Historically, Alaska has been known for its seemingly endless oil supply. Today, the state finds itself in critical need of natural gas and is searching for ways to produce it.
Anchorage and south-central Alaska have long relied on natural gas produced in Cook Inlet as a main energy source. However, dwindling supplies – coupled with no easy way to replenish them – have government officials looking at unprecedented options to solve an impending crisis.
These include tapping into the North Slope’s plentiful gas resources – which have long remained stranded – by constructing a gas pipeline from the North Slope to Cook Inlet, and/or investing in floating liquefied natural gas facilities for the offshore North Slope. While both ideas carry significant costs, some believe they could not only solve the Cook Inlet issue but also potentially turn Alaska into a major gas exporter.
The gas cap at Prudhoe Bay has been assessed at an extremely voluminous 25 trillion cubic feet, and the gas cap at Point Thomson is in the range of 8 to 10 TCF. However, monetizing these resources – discovered alongside the giant oilfields decades ago – was not the priority when the Trans-Alaska Pipeline System was built, as oil was the coveted resource.
But as production of natural gas in Cook Inlet continues to decline, the gas resources on the North Slope are getting a second look.
Front and Center
Prior to natural gas production in Cook Inlet, locals relied on oil and wood for power and heating. The discovery of approximately 8 TCF of non-associated, biogenic gas in the 1960s prompted the construction of the largest fertilizer plant on the nation’s west coast in Kenai, which was quickly followed by the opening of the Kenai LNG facility – the first LNG export facility in the United States.
Gas resources from Cook Inlet were so plentiful that utility companies invested in grids that would bring electricity to the Anchorage and Fairbanks areas and provide natural gas to Anchorage and south-central Alaska for heating. This connectivity of infrastructure became known as the “Railbelt,” where approximately 75 percent of Alaskans live.
After the discovery of Prudhoe Bay in 1968 and the construction of TAPS in the 1970s, many operators in Cook Inlet turned their sights toward the North Slope in favor of larger prospects. Oil and gas production began to slowly decline in Cook Inlet over the following decades, but not enough to cause great concern until the early 2000s, explained Mark Myers, a commissioner with the United States Arctic Research Commission.
As it became increasingly expensive to explore for and produce natural gas in Cook Inlet, many operators flocked to the mainland during the shale boom in search of unconventional resources that appeared as lucrative as the Alaskan oilfields decades before. The Kenai fertilizer plant closed its doors in 2007, and the LNG facility followed several years later.
Overnight, the Railbelt became a small, isolated market for natural gas.
Adding to the complexity of the situation, the Railbelt is considered a high swing market in the utility world. Its demand greatly peaks in the winter and significantly reduces in the summer. To satisfy contracts with utility companies, operators must reduce production during lower demand, which is costly and comes with unwanted risk, explained Bob Swenson, retired state geologist and deputy commissioner of the state’s Department of Natural Resources.
As producing fields matured, they had less capacity to meet winter demand, prompting the construction of a modest storage facility in 2012. But continued depletion called for significant new development.
Hilcorp Alaska LLC has been the largest operator supplying utilities with natural gas but announced in 2023 that it did not have enough reserves to commit to new contracts with the utilities.
For years, government officials felt comfortable with P1, P2 and P3 reserves, and the issue of declining production in Cook Inlet simmered on the back burner, Myers said. Now, the issue of depleting resources is front and center.
A Second Look
Hilcorp began drilling additional wells in Cook Inlet in 2012 to keep natural gas flowing to the Railbelt market. Yet exploration drilling in the Cook Inlet remains risky.
“Is there gas to be found? Yes. Is it expensive to find? Absolutely,” Swenson said. A 2011 assessment by the U.S. Geological Survey estimates a mean value of 19 TCF in Cook Inlet. Yet, to monetize it, a deeper oil target would be needed in addition to a higher commodity price.
Some of the gas in Cook Inlet is present in discontinuous and disconnected fluvial reservoirs in complex structures, making reservoir delineation difficult, Myers said. Steep dips in bedding and abundant coalbeds make both onshore and offshore seismic imaging difficult. Offshore seismic data acquisition also is challenged by the tidal range and currents in Cook Inlet. And, low salinity of reservoir water can make it difficult to identify gas on well logs.
In other words, prospects are hard to identify. Also, factoring in environmental challenges that affect permitting and land access, the success rate per well is 10 to 30 percent, Swenson said. “You can imagine what that gas would have to cost to produce in a small market with high swing.”
“Within about five years or so, production from P1 reserves – without additional development – will not be able to meet natural gas demand,” Myers said. “A decision needs to be made fairly quickly – in the next year or two. Peak gas is coming unless Hilcorp drills more wells. How does an isolated grid of this size make a decision?”
Some believe that a previously discarded idea of a gas pipeline from the North Slope to Cook Inlet should be placed back on the table. Current estimates for an LNG system connecting the North Slope and its plentiful resources to Cook Inlet – consisting of a gas processing plant, a 42-inch pipeline, an LNG plant and port terminal – range from $40 to $60 billion, depending on the source.
“There are multiple attempts to support this currently. The state is still trying,” Myers said. However, the idea backed by the Alaska Gasline Development Corporation currently lacks major investors and would require years to build, and significant private and public funding.
Others believe floating LNG facilities in the offshore North Slope are a more viable option. An LNG facility could be brought online much faster than a pipeline. Depending on the size of the facility, existing gas resources at Prudhoe Bay and Point Thompson could supply a project for decades as additional exploration takes place, Myers said.
The gas produced alongside oil at Prudhoe Bay and Point Thomson must be reinjected at huge costs, particularly in areas of over-pressure. In fact, production at Point Thomson has set a world record for the amount of pressure needed to reinject associated gas – at or more than 10,000 psi, said David Houseknecht, senior research geologist at the USGS.
A desirable scenario would be one where the gas could be reinjected to maintain reservoir pressure to facilitate oil production and to market the surplus.
Because there was never a market for gas on the North Slope, wells drilled in this area – even if they encountered gas – were simply dismissed as dry holes, Houseknecht said. In fact, there are only two areas where confirmation wells were drilled to determine gas accumulations and pressures.
That being the case, the USGS is studying areas of overpressure at Point Thomson and in the North Slope foothills. Its goal, which is supported by the state, is to develop a scientific basis from pressure data from wells and from mud weights (as pressure data was not always recorded or shared) to anticipate where one could encounter over-pressurized gas and forecast depths at which it would likely be encountered if commercial drilling were to occur.