Anchorage (Platts)--10Dec2012/301 pm EST/2001 GMT

Alaska will finance $355 million of a liquefied natural gas project on the North Slope to support an LNG trucking operation as well as LNG regasification facilities near Fairbanks, in Interior Alaska, as well as an expanded gas distribution system in the city, Governor Sean Parnell said late Friday.

The proposal needs approval by the state Legislature in its 2013 session. An Interior Alaska electric cooperative, Golden Valley Electric Association, has been working on a plan for an LNG plant that would convert 9 Bcf/year to LNG, which would replace oil that Golden Valley now uses to generate electricity at generation plant near North Pole, east of Fairbanks.

Golden Valley would also make gas available to Flint Hills Resources for its refinery, also at North Pole and which also uses oil for refinery operations, and for space heating in the Interior city.

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BP has signed a contract to supply Golden Valley with up to 23 Bcf of gas over several years for a North Slope LNG plant. The LNG would have to be trucked from the Slope about 400 miles to Fairbanks on the Dalton Highway.

Fairbanks residents and businesses are hard hit by energy costs. Fuel oil is running at about $4/gal this winter and temperatures have been 30 degrees to 40 degrees below zero Fahrenheit.

POWER GENERATOR SOUGHT MORE GENEROUS PLAN

However, the plan falls short of what Golden Valley had pushed for, which was a $200 million grant to build the plant itself, according to the utility's CEO, Cory Borgeson. An outright grant would have resulted in lower costs to consumers, he said.

What Parnell has offered is a $50 million state grant, $275 million in a low-interest loan through the Alaska Industrial Development Corp., and $30 million in gas storage tax credits through an existing program to help finance LNG storage tanks.

Fairbanks Natural Gas, a small natural gas utility, serves about 1,100 residential and commercial customers in the core Fairbanks area with LNG trucked from south-central Alaska. FNG was working on a plan to truck North Slope LNG before Golden Valley started work on its plan.

Flint Hills Resources was previously a partner in Golden Valley's initiative but recently withdrew from the project, citing an unwillingness to proceed with a project that requires a government subsidy, its spokesman, Jeff Cook, has said.

Parnell also sees the Slope LNG plant as a possible temporary solution for natural gas needs in south-central Alaska, where existing gas fields are being depleted and utilities are planning to import LNG or compressed natural gas from outside Alaska.

--Tim Bradner, newsdesk@platts.com
--Edited by Robert DiNardo, robert_dinardo@platts.com

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