Kenai attorney seeks city claim to gas storage space state plans to lease to ENSTAR

Kenai City Attorney Scott Bloom on Wednesday asked the City Council to tell the state that the city owns the underground space Alaska proposes to lease to ENSTAR Natural Gas Company for gas storage. The council will take up his request at its Nov. 4 meeting. In his memo, Bloom warned that failing to recognize the city's interests "may lead to significant project delays."

The dispute is over pore space, the underground space where the gas would be stored. Part of it sits beneath the Kenai Airport.

As Alaska News reported Oct. 13, the state Division of Oil and Gas preliminarily chose ENSTAR over Hilcorp Cook Inlet, LLC for a storage lease in the Kenai Loop Gas Field. The division found Hilcorp's application lacked necessary technical data. ENSTAR's project would hold about 20.5 billion cubic feet of working gas.

The preliminary finding can still change after public comment. It would lease the space to ENSTAR for 25 years. ENSTAR would also need approval from the Alaska Oil and Gas Conservation Commission before storing gas.

Division Director Haley Paine wrote that the federal Bureau of Land Management conveyed the oil and gas estate beneath the airport to the state in 1986. She wrote that the state therefore holds the storage rights there at all depths, rights "exclusive to the State of Alaska." The finding treats the city as "the exclusive surface owner" that can negotiate payment for use of city property. It directs ENSTAR to negotiate a surface use agreement with the city.

Bloom wrote that the finding would lease the pore space to ENSTAR without recognizing the city's ownership or "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 over a year to secure rights to develop storage in the Kenai Loop Field.

Bloom asks the council to generally approve comments on three points: the city's underground and surface ownership, flaws in the finding and the risk of delay.

The state's notice says the lease covers about 500 acres of state-owned reservoir and only the state's portion. The finding lists the mineral owners in ENSTAR's project area as the state, the Mental Health Trust and Cook Inlet Region, Inc. The city appears as an owner only in the larger area covered by Hilcorp's application.

In May, the council approved $30,000 more for consultants to evaluate the competing storage proposals at the airport. On Oct. 21, it unanimously authorized up to $30,000 for Pioneer Law LLC to help negotiate ownership rights with the state, ENSTAR and Hilcorp.

Vice Mayor Victoria Askin stayed out of closed-door council sessions on the competing applications Oct. 7 and Oct. 21. Mayor Henry Knackstedt ruled she had a conflict because she "was an employee of one of the companies involved."

Written comments on the finding are due to the Division of Oil and Gas by 5 pm Nov. 13. Only people who comment in writing can appeal the final decision.