FAIRBANKS — Amid growing costs for the North Slope natural gas processing plant, the future of the Interior Energy Project as currently envisioned is on shaky ground.
Contracts and agreements that were expected to be inked by the end of the year are still works in progress and did not make an appearance at the Alaska Industrial Development and Export Authority’s board meeting in Anchorage Tuesday morning.
Interior Gas Utility Board chairman Bob Shefchik said the costs provided by the state’s private contractor, MWH, have been far greater than anything that’s acceptable for Interior Alaska.
Shefchik said the estimate for the plant has increased to $228 million, with an additional $20 million for potential cost overruns. That doesn’t include other potential costs for the project and Shefchik described the price as “a floor.”
MWH pitched the facility as a $185 million project when the AIDEA board picked the private project management company in January of this year.
MWH’s concession agreement with AIDEA expires at the end of the year. If that deadline passes without a signed agreement to move forward, the state could begin examining alternatives, Shefhick said.
Two of the three local utilities expected to be customers of the Interior Energy Project — Golden Valley Electric Association and Fairbanks Natural Gas — requested an extension so the state’s private contractor could continue to bring down the project’s cost.
While limited on just what numbers he could share publicly, Shefchik said he had misgivings about the price of natural gas to the Interior and didn’t support an extension.
“MWH hadn’t delivered their data, wasn’t ready and their numbers were too high and there was no reason to believe that three months would yield different results,” he told the IGU board hours after the meeting.
Borough Mayor Luke Hopkins also testified against the extension because he felt the project has become an increasingly bad deal for Interior Alaska residents.
The AIDEA board heard from the utilities before retreating behind closed doors for an executive session and emerged without taking action Tuesday.
AIDEA board member Gary Wilken, a former Fairbanks state senator, said in a News-Miner interview after the meeting that an extension is in the works. He said the extension will be “for a short period of time” and will have some stipulations on it.
“We don’t want to throw the baby out with the bathwater,” he said. “Let’s press on for a limited amount of time with a new set of rules.”
Wilken said the board had ongoing concerns with the cost of the plant, conversion rates and other remaining issues that will have a big impact on the final price to consumers like the still-unsigned trucking contracts.
Shefchik also said the trucking component was proving to be problematic. Tolling agreements for trucking had also been expected to be finalized, but Shefchik said those, too, weren’t ready.
“We didn’t think we’re in a position to sign term sheets just to give an impression that we were moving forward,” he said.
The potential extension will give MWH more time to reduce the price and potentially ink contracts with the local utilities to buy natural gas. Wilken said he couldn’t say just how long the extension would be, saying “it’s a short period of time.”
He did remain optimistic that a deal could be reached to reduce the cost of energy in the Interior, adding that the scope and complexity of the project have been challenging from day one.
“You can’t throw up your hands and can’t say this can’t happen, because it has to happen,” he said. “We’re going to make this happen in some manner.”
MWH had been selected because the group promised to bring tens of millions of its own money to the table, allowing more state funds to funnel toward local distribution.
Since then, competing sources of natural gas have cropped up, promising gas at a higher rate but without the reliance on state investment.
Costs under MWH have creeped up throughout the year, driving the price of delivered gas well above the $15 per thousand cubic feet of natural gas community leaders say is necessary for a final project. The timeline for delivery of gas to the Interior has also slipped from late 2015 to mid to late 2016.
The latest cost estimates, including the cost to distribute gas locally, was reaching past $19 per thousand cubic feet. The equivalent in $4 per gallon heating oil is about $30.
In an interview with the News-Miner before his invitation-only meeting with the Greater Fairbanks Chamber of Commerce, Gov. Bill Walker said he was still reviewing the project to decide if he wants to take a different direction.
“I’ve had some briefing on that and I want to make sure all options are looked at,” he said.
While campaigning, Walker said he felt the economics of a small-volume trucking plan were difficult and expressed interest in some of the emerging competitors from Cook Inlet.
Still, the IGU board remained generally optimistic about bringing natural gas to the Interior and spent the rest of its board meeting discussing buying and installing the beginnings of its natural gas distribution system. The board approved an application to AIDEA for a $29 million loan for distribution work planned for next summer.
“Despite the uncertainty of the supply,” Shefchik said, “pipe in the ground is going to be needed regardless of the outcome.”
Contact staff writer Matt Buxton at 459-7544. Follow him on Twitter: @FDNMpolitics.