Alaska gets four proposals to partner on Prudhoe Bay LNG plant, trucking plan

Anchorage, Alaska (Platts)--29Jul2013/437 pm EDT/2037 GMT


Alaska's economic development agency received four proposals to partner with the state in developing a small LNG plant at Prudhoe Bay, a spokesman for the Alaska Industrial Development and Export Authority said Monday.

The plant would process 9 billion cubic feet of gas per year and ship 300,000 gallons of LNG per day 500 miles by truck to Fairbanks, in Interior Alaska, for use in space heating and power generation.

Karsten Rodvik, an AIDEA spokesman, said proposals made to AIDEA on the LNG plant include two from Interior Alaska utilities: Golden Valley Electric Association, the regional electric cooperative; and the Interior Gas Utility, a new utility formed by the Fairbanks North Star Borough to build a regional gas distribution system.

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The two private firms making proposals are Fairbanks Natural Gas, which operates a small gas utility in Fairbanks with LNG trucked from Southcentral Alaska, and Spectrum LNG, a company that operates a small LNG plant in Arizona supplying fuel to truck fleets, Rodvik said.

In full operation the plant would ship about 50 truckloads of LNG a day to Fairbanks, which has raised concern because it would increase truck traffic on the Dalton Highway, a gravel industrial road serving the North Slope, by about 50%.

The plan calls for the state to invest in and own part of the plant, possibly as much as two-thirds, and to finance the $207.7 million plant cost with a combination of a $50 million state investment and low-interest loans to the joint venture to be formed with partners, who would be expected to invest $33 million in equity, according to a finance plan presented to AIDEA's board.

In addition, the state would also help finance development of LNG storage and a gas distribution system in Fairbanks with $150 million in loans and $30 million in tax credits for a storage facility. The entire state finance package, including cash investment, low-interest loans and tax credits approved by the Legislature last spring, totals $355 million.

Rodvik said the authority's board has authorized its staff to negotiate an agreement with one or more entities responding to a request for proposal.

Governor Sean Parnell has ordered the project to be put on a fast track, to be in operation by late 2015. Parnell, a Republican, is backing the LNG trucking plan because of a dire energy situation in Fairbanks, which is mostly dependent on fuel oil for space heating and power generation.

A feasibility study by AIDEA estimates that LNG can be delivered to Fairbanks from the North Slope for $11.59/Mcf and sold to consumers for $14.09-17.09/Mcf.

That is about half the cost of the equivalent energy delivered with fuel oil. Annual household savings are estimated at $2,500 to $3,000, according to AIDEA's analysis. In the extreme cold of Interior winters homeowners can spend more than $1,200 a month on heat.

The assumed price for gas paid to producers at Prudhoe Bay is $3.30/Mcf, according to information presented to AIDEA's board.

What is driving the fast pace of the project is an urgency for cleaner fuel in Fairbanks to ease winter health hazards caused by air pollution when particulates from combustion concentrate during cold weather.

About a third of the households and buildings in Fairbanks use wood heat as a main or supplemental heat source due to high oil prices, and the particulates in wood smoke combined with those from burning heating oil combine to create dense pockets of polluted air, according to the state Department of Environmental Conservation. The US Environmental Protection Agency has classified Fairbanks as a non-attainment area, and penalties including cuts to funds for federal projects will kick in unless the community develops a plan to deal with its air quality problem. Natural gas is the solution and trucking LNG is the quickest way to get it used, Fairbanks Mayor Luke Hopkins said.

Reliability is a concern for the trucking project, however. About 470 miles of the 500-mile highway distance is gravel road and the road also traverses the difficult and narrow Atigun Pass in the Brooks Range. Winter road closures are not uncommon.

The solution to this is building enough LNG storage capacity to give the community 10 days to two weeks of LNG supply in the event of a road closure; however, other emergency supply options might be explored, said Gene Therriault, deputy director of the Alaska Energy Authority, a sister agency to AIDEA that will assist the build-out of a gas distribution system.

One idea is making a standby arrangement with ConocoPhillips to supply LNG from its plant on the Kenai Peninsula in Southcentral Alaska, Therriault told AIDEA's board in a briefing.

ConocoPhillips' plant is not operating at present due to shortages of gas in Cook Inlet, but it is being maintained in a condition for a restart if needed, ConocoPhillips has said.

--Tim Bradner, newsdesk@platts.com
--Edited by Jason Lindquist, jason.lindquist@platts.com

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