Marathon Petroleum now says its mothballed LNG plant near Kenai being considered for imports of liquefied natural gas

Marathon Petroleum Co. says it is considering use of its mothballed liquefied natural gas export plant near Kenai as part of a project with regional utilities to import liquefied gas, or LNG, to supplement declining Cook Inlet natural gas production.

This is important because it is the first public acknowledgment by the company that it could use the plant for imports. For decades the plant, formerly owned by ConocoPhillips, had exported LNG, made from Cook Inlet gas, to markets in Asia.

Marathon acquired the plant several years ago to supply LNG as fuel to its nearby refinery and had started work with the U.S. Federal Energy and Regulatory Commission to relicense the plant for imports of liquefied has rather than exports, which ConocoPhillips had done.

The scope of that is now broadened to involve larger quantities of imported LNG for power generation and space heating in Southcentral Alaska, where the state’s largest communities are located.

“Marathon Is evaluating strategic options for its liquefied natural gas facility in Kenai, which is adjacent to the company’s refinery. The options we’re looking at include advancement of an LNG import conversion project authorized by the Federal Energy and Regulatory Commission, along with a possible second-phase, larger-scale LNG import and regasification facility,” said Bruce Jackman, general manager of the Kenai refinery, in an Oct. 19 announcement by Marathon.

“Kenai LNG is an important part of our infrastructure here, and we’re excited to be looking at these potential projects,” he said.

Options for the second phase, which would help address forecast natural gas needs in the Cook Inlet region, could also include strategic partnerships with other companies involved in LNG transportation or natural gas distribution, Marathon said in the announcement.

“In light of natural gas producers’ projections for large natural gas shortfalls in the Cook Inlet region, our Kenai LNG facility could offer a cost-effective solution to supply long-term affordable gas to the area and our Kenai refinery,” said David Heppner, senior vice president of Marathon’s Strategy and Business Development group.

Hilcorp Energy, the largest gas producer in Cook Inlet, informed regional utilities last year that it will be unable to renew gas supply contracts at current volumes because of declining field production.

The Kenai LNG facility exported LNG to Asian buyers until 2015. In 2020, FERC authorized modifying the plant for imports but Marathon has held off on actually doing the conversion.

Alaska regional utilities, including Enstar Natural Gas Co. and Chugach Electric Association, the state’s largest gas distributor and electric utility respectively, have led a group of utilities looked at solutions for filling regional supply gaps.

These include new renewable energy projects which are now planned, but those cannot be done in time to fill the gas production gap, which the state Division of Oil and Gas estimates will begin in 2027.

Enstar has said that imports of LNG most likely from British Columbia are the most likely near-term solutions along with renewable energy for electric utilities, which will be done over a longer time-span.

Sources familiar with the utilities’ discussions say they will finalize studies of options by late fall and will be in a position to make decisions by year-end that will most likely include limited LNG imports.

The most likely scenario is for small LNG vessels to serve Cook Inlet to deliver just enough liquefied gas to supplement the declining production from existing gas fields. Existing dock facilities at the Kenai LNG plant are reported to be sufficient to support the unloading, the sources indicate, but some investment will be needed to modify equipment at the plant originally designed for exports. Inspections of the existing LNG tanks will also be needed.

The cost of any new or modified facilities needed to handle the imported LNG along with transportation the charges for the LNG itself will be paid for by consumers in Southcentral Alaska.

Enstar Natural Gas, which serves Mat-Su, depends on gas to fuel space heating in homes and larger buildings. Electric utilities like Matanuska Electric Association, also rely on gas to fuel power generation but also on renewable power generation like solar projects built recently in the region.