Cook Inlet exploration activity slowing down in 2009

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By Tim Bradner, Alaska Journal of Commerce

ANCHORAGE, ALASKA — Exploration and development drilling for natural gas in Cook Inlet is likely to slow in 2009 and this could worsen problems in the deliverability of gas to consumers in Southcentral Alaska during winter cold snaps, the director of the state Division of Oil and Gas says.

“We think 2009 will be a tough year for the Inlet,” said the division’s Director Kevin Banks.

Banks and Bob Swenson, director of the state Division of Geologic and Geophysical Surveys, on Feb. 9 briefed the Senate Resources Committee in Juneau on Cook Inlet gas prospects.

Swenson said there are about 1.3 trillion cubic feet of proven gas reserves remaining in Cook Inlet gas fields, out of 8.7 trillion cubic feet original discovered mostly in the 1960s.

In theory the remaining gas is about a 10-year supply for the Southcentral region, but as the gas fields are depleted, it’s likely that not all of that gas can be produced, Swenson told the Resources committee.

The problem in deliverability comes with aging gas wells, which are declining in daily production. Several years ago the producing companies were able to ramp up production to meet needs during winter cold snaps, but they can’t do that now.

Gas supplies were tight during the recent cold snap in Southcentral and gas was diverted to local utilities from the liquefied natural gas plant near Kenai.

Banks said Cook Inlet drilling in 2008 was fairly brisk, partly because of commitments to drill new wells by ConocoPhillips Alaska Inc. and Marathon Oil Co. given when the state supported a two-year extension of a federal export permit for the liquefied natural gas plant owned by the two companies.

The outlook for 2009 is less certain. “There will be a lot less activity,” Banks told the legislators.

There are several reasons, he said. The established Cook Inlet companies are willing to invest in new gas development when they have a customer willing to buy, but the market for gas is limited to the LNG plant and local utilities.

There are independent companies interested in small onshore gas prospects on the Kenai Peninsula and on the west side of Cook Inlet, because small, incremental quantities of gas can be sold, Banks said.

Other independents are trying to raise money to bring a special rig to Cook Inlet to drill offshore gas and oil prospects, but it is uncertain whether they will be successful.

But even if an explorer makes a major gas discovery, there would be no market, at least not immediately.

Committee member Sen. Hollis French, D-Anchorage, said he understands the problem.

“I can’t see any economic reason why companies would invest in exploration if there is no way to sell the gas,” he said.

Banks told the senate committee that a typical onshore exploration well can cost $10 million and an offshore exploration well might cost $25 million to $30 million.

Because of those high costs, the companies say they have to get a price for their gas that is high enough to repay the investment and earn a return.

Enstar Natural Gas Co. needs more gas, and producing companies are willing to invest in new drilling and sell gas to the utility, but the Regulatory Commission of Alaska has turned down contract proposals because the prices are too high.

Enstar is now trying to fill a gap in its supplies after 2010 and has again sent out requests for proposals for new gas. It is uncertain whether the producing companies can offer anything different than what they had earlier or whether the regulatory commission would approve any new contract.

“Our resident producers are quite willing to make investments once they make a commitment,” to a contract, Banks told the committee.

Swenson, of the Division of Geologic and Geophysical Surveys, said there is little doubt Cook Inlet has more gas to be discovered because the Inlet is under-explored.

The industry was busy exploring in Cook Inlet in the 1960s, but after large-scale oil discoveries were made on the North Slope, the companies shifted their resources to the north. As a result, there was little new exploration in the Inlet through the 1970s and 1980s. Exploration for gas onshore picked up in the late 1990s, and some discoveries were made.

About 85 percent of Cook Inlet’s current gas reserves were found in the 1960s, while companies drilled for oil, and almost all of that is in four large fields that are now nearly depleted.

A number of small gas fields have been found, Swenson said, but it is unlikely that Cook Inlet would have only a handful of large fields and a cluster of small fields. What is missing in the Inlet are medium-sized fields in the 300 billion cubic feet to 1.3 trillion cubic feet range that should be present, Swenson said.

Finding these will take more exploration drilling, he said.

Cook Inlet is a small oil and gas basin but an unusually prolific one, Swenson said.

“In contest with other North American producing basins, Cook Inlet is small in terms of geographic area, but it is prolific. In just 10 years of exploration, mostly in the 1960s, 2.4 billion barrels of recoverable oil were found and 8.7 trillion cubic feet of gas,” he said.

 

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