While a shortage of natural gas in Alaska seems highly unlikely to most people, it is a regular concern for the workers and residents in South-central Alaska. Historically, the region around the Cook Inlet had been known as an abundant source for gas production and distribution, with more than 90 percent of the area's electricity coming from natural gas.
However, that changed 10 years ago when the deliverability and demand curves started to converge and production costs per MMBtu began to rise because producers were not finding as much gas as before, and consumers were beginning to use more, according to Navigant’s Bob Gibbin the July issue of NG Market Notes.
While producers were drilling less and the Regulator Commission of Alaska hesitated to approve gas purchase contracts that contained higher prices for consumers, local gas and electric utilities were working to find solutions such as storing gas in some of the depleted gas-producing reservoirs around the region. Utilities, legislators, landowners, regulators, producers and developers teamed up to bring the proposal to fruition, and it now seems likely that the April 2012 in-service date will keep the power flowing in Alaska.
As Gibb notes, however, the storage solution will only avert the problem for a short time. Forecasts regarding the remaining recoverable reserves in South-central Alaska predict that in a few years, the deliverability and demand curves will once again converge. This creates an "economic stretch" for developing the reserves in a market that has yet to achieve year-round production.
Building more storage facilities is one solution, but Gibb points to several alternatives that could better fit the time frame, such as the development of a "bullet line" that would ship gas from the Prudhoe Bay and Brooks Range gas reserves to South-central, by way of the Fairbanks market. Granted, this would be an expansive and extensive undertaking, as the line would cover 700 miles of tough terrain.
Other options include a line from Prudhoe to the contiguous United States (although this couldn't start before the deliverability issue pops up again); a new LNG regasification facility that is both export capable and combined with onshore storage; and renewable energy, such as wind farms, hydro, solar and geothermal solutions.
The latter is also not without its drawbacks, and as Gibbs says, "the most likely resolution is one that uses a combination of the alternatives being explored."