Alaska Senate majority asks regulators to reconsider Enstar gas storage denial

With Cook Inlet gas production declining and state regulators having rejected Enstar Natural Gas Company's proposed Kenai storage project, Alaska Senate majority members said Monday they are sending a letter asking the Regulatory Commission of Alaska to reconsider that denial. They also called on Gov. Mike Dunleavy to press the Department of Natural Resources to bring an undeveloped Cook Inlet lease into production, tying the delay to concerns about this winter's gas supply.

The commission denied Enstar's petition for an advance determination of decisional prudence on July 8 and closed the docket. Petroleum News reported the commission called advance determination "an extraordinary remedy" and said Enstar "failed to meet the stringent burden of proof required to justify granting that remedy in this instance." The commission also said it lacked a sufficient factual basis and that unresolved technical and timing questions remained, including whether the reservoir could serve as storage and whether the utility needed the added capacity now. Enstar, which says the Kenai project is the only viable commercial storage option left in Cook Inlet, has asked the commission to reconsider.

The press availability centered mainly on the governor's still-unseen gas pipeline bill. Senate President Gary Stevens said Dunleavy has told him he will present a bill on Aug. 20, five days before the special session ends on the 25th. Stevens called that timeline difficult, since lawmakers do not yet know what the bill contains. Senators said the Senate has already passed two versions of gas line legislation containing roughly $1 billion a year in tax breaks along with timeline, liability and labor protections. The governor declined to support either version. Senators also said the project's estimated cost has climbed from about $45 billion to as much as $70 billion, changing the economics and the projected price of gas.

Senate majority members said BlueCrest Energy's Cosmopolitan lease is believed to hold as much as 300 billion cubic feet of gas, and that outside companies have offered to help develop it and been turned down. The Railbelt uses roughly 70 billion cubic feet a year. "If DNR and the governor's office are allowing BlueCrest to sit on what we believe to be 300 billion cubic feet of gas, that is only hurting our situation this winter," Sen. Bill Wielechowski said. He said the department has let BlueCrest hold the leases for a decade without enforcement, calling the administration's handling of Cook Inlet leasing "colossal mismanagement."

Journalist Jeff Landfield questioned the focus on smaller operators. He said Hex Energy has received 75 percent royalty reductions worth about $5 million a year, that neither Hex nor BlueCrest owns a rig, and that Hilcorp has spent $1.5 billion in the inlet without seeking royalty relief. "Why is Hilcorp not being asked to help us with this problem when they're the ones who have demonstrated they can solve this problem?" Landfield said.

A Senate majority member responded that Hilcorp has gone without paying the state corporate income tax that other major producers pay, and that only one drill rig operates in Cook Inlet, shared between Hilcorp and Hex. Wielechowski said Hilcorp controls 90 percent of the leases and is capable, but that the state has mismanaged them. The available material includes no response from the governor's office, DNR, BlueCrest, Hex or Hilcorp to these accounts.

Cook Inlet's gas production has been declining for years. Daily production has fallen from about 450 million cubic feet in 2010 to around 200 million, against a winter peak demand near 320 million.

The Alaska House and Senate Resources committees are scheduled to hold a joint meeting on gas supply on Aug. 20.