LNG importation on the horizon for Cook Inlet: $3 billion in storage, development costs needed in next decade.

• Author: Resz, Heather A.
• Position: OIL & GAS - Industry overview

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For the next 18 to 24 months, State and industry experts estimate Cook Inlet has enough natural gas to meet demand, but beyond that point, additional gas supplies from new production or LNG (Liquified Natural Gas) imports will be required to meet demand.

"We are going to need additional gas. It's either going to come from additional drilling in Cook Inlet, or we are going to have to start importing LNG," Lee Thibert, senior vice president of Chugach Electric, told the Regulatory Commission of Alaska commissioners at its April 13 meeting. "We can keep up through 2018 with the completion of 13.5 wells per year. But that's a lot of wells."

A State Department of Natural Resources Division of Oil and Gas review completed last fall states there is natural gas in Cook Inlet--more than a 10-year supply. But Cook Inlet producers will have to spend billions to get the gas, according to a second report commissioned by ENSTAR Natural Gas Co., Chugach Electric Association and Anchorage Municipal Light and Power.

The Petrotechnical Resources Alaska study says it could cost as much as $3 billion to keep Cook Inlet gas flowing to customers for the next 10 years--some $2.8 billion to develop 185 wells, and about $250 million to add third-party storage, according to ENSTAR's estimates.

But it's unlikely that producers can deliver Cook Inlet's remaining natural gas fast enough to entirely avoid the need for LNG imports, General Manager Jim Posey, of Municipal Light and Power, told regulatory commissioners at their April 13 meeting.

"We're not at a crisis point yet, but if we don't kick it in high gear with drilling, we will have problems starting in 2013," he said.

Posey said utilities have an 18- to 24-month window to figure out what role LNG imports will play in bridging the gap until Cook Inlet production can catch up with demand, or until North Slope gas is available in Cook Inlet.

But even on an accelerated schedule, Bill Popp, president and chief executive officer for the Anchorage Economic Development Corporation, said he anticipates some LNG importation will be required.

"Given the current time requirements to develop new gas reserves in Cook Inlet, LNG imports are likely the only short-term alternative solution," he said.

Some LNG ships have built-in regasification equipment that could hook up to a receiving terminal and put gas into the pipeline system for delivery to storage facilities, Popp said.

SUPPLY AND DEMAND ARE IN BALANCE

For the past several winters, utilities have warned that rolling blackouts or a failure of the gas-delivery system are possibilities during winter periods of peak natural gas demand. But a mild 2009-10 winter spared Southcentral from executing the energy-conservation drill people in Anchorage, Mat-Su and the Kenai Peninsula practiced last fall for times of shortage, Popp said.

Deliverability is the rate natural gas tan be supplied from Cook Inlet producers' wells. And most days, the inlet's gas supply is sufficient to meet local needs with some gas left for export as LNG, said ENSTAR spokesperson John Sims.

But when the mercury sinks to the bottom of the thermometer and stays for days or weeks, in winter demand for natural gas increases as much as 12-fold, he said.

Because supply and demand are so nearly in balance, on the coldest days, gas has been from the LNG plant ConocoPhillips and Marathon own in Nikiski to keep the lights and heat on for utilities'...