BY ELWOOD BREHMER, ALASKA JOURNAL OF COMMERCE
Fragmented at the start of 2015, the group leading the Interior Energy Project hopes to have a new plan in place by the middle of the year.
Bob Shefchik, project manager for the Alaska Industrial Development and Export Authority, said during a March 26 board of directors meeting that key solicitations for potential project partners will be advertised in about a month.
Requests for information, or RFIs, for both a gas supply agreement and natural gas liquefaction capacity will be issued at the same time to allow for flexibility in plans, according to Shefchik.
While they are separate processes, getting the requests out for review together should allow for the maximum range of project partners to be considered.
“It’s not a done deal that it will be a separate gas supply and separate liquefaction; we’re offering the opportunity for vendors to bundle that,” he said.
The work on a gas supply agreement is being led by the Commerce Department, while specifics such as long-term gas availability and sourcing are being vetted by the Department of Natural Resources, Shefchik said.
Fairbanks Natural Gas Co. has such a bundled wholesale gas, liquefaction and supply chain contract in place with Harvest Alaska, a Hilcorp subsidiary, pending regulatory approval. That deal is to supply the utility’s existing customers and would deliver LNG to the “city gate” at the equivalent of $15 per thousand cubic feet, or mcf, of vaporized natural gas.
In an interview, Shefchik said the Interior Energy Project team is still investigating options to get North Slope gas south, but that would involve pushing the goal for first delivered gas back at least a year from late 2016.
Getting additional Cook Inlet gas north within a year-and-a-half is not the big challenge — doing it within the constraints of the $15 per mcf project goal is.
Reaching the $15 per mcf “burner tip” goal is not only key to getting residents to switch from fuel oil to gas, but it is also important for getting residents to switch from wood heat, Shefchik said. The market rate for a cord of wood is roughly the price as the energy equivalent of natural gas at $15 per mcf.
Inefficient wood stoves are considered a major contributor to downright dangerous winter air quality conditions North Pole and Fairbanks.
There is a June 30 target to have winnowed down project proposals to one or two project partners, depending on the plans submitted. Shefchik said that would coincide with AIDEA’s “go or no-go” decision whether or not to purchase Pentex Alaska Natural Gas Co., the parent of Fairbanks Natural Gas and its supply chain sister companies.
The letter of intent outlining the sale signed by Pentex and AIDEA leadership in late January calls for a closing date before July 31.
“The end result will be a partner, not a study,” Shefchik told the AIDEA board.
At that time the project team would need access to the remaining $280 million from the Sustainable Energy Transmission Supply Fund low-interest financing and grant package the Legislature previously dedicated to the North Slope iteration of the Interior Energy Project.
A large portion of the money would fund continued distribution buildout in Fairbanks and North Pole and other chunks of funds would likely go towards driving down the cost of liquefaction capacity and the corralling of an LNG trailer fleet.
Expanding the annual capacity of the existing Titan LNG plant at Point MacKenzie from 1 billion cubic feet, or bcf, of gas per year to more than 6 bcf — meeting demand after five years — would cost about $60 million, according to Fairbanks Natural Gas President Dan Britton.
“Our goal is to leverage the AIDEA assets into the infrastructure such that it creates transparency in the pricing and buys down the cost in a long-term infrastructure base, rather than a (power cost equalization) type approach” of subsidies for high energy costs, Shefchik said.
Regardless of what the final plan looks like, getting the North Slope stipulation nixed for the SETS funding so it can be used on a Southcentral project is paramount to keeping on the Interior Energy Project on track.
The Senate Energy Committee, chaired by Sen. Peter Micciche, R-Soldotna, amended legislation that would free the funds for broader work to include the possibility of a gas pipeline March 26.
Gov. Bill Walker introduced parallel legislation earlier in the session — House Bill 105 and Senate Bill 50 — that would allow AIDEA to spend the SETS money on a Cook Inlet gas project.
Micciche’s proposal for a small, flexible gas pipeline from Southcentral is projected at $300 million to $400 million, according to estimates from Enstar Natural Gas Co. and pipe suppliers.
“I want to make sure that we’re not applying a band-aid,” Micciche said in the committee.
A small pipeline would cost more up front but would eliminate continual transportation and liquefaction costs — expenses associated with an LNG trucking operation that challenge the project.
However, Shefchik said in an interview the capacity of a low-pressure pipeline with one compressor is about 19 million cubic feet per day, when maximum winter demand at full distribution buildout is projected at about 100 million cubic feet per day.
Upping the capacity could require multiple compressors along the pipe and bundling multiple eight-inch pipes.
GVEA tests propane market
Golden Valley Electric Association has always been seen as a vital anchor tenant for the Interior Energy Project, but the electric utility is looking into burning propane at least until the kinks in the gas project are worked out.
Golden Valley Vice President of Power Supply Lynn Thompson said a favorable propane market could mean barging the fuel up from British Columbia and shipping it via rail from Southcentral is a viable means of getting off fuel oil.
Thompson said there is no commitment to propane now. If that decision is made it would take up to a year to develop the supply chain and $15 million to $20 million in storage and generator modifications to make it happen.
“Golden Valley is always looking at how to minimize dependence on oil,” he said.
Current low oil prices have lessened the immediate cost burden of generating electricity with fuel oils, but finding a more cost-stable and cleaner fuel source is the goal, according to Thompson.
He said wholesale propane is selling for $1 per gallon or less, which equates roughly to the equivalent of fuel oil at $1.50 per gallon.
The utility has only one local oil supplier, the North Pole Petro Star Inc. refinery, since Flint Hills’ refinery was mothballed last year.
Golden Valley leadership has continually said it could commit to taking 2 bcf of gas per year from the Interior Energy Project, which would be about 40 percent of new demand after five years. That added demand would help lower the final cost of gas for residential consumers.
Shefchik said the Golden Valley board of directors asked him if a year delay in the utility’s purchase of gas would kill the economics of the project. He said it would come down to “working out a cashflow issue,” but that could be overcome.
As to other customers, Shefchik told the AIDEA board the likelihood of them coming on board before gas is available is slim. However, once a market is established, communities and even military establishments along the road system will be in play.
“Anybody with a cogeneration of heat and power or a strong demand of oil for generating electricity will be a potential customer and will look hard at this,” he predicted.
Elwood Brehmer can be reached at email@example.com.