Joint project may send pipeline south

Posted: Wednesday, December 13, 2000

Efforts to bring natural gas service to southern portions of the Kenai Peninsula took a significant leap forward Tuesday.

Homer Electric Association General Manager Norm Story announced that the electric cooperative has partnered with Alaska Pipeline Co., a subsidiary of Enstar Natural Gas Co., and Unocal Alaska to commission a feasibility study for a proposed 75-mile gas pipeline connecting the Kenai gas fields to Homer.

Story said the proposed $45 million pipeline would run to Ninilchik, then farther to Anchor Point and Homer. He said not only would the pipeline bring natural gas service to southern peninsula residents, but it also would transport and deliver gas from exploration sites on the southern peninsula to existing commercial and residential customers on the Railbelt.

The study will look at the overall feasibility of the plan and consider other factors, like the scope of the project as well as different construction phases.

Story said the pipeline would probably be built in stages and follow the path of existing HEA transmission lines and highway rights of way.

Construction on portions of the project could begin by 2002, he said. The feasibility study is expected to be put out for bid.

Story said the economic climate for such a project is tied in part to natural gas prices. Those prices have been steadily on the rise, as demand has increased and an equal growth in capacity has not kept up as utilities nationwide look more to natural gas to fire generators. National prices soared to record highs Monday.

HEA buys roughly 90 percent of its wholesale power from Anchorage-based Chugach Electric Association, which generates the bulk of its power from natural gas. Rates are expected to go up in 2001.

"The price of natural gas is going up and, frankly, that's an economic issue," Story said. "When the price of gas reaches a point where developers and suppliers feel they can recover their costs for exploration, then they can go out and do that. Obviously they have a lot of investment in their holdings, but to actually be able to go in there and tap those holdings, the economic climate and the market has to be such that they can make money."

Story said under the proposed plan, Alaska Electric Generation and Transmission Inc., of which HEA is the primary owner, would own the natural gas transmission line. Enstar would own and operate retail distribution spurs, and Unocal would be a shipper of gas on the system.

"These three companies have different areas of expertise," Story said. "Unocal is skilled at finding and producing natural gas, Enstar at gas transmission and retail distribution and AEG&T at utilizing natural gas for power generation on the Kenai Peninsula."

Unocal Alaska Vice President Charles Pierce said declining reserves in Southcentral Alaska could lead to seasonal shortages.

"About 10 years ago, we had roughly a 20-year supply of natural gas in Southcentral Alaska, and today we find ourselves with about a 10-year supply," Pierce said in a statement, adding that seasonal shortages along with industrial curtailment or shutdowns could result from a diminishing supply.

"I feel that exploration in the Cook Inlet basin will be the most effective way to supply the market demand."

Story said gas exploration was beginning to pick up in areas south of Soldotna.

He did not elaborate on which companies were active.

"That's a positive sign," Story said. "We're seeing major companies spending major money to develop resources. They don't do that just to sit on them.

"We're at a point in the Cook Inlet region -- even though there is still a lot of gas there -- it is declining at a rate that good business practice dictates that you increase reserves to continue the flow of gas to cover the growth."

The proposed pipeline, coupled with the growing likelihood of a project bringing North Slope gas to markets in the Lower 48, would work in bolstering the state's gas supply network, Story said. He added, however, the proposed peninsula pipeline was a separate project.

"Our project would just connect the lower Kenai to the existing Kenai pipeline system," Story said. "That system (proposed from the North Slope) is connected to Anchorage. So if a pipeline comes from the north (through Alaska) ... ultimately there will need to be a spur built into Anchorage. Gas coming down from the pipeline could facilitate the needs of the southern Kenai as a result of that connection."

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