Alaska utilities say imported LNG appears best option to meet looming gas supply shortfall

Imported liquefied natural gas, or LNG, appears to be the best near-term option for averting a pending natural gas shortage in Southcentral Alaska, where most Alaskans live, according to a group of electric utilities including Matanuska Electric Association and Enstar Natural Gas, the state’s major gas utility.

The utilities briefed the Regulatory Commission of Alaska Wednesday, June 28, on preliminary results of a study on averting the gas shortfall.

In a report issued earlier this year the state Division of Oil and Gas said that gas produced in the Cook Inlet Basin of southern Alaska will begin falling short of annual demand by 2027. In 2022 Hilcorp Energy, the major Cook Inlet gas producer, told utilities it will not be able to renew current gas supply contracts as they expire because of declines in reserves.

Concern for the shortfall is acute because natural gas produced from Cook Inlet fields is almost sole source of fuel for space heating in the region as well as for most power generation.

“Importing liquefied natural gas is likely the least cost, easiest option for the near term,” said Arthur Miller, CEO of Chugach Electric Association, the state’s largest electric utility. Although results of the joint utility study were presented to the state regulators Chugach had conducted its own assessment with Black & Veatch, a consulting group, and found its findings “in alignment” with the group study, which was facilitated by Berkeley Research Group.

Chugach is also doing a detailed assessment of bringing on more power from renewable energy like wind, solar and hydro.

Tony Izzo, CEO of Matanuska Electric Association, said: “We expect natural gas to be a component of MEA's energy mix as we transition towards our diversification goals and the results of this study will be helpful in assessing options with our fellow utilities and other stakeholders.”

Other utilities participating include Golden Valley Electric Association in Interior Alaska; and Homer Electric Association on the Kenai Peninsula south of Anchorage.

“Cook Inlet supplies begin to taper off as early as 2027, meaning ‘railbelt’ (Southcentral and Interior Alaska) gas users face little time to assess potential solutions and make decisions to meet the eventual gap,” the utilities said in a joint statement.

“Timing in a critical component of any selected project to avoid a shortfall. The (utilities’ working group additionally focused on reliability as a key factor to ensure the project predictably meets area needs for several years,” the statement said.

Several options are considered in the utilities’ study, which is ongoing. One is an 800-mile natural gas pipeline built from the North Slope, where there are an estimated 35 tcf of gas discovered by oil producers but stranded for lack of a pipeline.

That option is clouded by the huge expense of the pipeline and the several years it will take for construction.

A second is increased exploration for gas in Cook Inlet, but although the U.S. Geological Survey has said the region has ample potential for new discoveries there seems little interest by companies in new drilling, most likely because of high costs.

That leaves the third option of imports, the regulatory commission was told. But importing LNG, most likely from British Columbia, entails costs as well. Marathon Petroleum, which operates a crude oil refinery on the Kenai Peninsula, now owns the mothballed ConocoPhillips LNG export plant that served Japanese utilities for years until it was closed.

LNGs storage tanks and docks at the plant could be converted to an import facility with costs estimated at $768 million, according to the utilities’ study. A variation of this is to build a new import terminal, which could be done for $877 million, according to the study. Yet another import option is an import facility using barge-mounted LNG regasification facilities served by smaller LNG carriers. This cost is estimated at $563 million.

There is potential for expansion of hydro power from Bradley Lake, a state-owned hydro plant in southcentral Alaska. Existing wind projects can be expanded, too, such as one now operating on Fire Island near Anchorage. These won’t dent the estimated shortfall in gas for power generation and, in any event, these don’t help Enstar, the gas utility, for space heating fuel.

Importing LNG will not go over well politically in Alaska, however. When the idea first surfaced last spring Alaska U.S. Sen. Lisa Murkowski was uncharacteristically blunt in criticism during an address to the Alaska Legislature.

Once the infrastructure for imports is built, and commercial contracts established, she said, it will easy for utilities to extend import contracts and meanwhile expose Alaska consumers to volatility in LNG markets.

Murkowski and other state leaders have long favored tapping stranded North Slope gas to supply energy to Alaska at stable prices. But doing that in time to offset the Cook Inlet decline is problematic and the utilities have a regulatory responsibility to assure reliable gas supplies, they have said.