Story last updated at 1:41 p.m. Thursday, May 2, 2002

Kachemak portion of pipeline out of gas
by R.J. Kelly
Managing Editor

Developers, businesses and homeowners along the Sterling Highway from Ninilchik to Homer saw hopes for natural gas service dashed last week as Unocal Alaska announced its exploration wells in the Anchor Point and southern Ninilchik region had come up dry.

What just a few weeks ago had been a plan by Unocal and Marathon Oil to build a 62-mile pipeline from Kenai to Anchor Point was cut in half last Thursday with the announcement that the proposed line would stop at Ninilchik.

With an updated and revised application for the route of the line submitted March 20 and a batch of other state and federal permits already in the works, the announcement came as a surprise to many. Despite the hopes by business promoters and real estate interests that access to efficient natural gas would spur jobs and development, some shrugged off the news as another in a long line of false starts.

"There is some disappointment," said Tom Clark, president of the Anchor Point Chamber of Commerce. "People were looking forward to it," he said, "but this area has been through this before, so I don't think anybody was sure they were going to find anything."

Clark acknowledged that "maybe there were some folks who had speculated on land" who now may wish they waited, but he said "the market responds to reality, not to hope."

While orange survey markers and subdivision proposals have been noticeable in recent months along the proposed Kenai-Kachemak Pipeline Project route north of Anchor Point, the leader of the region's Realtor's association said the pipeline plan has not been that big a factor.

"I haven't really seen any speculation on that ... because everybody was still pretty skeptical because they did not know if it would pan out or not, " said Karen Berg-Forrester, president of the Kachemak Board of Realtors.

As an association broker with Coastal Realty, which lists many properties for sale along the proposed route, Berg-Forrester said "our business has been pretty stable (even) before they made any announcement.

"We really haven't seen any appreciable increase that has been driven by the project," she said. "Everybody would love to see natural gas come down the Peninsula, but (people) have heard it for so long that before anybody did anything, they'd have to see it happen."

Unocal spokeswoman Roxanne Sinz has regularly stressed that the construction of the southern end of the project was largely dependent on the success of several exploration wells from Ninilchik to Anchor Point that have been drilled between January and March.

While Sinz said project developers still hope to get right-of-way permits by the end of this year, Rhea Dobosh, a spokeswoman for the state's Joint Pipeline Office, said Monday it was unlikely that permits would be issued until "sometime in 2003."

DoBosh said the change will require a new application and processing, and public comment time is unclear. "It's pretty much starting from scratch," DoBosh said.

In January, Unocal announced a significant gas find near Ninilchik and then continued evaluating other exploration wells. The most recent test well was drilled at the end of March in the Griner gravel pit and more were planned, but the results from the three wells "failed to encounter commercial quantities of natural gas," Unocal announced, prompting the reduction of the proposed line from 62 miles to 33 miles.

Originally estimated at $71.6 million in the March 20 application, the cost of shortened line is not yet determined.

"We are obviously disappointed in the results of the three most recent wells," said Chuck Pierce, vice president of Unocal Alaska.

At the same time, the company issued a statement announcing "the successful completion and testing of two additional exploration wells in the 25,000-acre Ninilchik Exploration Unit. Both those wells, which found gas in the 8,000-9,000-foot depth, were on the north side of Ninilchik, Sinz said.

"Our overall Kenai drilling program has met our initial range of projections," Pierce said in a statement. "We intend to follow through with a Ninilchik Unit development program and to aggressively pursue other exploration opportunities in the Cook Inlet area.

Unocal holds a 40 percent working interest in the unit. Marathon Oil Co. is operator and holds the remaining interest.

One vocal critic of the project, Bob Shavelson, executive director of Cook Inlet Keeper, a water quality watchdog group, called the announcement to shorten the pipeline "evidence that Unocal never intended to bring natural gas to Homer residents and businesses. ... because if they did, the pipeline would come all the way south anyway."

Shavelson called discussions of potential local links to gas "a convenient public relations spin ... when clearly the primary objective is to feed gas to their export markets."

Based on a long-term contract with Unocal, Enstar Natural Gas Co. would distribute natural gas from the pipeline project. While Unocal officials say they have no active plan to continue exploration in the south of Ninilchik, Enstar vice president Dan Dieckgraeff said Monday that Enstar will "continue to look at all the options" in seeking ways to bring gas to the Homer region.

"We had an easy answer with a well in Anchor Point, but it didn't work," Dieckgraeff said.

Homer Electric Association does not have a financial stake in the pipeline project, but the utility has been a strong supporter of the plan. In expressing "disappointment," HEA spokesman Joe Gallagher said this week "we'll continue to have the door open" in helping to bring natural gas to the region.