The rebound in Cook Inlet oil and gas has multi-billion-dollar consequences for the Southcentral Alaska economy, according to a new study by Northern Economics, Inc., an Anchorage-based consulting firm.
The study was commissioned by the Anchorage Chamber of Commerce and was released April 21.
J.R. Wilcox, president of Cook Inlet Energy, an independent oil and gas company now producing new oil and gas from the Inlet, outlined key points from the Northern Economic study in a briefing to chamber members the day it was released.
Overall, Cook Inlet oil and gas production and the related business activity is worth $4.7 billion annually, Northern Economics found. “That is about 10 percent of the state’s gross domestic product of $47 billion,” Wilcox told Anchorage chamber members.
Although the increased employment and business activity spawned in recent years by the industry’s renewal is important, the prime economic benefit of the industry is the supply of natural gas for space heating and power generation, Wilcox said.
The benefit of having natural gas for space heating of homes and buildings is $295 million per year compared with what would have been spent had fuel oil, the most practical alternative, been used. The economic benefit for power generation is $183 million a year compared to what consumers would have spent had power been generated with oil rather than gas, he said.
“Fifty years ago our energy supply was from coal,” Wilcox said.
Wilcox grew up in Southcentral and his father worked in coal mines in the Matanuska-Susitna region which then supplied fuel for heating and electricity.
Wilcox went to work in a then-emerging oil and gas industry.
“My mother teased me that I would put my Dad out of business,” he said.
“My Dad said not to worry. He doesn’t miss dealing with the (coal) ash,” Wilcox said.
Anchorage’s natural gas distribution system was built in the early 1960s soon after the discovery of large gas fields at Beluga, west of the city, and on the Kenai Peninsula. For a period coal was still used at the military installations, Fort Richardson and Eielson Air Force Base, but those were ultimately converted to natural gas as well.
The coal mines in the Mat-Su region closed after the military bases switched to gas.
Recent development and exploration work in Cook Inlet has also led to increased oil production, which is important to the Tesoro Corp. refinery near Kenai that supplies gasoline, diesel and jet fuel to the state.
Cook Inlet is now producing about 15,000 barrels per day of oil, Wilcox said. The state Department of Revenue, which tracks oil production, said the Inlet’s oil production has increased by 50 percent from 2010, when about 10,000 barrels per day were produced.
The new activity has also led to increased gas production, Wilcox said.
Just a few years ago the regional utilities were seriously concerned about the depletion of gas fields and the economic vulnerability if natural gas had to be imported as liquefied natural gas, or LNG.
That was seen as the only alternative because the regional energy infrastructure is built around natural gas, and reconverting to fuel oil would be hugely expensive.
New gas production by companies like Hilcorp Energy, Armstrong Oil and Gas, Buccaneer Energy and Wilcox’s Cook Inlet Energy have now pushed any concerns for the regional gas supply into the future.
If gas did have to be imported as LNG, or trucked as LNG from the North Slope, the cost of gas to consumers in Southcentral Alaska would jump from about $6 to $8 per thousand cubic feet now to about $12 per thousand cubic feet, Wilcox told chamber members.
Tim Bradner can be reached at tim.bradner@alaskajournal.com
