Friday, May 11, 2012

Capital budget helps Fairbanks make headway on LNG

Jonathan Grass
Alaska Journal of Commerce

The two largest energy companies in Fairbanks are moving forward in their efforts to expand the borough’s liquefied natural gas customer base.

Golden Valley Electric Association and Flint Hills Resources have been working on a joint venture for LNG and the design phase for storage plants in North Pole and the North Slope are now under way with some state help from the capital budget passed April 15.

Golden Valley Electric Association was given $3.75 million for engineering and design for a liquefied natural gas storage facility on the North Slope. A separate appropriation gives the Fairbanks North Star Borough $3 million toward a natural gas distribution system.

Both appropriations must still be signed off by the governor, and neither are anywhere near what the projects will cost. However, GVEA President and CEO Brian Newton said this draws them closer to getting the two plants operational. He said Senate Bill 23, which has passed but must also be signed, would get the company around $30 million in grant money to offset the storage costs.

The plan is for two storage units: one in North Pole and another in Prudhoe Bay. The Prudhoe Bay facility would require the gas to be trucked across the Dalton Highway to Fairbanks.

Newton said the two plants would constitute 9 billion cubic feet annually with each company taking around 3.5 bcf and an additional bcf to be made available for sale.

To explore the justification for a new LNG distribution system, the borough commissioned the Fairbanks Economic Development Corp. to manage a distribution study. While the final report is due this month, the preliminary summary states that the residential, commercial and industrial sectors consisting of 26,35 units that would have an estimated combined demand of 20.9 bcf per year. Almost 25,000 of this estimate are residential units needing 5.7 bcf.

The preliminary report states pipeline costs could be anywhere between $309 million and $662 million.

The personal cost to consumers can vary just as much, according to the report. It states that residential homes can spend as little as $1,000 to replace a burner gun to $20,000 to replace a boiler with a natural gas system.

FEDC President and CEO Jim Dodson said two things are paramount for LNG distribution: to lower Fairbanks’ cost of energy and finding a cleaner energy source while being proactive in cleaning the air quality to keep up with federal standards.

“If those are the two overarching issue, then you have to address the issue of distribution beyond the 1,100 customers so that’s what we’re studying,” Dodson said.

GVEA and Flint Hills both currently use oil for energy at extreme costs. Dodson described energy costs as an “economic disaster of this community”

Although an exact figure isn’t yet known, Newton said the project could mean an estimated for $25 million to $30 million per year in savings for the company, which would be passed on to the consumers.

Current natural gas prices are $23.35 per million cubic feet.

Fairbanks’ winter conditions force use of oil-burning stoves that exacerbate air quality problems, which more LNG stoves could remedy. The report states that other developments can encounter permitting difficulties in the area if they will exceed air quality standards.

“What we simply need to do is convert burning diesel heating oil to burning natural gas and that would dramatically lower the emissions, the (air quality) problem that we have,” Dodson said.

The exact costs of the project aren’t yet known either, but Newton estimates it could be between $200 million to $250 million project, which would be split between GVEA and Flint Hills. He said the engineering portion should be completed close to the end of the year, at which point the Board will consider it.

“If it were to move forward, it would have first gas to Fairbanks in the first part of 2015,” he said.

Dodson feels the plan may need more work and that the estimated amount may not allow system growth within the community.

The current distribution system reaches about 1,100 customers in the area, which Dodson said consume about 1 bcf. Of those customers, about 600 of those are commercial buildings with the rest being residential. These customers currently get their LNG from the smaller outfit, Fairbanks Natural Gas LLC. President and CEO Dan Britton said the company has been working on a separate project to explore expanding the customer base. He said they have been limited by the Cook Inlet supply in the last number of years and so are also exploring LNG opportunities on the North Slope.

Britton said many consumers want LNG and so solving this supply problem could fill a larger customer base rather quickly. He said this has been in development for four years and that permits are in place but establishing this larger customer base is necessary to justify project costs.

FNG had originally explored possibilities with GVEA and Flint Hills but they ultimately went into separate projects.

Britton said residential customers save an average of 23 percent on their heating bills with LNG.

Dodson said the current distribution system only reaches about 5 percent of the 28,000 buildings in the borough community.

Newton said a possible option for the estimated additional gas could be used by FNG to double its customer base. Britton said there is no deal in the works as of now.

“The overarching mission is to supply affordable energy to as much of the borough buildings as possible in the shortest time possible and also deal with the air quality issue,” Dodson said.

Jonathan Grass can be reached at

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