AIDEA, AEA approve $75 million-plus for statewide energy


More than $75 million in financing for energy projects from the North Slope to Prince of Wales Island in far Southeast was approved April 24 by the joint Alaska Industrial Development and Export Authority and Alaska Energy Authority board.

A $50 million direct investment by AIDEA into the North Slope Mustang Field processing facility highlighted the nearly eight-hour board meeting. With the investment, AIDEA entered into an agreement with CES Oil Services Pte. Ltd. to form Mustang Operations Center 1 LLC. The $200 million-plus facility will be operated by independent Brooks Range Petroleum and owned by AIDEA and CES Oil.

The Mustang Field has 24 million barrels of potential resources, and production at the field could peak at about 15,000 barrels per day, Brooks Range has said.

AIDEA already had $20 million invested in late 2012 in a well pad and road to the field that was completed this spring.

AIDEA estimates its investments could help spur more than half a billion dollars of private investment in the Mustang Field and help generate up to 525 jobs through design, construction and operation of the processing facility.

On the Interior Energy Project, the state’s push to truck liquefied Slope gas to the Fairbanks area, AIDEA spent $6.3 million. Of that, $1.8 million is to purchase Spectrum Alaska LLC, the North Slope holdings of Oklahoma-based Spectrum LNG.

In acquiring Spectrum Alaska, AIDEA secured a pad site for its North Slope gas liquefaction plant. AIDEA spokesman Karsten Rodvik wrote in an email that Spectrum approached the authority with an offer to sell the assets last winter.

Spectrum previously submitted a bid to AIDEA to partner with the state authority on its Slope LNG plant, a contract that was awarded to the Colorado-based engineering and technical firm MWH Global Inc. in January.

AIDEA also approved $4.5 million for early works contracts with Northern Lights Energy LLC, the venture formed to control the North Slope gas that will be trucked to utilities and potentially other users in the Interior. That money will go towards arriving at a cost estimate for the 9 billion cubic feet, or bcf, per year LNG plant and contracting to place gravel on the formerly Spectrum pad.

A wetlands permit for a 10-acre pad had been approved by U.S. Army Corps of Engineers; the AIDEA-MWH plan will require a modified permit for a 17-acre pad.

As part of what has become a regular Interior Energy Project update at the AIDEA board meetings Rick Adcock, managing director for MWH’s infrastructure development division, said it is very critical that all the players in the project stay focused on the timeline to achieve the Legislature’s stated goal of getting Slope gas to the Interior by the end of 2015.

“We’ll be driving towards an (engineering, procurement and construction contract) over time” for the North Slope LNG plant, Adcock said. “There’s a lot of moving parts to this project.”

The intricate Interior Energy Project involves designing, permitting and building the North Slope plant; negotiating a gas supply contract with a producer; contracting with one or more trucking companies to move the gas south; constructing nearly 13 million gallons of gas storage in case of a delay in trucked deliveries; making sure there is enough demand for the gas to make the project viable; and building out a distribution network in Fairbanks and North Pole to get the gas supply to residents and small businesses.

A major part of the demand challenge is getting three utilities — two of which are former service area competitors — to work in concert with each other.

Borough-owned Interior Gas Utility, known as IGU, has said it needs area power cooperative Golden Valley Electric Association to purchase 2 bcf per year to make the project financially viable for its ratepayers.

Despite being having a large service area around Fairbanks that includes the North Pole, IGU’s predicted end gas demand, without Golden Valley buying gas for power, is 3 bcf because it is a primarily medium-density residential area. Burying 670 miles of gas pipeline and building the associated storage will likely cost IGU more than $200 million.

Fairbanks Natural Gas on the other hand has a small service area in the heart of Fairbanks but predicts 4.5 bcf of end demand because of its ability to reach commercial and high-density residential customers. It’s end build-out cost for 130 miles of new pipe added to its existing 60 miles is estimated at $66 million. Much of the 4.5 bcf of demand would materialize as soon as gas is available because the infrastructure can be built in two years, Fairbanks Natural Gas President and CEO Dan Britton said.

IGU board chair Bob Shefchik said his utility is estimating about 0.2 bcf of demand in early 2016 as the gas pipeline network is expanded.

A decision hasn’t yet been made as to whether the 9 bcf plant is best built in two or three modules so it can be gradually expanded to meet what is expected to be growing demand for gas.

If demand is met, it’s believed natural gas could cut heating bills in half for many Interior residents currently heating with fuel oil.

MWH Alaska Regional Manager Chris Brown said his group has held numerous meetings related to gas “off-take” agreements with IGU, Golden Valley and other industrial users.

Brown said Fairbanks Natural Gas has not been involved in formal meetings to this point but would be included going forward.

“There are a lot of off-take agreements materializing. This project has a sort of ‘Field of Dreams’ feel to it,” MWH’s Adcock said, referring to the line in the film, “If you build it, they will come.”

Golden Valley President and CEO Cory Borgeson had a different view of the potential demand for Interior Energy Project gas.

“I’m very concerned about making sure there’s enough demand to make this project go,” he said.

While the pending closure of the Flint Hills Resources North Pole oil refinery will take a potential gas customer off the table at least temporarily, some thought it would increase Golden Valley’s need for gas, as the electric co-op currently purchases fuel from Flint Hills.

Borgeson said Golden Valley’s ability to purchase gas could be held up through 2016 depending on the terms of supply contracts other refineries in the state will agree to. Golden Valley has said it is in talks with PetroStar Inc., which operates a small refinery in North Pole and the larger Tesoro Corp. refinery near Nikiski on the Kenai Peninsula to fill the fuel supply gap Flint Hills will leave.

Cook Inlet gas exports

As part of its loaded April 24 agenda, the AIDEA board unanimously approved the authority to enter into a cost reimbursement agreement with Resources Energy Inc., a company with offices in Anchorage, Tokyo and Honolulu that is focused on exporting Alaska LNG to Japan.

The 75-25 percent-share agreement authorizes AIDEA to spend up to $60,000 of a total $240,000 on a pre-feasibility study to build a 1.5 million-ton per year LNG export facility in the Cook Inlet region.

The secondary value of a second LNG export plant in Southcentral — to ConocoPhillips’ back in action Nikiski plant facility — would be to spur producer investment in the basin, AIDEA Executive Director Ted Leonard said.

The project would largely be for industrial users and investigating the likelihood of whether or not such a plant would get a federal export permit would be part of the three-month study process, AIDEA Deputy Director Mark Davis said.

According to Davis, a consultant working with the authority on the “micro” LNG Interior Energy Project said about the Resources Energy proposal, “Now you’re talking about something we normally build.”

AEA loan approved

In its role to lead the Alaska Energy Authority, the seven-member board approved a $20 million loan for Haida Energy to finance construction of a five-megawatt hydropower plant on Prince of Wales Island.

Haida Energy is a joint venture between Alaska Power and Telephone and the Haida Corp. Alaska Native village corporation.

The loan was approved with a 4.6 percent fixed interest rate, a term Haida Energy officials objected to because it does not match what AEA had previously agreed to.

In January 2013, AEA staff and Haida energy agreed to a term sheet with a variable interest rate loan to protect the utility and its current ratepayers from high initial costs associated with Reynolds Creek hydropower.

Under those terms, the loan would be interest free until production from the 5-megawatt plant hit 7,300-megawatt hours annually. From there, the interest rate would scale up to 4.84 percent when about 20,000 megawatt hours of power was produced.

Alaska Power and Telephone President Bob Grimm told the board that the fixed loan terms could push the cost of Reynolds Creek power above the cost of diesel-generated electricity and because of that a purchase agreement for the hydropower would likely not be approved by the Regulatory Commission of Alaska.

An AEA report on the project determined it would be viable with the 4.6 percent interest rate on the $20 million loan after an interest-free grace period of up to two years after construction, using the reference, or historical demand growth for projection.

Grimm said basing projections on historic growth is dangerous because some communities in the region have lost population in recent years.

“AEA has done a load case and feasibility case on one load projection and I don’t think that’s safe,” Grimm said.

He attributed the change in AEA’s loan terms to a turnover in authority staff, and said the 16-month period between when the variable rate was agreed to and currently was do to “time consuming requirements put on the applicant.”

After the agreement was reached, Grimm said AEA staff demanded documents with project details before they would take the proposal to the board.

The resolution that approved the loan included a late amendment by board member and Department of Revenue Deputy Commissioner Mike Pawlowski that allows Haida Energy to reject the terms and requires AEA to reenter negotiations with the utility over more agreeable loan terms within the next 30 days.

If a deal cannot be reached soon, the Federal Energy Regulatory Commission permit for the run-of-river hydro project requiring completion by June 2016 might be voided, Grimm said.

The board members emphasized their understanding about the impact high energy costs continue to have on the region, where the burning diesel fuel is often the primary means of generating power.

“The board’s push is to make something work and come back to us,” board member and Commerce Department Commissioner Susan Bell said.

In an April 28 interview, Grimm said a May 8 meeting between AEA staff and Haida Energy officials had been scheduled and he was optimistic new loan terms could be reached.

The board also moved its next meeting to Wednesday, June 4; it was originally set for Monday, June 2.

05/01/2014 - 9:04am