Importing LNG: ‘That’s just the way it is’
June 27, 2011
by Patti Epler for Alaska Dispatch, June 24, 2011
Southcentral utilities are working on a plan to begin importing liquefied natural gas by 2014, a measure they have now determined is necessary and a “high priority.”
In a presentation this week to the Regulatory Commission of Alaska, members of the Long Term Gas Supply Work Group said nothing can prevent the state with one of the largest untapped supplies of natural gas in the world from importing gas to provide heat and electricity for the state’s most populous region.
“Our only option to solve with certainty our gas supply needs is through the importation of LNG and we see no way around that,” Dan Helmick, manager of regulatory affairs for Anchorage Municipal Light & Power, told the commission Wednesday. “Whether we like it or not, the conclusion we come to is that’s just the way it is.”
The working group is made up of ML&P, Enstar, Chugach Electric Association, Matanuska Electric Association, Homer Electric Association and Donlin Creek, a proposed mining operation. The Railbelt utilities, along with the Alaska Natural Gas Development Authority, have been warning for years that importing LNG is a real possibility, even if it is politically divisive.
Now, the possibility has become reality. The group believes there will be a shortfall in natural gas in 2014. No North Slope gas line — whether in-state or spur line from a big gas line to Canada — can be built that quickly. A Susitna Dam hydro project isn’t expected to be operating before 2022 at the earliest.
“Inaction at this point in time is just simply not an option for the utilities anymore,” Helmick said.
Helmick said the commission, which will ultimately have to approve the cost of power generated by imported LNG, needs to have a “very, very clear understanding that this is a high priority matter.”
“The take away is that we think 2014 is the number and that’s what we better be working for,” he said. “And there’s no silver bullet.”
Decisions need to be made soon. The utilities will need to start the permitting process with the Federal Energy Regulatory Commission and the state, and, Helmick said, “there will be a lot of engineering studies that have to be done and they require investment decisions this year.”
The group envisions buying LNG on the global market and bringing it in on tankers to Cook Inlet. The ships might need to be “ice hardened” to get in during the winter, when the demand for gas is the highest. Dock facilities will be needed as well as re-gasification facilities that could either be on shore or ship-based.
The Southcentral market is small, which means fewer customers to share the cost, a situation that Helmick called a “regulatory and ratemaking challenge.” The volume needed to meet customer demand will be low at first, but would ramp up by 2018 when the Donlin Creek mine is anticipated to come on line, he said.
Cost of importing LNG substantial — for utilities, consumers
Helmick also cautioned that officials don’t know how long they’ll need to import LNG. “We may need it four years, we may need it 30 years,” he said, adding that will be a factor influencing “how we approach recovering and dealing with the costs associated with this.”
Either way the cost to the utilities as well as the consumers is going to be substantial. “It’s going to require a significant financial undertaking,” Helmick said.
Making sure consumers continue to have reliable power is the top priority for the utilities. “We may end up paying more for something than we otherwise wouldlike to, but we just don’t have certain luxuries,” Helmick said.
Despite warnings in recent months that LNG importation was looming, the commission took the news with some trepidation. Chairman Robert Pickett said he had a “knot in my gut” mainly due to the timing — or lack of time to put it together.
Three years — the 2014 deadline — is barely enough time for the state to build a five-mile gravel road, he said, let alone a completely new system to deliver gas to hundreds of thousands of consumers.
“It does seem that this whole process is going to put some very interesting market dynamics into the market place that are highly unknown as far as how it’s going to affect not just the gas supply for the utilities, but the in-state gas pipeline, renewable energy,” Pickett said.
As for consumers, “we’re throwing a whole new cost element into their utility bill and they’re already convinced they’re being charged too much,” he said.
Chris Rose, executive director of Renewable Energy Alaska Project, attended the hearing and said Helmick actually made a good case for moving ahead with renewable energy projects that could pick up some of the load for the utilities.
“The uncertainty that’s associated with the LNG market supports the move to renewable energy,” he said, noting that Helmick acknowledged the utilities had no idea how much they’d have to pay for gas on the global market let alone the cost of the facilities necessary to process and distribute it.
“We’re moving toward more uncertainty with LNG,” he said, but renewable energy has a fixed cost. The resource itself — wind, for instance — doesn’t cost anything at all so the price tag comes with the facilities.
Chugach Electric Association recently agreed to buy power from the Fire Island wind farm being developed by Cook Inlet Region Inc. ML & P has declined to sign on at the cost CIRI thinks it needs to develop the facility.
Importing LNG is going to mean higher prices for electricity and heating, without a doubt, Rose said.
“It clearly demonstrates why we need to diversify our energy portfolio here in Cook Inlet,” he said.
Contact Patti Epler at patti(at)alaskadispatch.com