Gas Supplies in Doubt

Anchorage might have a gas problem.

Cook Inlet's hearty natural gas fields, which have supplied the area for 40 years, may be starting to wheeze. Within five years, local gas users such as the power company, natural gas utility and several big industrial users, may be scrambling for gas, according to estimates from state and local university economists.

As Alaska's big oil and gas companies plot a natural gas pipeline off the North Slope, some hope to get the gas to Anchorage.

"We're not wringing our hands yet," said Joe Griffith, chief financial officer at Chugach Electric Association, which uses Southcentral Alaska gas supplies to make electricity. "But we want to be in the queue if gas comes down from the North Slope."

Although local producers are optimistic they'll find new gas fields to buttress supply, no major gas discoveries have occurred in more than 20 years.

For energy-rich Anchorage, it is an odd situation.

The first commercial oil and gas fields in Alaska were discovered on the Kenai Peninsula in the 1950s. Until the 1970s, Cook Inlet yielded a steady supply of new oil and gas fields. Industry -- including a gas export project and fertilizer plant -- sprang up to tap the riches. Anchorage basked in cheap energy.

With Cook Inlet feeding local supply, the North Slope's monster fields fired Alaska's economy.

At current rates of consumption, Cook Inlet users may see shortages as soon as 2005, according to state estimates.

Producers, such as Unocal, Forcenergy and Anadarko, believe current and future gas exploration will mean more supply.

Odds of more small or medium sized fields are good, said Bill Van Dyke, a petroleum engineer with the state Natural Resources Department. But odds of a big field to replace reserves are poor, he said.

Every year, local demand uses about 220 billion cubic feet of gas. The combined size of all discoveries since 1970 are less than one year of current consumption, said Dick Barnes, former president of Enstar Natural Gas Co., which supplies business and home furnaces with gas. Barnes is now a consultant to Enstar.

So far, eroding reserves have not stimulated much exploration.

Arco led exploration efforts in the early 1990s but found no major fields. Last year only one well was drilled in Cook Inlet, according to the state. This year, four were drilled. The problem, say energy company officials, is that unlike oil, which is sold into a fluid international market, most Cook Inlet gas is sold on long-term contracts to local utilities and industry.

"Until contracts (expire), there is no way to sell the new gas, regardless of price," said Gary Carlson, head of Forcenergy's office in Anchorage. Enstar entered into a contract in 1999 to buy gas from a small discovery by Anadarko and Phillips in the Moquawkie field.

Even if more gas is found it will likely be at higher cost and higher price, Barnes said.

Already companies are looking outside Cook Inlet at Mat-Su coal-bed methane deposits and Copper River Valley prospects.

But don't go converting to electric heat yet. All local electricity is generated by natural gas. Higher gas prices mean higher electricity prices.

Meanwhile, Phillips Alaska Inc. exports 36 percent of Cook Inlet production to Asia as liquefied natural gas.

"We don't have enough gas for the long haul," Barnes said. "The best solution would be to bring the North Slope pipeline close to Cook Inlet."

That sounds sweet to some grappling with North Slope gas development.

Supplying Alaskans with natural gas has become a key political point for any proposed export project.

People like Jeff Lowenfels and the mayors of communities along the trans-Alaska oil pipeline want a project to build an 800-mile gas line to Valdez. A competing group wants to bring the pipeline to Kenai. Both hope to grab public and political backing by promising to supply Southcentral with gas.

Other proposed North Slope projects would bypass Anchorage, Mat-Su and Kenai. An idea to build a gas pipeline to the Lower 48 via Fairbanks could also supply Anchorage with gas. But the spur pipeline would be about 400 miles long.

A proposed Arctic pipeline between Prudhoe Bay and Canada's MacKenzie River valley would do little to energize Anchorage. Houston backers of the Arctic project propose a plant to strip gas out of oil in the crude pipeline to supply Fairbanks.

If Cook Inlet yields no major discoveries and North Slope gas does not reach Anchorage until 2011, University of Alaska Anchorage economist Scott Goldsmith forecasts huge costs for energy alternatives. Using fuel oil for heat and electricity for five years between 2005 and 2011 would cost $2.2 billion. Importing gas from overseas would cost $1.7 billion.

"It would be a little weird if we ended importing gas from Indonesia through the facilities we now use to export," said Dan Zobrist, a state oil and gas economist. He was referring to the Phillips export of gas from Kenai. "But then, there is always North Slope gas."

Reporter Ben Spiess can be reached at bspiess@adn.com .

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-- Martin Thompson (mthom1927@aol.com), November 29, 2000