Homer Alaska - Business

Story last updated at 11:24 AM on Wednesday, July 6, 2011

Utilities negotiate for LNG



By Tim Bradner
Morris News Service - Alaska

Southcentral Alaska utilities are negotiating with potential LNG suppliers to meet a projected deficit in local gas supplies that will begin in 2014 and grow to 10 billion cubic feet a year by 2015 and 47 billion cubic feet a year by 2018, a spokesman for a utility planning group said June 27.

However, regulatory and technical uncertainties pose big challenges to the plan.

The estimated gap for 2014 is small, 2 billion feet, but could grow if additions to gas supplies in the Cook Inlet basin do not keep pace with rising demand, Daniel Helmick, regulatory manager for Municipal Light and Power, Anchorage's city-owned electric utility, said in an interview.

Helmick is acting as spokesman for an informal utility planning group that includes Chugach Electric Association, Alaska's largest electric co-op, as well as Homer Electric Association, Matanuska Electric Association and privately owned utility Enstar Natural Gas Co.

Helmick and other utility representatives presented information on potential LNG imports to the Regulatory Commission of Alaska June 22. The commission must approve any expenses related to regasification of LNG, and Helmick said prompt and clear approvals from the RCA would be needed so that the utilities can obtain financing for capital expenditures.

"We settled on 2014 as the year we will need to import gas. We have made assumptions that include new gas storage that will be available and the probable results of new drilling that we feel confident will be under way, but we have balanced this with new gas needs with new power generation units that are planned," among the utilities, Helmick said. "Our group has come to the conclusion that at least on a short-term basis this is our only option, whether we like it or not."

The status of negotiations with potential suppliers are confidential, Helmick said. He said the utilities are negotiating as a group.

A mining company, Donlin Creek Joint Venture, is part of the planning group. The company, a joint-venture of Barrick Gold and NovaGold Resources, plans to develop a large gold mine near the Kuskokwim River west of Anchorage and hopes to build a 325-mile, 12-inch gas pipeline to bring gas to the mine from Cook Inlet.

Robert Pickett, chairman of the regulatory commission, said the timing of approvals needed both on the state and federal levels are of serious concern.

"The sooner the utilities can make firm decisions on imports the better. If we go into the fall of 2011 and into 2012 without decisions being made, we could be facing real challenges in meeting the 2014 deadline," Pickett said.

There are also concerns as to whether the U.S. Federal Energy Regulatory Commission can deal with an application to build an LNG import terminal and regasification facility by 2014.

"We have had some discussions with FERC and our comfort level on the timing of FERC approval may influence our decision on which option to pursue," Helmick said. "We believe FERC can issue a license in time."

However, state officials monitoring the project aren't so sure. A FERC proceeding is where intervenors could delay things over issues like endangered beluga whales in Cook Inlet, a state officials said on background. Explorers in Cook Inlet developing new gas reserves could also intervene, he said.

ConocoPhillips and Marathon Oil Co. own and operate an LNG export plant near Kenai that is planned to be closed later this summer due to declining gas reserves in the region. The two companies have said that parts of the plant could be used to import and regasify LNG.

Helmick said the utility group is examining possible use of the ConocoPhillips-Marathon plant as well as other options such as an onshore stand-alone regasification plant, LNG ships with necessary equipment on board, and barge-mounted regasification facilities.

There are meanwhile two longer-range plans to bring North Slope gas to Southcentral Alaska, one a 24-inch spur line built off a large-diameter pipeline built to Alberta from the North Slope, and second, a stand-alone 24-inch pipeline built to Southcentral from the North Slope if the large pipeline is seriously delayed.

Helmick said neither pipeline can get gas from the Slope to Southcentral Alaska in time to meet the gap.

Also, exploration drilling is ramping up in Cook Inlet in response to new state incentives, and discoveries are being made, most recently a well drilled on the Kenai Peninsula by Buccaneer Energy, an Australian independent, which the company said will add 10 billion cubic feet of new reserves.

Two companies also have jack-up rigs headed to Cook Inlet to test offshore gas prospects.

Helmick said new supplies in the region are welcomed but given the pending shortfall the utilities can't withstand the uncertainty of whether enough new drilling will occur or whether enough new gas will be found.

Meanwhile, technical and commercial uncertainties add to the mix. One technical concern is whether ice-strengthened LNG carriers are available that could reach a new import terminal built in north Cook Inlet, where winter ice can impede navigation. Ice would be less of a problem if the utilities opt to work with ConocoPhillips and Marathon at the existing LNG plant, which is further south on Cook Inlet.

LNG has been shipped routinely from the plant since operations began in 1969. There are also two LNG carriers built specifically to land at the Kenai plant terminal that are still in service.

A commercial uncertainty is whether LNG the utilities would purchase will contain gas liquids, as does most LNG supplied to Asia, or LNG without liquids, which might be less easily available. Gas produced in Cook Inlet fields is dry, and if LNG is imported with liquids those would have to be removed, imposing costs on the importers.

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