ENSTAR contracts with AIX energy for supply until 2021

A deal between the regional gas utility ENSTAR and the Texas-based independent producer AIX may cover a small slice of the region’s demand for heat and energy until 2021.

AIX, which operates a four-well pad in Kenai’s Kenai Loop gas field, could supply ENSTAR with a total 3.9 billion cubic feet of natural gas between August 2018 and March 2021, if the contract is approved by the Regulatory Commission of Alaska, which announced it Friday.

In its filing with the RCA, ENSTAR projects that its approximately 143,000 users will need about 33 billion cubic feet of heating and fuel gas per year through 2023. AIX could fill about 5 percent of this demand during the term of the contract. Presently, ENSTAR fills about 27.2 billion cubic feet of this demand from Cook Inlet’s largest producer, Hilcorp, under contracts that are set to expire in 2018. Last year, ENSTAR worked out two new contracts to cover about 90 percent of its forecast demand until 2023 — another with Hilcorp that will supply up to 26 billion cubic feet of gas per year during the next six years, and one with another Texas-based independent, Furie Operating Alaska, which began exploring in the Kitchen Lights Unit offshore of Nikiski in 2011. ENSTAR is now turning to another smaller producer, AIX, to partially fill in the remaining gap. It will cover the rest with a 4.5 billion cubic foot-withdrawal from the gas-storage space of the Cook Inlet Natural Gas Storage Alaska facility (CINGSA), according to its RCA filing.

Supplying ENSTAR won’t be a new job for AIX — the company began doing so soon after it started in 2014, when it acquired the Alaskan assets of the bankrupt Australia-based independent producer Buccaneer Energy. These included the Kenai Loop gas field where it currently operates — producing from two of the four wells on its pad — and two existing supply contracts with ENSTAR. AIX finished one of these contracts in June 2016. As for the other, which Buccaneer entered in October 2011, AIX is expected to finish delivering the 12 billion cubic feet of gas it promised to ENSTAR between June and August 2018, at which point the new contract between ENSTAR and AIX will begin.

“The relationship between AIX and ENSTAR has been strong, and ENSTAR has not experienced any incident or interruption to deliveries under the (Buccaneer) contracts,” ENSTAR Director of Rates and Regulatory Affairs Daniel Diekgraeff wrote in the RCA filing.

In the first year of the supply contract, ENSTAR will pay AIX $6.35 per million cubic feet of gas — about 23 percent less than ENSTAR’s current weighted average cost of gas, according to the RCA filing. This price will increase 1.5 percent each year — less than the escalation in other gas contracts, Dieckgraff wrote to the RCA, and less than the Anchorage Consumer Price Index, a collection of consumer goods prices than many Alaskan economists use as a measure of inflation.

“The price is reasonable and reflects a hard negotiated bargain between the parties,” Dieckgraeff wrote.

Dieckgraeff also wrote that the five RCA commissioners should approve the contract because it encourages growth of Cook Inlet’s natural gas market — which suffered shortages in the late 2000s after the global producers that developed Cook Inlet’s oil and gas industry invested less capital in the declining basin, whose gas production peaked in 1994 at 311 billion cubic feet per year. Since then, smaller independent producers have taken over the infrastructure, incentivized by tax credits offered by the Alaska legislature.

Dieckgraeff wrote that his company’s deal with AIX is consistent with that legislature goal, and that ENSTAR entered it “with the goal of continuing a relationship with a small independent producer, thereby helping to foster competition, diversification of supply, and the growth of the Cook Inlet market.”

ENSTAR will again be hunting for new supply agreements early in the next decade, according to a demand chart included in their RCA filing. The Furie and AIX contracts will expire in 2021 and the supply contracted from Hilcorp drops from 26 billion cubic feet in 2022 to 10.8 billion cubic feet in 2023, leaving a 22.2 billion cubic-foot segment of ENSTAR’s 33 billion cubic foot demand without a designated supplier in 2023.

Reach Ben Boettger at benjamin.boettger@peninsulaclarion.com.

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