Southcentral Alaska faces natural gas shortages: diminishing gas supplies in Cook Inlet force Agrium to face a November closure.

• Author: Liles, Patricia

More than 30 years ago, oil prospectors working in Cook Inlet discovered an abundant byproduct that has grown to become a key energy source and a leading export product for the state of Alaska-natural gas.

That oil exploration work identified about 8 trillion cubic feet of economically recoverable conventional gas resources by 1970, allowing for substantial local use for heat and power generation. Cook Inlet natural gas became a feedstock for Agrium, a fertilizer manufacturing plant in Nikiski, built in 1968, and a liquefied natural gas plant producing product shipped to Japanese markets for more than 30 years.

But accessible supplies are diminishing. Efforts to find new gas deposits and the possibility for a new supply of North Slope gas via a spur line built as part of an Alaska gas pipeline project have not saved the fate of Agrium, which announced in late December that it will shut down in November.

INEXPENSIVE GAS FOR ALASKANS

Residents and businesses in the most populated part of Alaska have come to rely on the inexpensive source of natural gas for energy, power generation and an industrial feedstock creating hundreds of steady, well-paid positions.

"This low-cost gas, consistently below U.S. Lower 48 gas prices, has benefited residential gas and electric utility consumers from Homer to Fairbanks. Electricity for the Southcentral Alaska region is based exclusively on natural gas," wrote the authors of a U.S. Department of Energy-funded study assessing future options for Southcentral Alaska's natural gas needs.

According to that study, released in June 2004, the known sources of Cook Inlet gas are rapidly being depleted. Of the 8 tcf originally discovered, proven reserves remaining on Jan. 1, 2004, were 1.8 tcf, according to the DOE-funded study. Currently, the total industrial demand is 130 billion cubic feet per year, and commercial and residential demand is about 70 bcf per year.

END OF THE LINE

At that rate, proven reserves in known Cook Inlet fields are forecasted to meet demand, although with some potential seasonal shortages, until 2012. But that is only if the fertilizer plant now owned by Agrium U.S. Inc. shuts down in 2005 as scheduled and LNG exports to Japan end in 2009, when the export license expires.

"A shortage 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...