AIDEA gets 16 options for Interior gas

There are plenty of options for the Alaska Industrial Development and Export Authority to choose from in this go-round of the Interior Energy Project.

A request for proposals, or RFP, that ended Aug. 3 yielded 16 plans from 13 respondents for getting a lower cost, cleaner energy supply to the Interior, according to AIDEA representatives.

Nick Szymoniak, an AIDEA energy infrastructure development officer, outlined the types of proposals during an authority board meeting Aug. 6.

The 16 proposals, ranging from strictly natural gas liquefaction, to gas supply, liquefaction and transport, break down as follows:

Cook Inlet LNG: 9

   • LNG plant only: 5

   • LNG plant and gas supply: 1

   • Gas supply, LNG plant and gas transport: 3

North Slope LNG: 3

   • LNG plant only: 1

   • LNG plant and transport: 2

One each for a small diameter pipeline from Cook Inlet; imported propane; imported LNG; and Cook Inlet “other.”

Now the task of separating the detailed, well-rounded and cost-effective plans from the rest begins.

A project partner will have access to the low-interest state financing package meant to improve the feasibility of the financially challenging and logistically complex project.

The RFP states the proposals will be evaluated based on five weighted criteria: project understanding, methodology, experience and qualifications, project description and costs, and lastly, the ability to meet the project goals.

It is noted in the RFP that $4 to $5 per thousand cubic feet, or mcf, of gas will almost certainly be added to any delivered LNG price to cover the costs of storage and distribution to consumers. As a result, the price for LNG delivered to Fairbanks would likely have to be in the $10 to $11 per mcf equivalent range to meet the project goal of a $15 per mcf “burner tip” price for consumers by 2017.

The added cost would be slightly lower for a natural gas pipeline project because gas storage and regasification of LNG would be unnecessary.

Attorney General Craig Richards recently nixed a contract between Pentex, the parent company of Fairbanks Natural Gas, and a Hilcorp Energy subsidiary to provide a small amount of LNG to the utility for $15 per mcf.

AIDEA has said it would provide a long-term gas supply contract that Golden Valley Electric Association has with BP if another attempt at a North Slope LNG trucking operation is deemed the most viable.

Golden Valley offered up that contract when AIDEA attempted to get LNG from the Slope last year. Ultimately, capital expenses for the North Slope liquefaction plant turned out to be too costly, and initial gas was pegged in the $18.50 to $20 per mcf range.

Interior Energy Project manager Bob Shefchik said the evaluation team will spend August evaluating the projects and unveil a group of likely three to five finalists in early September. From there, AIDEA will enter into negotiations with the final group and final offers from each proposer will be evaluated by a committee, in hopes of reaching a consensus on a preferred plan, according to the RFP.

That entire process should take 60 days, Shefchik said.

The proposals and the rankings associated with them will be made available to the public when the final group is announced, he said.

According to Shefchik, the review committee will take a “more qualitative than quantitative” approach in evaluating non-cost items of the proposals.

“At the end of the day, all the proposals can be looked at by anyone in the public who says, ‘why did they do that and how?’ including the score sheets, and that’s where the openness of the ranked evaluations comes out,” he said.

It was discussed at the board meeting that this approach would be more transparent than the last time an Interior Energy Project partner was chosen. At that time, in January 2014, little was known about the plans put forth by AIDEA’s three suitors — Pentex, Spectrum LNG and MWH Global Inc. — until after MWH was chosen.

Once the Interior Energy Project team reaches a preliminary agreement with its latest partner, Shefchik said the plan is to make a recommendation to the AIDEA board at one meeting and ask for formal approval at the next to keep the process open and allow for ample review.

He has said he hopes to have the process wrapped up by December.

AIDEA board meetings are typically held every four to six weeks. The last meeting of the year is currently scheduled for Dec. 3.

The Interior Energy Project team also closed a request for information, or RFI, for Cook Inlet natural gas supply and prices July 16. That information is being held much tighter.

AIDEA’s Szymoniak said the responses, number of respondents, results and even who is doing the evaluating will be kept confidential.

“I will go as far as to say we do have responses to evaluate, so that is a good thing,” Szymoniak told the AIDEA board.

The RFI was intended to test the market and determine if Cook Inlet could reasonably supply the Interior as well as Southcentral with natural gas, he said.

At the end of the evaluation process, a single memo with the RFI results will be sent to the RFP team, according to Szymoniak.

Hilcorp recently reached an agreement with Chugach Electric Association to extend its gas sale and purchase agreement through March 2023. The initial gas price when the amended agreement kicks in is $7.35 per mcf in April 2018.

That is 8.5 percent lower than the price of $8.03 per mcf Hilcorp will sell base load gas for under a Consent Decree the producer agreed to with the state when it became the dominant supplier of natural gas in the Cook Inlet basin. Hilcorp acquired the former assets of Chevron and Marathon in 2012 and 2013, respectively.

Shefchik said in an interview that he is happy to see the price drop, but declined to comment further on the Cook Inlet natural gas market.

Pentex subsidiary Titan Alaska LNG, which liquefies and transports LNG for Fairbanks Natural Gas, charges $3.55 per mcf for liquefaction and up to $3 per mcf for transport costs, according to FNG President and CEO Dan Britton.

Titan’s small, 1-billion cubic feet, or bcf, per annum LNG plant is located on Point MacKenzie and is a possible location for expanded LNG capacity for the Interior Energy Project.

Adding the $7.35 per mcf gas cost to Titan’s costs comes out to nearly $14 per mcf before storage and distribution costs are added. However, a 6-bcf plant needed for the Interior Energy Project could add economies of scale, which when combined with a low-interest state financing package could improve the feasibility of a basic Cook Inlet project.

AIDEA and Fairbanks Natural Gas also plan to begin testing a 13,500-gallon LNG trailer within the next month. A large LNG trailer is not currently legal in Alaska.

Titan uses 10,000-gallon trailers, which are filled to about 85 percent capacity to allow for expansion, and using a larger trailer could directly lower transportation costs.

Home conversions

The Interior Energy Project is a futile exercise if enough Fairbanks-area consumers can’t afford to convert their home heating systems from fuel oil or wood to natural gas.

Alaska Energy Authority Energy Policy Director Gene Therriault, who has led the conversion aspect of the project, said he had an encouraging meeting with U.S. Department of Agriculture officials in Washington, D.C., regarding the Energy Efficiency and Conservation Loan Program.

A USDA official characterized the loan program, which has been in place less than two years, as “underutilized,” Therriault said.

The loans can be passed through an electric cooperative, such as Golden Valley, to consumers.

“It provides low-cost capital for electric co-op customers to perform energy efficiency and conservation efforts to their home,” he said.

Converting to more efficient appliances and a lower emitting home heating fuel both qualify, Therriault said.

Converting from an old fuel oil boiler heating system to a high-efficiency natural gas system can cost as much as $10,000, which could challenge some Interior residents who want to make the switch but are already struggling with high fuel costs.

Interest rates on the Energy Efficiency and Conservation loans vary little from 1 percent on a short, two-year loan to up to 2 percent on a 10-year term. The maximum term is 15 years, according to the USDA.

Therriault also said the cooperative can’t add more than 1.5 percent interest to any pass through loan.

Homeowners with houses that qualify for the Alaska Housing Finance Corp.’s Home Energy Rebate Program could also utilize state money to finance their conversions, Therriault noted.

Rebates of up to $10,000 are available for significant energy efficiency improvements, which could include changing out an old heating system.

While the Rebate Program did not receive additional funding in the 2016 fiscal year budget, AHFC still has about $26 million available for new applicants, according to July 29 program report.

AHFC Energy Program Information Manager Jimmy Ord said that heating conversions could qualify for the rebate if the original boiler or furnace is old and inefficient, but simply switching to a cleaner fuel doesn’t.

“It solely has to do with the efficiency of the appliance,” Ord said.

He encouraged Interior residents to check whether or not they would qualify for a rebate as part of a heating conversion before the funds run out and also before demand for heating technicians rises.

Elwood Brehmer can be reached at [email protected].

Updated: 
11/20/2016 - 11:56am