The state of Alaska has issued a stern warning to compel a small Cook Inlet company to move ahead quickly with natural gas production as the Anchorage region faces a critical gas shortage.
The head of the Alaska Department of Natural Resources told BlueCrest Operating official John Martineck in a letter last week that the company has not met its obligations to develop the Tyonek gas resource within the Cosmopolitan unit, north of Anchor Point.
The state agency 1 1/2 years ago had issued a notice of default to BlueCrest, laying out requirements that were not met, Department of Natural Resources Commissioner John Crowther wrote in the letter.
Early this year, BlueCrest took steps to prepare the drill rig and site for drilling, but the company in mid-May informed the agency that rig preparations needed to halt, with funding depleted amid complications with a project investor, the letter says.
“Since that time, while you have provided updates about ongoing negotiations to secure funding for the development and meet your obligations, you have not yet secured that funding,” Crowther wrote.
“The time for delay has ended,” he wrote.
The department’s goal is gas production “as soon as possible,” he wrote.
BlueCrest holds leases issued by the state, and Alaska’s “statutory, lease and unit requirements” require that the Cosmopolitan unit “engage in continuous drilling of wells and installation of necessary production equipment to facilitate substantive natural gas production,” Crowther wrote.
“We need immediate action by BlueCrest consistent with this goal,” Crowther wrote. “Any further delays place the wellbeing of Alaska’s citizens in jeopardy.”
The demand comes amid a critical shortage of natural gas from the aging Cook Inlet basin west of Anchorage that has long provided gas to heat and power homes and buildings across the state’s most populated region.
A well needs to be drilled by April 2027 and the company needs to show it has the financial capacity to make it happen, Crowther wrote. That includes publicly affirming “the status of financing and timeline for activity for the benefit of the market and Alaskans.”
If BlueCrest can’t immediately move in that direction, the Cosmopolitan unit “either needs to be relinquished or transferred to operators” who will develop it, Crowther wrote.
Benjy Johnson, president of BlueCrest Energy, said in an interview Thursday that the company is close to a solution that will see gas produced this winter.
“What I can tell you is that we are highly confident that this will get resolved quickly and funded, and that we will be drilling new gas wells shortly,” he said.
“It is a very, very large supply” of gas, Johnson said. “However, we have to develop it, and there is one large gas sand that we can develop from onshore, drilling with our existing drilling rig, and that is our initial program.”
He could not provide additional details, he said.
Crowther shared information about the letter with lawmakers at a joint House and Senate Resources Committee meeting Thursday in Anchorage dealing with the natural gas shortage.
The limited amount of gas from Cook Inlet has led to concerns this winter of potential rolling blackouts, higher utility costs and calls for conservation measures. It’s led to proposals by private companies to import liquefied natural gas into Alaska, or to deliver it from Alaska’s North Slope oil fields down an 800-mile pipeline to Southcentral Alaska, through the proposed Alaska LNG megaproject.
The meeting looked at multiple concerns and solutions to the near-term shortage, including the need for additional gas storage in depleted reservoirs in Cook Inlet that can help reduce spiking demand for natural gas in winter as people crank up the heat, and plans for an expansion of the state’s Bradley Lake Hydroelectric Project to help slim down the reliance on gas.
Crowther told lawmakers that the state is ready to pursue any avenue to compel development from BlueCrest, including legal action before the courts.
He said the Cosmopolitan unit produces about 500 barrels of oil daily, after a decade of operation.
But it’s the Tyonek gas that needs to be produced.
The field contains a total resource of about 200 billion cubic feet of natural gas, he said. That’s equivalent to about three years of natural gas consumption in Southcentral Alaska.
Crowther said that BlueCrest has indicated as early as this week that they’ll meet the requirements.
But the Department of Natural Resources wants to immediately see financing verification that will lead to drilling, he told lawmakers.
John Sims, president of Enstar, the natural gas company for Southcentral Alaska, told lawmakers that the lack of gas from the Tyonek resource is part of the reason why the utility faces a potential shortage this winter of 18 days, or 3 billion cubic feet.
Enstar had expected that gas would start flowing from Cosmopolitan and into Enstar pipes by Sept. 1, but that’s not on track, he said. That represents about one-third of this winter’s potential gas shortage.
Maybe BlueCrest will get “up and rolling” in the coming months, and the outlook will improve, Sims said.
“Unfortunately, history has shown us that they’re tough to rely on,” he said of BlueCrest.
Enstar is also in a dispute before arbitrators with HEX over whether the Cook Inlet gas producer is fully meeting its gas supply contract to Enstar.
Sims has said the utility needs more gas to restock its storage reservoir to prepare for this winter, after last winter’s extreme cold sapped gas supplies.
He said that the utility is working to resolve this winter’s potential shortage, including by pursuing potential gas-exchange agreements with the Chugach and Matanuska electric associations.
Julie Hasquet, with Chugach Electric, said the utility has “reached out and met with ENSTAR and are urging decisions be made now to ensure they have the gas they need this winter.”
Chugach Electric shared a letter discussing those efforts with the joint Resources Committee this week.
Sims said Enstar is working with Matanuska Electric to possibly use about 1.2 billion cubic feet of gas that the power utility had planned to put into storage.
Enstar would repay the gas by March 2028.
The utility does not expect to repay the electric utility with cash, but instead must do so with gas, illustrating how scarce the resource is right now, Sims said.
“So there is not extra gas in this market,” Sims said. “It is a very tight commodity right now.”
Enstar has invited lawmakers to a private meeting next week to provide additional information about the utility’s situation for the upcoming winter, Sims said.
The Resources Committees decided to meet on the gas-supply crisis to raise public awareness and seek solutions, said Senate Majority Leader Cathy Giessel, an Anchorage Republican and chair of Senate Resources.
The joint meeting came after the House, Senate and Gov. Mike Dunleavy have failed to find agreement, after months of discussion this year, on a multibillion-dollar property tax cut package to support the Alaska LNG project, which could cost up to $55 billion or more.
Negotiations dissolved last week, bringing an early end to the third straight special session on the topic, which is expected to be revived under a new governor next year with Dunleavy termed out.
State leaders, and private industry, have pursued variations of an Alaska LNG project for more than 50 years without success.
The joint House and Senate Resources Committee plans to meet next on the topic on Sept. 10, Giessel said. Hilcorp, HEX and Chugach Electric have been invited to share their views on energy solutions, she said.
More planning needed
Rep. Donna Mears, an Anchorage Democrat on House Resources, said after the meeting that the Legislature has taken some steps to coordinate energy planning for the state, such as establishing Alaska’s Railbelt Reliability Council to help ensure reliability and efficiency along the electric grid from Southcentral Alaska to Fairbanks.
But the executive branch, with its oversight of agencies, needs to play a bigger role in coordinating projects to help head off the gas crisis, she said.
[Alaska lawmakers and regulators question need for 2 gas import facilities in Southcentral]
The state has been focused on “shining projects” including Alaska LNG, but an array of solutions needs to be looked at, she said.
“I just keep getting more and more convinced as time goes on that our energy future is complex and to be able to layer those things in is going to take more coordination,” she said. “So if we are looking at like renewable energy projects of any sort and layering them into our existing systems, how do you do that planning?”
Rep. Dan Saddler, an Eagle River Republican on House Resources, said after the meeting he was frustrated that a long-term solution to the energy crisis, the Alaska LNG project, is right before lawmakers’ eyes.
The project received little attention at the meeting.
“I’m extremely frustrated to have a joint Resources Committee meeting to talk about a problem that we’ve known for years, and if not decades, has been coming, when the long-term solution to the gas supply shortage in Southcentral Alaska and the Railbelt is right before us,” he said, referring to the legislation that could advance Alaska LNG.
“It’s not today’s solution, but it’s a long-term solution,” he said.
“We are rearranging the deck chairs on the Titanic, and if the Senate and House couldn’t get it together to have a joint session to consider a bill that will solve this problem, how the hell do they have time to get together for a joint session now and talk about a problem we know exists,” he said. “What the heck?”
