Despite the problems in our economy, let’s count ourselves lucky in some respects. What seemed a serious shortfall in regional energy for Southcentral Alaska a decade ago has been averted.
In 2010 the natural gas fields in the Cook Inlet Basin were being depleted. Utilities like Enstar Natural Gas, Chugach Electric Association, Anchorage’s city-owned Municipal Light and Power and the municipality itself were practicing electricity “brownouts” — and even neighborhood “blackouts” — if gas for power generation were to run low on cold winter days.
It seemed outlandish, but there were serious worries that gas pressure could drop low enough to trip gas meters and shut down furnaces, which could cause buildings to freeze. Utilities began planning for imports of liquefied natural gas, or LNG, to supplement local supplies.
The key problem was that the major gas producers at the time, Chevron Corp. and Marathon Oil Co., weren’t drilling and developing new gas, although geologists said there was plenty of potential for new gas in Cook Inlet.
All that seems a distant memory. Chevron and Marathon left in 2012 and 2013 after selling their aging gas and oil fields to Hilcorp Energy, a medium-sized Texas-based independent company. Hilcorp specializes in reinvigorating aging fields, and it did just that in Cook Inlet, investing big in an aggressive redevelopment program.
We now seem to have plenty of gas thanks to Hilcorp and also a state initiative that facilitated construction of a regional gas storage facility, so that surplus gas produced in summer can be stored for winter.
But let’s keep in mind that we’re paying a price for this.
Let’s give credit to Hilcorp, which is a well-run business. But the company has now come to dominate the regional gas market because there’s no other big supplier. That’s not Hilcorp’s fault.
Still, people note that natural gas prices in Alaska are about four times the national average. Hilcorp’s average sales price across all of its contracts is about $7.50 per thousand cubic feet, or mcf, people familiar with the contracts say. This compares to the average price for gas at Henry Hub, a major Lower 48 gas trading exchange, of $1.78 per mcf for July so far, according to Alaska Department of Revenue data.
What might Hilcorp’s production costs be? That’s confidential, but some people are able to draw an analogy by comparing production costs at the Beluga River onshore gas field, which is operated and partly owned by Hilcorp.
Because Beluga River is partly owned by the city-owned Municipal Light and Power, some of its costs are public, and the production costs for April and May were $2.47 per mcf for May and $2.15 per mcf for April.
This is in an aging onshore Beluga field and wouldn’t apply to the more expensive offshore fields, where Hilcorp also gets gas, or its newer onshore Kenai Peninsula gas wells. Also, remember that the margin between sales price and cost is what pays for steady development and drilling work needed to find new gas within the…
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