Hilcorp Energy affiliate Harvest Alaska in deal to buy mothballed Kenai LNG plant to secure regional gas supply

Harvest Alaska, an affiliate of Hilcorp Energy, announced the acquisition Feb. 6 of a mothballed LNG terminal owned by Marathon Petroleum at Nikiski, on the Kenai Peninsula south of Anchorage.

The terminal and related infrastructure were formerly owned by ConocoPhillips as part of an LNG export facility that operated for years but closed in 2016.

The announcement was made jointly with Chugach Electric Association, the state’s largest utility, as part of a plan to use the Marathon facility for imports of LNG to augment declining natural gas production from fields in Cook Inlet.

“Under the proposal Harvest would own, develop and operate the LNG terminal and infrastructure, allowing Chugach, Marathon Petroleum Co. and other railbelt (regional) customers to secure additional natural gas supplies to help meet the market demand,” Harvest said in a press release.

Chugach and other regional electric utilities depend on natural gas to fuel much of their power generation. Enstar Natural Gas Co., the regional gas utility, also needs gas for heating of businesses and residential homes in Southcentral Alaska.

Over half of Alaska’s population lives in the region. The utilities, including Chugach, have been seriously concerned with reduced gas supply from aging producing fields and have been exploring options to import LNG, most likely from British Columbia.

“It’s positive to hear about another possible option to provide a firm gas supply to serve our members,” said Julie Estey, spokesperson for Matanuska Electric Assocation. “MEA will continue to work with our utility partners to develop the best project to bridge the gap towards a more diversified energy future”

MEA is working on other options to diversity its sources of fuel away from natural gas. Tony Izzo, the CEO at MEA, told the Alaska Energy Authority board the cooperative is discussing a power supply contract with developers of a potential 400 Megawatt coal-fired power plant that would be built near Skwentna, in the western Mat-Su.

Terra Energy is in the planning and engineering stages for the plant. Flatlands Enery, an affiliate, is exploring coal resources in the area.

The project at Niniski announced Feb 6, “leverages MPC’s (Marathon) legacy LNG export infrastructure to alleviate a potential short-term natural gas shortage facing Southcentral Alaska. The facility includes existing dock infrastructure which was historically capable of handling LNG vessels up to 138,000 cubic meters (approximately 2.9 billion cubic feet) of natural gas,” Harvest said in its announcement.

“This infrastructure, combined with existing FERC approvals, positions the facility to meet near-term energy needs while longer-term alternatives are developed,” the press release said.

Marathon operates a nearby refinery at Nikiski that mainly makes jet fuel and gasoline for the Alaska market. The company uses natural gas at the refinery and acquired the LNG export plant from ConocoPhillips as an option to import LNG for the refinery’s needs.

Marathon also applied for, and received, a FERC license to convert the plant from an export to import facility.

While Chugach Electric is part of the deal as a customer to buy LNG brought in by Harvest other regional electric utilities such as Matanuska Electric Association and Homer Electric, along with Enstar, will able to make purchases.

The utilities, along with Hilcorp, now the region’s major gas producer, are also moving the expand gas storage capabilities using depleted gas reservoirs to bolster regional energy security.

Enstar operates the Cook Inlet Natural Gas Storage Alaska facility on the Kenai Peninsula, which is being expanded, and Hilcorp and Chugach are studying the possibility of storing gas in depleted gas reservoir in the area.

Enstar has meanwhile been working on it own LNG import plan with Glenfarne, a New York-based company that develops LNG and power generation projects. This project, also at Nikiski, would require construction of new LNG import facilities such as a terminal and storage tank.

This is in contrast with the Harvest-Marathon deal that would use the existing facilities at the former ConocoPhillips plant.