Alaska’s Cook Inlet Gas ‘Shortage’

“Unless Alaskans demand more transparency, the Cook Inlet basin will be the next casualty in a campaign to appease a climate change narrative and to implement Environmental, Social, and Governance policy.”

To create a hero, find a villain. To “solve” a problem, create a crisis. This is the context of Alaska “green” energy policy that is victimizing the state’s bountiful oil and gas by 1) restricting lease sales 2) blocking pipelines, and 3) ignoring LNG opportunities. The nefarious goal is to increase prices to force conservation and help make politically correct energies ‘economic.’

Why create a crisis?

Energy generation in Alaska is huge. Yet Alaskans are paying some of the highest rates for energy in the U.S., with southcentral ratepayers forking out nearly one billion dollars annually. Alaskans would love to see a natural gas pipeline and financed by the Permanent Fund, but maybe only an energy crisis would get it done.

For a privately financed pipeline too, ratepayers might be more accepting of price increases to fund it if they think energy supplies are dwindling. If a crisis looms, consumers could benefit from the favorable economics of LNG imports that could compete with Alaska producers, but imagine the permitting hurdles in the absence of a bona fide crisis? And we all know there are large financial and environmental “anti-carbon” interests bent on eliminating carbon-based energy altogether. To move the needle in today’s investment climate, a crisis is required.

Déjà vu: We have all been here before.

Circa 2010, when Sen. Dan Sullivan as Department of Natural  Resources Commissioner wrote numerous columns written spreading fear of “brownouts” and low gas supplies.

This led to the creation of state-subsidized credits for drilling and production through HB280 (Cook Inlet Recovery Act),which proved disastrous for everyone as the State reneged on its tax credits. AIDEA lost millions when a company it backed, Buccaneer, went bankrupt. SEMCO energy, at the time a Warren Buffet owned company,  used the urgency of a crisis to obtain the legal right to “take” private property using the powers of eminent domain. 

CINGSA—a private gas storage facility—rose to the rescue. In retrospect, did ratepayers benefit? Was there a real crisis, or were circumstances manufactured to justify higher rates and concessions to businesses, like CINGSA’s certificate of need and public convenience? And is it coincidental that the same playbook is emerging yet again for carbon capture utilization and sequestration (CCUS)?

What’s going on now?

Last month, four seemingly random meetings occurred. First, the Regulatory Commission of Alaska met on Dec. 13 to discuss Renewable Portfolio Standards and tariff obligations like “forced” power outages.

Second, the DNR met that same day to announce the winners of the Cook Inlet lease sale.

Third, on Dec. 14, at an Alliance Breakfast, the deputy commissioner of the DNR discussed Cook Inlet lease incentives. Then, Anchorage Mayor Dave Bronson held a press conference highlighting his Coalition of Southcentral Mayors to address the looming energy crisis.

Carbon dioxide (CO2) control is what connects all these dots. But not just any carbon, only those that must be reduced in order to meet a so-called energy transition by 2030–oil and natural gas. What’s so special about 2030? Possibly the answer is that the World Economic Forum, the United Nations, and the World Health Organization all have stated they will implement their plans by 2030.

How much pressure is being exerted in Alaska? The meetings above give the public a glimpse of what’s coming by 2030 and to what degree global initiatives impact Alaskans.

Gaslighting? Or Gas Producing?

Creating an energy crisis starts where it’s felt most acutely—in population centers. The Railbelt utilities produce well over 80% of the electricity in the state. Most of the natural gas for electricity comes from the Cook Inlet, where Hilcorp, the current major supplier, has said their contracts will begin to expire around 2028 (Pg 1 – Executive Summary). Logically, this would mean we need to open up new long-term leases. Under the DNR’s leasing program, the entire basin is up for grabs. The interested parties are selected by the state based on their profit share for a term of only five years (2028), paying of cash bonuses and annually increasing lease payments. 

As the DNR announces their lease winners, some will celebrate ‘resource development’ without asking the tough questions: what are the drilling commitments and assumptions for the Cook Inlet? Gov. Mike Dunleavy along with the Coalition of Southcentral Mayors want us to believe that Alaskans need to act to incentivize exploration to avoid forced outages before 2027. And yet, known reserves, which can be massive, are largely kept hidden and are simply estimated based on the best reservoir engineering analysis available to the public. (Presently, only “producible gas” is disclosed in plans of operation submitted to the DNR or contained in reports submitted to the Alaska Oil and Gas Conservation Commission.

Furthermore, until recently the USGS, the DNR, and the AK Division of Oil and Gas all advertised there are more than enough proven reserves to meet demand past 2030—not counting the “probable” or “possible” reserves. But, in a reversal, on Dec. 18, 2023 (Errata, Cover Page), the Department of Revenue issued a corrected production forecast for Cook Inlet. So, what changed?  

Cook Inlet Context

In his State of the State speech in January 2023, Gov. Dunleavy highlighted the CO2 storage potential of the Cook Inlet, but nothing was mentioned about the deficiency of Cook Inlet gas leasing or production. Beginning in 2022, presentations about an Alaska Gas line all show that the Cook Inlet must turn into a CO2 sequestration basin (Pg. 11) to unlock the ammonia, hydrogen, and LNG markets for our “Asian” allies. 

Reportedly, Alaskans will only obtain their small share of this market if the utilities decide to tie-in to the new gas line. Further eroding the interests of ratepayers is the view by the utilities that natural gas is a transitional fuel—essentially a bridging, too, before renewable portfolio standards are adopted.

These standards, which were voted down during the RCA public meeting, would drive energy costs up tremendously by 2030, siphoning hard earned wages from average Alaskans and re-distributing them to inefficient utilities. 

This will happen if we lose natural gas as the primary fuel to generate electricity and mandate that gas be replaced by renewables like wind, solar, hydro, and thermal. All very costly and unreliable. Right now, there is talk of further utility rate increases, with decarbonization targets to meet 2030 goals through fuel savings and modified consumer behavior. In other words, if gas isn’t available, ratepayers are forced to adopt alternatives. 

Why is no one discussing the obvious and less costly option of importing LNG? When Henry Hub prices in the gulf hover about $3/Mcf, and transportation from there to Cook Inlet is roughly $2.50/ Mcf, gas can land here for under $6/Mcf. Long-term utility contracts, however, are closer to $12/Mcf. That’s quite a spread. Renewables will likely be even less “affordable.”

In the study done by Berkley Research Group, the imports discussion focused on options from repurposing the Marathon Refinery to a Floating LNG facility to make up supply gaps. Interestingly, in trying to secure electricity rates under $0.10/kWh, the Energy Security Task Force projected the cost of supply for the state-owned projects to be around the $10-12/Mcf marker.

To the State, the optics of an LNG import facility in Alaska is rife with conflict, but it would benefit ratepayers. And it could help propel support for the ultimate objective which is the AK LNG project, along with its decarbonization and Railbelt electrification components. Citizens should pay attention to 8 Star LLC (pg. 23 of presentation) which will be the entity toraise funds for an in-state gas line project as well as to negotiateutility supply contracts. 

As with many crises, it is not the headlines that deserve our attention. Behind the scenes, the laws we implement and the expanded powers we create for agencies tell the real story. Consider this proposed amendment to Alaska Statute 42.05.141(pg. 133, Action A-2.2), which will broaden the RCA’s powers. Specifically, it states that in creating electric service rates, “…the commission shall promote the conservation and diversification of resources used in the generation of electric energy.” As it did with CINGSA in 2013, RCA powers will be ready to deploy in response to yet another Cook Inlet gas supply crisis in 2023. 

Assumptions of Grandeur

There are two facts buried in the DNR Cook Inlet Reserves Study and the Berkeley Research Group Report relating to Cook Inlet’s development plan, both of which support AK LNG’ goal to build a pipeline to monetize North Slope gas. First, Hilcorp just entered into a 20-year agreement to supply North Slope (Pg. 64) natural gas to the Interior Gas Utility which “…will drive future demand of Cook Inlet gas down in the future.” Thus, Hilcorp is betting on Gov. Dunleavy’s ability to deliver on AK LNG. This will help ‘transition’ their Middle Gas Shoal (MGS) platforms to CCUS. The second fact is that within the AK DNR Cook Inlet Reserves Study, no drilling is assumed to take place after 2030 (Pg 9).

In any other era, such a plan could be perceived as collusion as our elected officials appear to be taking Cook Inlet out of play as a potential energy supplier. Hilcorp is not the only player in this basin, so why should Alaskans not be alarmed at a policy of no drilling in the Cook Inlet after 2030? 

Alaskans deserve straight answers: Did Cook Inlet producers indicate a decline in production or an inability to meet future demand—thus leading to a perceived fuel shortage for southcentral utilities? Or, alternatively, did shortages suddenly appear because our utilities project reduced demand due to our forced “transition” to renewables? 

Unless Alaskans demand more transparency, the Cook Inlet basin will be the next casualty in a campaign to appease a climate change narrative and to implement Environmental, Social, and Governance policy. Who wins and who loses? You decide. 

Maybe, as the possessed Edward Wayne Brady said in the film Nefarious: “Probably just a coincidence.”  

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Todd M Lindley, PE is an energy and engineering professional in Alaska and VP of Alaska Gold Communications, Inc. Contact him @TMLindley_AK on X (Formerly Twitter). This article first appeared in Must Read Alaska.

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