By ROBERT SEITZ
I am mystified by the lack of proactive and energetic response to provide support to the one Cook Inlet Natural Gas provider who is ready to increase natural gas production. A United States Geological Survey report from 2011 estimates that an undiscovered Cook Inlet gas 19 trillion standard cubit feet, which is 266 years of energy at the current demand.
Why are we not tapping this resource for the good of Alaska? HEX/Furie (the only Alaskan owned gas production company) believes there is ample gas for many years to come. If Alaska can help to remove the financial burdens on Furie, then we can tap into those opportunities for Alaskans.
As I dug into this more, I found there are those who are less than sympathetic to HEX/Furie President John Hendrix and say, “He knew what he was getting when he bought Furie in bankruptcy.”
I also see that there are those who want to use a Cook Inlet Gas crisis to provide more leverage for enabling the Alaska LNG project. Then there are those who want to use the Cook Inlet gas crisis in combination with a climate crisis, to push for Renewable Portfolio Standard legislation, which would provide mandates for more rapid addition of renewables to the Railbelt electrical system. The timelines for all other energy sources are much longer than it will take to ensure increased capacity of Cook Inlet gas, but we need to be able to demonstrate that the capacity is there, to government as well as the citizens of Alaska.
To try to improve my knowledge about Cook Inlet natural gas I flew to Kenai for the Alaska Alliance lunch meeting on Nov. 15 to hear Hendrix deliver an update on Furie Operations progress in Cook Inlet. While there I got to tour Furie’s Natural Gas processing facility. Since I have been involved with the design and installation of oil and gas facilities for the past 45 years, I could judge it was a good quality installation.
Furie is producing 9mmscf/d from the Kitchen Lights Unit through the Furie Julius R Platform. The system can flow up to 60mmscf/d provided there is somewhere to flow the gas. Currently there is a cap on the demand, at 190mmscf/d of which most is provided by Hilcorp.
Many are looking for more gas wells to be drilled so they can see the increase in available natural gas in Cook Inlet. The problem is that drilling wells without producing from them will not pay for the wells. There appears to be enough Cook Inlet Gas to warrant immediate action. Furie has sufficient infrastructure in place to produce up to 60mmscf/d right now, and that is one third of the current demand. But no producer can afford to drill wells and not use them.
On the North Slope all the wells in which natural gas has been stored over the years have been paid for by production of gas or oil. Since the gas has already been released from downhole and returned to below ground, that gas is known to exist. In Cook Inlet just drilling a well does not mean it has any gas capacity at all. It must be tested, but even if it proves to be a good well it still needs to produce before it can pay for itself.
Alaska needs to come up with some protocols and financial assurances, so producers are paid for the wells they drill, and the utilities have sufficient assurance that there are sufficient reserves for a specified period of time. If the well is a crude production well that has gas produced by separating it from the crude, the gas will have to be stored underground if there is nowhere to flow the gas, and the crude can be processed at a refinery to pay for the well.
To have a sustainable, reliable, resilient electrical power system we need to assure the availability of natural gas, especially to ensure we can all get through the cold of winter safely and healthily. All the alternative energy sources have too long a timeline to supply Alaska’s energy needs now. Natural gas is currently a heat source for most homes and businesses in Anchorage. Converting to electric heat for all those locations would be very costly, require massive upgrades to electrical systems, and would be much more difficult to be warm when the electric power is interrupted. The timeline for construction of a gas line from the North Slope is also too long to ensure the wellbeing of the Railbelt citizens in the near distant future. Cook Inlet gas is the most certain choice for Alaska’s security and well-being.
Some have estimated that the Kitchen Lights Unit contains 1.2 to 3 trillion cubic feet of natural gas and Furie estimates that they have at least 300 billion cubic feet of natural gas within three miles of the Julius R platform, which is reachable by current drilling technology.
In addition to these estimates of available natural gas, Hendrix provided a chart which shows Alaska has one of the cheapest costs of gas at the home meter in the entire U.S even though we have the highest wellhead cost. This is due to the very short transport distance for Cook Inlet gas; approximately 40 miles. Every 1 trillion cubic feet of natural gas represents 14 years, so 19 trillion would provide 266 years of energy at current demand, as stated earlier.
As a lifelong Alaskan with over 40 years experience in the field, John Hendrix had an opportunity to own the only Alaskan-operated, producing oil and gas company and he seized the opportunity. He would like to see more Alaskans operators. When Hendrix bought the company, he said he had to work on a number of historical foundational issues known and unknown to address past operator problems. Due to the efforts of his dedicated team and focus, they have now operated Furie more than any previous owner.
One source of Furie’s burdens is the refusal by a past state administration to pay the oil and gas incentives that were due. To grow production more and to help provide more gas to Alaskans Furie needs equalization of royalties. Royalties come off gross income. Furie pays 25%, while the average Cook Inlet gas royalty is less than 14%.
It is time to find a way to couple the utilities need for certainty in future supplies and the producers need to cover the cost of drilling wells, even if the well will not produce for a while. Then it is appropriate to adjust the royalty rate for Furie, as the supply of gas will be more beneficial for all Alaskans than would the addition of the royalty amount to the PFD. Now is the time for all Alaskans to stand together for our future and many years of Cook Inlet gas.
To demonstrate Furie’s commitment, they completed and tested a new gas well just last week.
Robert Seitz, is a professional electrical engineer and lifelong concerned Alaskan.
Alaskans are Alaska’s worst enemies. I know, let’s freeze in the dark! That will teach them.