the gas to you and then manage the process."

Now, he said, SEMCO is seeking a merger partner.

"What we're finding out is, we're not big enough to continue to do the things we'd like to get done," Hatches said. "The first year, we were supposed to purchase an additional gas company. We did that. We are to purchase an additional five to six nonregulated businesses a year. We've done that."

To continue with its plan, he said, SEMCO will have to be larger, because investors prefer larger companies that provide quicker returns. SEMCO can become larger by merging or by finding an investor to back acquisitions. Either way, the effects on Enstar will be positive, he said. Eventually, SEMCO will branch into other Alaska energy-related businesses.

"It's going to take us some time, you know. We've got to get our business in order, first," he said.

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