Production issues prevent Furie from meeting gas supply contracts
One of Southcentral Alaska’s few natural gas producers has not been able to meet its contracted supply requirements for more than two months.
Furie Operating Alaska stopped supplying natural gas to Enstar Natural Gas Co. Jan. 25, according to Enstar spokeswoman Lindsay Hobson.
The small Texas-based producer operates the offshore Kitchen Lights natural gas field in central Cook Inlet and also has a firm contract to supply Homer Electric Association with feedstock gas for its power plants.
Hobson wrote via email April 1 that Furie had resumed delivering gas to Enstar in recent days but at volumes below what the utility had contracted for.
HEA has not received gas from Furie since about Feb. 25, the Kenai Peninsula electric utility’s Manager of Fuel Supply and Renewable Energy Mikel Salzetti said April 1.
The utilities have avoided service disruptions by purchasing spot market gas and drawing on purchased reserves stored in the Cook Inlet Natural Gas Storage Alaska facility commonly known as CINGSA.
The gas storage is in a depleted Kenai-area gas field and has 11 billion cubic feet, or bcf, of capacity for Southcentral utilities to store gas reserves, which are usually built up in summer. It was finished early in 2012 at a time when there were widespread concerns that declining natural gas reserves in the Cook Inlet basin could result in gas shortages.
Enstar’s parent company SEMCO Energy Inc. is a majority owner of CINGSA.
Hobson said the warmer-than-normal late winter and early spring across Alaska has helped keep Enstar from needing to purchase additional gas; HEA, on the other hand, has been forced to purchase gas to fill the void in addition to drawing on its CINGSA reserves, according to Salzetti.
He said Furie is the electric utility’s only current firm supplier, which meant the utility had to backfill all of its gas needs of approximately 12.4 million cubic feet per day.
A previously scheduled overhaul to a nine-mile section of the transmission intertie that connects the Kenai Peninsula power grid to Anchorage added to the headache caused by the gas supply disruption, Salzetti said.
The transmission work in the Turnagain Pass area took the intertie offline for about two months, according to Julie Hasquet, a spokeswoman for Chugach Electric Association, which owns that portion of the intertie. Hasquet said the work was done March 20 and the transmission system is back online.
The intertie outage meant HEA had to run additional power generation units in Soldotna to provide its own backup, or spinning reserve, power in case its Nikiski plant or the Bradley Lake hydro power plant went down.
Normally, HEA runs its more efficient combined-cycle Nikiski power plant and uses the transmission intertie, and the access it affords to Anchorage-area power — as its spinning reserve, Salzetti said.
Furie is one of the newer entrants to Cook Inlet that were supposed to ease Southcentral gas supply concerns by developing new fields and adding competition to the market. In 2015 the company installed the Julius R platform at Kitchen Lights, which was the first new production platform built in Cook Inlet in decades.
In September 2015 Furie and HEA agreed to a supply contract that began April 1, 2016, at prices lower than previous contracts.
Enstar then signed a contract with Furie in early 2016 for gas deliveries beginning in April 2018 and running through March 2021. The initial Enstar-Furie contract was for 18.6 bcf of gas, or about 20 percent of Enstar’s total expected demand for the period.
Furie leaders did not respond to multiple requests for comment in time for this story.
However, a Feb. 11 letter from Enstar and Alaska Pipeline Co. President John Sims to Furie leaders and investors contends “Furie has had a difficult time meeting required milestones under the (gas supply agreement) from the time the ink was dry on the GSA.”
Alaska Pipeline Co. is a sister company to Enstar under SEMCO Energy.
According to the letter, Furie has had problems proving up its gas reserves to meet its contract with Enstar and has had operational problems with its wells. The producer asked for a delayed delivery of more than half of its firm supply commitment to Enstar on Jan. 17 as it worked on issues at its facility, the letter states.
Hobson said Enstar understands the supply disruptions are due to a Furie pipeline that froze during a cold stretch of January weather.
Alaska Pipeline-Enstar agreed to defer the full deliveries until March 31, according to the letter.
Salzetti said Furie has been in regular contact with HEA during the ordeal and has given utility officials a verbal estimate as to when gas deliveries will resume but he declined to elaborate further on the discussions.
Furie officials said in 2017 they planned to work on developing oil prospects in the Kitchen Lights gas field, but those plans have largely been scuttled because of the state’s delay in repaying millions of dollars in oil and gas tax credits the company earned for its previous work, according to the 2019 Kitchen Lights Plan of Development filed last October with the state Division of Oil and Gas.
In late 2017, former Natural Resources Commissioner Andy Mack issued a default notice to Furie for allegedly not conducting the work the company claimed it would in prior development plans. Furie’s work in 2018 was sufficient to resolve the default, according to Oil and Gas records.
Officials at the Regulatory Commission of Alaska, which approved the gas contracts, said the commission is aware of the situation but it doesn’t typically act on such matters until a formal complaint is filed, which hasn’t happened.
Salzetti said that while HEA put all its stock in Furie for feedstock gas, the utility’s contingency plans have worked. He noted that some other utilities in the region rely on a single source of gas as well.
“We evaluate lots of criteria when we negotiate gas supply contracts and obviously we knew that a single supplier operating a single field is somewhat of a risk and at the time it was a risk we were willing to take for the price we received for that gas,” he said.
With overall gas demand lower in spring and summer there is usually more supply available at better short-term prices, Salzetti added, which leads him to believe HEA could get through the rest of the year without Furie’s supply. HEA’s contract with Furie is through the end of 2019, he said.
Elwood Brehmer can be reached at [email protected].