Letter from State of Alaska to Conoco telling them to reopen LNG facility
September 5, 2013
Trond-Erik Johansen
President
ConocoPhillips Alaska
700 G Street, ATO 2100 (99501)
P.O. Box 100360
Anchorage, AK 99510-0360
Dear Mr. Johansen,
I am writing to you to request that ConocoPhillips take action to support the State's broad
interests in continued investment and exploration in Cook Inlet. Recent filings at the Regulatory
Commission of Alaska (RCA) indicate that local utility demands will be supported by contracts
that cover the next five years, or until 2018. The State's objective is to foster an environment in
Cook Inlet that continues to provide supplies of gas that are adequate to meet demand and can be
reliably contracted for by local utilities. This requires market opportunities in the near term that
incentivize companies to invest in the exploration and development today that will lead to secure
supplies in the future. Robust oil and gas activity in the Inlet is critical to the State's primary
focus on energy security - that an adequate supply of natural gas from Cook Inlet is available for
Alaskans' heating and electricity needs.
To provide an additional market opportunity for gas from the Inlet, I request that Conoco Phillips
file an application with the Department of Energy's Office of Fossil Energy for a three year
authorization to export Liquefied Natural Gas (LNG) from your facility in Kenai, Alaska. In
addition to promoting energy security, the oil and gas activity this market opportunity would
support also advances the State's interests in economic health, robust employment, and
responsible development of the State's abundant natural resources.
The current supply oflocal utilities' contracted gas is the result of a resurgence in investment in
Cook Inlet during the last several years. A variety of factors have supported the recent increase,
including legislative support for tax credits, ownership transitions, and state advocacy. Recent
years have seen significant spending in the Inlet by new companies with substantial exploration
budgets, as well as in-field developments that are revitalizing existing fields. This investment
brings jobs and economic opportunities to Alaskans in addition to energy security. It is very
much in Alaskans' interest that these high levels of Cook Inlet investment continue, both within
existing fields and in new exploration areas.
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Now that contracts can support local utility demands through 2018, there are concerns that future
exploration budgets may be significantly scaled back. Without market opportunities for gas
discoveries, companies lack the incentive to invest in continued exploration activities. In
addition to the economic challenges this would present for those employed in the Cook Inlet
energy industry, a lack of healthy exploration now may lead to supply contractions in the future
as existing wells' production levels decline.
Diminished exploration budgets also hurt the State's interest in seeing its resources developed.
State lands in Cook Inlet hold tremendous amounts of possibly recoverable natural gas, and the
United States Geological Survey has estimated that the entire basin may still hold trillions of
cubic feet. More market opportunities would create a more attractive business environment for
gas sales that would in tum encourage aggressive exploration to utilize the State's resources.
Were exploration efforts to encounter significant success, new long-term industrial and economic
opportunities in the State's interest, including long-term LNG exports, could be considered.
While it appears that Agrium is interested in re-starting their facility, which would support a
long-term demand for Cook Inlet supplies, their project start-up date could leave a gap in the
near-term. It appears that the only near-term market opportunity for significant additional
demand lies with the re-opening of the Kenai LNG facility.
As you are aware, limited market opportunities threaten the long-term deliverability of existing
gas wells in addition to future exploration prospects. When existing wells that could be in
production are 'shut-in' due to lack of demand for gas, water can migrate through the reservoir
and mix with sandstone clays. This creates sand in the well bore and causes serious operational
problems when there are attempts to restart production. Such operational problems negatively
impact the State- especially in cases where the State is the resource owner - as they limit
resource recovery and thus economic activity on leases. Renewed operations at the Kenai LNG
facility will allow wells to maintain flow during the summer months when local utility demand is
at its lowest and avoid these problems.
Consistent with the interests described above, I also request that you install an appropriate LNG
truck-rack and other necessary equipment at the Kenai facility to support the shipment of LNG
by truck throughout Alaska. The Governor and State Legislature have taken important steps to
support the use of North Slope gas in the Interior of Alaska, including financial support for the
build-out of distribution infrastructure. The installation of truck-rack equipment in Kenai would
provide a back-up plan to strengthen Interior Alaska's energy security, as well as another
possible outlet for Cook Inlet's gas supplies.
The operation ofConocoPhillips Kenai LNG export facility is needed to sustain exploration and
development budgets and activity in the Inlet. The State's concern is that the recent rise in
investment will falter if these kinds of market opportunities are not available in the near future.
The State is making every effort to continue to support exploration in Cook Inlet and advance
Alaska's interrelated interests in energy security, economic security, and resource recovery.
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Thank you for your consideration. I would be happy to discuss these issues further and answer
any questions that you may have. I look forward to continuing to work with you to support Cook
Inlet's oil and gas industry.
Joeseph R. Balash
Acting Commissioner
Dept. of Natural Resources
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