Due to deteriorating market conditions, the Nikiski liquefied natural gas plant will no longer export gas to Japan starting this spring, its owners announced Wednesday.
It's a historic milestone in Cook Inlet, if a disappointing one: The plant has exported gas to Japan for 41 years.
The plant's owners, Conoco Phillips and Marathon Oil, said Wednesday that despite being granted a new export license by the federal government, they were unable to renew new supply contracts with LNG customers in Japan.
The producers said they will now focus their efforts on supplying gas to the regional utilities that use Cook Inlet gas to heat homes and provide electricity.
"This is a disappointment for Cook Inlet," said John Sims, a spokesman for Enstar Natural Gas Co., the region's largest gas utility. Enstar was already short on its guaranteed gas supplies for this year -- the first time that has ever happened. The company is concerned that without the overseas customers, Cook Inlet producers will have less incentive to explore for new sources of gas.
Enstar is now looking at importing gas from overseas within the next few years. It's possible that some of gas that was exported to Japan will now be sold to the utilities instead, limiting the amount of gas that will have to be imported.
The mothballing of the plant also brings new sizzle to the debate over piping North Slope gas via a bullet line to Southcentral to alleviate the region' gas supply crunch.
"Whenever we shut down an export facility in Alaska knowing that we have 35 trillion cubic feet of gas 800 miles away on the North Slope, and decide that it's easier to import gas, it should be cause for concern," said House Speaker Mike Chenault, a Republican whose home district in Nikiski is directly affected by the shutdown. "This, at the least, should serve as a wake-up call to Alaskans."
Is the plant's closure a bad sign for the viability of selling North Slope gas to Asian markets? Advocates of piping the gas to Valdez, including 2010 gubernatorial candidate Bill Walker, have touted the idea of liquefying the gas there and shipping it to Asia.
At least one gas line pundit said Wednesday night that it's inappropriate to assume that Asian customers will feel the same way about the small output of the Kenai plant versus the huge possibilities of North Slope gas. The Kenai plant shipped about 21 billion cubic feet of LNG in 2009, off a peak of 64 billion cubic feet. Trillions of cubic feet of gas are available from the North Slope.
LOST JOBS
The gas exports by Conoco and Marathon provided roughly 30 jobs on land and 30 jobs on the Tyonek platform in northern Cook Inlet. Conoco said it is working to relocate the onshore workers in new jobs. The offshore workers on the platform will not be laid off because the platform will continue to supply gas for local consumption.
"The closure of the LNG plant will leave a huge hole in Kenai's economy," said U.S. Sen. Lisa Murkowski, R-Alaska. Echoed by U.S. Sen. Mark Begich, D-Alaska, Murkowski said the closure highlights the urgent need to commercialize the North Slope's gas reserves.
Though some state politicians objected to shipping Cook Inlet gas overseas because of the looming shortages for local residents, the plant was a "virtual storage facility" for regional gas and electric utilities when their supplies were stretched thin in the dead of winter, according to Enstar.
Enstar supported the plant -- the only in the United States now authorized to export LNG overseas -- because it stimulated exploration for natural gas in Cook Inlet and it sent gas to the utilities during the peak demand days of winter, Sims said.
"It was an insurance policy we no longer have," he said.
For now, it's unclear how the plant's closure will affect local gas supplies and the prices paid by local consumers. It's possible, for example, that Conoco and Marathon could sell more gas to the region's gas and electric utilities, company officials said.
"How it will change the market, we don't know," Sims said.
A FUTURE USE?
Conoco said Wednesday that it plans to mothball the plant in April or May and preserve it for future options. Those options include converting it into an LNG import plant, so local utilities can purchase foreign gas, or using it to export gas transported via bullet line from the North Slope.
"We don't have any agreements for that but we want to keep our options open," said Conoco spokeswoman Natalie Lowman.
In the meantime, closing the export plant could put some gas wells in Northern Cook Inlet in jeopardy of never producing again due to water intrusion in the geologic formations. That could occur when less gas is produced.
"There could be some negative things that happen to the (North Cook Inlet) field. We may have to shut in some wells or choke them back. That could cause production problems. We'll try to manage that so we don't lose too many of our wells," Lowman said.
Find Elizabeth Bluemink online at adn.com/contact/ebluemink or call 257-4317.
