LNG export plan worries local electric co-op chief

Shutting down the LNG export facility in Kenai knowing we have 1.1 trillion cubic feet of potential supply in Cook Inlet has Alaskans anxious about the deliverability of gas for in-state use next winter. New gas credits and other incentives may help new projects coming online, but not in time to provide sufficient gas during peak loads.

For more than 40 years, Phillips (now ConocoPhillips) and Marathon exported gas to Asia from the Kenai LNG plant. When the Railbelt utilities needed extra gas to meet peak demand on cold winter days, they could draw on that gas destined for the overseas market. This provided a major backstop for the utilities in lieu of storage facilities.

The consequence of the LNG plant closure in a nutshell is that there is no market large enough to sustain the economics of exploration and development for natural gas in Cook Inlet. Shutting down the plant eliminates half of the exports and thus half the market. So does that free up more gas for in-state use?

Our No. 1 hope for exploration in Cook Inlet is that at least one company will move a jack-up rig to Alaska that will allow new exploration in the upper Cook Inlet area. Even though the drilling is targeting oil there is a potential that some gas will be discovered. However the prospect of this changing the situation by next winter is very small. Other independent companies presently exploring for gas could find a gas field, but deliverability of that find for in-state use by next winter seems elusive.

“This announcement highlights the urgent need we face to find a way to commercialize our North Slope gas reserves,” states Sen. Lisa Murkowski in an article in the Juneau Empire. Although there is 35 trillion cubic feet of gas on the North Slope, how to make it available in Cook Inlet is still the issue. The Alaska Natural Gas Development Authority is working on locating a new industrial anchor tenant that would export the Alaska gas while making sufficient gas available for in-state use. Harold Heinze, CEO of ANGDA, believes that China just may be that anchor tenant.

“Chinese energy companies have the money, expertise and market power to advance an Alaskan gas project,” he said.

The closure of the plant reinforces Alaska’s need for gas storage. However, Conoco has not signed on to the Cook Inlet Natural Gas Storage Alaska facility. ConocoPhillips will still produce the gas needed to fill its contracts. Dan Clark, gas manager for ConocoPhillips, states that they are spending $60 million in reinjection in one of their Beluga gas fields.

Legislators think the plant closure will surface in the debate over whether to revamp Alaska’s oil tax structure and incentives and whether they really help promote more investment and production. Sen. Bill Wielechowski, in February’s Alaska Dispatch, noted that, “Cook Inlet gas producers have very low taxes and the state subsidizes 65 percent of the expenditures in Cook Inlet, yet the plant was deemed to be uneconomic.”

As we stumble through the aftershocks from the closure of the Kenai plant, and somehow make it past next winter, our future seems brighter. Through a combination of new independent companies finding gas and storage facilities being brought on line by 2013, our future becomes a bit more palatable and our economic outlook a bit brighter.

Joe Griffith is CEO for Matanuska Electric Association.