Progress slow, but ongoing, for Interior Energy Project

  • Fairbanks Natural Gas, which currently supplies natural gas to a small base of about 1,000 customers, has ordered three additional 13,000-gallon LNG trailers after tests with the first trailer went well. The larger trucks could immediately reduce trucking costs by more than 20 percent over the current 10,500-gallon trailers. (Photo by Elwood Brehmer/AJOC)

The state’s effort to get more natural gas to the Fairbanks area is admittedly moving painfully slow, but Interior Energy Project leaders insist key milestones are within reach.

IEP manager Gene Therriault reported to the Alaska Industrial Development and Export Authority board of directors at its Oct. 27 meeting that his team is advancing all aspects of the gas supply chain despite delays in inking deals imperative to the success of the project.

AIDEA has negotiated a term sheet that is pending with a Cook Inlet natural gas supplier, Therriault said. However, the inherent challenges the project is facing have prevented finalizing the deal.

Low oil prices have at least temporarily brought financial relief to Interior residents and businesses that rely in fuel oil for heat, but have also slowed the expected rate at which prospective gas customers will convert to actual gas customers compared to when the project was funded by the Legislature in 2013.

At that time, fuel oil in the Interior was roughly $4 per gallon, twice the energy equivalent cost of AIDEA’s goal to provide the region with trucked natural gas at $15 per thousand cubic feet, or mcf.

Therriault, a resident of the area himself, said he recently purchased fuel oil for $2.22 cents per gallon, which nearly matches natural gas at $15 per mcf.

As a result, AIDEA has been forced to ask potential gas suppliers for an unusually flexible gas supply contract. Therriault described it as asking a developer to build a building for lease to a single tenant that does not know how quickly it will lease the full space.

“We are asking somebody to have a reserve of gas at a price that works for the project, but we are unsure of how quickly we will be able to lock the gas in under take or pay obligations,” he said.

AIDEA board chair Dana Pruhs said he would expect asking for natural gas to essentially be held in reserve would be “a fairly big hurdle” for the gas supplier.

Nevertheless, there really isn’t another option, as saddling the initial customer base with paying for excess supply would kill the project’s economics.

On a positive note, Therriault said Fairbanks Natural Gas, which currently supplies natural gas to a small base of about 1,000 customers, has ordered three additional large-volume LNG trailers after tests with the first trailer went well.

The larger, 13,000-gallon LNG trailers built in Seattle by Western Cascade could immediately reduce trucking costs from the Mat-Su LNG plant to the Interior by more than 20 percent over the 10,500-gallon trailers the Fairbanks Natural Gas is currently using through simple economies of scale.

Therriault added that AIDEA, which purchased FNG in 2015, has had productive meetings with Interior Gas Utility officials on combining the two utilities. The expectation is to have a deal for the AIDEA board to consider by the end of the year, he said.

The plan to meld the borough- and state-owned utilities has been in the works since AIDEA bought FNG to maximize operational efficiencies but also to aggregate gas demand.

“It would be very difficult to start with a very small (IGU) customer base out in North Pole and control that cost,” Therriault said. “But by combining the two utilities we’re able to start to develop that broader system at an affordable cost to the customer.”

The biggest unknown remains how many people will actually convert, but the Therriault described Fairbanks North Star Borough Mayor Karl Kassel as “bullish” on utilizing every tool available to the local government to help ease conversion costs that can reach $10,000 if a completely new, natural gas capable home heating boiler is needed.

The most likely mechanisms are “on-bill” financing for residential customers, which would allow natural gas customers to make monthly payments for their gas heating system as a surcharge on their regular utility bill, and PACE financing for businesses wanting to make the switch.

Property Assessed Clean Energy, or PACE, financing provides an avenue to pay for energy efficiency or cleaner fuel upgrades as an assessment on regular property tax bills.

It requires state legislation to allow local governments to set up PACE programs; a widely supported PACE bill pushed by Gov. Bill Walker’s administration passed the House but died in the Senate last session as legislators dealt with larger budget issues. It’s expected the administration will resubmit the PACE legislation in the upcoming session.

“We are still making progress,” Therriault summarized. “Is it slower than we had hoped? Absolutely, it is. Do we think we are still on track to achieve the goals of the IEP? We believe we are.”

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Updated: 
12/03/2016 - 10:07pm

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