By Matt Buxton,
Fairbanks News Miner

FAIRBANKS — The oil and gas tax credit bill passed by the Alaska Legislature this week could spur another change in direction for the Interior Energy Project.

At the request of Senate Finance Committee members, Gov. Bill Walker is considering putting a hold on the project’s selection of a source of natural gas while Interior Alaska Native corporation Doyon, Limited, conducts its summer oil and gas explorations in the Nenana Basin.

As the Finance Committee considered extending the “Middle Earth” tax credits in May, some legislators wanted assurances that Doyon would have a market for gas it might find. The credits are for fields outside the North Slope and Cook Inlet.

The Interior Energy Project was on course to finalize a partnership with Salix, Inc., this fall to build a natural gas processing facility in the Cook Inlet. As was explained in a letter sent to Walker on May 14, the legislators worried the Interior Energy Project’s plan would preclude the Interior buying presumably cheaper gas from the Nenana Basin.

“We could support the extension of Middle Earth credits,” the letter signed by six of the committee’s members said. “However, as a state, one could conclude that we seem to be competing against ourselves by supporting both projects.”

Finance Committee Co-Chair Sen. Anna MacKinnon, R-Eagle River, said in a Friday interview with the News-Miner that spending state resources on a Cook Inlet plant while providing tax credits for explorations in the Interior didn’t make sense.

“The gate price (for Doyon’s project) would be substantially less than what is being bid,” she said. “We don’t want to get in the middle of the governor’s process, but it was raised as an issue that if we’re going to continue the Middle Earth credits … why would we want to be competing with ourselves?”

MacKinnon said the request is only to slow the decision on sourcing gas for the Interior Energy Project and not any other part related to gas distribution or gas conversions.

Fairbanks Republican Sen. Click Bishop signed the letter, but fellow Fairbanks Republican Sen. Pete Kelly did not. Kelly could not be reached for comment Friday.

The project with Salix is estimated to begin delivering gas to the Interior in early 2018. Doyon Lands and Resources Vice President Jim Mery told the Alaska Journal of Commerce the company could potentially begin delivering gas to the Fairbanks area in 2019.

Walker’s response on May 17 indicated he was open to the idea but warned that he was not certain about the legal hurdles of switching partners this late in the process.

“Your request for a six-month decision delay indicates a time frame of October/November; that being the case, and all other considerations taken into account, the resulting 60-day delay does not seem unreasonable,” he wrote. “I will require a legal analysis to determine the legality of a delay and to determine if potential liability exists.”

With the plummeting price of a barrel of oil, the cost for heating oil has dropped close to the Interior Energy Project’s target for gas. That’s given Fairbanks residents substantial relief from the high heating prices that lead to the creation of the project in 2013. It’s also given the project more time to work on lowering the cost of the project to make it more attractive to local residents.

Walker spokeswoman Katie Marquette said the governor is still considering the request and has yet to make a final decision. Officials with the Interior Gas Utility declined to comment.

As for the chances of finding gas in the Nenana Basin, Doyon is optimistic. In his June letter to shareholders, Doyon President and CEO Aaron Schutt was hopeful about the corporation’s summer drilling plans in the Nenana Basin.

“The experts tell us that the new well has a one in two chance of finding a commercial natural gas resource and a one in four chance for oil,” he wrote. “If Toghotthele No. 1 finds a commercial resource, the estimate for recoverable oil is 70 million barrels and 200 billion cubic feet for natural gas, which could mean plenty of gas for Fairbanks.”

Contact staff writer Matt Buxton at 459-7544. Follow him on Twitter: