By Elwood Brehmer, Alaska Journal of Commerce
NORTH POLE — There are construction projects all over the Fairbanks North Star Borough this summer: buildings are going up; roads are being repaved; and natural gas pipe is being buried in many parts of the area for the first time.
Upwards of 4,000 feet is being added to the Interior Gas Utility’s infant distribution system each day, IGU engineer and project manager David Prusak said during a tour of the work June 25.
The 15 crews working for IGU have buried more than 1.5 miles of pipe about 42 inches deep during their best days, according to Prusak.
He said the goal is to complete Phase 1 of the distribution buildout in the center of North Pole by the end of September. To do that the crews have to trench about 315,000 feet of two-inch diameter polyethylene pipe, and roughly equal amounts of four-inch and eight-inch mainline pipe. Total installation needs to be about 400,000 feet — more than 75 miles — in about 100 days to stay on track this year, Prusak said. About 120,000 feet was finished in North Pole when work wrapped up June 27.
At the end of IGU’s six-phase buildout, about 17,000 North Pole and Fairbanks homes and businesses currently reliant on fuel oil should have access to a cleaner and hopefully cheaper energy source, when combined with the Fairbanks Natural Gas Co. network expansion.
Early spring right-of-way clearing was met with skepticism from North Pole residents.
“They’ve been promised natural gas for a long time and they didn’t believe it,” Prusak said.
IGU received 10 to 15 complaints per day at first, he said, but now as word and information campaigns have spread, the mood of the community has turned positive. Recent callers just have questions about work.
Bob Shefchik, a former University of Alaska Fairbanks administrator, Interior Gas Utility chairman and the current Interior Energy Project manager, said in an interview that finally getting natural gas to the broader area would be a “dynamic change” to the future of the region.
“Fairbanks is kind of on the cusp of…are they going to shrink or succeed?” he said.
North Pole Mayor Bryce Ward also said in an interview that the construction happening this summer is helping to improve residents’ opinion of the project.
“The proof is in the pudding, if you will. I think when gas is running down the lines is going to be really the true test, but I think people definitely want it and they’re excited about it,” Ward said. “ Just when and what price it’s going to be is still up in the air so there’s some uncertainty there.”
“First gas” will likely arrive in the summer of 2017 at the earliest, a departure from estimates of the fall of 2016, Shefchik said. That is primarily due to the reboot of the Interior Energy Project in January, when the Alaska Industrial Development and Export Authority, or AIDEA, parted ways with the engineering and consulting firm MWH, its former partner in a North Slope gas-trucking plan.
With the focus of the new iteration of the project shifted south to Cook Inlet, developing a gas supply chain and the necessary infrastructure will take time, he said.
“Folks in the construction industry would think the summer of 2017 is aggressive,” he said.
The late 2016 goal for gas was the end of an ambitious timeline under the old Interior Energy Project.
Shefchik emphasized the role Southcentral natural gas utility Enstar Natural Gas Co. has played in developing the IGU distribution system. He said the company has been “incredibly cooperative” in offering technical expertise — some paid and some pro-bono work — to the startup utility.
Enstar Vice President of Business Development John Sims said the emphasis from Enstar’s point of view is safely developing a gas distribution system.
Marketing, business, and gas conversion strategy input has followed.
“They have a couple of our individuals’ phones on speed dial and they’re welcome to call us anytime and we’re happy to provide any assistance we can,” Sims said.
When IGU’s buildout is complete, utility leaders have said they would like to hire a private firm to handle operations. With AIDEA’s purchase of Fairbanks Natural Gas approved June 18, its operations could be expanded when AIDEA turns the utility over to a local entity, or another party could take over that role for IGU.
The price of the natural gas or propane is more important than when it arrives, particularly in terms of cleaning up the region’s winter air, according to Ward.
“People are driven to (burning wood) because of the economic freedom,” he said. “Paying the high cost for fuel oil is very prohibitive, and people enjoy living here and they want to continue to live here so they’re going to do the most economical thing, which at this point is burning wood.”
Shefchik and AIDEA Infrastructure Development Officer Nick Szymoniak laid out the next six months for the project at the authority’s June 25 board of directors meeting in Fairbanks.
First and foremost, Shefchik said this go-round of the Interior Energy Project would include the end users more.
“In addition to evaluating other options was making sure both utilities and the communities were more involved in both the process and the decisions as we move forward,” Shefchik said.
Currently the IEP team is waiting for a 60-day request for proposal, or RFP, solicitation window to close Aug. 3.
In the interim, work is being done on liquefied natural gas storage and transportation options, work that would have been done earlier had House Bill 105, the authorizing legislation to allow AIDEA to use Interior Energy Project funds on a Cook Inlet-centric project, passed quicker, Shefchik said.
“(Getting HB 105 passed) took longer than expected and consumed more resources than expected,” he said to the board. “Ultimately, it passed.”
Developing LNG storage is starting from on-hold plans Fairbanks Natural Gas has to build a 5.25 million-gallon LNG tank in south Fairbanks. The utility suspended work when oil prices fell and the economics of expanding gas storage fell through, at least temporarily.
AIDEA took inquiries from about 30 groups interested in the project prior to letting the RFP, according to Shefchik.
The baseline for the RFP is a plan for a 6 billion cubic feet, or bcf, per year LNG plant located somewhere in Southcentral, without a gas supply, Szymoniak said.
However, AIDEA is entertaining all offers, including “all-in-one” plans that include a gas supply, liquefaction and transportation to the Interior utilities, he said. Small diameter pipeline and propane proposals will also be investigated.
If a serious North Slope plan reemerges, Szymoniak said AIDEA is prepared to donate the gravel pad it constructed on the Slope for an LNG plant as well as Interior electric utility Golden Valley Electric Association’s long-term wholesale natural gas contract with BP.
“AIDEA is simply, from this RFP process, facilitating a commercial deal between the private developers and the utilities. AIDEA will probably enter into a potential agreement to provide financing, but it’s not actually going to be signing up to buy capacity at the plant,” Szymoniak said.
“This is going to be a deal between the private developers and the utilities.”
If a deal is struck the authority would then likely provide low-interest financing for capital development through the Sustainable Energy Transmission Supply, or SETS, fund loan and bond authority it has for the project.
Expanding the small, 1 bcf per year LNG plant used by Fairbanks Natural Gas to more than 6 bcf could cost as little as $60 million, according to company leadership. That would be less than a third of the estimated cost of building a similar plant on the North Slope.
The AIDEA board approved additional project expenditures from the SETS account and its economic development funds during the meeting. Another $500,000 in SETS funds and $200,000 in economic development fund money was given to the IEP team, doubling the SETS total to $1 million and the economic development expenditure to $400,000.
Shefchik said the $148,000 spent from the original $200,000 development fund appropriation within AIDEA was used primarily for staff resources in Juneau dedicated to getting HB 105 passed.The SETS money will be used to hire expert help during proposal evaluations.
“As we winnow down the proposals form the universe to four, and four to one, we expect to hire contractors to do technical evaluations,” Shefchik said.