Kenai attorney says city owns underground space the state wants to lease for gas storage

Kenai City Attorney Scott Bloom on Wednesday asked the City Council to tell the state that the city owns the underground space where ENSTAR Natural Gas Company wants to store natural gas, part of it beneath the Kenai Airport.

The council takes up his request Nov. 4. Failing to recognize the city's interests "may lead to significant project delays," Bloom wrote in his memo.

Gas storage lets companies hold gas produced in summer and pull it out in winter, when it's needed for heat. The state forecasts Cook Inlet production will fall below Southcentral's demand in the early 2030s.

On Oct. 13, the state Division of Oil and Gas proposed leasing a depleted reservoir in the Kenai Loop Gas Field to ENSTAR for 25 years, choosing it over a competing bid from Hilcorp. ENSTAR's project would hold about 20.5 billion cubic feet of working gas.

The dispute is over the pore space, the space within the rock where the gas would be stored.

The state says the space is its own. Division Director Haley Paine wrote in the preliminary finding that the federal government conveyed the oil and gas estate beneath the airport to the state in 1986, so storage rights there at all depths are "exclusive to the State of Alaska." She treats the city as "the exclusive surface owner," which can negotiate with ENSTAR for use of its land.

Bloom wrote that the finding would lease the space without recognizing the city's ownership, or the "applications being reviewed by the City for lease of the same pore space." In September, a Hilcorp executive told legislators the company had been working with the city for more than a year to secure storage rights in the field.

The state's finding lists the state, the Alaska Mental Health Trust and Cook Inlet Region, Inc. as the mineral owners in ENSTAR's roughly 500-acre project area. The city appears as an owner only in the larger area Hilcorp applied for.

Kenai has been spending to sort this out. In May, the council approved $30,000 more for consultants to evaluate the competing proposals. On Oct. 21, it authorized up to $30,000 for a law firm to help negotiate ownership rights with the state, ENSTAR and Hilcorp.

Vice Mayor Victoria Askin sat out two closed-door council sessions on the applications this month. Mayor Henry Knackstedt ruled she had a conflict because she "was an employee of one of the companies involved."

The finding can still change. Written comments are due to the Division of Oil and Gas by 5 pm Nov. 13, and only people who comment can appeal the final decision.