State says without new development, Cook Inlet gas demand could outpace supply by 2027

Cook Inlet
Industry watchers say the lukewarm response to the hotly contested sale points to a long-term trend of low interest in the inlet’s federal waters. (Sabine Poux/KDLL)

Gas supply from proven fields in Cook Inlet will only be enough to satisfy demand from Alaska’s main population centers for about four more years. That’s according to a new report from the Alaska Division of Oil and Gas, released Friday.

The highly-anticipated forecast paints an urgent picture of a gas basin that is declining, while utilities along the Railbelt, from Homer to Fairbanks, continue to depend heavily on the natural gas that’s produced there.

“We do see an environment where there’s a need for policy discussion around whether or not the path that we’re on is sustainable for providing energy to Southcentral into the future,” John Boyle with the Department of Natural Resources told the Alaska State Senate Resources Committee Monday during a presentation on the forecast.

The state Division of Oil and Gas comes out with a forecast on Cook Inlet’s gas inventory every few years to update lawmakers, and the broader public, on the status of the resource.

And while it’s long been known that the inlet’s gas supply is in decline,the most recent report moved up the date for when that supply will fall short of demand: 2027, instead of 2030, as it predicted in its last forecast five years ago.

The new forecast comes on the heels of explicit warnings from producer Hilcorp that it might not have adequate natural gas supply for utilities past their current contracts — some that end as early as next year, which is the case for Homer Electric Association, and others which don’t expire for over a decade. Utilities like Homer Electric are reliant on Cook Inlet natural gas to meet the vast majority of their energy needs.

Boyle told lawmakers Monday it’s important to remember gas from Cook Inlet is a finite resource. The last time there were serious warnings about gas shortages, over a decade ago, the legislature introduced incentives for companies like Hilcorp.

The forecast does not suggest solutions to the projected shortfall, but details what state engineers and analysts expect out of Cook Inlet — with a few caveats.

For one, it doesn’t account for how much undiscovered gas there is in the Cook Inlet region in general, but rather when production from known and proven reserves is expected to fall below demand. The report assumes that demand will stay the same on the Railbelt for the foreseeable future. It said after falling behind in 2027, available supply will drop to under half of all demand by 2033, assuming 15 development wells are drilled every year.’

That assumes no significant cutback in demand for gas due to renewables and makes no estimate for production from undeveloped gas prospects.

Annualized volume forecast
A truncated annualized gas forecast in the division’s report shows supply falling below demand (indicated by the horizontal purple line) by 2027. The truncated graph accounts for economic factors — any of which could change in the next several years.

Officials with the state told the Senate committee Monday that even though there’s a good deal of potential in the inlet, the complex market there might discourage producers. And the question remains whether companies like Hilcorp will decide it’s worth investing more in the inlet when costs of production for its declining wells are so high.

“Because the scope of the gas forecast in this study is limited to the proved developed and proved undeveloped categories,” the report said, “the sanctioning of gas projects that are currently under evaluation for their commercial viability is an important contributor in meeting the demand of gas when the economic production in this study falls below 70 bcf per year” — the estimated yearly demand for natural gas on the Railbelt.

Since Hilcorp’s announcement last year, utilities have been meeting to talk about possible solutions that might last them beyond their current contracts.

One strategy has been to decrease their reliance on natural gas and introduce more renewable energy projects into their portfolios. But it seems unlikely those projects — many of them, in very early stages — could make a dent in local energy demand by 2027.

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