Two firms seek competing gas-storage leases at Kenai Loop field

Hilcorp Cook Inlet, LLC and ENSTAR Natural Gas Company, LLC have each filed separate applications with the Alaska Department of Natural Resources to convert the depleted Kenai Loop Gas Field into a natural gas storage facility — competing claims to the same subsurface pore space. The DNR Division of Oil and Gas opened public comment periods Friday on both proposals under AS 38.05.945, forcing the department into an adjudication of overlapping subsurface rights for one underground reservoir.

The backdrop is stark. Cook Inlet's gas production has fallen roughly 60 percent since 2010, from 450 million cubic feet per day to around 200 million, while winter demand hits 320 million cubic feet per day. According to the U.S. Energy Information Administration, declining production in Cook Inlet and on the Kenai Peninsula drove the Kenai LNG plant to cease producing LNG in 2015, with its operators since seeking authorization to import LNG to ensure continuous supply to Anchorage-area consumers. Cook Inlet gas provides power generation for Southcentral Alaska, home to over half the state's population, and provides heat and power to Joint Base Elmendorf-Richardson, according to Senator Lisa Murkowski.

Storage is the lever utilities have for closing the summer-to-winter gap. The region currently has one major commercial storage facility, Cook Inlet Natural Gas Storage Alaska, regulated by the Regulatory Commission of Alaska. Hilcorp Alaska Gas Storage, LLC, is also registered with the RCA as a separate Hilcorp entity. Converting a depleted field like Kenai Loop lets operators reuse existing wells and a reservoir already proven to hold gas.

John Sims, president of ENSTAR, told legislators in January that "the long term plan for ENSTAR additional storage is critical." That his utility and its dominant supplier are now competing for the same pore space makes DNR's review more than routine.