Gov proposes state-financed LNG project on Slope


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The State of Alaska would finance $355 million of a liquefied natural gas project on the North Slope to support an LNG trucking operation as well as LNG re-gasification facilities near Fairbanks, Gov. Sean Parnell announced Dec 7.

Parnell’s proposal is for a $50 million state grant; $275 million in revenue bonds, and $30 million in gas storage tax credits through an existing program to help finance construction of LNG storage tanks on the North Slope and at North Pole.

The financing would also include an expanded gas distribution system in the Interior Alaska city, Parnell said in a press release.

Late that day the Alaska Industrial Development and Export Authority, the state development finance corporation, issued a Request for Letters of Interest for parties to make proposals to develop a North Slope LNG project with a capacity to process up to 20 billion cubic feet per year of natural gas to LNG.

The project would be large enough to serve not only Fairbanks but other communities as well, including utilities in Southcentral Alaska and Anchorage.

“Using the key financing tools AIDEA has available, our first approach to the LNG liquefaction project is to facilitate the assembly of private sector financing” said Karsten Rodvik, spokesman for AIDEA.

“An AIDEA role as primary developer of the project could be considered in the future, but only if a private development group doesn’t emerge.”

Golden Valley Electric Association, the Interior electric cooperative, was previously working on a plan for an LNG plant that would convert 9 billion cubic feet of gas yearly to LNG, which would replace oil that Golden Valley now uses to generate electricity at generation plant near North Pole, east of Fairbanks.

Parnell’s plan falls short of what Golden Valley had pushed for in one respect, which was for a $200 million grant for Golden Valley’s LNG plant. An outright grant would have resulted in lower costs, Golden Valley CEO Cory Borgeson has said previously.

Borgeson was not available for comment on Parnell’s Dec. 7 proposal, however.

Golden Valley requested a state grant to build the LNG plant but would have financed the re-gasification plant and LNG storage tanks itself.

Under its plan, Golden Valley would also make gas available to Flint Hills Resources for its refinery, also at North Pole and which also uses oil for refinery operations, and for space heating in the Interior city, according to Borgeson.

BP has signed a contract to supply Golden Valley for up to 23 billion cubic feet of gas over several years for the LNG project that the utility has planned.

The plant Parnell has in mind would be much larger, however. The LNG would be trucked from the Slope about 400 miles to Fairbanks on the Dalton Highway.

Under Golden Valley’s smaller project, about 22 tank trucks per day loaded with LNG would travel down the Dalton Highway to Fairbanks and an equal number of empty tank trucks traveling north, for a total of 44 trucks per day on the Dalton Highway.

Under Parnell’s expanded idea of a plant capable of processing up to 20 billion cubic feet per year, the number of additional trucks per day on the Dalton would likely exceed 100 with the plant fully built.

AIDEA has requested responses to its Request for Letters of Interest to be submitted by Jan. 7.

“The state has stepped up with a financial package that will lead to lower heating and electric costs. And, it can be a springboard for cheaper energy for Alaskans in other communities,” Parnell said in his Dec. 7 statement.

Fairbanks residents and businesses are hard hit by energy costs. Fuel oil is running at about $4 per gallon this winter and temperatures have been 30 degrees to 40 degrees below zero Fahrenheit.

Meanwhile, Fairbanks Natural Gas, a small gas utility now serving about 1,100 residential and commercial customers in the core Fairbanks area, was working on its own plan for trucking North Slope LNG before Golden Valley started work on its plan. FNG now serves its customers with LNG trucked from Southcentral Alaska.

In a related development, a new regional gas utility being formed by the Fairbanks North Star Borough would serve areas outside the core Fairbanks area now supplied with gas by FNG.

Also, Flint Hills Resources was previously a partner in Golden Valley’s initiative but recently withdrew from the project, citing an unwillingness to proceed with a project that requires government subsidy, its spokesman, Jeff Cook, has said.

In a press release, Flint Hills said it is still interested in developing a slope LNG project itself, but on a straight commercial basis.

Until Flint Hills ended the partnership, the company and Golden Valley had spent $3 million on engineering and cost estimating for the LNG project, splitting the cost evenly.

A fully-developed LNG plant would also make 10,000 gallons a day of propane available which is about enough for one truckload, Borgeson said.

Parnell also sees the slope LNG plant as a possible temporary solution for natural gas needs in Southcentral Alaska, where existing gas fields are being depleted and utilities are planning to import LNG or compressed natural gas from outside Alaska.

Gene Therriault, deputy director of the Alaska Energy Authority, a state agency, said North Slope LNG plant supplying Interior Alaska by truck could also supply quantities of LNG to Anchorage and other Southcentral communities to cover supply gaps until more gas is found in Cook Inlet, where exploration drilling is now under way. 

Therriault said he has asked the Southcentral utilities to consider LNG trucking from the North Slope as an option in a feasibility study the utilities have commissioned of LNG and CNG imports.

John Sims, a spokesman for Enstar Natural Gas Co. of Anchorage, the regional gas utility, said the utility group is willing to consider LNG from the Slope but has asked for more information on the trucking possibility. For now the group is pushing ahead with plans for gas imports to meet a projected gas supply gap in 2015.

Southcentral Alaska electric utilities are working with Enstar on the import plan. Decisions on an import plan are expected in early 2013, Sims said.

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