AGDC chooses route for Kenai Spur Highway around LNG plant

State gasline officials have picked their plan to reroute a highway around the site for the massive LNG plant they hope to construct, but now they need to pay for it. In June, Alaska Gasline Development Corp. leaders selected the shortest and least expensive route to bend the Kenai Spur Highway around the roughly 800-acre LNG plant site in Nikiski. They are currently working to determine what it will cost to secure the right-of-way for the 3.4 miles of new road before further work can begin, said Frank Richards, AGDC vice president and Alaska LNG Project manager. The “West LNG” route was picked from six alternative paths for the Kenai Spur Highway, in part because of its cost, but also because it will impact the least number of Nikiski residents, according to Richards. The $20 million highway project will require AGDC to purchase seven residential properties and portions of two commercial parcels along the route, which, as its name implies, would curve the highway around the western edge of the LNG plant property. The highway currently parallels the Cook Inlet shoreline and bisects the plant site. “Really, what we saw (in public meetings) is people wanted the least impact to the community, the least impact to neighborhoods and wanted the shortest distance to be able to do that,” Richards said in an interview. The other options considered would have meant building between five and 12 miles of new road for $33 million to $85 million. A reroute option suggested by a group of residents would have required AGDC to purchase just five full properties, but the nearly 10-mile corridor would have affected 57 parcels in some way and cost $72 million to construct, according to AGDC estimates. The resident-suggested route would have also impacted 126 acres of wetlands, which likely would have necessitated a substantial additional environmental review of the road construction. The West LNG alternative does not cross any wetlands, Richards noted. ExxonMobil purchased most of the approximately 800 acres needed for the plant, LNG storage tanks and marine terminal in 2014 and 2015 when the company was leading the project in a partnership with BP, ConocoPhillips and the state. Richards acknowledged that the Legislature gave AGDC the authority to invoke eminent domain to secure land for the $43 billion Alaska LNG Project, but said there are no plans to use it. He added that he personally contacted the landowners that will be most directly impacted by the new road before AGDC made its selection public. “Our process is going to be, we go through a negotiation and discussion with the private landowners; we’re going to do an appraisal process to determine fair market value and negotiate a sales agreement with them,” Richards said. “We want to be good neighbors in terms of the property acquisition.” The state-owned corporation has hired an engineering and surveying firm to delineate the exact right-of-way for the new stretch of highway. That is likely to continue through the rest of the year before more detailed design work and property acquisition can begin. As someone who has had a highway routed through a parcel of family property, Richards said he understands this situation some Nikiski residents are being put in, but money will be available for those with properties in the path of the highway and not individuals on the edges of the work. “We are concerned about the impacts to people’s lives and how they’re being impacted by this but we aren’t in a position to be able to provide any monetary relief to folks that aren’t directly impacted by the right-of-way necessary for the project,” he said. “That being said, we want to hear how folks are being impacted, specifically if their lands are directly adjacent to it. Once the right-of-way is settled, AGDC plans to advance the road design to about 30 percent complete, at which point a design-build proposal will be put out to bid for a guaranteed not-to-exceed contract amount, according to Richards. The corporation is consulting with the state Department of Transportation as well to make sure the highway it builds will meet federal standards, thus continuing its eligibility for federal maintenance funding, Richards said. DOT Commissioner Marc Luiken serves on the AGDC board of directors. He added that geotechnical and soil surveys done at the plant site indicate the nearby road work should be relatively straightforward process without any significant engineering hurdles. AGDC is also working to determine just how much it will cost to purchase the parcels it needs for the highway, which will be in addition to the $20 million construction cost, he said. Those costs are all rolled into the $43 billion price tag for the Alaska LNG Project. However, AGDC needs to find a way to pay for it all before the properties can be purchased and the work can be put out to bid. “The next phase will be contingent on us have the money to be able to ultimately go forward with construction,” Richards said. AGDC has contracted with the Bank of China and Goldman Sachs to help it solicit investments for the LNG project, but last session the Legislature opted not to give the agency the authority to accept outside funding, at least for now. The Federal Energy Regulatory Commission, which is writing the environmental impact statement for Alaska LNG, does not have direct say over the highway work, but because it is a “non-jurisdictional connected action,” actual highway construction cannot be done until FERC approves the overall project, according to Richards. FERC expects to issue its decision on the project by February 2020. At that point, road work will start in earnest as AGDC wants to be able to needs to be able to shift traffic onto the new road before most of the foundational work can begin on the plant, Richards said. ^ Elwood Brehmer can be reached at [email protected]

Growing pains: License delays, enforcement issues irritating marijuana businesses

KENAI — Two years after the state’s first cannabis entrepreneurs received their licenses, business owners are still wrestling with hangups in the regulatory system. Long waits for licenses, complex enforcement questions and expensive requirements are common in Alaska’s cannabis business, frustrating some entrepreneurs. For some, it boils down to what they consider unreasonable obstacles to commerce, and wasn’t what they pictured when Proposition 2 passed in 2014 to legalize recreational cannabis. As of Aug. 15, about 80 would-be licensees were waiting on review through the state Alcohol and Marijuana Control Office. Though state statutes says they should be granted in about 90 days, most of them will likely be waiting for three to five months to even be reviewed, according to a director’s report from AMCO Director Erika McConnell to the Marijuana Control Board for its upcoming Oct. 16 meeting. For Dollynda Phelps of Nikiski, who co-owns limited cultivation business Peace Frog Botanicals, that time is money. She’s been waiting on a standard cultivation license for six months now, and every one of those months, she has been paying rent on a facility for the standard cultivation business, which she’s required to prove she has as part of a complete application. “I put in my application in March and I’m still waiting, and the whole time I’m paying rent and insurance on a building I’m not using,” she said. “There are hundreds of us now, waiting.” The license wait is unacceptable, she said. After the first round of licenses were approved in June 2016, the wait time has steadily increased, occasionally topping a year. Some of that comes down to manpower. Both McConnell and her predecessor, former AMCO director Cynthia Franklin, have cited heavy workloads on a limited staff contributing to wait times. AMCO agrees that the wait is too long. In her director’s report, McConnell wrote that license examiners are spending “an inordinate amount of time” going back and forth with licensees to hammer out pieces of applications that are missing or incomplete. “This can mean that an examiner and an applicant go back and forth on their application documents multiple times,” she wrote. “Sometimes an applicant is resistant to the advice from the examiner, although the examiner is only trying to help the applicant be successful, as the examiners pay attention to what the board comments on in applications.” Staffing has been an issue since the very beginning for the marijuana licensing office, which was born out of the office and staff that previously only managed alcohol licenses and enforcement. A separate board was created, but the director and the staff remained the same with promises of future staff additions. Those staff members haven’t yet materialized, leaving the existing staff with double the work they had before, said Cary Carrigan, the executive director of the industry group the Alaska Marijuana Industry Association. Securing more staff for the office has been one of the association’s goals for a while, he said. Though the industry is raking in money and the program is supposed to cover the office and board’s expenses, the approximately $12.8 million in tax revenue collected from cultivators by the state goes to the general fund and has to be appropriated by the Legislature to the individual departments, so it doesn’t go specifically to AMCO for administering the marijuana program. So frustration mounts on both sides, with unreasonable workloads for the staff and compounding expenses for businesses still waiting on licenses, he said. “It’s my opinion and the opinion of the AMIA board that the (licensing wait time) is an undue burden,” he said. “But what’s the fix?” Licensing isn’t the only thing keeping AMCO busy, though. With the proliferation of businesses and activity, the enforcement side — which covers both alcohol and marijuana licensees — has been busy, too. At an industry meeting among Kenai Peninsula cannabis business owners and employees, many commented that current regulations are unclear, and enforcement agents award notices of violation for items the owners or employees may not have known were against the rules. Obtaining too many violations can result in penalty actions from the board or issues with renewing licenses in the future. The majority of inspections don’t result in a notice of violation, according to a report from AMCO Enforcement Supervisor James Hoelscher to the Marijuana Control Board for the Oct. 16 meeting. The number of them is declining as more business owners learn the rules and the board process, but the amount is still concerning, Carrigan said — if the federal government looks at those numbers and considers them a sign of an unruly cannabis industry, it could jeopardize the state’s control, he said. Cannabis has only been legal for recreational use in the state for a little less than four years, so public opinions are still changing, industry participants are still learning to trust regulators and enforcement officers after being illegal operators for decades, and regulators are still feeling out the best practices for monitoring the industry, Carrigan said. “(The industry members) just need to be sure we’re being heard with one voice,” he said. “A dozen people yelling form the rafters is just a cacophony … We’re trying to move incrementally forward.” The Kenai Peninsula operators have a small laundry list of other issues as well, including increased retention time for security footage, enforcement opposing the exchange of seeds — which cultivators want to use to expand their grow operations and diversify their strains — and plan to request a review of the board’s recently passed requirement for testing on all cannabis trim. The change increases costs for operators by requiring an additional testing fee. Most trim is reprocessed into another product that will also be tested for quality and safety, so the operators feel it’s unnecessary. Phelps said the burden will affect limited cultivation operations significantly, as they don’t have the economy of scale to absorb the cost. And when they can’t swallow the cost, they go under or pass the cost to consumers, which pushes prices up and may encourage them to go back toward the black market for cannabis, where it is not tested or tracked. The Marijuana Control Board will meet Oct. 16-17 in Kenai at 145 Main Street Loop. ^ Elizabeth Earl can be reached at [email protected]

Stakeholders seek solutions for imminent threats from erosion

HOMER — For most communities with waterfront, erosion is not a future problem. It’s a daily issue for planners, businesses and residents with approaches differing by community. In Homer, the Alaska Department of Transportation and Public Facilities has used riprap barriers on the seaward side of the Homer Spit near town to prevent the road from washing out. However, the riprap doesn’t go all the way down, and recent high tides and strong winds have eaten away at the coast beneath a number of buildings, threatening to tip them into the water. The riprap is an engineered solution to a natural problem, or what coastal management experts call “grey infrastructure.” To save expense, look toward sustainability and preserve communities, the National Oceanic and Atmospheric Administration is conducting training on the effectiveness of green infrastructure. It can also be called natural infrastructure, based on what a community is comfortable with, said Lauren Long with NOAA’s Office of Coastal Management. “Natural, nature-based solutions … it doesn’t really matter which term to use, just use the terms that resonate most with your stakeholders,” she told a group of residents, nonprofit workers and municipal, state and federal agency workers at a workshop in Homer on Sept. 11. The office recently hosted a round of workshops on using green infrastructure to reduce coastal erosion in Alaska, with stops in Homer, Soldotna and Anchorage. Beyond the basic instruction, the course brought together local planners and experts to talk about ongoing projects. As a broad definition, green infrastructure includes structures based on natural systems like wetlands and forestry to provide services such as flood control and heat abatement. They can include a wide variety of project sizes, from landscape level to individual sites, and don’t necessarily entirely exclude grey infrastructure, Long said. “Both approaches are about bringing the natural and built environments together,” she said. “…Green infrastructure isn’t going to be the end-all-be-all. It’s going to be a combination of green and grey.” Many parts of Alaska are less built up along the coasts than on the East Coast, where millions of people live in areas potentially subject to ocean storm surge submersion. Attention to coastal infrastructure mounted in the aftermath of Hurricane Sandy, which struck the entire eastern seaboard in 2012, leaving behind $70 billion in damage and leading to the deaths of an estimated 233 people. However, a study published in August 2017 on the damaged communities and their infrastructure later showed that areas with intact coastal wetlands were spared about $625 million in damage because the marshes helped with flood control. John Rozum with the NOAA Office of Coastal Management, who conducted the workshop in Homer with Long, cited the flood mitigation wetlands as example of an ecosystem service. They’re specific to certain areas, and what may work in Massachusetts may not work in Anchorage. “You have to be able to look at these practices … (and say) if this area was undeveloped, what would happen?” Rozum said. He pointed to cities that have installed areas of permeable pavement, which allows water to seep through and be absorbed by the ground beneath rather than concentrate into runoff and cause flooding issues, or the addition of trees on buildings or streets to help offset city heat island effects. Alaska’s communities already have more natural areas along their coasts than many areas of the country, he said, and preserving some of those structures — like dunes and coastal wetlands — will help buffer communities from damage and erosion. Some communities in the state have tackled green infrastructure practices already, impacting erosion in areas inland as well as on the coasts. The Alaska Department of Fish and Game guides landowners who want to restore riverbanks toward practices using rootwad, spruce saplings and other natural vegetation as opposed to seawalls or riprap, in part to protect fish habitat. The Alaska Department of Environmental Conservation awards grants for projects designed to clean up bodies of water, and some of the funded projects have included green infrastructure projects, said Jeanne Swartz, a water quality specialist with DEC in Anchorage, at the workshop in Homer. With largely clean waterways, much of the water pollution in Alaska is called non-point-source, such as road runoff. At the same time, some areas may erode whether land owners and managers try to mitigate it or not. On the Arctic coast and in Western Alaska, some Alaska Native villages are looking at relocating entire communities because their coasts and rivers have eroded enough to leave buildings tumbling into the water. On the Kenai Peninsula, retreating bluffs in Homer and Kenai have left cities with the puzzle of how to react, with residents and millions of dollars of property value getting closer and closer to the cliff edge every year. Rozum said in response to a question that bluffs are a type of landscape that’s hard to use green infrastructure to help. “That’s the hard part of living on the shore — (bluffs) were designed to erode,” he said. The Matanuska River is another creeping landscape that has left some neighbors with few options other than to simply move. The Matanuska-Susitna Borough has obtained federal funding to buy out some Matanuska River property owners who opt in to the program, with the recognition that the geography of the braided river system makes it likely to move. The borough began asking property owners about a buyout and applying for federal funds in 2014, officially receiving notice of the funds in March 2018. About 75 percent of it will come from the federal government and 25 percent from the state. The borough started with 15 properties, but one house became ineligible when it fell into the river in 2017, said Mat-Su Borough Floodplain Administrator Taunnie Boothby. The funds are scheduled to expire in September 2019, giving the borough about a year to reach agreements. “This is a 100 percent voluntary project,” she said. “There is no condemnation (for properties) or eminent domain.” The borough is not actively approaching landowners about the future danger to properties along the Matanuska River, but Boothby said she discusses possibilities with landowners on a case-by-case basis and is watching the success of several river bank revetment projects elsewhere in the borough. There aren’t any such projects on the Matanuska River at present, but landowners could undertake demonstration projects in the future and Fish and Game is actively recruiting for riverbank revetment grantees in the Mat-Su Valley, she said. Some people ask why the borough isn’t looking at solving the erosion problem on the river, but that’s beyond the borough’s power in both expense and authority, she said. The borough does have two flood service areas in which residents tax themselves for flood service and protection. “The challenge with that is what they’re taxing themselves is not sufficient for maintenance of the dikes,” Boothby said. “We have a whole Matanuska River management plan that outlines what activities are acceptable and reasonable … but (fixing the river erosion problem) is not necessarily something the borough wants to tackle.” ^ Elizabeth Earl can be reached at [email protected]

A family affair lives on at GBR Oilfield Services

Billy Reynolds is often short on words but long on hard work. It’s a combination that has helped him navigate 50 years in Alaska’s oil industry, most of which have been spent working for and running the Reynolds’ family business, GBR Oilfield Services. One might question Reynolds’ Alaskan bona fides when he does speak, as his West Texas roots come through in every word as if he flew up from Midland yesterday. That is, until you get past the drawl and listen to the decades of history he recounts matter-of-factly. “I came up in ’67 when I was 17 years old,” Reynolds said of his arrival to Alaska. “First I went to the Inlet in ’68 to work for Reading and Bates. Then I went to work up on the Slope on Rig 20 and Rig 25 for Reading and Bates — roustaboutin’, roughneckin’, you know.” Reynolds’ mother Rita Reynolds and his three brothers Jim, Bobby and Mike made the trek north from Midland a few months later with the family’s German shepherd in tow. “Man, that was a trip I could never forget,” Rita recalled while chatting in GBR’s South Anchorage offices. “I think I asked God every step that I wouldn’t have a flat (tire) because the backseat of that car was filled with clothes and boxes.” “Miss Rita”, as everyone in the GBR office affectionately calls her, arrived with her sons to a trailer home in Anchorage’s Mountain View neighborhood on Christmas Eve 1967. Instead of toys, her children got winter coats and galoshes that year, she said. Rita’s husband John Reynolds had already been in Alaska about a year working on the platforms in Cook Inlet for Reading and Bates Drilling. After a few years as a “company man” with BP, John joined with fellow oil hands Jim Gribbons and Jack Barr to form a tool rental company, GBR Equipment, in 1973. Barr soon moved on to other work but Gribbons and Reynolds kept the original name. And when Gribbons passed away in 1976, GBR became the Reynolds’ family business. By 1984 John was able to recruit his sons Bobby and Billy away from industry giant Parker Drilling to help their brother Jim run the well casing services the family business had expanded into a few years prior. The challenges of the oil business in Alaska have chased off some of the biggest players in the industry and doomed numerous smaller companies, but the Reynolds have navigated GBR through the ups and downs. Now president of GBR, Billy acknowledged the price crash of the mid-1980s was a struggle— oil went from about $30 per barrel in late 1985 to $9 in 1986 — but the small company continued getting at least some work. “We had to cut back on wages. We had to cut back on our prices for the oil company,” he said. “We were able to keep most of our hands. Some of them quit; you can’t blame for that but we were able to keep going.” Well casing is still GBR’s primary business, but the Reynolds added welding services to the company’s work in early 1994, Billy said. When patriarch John passed away in 1997, Billy and Bobby took over the operation. GBR’s business has generally followed that of most of the industry in recent years, Billy said, noting the last couple years have been slow but demand for the company’s services is gradually picking back up. Over the years GBR has had a hand in developing the iconic Prudhoe Bay and Kuparuk River oil fields. The company has also done substantial work at the Endicott field, according to Billy, and its 20 employees are now split between working on Italian major Eni’s ultra long-range exploration wells at the offshore Nikaitchuq field and for ConocoPhillips at various locations. “Now that the price is going back up more oil companies are interested in the finding,” Billy said of the status of exploration on the Slope. As someone who has witnessed North Slope oil go from literally nothing to powering the largest state in the union, he said most of the evolution in the industry has been for the best. “It used to — back in the ‘60s — take almost a year to drill a well. Now it takes about two weeks,” Billy said, noting that personal safety requirements have gone hand-in-hand with equipment comforts. “Back then they didn’t make you wear ear plugs or safety glasses and the clothes wasn’t really qualified for that cold, cold weather up there,” he added. “I’ve seen a crew from Oklahoma came up and was supposed to relieve us on the drilling rig so we’d go home, but they got off that airplane in cowboy boots and a Levi jacket,” Billy recalled. “The only time they got out of that airport was to get back on that airplane back to Oklahoma, you know. They just caught it at the wrong time.” As someone who at times spent six months on the Slope at a time and was regularly there for six-week stints, he said one of the biggest advancements, aside from environmental sensitivity, was shortening the work rotation. What started as six weeks on and three weeks off was first cut to four-and-two, Billy said, and eventually the current two-and-two split to prevent workers from becoming homesick, which can lead to accidents caused by wandering minds while working. “Two and two really hurt the wages, but that’s the way it’s going to be,” he said simply. Billy still travels to the Slope occasionally, but he now spends as much time as he can fishing on his boat out of Seward, particularly since his son-in-law Jim Wohlers, GBR’s general manager, took over the day-to-day operations about 10 years ago. Despite semi-retirement, Billy said he doesn’t see himself returning south; 50 years in Alaska has made Texas just “too hot” for him, even though his drawl still says he should be at home there. And while they won’t say it, Billy and Rita are clearly but quietly proud of the business they’ve helped support over 45 years. “Man, has it been that long? I quit counting somewhere along the line,” Rita said when asked to reflect on GBR’s 45th birthday. “GBR’s been up here for a long time and I’ve got to say that we’ve been pretty blessed to keep going like we’re doing,” Billy said. “One thing I like to say is — like I tell my hands, I said, ‘You know, you don’t talk bad about nobody; you don’t talk bad about our competitor, you know.’ To me, it’s bad karma to do that. Just keep your nose clean and do your job.” Elwood Brehmer can be reached at [email protected]

COMMENTARY: Gasline deals put Alaska on cusp of opportunity

Last Monday was a big deal. Fellow Alaskans, I want to share in collective celebration the significant milestone Alaska reached last Monday, Sept. 10. The Alaska LNG Project is now a compelling step closer to bringing Alaska’s vast stranded natural gas to market. We are closer to significantly lowering the cost of energy for thousands of Alaskans; closer to creating 12,000 direct construction jobs that will put Alaskans to work building the gas pipeline project; and closer to providing thousands of indirect support jobs. There are two components now in place that advance the Alaska LNG project. First, we are building momentum for ExxonMobil to sell its share of natural gas, from both its Point Thomson and Prudhoe Bay fields. ExxonMobil and the Alaska Gasline Development Corp. signed a binding agreement establishing terms for the price and volume of gas they’ll commit to the Alaska LNG project. BP Alaska signed a similar agreement earlier this summer. Second, we signed a letter of understanding with ExxonMobil and BP to re-align the 2012 Point Thomson settlement agreement, pausing deadlines in order to calibrate the pace and scope of work of Point Thomson’s development to match the Alaska LNG project. Why is this significant? ExxonMobil operates the Point Thomson field, controlling a 62 percent share of its natural gas. They also control a 36 percent share of nearby Prudhoe Bay. This makes ExxonMobil the largest holder of discovered gas resources on Alaska’s North Slope. By adjusting the deadlines for production at the Point Thomson field to match the Alaska LNG project, combined with ExxonMobil’s commitment to sell its gas to Alaska, we have an economic win-win. Monday’s events have enhanced significance because they turn Point Thomson into an oil producing field. As it stands, Point Thomson is one of the largest stranded gas fields in the world. It is also highly pressurized, with at least three times the pressure of Prudhoe Bay. This pressure poses a massive engineering challenge because when drilling for oil, it is incredibly difficult to reinject the gas into the ground without losing vast amounts of it. When the gas is lost, the potential for profit is lost — for ExxonMobil, and for Alaska. The Alaska LNG project offers ExxonMobil an opportunity to sell the gas at Point Thomson, instead of reinjecting it into the ground, which in turn will liberate up to 70,000 barrels of oil every day. That’s a 15 percent boost in total barrels flowing through the Trans-Alaska Pipeline each day, creating revenue for our state. The bottom line: because of the Alaska LNG project, the gas at Point Thomson stops being an obstacle and becomes an asset. Access to Point Thomson makes oil and gas more competitive across the North Slope, creates revenue for Alaska from the harbored underground gas, and allows easier access to the oil trapped by high-pressured gas. To go a step further, Point Thomson is on the doorstep of ANWR. Building out the infrastructure necessary to bring the oil and gas to market from Point Thomson puts us in a better position for the future development of ANWR. This is great news for the Alaska LNG project, and great news for the state. For the first time in our history, a majority of the North Slope gas producers — BP Alaska and now, ExxonMobil — have agreed to terms for the sale of gas into the Alaska LNG project. This step is an important layer as we build the momentum for bringing Alaska’s stranded gas resources on the North Slope to Alaskans and the world market. This news comes less than a year after President Donald Trump and President Xi Jinping witnessed the signing of the five-party Joint Development Agreement to monetize Alaska’s natural gas. Together, with Monday’s ExxonMobil agreement, the Alaska LNG project has made more progress, and established more project certainty than any previous effort, facilitating the final commercial and financial steps necessary for completing the project. I cannot impress upon you enough the opportunities the gas line project will bring to Alaskans. Tens of thousands of direct and indirect jobs, well-paying jobs, access to stable low-cost clean energy, a diversification of state revenue, the list goes on. These are changes that will affect Alaskans personally. My life changed forever when the first pipeline was built: I still remember the feeling of receiving my first construction paycheck back in 1970. But getting TAPS from plan to reality took creativity and courage — not to mention a healthy dose of resilience in the face of those who called it a pipe dream. But those are the same ingredients we’re working with today to move the Alaska LNG project forward. Stakeholders are moving into position, the economics are in our favor, and we have the drive and focus to make this project happen. Alaska is on the cusp of opportunity. I could not be more excited. Editor’s note: The Alaska Journal of Commerce will publish up to two op-ed submissions from the candidates for governor between now and our Oct. 21 edition. Although this submission came from Gov. Walker’s office and not the campaign it will count as one of his two.

Siemens-led consortium plans to test old Houston well for gas

A pair of Alaska Native organizations and a multinational industrial technology firm believe they can find the missing link to the natural gas supply chain for Fairbanks in an old exploration well near Houston. Knikahtnu Inc., an Alaska Native village corporation, in a partnership with Siemens Government Technologies and the Knik Tribe, has applied to lease about 6,200 acres north of Big Lake from the Alaska Mental Health Trust Land Office on the prospect that the tract holds commercial quantities of natural gas. The consortium presented a competing plan to the Alaska Industrial Development Authority’s Interior Energy Project to supply LNG to the Fairbanks area via rail to the Interior Gas Utility Board of Directors in late August. Siemens representatives told the IGU board they are in talks with multiple Cook Inlet gas producers and believe they can secure feedstock gas for $5 per thousand cubic feet, or mcf, of gas, which would be significantly cheaper than the gas price Southcentral gas and electric utilities have been able to secure on much larger volume contracts. However, contracting for gas on favorable terms for the Interior could also be challenging because it is for a relatively small demand, likely starting at a little more than 1 billion cubic feet per year range and growing as Interior residents and businesses sign up for gas. As a result, the partners are also looking to source their own gas — giving them control over the feedstock cost — which could cut the cost of the biggest variable in the supply chain in half, they contend. AIDEA and IGU currently have a three-year supply contract with Hilcorp for $7.72 per mcf, while the Knik-Siemens proposal before the IGU board lists a “conservative” feedstock price of $4 per mcf for their own gas supply. Getting additional natural gas supplies to the Interior has long been seen as a way to reduce at times crippling home heating costs, but supply chain and conversion expenses, combined with a relatively small gas market, have challenged the economics of making it happen. The gas could also go a long way towards improving the air quality that often reaches unhealthy levels during winter in the Fairbanks area if it is cheap enough to get residents who currently burn wood or heating oil to convert their home systems. Knikahtnu owns roughly 3,000 acres near Houston and the Alaska Railroad tracks that would be the site of a Siemens modular LNG plant, and, Knikahtnu leaders hope, eventually an industrial park fed by the gas. The Knik Tribe is part of the plan on the premise that the Tribe is eligible for federal funding streams that could help improve the economics of the project. Knikahtnu CEO Tom Harris said in an interview that the Mental Health Trust parcel and surrounding area has been explored for oil for nearly 50 years, but drillers kept finding gas. “If you look at the drill history there’s been a significant amount of gas there,” Harris said. There are coal seams in the area that are gradually being pushed downward in a geologic action called subduction with every one of the frequent, often unnoticed earthquakes that occur in Southcentral, Harris described. The subduction leads to “natural fracking” and coal bed methane production, he said, and that led the group to believe it is worth investigating further. That’s where the Mental Health Trust land comes in. Harris estimated it would cost $3 million to $5 million for each new well in the area, but the parcel the consortium wants to lease for 10 years — at $10 per acre per year — already holds the Northern Dancer-1 well. Trust Land Office Executive Director Wyn Menefee said the Northern Dancer well drilled by now bankrupt Storm Cat Energy in 2006 was cased but never tested. “It’s basically closed, but it’s not plugged and abandoned so it can be reopened and tested,” Menefee said. Prior investigations into coal bed methane in the Big Lake-Houston area were met with resistance by residents who didn’t want industrial activity in and around neighborhoods, Menefee said, so it never materialized. In this case, however, the trust parcel is far enough away from populated areas that the “urban interface problem” shouldn’t arise again, he said. Menefee added that there’s no telling whether or not the group will be successful, given the fickle nature of oil and gas exploration, but the lease application says the partners must either bring the well into production or finally plug and abandon it. “There was enough interest to drill the well the first time; sure the finances for the company didn’t work out. Right now, with Knikahtnu considering it, (if) certain things come together — the location, the potential resource, proximity to transportation infrastructure — all of those things start working well together,” he said. Harris commented that if the state Legislature had fully funded the Mat-Su Borough’s half-finished and now stalled rail spur to Port MacKenzie, the whole Knik-Siemens proposal would be moot because the rail would go right past the existing LNG plant now owned by IGU. ^ Elwood Brehmer can be reached at [email protected]

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