State asks ConocoPhillips to reopen idle Kenai LNG plant

Photo/File/Peninsula Clarion

State officials have asked ConocoPhillips to reopen its mothballed liquefied natural gas plant in south Alaska and resume exports of Cook Inlet LNG to Asia, and company spokeswoman Amy Burnett said the company is considering the request.

Operations were suspended in 2012 due to shortages of gas for local markets.

In a Sept. 5 letter, acting state Natural Resources Commissioner Joe Balash, (DNR Commissioner Dan Sullivan was on a six-month deployment to Afghanistan at the time) requested ConocoPhillips seek a new U.S. Department of Energy LNG export license for three years.

The previous export license expired in 2012. New gas is now being developed in existing Cook Inlet fields and explorers are making new discoveries, Balash said.

In the letter to ConocoPhillips Alaska President Trond-Erik Johansen, Balash said local utility needs for gas — a prime concern for the state — are now met into 2018 through new contracts with Hilcorp Energy, which operates fields purchased in the last couple years from Chevron and Marathon Oil.

The state’s concern now is that there is little market left for other companies exploring and making new gas discoveries in Southcentral Alaska.

“To provide an additional market opportunity for gas from the Inlet, I request that ConocoPhillips file an application with the Department of Energy’s Office of Fossil Energy for a three-year authorization to export LNG from your facility in Kenai,” Balash said in the letter.

ConocoPhillips spokeswoman Burnett said, “ConocoPhillips has said previously that we would consider pursuing a new export authorization if local gas needs are met and there is sufficient gas available for exports.

“We take the state’s request that we apply for a new export license seriously, and we will be working with stakeholders to further evaluate the feasibility of resuming exports from the Kenai facility.”

Buccaneer Energy and Furie Operating Alaska, two Houston-based independents, have recently made offshore discoveries of gas in the Inlet, and NordAq Energy, an Alaska-based independent, has an onshore gas discovery on the Kenai Peninsula. It is not yet known if the discoveries can be commercially produced, however.

Balash said in the letter that without the LNG plant there may be no market for the explorers.

“Without market opportunities for gas discoveries, companies lack the incentive to invest in continued exploration. There are concerns that future exploration budgets may be cut back,” he said. “Diminished exploration budgets hurt the state’s interest in seeing its resources developed. State lands in Cook Inlet hold tremendous amounts of possibly recoverable natural gas, and the U.S. Geological Survey has estimated that the entire basin may hold trillions of cubic feet,” of undiscovered gas.”

Having the existing fields dependent on highly-seasonal utility demand could also create operational problems.

“When existing wells that are currently producing are shut in (seasonally) due to lack of demand for gas, water can migrate through the reservoir to mix with sandstone clays. This can cause serious operational problems when there are attempts to restart the wells,” to meet higher utility demand in winter, Balash said.

The independent explorers endorsed the state’s request.

In a statement, Buccaneer Energy CEO Curtis Burton said, “A robust natural gas market needs to be developed that will exceed the local (utility) demands and allow for the export of natural gas as LNG.

09/12/2013 - 11:28am