Running on Fumes

The uncertain future of Cook Inlet’s natural gas supply

By Alexandra Kay

Natural gas consumption from Cook Inlet has reached a tipping point, outpacing production in recent years. The shortage is not a crisis today thanks to surplus gas stockpiled in the years before the consumption and production curves intersected.

“Natural gas from the Cook Inlet basin is essential to meeting the energy needs of Alaska’s Railbelt region,” according to a 2018 report from the Alaska Department of Natural Resources (DNR). “It generates 70 percent of the Railbelt’s electricity, heats over 140,000 homes and businesses, and supplies fuel needed by industrial users.”

“In 2015, natural gas was the fuel source for 83 percent of all electricity generated within the Mat-Su Valley, Anchorage, and Kenai Peninsula and approximately 70 percent of total electricity generated in the entire Railbelt region,” the report noted. The inlet fuels every gas-fired power plant in Southcentral, and some of that energy is shared as far away as Golden Valley Electric Association in the Fairbanks area.

The majority of that natural gas is produced by one company, Hilcorp, which started operations in Cook Inlet before taking over BP’s North Slope assets. Last April, Hilcorp notified a few Alaska utilities that the company doesn’t have enough natural gas resources for contracts up for renewal in the next two to eleven years. Homer Electric Association (HEA), with a contract expiring in early 2024, is the earliest. In its warning, Hilcorp noted that, while it has enough natural gas to fulfill current contracts, renewal of contracts in the future would depend on the company’s ongoing drilling program.

“Hilcorp’s message was a bit of a wakeup call for all of the natural gas users in the Cook Inlet,” says Lindsay Hobson, director of corporate resources and communications for ENSTAR Natural Gas Company. “It provided an opportunity for ENSTAR to really dive in and assess our customers’ needs into the future with sufficient time to look for additional fuel sources.”

Dependence on Cook Inlet gas puts utilities in an unusual position. “Unlike utilities in the Lower 48 that can turn to a network of supply basins and other companies for additional volumes if the need arises, ENSTAR relies on a single system that draws from a single source to meet all of its customers’ needs,” Hobson says.

Answering the Call

In response to Hilcorp’s notice, six Alaska utilities announced the formation of a working group to assess energy security and future gas supply needs in the Cook Inlet. The group includes Chugach Electric Association, Interior Gas Utility, Matanuska Electric Association, Homer Electric Association, Golden Valley Electric Association, and ENSTAR. The Alaska

Authority and DNR also joined the working group.

“Today, we add another tool to our toolbelt by joining forces to address potential future challenges regarding natural gas supply in Cook Inlet,” said the group in a May 2022 press release announcing its formation. “We understand the uncertainty inherent in relying on a single source to meet a significant portion of our demand… This group will work collaboratively as utilities and in partnership with the state of Alaska to ensure our ability to reliably and efficiently meet the energy needs of Alaskans in the Railbelt region over the long-term.”

Cook Inlet is Alaska’s oldest oil and gas producing basin, dating back to the ‘50s. Production peaked in the ‘70s and has declined ever since, but Hilcorp, the operator of all federal units in the inlet, has been working to reverse that trend. “Their efforts to increase the oil and gas production from these mature fields have proven successful,” the US Bureau of Land Management notes on its website.

A Hilcorp spokesperson says that the company plans to continue to invest in the area.

“A secure gas supply is essential for Southcentral Alaska, and Hilcorp is proud to provide a significant part of that. Over the past two years, Hilcorp has spent hundreds of millions of dollars focused on producing additional natural gas, and in 2022, we delivered more than 50 billion cubic feet,” says Luke Miller, Hilcorp’s government and public affairs leader and manager for Alaska. “We plan to continue making substantial investment in the Cook Inlet over the next few years, focused on producing additional natural gas for Alaskan homes and businesses. We are proud of the work we have done to revitalize the Cook Inlet basin and remain committed to continuing our investment into the future to satisfy the commitments we have made to local end users.”

Chugach Electric, which gets about 50 percent of its annual natural gas requirements from Hilcorp, is seeking other sources of natural gas before its contract ends March 31, 2028. At the same time, the co-op is pursuing renewable energy to supplement its gas-fired generation. According to

Chugach Electric CEO Arthur Miller, the company is evaluating alternative gas sources other than the Cook Inlet basin as well as renewable resources like hydroelectric, wind, and solar.

“Chugach is taking a proactive and multidisciplinary approach in response to Hilcorp’s announcement earlier this year,” says Miller. “While it is recognized that natural gas will continue to be essential at least over the foreseeable future, renewable and other clean generation resources will increasingly play a significant and essential role in meeting long-term generation requirements. A key priority for Chugach is decarbonization, and we have a goal to increase renewable generation by 100,000 megawatt hours by March 31, 2025.”

Miller notes that the other electric utilities are also discussing opportunities for renewable generation projects.

Hilcorp provides 86 percent of Homer Electric Association’s natural gas supply, and that utility’s contract has only about one year left before expiring. In a May 2022 “Monthly Manager’s Report,” HEA General Manager Brad Janorschke mentioned Hilcorp’s meeting with stakeholders and noted that “any future [natural gas] contracts would be dependent on current drilling programs to secure additional reserves” and said the company is “following this closely.” ENSTAR, the region’s largest utility, has a contract with Hilcorp through April 1, 2033. About 90 percent of its anticipated natural gas needs are met for the next decade, and the company is looking further ahead.

“We are proactively and aggressively researching and developing future natural gas sources, including storage, so that our customers continue to receive the same level of safe and reliable service they receive every day of the year,” says Hobson, who notes that there is a potential that ENSTAR will import natural gas “if a viable, reliable in-state option is not available in the near future.”

Storage and Import

Although Hilcorp sounded the alarm about possible supply shortfalls in its upcoming contracts, utilities have been aware of the problem for years. Their customers have been spared from worry, however, thanks to stored gas.

MARCH 29-31, 2023