EDITORIAL: Pentex purchase raises questions, signals commitment

While the state’s planned purchase of Fairbanks Natural Gas parent company Pentex may play a large part in the solution for natural gas delivery to Fairbanks, for the moment it mostly raises questions. The purchase would reduce the number of items local and state officials have to put into place, potentially including a gas liquefaction facility. But it also creates other wrinkles that must be dealt with before the end goal of affordable energy is achieved.

The announcement by the Alaska Industrial Development and Export Authority on Jan. 28 that the state is planning to buy Pentex for $52.5 million was a surprise, but could significantly benefit the Interior Energy Project and its goals. The direction and timeline of the project were uncertain after the pullout of North Slope gas liquefaction plant contractor MWH in late December. With the pending acquisition, Gov. Walker has indicated a clear direction in which progress can continue. Moreover, the deal could be a significant boon if it includes the services of Pentex subsidiary Titan’s Port Mackenzie liquefaction plant, and if supply can be lined up from Cook Inlet producers. Even before its cost estimate crept upward, MWH’s plant on the North Slope was projected to cost $185 million — to have liquefaction capability at less than a third the up-front price would be a tremendous step forward for the Interior’s energy goals.

But those, at least for now, are ifs, and big ones. In late 2014, Pentex announced it was planning to sell the Port Mackenzie facility to Hilcorp subsidiary Harvest Alaska LLC. Whether that sale will still go forward is an open question, and one that could have serious ramifications with regard to the ability to deliver natural gas to the Interior at the target price of $15 per thousand cubic feet (the equivalent of heating fuel at roughly $2 per gallon). If the sale goes through, the state must hammer out terms with Harvest Alaska that would ensure the price goal can be met.

Also a source of consternation in some quarters is the apparent entry of the state as a gas supplier, creating a potentially odd relationship with regard to regulation — for instance, the Regulatory Commission of Alaska, a state body, may end up ruling on whether the sale of the liquefaction plant to Harvest Alaska goes through. Additionally, the state may end up negotiating gas supply terms with the same Cook Inlet producers whose license applications it is in a position to grant. Care must be taken to not let the government’s interests create an unfair operating environment.

Given Gov. Bill Walker’s aggressive timetable for Interior energy relief, these questions likely will be addressed soon, which will do much to clarify exactly how good of a deal the Pentex acquisition would be for the state and Interior residents. For now, the best sign that the deal may contribute significantly to gas delivery goals is the reaction of Interior legislators and the Interior Gas Utility. The bulk of their response has so far been positive.

Despite the additional issues raised by the state’s planned acquisition of Pentex, it’s good news that the Interior Energy Project isn’t languishing after MWH’s departure. It’s also good to see the state take an active role in helping pieces for the project come together. In the next few weeks and months, we hope to see those pieces assembled into a concrete plan for gas delivery to Fairbanks.

Updated: 
02/04/2015 - 1:36pm

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