Warm spell gives some relief to Southcentral gas supply

The December cold snap in Southcentral Alaska caused Enstar Natural Gas Co. to put near-record amounts of natural gas through its distribution system and strained the regional supply, but recent warm weather has eased the situation.

Enstar had to draw heavily on gas reserves in storage, more than it had planned to do, Enstar spokesman John Sims said.

“It’s a huge stress reliever,” Sims said of the warm spell.

However, there’s no doubt there will be more cold weather at some point this winter.

On several of December’s cold days, the gas utility was using about 220 million cubic feet of gas, which is near the 235 million cubic feet-per-day record set during a 2008 cold snap.

One difference was that in 2008 the ConocoPhillips liquefied natural gas plant near Kenai was able to divert gas supplies from the plant to the regional utilities, including Enstar.

The LNG plant is not operating now and is no longer able to provide that backup. However, in its place there is a new gas storage facility near Kenai that was completed last year.

It was finished just in time, too. In December, the Southcentral utilities’ gas demand was beyond the ability of gas-producing wells in the region to supply.

Sims said Enstar had to draw down about 60 million cubic feet per day from gas it had placed in the storage facility in late summer and fall. Enstar’s parent company is a part-owner of the facility, which is used by the gas utility and three regional electric utilities to store gas for winter peak need.

Warm weather in recent days has eased up Enstar’s needs to about 120 million cubic feet a day, though.

“What a difference a 40-degree temperature difference makes,” Sims said.

Natural gas producers supply Enstar more than 120 million cubic feet per day and the utility is able to put the surplus back into storage, building up its reserves for cold weather yet to come.

Having the new gas storage available has eased the peak-demand supply worries of the region’s utilities, but the producers themselves have been able to put new supply into the system.

“There’s some good news out there,” Sims said.

Armstrong Oil and Gas, which supplies Enstar from gas wells east of Homer, has increased its gas supply to Enstar by about 6 million cubic feet per day, twice the minimum the company had contracted to supply, he said.

Hilcorp Energy, which purchased Chevron Corp.’s Cook Inlet assets, was also able to put its new “Red Pad” gas well east of Anchor Point on line in December, adding about 5 million cubic feet per day to the regional gas supply.

Despite the production, however, Enstar is still short overall for its annual 2013 requirements of about 33 billion cubic feet, Sims said. The supply deficit is 4.3 billion cubic feet, about 15 percent of Enstar’s need for the year, and that amount hasn’t changed in recent weeks.

It is the second year in a row that Enstar has started the year without all of its needs under contract. The deficit is also four times larger than that at the beginning of 2012.

The region’s two largest regional electric utilities, Chugach Electric Association and Anchorage city-owned Municipal Light and Power, are more secure in their gas supplies but that’s not the case yet for Matanuska Electric Association. 

MEA has a new gas-fired power plant now under construction at Eklutna, north of Anchorage, but has yet to firm up a natural gas supply contract, the utility’s general manager, Joe Griffith, has said in briefings.

Chugach Electric has its needs met by contracts through 2016. ML&P owns one-third of the Beluga River gas field and meets its needs, for now, from its own gas. However, Beluga is declining at about 17 percent per year, so ML&P will be on the market for gas in the future, its General Manager Jim Posey, has said.

Short-term supply shortage

The overall supply situation is not good for the short term. Enstar’s 2013 deficit indicates that Cook Inlet producers do not have a lot of gas available, according to Pete Stokes, a consultant with Petrotechnical Resources Alaska, a firm advising the utilities on regional has supplies.

“If there was gas out there it would be contracted,” Stokes told Anchorage Mayor Dan Sullivan and members of a municipal energy task force in a briefing Jan. 9.

“By and large no one is sitting on gas. If the producers have it they will be working to get it under contract,” he said.

The responses from producers to Enstar’s short-term requests for gas during December seem to bear this out, because Enstar hasn’t been able to purchase the gas it needs and relied more on stored gas.

Enstar has a program in place, for the second winter, where producers can bid to supply small volumes of gas to meet Enstar’s short-term peak demand supply needs, and at prices higher than those under long-term contracts.

During December, Enstar was requesting an average of 20 million cubic feet per day in extra supply from producers, about 10 percent of its total need on some cold days, but got only half of that, Sims said.

That was in spite of the ability to command higher prices for the incremental gas. Some of the gas that Enstar did buy under the bidding system was priced as high as $13 per thousand cubic feet, or mcf, some being purchased for as high as $25 per mcf.

In filings with the Regulatory Commission of Alaska, Enstar has estimated its first quarter 2013 price for incremental gas acquired under the bid system at $13 per mcf but that estimate will almost certainly be revised upward, Sims said.

Gas sold under long-term contracts to Enstar and the electric utilities is typically priced at about $8 per mcf.

Marathon sale delayed

A fly in the ointment for gas supplies in the region has been the delay in implementing Hillcorp Energy’s acquisition of Marathon Oil’s Cook Inlet assets due to Federal Trade Commission investigations of antitrust issues.

There were antitrust-type concerns over the acquisition because it would put one producer, Hilcorp, in control of 70 percent of the gas supplied to utilities in the region.

FTC ultimately dropped its investigation and deferred to the state of Alaska to implement a Consent Decree it negotiated with Hilcorp on gas pricing, but that will not go in effect until it is approved by a state superior court. Superior Court Judge Erin Marston has scheduled a Jan. 17 hearing on the decree.

What the delay has meant, however, is that Hilcorp has been unable to plan for any new investment or production from Marathon’s properties until the assets are legally transferred.

“We can’t sell gas we don’t own,” Hilcorp spokeswoman Lori Nelson said in a recent interview.

Department of Natural Resources Commissioner Dan Sullivan said the FTC investigation, which ultimately came to very little, effectively lost a year for Cook Inlet producers in doing work to add new gas supplies.

The Cook Inlet gas market is very different than the Lower 48 because it is isolated, and while federal and state attorneys are justified in taking a look at a situation where one producer has such control, the matter should be resolved as quickly as possible.

Sullivan is also convinced, however, that the FTC staff clearly did not understand the uniqueness of the regional market and the gas supply vulnerabilities of the utilities.

The state Department of Law’s intervention in the issue with its own investigation gave the state leverage to convince the FTC that the state can negotiate an agreement with Hilcorp to solve any anti-competitive issues, Sullivan said.

“I believe that if the state had not intervened the FTC would have turned down the acquisition,” Sullivan said in a December interview.

Tim Bradner can be reached at [email protected].

01/16/2013 - 11:00am