Grab your pocketbooks. Energy costs will rise

It will cost more, maybe a lot more, to heat and light your home in a few years. That’s because natural gas production is declining in Cook Inlet gas fields and there’s no likely source of locally-produced gas to replace it.

Imported liquefied natural gas, or LNG, is the only real alternative, regional utilities are telling community and business groups. This will not be cheap.

Enstar Natural Gas Co. CEO John Sims says Enstar’s rates for gas could rise by almost a third once the company’s contract with Hilcorp expires in 2033. Matanuska Electric Association, or MEA expects its rates will rise 13% to 20% once its Hilcorp contract expires.

Chugach Electric Association’s gas contract expires in early 2088 and its rates could rise by 10%, CEO Arthur Miller says, but the increase could also be less. Chugach owns 60% of the Beluga gas field, and can offset some of the decline from Cook Inlet with its own gas for a few years. Beluga will eventually decline too, however.

But what all this means is that plans must be made soon for imported LNG. As regulated utilities, Enstar, MEA and Chugach are obligated to assure consumers and the Regulatory Commission of Alaska that there will be sufficient supplies of gas available.

If LNG is to be shipped in by 2028, which is when the gas production decline will kick in significantly, work must begin very soon. Time must also be allowed for regulatory approvals by the Regulatory Commission of Alaska.

All three utilities rely heavily on gas, but Chugach and MEA have some cushion because they can offset some of the effects if the gas decline with renewable energy, generating power with hydro wind and solar.

Plans for more wind and solar are in the works but the two electric cooperatives now have access to hydro power from Bradley Lake, near Homer, and Eklutna Lake, near Eagle River. There are plans to expand Bradley Lake hydro, too. But renewables can’t totally offset gas.

Other steps are being taken. The $65 million 40 megawatt Battery Energy Storage System, or BESS, recently installed by Chugach Electric and Matanuska Electric in Anchorage will reduce natural gas use by about 5%.

The BESS is mainly designed to keep the regional power grid stable against short-term interruptions. It can power the grid for up to two hours in a total blackout. But it also reduces reliance on “spinning reserve,” or the gas-fired power units kept idling as backup. Reducing this is where the savings on gas use comes from. The BESS can also be expanded to 70 megawatts.

Chugach is also investigating gas storage in unused reservoir space in the Beluga gas field where it is part-owner. The goal is for 20 billion cubic feet of added storage, about ten times the current capacity for storage. While this doesn’t add new gas reserves it will give Chugach and others storing gas at Beluga additional flexibility, particularly against winter disruptions.

Geologists know there is additional gas in Cook Inlet but getting it out is complicated, and expensive. Even if more gas wells can be drilled there are also technical uncertainties on whether they will produce as expected.

If new gas is uncertain the looming decline in production is a certainty, the state Division of Oil and Gas has said. State geologists and petroleum engineers at the division have done detailed studies of Cook Inlet gas fields. Hilcorp, the major gas producer in the Inlet, agrees with that, at least at the prices now prevailing.

However, there are known undeveloped gas deposits in the Inlet. One is at Cosmopolitan, an oil field near Anchor Point, but developing it will require an investment of several hundred million dollars for at least one new gas production platform as well as new gas pipelines.

Because of the investment needed developing the gas may be economically marginal and may require state participation in some form, BlueCrest Energy, the owner, has said.

It will take time to work this out and permitting the development, and construction, will also additional time, likely several years.

Meanwhile, another company, HEX Alaska, is drilling and finding some new gas near its Kitchen Lights field in the Inlet, which is producing. But tests are still underway on how much can be produced, and HEX also says it also needs a reduction on the state’s 12.5% royalty, which is a controversial decision for state officials and legislators.

If this gas could be developed it would reduce the need for LNG imports for a period, but the new Cook Inlet gas will cost more than what is now being paid for gas in the inlet. Consumers will pay more either way.

There are, of course, large untapped reserves of natural gas on the North Slope, which would meet the gas supply deficit in Southcentral Alaska for the foreseeable future and also supply Interior Alaska communities. But building a project to bring the gas south requires a huge investment.

For many years the Alaska Gasline Development Corp., a state entity, has worked on the Alaska LNG Project, which combines a large-diameter pipeline from the North Slope with a proposed large liquefied natural gas plant on the Kenai Peninsula that would export LNG to Asia.

The gas exported as LNG will basically help lower the cost of making gas available for Alaska communities, but its huge cost, over $40 billion, requires customers in Japan and South Korea sign long-term contracts which they have so fr been unwilling to do.

A slimmed-down version of this involving only the pipeline from the slope, and delaying the LNG plant, would still cost $10 billion to $14 billion. This is beyond the ability of consumers in Interior and Southcentral Alaska to pay, however. The only alternative is for the state to provide the funding, and the state’s only realistic source of funds is the Alaska Permanent Fund.