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Contract Saves Alaska Utility from Supply Shortfall

Alaska's Chugach Electric Association struck a seven-year gas supply contract with ConocoPhillips that is expected to head off a significant supply shortfall that had been expected by the utility. As part of the deal, Chugach, the largest electric utility in the state, dropped a challenge to a liquefied natural gas (LNG) license extension that had been awarded to Alaska producers.

The deal is intended to meet 100% of Chugach's previously unmet gas supply needs through April 2011, approximately 50% of its unmet needs from June 2011 through December 2015, and approximately 25% in 2016. Total volume of gas in the contract is about 66 Bcf, and 90% will be priced off of a basket of Lower 48 natural gas production area price index points.

"The pricing formula in the contract will result in the most competitive price, on average, of any price formula presented to the RCA [Regulatory Commission of Alaska] during the past decade for a major gas contract. [The] production area composite index compares favorably with Henry Hub and has averaged out to be 9% less than Henry Hub over the past four years," Chugach said.

Chugach also agreed to withdraw its appeal of the U.S. Department of Energy's approval of an LNG export authorization for the period 2009-2011 (see NGI, June 9, 2008). Chugach asked that DOE condition LNG exports by requiring that gas producers also make binding commitments to meet gas supply needs of gas-dependent Cook Inlet utilities such as Chugach and ENSTAR Natural Gas.

"The new supply contract between Chugach and ConocoPhillips ensures that Chugach's needs will be fully met through the end of the export authorization and then for significant portions of Chugach's requirements through 2016," Chugach said.

Chugach had been negotiating with Cook Inlet gas producers for many years. Previously signed contracts are expected to expire about the middle of next year as the volume of gas delivered reaches what was originally contracted for, Chugach director of energy resources, Suzanne Gibson, told NGI earlier this year (see NGI, Jan. 12). Gibson had sought gas supply pricing based on an index to Lower 48 pricing points.

The state and Southcentral Alaska gas consumers have been seeking a means to tap the state's abundant gas reserves for in-state consumption. In-state pipeline proposals are on the table, and earlier this year Gov. Sarah Palin promised that such a pipeline would be operational in five years (see NGI, Jan. 26).

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