Southcentral gas and electric utilities are exploring the feasibility of importing liquefied natural gas as a backstop for dwindling gas supplies and the possible closure of the Kenai LNG facility after their federal license expires in 2013.
Jim Posey, general manager of Anchorage's city-owned Municipal Light and Power, one of the utilities engaged in the import study, said Shell has expressed interest in the endeavor.
Shell currently ships LNG to Asia and North American markets from Sakhalin, and Posey said he hopes to meet with Shell in the next few weeks.
Importing LNG and a proposed natural gas storage project could be important reinforcements to natural gas supply and security for Southcentral and the Interior. Southcentral has enjoyed ample and low-cost local gas supplies since large gas discoveries were made in the region in the late 1960s and early 1970s. Gas reserves are now being depleted, however, and production is declining.
"Unless someone makes a big gas discovery very quickly, we're going to need gas from somewhere else," Posey said.
A state of Alaska team is doing engineering and cost estimates for a small 24-inch pipeline to bring North Slope gas to southern Alaska, but it would be 2018 or 2020 before the system could be built and operating, they concede.
Posey said his utility and Chugach Electric, the region's two largest electric utilities, as well as Enstar Natural Gas Co., the regional gas utility, are studying feasibility of LNG imports after 2013, when total gas production is forecast to fall short of meeting annual demand.
ConocoPhillips and Marathon Oil Co., which own the LNG plant, were recently given a two-year extension of an LNG export license by the U.S. Department of Energy. The new expiration date is March 2013.
The plant is supplied with gas from ConocoPhillips' North Cook Inlet field and by Marathon from several of its Kenai Peninsula producing properties, and serves as a winter gas supply backstop for local utilities.
Studies done by the utilities indicate that after 2013 or 2014 there may be insufficient gas production to supply both utility needs and the export plant.
ConocoPhillips has said that it is interested in having the LNG plant facilities used in some manner to meet regional energy needs, but John Sims, a spokesman for Enstar, said the utilities so far are not talking formally with ConocoPhillips about using the plant for imports.
Posey said the utilities also have talked with an unidentified company that could bring an LNG carrier with on-board regasification capabilities to Cook Inlet.
An idea being considered is approaching ConocoPhillips and Marathon about using one of two large LNG storage tanks at the Kenai plant if the LNG were brought in.
One concern about using facilities at the LNG plant is that any new use or reconfiguration of the plant would bring the facility under stricter federal environmental and safety regulations than existed when the plant was originally built in 1969. This could trigger costly modifications.
Another concern is that a dock built at the plant was designed for the two smaller LNG carriers built in 1969 to transport LNG from Kenai to Tokyo, one of which is still operating on the route. Most LNG carriers today are larger, so the dock would have to be modified.
The cost of building new or reconfigured LNG facilities to handle imports could range from $150 million to $300 million, Posey and other utility managers have estimated. Regional consumers will have to pay these costs on top of new costs for natural gas storage that is now planned to be built about the same time.
Enstar and MidAmerican Energy Holdings are awaiting regulatory approval for a new $180 million gas storage facility on the Kenai Peninsula that would help utilities meet winter gas deliverability needs.
Gas storage would meet the seasonal winter upswing in gas demand, but the LNG imports would fill shortfalls in total supply.
In addition to utility needs, there are potential new industrial customers, including large mines. One is the Donlin Creek Project, a gold mine planned by Barrick Gold and NovaGold Resources on the Kuskokwim River west of Anchorage.
The mining companies would like to buy 25 million cubic feet of gas from Cook Inlet and are studying feasibility of a 325-mile, 12-inch pipeline from the mine to the Inlet.
A decision on whether the pipeline is feasible will be made in mid-2011, James Fueg, permitting manager for the Donlin development team, told a state legislative committee in a briefing on Oct. 27. A source of the gas is yet to be determined, but it could be imported LNG, he said.
Another potential LNG customer is Pebble, a large copper/gold deposit being explored by a joint venture of Anglo American Mines and Northern Dynasty Minerals.
John Shivley, president of the Pebble Partnership, said natural gas is a preferred fuel for the mine and the company could import gas by pipeline from an LNG regasification facility on Cook Inlet.
Tim Bradner can be reached at email@example.com.
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