Four proposals in to partner on LNG trucking

The Alaska Industrial Development and Export Authority has received four proposals for joint ventures with the state authority in developing a small liquefied natural gas plant at Prudhoe Bay.

The plant would process 9 billion cubic feet of gas per year and ship 300,000 gallons per day of LNG 500 miles by truck to Fairbanks for use in space heating and power generation. 

Karsten Rodvik, an AIDEA spokesman, said proposals made to AIDEA on the LNG plant include two from Interior Alaska utilities, Golden Valley Electric Association, the regional electric cooperative, and the Interior Gas Utility, a new utility formed by the Fairbanks North Star Borough to build a regional gas distribution system.

Two private firms making proposals include Fairbanks Natural Gas LLC, which now operates a small gas utility in Fairbanks with LNG trucked from Southcentral Alaska, and Spectrum LNG, a company that operates a small LNG plant in Arizona supplying fuel to truck fleets, Rodvik said.

In full operation, the plant would ship about 50 truckloads of LNG per day to Fairbanks, which has raised some concern because it would increase truck traffic on the Dalton Highway, a gravel industrial road serving the North Slope, by about 50 percent.

Because of the seasonal swing in energy demand between winter and summer, LNG production at the plant would be cut back during summer, so that the plant might operate at 60 percent capacity, or less, for part of the year.

The assumed 9 billion cubic feet per year of gas converted to LNG assumes only gas used for space heating and, for now, not used for power generation by GVEA or by Flint Hills Resources, which operates a refinery east of Fairbanks, AIDEA’s board was told in a briefing by its staff July 25.

GVEA and Flint Hills have not indicated they will purchase LNG from the plant, although the power co-op has made a proposal to be the state’s partner and is likely to ultimately be a customer. Flint Hills says it will weigh the cost of the LNG against energy it can produce within its own refinery at North Pole.

If additional LNG is purchased by GVEA and Flint Hills, the plant at Prudhoe Bay can be expanded in increments.

The plan calls for the state to invest in and own part of the plant, possibly as much as two-thirds, and to finance the $207.7 million plant cost with a combination of a $50 million state investment and low-interest loans to the joint-venture company to be formed with partners, who would be expected to invest $33 million in equity, according to a finance plan presented to AIDEA’s board.

In addition, the state would also help finance development of LNG storage and a gas distribution system in Fairbanks with $150 million in loans and $30 million in tax credits for a storage facility. The entire state finance package, including cash investment, low-interest loans and tax credits approved by the Legislature last spring, totals $355 million.

Rodvik said the authority’s board has authorized its staff to negotiate an agreement with one or more of the entities responding to a Request for Proposal.

Gov. Sean Parnell has ordered the project to be put on a fast track, and to be built and in operation by late 2015.

Parnell, a Republican, is backing the LNG trucking plan despite its poor economics and heavy subsidy because of a dire energy situation in Fairbanks where the community is mostly dependent on fuel oil for space heating and power generation.

In the extreme cold of Interior winters, homeowners can spend more than $1,200 per month on heat. Electric bills are also high because power generation is mostly oil-fired.

A feasibility study of the LNG trucking by AIDEA estimates that LNG can be delivered to Fairbanks from the North Slope for $11.59 per thousand cubic feet, or mcf, and sold to consumers for $14.09 to $17.09 per mcf.

That is about half the cost of the equivalent energy delivered with fuel oil. Annual household savings are estimated at $2,500 to $3,000 per year, according to AIDEA’s analysis.

The assumed price for gas paid to producers at Prudhoe Bay is $3.30 per mcf, according to information presented to AIDEA’s board.

What is driving the fast pace of the project is an urgency for cleaner fuel in Fairbanks to ease winter health hazards caused by air pollution when particulates from combustion concentrate during cold weather.

About a third of the households and buildings in Fairbanks use wood heat as a main or supplemental heat source due to high oil prices, and the particulates in wood smoke combined with those from burning heating oil combine to create dense pockets of polluted air, according to the state Department of Environmental Conservation.

The U.S. Environmental Protection Agency has classified Fairbanks as a non-attainment area, and penalties including cuts to funds for federal projects will kick in unless the community develops a plan to deal with its air quality problem. Natural gas is the solution, and trucking LNG is the quickest way to get it used, Fairbanks mayor Luke Hopkins said.

Reliability is a concern for the trucking project, however. About 470 miles of the 500-mile highway distance is on gravel road and the road also traverses the difficult and narrow Atigun Pass in the Brooks Range. Winter road closures are not uncommon.

The solution to this is building enough LNG storage capacity to give the community 10 days to two week of LNG supply in the event of a road closure. However, other emergency supply options might be explored, said Gene Therriault, deputy director of the Alaska Energy Authority, a sister agency to AIDEA that will assist the build-out of a gas distribution system.

One idea is making a standby arrangement with ConocoPhillips to supply LNG from its plant on the Kenai Peninsula, in Southcentral Alaska, Therriault told AIDEA’s board in a briefing.

ConocoPhillips’ plant is not operating at present due to shortages of gas in Cook Inlet, but it is being maintained in a condition for a restart if needed, ConocoPhillips has said.

Tim Bradner can be reached at [email protected].

08/01/2013 - 7:12am