Editorial: A domino effect that could bring down Alaska's economy

As February began in Southcentral Alaska, the bitter cold underscored the need for a rock-solid heating and power supply. Temperatures below twenty sent home boilers into overdrive, resulting in record natural gas consumption. After two weeks in temperatures hovering around freezing, the temptation to forget what felt like 20 below is real. But we need to keep that scenario in mind because natural gas supply shortages are closer than most people realize — and what happens in the next few months will have long-lasting changes in energy prices (and just about everything else) in Alaska.

Here's the background: For decades, Southcentral Alaska has gotten its heat and electricity from natural gas from wells in Cook Inlet. The combination of abundant gas from the source and short transportation made gas cheaper for manufacturers to produce and for utilities to purchase. The result was relatively low-cost energy that underpinned economic growth in the region from Homer to Mat-su.

But lately, the economic calculus has been changing more rapidly than most Alaskans realize. The first alarm bells rang in 2010, when major oil and gas producers pulled out of Cook Inlet because dwindling proven reserves and a small local market did not provide enough financial incentive to stay afloat. But the region was rescued from that potential supply crisis by the arrival of Hilcorp, which took over natural gas production at the inlet in a relatively seamless transition — leading to unwarranted optimism among Alaskans that the next time such a shortage occurs, it will inevitably resolve itself without outside intervention. Hilcorp now supplies more than 80% of the gas used by railbelt utilities.

So, transition after a decade, we are on the brink of a severe multi-year shortfall between when utility gas contracts with Hilcorp expire (and may not be renewed due to supply constraints) and when a sustainable solution is available. Put in place. It's not a pretty picture: the supply prospect is mostly imported natural gas, which today costs 50-60% more than Cook Inlet gas. It won't be brought online for years — perhaps until 2030, according to utilities trying to sort out gas supplies.

The idea of ​​importing natural gas would feel like a personal affront to Alaskans who know the North Slope has a massive gas reservoir. But that North Slope gas can't reach Southcentral without a pipeline estimated to cost $40-60 billion (or, $10 billion if a „bullet line” is built just to supply Alaskans). It should be clear to anyone who has been paying attention that the private sector is not clamoring to take that risk, and the political cost (and economic risk) of making that kind of financial commitment to the public purse is simply too high for it. would be a realistic possibility.

Even if the go-ahead decision on the gas line is made tomorrow, it will take years for that gas to reach Alaskan communities. Homer Electric Association's gas contract expires six weeks from today, before Enstar can negotiate a one-year extension on their behalf. While other utility contracts expire in a few years, Enstar's contract expires in 2033. If those contracts expire without enough supply to replace them and before imported gas comes online, heating and power costs will rise. A 50-60% increase from imported gas looks like a sump change. Southcentral's current gas supply costs about $8 per thousand cubic feet of gas; If Cook Inlet gas is insufficient in the coming years, a combination of potential solutions would cost nearly four times as much. That doesn't mean a four-fold increase in the total cost of electricity, of course, as the deficit is only a fraction of the total gas volume. But it would be an amount that would make life difficult for Alaskans across the state.

The reality is that the cost of electricity factors in all other costs in the state. If gas is cheaper in Fairbanks, Golden Valley Electric Association customers will see their bills go up because they use more expensive fuel. If electricity costs rise in the rail belt, rural communities across the state will receive less help from electricity cost equalization funds because the difference between their energy costs and what urban customers pay will be smaller. Everything from rent to retail goods to groceries will be more expensive, as the high cost of heat and power leads businesses and property owners to charge more to cover those costs. If you want to rein in an already weak economy, there's no easier way than spending more energy.

So what to do? Gov. Mike Dunleavy has introduced a bill to reduce royalty obligations for Cook Inlet gas producers, encouraging producers to engage in new exploration and production. A recent sale of royalty-free leases at the inlet attracted little interest, so that alone is unlikely to help. Details of smaller manufacturers Bluecrest and HEX Other incentives They think it will help them be more productive in a legislative hearing; Legislators have to gauge whether they think that kind of state investment makes sense. Utilities are moving toward renewable energy sources with greater urgency than in years past, but those sources, unless they have been online for years, cannot replace more than a fraction of the gas supply without major investment; It would take a project on the order of the mothballed Susitna-Vatana dam to provide a full-scale alternative to fuel. It is a shame that our leaders lack the will and courage to follow through on the Susidna-Vatana, which should have been built a decade ago. Today we are paying the price for their inaction.

That's the bottom line, says Enstar President John Sims: If legislators don't act this year To develop more Cook Inlet gas in the „bridge years” between now and 2030, Our options to avoid gas shortages will be expensive and dire — and all Alaskans will feel the consequences. As much as we don't like it, that means using state dollars to promote manufacturing. This can come in the form of grants, loan guarantees or return of tax credits for research. And where will the government get the money for such a project? This should come from existing budgetary sources or new taxes. No matter how you slice it, whether it's because of new taxes, reduced state spending in other areas or expensive imported natural gas, living in Alaska is still going to be more expensive. To do our part, we can individually conserve gas—turn down thermostats, focus on electricity use, and so on—but that won't solve the problem by itself, so we need to let legislators know we're solving it, too. This year is optional.