Cook Inlet revisited: ConocoPhillips and Chugach sign new market-priced gas contract.

• Author: Liles, Patricia
• Position: OIL & GAS

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In a negotiated deal touted as the first market-driven method of pricing natural gas from Cook Inlet, producer ConocoPhillips and consumer Chugach Electric announced in May creation of a seven-year contract that will continue to fuel electric generation for Alaska's largest power provider and its customers throughout the Railbelt.

The new contract will provide about 66 billion cubic feet of natural gas through 2016, a critical supply for Chugach, as it deals with a rapidly changing natural gas market in Cook Inlet and the expiration of several long-term supply contracts.

"Cook Inlet is a pretty prolific basin. It has a lot of gas, but it's underexplored," said Suzanne Gibson, director of energy resources at Chugach Electric. "What producers have been asking for is market prices. This contract achieves that--it sets a baseline for what producers can expect in the future ... it gives them the key for the future to make investments."

GOOD DEAL

ConocoPhillips spokeswoman Natalie Lowman said her company is "pleased" to reach agreement with Chugach on the gas supply contract. "The agreement strikes a good balance in meeting the needs of our company and CEA, and we believe it will benefit consumers in Southcentral Alaska," she said.

Natural gas was initially produced in Cook Inlet as a side product to the basin's oil production, beginning more than 40 years ago. Since then, industrial use, such as electric power generation, a liquefied natural gas plant and a fertilizer plant has taken advantage of the plentiful and inexpensive energy resource.

Past prices for Cook Inlet natural gas, which were lower in comparison to other U.S. and Pacific Rim markets, helped to stifle targeted gas exploration in the basin. Difficulty in negotiating supply contracts between producers and industrial users also hampered exploration efforts, as did failed regulatory approval for such contracts, according to Marathon, another major natural gas producer in Cook Inlet.

"Over the last 4 1/2 years, Marathon has been unable to secure regulatory approval of key gas supply contracts we freely and fairly negotiated and entered into with Enstar, thus lessening the incentive to further develop gas beyond the current contractual obligations," said Carri Lockhart, regional production manager for Marathon, in an e-mail response to questions about the company's gas exploration program.

LOOKING GOOD FOR MARATHON

Last year, Marathon drilled nine wells in the...