Natural gas in Cook Inlet could provide energy for 200 years

By PEDRO GONZALEZ

John Hendrix was on the go when we connected over the phone. He listed off several stops that he had to make in short order. Not rushed, more like matter of factly. Examining a facility here, giving a talk there. As the proprietor of HEX/Furie, the only Alaskan-owned natural gas producer, he’s a busy man fighting a lonely war set in the Cook Inlet.

The basin takes its name after James Cook, who ventured into its waters in 1778 while searching for the Northwest Passage before turning the expedition around again in frustration. Hence, its southern arm became known as the “Turnagain Arm.” The inlet has long been home to elusive pursuits. Hendrix, who grew up in Homer, knows that well.

According to the United States Department of the Interior, there is enough natural gas under the inlet to supply the state for 200 years. But getting it to the surface today seems nearly as difficult a task as navigating the frontier did for the explorers of yore. Indeed, Hendrix has emerged as something of a pioneer for energy independence in the Last Frontier.

“We’ve never really taken advantage to understand the building blocks of the energy of the Cook Inlet region,” Hendrix said, pointing to the trillions of recoverable standard cubic feet of gas. He dismissed claims that the resource is running out as a “manufactured” crisis. 

Crises can be useful. For utilities, concerns over dwindling natural gas supplies offer an excuse to shift toward importing liquified natural gas instead of producing it at home. It makes business sense from their perspective because utilities make money through long-term contracts and big projects. “The utilities need long-term contracts so they can get comfortable and sleep well at night,” Hendrix said. 

The downside of this model is that it undermines competitive market dynamics that would better serve consumers. However, it saves utilities the trouble of having to take on financial risks associated with investing in drilling more wells, which is what Hendrix proposes. He’s no stranger to risk.

Hendrix bought Furie Operating Alaska out of bankruptcy in 2020 at a sale price of $15 million with help from a state loan. Between state royalties, royalties to the owners of the Kitchen Lights Unit, and capital investment costs for Furie Operations, he can effectively lose 35 percent of his profits from any gas produced. 

Critics of the continued development of Cook Inlet say, in essence, that enough is enough. Asking for additional investments at this point is akin to welfare for producers. Moreover, there’s a chance that importing liquefied natural gas would be cheaper. These are seemingly attractive from a “free market” perspective, but it’s not as simple as that.

First, taxpayers would heavily foot the bill for the construction of a pipeline connecting the Railbelt to the North Slope. Subsidization, in one way or another, is inevitable. 

Second, state utilities are seriously considering imports from Mexico and Canada. So utilities would get their gas, but there would be no Alaskan jobs tied to drilling. 

Third, whether it would actually cost less to import is predicated on certain assumptions about Cook Inlet. Namely, that the gas under the mudflats is too difficult to recover or that there is not enough there. 

The surest benefits under this arrangement go to the utilities, who really don’t care whether something is grown in Alaska or not. “They’re looking at like, it’s easier to go to the grocery store and buy it and have it shipped up than it is to have it shipped here locally,” Hendrix said.

Back in 2017, a study found that New England utility companies used a scarce-capacity narrative to create an artificial natural gas shortage. Researchers concluded that this may have been done to shift public opinion toward embracing the construction of new gas pipelines. 

That is a pretty extreme example of bad faith, and no evidence exists to suggest there is much more beyond pretty standard self-interest at work in the case of utilities here. But it’s a concern worth raising because transparency is important in determining the future of not only Cook Inlet but the state. 

Moving forward with alternatives to imports could start with relatively simple steps, like reducing royalties in order to make the process more attractive to investors. But what producers like Hendrix are really looking for is a sense of a shared stake in the future of Alaskan energy independence from utilities and policymakers alike.

Pedro Gonzalez writes for Must Read Alaska. His work has appeared in The New York Post, The Washington Examiner, and elsewhere.