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Alaska, the state known for oil and gas, will probably have to import natural gas to heat and power homes and businesses in rail belt communities.

One analyst calls it embarrassing.

It'd be the equivalent of importing peaches into Georgia or importing avocados into Mexico.

Why will gas imports likely be necessary in a few short years?

We'll discuss it right now on Alaska Insight.

Good evening.

Tonight we'll hear about why the more than 70% of Alaskans living along what's known as the rail belt communities along the road system, stretching from Fairbanks through Anchorage to Kenai, are facing a spike in energy costs because of a looming shortage of Cook Inlet gas.

But are the problems related to dwindling supplies, or are producers unable to finance development?

What is the state government's role in trying to head off gas supply shortages and skyrocketing electric and heating costs?

Before we get to that discussion, here are some of the top stories of the week from Alaska Public Media's collaborative statewide news network.

The Alaska House of Representatives passed its $6 billion operating budget on Thursday.

Highlights from the budget include money for schools equivalent to a one time increase of the state's per student funding formula by about $680.

There's 44 million for school bond debt reimbursement and funding for ten new village public safety officers.

It also includes a $2,300 permanent fund dividend, which would be the third largest in the state's history.

The budget, as written, appears to have a nearly $80 million surplus.

However, House Minority and Senate members have expressed criticism of that amount, saying the addition of the capital budget and bills passed this session would put the budget in deficit once it's all totaled up.

Julie Kika, the longtime president of the Alaska Federation of Natives, has been nominated by Alaska's congressional delegation to be a new co-chair of the Denali Commission, which oversees a variety of federal programs in the state.

The commission is a federal agency that provides infrastructure and economic support in rural Alaska.

Kitka is already a member of the Commission representing AFN, and would become the top federal leader within the organization if her nomination is approved by U.S. Department of Commerce Secretary Gina Raimondo.

The majority of Alaskans voted across party lines in the 2022 primary election in Alaska, according to research done by the nonpartisan Public policy think tank Sightline Institute.

2022 was the first year the state implemented ranked choice voting, a system approved by voters in 2020 that sets up nonpartisan, open primary elections.

Sightline found that about 52% of voters across party lines between their picks for U.S. Senate, U.S. House, two legislative races, and the governor's race.

Of the voters who stuck with a single party, 44% voted exclusively Republican and 4% voted only for Democrats.

You can find the full version of these and many more stories on our website.

Alaska public.org or download the Alaska Public Media app on your phone.

Now onto our discussion for this evening.

The concern over running out of Cook Inlet natural gas for electricity generation and heating.

About three quarters of Alaska's population depends on natural gas to keep the lights on and heat homes.

Cook inlet used to have plenty of natural gas to power homes, businesses and industrial customers.

With enough left over to export to Japan.

But as Alaska Public Media's Eric Stone reports, a significant shortage is just a few years away.

Gas production in Cook Inlet has dropped dramatically.

So much that a couple of years ago, the biggest producer, Hilcorp, started warning power companies that supplies are starting to dry up.

By 2028, local natural gas production won't cut it, according to industry estimates.

So utilities immediately started looking for options, including on the remote North Slope.

But even a pipeline the size of a garden hose would cost billions.

And that means the cheapest option is probably to import natural gas.

It's kind of ironic.

Alaska, the land of oil and gas, a state that pays its residents a fee of $1,000 or more every year, could be forced to import gas.

It would just be embarrassing, says analyst Larry personally.

It'd be the equivalent of importing peaches into Georgia or importing avocados into Mexico.

Plus, gas imports are 30 to 60% more expensive.

Still, that increase in cost, plus some super sized tax credits from the Inflation Reduction Act are likely to lead to a transition toward renewable energy for Alaska's grid, according to a new study from the National Renewable Energy Laboratory.

Gas prices would have to fall significantly from current levels for renewables not to pencil out, according to the study.

But that's a ways off.

It'll take some time for utilities to stand up new wind farms and solar panels.

And while state lawmakers are considering a variety of ways to make gas drilling cheaper or cut costs for consumers, it could be a painful transition for consumers.

John Sims is the president of NStar, the utility that provides gas for 152,000 customers and electric utilities across a wide swath of the state.

There's no market based solution that's going to reduce the cost of energy, to consumers.

And that's the unfortunate reality.

And I think something in the state of Alaska needs to needs to accept.

In the meantime, he says, Alaskans should brace for higher energy bills.

Reporting in Juneau.

I'm Eric Stone.

Joining me tonight to describe the looming gas shortage problem and the available options for a steady flow of energy in the future is John Sims.

John is the President of Enstar Natural Gas.

We'll also hear from Senator Bill Wielechowski an Anchorage Democrat from an earlier interview.

Welcome, John.

Thanks for being here.

Thanks for having me.

So, your last statement in the video that we just saw is pretty bleak.

No market based solution that will lower the cost to consumers.

Are you mainly talking about the short term solutions that will be more expensive?

Well, no, we're we're really looking at, you know, I think energy in general, and that's over the short term and the long term and that, you know, it's important the distinction that I make there is unsubsidized.

So, you know, in the past there's been subsidies for Cook Inlet, you know, to encourage natural gas production and exploration.

and those, I think, allowed for a low cost of energy to consumers today.

So the statement that I've been making about no market based solution will reduce the cost of energy.

if it's subsidized, if there's a possibility for that.

And I know there's a lot of, you know, discussion down in Juneau right now about whether or not we should actually go forward with that.

You know, it's interesting because we have the power cost equalization fund for rural communities.

Do you think that something may be needed for the railbelt communities?

Well, that's an important point because anything that happens along the rail belt, that all goes into the formula, formulation and calculation of the grant that goes to PC communities.

So any impact that we have here on increased prices is going to impact the rest of the state as well.

So I do think that it's important, for the state of Alaska to look at incentivizing and subsidizing Cook Inlet, natural gas so that we can, you know, minimize the impact to customers in the end.

so what you're saying then is this could potentially have an impact across the state because the price of energy for power cost equalization looks at what rail belt customers are paying currently.

This is absolutely a statewide issue.

Thank you for that, John.

How did we get here?

Oof!

there's a lot to that.

You know, and I think it's a combination of, some poor regulatory decisions.

I think it's.

And also some, you know, market based, situations that we've dealt with, you know, in the beginning, when they found oil, which also, you know, they discovered the natural gas, that allowed for a boon in the marketplace.

So you had, the ConocoPhillips LNG export plant, which was the first LNG export facility in North America.

you had an algorithm that came in and, you know, large industrial customer consuming gas from the large fines they had and that allowed for the utilities to take advantage of low price gas to generate power and to heat people's homes.

as that got gas has been exported, consumed, by both industrial and residential and small commercial customers.

we're now in a situation where there needs to be more exploration and we've lost the export ability and algorithm is no longer there.

So when you look at those costs, to go out and find additional supplies of natural gas, it's very, very expensive.

Hilcorp has publicly mentioned that it's going to cost them, you know, 200 and $250 million over the next couple of years just to meet existing contracts.

So now for producers to go out and spend even more than that, to find large quantities of gas that cost has to be spread out amongst the existing users.

And there's just not a lot of demand out there.

So the problem is, if you're looking at expanding half $1 billion but not getting cost recovery up until, you know, 20 years out the road, there are a lot of other investments that they can make with their dollars.

you know, when I mentioned regulatory decisions, there was a time before the Cook Inlet Recovery Act was passed where we actually had some contracts that were rejected.

when they went, you know, in front of the Regulatory Commission of Alaska.

now, since that time, I think the commission has been very engaged.

They're very active in trying to understand and tackle this challenge along with the state of Alaska.

but unfortunately, we we have some challenges and some history that that some, you know, new players might be looking towards and wondering if that's going to happen to them as well.

lots of complications here.

You were on talk of Alaska recently with Senator Bill Wielechowski talking about this very issue.

Senator Wielechowski couldn't join us today, but we spoke to him earlier about efforts to shore up supplies.

He mentioned pending legislation on a variety of fronts, including direct investment by the state.

Let's hear from him.

And then we also know that we've got some really large fields.

for example, there's a cosmopolitan field, that's, controlled by Blue Crest.

a company called The crust.

There's, an other, projects controlled by Hex and Fury.

And so, they're they have been unable to get funding for those projects for a variety of reasons.

And so we're looking at potentially direct investment in those fields.

We call it reserve space lending is one possibility where the state makes a loan to those companies.

And if the companies don't come through or unable to produce it, for example, then the state would get the reserves, the gas reserves, as collateral.

And, and so I, I feel pretty good that we're going to pass something.

It's, you know, we've got a huge menu of options.

It's just a matter of figure out which is the best.

You told lawmakers last week that large scale natural gas imports are not likely to be available until 2030 because of federal permitting, and much smaller scale imports could happen, but are a lot more expensive.

You talked a little about this before the clip we saw with the senator, but what else is putting us in this position?

the gas shortage isn't some problem that just suddenly happened.

We've known about it for some time.

Why are we still so uncertain about what the way forward should be?

Yeah.

You know, this is this is an issue that the utilities and the Department of Natural Resources have sort of forecasted for a couple decades now.

and, you know, back, as you know, we mentioned before with the Cooking Oil Recovery Act when that was passed.

and the great work that was done by then, DNR Commissioner, Senator Sullivan and the rest of the state to bring in new players into the market.

I think to be honest, we may have gotten a little comfortable.

we had Hilcorp, who came in and did a fantastic job rejuvenating the Cook Inlet.

they they extended long term contracts.

The most recent contract we have with Hilcorp, was over ten years.

and so, you know, I think when Hilcorp came to us back in 2022 and said, you know, hey, we're done kind of extending existing contracts.

it was a bit of a wakeup call that, you know, the entire state needed that.

Hey, we've been talking about this for a long time.

I really appreciate Hilcorp giving us the long term heads up so that we could address this problem.

There's still opportunities out there.

we just need to have, you know, alignment with the state of Alaska, the legislature and the utilities and the producers to make sure that we can get over this short term hump.

And then we have some time to plan for the long term about what we're going to do.

And that's, you know, to me, that's one of the biggest questions right now.

The utilities can take care of the short term.

we need some assistance from the state to really understand where the state wants to be.

do we want to be a state that imports LNG, or do we want to be a state that takes advantage of the massive amounts of resources that we have here for the state?

personally, being born and raised Alaskan, I want to take advantage of everything that we have here today.

and I think there's ways to do that, but it needs to be a coordinated effort.

And so that's really what we're looking at today for Alaskans along the rail belt who don't realize how dire the situation was for NCAR in January.

Give us a bit of a snapshot of what you were dealing with and what restrictions had to be made to keep the service going.

Yeah.

So, when we talk about restrictions, you know, there were no residential or small commercial customers that were impacted.

but what we saw and this is something that we go through every winter, we look at the forecast at temperatures.

We're very coordinated with the producers of the other utilities about what they see.

You know, for the next coming days, as far as what they're going to need for natural gas, based on demand.

and so as we were coming down that stretch in the latter part of January and we saw forecast to temperatures dropping down to, you know, 3040 below here in Anchorage, and then started having, conversations with the producers.

we had some issues with our storage facility where two of the wells went down and we weren't able to take advantage of that from a deliverability perspective.

so, like I mentioned, we we had some great coordination.

we made some adjustments that didn't require any sort of curtailments on customers.

the governor proactively reached out to the military and asked them to make sure they conserve, which was a huge, had a huge impact for us.

so it's really just looking at demand how we can reduce that demand.

and what adjustments we can make on the system to make sure that the pipeline integrity, and pressures, stay strong.

Senator Wielechowski says that a US Geological Survey study found there is 19,000,000,000,000 cubic feet of gas in Cook Inlet, a 100 plus year supply, but it's not currently being developed.

There is one company that controls 90% of the basin that Hilcorp.

It's, that owned by, Texas billionaire.

He came in, got a monopoly position in, in Cook Inlet and is refusing to explore for new wells.

And so I have urged the attorney general and the utilities, I urge the attorney general to investigate their lack of, of of activity.

they when they did assume that monopoly position in Cook Inlet, the Federal Trade Commission was actually very concerned that they could exercise their monopoly power to charge exorbitant prices and to put us in the exact situation that we're in today.

the state, agreed to a consent decree with Hilcorp.

to allow them to acquire those assets in Cook Inlet.

And as part of that consent decree, Hilcorp is required to produce, to explore, to develop natural gas and is just simply not doing that.

And so there are some other legal issues that, that I've certainly been advocating for, to try to get our gas to market in the short term.

Is this frustrating or encouraging?

So I think there's kind of a combination of both.

you know, Senator Wielechowski who's been very engaged on this issue and mentioned Hilcorp.

But I think you also have to look at all of the players in the Cook Inlet.

their, their reserves that, there are entities that have been, you know, sitting on and not developing for quite some time.

So, you know, as a state, you know, anytime you're in a, in an agreement, that there's going to be development, you expect that development to take place.

And if it doesn't, then you need to understand why.

And so, I'm hopeful that, you know, DNR and others are looking into that to, to make sure that everybody's, you know, following through on their commitments that they made to the state.

I think it's encouraging that we do have time still over the long term, as I mentioned, to figure out what we want to do here and where we want to get our gas from.

So the, you know, the concerns about, are we going to have gas in the near future?

We're going to have gas.

The question is just whether where it's going to be sourced from and what the cost is going to be.

Those are the two things that are big issues for, certainly you had mentioned that, the base helped out by lowering thermostat rates and, there were some other measures.

What are some other ways that that the system can conserve?

Talk about the the integrated system with you electric utilities that you can kind of work some levers to help decrease the load if it gets maxed out.

Sure.

you know, there are actually quite a few options that we have.

for example, the Fairbanks market consumes a lot of energy that comes directly up the inner.

So we produce their power here by we I'm saying the the royal we of the utilities here in South Central.

but the electric utilities here in South Central, they can actually send energy up to Fairbanks.

And they do that on a regular basis because natural gas power generation is so much cheaper than what they have up in Fairbanks.

And so that's one of the things that we can stop.

We can say, hey, Fairbanks, you're on your own.

Continue to generate power with your own means.

There are regionally.

we're going to reduce demand here.

there's another option where we can increase hydro if that's available.

So Bradley Lake down, in the southern part over by Homer, you can increase, your, your, usage of that, facility there.

kind of worst case scenario is the some of the electric utilities have the option of switching over to diesel so they can actually generate power utilizing diesel.

it's very expensive.

Obviously isn't as good for the environment, those types of things.

So that's kind of the last call that we have before we start taking more extreme measures, which is asking residential customers to conserve.

You had to take some measures last winter.

you had said in a, in an earlier interview that it was the closest you've come to in your 17 years with and star to really having some problems.

What's your level of concern for next winter if we have another deep period of cold?

Well, it's it's high.

you know, we're we're really in a situation where, you know, we had those issues with the things of Wells, which which really impacted our ability and why we had to reach out for assistance or, if something else would have happened in addition to that, we would have gone and requested the electric utilities to switch over to diesel.

now that takes a significant load off of the system.

but because of sort of our lack of infrastructure here, we really are in a tight spot.

And that's why I think the legislature is looking at additional infrastructure improvements for the electric grid.

and also for, you know, some help in the Cook County who again, Senator Wielechowski, in discussing the seesaw history of gas production in Cook Inlet, noted that about 15 years ago, the state helped fund Jack up rigs and gave huge tax breaks that bail this out for about a decade.

But here we are again.

And when you look at the prices of natural gas, in Cook Inlet, you know, we used to have the lowest cost natural gas prices in the United States.

We now have the highest cost of natural gas in the United States.

The prices have gone up 400%.

We've gone from $2 per thousand cubic feet or less to around $8 per thousand cubic feet.

And the projections are that going forward, that number could double in the next year or two.

to $16.

It could potentially even go as high as $25 per thousand cubic feet for some of the gas that we purchased.

So these are extraordinary increases, which would be just devastating to the south central economy, to the economy all up and down the rail belt for individual consumers.

So, John, you said it's going to get harder and harder and more noticeable for the public.

Talk about that.

Do you mean more noticeable because of monthly expenses or that there might be rolling brownouts?

Well, I think it's a combination of both.

And we might not get to the rolling brownouts phase, but but there definitely could be more requests, to reduce demand, from, you know, from NCR to its customers.

and you see that quite frequently, actually in the lower 48.

There have been a couple instances, in Oregon, Washington, where they had challenges with their infrastructure and they were very public and outgoing and saying, hey, we need you to cut demand and we need to turn down your thermostats.

Same thing just happened actually last week in Calgary.

So these situations are unfortunately happening from time to time.

And I think it's really just a lack of planning as a state.

so if we really get coordinated with the state, I think we can have a system that we're used to where we turn on the thermostat and we don't think about it at all.

but we're we're coming to a to a time where it's going to start getting more noticeable on on customer bills.

and how we utilize the energy also might be different.

Is there any way to know what people should prepare for any idea of, percent of increase that you can see in the next 2 to 3 years or next five years?

Yeah, I think, you know, again, if we're just looking at market based solutions, I think as it's been said, you know, a 30% increase in the next couple of years is likely.

And I think it can, you know, dramatically increase from that point on.

And really what you're looking at is our contract with Hilcorp.

that that gradually reduces over time.

So in 2033, that is the last gas that we currently have under contract with Hilcorp.

And so looking at that point in time on, that's really where the long term planning comes into play.

We have time to take advantage of the situation we're in.

so I'm optimistic that we're going to get, you know, our act in gear and really have some good planning with the state of Alaska.

but if that doesn't happen, then we're looking at long term import solutions, which are extremely expensive compared to where we're paying today.

What would you like to see the state do?

Do you want to see them have, investment in the system to help kind of shore up and subsidize again, as in the past?

I think there's a lot of options on the table.

I, you know, personally, energy is the number one driver for business and for the health of a state's economy.

And so, you know, I think the state of Alaska should take that into its own hands.

And I would be happy to see the state of Alaska invest in some infrastructure like they've done with Bradley Lake and some of the other electric grids.

you know, there's the potential for them to to really help the economy from an energy perspective.

And that brings more business and brings more population in.

And I think over the long term really makes a lot of sense for the state in just about 30s.

Larry personally said, so embarrassing.

If we have to import gas like importing peaches to Georgia.

Do you have hope that a gas pipeline here will eventually pencil out for us?

I'll always have hope.

so I'm never ready to to give up on that project.

I think there's potential, with it.

but again, it's it's, it's got a big hill to climb.

and that's going to take coordination from a lot of stakeholders in order to make that happen at this point.

that's not something that we're planning on.

we have to plan on, you know, something that we can control.

We can't control the pipeline coming down from the North Slope.

but we're always going to be hopeful that it happens.

All right.

Thank you so much, John Sims, president of and star.

Big decisions loom for utilities, businesses and consumers about finding the best way forward to ensure a reliable supply of energy for the majority of the state's residents.

The cost of that energy will ripple Out and affect the lives and budgets of Alaskan heirs and the local economy.

Finding the right solution for a sustainable and affordable energy supply for future decades is critical for the overall health of south central Alaska and its residents.

That's it for this edition of Alaska Insight.

Visit our website Alaska public.org for breaking news and reports from our partner stations across the state.

While you're there, sign up for our free daily digest so you won't miss any of Alaska's top stories of the day.

Thanks for joining us this evening.

I'm Lori Townsend.

Good night.