19-11-02 A new report spells out a bleak future for Cook Inlet natural gas. The analysis by Kenai Peninsula Borough staff predicts the known reserves of natural gas in the Cook Inlet Basin will last about 10 years. And unless more gas is found here or piped in from elsewhere, the Kenai Peninsula Borough economy could suffer.
The analysis of current trends in the oil and gas industry was compiled from several industry, state and federal sources and delivered in a report to the borough assembly by Bill Popp, the borough's oil and gas liaison. Popp, an assembly member until early July, was hired by the borough primarily to help promote a natural gas pipeline to the peninsula. In a lengthy memo to the assembly, Popp outlined several oil and gas issues, his first such report since assuming the new position.

Current estimates put known reserves of natural gas in the basin at 2.3 tcf, according to the Alaska Department of Natural Resources. "This is the equivalent of a projected 10-year supply at current levels of demand if new reserves are not identified and developed," Popp said in the report.
A 2001 Alaska Oil and Gas Conservation Commission report cited by Popp says South-central Alaska consumes about 220 bn cf of gas annually. Other sources noted that some 34 bn cf is used to generate 85 % of the electrical power used in South-central. Natural gas utilities consume another 28 bn cf per year, Popp said.

More than six out of 10 Alaskans use gas produced in the Cook Inlet Basin for heating and lighting homes and businesses, he said. By far the largest consumers are the Phillips LNG facility and the Agrium urea plant, which together use about 132 bn cf per year. Statistics indicate, however, that the known reserves could begin declining next year and that the decline will accelerate, reaching near depletion by 2012, Popp said.
"Immediate effects of this potential decline may be felt in the market as early as this winter, with the possibility of supplies being outstripped by demand during peak-use days if the South-central region incurs protracted stretches of subzero temperatures," Popp warned. Shortages could become more pronounced by 2006, he added. "The economic impacts of these potential shortages for the Kenai Peninsula Borough are of specific concern to the administration," Popp said.

If shortages were to severely affect Agrium and Phillips, it could put as many as 1,000 jobs directly at risk and cut deep into the borough's tax base, he said. The two plants generate almost $ 3 mm in annual property taxes and their payroll and supply purchases pump more than $ 130 mm into the economy, he said.
Avoiding future shortages will mean finding and exploiting new reserves, Popp said. From 1 t to 3.4 tcf of gas is estimated to lay undiscovered beneath the basin. Companies such as Marathon Oil, Unocal, Aurora Gas, Northstar Energy, ConocoPhillips and some smaller companies have met with some success, but even at best, Popp said government projected consumption rates suggest that those supplies may only extend the basin gas supply out from five to 15 years.

Long-term, ensuring a steady supply of gas to the peninsula will require piping it from elsewhere, such as the North Slope. But there are considerable hurdles to clear before a pipeline is built, not the least of which is that at the current estimated cost of delivering gas to the peninsula, a pipeline simply isn't feasible economically.
"Efforts will need to be made to reduce, wherever possible, the delivered price of Alaskan North Slope natural gas to the South-central region if this option is going to prove to be a viable answer to the long-term gas supply needs of the South-central region," Popp said.