Friday, August 12, 2011

Flint Hills, GVEA announce plan for LNG trucking

By Tim Bradner
Alaska Journal of Commerce

Flint Hills Resources and Golden Valley Electric Association of Fairbanks have begun engineering on a natural gas liquefaction plant at Prudhoe Bay on the North Slope and plan to build the facility in time for deliveries in 2014, Flint Hills and GVEA announced.

The project would involve trucking of LNG from the North Slope to Fairbanks on the Dalton Highway. Flint Hills, a Koch Industries subsidiary, operates a refinery at North Pole, near Fairbanks. Golden Valley is the regional electric cooperative for Interior Alaska.

The venture is not connected, at this time, with a similar LNG project being pursued by Fairbanks Natural Gas LLC, a small private gas utility operating in Fairbanks. FNG has site preparation under way for its proposed plant but said it needs contracts with large customers like Flint Hills and GVEA for its project to proceed.

GVEA spokeswoman Corinne Bradish said a decision was made to proceed in a partnership with Flint Hills and not the local gas utility, at least at this time, because the two-party deal would result in lower costs of LNG delivered to Fairbanks.

"Several years ago GVEA announced that it was considering a deal with Fairbanks Natural Gas. However, we ultimately decided to pursue a partnership with Flint Hills because it delivers gas at cost. The expense of liquefying, trucking and regasification operations would be shared and neither party would profit from these activities. That means lower costs to our customers," Bradish said.

Meanwhile, the LNG proposal will require approvals by the Regulatory Commission of Alaska, which will have to approve Golden Valley's passing its share of costs for engineering and building the LNG plant at Prudhoe Bay and a regasification plant near Fairbanks on to Interior Alaska ratepayers.

The cost is estimated at $180 million but that will be refined as engineering continues. Fairbanks Natural Gas LLC, the small gas utility that now serves Fairbanks with LNG trucked from Southcentral Alaska, is studying a similar North Slope LNG trucking plan and has estimated costs at $160 million.

The two companies said they have secured a gas supply contract with a North Slope producer but declined to identify the company. For its project, Fairbanks Natural Gas has a contract with Exxon Mobil Corp., one of three major North Slope producers.

Flint Hills and Golden Valley did not release cost estimates for the project. Fairbanks Natural Gas has estimated that its project, which would be similar, would cost about $160 million for the LNG plant on the North Slope and the regasification plant near Fairbanks.

Meanwhile, Fairbanks Natural Gas has work is underway this summer to expand a six-acre pad at Deadhorse, the industry service area adjacent to Prudhoe Bay. The company has also a right-of-way application filed with the state Department of Natural Resources for a 3.8-mile, eight-inch pipeline from Flow Station 1 in the Prudhoe Bay field to the site of the LNG plant.

While FNG is not a part of the joint Flint Hills-Golden Valley deal now, that could change, said Brian Newton, Golden Valley's president. FNG has assets that could be contributed, such as its pad and lease at Deadhorse and the pending pipeline right-of-way, as well as engineering and planning it has done to date.

Newton said the nature of the Flint Hills-Golden Valley venture has yet to be defined. Engineering work being done now is with resources internal to both partners (Flint Hills has experience with LNG elsewhere), Newton said, but a third-party engineering contractor will be retained soon.

At that time a cost-sharing arrangement will have to be worked out. A key part of the current deal, according to the press release from the two parties, is the concept of, "at cost," gas delivered to both, meaning no profit. Under this arrangement Golden Valley would contribute its share of capital and would share operating costs. Fairbanks Natural Gas now serves about 1,100 commercial and residential customers in Fairbanks and trucks LNG about 400 miles from a small liquefaction plant in Southcentral Alaska, in the Matansuka-Susitna Borough north of Anchorage, its president Dan Britton said.

The company has operated since 1998 and now purchases gas from Aurora Gas LLC, an independent Cook Inlet gas producer. On average FNG ships about three truckloads per day of LNG to Fairbanks, but this varies from one to two truckloads daily in summer and four to five truckloads daily in winter, Britton said.

Currently, the constraints in gas supply from Cook Inlet limits the ability of the Fairbanks utility to take on new customers and prompted the company to pursue trucking LNG from the North Slope, Britton said.

Oil is also used widely for heating parts of Fairbanks not now served by Fairbanks Natural Gas, and the cost of home heating has become a serious economic problem for the community, Fairbanks North Star Borough Mayor Luke Hopkins said. Also, the inability of FNG to expand service has caused delays in new retail expansion in Fairbanks because large out-of-state firms planning new stores prefer not to use oil for space heating because of the expense and liabilities associated with construction of underground fuel storage.

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Republished with the permission of the Alaska Journal of Commerce. Tim Bradner can be reached at tim.bradner@alaskajournal.com.