Seeing Energy with One Eye Closed
It’s been a little over a year since Hilcorp warned the local utilities, which depend on their gas supply, not to rely on future supply contracts from them. Since then, our four […]
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It’s been a little over a year since Hilcorp warned the local utilities, which depend on their gas supply, not to rely on future supply contracts from them. Since then, our four regional electric co-ops and gas distributor ENSTAR have been studying the cost and benefits of gas from other sources, including imported liquified natural gas (LNG) and a pipeline from the North Slope. At the end of June, they released their long-awaited report.

Focusing on the question “where will the gas come from?” means looking at only half the solution to our looming energy troubles. The other half, which deserves equally serious attention, is the question “What are the best paths to needing less gas?” 

I’ll return to this point in a moment. But first, a graph. Among other findings, the new report includes the best image yet for understanding why we can no longer rely on Cook Inlet gas: 

Between ENSTAR and the four electric co-ops, we burn about 70 billion cubic feet (Bcf) of gas annually, represented by the purple line at the top of the graph. The dark blue “base” bars represent Cook Inlet gas that’s economical to extract at the current price of around $8 per thousand cubic foot (Mcf — the “M” is a Roman numeral in that abbreviation). Based on a January 2023 study from the Alaska Department of Natural Resources, this base estimate includes known gas that can be extracted without additional investment in new drilling or exploration, plus gas from new wells that can be developed without raising today’s price. By 2027, this $8 gas will not be enough to meet demand. To make up for it, we’ll have to start paying more for gas from new, more expensive developments

Meeting future gas demand means drilling new wells, exploring for new fields, and possibly also building new roads and pipelines to serve them. To pay for that new gas (light blue bars), prices would need to rise to $9-19/Mcf. But the Cook Inlet gas available at even double today’s price is not expected to meet demand for long. By 2029, we’d need to start adding even more expensive gas from even less economic fields and wells. Even if we were to get some of our gas at up to triple today’s price (yellow bars), it would still fall short of current demand after 2032. Yes, there is a lot more gas in Cook Inlet, but we will need to pay a sharply escalating price to get it out.

These $/Mcf numbers wouldn’t be directly reflected in your bill, since utilities would blend expensive gas with the shrinking remnant of $8 gas. And of course, an economic model is only a model. These dates and dollars may not be prophecy, but the underlying fact – that getting more gas from Cook Inlet will require expensive investment leading to much higher prices – is solid. That fact could change with a major surprise discovery, but legislators and utility leaders have been gambling on longshots since Cook Inlet’s gas decline became apparent in the late 2000s. We’ve been losing those bets for over a decade, leading to the crunch we’re in now. It’s time to stop gambling and try something different.

The utility group’s new report ranks 10 gas-centric options for what may be proposed. Maintaining Cook Inlet gas is their first choice, though the report recognizes this as a short term solution. Others include chartering a Floating Storage and Regasification Unit (essentially an LNG terminal aboard a ship), getting in on Marathon’s ongoing conversion of the Nikiski LNG terminal into an import facility, or an in-state 800-mile pipeline from the North Slope. The solutions that create true energy independence and lay the ground for long-term prosperity are outside the scope of a “gas supply report”. The real solutions are about reducing gas demand! 

Take another look at the chart. This scenario of rising prices and insufficient supply is based on a big assumption: that the purple line of gas demand stays flat at 70 billion cubic feet per year. How would it look if gas demand were to steadily fall as renewables replace more and more gas generation? The dark blue $8 gas will last longer into the future, putting off the need for more expensive supply. Electric utilities can start shrinking their demand with renewables since they currently share a gas supply with ENSTAR, which has low prospects for replacing heating gas. This means that by using less of the cheaper gas for electricity and transitioning to renewables, we will end up saving more of the available gas for heat.

Scrambling and gambling (or subsidizing) to build up bars of Cook Inlet gas supply is a bad investment of the resources we could be using to lower the purple line of gas consumption through building more renewables. Researchers have sketched in “low demand” gas scenarios as context for research on gas supply – the recent report includes a graph speculating that gas demand for electricity could drop below 15 Bcf/year, though it doesn’t examine the implications. Another gas supply study for Chugach Electric Association goes a little farther, estimating that CEA could delay its gas shortfall by seven years and cut the gap in half with aggressive renewable deployment. But neither study is an examination of the pathways, timelines, and trade-offs that could realize these scenarios. If the utilities have addressed those questions, their conclusions – as far as I’m aware – haven’t made it to the public.

Researchers for utilities are continuing their extensive study of the most economical options for meeting gas demand. But they’ve taken only a brief and superficial look at options for reducing it. This means we are seeing our energy problem with one eye closed, and confronting it with one hand tied behind our back.  

A more comprehensive (and helpful) look at the problem would compare the cost, benefits, and timelines of gas supply options – as estimated in the new report – with those of specific renewable portfolios and the grid upgrades required to support them. Having a complete picture of our options on hand matters a great deal when the utilities begin talking about energy subsidies. One preferred option in the new report is the long dreamt-of gas pipeline from the North Slope, albeit a smaller one than the AK LNG project, meant only for in-state demand. This $8.8 billion investment could deliver exorbitantly priced gas at $28-$37/Mcf – or $9-$12/Mcf if the state pays for 80%, or even gas near today’s Cook Inlet prices if the state owns it outright.  

There are certainly far better ways to spend $8.8 billion to meet our energy needs. But if gas options are presented with dollar values, and renewable options only as hopes and dreams, decision makers and the public can’t really see the full range of choices and trade-offs. Getting real about our energy future means having both eyes open.