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There is a possibility of a shortage of natural gas from Cook Inlet, and this is not an issue that can be ignored.
Southcentral Alaska needs natural gas to heat homes and other buildings, but when it can't produce enough locally, it has to be imported as liquefied natural gas (LNG). That's not good, but it makes for cold winters.
The cost of imported LNG could also double, warned Enstar Natural Gas Corp., a natural gas supplier to Anchorage and other south-central areas, home to most of the state's population.
Natural gas heats our buildings, not just our homes, but businesses, hospitals, schools, universities and other facilities, including Joint Base Elmendorf-Richardson.
Enstar has no alternative to natural gas. Renewables like wind and solar provide electricity, while gas provides heat. The state's oil and gas department predicts Cook Inlet gas fields will start declining in 2027, so Enstar needs to ensure it has enough.
Shortages could come sooner: Enstar has said it doesn't yet have contractually secured enough gas for the winter of 2025-26.
Electric utilities like the Chugach Electric Association and the Matanuska Electric Association are doing relatively well. They also rely heavily on gas, but have alternatives like hydroelectric, wind and solar. Large-scale wind and solar projects and hydroelectric expansions are planned that will reduce the need for gas, but they cannot replace it in the short or medium term.
We’ve known this for a long time. Utility CEOs like Enstar and Arthur Miller’s John Sims and Tony Izzo of Chugach Electric and Matanuska Electric have been loud about it. Even big gas producer Hilcorp Energy has warned. Is anyone listening?
Some did. Last winter's severe cold snap and near-shutdown of the natural gas system, though related to mechanical issues rather than gas supply, drew attention to the problem and spurred Congress to act last spring.
Lawmakers have done important work on energy, particularly in streamlining regulations on transmission and renewable energy. This is important because without it, new wind, solar and hydro development would likely be unprofitable.
We solved that, and it was a great accomplishment. But we didn't do much about natural gas. The inlet is known to have untapped gas deposits, at least one of which could have been drilled and put into production in time to alleviate the gas shortages of 2026 and 2027. What happened?
It's a bit complicated. The quickest way to open up new gas supplies would be to lower the state's one-eighth royalty on Cook Inlet gas, at least for gas sold to utilities. But legislation to do so has stalled. That includes a bill in the state House of Representatives by Rep. George Rauscher (R-Sutton) and a bill in the Senate by Gov. Mike Dunleavy. The House delayed passing the bill until just two days before a required recess on May 15. The Senate bill also appeared to be moving slowly.
Why? There's room for criticism, but I think lawmakers were being cautious and didn't want to give away public funds too quickly. But it's unclear why it took so long. The royalty bill was in the House Finance Committee for two months. The Senate version was in the Senate Resources Committee for roughly the same amount of time.
To be fair, lawmakers wanted an independent analysis of whether royalty cuts were justified. They didn't want to rely solely on the Department of Natural Resources' analytical work.
But why did it take so long to hire a consultant to do an independent analysis? The firm they hired, Gaffney Klein Associates, didn't present its findings to lawmakers until May 5, 10 days before the session adjourned.
A temporary royalty reduction should not have caused this hesitation. We have reduced royalties in Cook Inlet to keep aging platforms operating, and we have done the same for smaller fields on the North Slope. The Department of Natural Resources can also reduce royalties administratively, but this is a complex process.
But royalty cuts are only a short-term solution. While they may buy some time, Cook Inlet's problems are more complicated. Most importantly, the market for natural gas is very small. It's mostly just utility companies. These companies buy gas under contracts, and contracts are signed from time to time.
If explorers are lucky enough to make a bigger find, what will they do with the gas? The former ConocoPhillips LNG plant, which provided an export market by shipping it to Japan, has long been closed, creating a major disincentive for new investment.
However, we are beginning to move towards a solution.
While not addressing the main market issues, Congress did pass a bill to strengthen the Alaska Industrial Development and Export Authority's (AIDEA) ability to finance Cook Inlet gas projects. But this can't be done immediately. It may help larger, longer-term projects, but it won't address the shortfall in 2026 or 2027. A temporary royalty reduction would have done the trick. Cook Inlet drilling has essentially been lost for a year.
That's not a very good picture.
Tim Bradner is publisher of the Alaska Legislative Digest and the Alaska Economic Report.
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