Financing plan OK'd for Interior Energy Project gas plant
The Alaska Industrial Development and Export Authority board of directors unanimously approved a key deal with its Interior Energy Project partner at its Aug. 25 meeting in Anchorage.
The North Slope LNG Concession Agreement, as it is known, between AIDEA and Northern Lights Energy LLC, a subsidiary of MWH Global Inc., puts a legal framework in place as the AIDEA-MWH team works towards a financing plan for the North Slope liquefied natural gas plant — the foundation of the plan to truck LNG down the Dalton Highway to customers in and around Fairbanks.
The Interior Energy Project is the state’s solution to alleviate the burden of high fuel oil prices and poor winter air quality on Fairbanks-area residents by making lower cost natural gas available. AIDEA’s retail price target of about $15 per thousand cubic feet, or mcf, of gas would be about half the cost of fuel oil at $4 per gallon.
MWH officials have said financial close should come sometime in late October or early November.
“Once you go to financial close then the concession agreement becomes a way for them to operate the plant as a concession for AIDEA,” said Mark Davis, authority deputy director.
Under the terms of the agreement MWH would operate the plant for up to 30 years as Northern Lights Energy. It allows for a maximum nominal return on investment of 12.5 percent for MWH’s investors in the plant.
Northleaf Capital Partners, a Toronto-based firm, is the project’s silent private investor. Exactly how much Northleaf and subsequently AIDEA contribute to the up to $200 million plant remains unclear. MWH has agreed to put up at least $20 million and up to $85 million towards the LNG plant, meaning AIDEA could be on the hook for between $75 million to $180 million depending on the cost of the plant and the final private investment amount.
Board member and former Fairbanks state Sen. Gary Wilken has expressed concern at recent board meetings about whether or not MWH will ultimately come through on claims it made when AIDEA chose the engineering consultants as a partner in January.
A North Slope plant financing term sheet sent to AIDEA by MWH in November outlines private investment of $50 million to $85 million, with the range accounting for variations in plant cost. Based on those conditions, AIDEA would contribute the $125 million Sustainable Energy Transmission and Supply fund, or SETS loan approved by the Legislature for the Interior Energy Project.
The more private investment the LNG plant receives, the more of the $332.5 million of state financing devoted to the project AIDEA can put towards distribution infrastructure in the Fairbanks area.
Wilken said Aug. 25 that each party’s final contribution “is still very much up in the air.”
MWH has said Northleaf wants to invest as much as possible while still achieving a reasonable return.
AIDEA’s Davis said Kiewit Corp., chosen to construct the North Slope plant, is working to finalize construction cost in the coming weeks.
In Fairbanks, work continues to build out a gas distribution network so residents can hook up to gas if it becomes available in early 2016 — AIDEA’s delivery goal.
Interior Gas Utility chair Bob Shefchik told the board that his utility is using the $8.1 million loan AIDEA approved for it in April towards planning buildout of the 877 miles of distribution pipe it will need to serve North Pole and the outlying areas of Fairbanks.
Shefchik said the miles of pipe IGU will likely install has grown from about 670 miles to 877 miles because individual service lines are now included in that figure.
Adding service lines, which utilities often subsidize, to the network increased the estimated overall network cost by about $95 million, to a total of $251 million. However, partnering with Golden Valley Electric Association for gas storage cut those projected costs from $46 million to $30 million, he said.
For IGU customers, distribution costs will make up about 25 percent of final, “burner tip” gas cost if AIDEA can finance the pipeline network construction with its Interior Energy Project-approved bonds or loans — the latter of which are capped at 3 percent interest.
If private financing must be sought because AIDEA ends up using most of its funds for North Slope plant construction, distribution costs could end up being more than 40 percent of the burner tip price and push that price well beyond $15 per mcf, Shefchik said.
Fairbanks Natural Gas has been adding to its gas pipeline network throughout the summer. FNG President and CEO Dan Britton said the company has hired about 35 seasonal construction workers to work on the expansion.
When combined with about 40 contracted workers, the FNG construction team had installed about 19 miles of pipe as of the Aug. 25 meeting, according to Britton. The company plans on installing 33 miles of pipe in the core of Fairbanks if the weather allows for work into October. About another 30 miles are planned for 2015 as well.
This year’s work will add nearly 2,400 residential and 277 commercial customers to FNG’s network, he said.
The work is being paid for with a $15 million AIDEA loan contingent on purchasing gas from the North Slope plant when it becomes available.
“Ultimately our system requires about 100 miles of more expansion before it is fully built out,” Britton said.
He added that FNG will be looking to AIDEA for future expansion financing.
Elwood Brehmer can be reached at [email protected].