NATURAL GAS -- SUPPLY AND DEMAND IN SOUTH-CENTRAL ALASKA

The Cook Inlet Basin is a Tertiary fore-arc basin, which developed upon the Late Paleozoic to Late Mesozoic Alaska Peninsula terrane. The basin has a nearly 50-year history of oil and gas production. Oil production at the close of 2003 was 1.293 Bbo with proven economically recoverable reserves of 0.167 Bbo for an EUR of 1.46 Bbo. Gas production was 6.7 Tcf with remaining proven economically recoverable reserves of 1.8 Tcf providing an EUR of approximately 8.5 Tcf. The oil and associated gas are sourced from the Middle Jurassic Tuxedni Formation and possibly from the Late Triassic Kamishak Formation. The great bulk of the gas is non-associated gas and is derived from the Late Tertiary coals and associated organic-rich mudstones of the upper Tyonek, Beluga, and Sterling formations.

Cook Inlet gas supplies all south-central Alaska's residential, commercial, and industrial demand. The estimated ultimate recovery of 8.5 Tcf and the January 1, 2004 remaining proven reserves of 1.8 Tcf do not provide for long-term demand in the area. Proven reserves in known fields are forecast to meet demand until 2012 for the base case, which assumes that the Agrium fertilizer plant shuts down in 2005 and that LNG exports end in the first quarter of 2009 when the export license expires. Without curtailment of industrial use or new reserve additions, a shortage could occur by 2009.

Ninety-five percent of the gas was found before 1970 during exploration for structurally trapped oil. There was no gas-focused exploration until the late 1990s. An analysis based on the expectation of lognormal distribution of field size and reserves, suggests a total Cook Inlet gas resource endowment of 25 to 30 Tcf OGIP. These resources are expected to be largely biogenic gas in stratigraphic or combination traps. No exploration has let occurred for stratigraphic accumulations. The resources remaining to be developed through reserve growth in existing fields and exploration are estimated to be 12 to 17 Tcf. Investments for reserves growth are estimated to be $0.35/Mcf and $0.75/Mcf for additions through exploration. Land access, market price, and technology issues will determine the degree to which these potential volumes can be achieved.