NATURAL GAS DEMAND AND SUPPLY TO THE YEAR 2000 IN THE COOK INLET BASIN OF SOUTH-CENTRAL ALASKA

Transcription

1 NATURAL GAS DEMAND AND SUPPLY TO THE YEAR 2000 IN THE COOK INLET BASIN OF SOUTH-CENTRAL ALASKA. Final Report Prepared for: Pacific Alaska LNG Company Los Angeles, California ; -:, '. s ' TN ''\. 881 ~ \..M F Ravenswood Avenue Menlo Park, California (41 5) Cable: STANRES, Menlo Park TWX: AGO J

2 NATURAL GAS DEMAND AND SUPPLY TO THE YEAR 2000 IN THE COOK INLET BASIN OF SOUTH-CENTRAL ALASKA... CD LO LO CD 0 LO LO ('I) "" ('I) November 1977 By: Mark P. Sweeney Joseph E. Pelline Katherine A. Miller Robert E. Fullen Prepared for: Pacific Alaska LNG Company Los Angeles, California SRI Project 6679 L.~~.....

3 CONTENTS LIST OF ILLUSTRATIONS LIST OF TABLES I INTRODUCTION II SUMMARY AND CONCLUSIONS. Adequacy of Natural Gas Supplies Other Fuel Resources.... Alternate Sources of Fuel Supplies Forecasts of Energy Demand Export of Natural Gas.. III ECONOMY OF THE COOK INLET AREA IV HISTORICAL NATURAL GAS CONSUMPTION IN THE COOK INLET AREA..... Local Consumption. Export. Repressuring V HISTORICAL ELECTRICITY CONSUMPTION IN THE COOK INLET AREA VI FORECASTS OF ENERGY DEMAND IN THE COOK INLET AREA. Household and Commercial Energy Demand. Fuel Consumption for Electric Power Generation Industrial Consumption of Natural Gas. Lower Case Scenario of Natural Gas and Electricity Demand Intermediate Case Scenario of Natural Gas and Electricity Demand..... High Case Scenario of Natural Gas and Electricity Demand. iv v ii

4 VII PRODUCTION REQUIRED TO MEET THE LEVEL OF DEMAND.. Dissolved Gas Production Dry Gas Requirements.. VIII CAPABILITY OF EXISTING AND POTENTIAL DRY GAS RESOURCES TO SUPPORT REQUIRED LEVELS OF PRODUCTION.... IX RESOURCES OF OTHER FUELS AVAILABLE TO CONSUMERS.. REFERENCES iii j

5 ILLUSTRATIONS 1 Historical and Projected per Capita Household Commercial Energy Consumption, Cook Inlet Area 19 8 L ~ iv

6 TABLES 1 2 Cook Inlet Area Resident Population Forecasts- Municipality of Anchorage, Kenai Peninsula, and Matanuska-Susitna Boroughs..... Consumption of Natural Gas from Cook Inlet: Electric Utility Sales in the Cook Inlet Area.. 4 Historical Household-Commercial Energy Demand in the Cook Inlet Area Number of Housing Units Using Fuels in Cook Inlet Area 6 Estimated Electricity Consumed per Appliance in Patterns of Household Electricity Consumption. 8 Electricity Generation and Capacity Cook Inlet Area Natural Gas Demand--Lower Case 10 Lower Case Electric Power Demand and Supply. 11 Cook Inlet Area Natural Gas Demand--Intermediate Case. 12 Intermediate Case Electric Power Demand and Supply. 13 Cook Inlet Area Natural Gas Demand--High Demand Case 14 High Demand Case Electric Power Supply. 15 Dry Gas Production Required to Meet Demand 16 Production of Dry Gas Necessary to Meet the Highest Base Case Demand Projection Estimated Recoverable Existing Dry Gas Reserves as of January 1, Estimates of Potential Additional Resources of Dry Gas in Cook Inlet Required Dry Gas Production as a Fraction of Total Dry Gas Resources Energy Resources in the Cook Inlet Area. Coal Resources in South-Central Alaska. Hydroelectric Resources in South-Central Alaska v

7 I INTRODUCTION At the request of the Pacific Alaska LNG Company, SRI International has evaluated the natural gas resource base in the Cook Inlet area and assessed its capabilities for meeting likely future demands. The central concern is whether adequate gas supplies will be available to meet local demand if Pacific Alaska proceeds with plans to export Cook Inlet gas to consumers in the lower-48. This issue was first addressed by SRI in a report published in December This current report represents the culmination of an effort to bring the historical statistics and analysis developed in the earlier report up to date based on developments during the past two years. In bringing the earlier report up to date, SRI personnel reviewed and revised a historical series of economic and energy consumption data for the area based on material published by government and industry sources and on interviews with Alaskan government representatives and local energy consumers and producers. Plans and prospects for the Alaskan economy and anticipated levels of energy requirements were discussed with state, local, and federal government officials, as well as with representatives of energy consuming, producing, and vending corporations. SRI has incorporated the information developed into three different scenarios of Cook Inlet area energy consumption and, in addition, has provided a revised and improved independent statistical analysis of the factors affecting historical growth in energy demand. Demand and supply scenarios to the year 2000 reflecting a variety of economic and energy demand growth assumptions have been developed. The most important development that has occurred since publication of SRI's earlier study is legislation that has been passed out of both houses of the U.S. Congress that would affect the ability of Anchorage area electric utilities to continue to rely on natural gas in firing new generating capacity installed to meet growing electricity demand. It now appears almost certain that, as a matter of national energy policy and federal law, these utilities will be prohibited in the immediate future from making new capacity additions fired by natural gas. The possibility exists that this legislation will also largely prohibit these utilities from burning gas in existing turbines after January 1, This study was performed in the Energy Center at SRI International. The Project Leader was Mark P. Sweeney; the Project Supervisor was Joseph E. Pelline. Other project team members who made significant contributions to the study were Katherine A. Miller and Robert E. Fullen. SRI wishes to acknowledge its indebtedness to the many individuals in 1 J

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9 II SUMMARY AND CONCLUSIONS Adequacy of Natural Gas Supplies Existing and potential natural gas resources in the Cook Inlet area are entirely adequate to support both the needs of local consumers and the expected volume of exports. This conclusion is strengthened by the very high probability that new additions to electric power generating capacity in the area after 1980 will be fired by fuels other than natural gas. This development--anticipated in our earlier report--will have a significant impact on growth in gas consumption in the area. Historically, electric power generation has accounted for the largest share of local gas consumption. Now, even a very conservative appraisal of gas supplies would provide sufficient volume to comfortably satisfy expected demands, including exports, through the end of this century. Inasmuch as the amount of natural gas that accompanies the production of oil is small and almost entirely used up in the process of extracting the oil, general consumption must be satisfied by gas from gas fields. This gas, ordinarily termed "dry gas" because of the usual lack of associated liquid production, is abundant in the Cook Inlet. Current production of dry gas from Cook Inlet fields represents just two percent of known reserves and only slightly more than one-half of one percent of known plus potential additional supplies, as shown below: DRY GAS RESOURCES (Billions of Cubic Feet) Demand 1976 Production Supply Reserve/ Known Production Ratio (1/1/77) (years) 7, Potential Total (1975 est.) Supply 15,430 22,474 The most liberal demand projection that can be reasonably forecast indicates more than a fourfold increase in annual consumption by the year Even a demand of this magnitude would exhaust less than half the available supply by the end of this century. The historically small demand for natural gas and the large existing supply have inhibited exploration for gas in the Cook Inlet area despite the fact that average gas reserves discovered per exploratory well were 3

10 nearly 40 times as great in the Inlet as in the lower 48 states. Parts of the geological section and entire geographical areas within the Inlet region that were not considered to have good oil potential are essentially unexplored. It is difficult to escape the conclusion that large additions to the existing supply are not only possible, but probable. Insufficient. demand is also the reason that eleven of the existing gas fields are still shut-i~ and the remainder are producing well below capacity. Production of gas could be more than doubled without additions to known reserves. Other Fuel Resources In addition to abundant supplies of natural gas, the Cook Inlet area possesses major resources of other fuels. The enormous underdeveloped hydropower potential of the Susitna and nearby rivers is capable of substituting for natural gas in the generation of electricity with an energy equivalent value in excess of current proved natural gas reserves. Known reserves of coal total more than 2.8 billion tons and have an energy content equivalent to nearly 43,000 billion cubic feet (BCF) of natural gas. On a similar basis, potential coal resources of 59 billion tons can be considered equivalent to 900,000 BCF of gas. Potential oil resources of 2.5 billion barrels are almost comparable to potential natural gas resources in energy content. I I Alternate Sources of Fuel Supplies Although not analyzed in this report, supplies of oil and gas from elsewhere in Alaska could be made available should the need arise. If needed, a portion of the very large proven gas reserve on the North Slope and the potential gas resources of Alaska's interior could be diverted at Fairbanks from the proposed gas pipeline route and piped to the Anchorage area. Future development of offshore resources in areas such as the Gulf of Alaska, the Lower Cook Inlet, or Bristol Bay could also supplement the supplies available to consumers in the Anchorage area. Forecasts of Energy Demand Likely sources of future population and economic growth in the Cook Inlet area include: The construction of a major pipeline to transport Northern Alaskan gas to markets in the lower-48. Renewed development of offshore oil resources, including those in the Lower Cook Inlet. Relocation of the state capitol from Juneau to the planned Willow site in Matanuska-Susitna Borough. 4

11 The primary and secondary economic impacts of rising levels of State spending. Further expansion or addition of petroleum-related industries in the Cook Inlet area. Development of the State's mineral potential, including coal from the Beluga coal. field. Initiation of projects financed from the State's permanent fund of natural resource royalties and bonus payments. Development of natural resources on Native lands. Based on forecasts of employment in activities such as these and the historical relationship between employment and population, estimates show that continued rapid growth in population is a reasonable expectation for this area. Although energy use in the Cook Inlet has grown more rapidly than population in the past, much of the increase in residential and commercial consumption can be explained by the increasing saturation of electrical appliances. When extremely high saturation levels are achieved, the growth rate in residential consumption will be limited to that of population, excluding any effect from the possible introduction of novel appliances. The historical statistical relationship between per capita energy consumption, real personal income, and temperature (expressed in heating degree days) indicates that per capita energy consumption will probably have increased only about 50 percent by the end of the century. Local electric utilities-anticipate a rapid growth in the demand for electric power during the next decade, implicitly projecting an increase in the share of homes, businesses, and industries employing electricity for applications that were previously serviced by fuel oil, liquefied petroleum gas, and, perhaps, natural gas. The impact of this rapid growth in electricity consumption on the demand for natural gas will be moderated by the shift to alternative fuels and by the increasing efficiency of generation being achieved by existing local power plants. Moreover, between 1986 and 1992, it is likely that utilities will begin relying heavily on the hydraulic power of the Susitna River, or on coal mined at Beluga, for the generation of electric power. Large individual consumers of natural gas in the Cook Inlet area include an ammonia-urea manufacturing plant, oil refineries at Kenai, and several military installations. The ammonia-urea plant will double its capacity before the end of 1978, becoming the largest urea plant in the world. Future expansion in the manufacture of products from natural gas in Cook Inlet is uncertain, and different cases have been incorporated into the demand estimates for this increasingly important use. Refineries in Kenai have added catalytic reforming and hydrotreating units; these require additional gas supplies to supplement the gas released from the crude oil during processing. Military consumption is subject to considerations of national security; however, based upon the continuous 5

12 I decline observed in staffing of the facilities, a reasonable assumption is that consumption will not increase. Export of Natural Gas The Phillip~-Marathon ylant, currently exporting liquefied natural gas in tankers to Japan, expanded its capacity by about 40 percent and probably will continue seeking to export the additional volumes that can be processed and marketed to U.S. consumers. The Pacific Alaska LNG project would begin supplying liquefied gas to California consumers in 1982 at the equivalent rate of million cubic feet (MMcf) per day of natural gas. A planned addition to initial capacity would bring throughput of the project to MMcf per day. This second phase of the project is scheduled to be completed in To add to existing gas reserves in the Inlet, Pacific Alaska is funding and conducting an exploratory drilling program. The larger (400 MMcf per day) version of the project can be carried out if adequate gas reserves to support it are found by this program. 6

13 III ECONOMY OF THE COOK INLET AREA. The economy of the CooK Inlet area is atypical of metropolitan areas elsewhere in the United States because of its remote location; the prominence of military facilities and state, local, and federal government employment and spending; and the relative unimportance of manufacturing activities. Per capita income exceeds the national average, as does the cost of living. The economy is heavily dependent on the level of economic activity in the rest of the State because the area functions as a wholesaling center and port, and as an office focation for firms active in the interior. Anchorage accounts for a large share of the State's administrative, government, and service sector activities. Estimated population in the Municipality of Anchorage, and in the Kenai Peninsula and Matanuska-Susitna Boroughs, increased at a rate of 5.2 percent per year during To provide a frame of reference in anticipating future population growth, SRI has developed two cases. In both cases, the rate of population growth is higher than the overall average in the initial years of the forecast period. The first assumes that the area civilian population will grow at the overall rate of 3.75 percent annually through the year The second case forecasts much faster population growth (averaging in excess of 5 percent per year) concurrent with vigorous economic expansion resulting primarily from continued accelerated development of the State's natural resource potential. On-base military population is assumed to remain constant over the forecast period in both population growth scenarios. While there is some possibility that the moderate growth population forecast may be exceeded, we consider the rapid growth case to represent the upper limit of realistic population growth potential in the area. Table 1 shows the two population forecasts; also included is an index of personal income used to project the living standards of area consumers and their energy needs. 7

14 ;~ Table 1 COOK INLET AREA RESIDENT POPULATION FORECASTS--MUNICIPALITY OF ANCHORAGE, KENAI PENINSULA, AND MATANUSKA-SUSITNA BOROUGHS (Annual Averages in Thousands) ~ Population, moderate growth case Population, continued rapid growth case Index of Estimated Constant Dollar per Capita Personal Income (1976 = 100) Source: SRI, based on a review of recent population projections for the Cook Inlet area, Per capita personal income forecast from U.S. Department of Commerce, See Refs. 1 and 2.

15 IV HISTORICAL NATURAL GAS CONSUMPTION IN THE COOK INLET AREA Table 2 presents historical information on natural gas consumption in the area. Since no single source provided sufficient information to permit analysis of shifting demand patterns as a basis for forecasting, these data were compiled from several sources. Local Consumption Local consumption of gas occurs primarily in the manufacture of ammonia at a single plant in Kenai and in the generation of electric power. These two demand categories currently account for slightly less than half of local consumption. The electric power generation load, including plants served by the gas utilities and an on-site generating plant at the Beluga gas field, has grown rapidly and now exceeds the combined consumption of homes, businesses, and military installations. After inauguration of natural gas service to Anchorage in 1961, household and commercial consumption grew rapidly because of conversion from other fuels and capture of the new home heating market. Deliveries of gas to the area's two major military bases, beginning in 1969 when these facilities ceased the use of coal, were initially as large as the entire residential-commercial load, although this is no longer the case. Consumption of gas by the Cook Inlet petroleum industry is categorized as shrinkage, lease and plant fuel, flaring, and refinery fuel. Shrinkage is the volume reduction in natural gas that occurs when liquids are extracted from it; the natural gas liquids (NGL) are recovered primarily from oil-well "wet" gas output. Lease and plant fuel refers to natural gas used on producing oil and gas leases or in the NGL extraction procedure. Flaring is that portion of the oil-well gas stripped of liquids that is burned to the atmosphere in the field for lack of market or because of emergency conditions. The State of Alaska's conservation orders curtailing flaring combined with a diminishing ratio of gas to oil produced from oil wells have led to a significant reduction in this waste in recent years. Refinery fuel is gas consumed in the oil refining procedure and is a minor amount at present. Export On the Kenai Peninsula, Phillips-Marathon operates a liquefied natural gas (LNG) plant, that liquefies gas from the North Cook Inlet and Kenai gas fields for shipment by tanker to Japan. The present contract will expire in ,. -~- b.l~,.

16 Table 2 CONSUMPTION OF NATURAL GAS FROM COOK INLET: (Billions of Cubic Feet) Use Categories ' 0 Local consumption Ammonia o.o o.o Electricity generation Lease and plant fuel Householdcommercial Flaring Military o.o o.o o.o , Shrinkage o.o o.o o.o o.o Refinery fuel 0.0 o.o o.o o.o Export LNG plant o.o o.o o.o o.o Repressuring Injected gas * o.o o.o Q.:1 ~ ~ ~ ~.2..: Totalt * Gross amount--net consumption averages only about 4.2 billion cubic feet per year currently, ttotals may not add due to rounding. Source: Analysis of data from State of Alaska, Department of Natural Resources, Division of Oil and Gas Conservation; Anchorage Natural Gas Corporation, and personal communication with representatives of Kenai industrial consumers. See Ref. 3.

17 Repressuring Repressuring is the injection of natural gas into an oil reservoir to maintain the pressure, thereby accelerating and enhancing oil recovery. Repressuring is currently under way at the Swanson River oil field using oil-well gas from the Swanson River reservoir supplemented by gas rented from the Kenaj gas field. Recycling occurs continuously as the injected gas is produced along with the oil, compressed, and then reinjected. The net volume of additional, or make-up, gas taken from Kenai to support operation of the project was only about 14 BCF in The economically recoverable portion of the oil reserve at Swanson River will be exhausted about 1990, and most of the gas remaining in the reservoir can be recovered in succeeding years. Gas "consumption" for repressuring can be regarded, in general, as simply a temporary withdrawal from current supplies. Actual net consumption of gas stemmin~ from repressuring operations amounted to only about 4.2 BCF in * The bulk o~ injected gas in the Swanson River field is associateddissolved gas that is continuously recycled to maintain reservoir pressure. The quantity of additional make-up gas rented from the Kenai field needed to carry out repressuring operations amounted to only 14 BCF in The amount of make-up gas is expected to increase to a maximum of 16 BCF in the near future. The net annual consumption of gas associated with repressuring operations is the estimated amount of injected rental gas that will not be recoverable once oil production ceases. The net annual consumption figures presented in this report conform to the expectations of the operator, Chevron U.S.A. l1

18 V HISTORICAL ELECTRICITY CONSUMPTION IN THE COOK INLET AREA Table 3 summarizes historical consumption of electricity in the Cook Inlet area. Both residential and commercial sales of electricity have been growing at a similar rate. Sales to churches, schools, and for street lighting have grown more slowly. The Homer Electric Association's deliveries to the ammonia plant and oil refineries in Kenai constitute the only major industrial sale of electricity in the Cook Inlet area. Losses in transmission and distribution are typically 9 to 10 percent of generated electricity. 12

19 Table 3 ELECTRIC UTILITY SALES IN THE COOK INLET AREA (Million Kilowatt-Hours) Category Household Commercial ' Other w.]] g _ ! _.11 _n.li ll 1Q 1Q _.11 ll Subtotal, household-commercial Industrial Loss li ~ _12 _.!!!± _.!!1.. ~.2Q...22 _]Q Total Source: Federal Power Commission Form 12, filed by local electric utilities. See Ref. 4.

20 VI FORECASTS OF ENERGY DEMAND IN THE COOK INLET AREA. * Household and Commercial Energy Demand Household and commercial energy consumption in the Mun2cipality of Anchorage, the Kenai Peninsula, and Matanuska-Susitna Boroughs since 1960 is shown on Table 4. Although gas and electric utilities report sales within each of their service areas, data on fuel oil, liquefied petroleum gas (LPG), coal, and wood usage are reported only on a statewide basis. Cook Inlet area consumption in this sector was estimated by allocating to the region a share of total state consumption based on its proportion of statewide electricity consumption. Household and commercial energy use grew at an average rate of 8.0 percent per year during During this period, population in the area grew at an annual rate of 5.2 percent and per capita consumption of energy at an annual rate of 2.7 percent. The share of total household and commercial energy consumption held by natural gas has risen since 1960 from zero to almost 40 percent; electricity's share has increased steadily from 7 percent in 1960 to 15.5 percent at present. Table 5 details the rapid growth in consumption of gas and electricity. In space heating, gas captured not only the new home market but also a substantial part of the existing home market, as shown by the nearly 25 percent decline in the number of homes heated by fuel oil during the sixties. The same phenomenon occurred in both water heating and cooking. Homes increasingly contain gas or electric clothes dryers. The data on dishwashers, home food freezers, washing machines, and televisions show that saturation is on the rise in all types of major electric appliances in homes. Table 6 places the importance of this increasing saturation in the context of electricity requirements per appliance. As shown, requirements for space heating are more than sixfold those of the next largest use, water heating. Table 7 employs this usage data coupled with saturation data to explain residential electricity load increases in the area during the 1960s. The relatively high saturations, with the exception of space heating, reveal the limited possibilities for future expansion of residential electricity demand per ~ousehold because with complete saturation, the rate of growth will be limited to the pace of new home construction (excluding any effects from the introduction of novel appliances) * It should be noted that the electric power portion of "household and commercial" energy demand is very broadly defined and includes virtually all electric power consumption in the area with the exception of consumption by the major industrial facilities in the Kenai area. 14

21 Table 4 HISTORICAL HOUSEHOLD-COMMERCIAL ENERGY DEMAND IN THE COOK INLET AREA (Billions of Cubic Feet Gas Equivalent) 1-' U1 Category Natural gas o.o Electricity Other *!hd 2.:.!t!hd...1.d:. _& ~ ~ ~!!_,1!!_,1 ~ Total t Per capita energy consumption * (Mcf equivalent) " ll...1b : * Fuel oil, liquefied petroleum gas, coal, and wood. ttotals may not add due to rounding. * Thousands cubic. feet gas equivalent. Source: SRI ~stimates based on reports of area gas utilities to the Alaskan Public Utilities Commission, reports of area electric utilities to the U.S. Federal Power Commission, Bureau of Mines data concerning other fuels. Population estimates from Alaska Department of Labor. See Refs. 3, 4, and 5.

22 Table 5 NUMBER OF HOUSING.UNITS USING FUELS IN COOK INLET AREA Natural Bottled Fuel Oil or Coal or Year Gas Electricity Gas Kerosene Coke Wood None Total Space Heating ,465 2,534 1,010 15, , ,103 3,870 1, ,006 Water Heating ,134 14,443 1,832 5, ,369 41, , , 706 3, ,612 26,006 Cooking ,188 24,589 7, , ,351 7,183 2, ,006 Clothes Drying ,269 21' ,195 41, , ,288 26,006 Dish Washing , ,932 41, , ,351 26,006 Home Food Freezing , ,607 41, , ,106 26,006 Clothes Washing , ,076 41, , ,836 26,006 Television , ,544 41, ' ,049 26,006 Source: 1960 and 1970 Census of Housing and SRI estimates for 1960 data on clothes dryers and dishwashers based on the SRI report, "Patterns of Energy Consumption." See Ref

23 Table 6 ESTIMATED ELECTRICITY CONSUMED PER APPLIANCE IN 1970 (Kilowatt-Hours) Space heating Water heating Home freezing Refrigerating Cooking Clothes drying Television Dish washing Clothes washing 29,000 4,490 1,405 1,270 1, Source: Data from a local electric utility for space heating load and the SRI report, "Patterns of Energy Consumption, 11 for other uses. See Ref. 6. Table 7 PATTERNS OF HOUSEHOLD ELECTRICITY CONSUMPTION (Million Kilowatt-Hours) Percent 1970 Saturation Usage Increase Percent Space heating ,200 6 Water heating Refrigerating * Cooking Home freezing Clothes drying Television Dish washing Clothes washing Other Negl. 28 Total * Estimated same as television usage, the highest measured saturation. Source: U.S. Department of Commerce, Bureau of the Census, and Federal Power Commission. See Refs. 5 and 6. 17

24 To model these saturation phenomena, SRI used personal income as the variable that controls increasing home appliance saturation and discretionary energy use. Based on a statistical analysis of historical per capita energy consumption in the area, per capita electricity and total energy demand were separately correlated with per capita personal income in constant dollars (i.e., dollars adjusted to eliminate the effects of inflation) and he~ting degree days, a measure of annual temperature and, ac.cordingly, "heating requirements. Figure 1 shows the historical and projected per capita electricity and total householdcommercial energy consumption with historical and projected trends in its two determinants. The average rate of increase in per capita household-commercial energy consumption for the period is projected to be slightly more than 1.8 percent per year. The overall rate of increase in per capita electricity consumption during the same period is forecast to be about 4.6 percent annually. The projections of per capita electricity and total energy consumption shown in Figure 1 are based only on those variable's historical relationship with per capita real personal income and heating degree days. The functions that express these relationships exhibit high levels of statistical significance. An additional factor that should be considered in evaluating future energy consumption is the impact of the growing practice of energy conservation. This factor should have a significant deterrent effect on future growth in consumption, suggesting that the rates indicated above- which ignore this phenomenon--are almost certainly maximums. Fuel Consumption for Electric Power Generation Table 8 displays electrical generating capacity in megawatts and electricity in millions of kilowatt-hours generated during 1976 in the Cook Inlet area. In 1976, almost 90 percent of the capacity is represented by gas-fired combustion turbines; the remainder consists of hydroelectric units (Eklutna and Cooper Lake). Since 1976 this percentage has increased further as all recent capacity additions have been gas-fired turbines. The heat rate shown for these combustion turbine plants indicates the energy in British thermal units required to produce a kilowatthour of electricity. One of the major factors restraining future growth in fuel consumption (whether gas or fuel oil) over the near term will be the increasing efficiency of generating plants and a resultant reduction in the heat rate. Except for the steam plant that in part generates steam for heating at Knik Arm, Cook Inlet area gas-fired generating plants use combustion turbines. These turbines operate more efficiently in the colder weather of Alaska than elsewhere and have lower capital costs than steam plant equipment. Utilities have been installing the more efficient regenerative cycle turbines in new plants in place of the single cycle units currently in use. In addition, extensive use is to be made of combined cycle 18

25 ESTIMATED FUTURE PER CAPITA ELECTRICITY CONSUMPTION ~ II CD :;; 150!:. X w 0 ~ PER CAPITA PERSONAL INCOME 100 "' HEATING DEGREE DAYS 50 HISTORICAL PER CAPITA ENERGY CONSUMPTION ~HISTORICAL PER CAPITA ELECTRICITY CONSUMPTION 0.~ ~------~~------~ ~ ~ ~ ~ ~ YEARS FUNCTIONS: Per Capita Energy Consumption = P 4.392/PCPI X HDD"33888 Per Capita Energy Consumption= 215.7e-11.78/PCPI x Hoo UNITS: PCPI (Per Capita Personal Income) In 1967 Dollars X 10-3 HOD (Heating Degree Days) in annual degrees X 10-4 SOURCE: SRI estimate based on data flied with the Alaskan Public Utilities Commission, Federal Power Commission, Bureau of Mines and U.S. Department of Commerce projections. Also see reference 7. SA FIGURE 1 HISTORICAL AND PROJECTED PER CAPITA HOUSEHOLD-COMMERCIAL ENERGY CONSUMPTION, COOK INLET AREA (1976 = 100)

26 Table 8 ELECTRICITY GENERATION AND CAPACITY: 1976 Installed Generation Capacity (million Heat Rate Plant (MW) kilowatt-hours) (Btu/kWh) Alaska Power Administration Eklutna * Chugach Electric Association Beluga ,454 International Station ,789 Bernice Lake ,329 Knik Arm ,850 Cooper Lake * Anchorage Power and Light , ,617.4 (Gas Fired Total) , ,985 * Hydroelectric--all others gas fired. Source: Federal Power Commission Form 12, filed by local electric utilities. See Ref. 4. systems which use exhaust gases from the combustion turbines to boil water to drive steam turbines, thereby achieving still greater efficiency. As a consequence, the heat rate for combustion turbine installations in the Cook Inlet area is expected to drop from the current average of 12,985 Btu/kWh to between 12,000 and 8,400 Btu/kWh. Industrial Consumption of Natural Gas There are currently three major industrial natural gas consumers in the Anchorage-Kenai area. The largest by far is the ammonia and urea plant of the Collier Carbon and Chemical Company in Kenai. The natural gas purchased is used as feedstock for the manu,facture of these petrochemicals and for fueling plant operations. Natural gas from the Kenai (Kalifonsky) field is particularly well-suited for the manufacture of ammonia because of its purity and high methane content. Both the Chevron U.S.A. and the Tesoro-Alaskan Petroleum Corporation refineries in Kenai use natural gas for fueling refining operations, and 20

27 Tesoro burns some gas for power generation; however, their combined consumption is minor. Much of the refineries' fuel requirement is met by gases released during the processing of crude oil. Future refinery consumption will depend not only upon the amount of oil refined but also on the refining procedure, which determines the requirement for additional energy to be met by natural gas. Field Uses of Natural Gas Lease and plant fuel refers to natural gas used in production operations on oil or gas leases or as fuel in NGL extraction plants, nearly all of it derived from the dissolved gas yield of oil wells. One of the primary uses is in gas-lift operations, wherein production of crude oil from wells no longer capable of natural flow is maintained by compressing and injecting natural gas down the well to lighten the column of crude and lift it to the surface. Flaring, the disposal of natural gas in the field by burning to the atmosphere, occurs when no market or transmission facilities exist for gas produced with crude oil or when emergency conditions develop. Since the State of Alaska issued orders curtailing flaring, the amount of flared gas has fallen sharply; it is anticipated that additional decline will occur for existing fields as the practice is restricted to small quantities of gas from isolated wells. Shrinkage--the reduction in volume of natural gas with the extraction of liquids such as propane, butane, and ethane--is confined almost entirely to the dissolved, or wet, gas that accompanies production of crude oil. Gas from gas fields not associated with an oil reservoir is ordinarily dry in the Cook Inlet, but a very small amount of propane is produced from the Kenai gas field. The gas pressure maintenance program at Swanson River first used dry natural gas produced from a reservoir in that field. When greater injection volumes were required, natural gas from the Kenai field was leased for that purpose. This program has significantly improved expected recovery of oil from Swanson River and will be continued to about 1990 when the oil reservoir will be depleted and the remaining natural gas can be produced for general consumption. The use of gas as compressor fuel in the injection process plus the inability to recover all of the gas from the reservoir will cause some loss of volume; of the 400 BCF rented for repressurization, approximately 350 BCF will remain at the end of oil production of which perhaps as much as 80 to 85 percent can be recovered. 8 21

28 Export of Natural Gas The Phillips-Marathon LNG plant has a contract to deliver 50.3 BCF equivalent of natural gas per year to Japan through Approximately 9.5 BCF per year is consumed in the liquefaction process or used to generate electric power for the plant. Lower Case Scenario of Natural Gas and Electricity Demand The bases and assumptions upon which the lower growth scenario was developed are described below. Electric Power Generation Industrial use of electric power will expand in proportion to the use of natural gas by established and new industries plus the additional amount required by the proposed Pacific Alaska LNG facility. (The Phillips-Marathon facility is not included in this projection inasmuch as it generates its own power.) Transmission and distribution losses will be at the 1976 rate. The heat rate in combustion turbine power plants will fall to 11,000 Btu per kwh in 1984, then decline further to 8,400 Btu per kwh by The basic premise is that after 1980 all new additions to generating capacity will be fired by fuels other than natural gas. Over the short term these units will probably be oil-fired combustion turbines. In the late-1980s it is assumed that the bulk of electricity demand will be supplied from new coal-fired plants or major hydroelectric installations such as that proposed for the Upper Susitna River. In the base case, it is assumed that natural gas consumption for electric power generation remains constant at the 1980 level over the entire forecast period. It should be noted, however, that this is a conservative assumption. The coal conversion legislation that is finally enacted will probably require a switch to alternate fuels in new facilities before In this time frame, the only viable alternative would be fuel oil. To illustrate the impact of a continuation of current practices on future gas demand, however, an alternate case is presented where virtually all the electric power load in the area is generated using natural gas. This continuation of current practice throughout the forecast period is highly unlikely and the alternate case scenario is presented for illustrative purposes only. Ammonia Manufacture Capacity of the Collier Carbon and Chemical Company plant will be doubled by November 1978 with a consequent doubling of their preconstruction period natural gas consumption. No subsequent increase is assumed in this lower case. 22

29 Household-Commercial Energy Use Civilian population will grow at an average rate of 3.8 percent per year from 1976 to 2000 (the moderate growth rate case, Table 1). It is assumed that military on-base population'will remain constant at the 1976 level. Per capita civilian household-commercial natural gas consumption is assumed to remain constant at the 1975 level of 59.1 thousand cubic feet (Mcf). This assu~ption conforms to the expectations of the local gas utility, the Anchorage Natural Gas Corporation. Adjusted for heating degree day variations, per capita household-commercial gas consumption has remained fairly constant since In the lower demand case, it is assumed that per capita electricity consumption will grow at an overall rate of 1.8 percent per year. This is the growth rate projected for total per capita household-commercial energy use as shown in Figure 1. Refinery Fuel Use of natural gas in refineries is expected to expand almost tenfold during the forecast period in response to the growth in demand for refined products. Field Usages of Natural Gas Lease and plant fuel use is likely to increase somewhat and then decline as production of oil from existing fields and its associated dissolved gas diminishes. Shrinkage as a percentage of associated gas production from Cook Inlet oil wells will remain constant at the 1976 level. A small amount of shrinkage has been included for nonassociated gas, assuming that gas from new fields will have a minor liquid content similar to that from the Kenai field. Flaring will continue to decline. These conditions are based upon the very conservative assumption adopted for the low demand case that no significant oil or gas production will result from the Lower Cook Inlet outer continental shelf lease sale. Military Use It is assumed that this demand will remain constant at the 1976 level. Export Phillips-Marathon LNG Plant--Recent improvements have enlarged liquefaction capacity; applications to transport the additional gas that could be processed to the Pacific Northwest were filed with the Federal Power Commission, but were withdrawn. It has been assumed, however, that gas usage will expand proportionately to the plant's increased capacity; 23

30 therefore, requirements of this facility will increase from 63 BCF per year to about 88 BCF per year. Although the existing contract to export gas to Japan will expire in 1984, it has been assumed that capacity operations will be maintained during the remainder of the century. Pacific Alaska LNG Plant--Natural gas consumption, including plant fuel, has been based upon transport to West Coast consumers of slightly more than 400 million cubic feet per day, the expected project capacity assuming that adequate reserve dedications and regulatory approvals can be obtained. This will consume BCF of gas per year. Industrial Electricity Demand--With _the exception of electricity consumption by the Pacific Alaska LNG Plant (for which preliminary consumption figures are known) industrial demand for electricity has been assumed to grow in direct proportion to industrial gas demand. Summary Table 9 summarizes the lower demand case scenario. Given the assumptions adopted, the use of natural gas will increase at an average rate of 4.0 percent per year during the remainder of the century. In this case, gas demand increases most rapidly in the household-commercial and refinery fuel categories. The overall growth rate in electricity demand in the lower case is 5~6 percent per year, as shown in Table 10. We consider it very likely that the future gas demand depicted in the low case scenario will be exceeded. Intermediate Case Scenario of Natural Gas and Electricity Demand The bases for this demand case scenario differ from the lower growth case only as described below. Ammonia Manufacture--Gas consumption for feedstock and plant fuel will increase to 69.3 BCF in 1988 and 92.4 BCF in This latter figure represents a quadrupling of current plant capacity. Electric Power Generation and Household-Commercial Energy Use--Per capita electricity demand in this case is assumed to grow at an overall annual rate of 4.6 percent (the electricity demand forecast shown in Figure 1), while gas demand reduced to a per capita basis will rise at an overall average annual rate of 1.8 percent. The consequent increase in gas demand in this case is assumed to result from the extension of gas service to existing residential and commercial units now served primarily by fuel oil and liquefied petroleum gases (LPG). This is the same as saying that the saturation level of residential and commercial 24

31 Table 9 COOK INLET AREA NATURAL GAS DEMAND--LOWER CASE (Billions of Cubic Feet) N \J1 Actual Projected Category Electric power generation 22, (32. 5) (31. 6) (40.0) Ammonia manufacture Household-commercial use ' Refinery fuel Lease and plant fuel Shrinkage and flaring Military use Export,- Phillips-Marathon Pacific Alaska Subtotal (376.6) (379.3) (388. 5) Repressuring (net consumption) ~ Total (381.4) (384.1) (388. 5) Average Annual Growth Rate '2000 (percent) 25.6 NM (50. 5) , (406.9) (406.9) 4.2 Notes: Source: Figures in parentheses assume that virtually the entire electric power load is gas-fired, NM = not meaningful. SRI estimates based in part on data filed with Alaska Division of Oil and Gas Conservation.

32 Table 10 LOWER CASE ELECTRIC POWER DEMAND AND SUPPLY (Billion kwh) N 0'\ Demand Percent Actual Projected Annua 1 Growth Household-commercial Industrial Losses Total Supply Hydro, oil, or coal NM Gas-fired* NM Total Alternate Case Supply Hydropower NM Gas-fired* NM Total * Heat Rate, Btu/kWh gas-fired plants 12,985 12,000 11,000 8,400 8,400 8, Note: Source: NM = not meaningful. SRI estimates based on reports by local electric utilities to the Federal Power Commission. Also see Ref. 9.

33 gas service will increase while per customer consumption remains approximately constant. Industrial Natural Gas Use--In this case it is assumed that a large methanol plant will begin operation in 1990 with an annual gas consumption requirement of 24 BCF.. Refinery Fuel--Use of natural gas will increase almost tenfold by 1990 and then remain constant throughout the remainder of the forecast period. Field Usages of Natural Gas--Lease and plant fuel will almost double by 1985 then gradually decline until this use in the year 2000 is approximately the same as the current level of 15.8 BCF per year. Shrinkage and flaring will increase to a peak in 1985, then also gradually decline through the remainder of the forecast period. These premises correspond to the assumption that significant gas and oil finds will result from exploration activities carried out subsequent to the Lower Cook Inlet federal outer continental shelf lease sale. The results, shown on Tables 11 and 12, indicate that natural gas demand will expand at an average annual rate of 5.0 percent and, by the year 2000, will be about 102 BCF greater than in the lower case scenario, about a one-quarter increase. The highest growth rates in gas consumption in the intermediate case are in the refinery fuel and ammonia-urea manufacture categories. Household-commercial gas demand will increase at an average annual rate of 5.7 percent. Electricity demand will grow at the overall rate of 8.4 percent per year. The growth rates exhibited in the early years of the forecast period are significantly higher than the overall rate. It is our judgment that the gas consumption figures in the intermediate case will best describe future trends in the Cook Inlet area, although the probability is that they will be on the high side. High Case Scenario of Natural Gas and Electricity Demand The bases for this case are the same as those of the intermediate demand case with the exceptions noted below. Electric Power Generation--Growth in electricity demand is assumed to grow at an average annual rate of 16 percent through 1985, declining to 12 percent through 1990, and then further to 10 percent per year through the remainder of the forecast period. The resulting overall annual growth rate of 12.6 percent per year is essentially equivalent to the high demand scenario for the South-Central Alaska region developed in the 1976 Alaska Power Survey. 27

34 ' Table 11 COOK INLET AREA NATURAL GAS DEMAND--INTERMEDIATE CASE (Billions of Cubic Feet) Average Annual Growth Rate Actual Projected Category (percent) N co Electric power generation NM (41. 3) (46. 5) ( 66. 5) (93.6) 6.2 Ammonia manufacture Household-commercial use Methanol plant Refinery fuel Lease and plant fuel Shrinkage and flaring Military use o.o Export Phillips-Marathon Pacific Alaska Subtotal (414. 8) (471.6) (492.8) (547.3) 5.7 Repressuring (net consumption) Total (419.6) (476.4) (492.8) (547.3) 5.5 Notes: Source: Figures in parentheses assume that virtually the entire electric power load is gas fired. NM = not meaningful. SRI estimates, based in part on data filed with State of Alaska, Division of Oil and Gas Conservation.