Golden Valley seeks grant for LNG project

Golden Valley Electric Association, the Interior Alaska electric cooperative, says it intends to pursue construction of a $200 million liquefied natural gas project on the North Slope without its former partner, Flint Hills Resources, if a state grant can be secured.

However, a new development is that Gov. Sean Parnell is considering a plan for the state itself to build the plant as an alternative. Gene Therriault, deputy director of the Alaska Energy Authority, told Fairbanks business leaders the governor is mulling the idea, according to the Associated Press.

Flint Hills Resources, owners and operator of a refinery near Fairbanks, was previously in a joint venture with Golden Valley on the project, but Flint Hills announced Nov. 19 that the partnership had been terminated.

The proposed project would make LNG in a plant to be built near Prudhoe Bay, Golden Valley’s CEO Cory Borgeson said. LNG would be trucked down the Dalton Highway to Fairbanks, about 400 miles south of the North Slope oilfields. If the plant were built and operating at its full capacity of 9 billion cubic feet of gas per year, there would be about 44 tank trucks per day travelling the highway, half driving south loaded with LNG and half returning north empty, Borgeson said.

Golden Valley and Flint Hills have spent $3 million so far on engineering studies, splitting the expense 50-50, but differences in objectives led the two to end the joint venture, Borgeson said. 

“Flint Hills’ objective 15 months ago when we began this initiative was to use gas to lower energy costs at its refinery,” which now depends on using oil, Borgeson said. “Since then they have made changes at the refinery to reduce energy use, so they are looking at this venture as a commercial project, with (desire for) more return and less risk.”

As a cooperative, Golden Valley is less concerned with return on investment and more interested in securing gas for power generation at the lowest possible cost, Borgeson said. This would be accomplished if the LNG plant were developed as a utility project and particularly if the state can contribute up to $200 million of the LNG plant cost, which Golden Valley has requested.

Flint Hills Vice President Mike Brose said Nov. 19 that his company does not want to be part of a project that has a state subsidy. Brose said Flint Hills said it is willing to proceed with the project itself if customers can be secured.

Borgeson said Golden Valley can secure cheaper LNG for its power generation if it does the project itself with state help. Parnell is considering including a grant for the project in his budget proposal for next year, Borgeson said. Parnell will release his proposed budget Dec. 15.

“The governor said he wants the cheapest source of energy for Fairbanks, so that means a state grant,” Borgeson said.

Parnell also wants a project large enough to supply LNG for all energy needs in the Fairbanks area including space heating as well as for power generation and use in the Flint Hills refinery. Golden Valley’s plan is for the plant to be large enough to supply its and Flint Hills’ needs, and also have enough gas for local heating, Borgeson said.

Even though it is no longer a partner, Flint Hills could still be a customer for Golden Valley’s LNG project, Borgeson said. Also, the University of Alaska Fairbanks is very interested in having natural gas available because the university’s aged coal-fired power plant is badly in need of replacement. The power plant is important to UAF because it provides steam for heating as well as electrical power.

Golden Valley’s proposed project would also produce about 10,000 gallons per day of propane which would also be trucked to Fairbanks on the Dalton Highway. This is enough for about one truckload of propane a day, Borgeson said.

BP has meanwhile signed a contract with Golden Valley to supply up to 23 billion cubic feet of gas per year for an LNG project, although that is far in excess of what the plant proposed now would require. Borgeson said the BP gas supply contract is a “cornerstone” of Golden Valley’s project.

Meanwhile, another company, Spectrum LNG LLC, is also investigating a small LNG project on the North Slope to serve local contractors and other customers. Borgeson said Spectrum’s proposed plant is too small to meet Golden Valley’s needs, however.

Also, Fairbanks Natural Gas, a small private gas utility that now serves about 1,100 residential and commercial customers in the core downtown Fairbanks area, had earlier proposed a gas project at the Slope to truck LNG for its needs.  The company now serves its customers with LNG trucked up the Parks Highway from Southcentral Alaska.

For now, the engineering done for the project is available for Golden Valley to use if it continues work. Also, an application filed by Flint Hills for a proposed site for the plant on the North Slope is also available for Golden Valley to use, Borgeson said.

Engineering has also been done on an LNG regasification facility and 1.5-million-gallon LNG storage tank at North Pole, east of Fairbanks, where Golden Valley operates an oil-fired power generation plant and Flint Hills also operates its refinery. The storage tank and regasification facility will cost an estimated $60 million, in addition to the $200 million or more for the North Slope plant.

An engineering firm has estimated the cost of the LNG plant on the Slope at $245 million, but Borgenson said Golden Valley believes this can be reduced.

Borgeson also said the regasification plant and storage tanks at North Pole would be financed separately from the LNG plant and that the possible state capital grant would pay only for the plant on the Slope. However, under legislation passed by the Legislature in 2011, the LNG storage facility would be eligible for a state grant up to $15 million.

11/28/2012 - 12:18pm