Enstar says gas supply up so is price

Posted: Thursday, October 23, 2003

Abundant supplies of natural gas will be available in Southcentral Alaska well into the next decade, but the cost of heating homes with gas will likely be going up more than 10 percent this winter.

Representatives from Enstar Natural Gas Company gave members of the Regulatory Commission of Alaska an update Oct. 8 in Anchorage, outlining the company's current gas supply situation and pipeline infrastructure usage.

The presentation was made at the request of several newly appointed RCA commissioners, said Dan Dieckgraeff, vice president of finance and rates and treasurer for Enstar.

He and other company executives explained that Enstar is working under two contracts signed in January 2000 with Cook Inlet region gas producers Marathon Oil Co. and ConocoPhillips Alaska Inc.

"Right now we've got a commitment through 2005 for all the gas we will need," he said. "We expect, within the next couple of days, to get a commitment from Unocal. They have an annual commitment process, and if they take the full commitment, it will go through 2007."

Dieckgraeff said Enstar will start taking gas under that contract next year and it will represent 26 percent of the utility's supply, and by 2007 Unocal is expected to be providing about half of the company's supply requirements.

Enstar's major supplier currently is Marathon, he said. "At one point they were 90 percent of our gas supply, but their contract is starting to step down," by a reduction of 2 billion cubic feet (BCF) of gas a year into the Enstar system. Enstar will distribute approximately 27 BCF of gas to its consumers next year, he said.

Most of the new supply from Unocal will flow from offshore fields developed near Ninilchik by Unocal and Marathon, Dieckgraeff said. He said results from those drilling efforts have raised the level of optimism at Enstar for long-term supply projections, compared to two or three years ago.

"That's what the Kenai-Kache-mak pipeline was built for. And there is other exploration going on in that corridor," he said.

Gas fields in the Beluga River area north of Anchorage operated by Conoco and Chevron Oil Co. will continue to supply about 7 percent of the utility's needs through 2009, Enstar officials told RCA members. Another 7 percent of overall supply is being produced at on-shore fields on the Kenai Peninsula by a contractor of Aurora Gas LLC, formerly owned by the Phillips and Anadarko oil companies, Dieckgraeff said.

While gas supplies are plentiful, consumers can expect to see higher bills after the holidays, Dieckgraeff told the Journal after the RCA presentation.

He said it is because some of Enstar's contracts with suppliers are based on price indexes which are tied to market conditions in the Lower 48 states, and those numbers will be evident Jan. 1.

"We're looking at an increase that will probably translate to about 11 to 12 percent for our residential customers, based on a change in the cost of gas," he said.

It could be a lot worse, he said.

"People in the Lower 48 are looking at 50 percent increases," Dieckgraeff said. "With us, we've got two good things going on. We have a new contract coming on, and its price is different. Also, our old contracts use oil as an index, and oil prices have been high this year."

Enstar's new contracts are indexed to natural gas prices in the Lower 48 over a 36-month average price, he said.

Robert Howk is a reporter for the Alaska Journal of Commerce.

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