Popp updates chamber on gas, oil

Posted: Thursday, December 04, 2003

Telling Soldotna business people that natural gas is where the action is, the Kenai Peninsula Borough petroleum industry specialist described the outlook for oil and gas activities in the Cook Inlet Basin.

"Tremendous exploration, production and development activities have taken place in the last year, all focused on identifying and developing new reserves of natural gas," said Bill Popp, oil and gas liaison, during the regular luncheon meeting of the Soldotna Chamber of Commerce on Tuesday.

Popp described in detail the completion this summer of the 33-mile Kenai-Kachemak gas pipeline, exploration activities by Marathon Oil Company, drilling by Unocal, Aurora Gas and Pelican Hill and lease sales from the Alaska Mental Health Land Trust in September.

"Marathon Oil Co. has by far been the most active natural gas explorer in Cook Inlet in 2003," Popp said.

He told the group of about 50 people that in 2003, Marathon conducted extensive seismic activity in the Ninilchik and Sterling areas, drilled five wells, completed its environmental impact study for the East Swanson Prospect and finished reworking its Kenai Gas Field, Cannery Loop Field and Beaver Creek Field.

Popp said the company plans to bring a third drilling rig online next year, which would be in addition to its Glacier No. 1 rig and Nabors No. 273 rig currently working a directional drilling project at Cape Kasilof to a natural gas target three miles offshore in Cook Inlet.

"While Marathon corporate headquarters has not approved it yet, an $84 million budget is under consideration for fiscal year 2004 that will include new exploration projects in the Sterling and Ninilchik areas," Popp said.

He also said a recent restructuring announcement by Marathon would result in the loss of several positions in its Anchorage office, but would add two new positions to its Kenai Peninsula staff.

Unocal cut a number of employees this year with the shutting of the Baker and Dillon offshore platforms in Cook Inlet, but on a brighter note, Popp said the company has announced plans to extend the Kenai-Kachemak pipeline another 14 miles next year to bring natural gas to market from its recently announced find at the Happy Valley prospect in the Deep Creek Unit.

The find, near the end of Oilwell Road in Ninilchik, contains 75 to 100 billion cubic feet of gas, according to Popp. The pipeline extension is pending permit approval.

Describing Aurora Gas and Pelican Hill as new players in Cook Inlet, Popp said the two independents have acquired substantial lease acreage and are aggressively pursuing natural gas on the west side of the inlet.

In addition to a proposed expansion of its Nicholai Creek Unit on the west side and ongoing work in its Moquawkie Unit near Tyonek, Popp said Aurora is developing permits for several drilling projects next year on both sides of the inlet.

He said Pelican Hill has just begun drilling at the Iliamna No. 1 prospect south of Tyonek, and the company has two other exploration projects slated for next year.

Popp said the Alaska Mental Health Land Trust lease sale went largely unnoticed in September, but it resulted in significant new acreage being leased along the Kenai River corridor and on the west side of Cook Inlet.

"Marathon Oil purchased six lease tracts consisting of 20,808 acres east and northeast of Soldotna, while Aurora Gas purchased one least tract consisting of 3,100 acres on the west side of Cook Inlet northwest of Tyonek," Popp said.

"Expectations are that this lease sale will result in additional seismic work and new natural gas exploration, especially in the Sterling area."

He said the lease sale unified a number of isolated tracts, primarily benefiting Marathon.

Looking to next year and beyond, Popp listed five topics of more immediate importance to communities and industries of the Cook Inlet Basin: natural gas reserves and deliverability, the Outer Continental Shelf lease sale, lower Kenai Peninsula exploration, shallow gas leases on the lower peninsula and the Alaska Natural Gas Development Authority.

Popp said natural gas proven reserves in the inlet are approximately 2 trillion cubic feet and with current consumption pacing at 200 billion cubic feet a year, the inlet basin has about a 10-year supply remaining.

"This makes new exploration vital to the future health of our industries and communities if we are to continue to enjoy the large number of high-paying industry jobs as well as the low cost supplies of electricity and home heating natural gas," Popp said.

He did say the inlet basin faces a problem of deliverability of natural gas on peak demand days days, weeks or even months in the middle of winter when natural gas demand is at its highest.

Pointing to a chart illustrating supply versus demand, Popp said the gap between the two is worsening.

"In 1997, production capacity exceeded demand on these peak days and weeks. But in the last three years, production has started to fall short.

"How do we solve this problem? Drill and find new deliverable gas supplies to fill the gap," he said.

Popp said the recent Unocal natural gas discovery at the Happy Valley prospect is one example of successful attempts to meet projected shortfalls of natural gas.

If new reserve estimates from that find are correct, shortfalls for 2008 through 2012 will be filled, Popp said.

As another potential source for meeting shortfalls, Popp told the group about federal Outer Continental Shelf lease sales slated for next year.

He said two years of public hearings have been conducted and an environmental impact statement was submitted to the governor's office two weeks ago. The state will have a 60-day final comment period and the proposed sale will go to the Secretary of the Interior for final review.

"The secretary is expected to announce in April a proposed sale in May 2004," Popp said.

The sale would include 2.2 million acres in the lower inlet, excluding sections near the lower Kenai Peninsula and the Barren Islands that were removed from the proposed sale.

Recoverable oil could be as high as 500 million barrels, Popp said, and nearly 1 trillion cubic feet of natural gas could be produced there.

"Onshore, there is also a tremendous amount of activity ongoing in search of new natural gas resources," Popp said.

He described the Northstar-Enstar project near Nikolaevsk that is expected to bring gas to market in Anchor Point and Homer, as well as the new 27,000-acre Nikolaevsk Unit, which contains a potential for oil and natural gas.

Popp touched briefly on shallow gas leases on the lower peninsula, but said "this type of natural gas has still not been proven economic in Alaska."

"Add into the mix the Northstar Enstar Project, and shallow coalbed methane development becomes highly unlikely in the Homer area," he said.

Popp told the business people about the Alaska Natural Gas Development Authority, which was established by a ballot initiative a year ago to build a pipeline to bring North Slope natural gas to a liquid natural gas export facility in Valdez.

"The Kenai Peninsula Borough has long advocated that if such a project is economic, it is most likely economic if it is built to Cook Inlet along the rail belt," he said.

Because of the ballot initiative, however, the development authority is limited to looking only at the pipeline route to Valdez.

He said legislation is in the works that would expand the scope of the gas development authority.

"This legislation would allow the authority to explore route options like the rail belt route," he said.

It also would allow for developing a plan for a North Slope gas pipeline project that would provide the most economic benefit to the greatest number of Alaskans.

"The Kenai Peninsula Borough will be advocating in the coming year for a complete examination of the rail belt route before any route is ultimately chosen and an LNG pipeline project goes forward," Popp said.

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