High over Kachemak Bay, Scott Waterman’s home located in Homer is an exhibit of energy-efficient technology. A heat pump sits on the wall of the garage. In front, a massive row of solar panels in blue angle towards the sun’s high-level of April.
Waterman who is a retired energy administrator, has been working on his facility for more than 10 years. However, he added, nowadays, more people are contemplating upgrades to their own.
“There are many people who are contemplating ways to make use of solar power to not reduce the cost of electricity, but to stay out of the fluctuation,” he said.
The volatility that’s predicted will be inevitable as electric and heating utility companies across Homer up to Fairbanks — a region called Alaska’s Railbelt must review where they get their energy.
For years they’ve been sourcing most all of their supplies in the form of Cook Inlet natural gas. Now for another time, in the span of 10 years, utility companies and legislators in Southcentral Alaska are talking about the import of liquified natural gas in light of rising energy shortages at Cook Inlet.
Producing oil and gas Hilcorp is a major player in the industry. It has the status of having a monopoly over Cook Inlet and provides certain utilities with up to 85 percent of their gas suppliesrecently notified that it would not be concluding new gas contracts, and that a few other companies are searching for gas from the inlet. This means Alaskans are likely to be paying more — perhaps even morein a state that already has one of the highest costs for energy across the country.
“That’s alarming,” said Waterman, who has worked for many years with renters of low-income in the Alaska Housing Finance Corporation. “If this trend persists, a lot of people will be facing difficulties making decisions of whether to pay for their electricity or purchase groceries for their kids.”
Many years of warning
The threat of gas shortages has been in the news for a long time.
Newspaper headlines of the 1990s warned of the fact that there wasn’t enough gas produced at Cook Inlet to keep business running for a long time, and the state has been forecasting for a long time that the demand of gas within Southcentral will exceed supply if there was no additional production. The most recent figures indicate that this could occur within the year 2027.
Yet, throughout the years Alaska remains largely heavily dependent upon natural gas, constructing storage facilities to store more, and subsidizing production via large legislative package.
“And we’ve just placed all of our eggs into the basket ever since,” said McKibben Jackinsky an ex-oil and gas journalist from Ninilchik located on the southern Kenai Peninsula.
She added that Alaska was always aware that natural gas is an intermediary between other hydrocarbons and more sustainable sources of energy. the fact that Cook Inlet wasn’t going to possess gas that would last the rest of its life. Then, she explained that Hilcorp plans to explore her property in search for more gas to satisfy its obligations.
“It’s the only leg that’s under our stool and if the leg moves we fold,” she said. ” We can’t think beyond that, know? We aren’t able to see past the development of something that can sustain us, in the end, without having this anxiety imposed on us every now and then about having to run out.”
Alaskans will not be frozen or suffer blackouts.
What’s at stake is the cost. In the near term utilities are looking at the possibility of introducing Cook Inlet gas supply contracts and the importation of liquified natural gas, also known as LNG which could cost more to Railbelt customers.
To obtain the LNG utilities may have to be able to go to the spot marketwhich is where the gas is available to be delivered immediately however, it could be nearly twice as costly than what they pay now. The cost is more volatile too. Other options include utilities. are required to sign longer-term contracts in the event that they are able to get these. The amount these contracts will cost is unclear, given that Alaska has not needed to import gas.
With decades of warnings what happened to Alaska arrive?
“I simply think it’s an element of human nature,” said Peter Micciche Mayor of the Kenai Peninsula Borough and the former manager of the natural gas liquefied plant in Kenai.
“We become very comfortable quickly after things are to be solved,” he said. “And it’s a difficult time establishing an overall plan for the long term and when we are able to mobilize and also when we do not.”
He is wondering what rising or more unstable energy prices could mean for his constituents.
“And that’s going be a major issue to us all,” He said. “I cannot imagine the Railbelt not having enough natural gas supplies.”
Deja vu over again
There’s a picture of the 1958 Anchorage newspaper that’s in Micciche’s Soldotna office. In large, block-like text, it reads “WE’RE IN” which marks the date that Alaska became the 49th state.
This was due to a large extent to oil discoveries made in the Kenai Peninsula. While searching for oil, the companies came on huge natural gas. They transferred to Japan from an liquified natural-gas plant located in Kenai. Producers also sold large quantities of the gas they found to fertilizers facility next the door.
Micciche who is currently the Mayor of the Kenai Peninsula Borough Micciche, who is the Kenai Peninsula Borough’s mayor, recalls working for Tesoro as an intern during summer during the summer of Kenai back in the year 1982. Then under ConocoPhillips He was in charge of the export facility that for a long time was the nation’s sole exporter of LNG.
“In just 22 weeks, from concept to operating, they designed and constructed the LNG terminal The platform, the pipelines as well as the receiving terminal located in Tokyo harbor and the regasification facility located in Tokyo as well as the ships that would move back and forth and pass the entire length of forty years.” He said.
The gas supply was ample available to move around, too many. Large companies such as Chevron, ConocoPhillips, Marathon and Unocal made gas from massive fields and then sold the extra in excess to Alaska utilities at incredibly cheap costs. The result was that costs were kept affordable for Alaska consumers, which is much lower than the national average.
However, it was clear that the market was not going to continue for a long time. Gas that was easy to access was exhausted, and with no cash flowing from abroad businesses weren’t keen on drilling costly new wells in the event that they had better prospects elsewhere. Agrium was a company that used cheap gas to make fertilizer, shut it’s Kenai manufacturing plant back in 2007, as gas prices went up.
The facility’s export facility experienced an drastic drop in the number of shipments it handled in 2005, and then largely stopped exporting in 2013. There were only small quantities of cargoes being sent out following the fact. ConocoPhillips closed the facility in 2017 because of the threat of competition.
This left only one gas market that was left local utilities. The market was just too small to keep big corporations in the game. They went away which meant that Southcentral Alaska was left wondering whether there was enough gas to keep the lights on and heating on.
“It’s certainly a case of history that is repeating itself” Anchorage said. Democrat Senator. Bill Wielechowski, who was co-chair of the Senate Resources Committee at that time.
In the absence of the desire to develop the development of new production, Southcentral Alaska was, like today, in danger of not having enough gas locally to supply its energy needs.
“They’re saying that we’re running low fuel at Cook Inlet. The same scenario is happening,” Wielechowski said. “I recall in Anchorage and going back ways, talking of brownouts .”
In 2010 The Alaska Legislature passed the Cook Inlet Recovery Act. The law provided incentives to petroleum and natural gas firms to file claims to the inlet and increased current taxes credits.The Alaska Public Interest Research Group which is a consumer-focused non-profit organization states that the state provided $1.64 billion of tax-free credits for gas and oil production between 2006 and 2016 in the year that the Legislature removed those credits.
Jackinsky, a retired journalist who covered oil and gas who wrote about the incentives, said they did not have to do with making money for the state’s budget. The government officials made it clear that the incentives were intended to help maintain the power.
“It was our intention to maintain our comfortable simple lifestyle, based to natural gas” the woman said.
In a way the law was a temporary success. It was instrumental in the introduction of an production company for oil and gas and Alaska did not have to import gas, which lawmakers had expected.
However, Wielechowski who is still serving as a member of Senate Resources today, said that it wasn’t able to solve the root of the issue.
“We’ve had these massive incentives we’ve offered throughout the many years,” he said. “And it’s not working. Therefore, I think we should examine what possible policy alternatives we could examine? Since clearly the policy we’re currently implementing isn’t doing the job.”
On the other side of this aisle Micciche had a similar issue, as Micciche said that it didn’t include any production requirements for companies.
“We must get lawmakers to get the Legislature to look further ahead at possible solutions to ensure we don’t take rash choices in the future,” he said. “You need to consider the kind of behavior you would like to see before creating incentives.”
Another outcome of the recovery plan The Cook Inlet Natural Gas Storage Alaska facility.
Lindsey Hobson is a spokesperson for Enstar the gas utility that operates the facility on Beaver Loop in Kenai. Enstar supplies gas to approximately 50% of Alaska’s population. It obtains the gas it uses from Cook Inlet.
The group is surrounded by CINGSA machines which compress gas prior to it being pumped through five deep wells just across from the road, explained that Enstar along with other utilities tap into the reserves at times when they require gas the most, especially on coldest days. The facility can store eleven billion cubic feet of natural gasapproximately one third of what Enstar customers consume each year.
“We are able to take larger volumes during the summer, and then keep them in storage and use them in winter when we need more fuel,” she said.
Hobson revealed that utilities are looking at additional storage as a partial solution, but this time. Storage alone will not solve Southcentral’s issues. She noted that a key factor in the past decade was the introduction of a new business into Cook Inlet.
“And that’s a crucial piece we’re looking for in terms of what is the next step going to be? What is that significant investment going to include?” Hobson said.
A Goldilocks company
When the supermajor petroleum and natural gas firms dropped interest at Cook Inlet and left in the mid 2000s and into the 2010s, a new firm came in -Hilcorp. Hilcorp Hilcorp, which is a Houston Texas-based business who’s strategy of rehabilitation of older fields of oil and gas was a perfect match for the basin’s aging.
“Hilcorp was an Goldilocks business,” said Antony Scott an analyst in the field of commercial at the State’s Division of Oil and Gas at the time Hilcorp was able to enter the inlet.
He stated that Hilcorp was large enough that it had enough capital for the investment in its inlet as well as the experience to revive fields.
“But the prizes were modest enough that the prizes offered were quite a good match to their capabilities and goals as a business,” he said.
Hilcorp used a method that was successful in the ageing oil and gas basinto squeeze the last bit of production from platforms and rigs that were in use and then get them back up and running. The CEO of the company at the time explained it as an “quick and effective program, with a remedial component,” according to a 2012 report in The Anchorage Daily News.
Scott said the model was more cost-effective for Hilcorp than the construction of large new projects, which would take years to complete and require several years to be approved.
The result was that Hilcorp outperformed other companies that attempted to enter the market and seized a exclusive right to Cook Inlet natural gas. Hilcorp bought Chevron’s assets, then Marathon’s. It hired a team of all Alaskans and concluded long-term contracts with utilities.
However, Scott has said that the plan won’t ensure that the basin will continue to operate for long. Without a commitment to build new platforms that can access the difficult-to-access Cook Inlet gas, there was always an expiration date, particularly since the demands to use gas within Southcentral remains a mystery.
“What is needed now is the new sources of energy,” Scott said. “And the issue when you’re bringing in new sources is the risk to geology is much higher. You don’t really know the kind of resource you’ll come across.”
In the spring of last year, Hilcorp told utilities it could not be able to guarantee future contracts, and it wanted utilities to less rely on the company to satisfy their energy requirements.
They’ve made no public statements about the reasons behind their decision. The spokesperson for the company Luke Miller, in an email message, said that the company is in talks with utilities to come up with ways to move forward.
“In the past few years, as Hilcorp is being asked to shoulder a greater share responsibility, we thought it was sensible and responsible to inform Railbelt utilities about our long-term vision regarding Cook Inlet. Cook Inlet basin, particularly since other producers have left and the investment levels of non-Hilcorp have dropped dramatically,” Miller statement said the company is planning to invest more than one billion dollars in the development of new initiatives in Cook Inlet over the next five years, which includes the drilling of new gas wells.
Insufficient interest from the industry
Experts in the field, such as economists and experts from industry such as Scott who is the head of the inlet isn’t as lucrative the company Hilcorp like it was used be. Innovation is becoming harder and more costly, meanwhile Hilcorp’s market remains tiny.
“We are just having a difficult time in which the risks as well as the size of the market as well as the incentives don’t seem be a perfect match,” Scott said.
In the State Senate hearing in January, Department of Natural Resources Commissioner John Boyle warned of low interest from potential new companies within the basin. Today, there’s numerous smaller local oil and gas firms operating in Cook Inlet, like HEX and Blue Crest. However, they’re not producing enough to get big contracts.
“We are seeing an environment in which there’s an urgent need for a policy debate regarding whether the route we’re currently on is viable for providing electricity to Southcentral into the future.” Boyle told lawmakers.
Jackinsky who is a journalist who retired Jackinsky, a retired journalist, has said that these discussions are long overdue.
“There was an urgent need for a policy debate in the past, how many years back?” she said.
She’s irritated with the fact that the Railbelt is depended on natural gas even knowing for a long time the gas resource was finite, and that shortages of supply were looming.
It’s now personal. With gas demand on the rise and the remaining years on a number contracts, Hilcorp is searching for gaz in her own backyard. Hilcorp is drilling new wells using onshore pads located on the western side of Kenai Peninsula, where it’s more affordable and simpler to discover. The gas that comes from these wells will not be a solution to the problem as they don’t substitute for the production levels that is possible from new fields. However, it could help fill in some gaps from Cook Inlet production.
Jackinsky stated that Hilcorp has asked Hilcorp for subsurface rights for her property, which is an area in Ninilchik handed over generations by her ancestors who were homesteaders.
The mother and daughters have repeatedly told Hilcorp not to do so, repeatedly. Hilcorp will not comment on discussions they’ve had with landowners in the southern portion of the peninsula.
However, some residents have joined the company.Nearby the business is burning gas to eliminate the surplus while it tests new wells, an incredibly noisy process called flaring.
“That easy lifestyle” which the state has spoken about, and even provided subsidies for — it might be sustaining it for certain people. But it’s ruining this lifestyle for me and my friends,” she said.
In search of the perfect home run
It’s been reported that the Gas-dependent Railbelt utility companies are working on other methods to use natural gas to provide electricity to Alaskans home in the coming years. They meet monthly together with two state-based groups in order to come up with ways to address their Alaska gas supply issues.
Hobson the spokesperson for Enstar, stated that the company plans to release an analysis of possible solutions by June.
“I believe all possibilities are available At this point,” she said earlier this year.
What do you have to choose from?
In the near term utilities are seeking alternative ways to obtain natural gas.
Certain customers with contracts that are near expiring are signing agreements to purchase supplies from other utilities who have a few years left before their contracts expire.
Homer Electric Association, for example, obtains the majority of its electricity is sourced from Cook Inlet natural gas through an agreement with Hilcorp which expires in the year following — the earliest expiration date of the Railbelt. In the last month, the utility has signed a contract with Enstar to purchase some of its gas. the contract between Enstar and Hilcorp will not expire until the next 10 years. Since it’s a gas utility Enstar has less options to diversify its energy generation from gas in a shorter period of time as electricity utilities have.
Terms of the contract that was signed between Enstar and HEA aren’t yet accepted at the Regulatory Commission of Alaska and thus aren’t publicly available according to HEA which is why it’s difficult to predict how this will impact the cost for HEAcustomers. The Fairbanks’s Golden Valley Electric Association entered into a lower contract with Enstar this year, which included gas at a modest premium over what Enstar currently pays for gas.
In the present utilities are looking into the possibility of import LNG from other states. Imported LNG is more expensive than local gas utilities receive and could also increase rates for residential customers by up to 30% in certain instances.
This season, Chugach Electric Association CEO Arthur Miller told state legislators that importing isn’t something utilities would want to undertake.
“We believe that this would be a very unlucky scenario,” Miller said. “A state that is as wealthy as Alaska has natural gas, it would be required need to bring in LNG. We are aware that we require gas, and we’d like to be able to offer an affordable price for this gas. If that’s all is required to obtain gas, we’ll look into that.”
Homer Electric Association said it’s doing cost studies and analysis to consider receiving LNG from a variety of suppliers. Enstar also has an study in progress regarding gas supply options from outside the state.
Pricing would be based on whether the utility gets this LNG via either the marketplace on spot or via long-term contracts. Prices for gas sold on the spot market are considerably more unstable. However, renewables advocates fear that the long-term contracts will make utilities liable to costly contracts and take away any incentive to diversify their portfolios into other sources of energy.
Importing will require building an infrastructure to transport gas, and incorporating these expenses. Marathon currently owns the former facility for export, is looking at turning the plant to one of its Import facility.
The supporters of the long-running Alaska LNG project say it’s time to talk about the plan once more. The plan will send natural gas through up the North Slope to Nikiski for export and use within the state.
Costs have been a long-standing issue with this Alaska LNG plan and former employees of the project have said it’s unlikely to ever occur. There’s the possibility of a smaller plan, called the bullet line which is also known as “ASAP line” that would be a 36-inch diameter pipeline that could bring gas to into the North Slope for use domestically. Without buyers from overseas with financing, it’s to be financially infeasible.
Micciche Mayor Micciche Kenai Peninsula Borough mayor, stated that he hopes the enthusiasm of potential buyers overseas could eventually help push Alaska LNG project Alaska LNG project across the finishing line.
“I think it could buy us time to make an environmentally responsible transition, and where renewable energy can be integrated into the global portfolio” he added.
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Renewables advocates have said that the right time to make that transition is now.
Wind and solar projects are now cost-competitive with natural gas, and some privately owned power companies have met with municipalities and utilities and municipalities with the intention of install large-scale projects on their grids.
Alaskans from all political horizons are beginning to recognize that renewable energy is going to have the capacity to generate a larger portion of Alaska’s energy in the near future. Republican Governor. Mike Dunleavy’s administration is currently working on a bill that would help make geothermal projects cheaper. Also, Hilcorp is considering making some of its former Cook Inlet oil platforms into Tidal sites. This is on top of a number of other tidal projects which could turn Cook Inlet’s huge tides -some of the largest in the world into energy, though it could take years to bring to the point of.
Presently, the Bradley Lake Hydroelectric Project, situated across Kachemak Bay, provides the lowest cost of power to the Railbelt. Utilities along the Railbelt are a part of and draw energy from the project.
However, it’s among the few large-scale green energy initiatives in Alaska. Chris Rose with the Renewable Energy Alaska Project believes that utility companies aren’t taking enough action and it’s time to stop waiting to hit the big home run.
“I believe there’s always the idea that something will be introduced and alter things”,’ he added. “But the reality that we don’t have an oil pipeline in place even though we’ve been discussing it for forty years. And we’ve not received a discount for residents for gas or oil in Alaska So, even though we have a gas and oil industry however, we pay some of the highest energy prices in the nation.”
He has been working to achieve legislation that is passed to establish an energy standard based on renewables that would oblige electric utilities to use the required percentage of their energy from renewable sources at a particular time.
In the present, these utilities are aiming to integrate renewable energy within their overall portfolio. Homer Electric Association, for instance, has a target of achieving 50 percent green energy in 2025an objective that was set by the then-Gov. Sarah Palin’s government. The utility claims that it is best for the company to not be too dependent on one company for energy.
However, with just two years from the non-binding deadline, HEA gets just 14 percent of its power through its Bradley Lake hydro project. The company estimates that it can cover about 25 percent of their needs through renewable energy in 2027, a year when gas demand is anticipated to exceed supply through an additional hydro-related project solar project as well as a landfill gas project in an January report to the Regulatory Commission of Alaska.
Rose stated that aspirational goals aren’t enough. The bill would penalize utilities up to twenty dollars per megawatt hours if they fail to meet specific standards, such as 25 percent renewable by 2027 and 80% renewable by 2040.
He added that these standards will aid in creating competition between private energy firms which is something the Railbelt does not have currently — and will generate power for the states that could be sold back to utilities.
And he also stated that, in contrast to LNG that is sold on the global market, the energy generated by renewable projects in Alaska might be more consistent priced.
He also said it’s not all about Alaskans electricity and gas bills, though that’s certainly crucial. It’s an important factor for the state’s economy in general.
“We already pay very high prices for energy across the Railbelt,” Rose said. “And therefore, we cannot really afford to raise our energy bills. This will impact companies, and that will affect people’s choices to invest in the country and even to move here.”
Rose’s proposal, which was extensively rejected by the utilities and utilities, was not passed prior to the end of the regular session. The majority of the time lawmakers were focusing on the big-ticket issues like those of the PFD as well as school financing instead of energy.
In the absence action from utilities and lawmakers Some Alaskans are taking things in their own hands.
Waterman, a Homer resident, has said that the solar panels along with heat pumps, as well as other energy-efficient upgrades in his home help to reduce the stress he’s putting to the system.
“If we could make it possible to get 25percent of houses situated on Kenai with 5-10 Kilowatts of solar power on them, it will make a substantial dent in the amount of gas Homer Electric has to purchase — and stop our costs from increasing quickly,” he said.
Being an avid advocate of energy efficiency, Waterman is maybe more aware of his own energy costs than the majority of people.
However, at the close of summer, when they turn off their lights and raise their thermostats All Alaskans should think at how their daily lives might be affected if the consequences for doing this are much more costly.
