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$355-million plan for trucking LNG to Interior moves ahead in Legislature

Posted: March 20, 2013 - 9:17am

Whether liquefied natural gas will be trucked from the North Slope to the Interior within the next couple of years should be a lot clearer within the next month.

Alaska Industrial Development and Export Authority, or AIDEA, is currently reviewing proposals from Fairbanks-area companies competing for state money to build a gas liquefaction plan on the North Slope.

In late February AIDEA announced it had received “turnkey” proposals from Fairbanks-based Golden Valley Electric Association and Pentex Alaska Natural Gas Co., the parent company to Fairbanks Natural Gas LLC, which currently provides gas to approximately 1,100 customers in Fairbanks. Golden Valley provides electricity to more than 44,000 customers in the Interior.

The deadline for submitting proposals was Jan. 7.

AIDEA is the state’s economic development corporation that regularly finances large infrastructure development projects.

AIDEA’s current project timeline calls for commitment to a plan in June and for financing to be finalized by August. It hopes for the first LNG shipments to be made down the Dalton Highway in late 2015, Alaska Energy Authority Deputy Director of Energy Policy Development Gene Therriault said. The Alaska Energy Authority is a sister-corporation to AIDEA and often collaborates on energy development work.

What’s made the liquefied natural gas, or LNG, trucking project more appealing to utilities recently is mirroring legislation Gov. Sean Parnell submitted to the House and Senate in January.

House Bill 74 and Senate Bill 23 provide AIDEA with up to $275 million to finance development of an LNG trucking operation. That money is divided into $125 million in low-interest loans from the State’s Sustainable Energy Transmission and Supply Development Fund established last year, and $150 million in capital bonds.

An additional $50 million appropriation to AIDEA in the governor’s capital budget and $30 million available in gas storage credits from previously passed legislation brings total possible funding for LNG trucking to $355 million.

 “The state money does really jumpstart the project and get it moving. Our proposal to (AIDEA) takes full advantage of that,” Fairbanks Natural Gas President and CEO Dan Britton said.

In a March 7 letter to AIDEA Spectrum LNG LLC President Ray Latchem said his company’s proposal for an LNG trucking operation should have been placed alongside the turnkey plans. While specifics to Spectrum’s proposal are unavailable, Latchem referred to Spectrum’s previous work in Alaska and its claim to be able to have LNG to Fairbanks by the end of 2014 as reasons for further consideration.

Fairbanks Natural Gas Co. has been looking at ways to get LNG to Fairbanks for more than five years, Britton said. The proposal Fairbanks Natural Gas Co. submitted to AIDEA details plans for a North Slope gas liquefaction plant costing about $160 million in initial investment. The plant would have a 9 billion cubic-foot per year, or bcf, capacity and be expandable if demand increased.

Britton said Fairbanks Natural Gas’ proposal was submitted confidentially because of data it wanted to keep private during the competitive process.

Golden Valley’s proposal, submitted publicly, is for a 9 bcf North Slope LNG plant in the $200 million range. It requires development of an approximately 10-acre gravel pad to put the liquefaction plant prior — a $30 million cost. Britton said Fairbanks Natural Gas would use an existing pad.

Both proposals include gas storage tanks in the Fairbanks area and a re-gasification facility to make the LNG ready for distribution and consumer use.

Mike Wright, Golden Valley’s vice president of transmission and distribution said the power utility’s plan assumes full state funding in grants and bonds as the best way to lower cost for its customers.

“We didn’t want to put any risk on our ratepayers,” he said.

Without the need for private investment Golden Valley could get LNG to the Fairbanks area for $9 to $10 per thousand cubic-feet, or mcf. That would equate to a cost to customers of about $15 mcf, Wright said.

Fairbanks Natural Gas’ price estimates are similar, according to Britton — about half the price of fuel oil for heat and power generation when oil is near $100 per barrel as it is now.

“We believe that price would incent individual consumers to make the switch,” Therriault said.

Both Britton and Wright said their respective plans meet AIDEA’s timeline.

Golden Valley estimated its annual demand for power generation to be 2.5 bcf to 3.5 bcf. Wright said the utility informed AIDEA those figures may change somewhat because additional access to coal from a mine near Healy appears promising. He said the cost of power Golden Valley’s Eva Creek Wind farm along with smaller sources of hydropower and electricity purchased from Southcentral utility Chugach Electric Association could all impact how much gas Golden Valley burns.

“The true position of Golden Valley is we’re an electric provider. We just need to get the cheapest electricity we can get and that means we need the cheapest fuel prices we can get,” Wright said.

In 2011, 37 percent of the fuel Golden Valley burned was diesel, 28 percent was coal and 31 percent was gas. If more coal becomes available, Wright said coal could produce about 100 megawatts of power for Golden Valley — about half of its typical load.

Remaining gas would be sold to other area customers that could include Fairbanks Natural Gas, Flint Hills Resources’ North Pole oil refinery, Alaska Power and Telephone and the University of Alaska Fairbanks.

It’s uncertain just how much LNG Flint Hills Resources would buy from the trucking operation. The company was previously a partner with Golden Valley in engineer and cost studies of a project but withdrew from the joint-venture relationship last year.

Jeff Cook, Flint Hills’ spokesman, said in previous interviews that the refinery’s need for energy is reduced now that it is operating only one crude oil processing unit, down from three when the plant was selling substantial volumes of jet fuel to air carriers in Anchorage.

The refinery may still buy LNG if it is available depending on the price, Cook said.

The University of Alaska Fairbanks operates its own heat and power boilers and currently buys gas from Fairbanks Natural Gas Co. Because the university burns coal and also can burn diesel its gas supply is periodically cut-off during peak winter draw, Britton said.

Fairbanks Natural Gas has plans to grow and serve nearly 16,000 customers in Fairbanks and North Pole if more gas becomes available. Britton said pipeline infrastructure would need to be expanded to meet that projection, but as it stands its gas network would allow for more customers to be serve immediately — again, if more gas becomes available.

The company currently trucks about 1 bcf of gas per year from its LNG plant at Point MacKenzie to supply its customers. That operation gives Fairbanks Natural Gas a leg up, Britton said.

“We think we are the best choice because we have built a facility in Alaska, expanded it several times and operate it on a daily basis,” he said.

Britton said the Southcentral operation would be used as a back-up source of gas if the North Slope operation gets underway.

Wright said because Golden Valley is a nonprofit cooperative revenue gained from gas sales would be put into operations and maintenance and be returned to customers in rate reductions.

Trucking 9 bcf of LNG per year from the North Slope would call for 20 to 30 trucks traveling each way on the Dalton Highway daily. Officials with the Alaska Department of Transportation and Public Facilities have stated that approximately 250 trucks travel the road during the peak summer season and the additional traffic could be absorbed.

Elwood Brehemer is a reporter for the Alaska Journal of Commerce.

 

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