By: Elwood Brehmer, Alaska Journal of Commerce
Posted: Wed, 01/27/2016
The Alaska Industrial Development and Export Authority should have its new Interior Energy Project partner in place by the end of February, according to project leaders.
A partner recommendation can be expected the second week of February, IEP manager Bob Shefchik said in an interview, with a special AIDEA board meeting to be held later in the month to take formal action on the staff recommendation.
The time between the announcement and the board meeting will allow the AIDEA board and the public to scrutinize the IEP team’s recommendation, Shefchik said.
AIDEA officials spent much of 2015 evaluating new proposals to get natural gas to Fairbanks-area consumers for the project’s stated goal of $15 per thousand cubic feet, or mcf, of gas. What started as 16 ideas in early August has been whittled to two: Spectrum LNG’s proposal to build a North Slope LNG plant and a plan by Salix Inc. to build a Cook Inlet-sourced LNG facility at Point MacKenzie.
Oklahoma-based Spectrum LNG operates a small LNG plant in Arizona and helped develop Fairbanks Natural Gas’ supply chain in the late 1990s to feed the utility with LNG trucked from Southcentral.
Salix is a subsidiary of Avista Corp., which owns electric and natural gas utilities in Idaho, Washington and Oregon. Avista also owns Alaska Electric Light and Power Co., the Juneau-area electric utility.
Shefchik said that the project team is working to secure natural gas contract terms from both Cook Inlet and North Slope producers before making a final suggestion to the AIDEA board.
“We want to make sure we have gas contracts underneath the North Slope and Cook Inlet so that as we’re making recommendations on $50 (million) to $80 million investment we’re not modeling what the gas costs, we know what it costs,” Shefchik said.
Golden Valley Electric Association, the Interior’s main electric utility, has a 15-year gas supply agreement for North Slope natural gas with BP that the utility has made available to the Interior Energy Project as well. Shefchik said the group is evaluating all supply options.
The omnipresent contrast between lower wholesale gas costs from the Slope against lower construction and transportation costs in Southcentral has made defining a clear-cut winner difficult.
The desire to have a complete project for review is what led to pushing an initial, self-imposed early December deadline for a project recommendation back two months, he said.
Spectrum’s plan is for an $85 million North Slope LNG plant that would need $30 million in equity and $50 million in low-interest loans from AIDEA. Spectrum would contribute $5 million in equity.
Salix is hoping to build a $68 million Southcentral plant also with a $30 million equity investment by AIDEA and a $28 million loan, with Salix offering a $10 million investment.
The new oil price reality Alaska’s lawmakers are dealing with is also straining the economics of the Interior Energy Project.
“We’re challenged on the differential between the price of oil translating into fuel oil and the target price of gas, so we’re being pretty careful on having lowered our conversion expectations and then deciding how can we continue a project in a low price environment,” Shefchik said.
Revised estimates on the demand for natural gas, once it becomes available in the Interior, have lowered the demand forecast by as much as a 30 percent since the project began.
Natural gas at $15 per mcf is about half the energy equivalent cost of $4 per gallon fuel oil — roughly the price scenario facing Fairbanks when the Legislature funded the project in 2013. Since then, plummeting oil prices have pulled the price of fuel oil closer to $2 per gallon, which makes it less likely residents will spend potentially thousands of dollars to convert their home heating systems.
Consequently, AIDEA is also working to consolidate state and federal energy rebate and loan programs to help offset conversion costs for residents and keep the Interior Energy Project financially viable.
Elwood Brehmer can be reached at email@example.com.