Price drops in Enstar, Furie gas deal
Enstar Natural Gas Co. appears to have locked up 90 percent of its supply needs into 2021 after finalizing a deal with Furie Operating Alaska.
The natural gas supply and purchase agreement filed March 14 with the Regulatory Commission of Alaska is for a firm supply of 6.2 billion cubic feet, or bcf, of gas per year from April 2018 through March 2021.
During the first year of the contract the gas price would be $6.70 per thousand cubic feet, or mcf, nearly 20 percent less than the price the utility will pay — based on Consent Decree pricing — under a contract it has with Hilcorp Energy that expires at the end of March 2018. The contract has a price escalator of 2 percent per year, which is half of the annual price increase allowed under the Consent Decree.
Base gas in the last year of the deal would be $6.97 per mcf.
Daily calls for extra gas during peak winter demand periods would be about $1 more per mcf than the base price for the life of the contract.
Enstar also has the option to extend the gas supply contract for two additional years through March 2023, but it must notify Furie of its intent to do so by April 1, 2018, according to a letter from the utility submitted to the RCA.
The 2012 Consent Decree, agreed to by the State of Alaska and Hilcorp, set price caps on Cook Inlet natural gas through 2017 to prevent a monopoly situation when Hilcorp became the dominant player in the market through its purchases of Marathon Oil and Chevron assets.
The ending Consent Decree price for base load gas in 2017 is $7.72 per mcf. Enstar estimates its average gas cost, when higher priced variable load gas is included, will be $8.33 per mcf under its Consent Decree-based contract with Hilcorp set to expire March 31, 2018.
The utility also recently reached a gas supply deal with Hilcorp for 70 percent of its firm demand from early 2018 through early 2023. The initial gas price in that contract is $7.56 per mcf, a 9.2 percent price drop from the end of Consent Decree pricing. It also has a 2 percent price escalator.
Both of the deals are pending RCA approval.
Enstar projects its latest contract with Hilcorp will save Southcentral natural gas customers $14 million in the first year as the lower gas price is passed through to consumers.
On the demand side, the utility is forecasting flat demand for gas at about 33 bcf per year through 2023 due to increased efficiency and conservation efforts by consumers offsetting small growth in its customer base, Enstar leaders have said.
Furie’s deal with Enstar is the Houston-based independent’s second contract with Southcentral utilities since entering Cook Inlet. Furie agreed last September to supply Homer Electric Association with a base load of 4 bcf per year through 2018, with options to extend through 2020. That deal kicks in April 1 at a $6.50 per mcf base price. HEA will pay $7.00 per mcf for base load gas in 2018.
Furie started exploratory drilling in the Kitchen Lights Unit offshore from Nikiski in 2011. Since, the company has spent over $700 million to bring Kitchen Lights online, according to company executives in testimony to the Legislature. Much of that money was invested in the first new production platform to be installed in the Inlet since the 1980s.
Elwood Brehmer can be reached at [email protected].