Alaska Gas Reserve Facing Issues with Recent Freezes

Paul Souders

Alaskan gas companies announced concern that they would run out of gas soon due to the cold temperatures that Alaska faced a few weeks ago. Enstar Natural Gas Company announced that they were facing challenges delivering gas during the cold that Alaska experienced.

Enstar President John Sims says that they are walking the line between green and yellow in the Energy Watch Consumer Action Plan. 

The green means that there is stability with the gas amount being produced and consumers are requested to use energy wisely and be conservation-minded. The yellow means to exercise caution. During this period, Enstar requests that consumers set their thermostat to 65 degrees in living spaces and 40 degrees in the garage. The water heater would be moved from warm to vacation and use a minimum usage of natural gas range. Consumers are asked to not do laundry and dishes and to turn off unnecessary lights and electronics. 

Red alert is dangerous, the most drastic one with requested actions for consumers: set the thermostat to 60 degrees in living areas, 55 degrees away from home. Turn the water heater valve to “pilot,” do not use natural gas fireplaces, decorative heaters or gas grills. Consolidate household activities into as few rooms as possible.

During the cold periods, Enstar reported to the House Energy Committee that they were using record amounts of gas. A record 250 million cubic feet of gas per day was used during the intense cold that Alaska faced a couple weeks ago. Gas was maxed out at CINGSA and Hilcorp was only able to deliver 10 million cubic feet of gas during one of the nights for the cold days. 

The Enstar company serves 150,000 customers in the cities of Anchorage, the Mat-Su, and most of the Kenai Peninsula. The storage facility is located in the Cook Inlet Natural Gas Storage Alaska, in the city ofKenai. On cold days, the Enstar company helps supply 40% of customers their requested gas. 

While the crisis was averted this time, the companies in the state congressional meetings warned that the worst is yet to come and that this will not be the last time that the gas could run out during the freezing cold temperatures. 

During this time, thermostats were turned down on Joint-Base Elmendorf Richardson as well as in city buildings where most residents were asked to conserve their gas. 

During the cold, electric utilities turned diesel generators to backup in order to prepare to run out of gas. Every 15 minutes, there was an evaluation of the state's gas wells in order to manage them better. Eventually, the gas crisis that occurred a few weeks ago passed, resulting in the gas being able to be delivered as usual. 

The gas that Alaska company currently has all the gas needed and will be able to use what they currently have for the next couple years. The Enstar company said that imported natural gas will not likely be available for Alaska until 2030. 

“But what the studies and what the contractors and the consultants told us is that, of the four projects that rose to the top and seem to be reliable, none of them can meet that timeframe,” Sims said. 

Sims also expressed concerns with importing affecting jobs, the independence of Alaska, as well that importing natural gas would have a negative impact on Alaska. The natural gas industry is a great way to provide jobs for residents in Alaska. 

Any imported supplies cost as much as twice the price of gas produced from Cook Inlet. They are about $16 per thousand cubic feet when imported versus the $8 per thousand cubic feet for the current gas in Cook Inlet. 

There could be some help if the state decides to help BlueCrest Energy, a development near the Cosmopolitan oil field offshore Anchor Point, near Homer. The current gas deposit that BlueCrest has access to has an estimated to be about 235 cubic feet. BlueCrest needs help with the gas from the state, separate from the Cosmopolitan field. 

BlueCrest Energy would need about $400 million for fixing both the production platforms and pipelines, in order to gain access to the natural gas that they own. The BlueCrest company currently is unable to finance the $400 million investment due to the nature of the Alaska regional gas market. If the state contributes funding to gas production by BlueCrest Energy, gas production from them can start within three years with 50 million cubic feet of gas. The company hopes for a state loan with the intention of paying back the money instead of just taking money from the state. 

The state has helped BlueCrest in the past, but $400 million may be asking too much. BlueCrest has a good credit rating with low levels of debt. The borrowing capacity for the company, BlueCrest, is currently $1.4 billion, the state Department of Revenue reported this year. Due to the high amount of the loan, the loan may not occur, it is all depending on the situations that the state is in financially.   

Both the State House and State Senate of Alaska hosted meetings to discuss three possible bills in order to determine how best to handle these issues that have been presented. 

The first of the possible solutions is Resolution HB 276, also known as Reduce Royalty on Cook Inlet Oil and Gas. The bill was supported by Republican Gov. Mike Dunleavy, who has been Governor since 2018 and is one of three to be proposed in order to try and alleviate the issues currently ongoing.

"An Act relating to temporarily reduced royalty on oil and gas from pools without previous commercial sales in the Cook Inlet sedimentary basin; and providing for an effective date."

The bill provides a five percent royalty rate for oil or gas pools in the Cook Inlet sedimentary basin that were not previously producing oil or gas for commercial sale. The changes would apply to all existing leases and the leases that occur in the future, so long as the oil or gas pool was not previously produced for commercial sales. The lease would be part of the unit of oil or the gas pool. 

The payment of royalty under this bill would be applied for 10 years after the commercial sale of the production. The reduced royalty rate of five percent does not apply to oil or gas pools that already have a royalty rate of five percent or less due to prior incentives. This does not apply to leases that already have net profit shares and no royalty rate. The bill has an immediate effective date so that the Department of Natural Resources can implement the incentives as soon as the bill is passed. 

This is also part of a greater plan to get more investment for Alaska.

A bill that is sponsored by Rep. George Rauscher, R-Wasilla, HB 223, also known as the Tax and Royalty for Certain Gas. 

"An Act relating to the production tax and royalty rates on certain gas; and providing for an effective date."

This was read and sent to the Resources and Finance Committees in January.

Fellow Wasilla Rep. Jesse Sumner also proposed a bill to direct the Alaska Permanent Fund Corporation to purchase 25% ownership of a North Slope natural gas line. 

HB 222 would give out up to $1000 for each eligible individual under this bill.

The corporation should calculate the appropriate amount appropriate by: (1) Calculating the average of the monthly United States Consumer 18 Price Index for every single urban consumer for each of the previous two calendar years. (2) calculate the percentage change between the first and second 20 calendar year averages. (3) apply the rate to the value of the principle of the fund on the last 22 days of the fiscal year that had just ended.

Alaska and Natural Gas

The Alaskan economy is driven by their natural gas relies strongly on Alaska's petroleum-rich North Slope, anchoring the gas production in Alaska. Alaska has access to four of the top ten oil fields in the United States. It is home to the largest oil field in North America, Prudhoe Bay. 

The North Slope has 35 trillion cubic feet of natural gas reserves and possibly a resource of 200 trillion cubic feet of natural gas. This could be part of the resolution for the possible gas shortage since additional drilling technology advancements will allow for more and more of the natural gas to be accessed.

The notion that there is an impending gas shortage has been around ever since the 1990s, there has been a threat of not having enough gas production in Cook Inlet. Before the cold this year, the main idea and theory for those studying the gas reserves in Alaska is that the gas will run out by 2027. There is no clear idea on if the cold this year has affected the gas reserve, changing the year and timeline of when the gas will have a shortage. 

The Cook Inlet Recovery Act passed in 2010 provided incentives for companies to make claims for oil and gas in the inlet and expand their tax credits. The Alaska Public Interest Research Group estimates that the state granted $1.64 billion in tax credits between 2006 and 2016 when the legislature retired the tax credits. 

Some believe that the Cook Inlet Recovery Act was not about putting money in the state's holdings but to keep the lights on for Alaskans. This did help get more oil and gas companies in Alaska and avoid having to import gas from outside the state.