Next LNG steps approved
 Click here to go to the full PDF version of this issue, with any maps, photos or other artwork that appears in
some of the articles.
AIDEA board OKs early work, concession for North Slope plant for Interior supplies
Alan Bailey Petroleum News
On Aug. 25 the board of the Alaska Industrial and Export Authority passed a couple of resolutions that move forward a project to build a liquefied natural gas plant on the North Slope, for the supply of natural gas to Fairbanks and the Alaska Interior.
One resolution authorizes AIDEA to spend $1.6 million, in addition to an existing commitment of $4.5 million, for the early procurement of long lead-time items needed for the plant, while the engineering and design work for the plant is still in progress. The other resolution approves an agreement for the construction and operation of the plant by Northern Lights Energy LLC, a subsidiary of MWH Americas Inc.
LNG for the Interior Referred to as the Interior Energy Project, the project involves the construction of a 6 billion cubic-feet-per-year capacity plant for converting North Slope natural gas into LNG, for trucking to the Interior using the North Slope Haul Road. The LNG will be transported to a storage and re-gasification facility in the Fairbanks North Star Borough, for distribution to gas consumers.
Paid for through a combination of private and state funding, the objective of the project is to alleviate the high cost of energy in Fairbanks and the Interior by providing a supply of natural gas that can replace the use of expensive diesel fuel and fuel oil. An affordable supply of natural gas in the Fairbanks region could also alleviate air pollution issues arising from the use of wood stoves and liquid fuels.
In January AIDEA picked MWH as the contractor to manage the construction of the LNG plant.
Funding approved by the state Legislature for the project provides for a combination of a capital appropriation and a low interest loan through the AIDEA-managed Sustainable Energy Transmission and Supply Development Fund, known as SETS. MWH has said that it will provide its share of the funding through private equity.
Concession agreement The agreement between AIDEA and MWH that AIDEA approved on Aug. 25 is called a “concession agreement,” recognizing that AIDEA wants to retain ownership of the LNG plant while granting MWH, through Northern Lights Energy, the right to build the plant and then to operate the plant for up to 30 years. By enabling the finalization of the concession agreement, the Aug. 25 decision will allow MWH to proceed towards closure of the financing of the project by engaging a contractor to operate the plant, contracting for the sale of LNG to gas utilities, completing negotiations for the purchase of gas as feedstock for the facility and assisting in the design of the plant, AIDEA says.
In parallel with work managed by MWH, AIDEA says that it has contracted directly with engineering firm Kiewit for the construction of a pad on the North Slope for the LNG facility and to conduct early design, engineering and procurement work. Pad construction is scheduled for completion by Sept. 30.
Project funding According to the concession agreement, the private equity component of the project funding will come from Northleaf Mid-Market Infrastructure Partnership LP, with minimum funding of $20 million. AIDEA says that it will provide state capital funding of up to $35 million and a SETS loan of up to $110 million. MWH’s bid for the project in late 2013 estimated the cost of constructing the LNG plant at around $217 million.
At financial close for the project, AIDEA, MWH, Northleaf and Fairbanks electricity utility, Golden Valley Electric Association, will all commit to project funding or to becoming part of the project, AIDEA says. Golden Valley has been considering the use of LNG from the North Slope as a means of reducing the cost of power generation in Fairbanks.
AIDEA has previously approved a $20 million loan to help gas company Fairbanks Natural Gas build the LNG storage and distribution facility in Fairbanks.
Preliminary work AIDEA says that, while the resolution approving the concession agreement with MWH will move the Interior Energy Project towards financial close, the other Aug. 25 resolution approving some early project funding will enable some equipment procurement and the preliminary front-end engineering design work needed to develop an estimated cost for building the LNG plant. That, in turn, will lead to a financial model for predicting the price of LNG delivered from the plant to customers in the Interior.
Estimated pricing of the LNG is presumably required for contract negotiations with prospective LNG purchasers.
AIDEA says that it is sharing the project risk with MWH by bearing some of the costs needed to achieve financial close, with an understanding that MWH will reimburse AIDEA for these costs if financial closure is achieved. If financial closure cannot be achieved, the project will presumably come to a halt.
|
