Running On Empty: Utilities Think There's A Possible Worst-Case Gas Scenario Coming Up
As winter approaches, Southcentral Alaska utilities are worried about running short of gas After a cold spring, they’re planning for a wor...
As winter approaches, Southcentral Alaska utilities are worried about running short of gas
After a cold spring, they’re planning for a worst-case scenario next winter and doing their best to avoid it
Enstar Natural Gas Co.’s office in Anchorage is seen on May 22, 2024. (Photo by Yereth Rosen/Alaska Beacon)
Larry Jorgensen is hoping for a warm winter.
As the head of power production for Homer Electric Association, he’s the man responsible for keeping the lights on in most of the Kenai Peninsula. As winter approaches in Southcentral Alaska, his job is about to become tougher.
Homer Electric relies on natural gas from Enstar, the region’s main gas utility. But Enstar relies on gas produced locally, from Cook Inlet, and that production isn’t meeting demand. After a chilly spring in the region, the amount of stored gas is below what’s comfortable for utilities using the natural gas grid.
“Everything’s on the table right now to try and figure out how we get through it, and ultimately, what matters is — and it’s the biggest unknown — what’s the weather going to be?” said John Sims, Enstar’s president.
“If it’s like last winter, we won’t make it without some sort of curtailment,” he said.
For a utility, “curtailment” means cutting off or reducing service to some customers.
Under Enstar’s current plan, listed on the 162nd page of a filing with the Regulatory Commission of Alaska, industrial facilities would be cut off first, then businesses. Churches, schools, hospitals and homes would be last.
Because Southcentral Alaska relies on a single, pressurized system of pipes, even utilities like Chugach and Matanuska Electric Association — which have sufficient gas supplies for themselves — could run into problems if Enstar can’t do its part to keep the system pressurized.
winter and spring, each utility will have to cooperate to avoid shortages.
Even with that cooperation, an extended stretch of cold weather would pose problems.
“If we have a winter like last winter, we may be in trouble,” Jorgensen said in an interview last week. If we have what the long-range forecast says — with an El Nino that it’ll be milder, then maybe we won’t have as big an issue. So definitely, very concerned.”
Despite extensive drilling, not enough gas to go around
Completely fixing the issue before winter isn’t an option, the utilities say.
A proposed trans-Alaska natural gas pipeline is at least three years away. Port facilities to import natural gas are also years away. Wind, solar, hydro and coal won’t arrive fast enough, cheap enough or aren’t workable in the winter.
The oil and gas firm Hilcorp has drilled 192 wells in Cook Inlet since 2011, including 27 new wells in Cook Inlet this year. Hilcorp is fulfilling an existing contract with Enstar and is selling additional gas on top of that contract.
Furie, another firm, is expected to drill two more wells. None of the new wells are guaranteed to produce, and Hilcorp has been warning utilities since 2022 about the risk of a shortage.
“I’m not as optimistic as I once was,” Sims said. “It’s basically — the producers have to drill and they have to hit what they expect, and then the utilities are going to have to collaborate like we always do.”
Enstar is buying every molecule of available gas, Sims said, but there’s no more to go around from Cook Inlet. Enstar is willing to pay a premium for new gas, but offering more money hasn’t encouraged companies to drill more, he said.
Enstar pays Hilcorp $8.78 per thousand cubic feet of gas, according to filings with state regulators. It pays smaller producers more, and it pays Hilcorp more for gas produced above and beyond its contract.
“Right now, our weighted average cost of gas is $10.80 (per thousand cubic feet),” Sims said.
Enstar is now offering $17.50 per thousand cubic feet to anyone who might be willing to drill and produce, but it’s coming up empty.
“I’ve had another producer tell me there’s no price I could offer him that’s worth the risk. So the Cook Inlet is no longer a viable long-term option. Let’s just be very clear about that,” Sims said. “It just comes down to the fact that nobody has the gas right now that they’re willing to sell.”
By the end of this year, Sims said, Enstar needs to either file or have someone else file regulatory authority for a facility to import gas into Southcentral Alaska.
“That’s the first time I’m willing to acknowledge that. I’ve never made that statement before, but we need to pull the trigger no later than the end of this year,” he said.
That could result in new gas by 2029, but “that is a very very challenging development schedule, and so that’s why I make that statement that we can’t wait any longer than that.”
In the meantime, Enstar and Southcentral Alaska’s utilities are still facing the problem of this winter.
Part of the issue facing Southcentral this winter stems from the fact that all of the utilities are connected in a single regional grid.
A map of the region’s major natural gas lines looks like a penguin looking northeast, the tip of its beak in Palmer, its feet straddling Cook Inlet.
That grid only functions if there’s enough pressure to push gas through the lines. Imagine a bulging balloon blown full of air, its neck knotted to seal it. Untie the knot, and the air rushes out.
Now, imagine a balloon that’s been only partially blown up before being sealed. Open that balloon, and there’s not much of a rush.
At a certain point, air doesn’t rush out at all. There might be some air inside, but it won’t come out unless the balloon is squeezed.
There’s no way to squeeze Southcentral’s natural gas grid; it relies on pressure to move gas to homes and businesses across the region. Historically, that pressure has come from natural reservoirs within Cook Inlet itself.
Now, it comes in large part from storage reservoirs operated by utilities. These used to be natural but now function as banks — they’re filled with production from elsewhere and emptied as needed to maintain supply.
While other reservoirs exist, Cook Inlet Natural Gas Storage Alaska — CINGSA for short — is perhaps the most critical. Southcentral’s cold spring drew down CINGSA, and the low pace of production in Cook Inlet means it’s being refilled more slowly than utilities want.
If CINGSA and other reservoirs are too low, the gas system’s pressure drops.
For utilities, a question of ‘what we do to survive’
“Typically, what the gas pipeline companies need is to maintain a certain pipeline pressure in order to be able to function,” Jorgensen said. “So they will monitor their system, and if pressures start to get low, they’re going to have to reduce usage in that area. They’ll give us new targets, saying, ‘You’ve got to reduce your gas level to X,’ and then we have to do whatever that takes.”
For Homer Electric, that could mean telling Kenai Peninsula residents to turn down their thermostats or to use wood or oil heat instead of electricity or gas.
“Unfortunately, it’s a tough situation. I don’t think anybody comes out feeling great about it, but it is what we do to survive,” he said.
Farther north, Chugach Electric and Matanuska Electric Association have different options. Both utilities are confident that they have enough gas to meet their own demand, and if they need to release gas in order to keep the system pressurized, they may be able to do so.
While Homer Electric has no alternative to gas-fired power, Chugach and MEA can turn off some of their gas-fired generators and use diesel instead, freeing gas for home heating needs.
Julie Estey, MEA’s chief strategy officer, said her utility is already planning ahead. MEA’s big 171-megawatt generator had been limited to two weeks of operation on diesel. After getting some regulatory waivers, the limit is now two months.
“That’s one of the options we have for deliverability,” she said, but it comes with a drawback — diesel power is much more expensive than gas power.
“You think about what Fairbanks went through this past winter when they had 60% increases (in the cost of electricity). We’ll be hopeful to have 60% increases if they burn diesel at MEA,” Sims said.
Partially because of that, MEA and Enstar are talking about another option — MEA would effectively give gas to Enstar up front, and Enstar would pay MEA back later with other gas.
“If there was a short-term need that Enstar needed, we could do that as well. We could say, ‘Hey, instead of using your gas volumes, we can get you some gas and do some sort of a trade,’” Estey said.
That could avoid a rate hike for MEA customers, she said.
Similarly, Chugach has already begun talking to Enstar about cooperation, said Julie Hasquet, senior manager of corporate communications.
“Potential options include increasing generation from our hydropower resources, operating diesel-fired generation, and, if available, purchasing electricity from other utilities. Each of these actions would reduce Chugach’s natural gas consumption, potentially freeing up natural gas that could then be made available to Enstar,” she said by email.
Speaking in a news conference with reporters earlier this month, Gov. Mike Dunleavy said the upcoming winter is on his mind, but so are the effects of what happens if energy prices rise.
If it becomes more expensive to live in Anchorage and Southcentral Alaska, people could move away. Already, the price of diesel has risen across Alaska due to the Iran War.
“The cost is going to go up,” Dunleavy said of power prices.
“And we here, as policymakers, we need to help with doing everything we can to keep people’s options open. It shouldn’t just be, ‘I got to leave because it’s too expensive to live here.’”
