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Cook Inlet Production Up, But Energy Concerns Not Over

By | December 19, 2013 - 4:55 pm

According to the state’s Department of Revenue, Cook Inlet production increased by 13 percent last year.

Up-and-coming companies, like Hilcorp, spent $300 million this year on their investments, including drilling 10 new wells and working over more than 70 old ones.

So does the Cook Inlet Renaissance mean that Southcentral’s energy woes are over?

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It depends who you ask.

Sitting in his warm office on a chilly Anchorage morning, John Simms looks at a brightly colored chart. He’s the director of business development at Enstar, the company that provides natural gas to heat the Anchorage area. The chart shows which petroleum companies have agreed to provide gas from Cook Inlet through the beginning of 2018.

“And then here you can see the large black section which represents we have demand out there and we don’t have a contract yet to meet that demand,” Simms said. “So that’s undesignated, so we’re looking to fill that void there in 2018.”

Simms says it used to be different. Large oil companies would contract to provide as much gas as Enstar needed for 20 years or more. Now, he says they’re in constant communication about the supplies. At this point, they have the next four years secured.

“Yeah, it’s four years,” Simms said. “But still when you start looking at Enstar’s options outside of Cook Inlet, it’s basically right on the verge of our comfort level.”

That’s because right now, the only other option is to import liquid natural gas. Setting that up takes between three to five years.

Simms says what they need is new development in Cook Inlet, and HilCorp, the company that took over Chevron and Marathon’s old plays, says they are working on it.

Greg Lalicker is the President of HilCorp. Speaking at the Resource Development Council meeting in Anchorage in November, he said they’re moving ahead with developing the inlet’s middle-aged fields. He said they would review the gas situation every year to see if they can meet the region’s demands.

“We don’t think we’re going to run out of gas anytime soon,” Lalicker said. “How long the party can last, I don’t know.”

“Depends on how successful we are. As long as we keep spending money and finding … reserves, we’re gonna keep trying to get it sold and move on down the line.”

Most of their expanding production actually involves reworking old wells rather than doing new exploration.

Other small companies, like Bucaneer and Furie, are also developing new areas.

Pete Stokes with Petrotechnical Resources of Alaska has completed several studies on Cook Inlet production. He says the Renaissance is completely dependent on small companies like these who are partially motivated by the state’s incentive package. Cook Inlet is insubstantial for the larger companies but a significant investment for new independents.

Stokes says exploration is happening now, but before anything big happens, companies need to secure a market.

“Well typically, if a company were to discover say, gas in Cook Inlet, they would need to go and get investors to finance the development and investors would want to know where they are going to sell their gas,” Stokes said. “And we’re a fairly small gas market in Cook Inlet.”

Without a larger market to sell to, there’s no incentive to invest. That means no secure supply for Southcentral. But a solution may be on the horizon. ConocoPhillips filed an application this month with the Department of Energy to re-open the LNG export plant in Nikiski.

Not everyone thinks that’s the best solution though, especially when the resource is needed locally. Bob Shavleson is with Cook Inletkeeper. He thinks the state needs a better energy plan so supplies are more consistent and the state doesn’t lose money.

“And so now there are calls to reopen the LNG plant and to export this highly subsidized gas to Tokyo where we’d sell it probably for a lower price than we’re paying for it here,” Shavleson said. “So it really makes no sense, so it would behoove everyone in the state to have a sensible energy plan.”

Shavelson says that plan needs to include renewable energy as well.

Chugach Electric spokesperson Phil Steyer agrees. He says they primarily rely on natural gas and they are confident they can continue to depend on that resource for many years. But they would also like to diversify.

“We’re 10 percent hydro and 2 percent wind,” Steyer said. “And we have an interest in our board room towards having more renewables in our portfolio.”

Back at Enstar, a natural gas supply company, a move towards renewables won’t help anything. Simms says he’s optimistic about the development he’s seen lately in the Inlet, but, “activity doesn’t really mean much to Enstar unless they’re willing to ink it on the contract.”

The president of HilCorp said his company is planning to start talks again in April.

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