A depleted natural gas formation beneath Kenai has been provisionally designated by state authorities as the preferred site for an underground storage facility that would hold winter fuel reserves for Southcentral Alaska, with Enstar Natural Gas Co. selected over Hilcorp to lead the project's development.
On Tuesday, Oct. 13, a preliminary finding from the Alaska Department of Natural Resources advanced Enstar's bid to secure storage rights within the Kenai Loop Gas Field, a site where reduced output from existing wells has created the possibility of converting that infrastructure toward a new purpose. The $240 million venture cleared one procedural hurdle with the finding, yet the utility still faces the tasks of securing financing and satisfying outstanding regulatory requirements before the project can proceed in full.
Along Cook Inlet, output from natural gas operations has not kept pace with the volume that heating-season demand requires, forming the backdrop against which the new finding arrives. Heating fuel underpins daily life for peninsula households and businesses, while Homer Electric Association draws on natural gas-fired generation to keep electricity flowing across much of the borough. Expanded storage capacity would give those customers a larger buffer to draw on whenever peak usage strains the ability of existing wells and pipelines to keep pace with demand.
A plan put forward by Enstar called for a regulated underground storage hub open to gas from more than one supplier, with the company pursuing rights over roughly 500 acres of subsurface land held by the state. Under Hilcorp's submitted proposal, approximately 1,330 acres of subsurface state-held subsurface land would be set aside for the company's own gas storage needs, with the filing leaving open a pathway toward eventual reclassification as a regulated utility.
The preliminary finding noted that Hilcorp's submission covered roughly a quarter of the technical documentation the state had requested, while leaving gaps in two areas: a detailed map of the proposed storage zone's subsurface boundaries and a model showing how pressure within the reservoir would shift as gas moved in and out of the formation. Borehole work and subsurface testing formed the backbone of a plan to determine which parts of the formation could accommodate storage.
The state's determination that expanded storage capacity represented a pressing regional need weighed against Hilcorp's application. Conflicting estimates of the natural gas reserves still within the field also separated the two companies. Hilcorp placed its figure at around 6.4 billion cubic feet, a volume roughly 2.5 billion higher than the 3.9 billion cubic feet that Enstar put forward. In the view of Hakley Paine of the Division of Oil and Gas, the reservoir data on hand lent stronger support to Enstar's valuation of the asset.
Production leases covering the field are registered under AIX Energy's name. A purchase-and-sale agreement covering AIX's assets and lease interests was put in place between Enstar and AIX that April, though the deal had not cleared all outstanding conditions at the time of the finding. The preliminary finding identified Hilcorp's failure to demonstrate any arrangement comparable to what the incumbent operator had put in place as a deficiency in its application. Under state rules, a gas storage lease cannot unreasonably disrupt active oil and gas operations already in place, and the division found that Enstar had laid out a more detailed path toward meeting that standard.
Hilcorp retains the opportunity to submit a formal response through the public comment process before the state reaches its final determination, even as the application faces an uphill path.
Under Enstar's proposal, the same underground infrastructure that once brought natural gas up from the Kenai Loop field would be put to a new purpose — operating in reverse so that fuel can be injected into the earth and withdrawn again whenever demand rises. Three existing wells would serve as the starting point, with the total potentially climbing to nine as the project advances. Pushing gas into the reservoir at elevated pressure levels would require the installation of additional compression equipment.
A conceptual storage facility outlined in Enstar's filing with the Alaska Oil and Gas Conservation Commission that September would draw on nine wells and hold roughly 20.5 billion cubic feet of working gas at capacity. Factored into that projection are a further eight billion cubic feet of base gas required to sustain operating pressure, plus roughly 3.8 billion cubic feet that the extraction process would leave behind unrecovered. Rated at peak design throughput, the storage site can move as much as 150 million cubic feet of gas per day in either direction, though output volumes taper off as underground pressure drops during drawdown operations.
Distinct from Cook Inlet Natural Gas Storage Alaska — the CINGSA facility already operating in Kenai — the Kenai Loop project would function as a separate underground storage operation. Withdrawal output from the CINGSA installation dropped off for a stretch in January 2024 after a well malfunction arose at a point when heating-season demand was running at elevated levels, though the site has otherwise served as a supply source during cold-weather peaks. Adding storage variety to the regional gas network forms the core of what Enstar's plan puts forward.
Parts of the subsurface area stretch beneath land owned by Kenai's municipal airport, drawing the city into talks over how that ground can be accessed and what activities are permitted on the surface above it. State-level authorisation of the subsurface lease would leave any outstanding disputes over local property rights without a resolution of their own.
Enstar brought a petition before the Regulatory Commission of Alaska that January, requesting an advance ruling on whether the roughly $240 million undertaking represented a sound use of capital — a finding that would have offered the utility greater confidence in its ability to recoup those outlays through rates charged to regulated customers. On July 8, a ruling came down against the request, with the commission determining that the documentation put forward by the company fell short of what an advance ruling would require. A reconsideration petition filed by Enstar — one that commissioners turned down by a 3-2 vote on Aug. 21 — contended that the investment was needed to handle anticipated shifts in gas supply and that securing financing would prove difficult without some form of regulatory guarantee.
The commission's decision to withhold the upfront financial guarantees the company had sought fell short of an outright construction ban, with questions about future cost recovery left to work through the commission's standard regulatory review. Projections filed with regulators by the company put the likely monthly gas bill increase for a typical home at somewhere between ten and twelve dollars. No regulatory approval has yet been granted for the rate rise, meaning what ratepayers ultimately pay will depend on how construction outlays, debt arrangements, and future decisions by regulators all develop.
Fluctuations between peak and off-peak supply volumes prompted Enstar to position gas storage as an operational requirement, with the utility anticipating stretches when pipeline deliveries under contract would outpace what customers actually draw, leaving a volume to be held in reserve until demand catches up. Responding to a Clarion questionnaire dated September 10, Enstar disclosed that its natural gas storage volumes were running roughly 3 billion cubic feet short of the level the utility considers optimal for that stage of the pre-winter period. The company clarified that the figure reflected a tightening of its contingency headroom — the cushion that would ordinarily help it manage an unexpected cold spell or a disruption to established supply chains — and not any shortfall in customer orders going unfulfilled.
Contracts with Cook Inlet producers gave Enstar a secured gas supply, though the utility noted that a prolonged cold snap could strain its ability to keep up with demand. Conservation measures and staged reductions in supply stood among the fallback options the utility identified, alongside a stated commitment to keeping facilities tied to basic human welfare at the front of the queue. Peninsular communities that rely on Homer Electric Association for power could face operational strain during high-demand stretches if limits are placed on natural gas supplies.
Building more underground storage capacity would not produce additional natural gas — the value of such infrastructure depends on whether producers and import suppliers can deliver adequate volumes of fuel to fill it. On the Kenai Peninsula, Enstar has been independently exploring the possibility of bringing in liquefied natural gas by import, part of a broader effort among area utilities to find supply options as output from Cook Inlet continues to decline.
Enstar's bid to inject and store gas within the Kenai Loop reservoir — filed back in September — is under examination by the Oil and Gas Conservation Commission. Residents and other interested parties will have a chance to weigh in at a proceeding set for the morning of Nov. 12 in Anchorage, though that date has yet to be confirmed. Any written feedback on the DNR's preliminary finding is due no later than 5 p.m. on Nov. 13.
Written comments on the Kenai Loop Gas Storage lease can be submitted by email at dog.bif@alaska.gov — with the lease named in the subject line — or by post addressed to Best Interest Findings, 550 W. Seventh Ave., Suite 1100, Anchorage, AK 99501. Those who wish to contest the department's eventual determination through its reconsideration process are required to have submitted comments during the designated input period.
