In oil-rich Alaska, an energy crunch
A shortage of natural gas besets the state's most populous area. In rural outposts, energy costs spike.
On the shore of Cook Inlet, site of Alaska's oldest oil- and gas-producing basin, the Agrium Inc. fertilizer plant for four decades produced a steady supply of urea and ammonia for international agricultural and industrial clients. Agrium's exports supported a prosperous petrochemical business, employing hundreds and bolstering local tax rolls.Skip to next paragraph
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But operations ceased in December. The reason? Lack of natural gas, the feedstock for Agrium's products. Despite its perch atop a petroleum basin, Agrium couldn't secure enough natural gas to stay in business.
Agrium's woes symbolize a larger energy dilemma: Raw resources are in the ground, but lack of infrastructure and poor economies of scale hinder access to them, putting Alaska in an energy crunch.
Natural gas at the North Slope – America's largest known but untapped conventional natural-gas supply – is 700 miles away and unavailable. There's no pipeline to convey North Slope natural gas to consumers, in or out of Alaska.
So Alaska's most populous region relies on local energy – Cook Inlet natural gas – for heat and power. But natural gas known to be in Cook Inlet is expected to last eight more years, and local utility costs have risen as markets tighten.
"It's the goofiest thing in the world, to be sitting on top of some of the biggest energy reserves in the world and have these challenges," says Bill Popp, president of the Anchorage Economic Development Corp.
Reviving exploration in Cook Inlet
Except for the mile of road that holds the Agrium plant, a liquefied natural-gas (LNG) facility, a Tesoro refinery, and a BP facility, few obvious signs remain that Kenai was the "Oil Capital of Alaska," as an old Chamber of Commerce slogan boasted.
The first major Cook Inlet natural-gas discovery – and still the biggest – came in 1959. Since then, most of the known natural gas was found while explorers were seeking oil, and almost all was discovered before 1970.
Until recently, having enough gas to supply local needs was not a worry. The worry was, rather, that local needs were too minuscule. This part of Alaska may hold most state residents, including the far-north metropolis nicknamed "Los Anchorage," but as a natural-gas market, it is a lightweight. Dramatic seasonal swings in demand make it a tricky market to serve.
Consequently, industrial users are deemed essential to anchor production in this so-called "stranded" market. But industrial users are now down to one: North America's sole LNG export facility, next door to Agrium. The plant, owned by ConocoPhillips and Marathon, has shipped LNG to Japan since 1969, soaking up Cook Inlet natural gas that had no other market.
Cook Inlet's proven reserves are down to 1.7 trillion cubic feet. But the basin holds potential for another 13 trillion to 17 trillion cubic feet of undiscovered reserves, according to the US Department of Energy.