Resurgence in Cook Inlet: strong energy prices drive renewed exploration efforts in Alaska's Southcentral oil and gas basin. Anticipated shortages of natural gas heighten attention on this resource. once a byproduct with limited value.

• Author: Liles, Patricia

While statewide and national attention remains focused on an evolving deal that could spark development of a North Slope natural gas pipeline project, Alaska's oil and gas industry continues to churn out highly marketable energy products from Cook Inlet.

The rich energy-producing region borders Alaska's more populated areas--the state's largest city of Anchorage and various communities on the Kenai Peninsula. Cook Inlet oil and gas production also occurs within or next to more undeveloped, environmentally sensitive areas, such as the Lake Clark National Park, the Redoubt Bay State Critical Habitat Area, the Trading Bay State Game Refuge and the Kenai National Wildlife Refuge.

For more than 50 years, the Cook Inlet oil and gas industry has maintained a strong presence and economic impact on Southcentral Alaska, as the lower-cost resources have been developed and marketed, both within Alaska and overseas. A fertilizer manufacturing plant was built in Nikiski in 1968 and a liquefied natural gas plant has produced product shipped to Japanese markets for more than 30 years.

But in recent years, the amount of readily available and inexpensive oil and gas has decreased, with exploration efforts insufficient to replace the depleted resources. Crude oil has been imported in recent years to provide feedstock for the local refinery. The fertilizer plant has scaled back its production by 50 percent, due to a lack of gas available.

The future of Cook Inlet's oil and gas industry-in particular the industrial uses of natural gas-have been called in question.

According to a U.S. Department of Energy-funded study released in June 2004, which evaluated existing Cook Inlet gas reserves and future development opportunities, proven gas reserves are expected to meet demand until 2012, albeit with some possible seasonal shortages.

But that estimate was contingent on a 2005 shutdown of the Agrium fertilizer plant and elimination of LNG shipments to Japan in 2009, when the export license expires. Agrium managed to land some short-term contracts, allowing production to continue through 2005 and into this year, although a November 2006 shutdown is currently planned. (See sidebar story.)

A shortage of natural gas could occur as early as 2009 unless industrial use is reduced or new gas reserves are developed, the study authors wrote.

Geologists believe the Cook Inlet formations, both onshore and offshore, hold more gas, ranging from 25 trillion cubic feet to 30 tcf...