Gov's North Slope LNG trucking plan takes shape

A plan to build a small liquefied natural gas, or LNG, plant at Prudhoe Bay and supply LNG by truck to Fairbanks is taking shape.

A bill authorizing the state’s development corporation, the Alaska Industrial Development and Export Authority, to finance the plant along with re-gasification and LNG storage facilities near Fairbanks is now before the state Legislature.

Fairbanks is suffering from high energy costs. Most space heating in the community is provided by fuel oil, which can cost up to $4 per gallon. Similarly, fuel oil is used to generate electricity and to provide energy to refineries at North Pole, east of Fairbanks, which supply local fuel and are also significant employers.

AIDEA officials have conducted several briefings for legislative committees in the last two weeks, and the bills, House Bill 74 and Senate Bill 23, are a top energy priority this year for Gov. Sean Parnell and the Fairbanks legislative delegation.

Parnell announced the plan to have AIDEA finance the facility Dec. 7 at the request of Interior utility and community leaders, and the same day AIDEA issued a request for letters of interest from potential developers. The deadline for proposals was Jan. 8, and several proposals have now been received, officials with the authority have told legislators.

The governor’s proposal would make $325 million in financing available for the LNG plant and related re-gasification facilities, which would be located at North Pole, east of Fairbanks.

The concept is for a plant at Prudhoe Bay capable of processing nine billion cubic feet of gas per year into LNG, but also designed so that it could be expanded to process up to 20 billion cubic feet of gas per year if there was demand.

In preliminary estimates presented to AIDEA’s board Jan. 10, and to legislators since then, the authority estimates that LNG trucking could deliver gas as LNG to Fairbanks for $10.33 per thousand cubic feet, or mcf, as a wholesale price.

After the gas is delivered to homes and businesses through a gas distribution system, delivered costs are estimated in a range from $13.69 per mcf to $17.29 per mcf.

A small gas distribution system now exists in Fairbanks operated by Natural Gas LLC, serving about 1,100 residential and business customers in the city. The company now trucks LNG up the Parks Highway from a small gas liquefaction plant in the Matanuska-Susitna Borough, but is constrained now by shortages of gas in Southcentral Alaska. It could expand its system if more LNG were available from the North Slope. 

Meanwhile, the Fairbanks North Star Borough has formed a regional public gas utility that would build a distribution system in parts of the community not served by the private utility, assuming the gas is available.

The prospect that the LNG trucking project might really happen has attracted wide interest in rural communities that are as dependent on fuel oil as Fairbanks.

Small rural communities on the Yukon River hope to lower their fuel costs hope if LNG or propane, which would also be available from an LNG plant, could be shipped downriver by barge from the Dalton Highway bridge on the Yukon.

In Tok, Alaska Power & Telephone, a private company operating Tok’s oil-fueled power plant that supplies electricity to the region, is interested in the possibility that LNG trucks from the North Slope could continue travelling past Fairbanks on the Alaska Highway to Tok.

However, there are also some challenges faced with the plan.

First, there are limits on the number of additional trucks that can be put on the Dalton Highway, the state-owned road that is the only surface connection to the North Slope oil fields. The Dalton Highway is already busy with normal industrial traffic, and there are some concerns over adding a number of additional trucks.

If the plant were sized to process 9 billion cubic feet of gas per year into LNG, which would be sufficient to serve the Fairbanks community, about 25 to 30 additional trucks per day would transit the Dalton, carrying LNG south and returning north empty.

A number beyond that could stretch the capacity of the highway, state transportation officials have said. If the traffic were to grow substantially the state Department of Transportation and Public Facilities might have to go to 24-hour maintenance shifts, and maintenance costs of the road would climb sharply.

Parnell had asked gas and electric utilities in Anchorage to consider LNG trucked from the North Slope as an alternative to importing LNG, but a preliminary analysis by the utilities is that enlarging the trucking to supply Southcentral Alaska could put several hundred additional trucks a day on the Dalton Highway.

There are also some concerns over the commercial viability of the LNG plant if it were privately owned, even with inexpensive state financing through AIDEA.

Two large industrial customers would provide much of the demand for the LNG, the Flint Hills Resources refinery at North Pole, east of Fairbanks, and Golden Valley Electric Association for its electrical power plant at North Pole, which is now oil-fired.

It’s unclear now just how much LNG both customers will need. The refinery had to shut down one of its two crude oil processing units due to declining shipments of jet fuel to Anchorage, which results in a reduced need for energy.

Flint Hills was previously a partner with Golden Valley in doing preliminary engineering and cost estimates of a North Slope LNG Plant, but ended the partnership last fall partly due to its own lessened need for energy to the plant, Flint Hills has said.

However, LNG would still provide a benefit because the refinery needs energy to heat crude oil to make products and now uses oil to do that, which is costly.

Similarly, Golden Valley is uncertain just how much LNG it will need. The cooperative is restarting the 50 Megawatt coal-fired Healy Clean Coal Project to supply more power to its system. Coal is very inexpensive even compared with natural gas.

Golden Valley’s first preference was that the state fund the Prudhoe Bay LNG plant with a $200 million state grant rather than a loan, even at low interest, through AIDEA. That would have made the LNG trucking more economical, Golden Valley has said. 

Tim Bradner can be reached at [email protected].

02/06/2013 - 11:43am