By Tim Bradner
Alaska Journal of Commerce

Enstar Natural Gas Co.'s gas supply situation is about to take on a new dimension. The utility may soon be completely responsible for ensuring that it gets enough natural gas - even on the coldest, darkest days of winter.

Currently, the producing companies that supply Enstar have this responsibility, but things are changing.

This may seem a nuance but it's an important issue to Enstar and ultimately its customers because they help pay for whatever the utility has to do to ensure an adequate gas supply.

The suppliers are responsible for meeting all of Enstar's needs under their gas supply contracts. Demand for gas during the winter can be 10 times the summer demand and the gas companies have had to invest in new wells and, more recently, storage facilities for gas to make sure they have the capability of meeting the utility's demands.

This will change in new contracts Enstar is negotiating because these will be for set volumes of gas rather than all of the utility's gas needs. What that means is if Enstar's needs, on a cold winter night for example, exceed the volumes the contracts specify, Enstar will have to hustle for more supply on its own.

The utility can't take the chances with gas supply. To deal with the loss of an assured supply, Enstar is reviewing options for its own gas storage facilities. Gas storage is something utilities in the Lower 48, including Enstar owner Semco, commonly do. Enstar hasn't had to store gas yet because gas has been in such surplus in Southcentral that the “swing” between summer and winter can be handled by the gas well.

That's no longer the case.

Enstar president Colleen Starring said the purchase of a liquid natural gas tank with a capacity of storing the equivalent of 1.5 billion cubic feet of gas is one option under study. If a tank is built new, it could cost between $175 million and $200 million.

Another option is that if the ConocoPhillips LNG plant now operating at Niksiki is closed in 2009 or 2011 (the plant's LNG export license expires in 2009 but could be extended to 2011), the tanks at the plant could be purchased and used for storage.

Alternatively the entire plant could be purchased and converted to an LNG import and regasification facility, although to do this Enstar would have to take on partners . The LNG plant now has the capacity for storing the equivalent of 2.2 billion cubic feet of gas.

Enstar is investigating other storage options too, such as use of a depleted underground oil or gas reservoir. There are challenges and risks with this option. Not all depleted reservoirs are suited for gas storage and care must be taken that gas injected into the reservoir is able to be fully recovered when it is needed.

There would also have to be an investment in gas injected and left in the reservoir - what is called “pad gas” in the industry - so there is enough pressure that gas injected for storage can be produced back up the wells.

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