Interior gas project finalists narrowed to two

Interior residents will have to wait a little longer to hear who their new supplier of natural gas will be, but the Alaska Industrial Development and Export Authority has narrowed its project partner options to two: Spectrum LNG and Salix Inc.

AIDEA Interior Energy Project manager Bob Shefchik said during the authority’s Dec. 3 board meeting — when a private Interior Energy Project partner recommendation was expected — that pushing the decision back about six weeks to late January would allow the project evaluation team to more thoroughly vet the best and final offers from Salix and Spectrum.

The final offers by five project finalists were submitted in late October and Salix and Spectrum quickly separated themselves from the other proposals, Shefchik said.

AIDEA’s project evaluation team then reached a consensus that more time was needed to fully vet the finalists’ cost projections to make sure the best plan is chosen. Specifically, he said the evaluation team will further review commercial and financial terms of the plans Salix and Spectrum have put together, as well as fully cross-examining the capital and operating cost projections that will weigh heavily on the success of the project.

“To some extent this is work that would have gone on had even one been selected,” Shefchik said. “We doubled our workload to make sure we’re doing it with two to bring (the AIDEA board) the best project with the best information.”

The delay should not have much impact on the timeline of the project. Spectrum has touted an ability to get natural gas to Fairbanks early in 2017, while Salix has said it could be ready for production by January 2018.

While the race to supply Interior Alaska with liquefied natural gas is too close to call, the leading companies have plans coming from opposite ends of Alaska.

Salix Inc., a subsidiary of the Pacific Northwest utility company Avista Corp., is proposing a Southcentral LNG plant with an initial liquefaction tolling fee of $2.87 per thousand cubic feet, or mcf, of natural gas. Costs for wholesale gas, trucking to Fairbanks, regasification of the LNG and final distribution to customers would still have to be added to the tolling fee.

The goal of the Interior Energy Project is to supply Fairbanks residents with natural gas at a final, burner tip price of roughly $15 per mcf, which is the energy equivalent of fuel oil at about $2 per gallon.

Salix would finance its Southcentral plant, pegged at $68 million, with a $30 million appropriation from AIDEA, a $28 million low-interest loan from the authority and $10 million of its own equity.

Spectrum LNG vied to participate in the first go-round of the project early in 2014, but with a different financing plan for its North Slope LNG plant. This time, the Tulsa, Okla.-based company is proposing a North Slope LNG plant that would produce LNG — wholesale gas cost included — for $5.06 per mcf, leaving a $10 gap available for trucking and distribution costs to still meet project goals.

Spectrum CEO Ray Latchem estimated trucking costs from the North Slope at about $5 per mcf during a Nov. 4 town hall meeting in Fairbanks. AIDEA has said regasification of the LNG and distribution to customers should cost between $4 and $5 per mcf.

Spectrum would pay for its plant, estimated to cost about $85 million, also through a $30 million grant from AIDEA, a $50 million low-interest loan and a $5 million equity investment.

The loans and grants proposed to finance LNG plant construction in each plan would come from the $332.5 million state grant-loan-bond package approved by the Legislature in 2013 for the Interior Energy Project.

Shefchik said the expectations for capital costs on the Slope are more positive than the first attempt of the project, which was doomed by high plant construction costs.

Wholesale natural gas on the North Slope costs roughly half to one-third of what it does currently from Cook Inlet; however, working on the Slope also includes higher capital, operating and trucking costs, which keep Cook Inlet options competitive.

Spectrum leadership helped develop Fairbanks Natural Gas’ LNG supply chain in the late 1990s. The company currently operates a small LNG plant in Arizona that supplies LNG for vehicle use.

By going with Salix or Spectrum — LNG plants only — AIDEA steered away from more complex plans by others in the group of five project finalists that wrapped gas supply, liquefaction and delivery to the Interior in an “all-in-one” price.

Phoenix Clean Fuels, a consortium of seven companies including Crowley LNG, General Electric Oil and Gas and Alaska utility company TDX Power, had proposed delivering North Slope-sourced LNG to the Interior at $10.60 once the project was up and running for several years. Phoenix Clean Fuels reached its price estimate partially on the back of a trucking cost of $3.86 per mcf, significantly less expensive than other projections to get LNG down the Dalton Highway.

Irvine, Calif.-based WesPac Midstream LLC claimed it could deliver Cook Inlet-sourced LNG to Fairbanks for $12.25 in its plan summary released in September. That price, which would strain the project once distribution costs were added, was based on an assumption that feedstock, or wholesale, gas would be about $1.20 per mcf lower than the forecasted market in 2018.

WesPac owns the working interest in natural gas from the small Cook Inlet Cosmopolitan field being developed by BlueCrest Energy Inc. and has said it will continue to pursue a Southcentral LNG plant whether it partners with AIDEA on the Interior Energy Project or not.

Hilcorp Energy, which owns most of the Cook Inlet gas supply, had proposed three options through its LNG subsidiary Harvest Alaska LLC: an LNG plant, a gas supply and plant and its own bundled, delivered option. Harvests privately financed options forecasted the most expensive LNG prices of all the Interior Energy Project finalists.

Elwood Brehmer can be reached at [email protected].

12/09/2015 - 4:14pm