RCA OKs Enstar contract

Posted: Sunday, November 15, 2009

The Regulatory Commission of Alaska has approved a contract for Enstar Natural Gas Co. to purchase new natural gas from the small North Fork field east of Anchor Point on the Kenai Peninsula.

It is the second decision recently by the commission in approving new gas contracts, a move many hope will spur exploration for gas in Southcentral Alaska.

Armstrong Oil and Gas Inc. would develop the field through its subsidiary, Anchor Point Energy.

The company plans to produce gas from one well now at North Fork.

While the amount of gas to be delivered is a small part of Enstar's needs 1.2 billion cubic feet of gas per year up to a maximum of 10 billion cubic feet Armstrong has agreed to drill two new wells in a search for new gas reserves.

Under its contract, Enstar will have first rights to any new gas Armstrong may develop.

The regulatory commission was split on the decision, with commissioners Robert Pickett, Paul Lisankie and Anthony Price concurring, and commissioners Kate Giard and Janis Wilson dissenting.

Enstar President Colleen Starring said her company welcomed a new producer among the handful of companies producing gas in Southcentral Alaska,

"Enstar is pleased to add a new, independent producer to its gas supply portfolio," Starring said in a statement. "The agreement represents an important step forward in meeting our customer's needs."

Enstar has sufficient gas supply through 2011, but faces a gap of as much as one-third of its needs in 2011 and beyond.

John Sims, Enstar's customer service manager, said the contract will lead to construction of new pipelines that will open new parts of the Kenai Peninsula to exploration.

Enstar will build an 8-inch pipeline from the existing Kenai Kachemak Pipe Line terminus in Ninilchik to Anchor Point, about 21 miles, Sims said.

Armstrong will build a 6-inch plastic and steel-reinforced pipeline from the North Fork field to Anchor Point, where it will connect with Enstar's 9-inch pipe.

Sims said Enstar will pay Armstrong for the gas at a price based on gas futures contracts at the Henry Hub trading center in Louisiana, with an agreed-on floor price of $6.85 per thousand cubic feet and a ceiling price of $9.90 per thousand cubic feet.

The company will pay that price when the gas is delivered from Armstrong to Enstar in Anchor Point. Enstar's 21-mile pipeline is expected to cost about $23 million, Sims said. That investment will be spread through Enstar's tariff along with other capital costs the company is bearing, he said.

In his concurring opinion Lisankie noted the absence of any objection to the contract by the public advocate section of the state attorney general's office, which is charged with representing consumer interests.

Giard based her dissent on the lack of a public record, meaning the results of public hearings, to justify whether the contract is really in the public interest.

"Pricing terms which allow the price to reach from floor to ceiling in one year should have generated the interest of the public advocate who well knows that these terms are likely to be repeated in future contracts with far greater ratepayer impacts," Giard wrote in her opinion.

Giard said the attorney general in past filings had found that in the small Cook Inlet gas market producers exercise "market power," or commercial leverage, over the utilities.

Previously the attorney general has argued against gas contracts based on using the Henry Hub price, particularly in a contract Enstar had proposed with Marathon Oil in 2007 that was rejected by the RCA.

The commission did recently approve one other new gas contract, for Chugach Electric Association to purchase gas from ConocoPhillips. The pricing terms for that gas were based on an average of several Lower 48 gas trading points.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

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