JUNEAU — The state’s plan to buy Fairbanks Natural Gas and its parent company answered the question of “what’s next?” after a state bid to build a processing plant on the North Slope fell apart, but it’s also raised a whole new slew of questions.
In the ongoing quest to bring natural gas to the Fairbanks area, the Alaska Industrial Development and Export Authority, with the backing of Gov. Bill Walker, announced on Wednesday it would buy Pentex and all its assets for $52.5 million.
What hasn’t been answered is just how the state plans to expand the supply chain to serve the broader Fairbanks-area market and how it’ll affect other deals the private company had been in the midst of negotiating.
And that’s not to get into the general uneasiness many Republican lawmakers have with the state displacing private companies that also are eying the Fairbanks market.
AIDEA and Walker said the purchase of the existing infrastructure and the company’s expertise — much of which AIDEA plans to keep on after the purchase — is the best route to get gas to Fairbanks.
Pentex owns a supply chain — a number of subsidiaries and Fairbanks Natural Gas — that brings up natural gas from Cook Inlet to serve about a thousand customers in the Fairbanks area.
But just how much of that supply chain has been included in the deal was unclear when the deal was announced.
In recent years, Pentex has spun off many of its assets into subsidiary companies, a move that drew criticism from some, including the Fairbanks North Star Borough and scrutiny from the Attorney General’s office (more on that below).
It was a strategy that makes it difficult at first blush to figure out just what the state is getting for its $52.5 million.
According to the Letter of Intent, the owners of Pentex signed with AIDEA, the agency will get Fairbanks Natural Gas, Titan, Arctic Energy Transportation, Polar LNG and Cassini LNG Storage.
AIDEA spokesman Karsten Rodvik explained that includes the Fairbanks gas utility, the Point MacKenzie liquefaction plant (owned by Titan), the filling terminals, tractors and trailers.
The status of Titan, the subsidiary that owns a gas processing plant in Point MacKenzie, has been one of the biggest points of contention in the wake of the announcement.
That’s because when Pentex moved to sell the Point MacKenzie plant to Hilcorp (the company that has been the long-time supplier for Fairbanks Natural Gas), the Attorney General’s office intervened. The purchaser of the plant was to be Hilcorp’s own subsidiary Harvest Alaska.
In documents filed with the Regulatory Commission of Alaska on Dec. 12, 2014, the Attorney General’s office raised concerns that there wasn’t enough information to know if the sale was in the best interest of Alaskans. Based off the office’s powers to investigate antitrust issues, the office asked the sale be delayed until the Regulatory Commission of Alaska review the rates.
“The Attorney General has serious concerns regarding the sale of the Point MacKenzie LNG plant and delivery trucks (Titan’s assets) to Harvest,” said the document opposing the move. “It will only be after this review is complete and conducted under this exacting standard that the Attorney General will be able to determine if Fairbanks consumers and other potential LNG purchasers are meaningfully protected under the Harvest-Titan asset sale agreement.”
The delay, which was granted by the Regulatory Commission, now is raising eyebrows among many lawmakers.
In a news release from the House Majority that didn’t include any Interior lawmakers, Speaker Mike Chenault, R-Nikiski, openly questioned the timeline.
“I’m disturbed that our own Attorney General recently announced a multi-month anti-trust investigation into a private company’s plans to purchase FNG’s liquefaction and trucking operation, effectively stalling a sale — and now, suddenly, the state is buying those same assets, eliminating the private sector competition that currently exists in the Fairbanks gas market,” Chenault said. “This will require a serious inquiry by the Legislature.”
But Fairbanks Natural Gas CEO Dan Britton said the attention from the Attorney General had nothing to do with the sale.
“We think it’s a separate issue,” he said, adding the concerns were coming together before Walker took office. “The concerns raised by the attorney general were well before the current sale. … We evaluated it (selling Pentex) just like any other offer.”
Britton also went on to say it’s become clear the private sector alone can’t expand natural gas to the greater community at rates community leaders have been calling for.
“We known it can’t be accomplished 100 percent without the state at the amount of service they want,” he said. “With the state’s approach it seems to make sense that they can bring benefits for the ratepayers.”
The future of that sale
Just what will happen with the sale is unclear, but it has many, including Hilcorp, scratching their heads.
In a news release issued by Hilcorp on Thursday, Sean Kolassa, the president of Hilcorp subsidiary Harvest Alaska, expressed uncertainty about the future of the purchase, but made the case for the sale to go through.
“We don’t fully understand yet how this will affect our existing agreement to purchase the Point Mackenzie LNG facility, but we think Harvest is the best candidate to own, operate and quickly advance efforts to expand LNG deliveries to the Alaskan interior,” he said. “In fact, we are working on plans that could provide incremental LNG capacity within 18 months.”
Rodvik said the potential purchase of Pentex doesn’t invalidate the existing agreement with Hilcorp. In addition to all the subsidiaries, the state is buying all the existing agreements, he said. Whether the sale goes through will play out during the next year, he said.
“AIDEA has not yet had an opportunity to review that contract, so we do not know the details of it. But if AIDEA’s acquisition of Pentex is completed, AIDEA expects that Pentex under AIDEA ownership will continue to work with Harvest Alaska, LLC in accordance with any governing agreements in effect between them,” he said.
That leaves the future of the sale back in the hands of the Regulatory Commission of Alaska. The statutory deadline for a ruling is set for June 2015.
Source of gas
Currently, Fairbanks Natural Gas serves about a thousand business and residential customers with its existing contracts and distribution system. That system accommodates about one billion cubic feet of natural gas per year.
The North Slope plant, which would have served a large expansion of homes and businesses as well as Golden Valley Electric Association’s power generation, had been designed to be about six billion cubic feet before the plan fell apart.
Just where six billion cubic feet of natural gas could be found in the Cook Inlet is unclear at this time. Fairbanks Natural Gas’ plans to sell its Point MacKenzie plant to Hilcorp didn’t include guarantees of expanded gas availability, but documents filed with the Regulatory Commission of Alaska said the sale would be “an incentive to expand the capacity of the LNG plant, thereby expanding the availability of LNG to consumers in Fairbanks and elsewhere in Alaska.”
Discussion since the announcement has included both the possibility of Hilcorp or ConocoPhillips, which also currently supplies a small amount of gas to Fairbanks Natural Gas, as potential suppliers. Other companies like WesPac, which is developing its own liquefaction plant to serve rural Alaska, and REI have expressed interest in the market.
AIDEA’s spokesman Karsten Rodvik said that all options are being considered.
He added that more customers can be served by expanding Fairbanks Natural Gas’ storage, a move the company had been considering before the purchase, to allow it to build up greater gas supplies during the summer.
“AIDEA is exploring immediate increases in capacity by modestly increasing storage capacity on the FNG system,” he said. “Beyond that, all potential suppliers will be considered for longer term sources that would be sufficient to serve Interior heating and electric demand.”
Contact staff writer Matt Buxton at 459-7544. Follow him on Twitter: @FDNMpolitics.