DNR: Cook Inlet gas supply strengthened by recent drilling and storage but long-term gaps remain

The Department of Natural Resources told legislators on Jan. 23 that Cook Inlet gas — which supplies heating and electricity to much of Southcentral Alaska — has received a near-term boost from new drilling, operator optimization and growing storage capacity, but DNR cautioned that long-term supply risks persist.

"The top line, demand number is around 70 BCF per year," Derek Nottingham, director of the Division of Oil and Gas, told the House Resources Committee, noting the system serves roughly 440,000 people across 25 communities and supplies major utilities. Nottingham said a 2022 forecast flagged an early supply shortfall; subsequent drilling activity, royalty modifications and new field work have pushed the projected shortfall farther into the future, though white-space risk remains later in the next decade.

What DNR said: the division reported 22 development wells drilled in Cook Inlet in 2025 and cited activity at Beluga River, North Cook Inlet and Kitchen Lights/Fury Hex developments. DNR also described efforts to inject surplus gas into storage and noted an operator application to the Regulatory Commission of Alaska for Kenai Pool 6 third-party storage.

Federal coordination and royalty terms: Nottingham said BOEM plans offshore Cook Inlet OCS lease activity (a March 4 sale was cited) and that BOEM reduced certain royalty terms to 12.5 percent for the program. DNR said it is coordinating state lease timing with federal sales where possible.

Contract and market effects: committee members raised concerns that utilities' contract choices, price signals and the availability of firm gas under contract can change market dynamics and constrain other users (including oilfield operations and the Kenai refinery). John Crother (DNR) confirmed that some refinery and oil operations depend on Cook Inlet gas and that constrained contract availability raises concerns about cost and supply chain for refinery inputs.

Operational constraints and policy tools: legislators pressed DNR on rig availability — DNR said a single jackup rig in the inlet creates constraints — and on the limits of state royalty-relief tools, which DNR said do not automatically offset an operator's large capital choices (for example, acquiring an additional jackup rig) because royalty relief has gross-revenue thresholds.

What happens next: DNR said it will continue to monitor operator performance and storage developments and will provide committees with more specific data on contracts, storage capacity and scenarios linking storage expansion with alternative electricity generation.