Cook Inlet may face gas shortages by the end of the decade, state officials estimate

The analysis, presented on monday at a Senate Appeals Committee hearing, is the most detailed look yet at the possibility that Anchorage and surrounding areas could be threatened by power blackouts and heat shortages, just as they were amid a similar gas shortage. natural. a decade ago.

“That’s all history, but it looks like we may be doing it all over again,” said Sen. Cathy Giessel, an Anchorage Republican and co-chair of the committee.

The problem is not one of supply, DNR officials told the committee. Cook Inlet, the source of Southcentral’s natural gas, has more than 19 trillion cubic feet of natural gas available, according to the US Geological Survey. completed in 2011and subsequent estimates have not varied much from that figure.

That’s enough gas for 270 years of current demand, based on DNR’s estimate that Cook Inlet uses about 70 billion cubic feet per year.

The problem is that existing oil and gas companies in Cook Inlet are not drilling enough new gas-producing wells to bring that gas to the surface and offset long-term declines in existing wells, the DNR-appointed commissioner said. , John Boyle.

“We see that demand for Cook Inlet will exceed supply at some point in the future,” he said.

Different economic circumstances (cheaper drilling or changes in demand, for example) could change the trend. But for now, the DNR projects that sometime between 2027 and 2031, there will be more demand for Cook Inlet gas than gas for all.

“We see an environment where a political debate is necessary about whether or not the path we are on is sustainable to provide power to Southcentral in the future,” Boyle said.

Cook Inlet has the highest natural gas prices in North America, said Sen. Bill Wielechowski, D-Anchorage, and the tax rates are minuscule: less than 3%, based on current prices, and a tax cap of 17.7 cents per cubic foot of gas.

“If prices are high and taxes are low, why aren’t companies drilling?” he said.

Cook Inlet also has high production costs and low gas demand, relative to global standards, making it a niche market, DNR officials said.

“We have a very limited number of companies that are interested in investing and being in the space,” Boyle said.

He added that existing producers are also hurt by environmental standards set by banks and investment firms that prohibit them from backing Arctic oil and gas.

“Even Cook Inlet counts as sort of the Arctic by some of their criteria,” Boyle said, “So they face a lot of constraints in terms of being able to access outside capital to advance some of these really promising developments. .”

Giessel said that he has told BlueCrest Energya company active in Cook Inlet, who have a large proven natural gas deposit that has not been developed because doing so would require an expensive offshore platform.

Committee members speculated on ways to encourage production at Cook Inlet, but noted that traditional tax incentives probably won’t work because tax rates are already almost non-existent.

“It’s not a lever we can use to incentivize more production,” said Sen. Forrest Dunbar, D-Anchorage.

During the last projected shortage, the state passed a costly system of collectible tax credits, ultimately paying out more than $1.4 billion to oil and gas producers before it was phased out.

That system created a debt that the state will pay off next year, and Giessel called that program a “crazy idea.”

Wielechowski suggested that the state could perhaps pay a large Alaska Native corporation like Doyon Ltd. or Arctic Slope Regional Corporation to drill in Cook Inlet on their behalf.

Southcentral power companies are scheduled to testify before the committee Wednesday and present their thoughts and concerns.

“It’s a crazy situation. I think it’s going to require some different ways of thinking about this,” Wielechowski said.