AIDEA chooses MWH
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Global infrastructure firm would contribute $85M to North Slope LNG project
Eric Lidji For Petroleum News
The state is starting negotiations with MWH Americas Inc. to build a liquefied natural gas facility on the North Slope that would serve households across the Interior.
The board of the Alaska Industrial Development and Export Authority unanimously chose the global infrastructure firm on Jan. 14 to be its private sector partner for the Interior Energy Project, a state-backed program to truck LNG to Fairbanks by late 2015.
Among other reasons, AIDEA staff recommended MWH as the best choice because the company proposed the largest private contribution of the three candidates being considered for the project. A larger private investment would allow more of the fixed public funding for the project to go toward expanding the distribution grid in the Interior, which would increase the customer base for the LNG plant, according to AIDEA staff.
The AIDEA staff also recommended MWH because of its ability to fund plant expansions and distribution infrastructure, its “considerable technical resources and major project development experience” and its ability to work with customers in the Interior, such as the two natural gas distribution utilities and the regional electric cooperative.
Several AIDEA board members described the MWH proposal as being the most straightforward and least risky of the three and praised the deep pockets of the company.
The AIDEA board spent nearly two hours in executive session before voting.
Ranking three choices After soliciting interest in the project last year, AIDEA received proposals in November 2013 from MWH Americas Inc., Pentex Alaska Natural Gas Co. LLC and Spectrum Alaska LLC. AIDEA staff spent the intervening months comparing the three proposals.
Now, AIDEA wants to sign a letter of intent with MWH by the end of the month, produce a development agreement by mid-March and close the deal by the end of May.
Given that quick timeline, the AIDEA board ranked the remaining proposals by preference. Should negotiations with MWH fall apart, AIDEA would begin negotiations with Pentex Alaska Natural Gas Co. LLC and then with Spectrum Alaska LLC.
The Interior Energy Project aims to provide a long-term supply of natural gas to the Interior at prices 40 to 50 percent below fuel oil by late 2015. As envisioned, the project involves a 9 billion-cubic-feet North Slope LNG facility, a trucking operation to the Interior, storage and re-gasification facilities in the Fairbanks North Star Borough, and relationships with local heating and electric utilities, as well as industrial customers.
According to AIDEA staff, all three proposals met the requirements of Senate Bill 23, which provided some $332.5 million in grants, loans and bonds to help bring the Interior Energy Project into fruition. All three proposals would yield “substantial savings” for Interior households currently using heating oil, some 55 percent, or $2,800 per year.
Specifically, SB23 provided the Interior Energy Project with a $57.5 million capital appropriation, up to $125 million in low interest loans from the Sustainable Energy Transmission and Supply Development Fund and up to $150 million in AIDEA bonds.
The MWH proposal released in November 2013 used the entire $125 million SETS loan and up to $85 million in private equity at 65 percent debt to fund the plant at a 12 to 15 percent return. MWH based its proposal on high-end AIDEA estimates for capital and operations costs, which are both likely to change as the project moves from analysis into actuality.
Loan to FNG The AIDEA decision follows other recent movement on the Interior Energy Project.
The Regulatory Commission of Alaska recently gave the municipal Interior Alaska Natural Gas Utility permission to distribute gas throughout much of the Fairbanks North Star Borough including the city of North Pole, and encouraged the Pentex-subsidiary Fairbanks Natural Gas LLC to expand within its existing service area in Fairbanks.
To accommodate that expansion, AIDEA has also approved a $20 million loan to help FNG build a liquefied natural gas storage and distribution facility in Fairbanks. The 5 million gallon facility would allow FNG to increase its local sales by 40 percent, or 400 million cubic feet per year. Perhaps more important to the isolated and weather-prone residents of Fairbanks, the facility could hold between 10 and 15 days of supplies.
The $20 million loan would cover a little more than half of the $35 million project, with Northrim Bank loaning the remaining $15 million. Northrim Bank asked AIDEA to participate in the project. The AIDEA loan is for 25 years at 5.68 percent interest.
The loan goes to FNG and its wholly owned subsidiary Cassini LNG Storage LLC. The wholly owned Pentex subsidiary Titan Alaska LNG LLC is guaranteeing the loan. The loan gives AIDEA a first lien on all assets of FNG, Cassini and Titan. The finished storage facility would be worth some $55 million, according to a third party appraisal.
The project would be eligible for $15 million in state tax credits, but the AIDEA loan requires FNG to invest $5 million of those credits into expanding its distribution grid.
The storage facility is a crucial component of the Interior Energy Project, but AIDEA staff said the project would be economically viable without the Interior Energy Project.
The project is expected to create 90 construction jobs and five permanent jobs.
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