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 paid to others approved by the state, and capital investment costs for Furie Operations, he can effectively lose 35 percent of his gross revenue 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.
Yes, it could provide natural gas for at least our lifetimes. The (D)democrats war on energy for this clean-burning energy source, and for all fossil fuels, has been criminal. No sane energy producer would invest in that region when the return on investment is a crap shoot because of the unpredictable regulatory and legal environment. Venezuela is a more predictable regulatory regime than is the US or, more precise, Alaska. If you think that they won’t shed a single tear for Southcentral freezing in the dark, you’re wrong. All must be sacrificed to the church of global warming, oops, climate change.
Not really clean. Produces nitrogen sulfide. You don’t want to breath it.
Burning natural gas does not produce nitrogen sulfide.
Wrong. Burning natural gas does not produce nitrogen sulfide; when natural gas is burned, the primary emissions are carbon dioxide and water vapor, with very small amounts of nitrogen oxides (NOx) and negligible sulfur dioxide, meaning it does not produce significant amounts of nitrogen sulfide.
Yes it does. That’s why your gas stoves are going away. Indoor pollution.
Not surprising that Greg and gas stove banners deny science.
If you had finished school Greg, you would know
CH₄(g) + 2 O₂(g) → CO₂(g) + 2 H₂O(g)
Natural gas is the cleanest fossil fuel used and by far the most efficient method of power generation and residential heat production.
Incorrect. No one is drilling in the Turnagain Arm. Or the Knik Arm.
You new to Alaska?
All platform drilling is done in an area between Beluga and Tyonek… and Kenai to Nikiski.
Turnagain Arm. Where did you get that?
The writer is referring to “the Cook Inlet region” if you read all of it.
Dont let the “Greenies of Girdwood” get their panties in a twist over the thought of ruining their “forest fair smoke session”.
“…….The surest benefits under this arrangement go to the utilities, who really don’t care whether something is grown in Alaska or not………”
As an individual who simply has a home to heat and electrify, I’m with the utilities that you cite. I don’t care where the gas comes from or how it gets here. I care about reasonable cost, and frankly, I’d love the whining and crying of the past 45 years to cease. The fighting over a gas pipeline from the North Slope became absolutely repulsive at least 20 years ago. Now we’re going through it right on our doorstep? We have to endure the various greedy players fighting for control of the gas under our very feet?
Enough. Import it from wherever and get it over with. This is beyond insane.
But don’t tell me there is no gas in Cook Inlet.
Like you said, this fight has been going on a long time and there is money to be made in the FIGHTING, besides just the producing. Look at the salaries and cost to study feasibility of various sources. For 45 years!
We’ve been drilling in Cook Inlet. Of the 3 federal judge positions available, only one is filled, and that one is with Judge Sharon Gleason, who shut down Hillcorp’s drilling for more EPA studies. This is what is causing our gas crisis.
I do care about reasonable cost and also RELIABILITY. I remember shipping issues of the past and do not want us to rely on others for our sustainability. Drill more here!
Gleason is the enemy of Alaska. She has destroyed many great projects and ruined lots of jobs. Thank obama for her . She isn’t very old either so the broken hip and retirement in San Fran in the near future are out.
If Hendrix was going to lose 35 percent of his profits – one has to wonder how much profit was he going to make?
Please let me remind you that the big, bad utility companies you rage against are regulated, as are the prices they charge. Regulatory commissions, being required to act in the public interest, will reject any tariff proposal based on more expensive, locally-produced gas, when less expensive imported sources are available.
Furthermore, statistical Cook Inlet gas is not actual gas. Until a well is drilled and tested, there is no assurance that gas is present. Until several are drilled and tested, there is no assurance that sufficient quantity exists in the reservoir to justify long-term production.
The real problem here is an economic one. The amount of gas used by Anchorage and Southcentral Alaska is actually very small when compared to the worldwide portfolio of projects. Most majors are interested in developing fields that produce 10 or more times the rate of Southcentral consumption. Enticing any of them to come up to Alaska for essentially small-fry projects is difficult for many reasons, but the main one is economic. The rate of return just isn’t there, and even if it was, scare capital is better deployed on more competitive projects with much higher net present value.
If Alaska really wants to increase production from Cook Inlet, there is a simple solution: Use the Permanent Fund to pay for exploration and development out-of-pocket, and make the contracts juicy enough to attract companies with the expertise and resources to get the job done. What you’re seeing now is the intended function of the Capitalist system – deploying capital where it is most effective, and that is not Cook Inlet. To make things work, the natural economics need to be distorted by throwing cash at the problem. Do that, and you’ll probably have your gas – provided that it’s actually there to begin with. Time to pony up, as the gas clock continues to tick away.
Anybody feelin’ the chill yet?
You don’t need to use the PF for anything other than it’s intended use. As has been said repeatedly, and yet conveniently and constantly overlooked by those who see the shiny pot of gold, is that by reducing the level of taxation would help easy this issue. You want a simple solution look at the simple solution, not the pot of gold that would be anything but a simple solution to access.
Whidbey, you are far off base. We’ve already thrown a billion dollars at the Cook Inlet in welfare. Just what did that get us? Now you advocate for more welfare, using the Permanent Fund in a way that expects the rest of Alaska to once again prop up the Rail Belt. Forget it. For one billion dollars we could have installed ground source heat pumps at a cost of $30,000.00 each for 33,000 homes in Alaska and gotten those homes off of gas heat forever, improved our air quality, and denied the gas development extortion lobby more loot from Alaskans savings.
M, I’m not advocating for that. What I’m telling people who insist on going after CI gas is that if they want it so bad, as opposed to less-expensive LNG imports, then the PF is a way to fund the idea. I guess you didn’t read my comment closely, as I’m all in favor of the cheapest possible solution, regardless of from where the gas comes. LNG imports appear to make the most economic sense at present.
Heat pumps require electricity, and in Southcentral Alaska, electricity requires natural gas. Oopsie.
My god whidbey did you get in the egg nog and sugar cookies. Long winded rant.
It’s a reasonable analysis of an important problem, for which short, snarky comments are inadequate.
Importing is costlier, riskier for reliability, produces more pollution and risk for spills, and denies Alaskans the jobs.
Drill Cook Inlet. Lift the EPA burdens Judge Sharon Gleason imposed on Hillcorp, let Hendrix drill, and build that gas pipeline. Now is the time.
Also, continue to try and diversify state revenue. Data centers gets a yes from me!
What is the cost of energy independence, and security of supply?
Get government, judges, and regulations out of the way and let HEX/Furie do their work.
Import natural gas to Alaska? The depth of the insanity and incompetence in political and industrial leadership here that has led to this concept has no bottom end.
The utility companies approving spending money for “green” source scams and endangering the grids while dismissing the “costs” of local gas illustrates just how vulnerable we have become.
As Alaska depopulates, combined with the overall reduction of the quality of life standards, reducing energy needs, due to the macro mismanagement of this state resources will help mitigate this self inflicted disaster.
The only growth is in government “jobs” and the associated long term costs thereof.
Pedro gets it right- in the first half of his piece. There is a massive supply of gas under the Cook Inlet. But then Pedro writes: “Subsidization, in one way or another, is inevitable. ”
Corporate welfare is not needed, or wanted by Alaskans to subsidize either Cook Inlet development or a gas pipeline. The gas pipeline is flatly uneconomic. Why any rational person would advocate for building a gasline to take gas to a place that already has a 200 year supply is nuts. The massive debt and equity costs would cost each Alaskan thousands of dollars per year. Its a pity state leaders can’t do simple math to see this.
The extortion in play here is producers holding off on drilling with the expectation of another wasteful, billion dollar ‘crisis’ bailout from the legislature. We can’t afford it, and its not the job of Alaskans to be giving money away to corporations.
The gas pipeline is NOT economic.
You are clueless of old or both .
I’ll say it again: Statistical gas may not be actual gas, and if it is there, it may not be economic. You NEVER know until you drill.
Oh, no, you don’t!! You must’ve forced to rely on pinwheels and pixie dust for all your heating needs!! For Mother Gaia!!! Enjoy shivering in the dark. Because we say its good for you, and builds character so you can appreciate the enlightenedbenevolence of your brilliant leftist ” betters ” who will be provided with every comfort,at your expense, naturally. Because they work SO HARD making you life better for you.
/sarc, ofcourse
this is the best, true capitalism. expertise and commitment of an individual putting capital at risk, yes a loan. covenants to be sure but capitalism is risk/reward ratio.
I wish John the best, great life story. old alaska through and through. inlet has recoverable gas, oil too. don’t forget the other local kid, capitalized blue crest.
those two put up with the negative whiners and naysayers. put the capital to work. let’s help and support them best we can, it’s in our own rational interest
not much left with rational, isn’t in social media or political rants and diatribes
GO JOHN, GO BEN!!!!!!!!
Are you really willing to roll the dice? You’re running out of gas NOW. I’d want a solution where the finding and producing portion of the risk profile is zero. Baby, it’s cold outside.
They can use the dividend to build the pipe for all I care. Build it it’s a matter of our security and national security.
McCabe explained to me in an email, so have no fear because McCabe has a plan on how to get it out of the ground!
“We had over 20 hours of discussion and testimony from scientists and industry experts.
First, the storage is not going to happen in “tanks” – it is going to be at minimum 2800 feet underground in empty natural gas reservoirs or possibly certain coal seam or Salt/calcium areas. 2800 feet provides enough pressure where the CO2 is a semi-liquid.
Also, we asked about the dangers of a leak. And you are not wrong. But this is why the state primacy of these wells is so important – so we can ensure that the “cap” over the storage area is sufficient to contain the slurry and if there is ever a leak to the surface, it is in an unpopulated area. Keep in mind that we already inject CO2 into the some of these reservoirs for what is known as EOR, or extended oil recovery. The industry is not inexperienced at doing this and assured us it can be, and is currently being, done safely.
Having said all of that, I totally agree with you that it is a huge scam. Man made climate change, caused by CO2, in, and of itself, is a huge hoax. But there is no way to get financing for projects unless we have some framework for project developers to lean on saying that it is possible that they could sequester CO2. We stripped everything else out of the bill other than the title 6 wells and state primacy over them.
The danger from CO2 is that it displaces oxygen. CO2 is not itself a dangerous gas. Our atmosphere currently contains about .042% of it. It becomes dangerous at 5%. In fact, plants and trees grow better when the CO2 levels approach 1000 PPM. At current trajectory in the atmosphere we won’t reach that level for another 275 years. And yet we are spending trillions to strip more of it out of the atmosphere. It is extremely stupid. Yet that hand we are dealt in Alaska to get our resources out of the ground means we have to play their game to a certain extent. Hence HB50 which is already signed into law.”
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