How much gas is really left in Cook Inlet? Probably a good amount, but it could be costly
December 22, 2009
A note from REAP: The state Division of Oil and Gas today released what will be a widely read report that attempts to estimate just how much natural gas is left in Cook Inlet. It’s an important issue worth looking at in more detail so we’re posting the report here and we’ve summarized some of the key points in it below.
The report’s conclusion is there probably quite a bit of gas left, including in as yet undiscovered fields, but the question is what it will cost to get it and what other options are available such as renewable power. The issue is of concern because Southcentral Alaska depends on natural gas – 90 percent of our electricity comes from natural gas and most of our heat – and we’re running low on deliverable supplies. The legislature is also looking at whether we should diversify by developing other energy sources such as hydro and geothermal.
Division of Oil and Gas Director Kevin Banks, in a memo he transmitted with the report, acknowledged the uncertainties about the cost of accessing more natural gas, and the need for more conservation and diversification of our energy sources.
“Continuing current efforts at energy conservation and efficiency will create economic benefits. Steady and deliberate conversion to alternative energy sources will result long-term in a more diverse and reliable energy grid. The local market took some time to degrade and will take a bit of time and a lot of effort to recover. Cooperation and coordination among all of the stakeholders is critical.
Consumers relying upon Cook Inlet natural gas to meet their energy needs should know that while there is no need to panic, there is also no time to waste. Although it is apparent that sufficient reserves remain to provide for railbelt(sic) needs for the coming decade or more, the cost of providing energy to these same consumers is likely to rise. The low-hanging fruit in the Cook Inlet has largely been picked and as such one thing seems clear—the basin is not running out of gas but it could well be running out of cheap gas. Investments in storage development, reserves replacement and pipeline infrastructure will place additional upward pressure on consumer energy prices.”
There was lots more of interest in the report. The caveats by the authors about the report and the data in it are also worth noting. For example, besides the fact that estimating gas reserves is an imperfect science, the authors state that:
*The economics of drilling additional wells, recompleting existing wells and the ability to economically transport and sell the gas into the Cook Inlet market are important commercial issues that were not addressed by this work.
*Changes in future economic conditions will influence gas availability affected by contract obligations, cost of maintenance, investment capital availability, and return on investment.
*We recognize, but have not attempted to quantify, potential undiscovered gas resources in unexplored areas or underexplored plays within the Cook Inlet basin.
*This forecast assumes that exports of gas from the basin will be curtailed during demand shortfalls, and cease altogether at the closure date of the current export license (March 31, 2011). It also assumes that no new significant demand will be developed until additional resources are discovered in new fields.
The report also does a lot of describing of the situation with the Cook Inlet natural gas market, but it largely boils down to a few key issues. Drilling for new gas fields is expensive and so is keeping aging fields pressurized. Southcentral Alaska is a relatively small market, which means there’s not a lot of incentive for producers to go digging around for new gas fields. We’re also in a bit of a pickle because of the difficulty of supplying the wild swing between summer and winter gas demand with demand spiking exponentially higher in the winter. A steady demand is much easier (read cheaper) to manage for a variety of reasons.
Media coverage of the Division of Oil and Gas report: