Vol. 22, No. 10 Week of March 05, 2017
Providing coverage of Alaska and northern Canada's oil and gas industry

IEP moving forward on finance plan

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Agreement for purchase of Pentex by IGU and associated ADIEA financing is contingent on the signing of a gas supply contract


Petroleum News

The Alaska Industrial Development and Export Authority’s Interior Energy project team has transferred to the Interior Gas Utility the agreement for the purchase by IGU of Pentex Natural Gas Co, Gene Therriault, IEP team leader, told the AIDEA board on Feb. 23. The IEP team is also in the process of completing the financing agreement for the use by IGU of AIDEA funds for the implementation of a consolidated utility and gas supply for the city of Fairbanks, Therriault said.

However, execution of the agreements is contingent on the establishment of a workable gas supply contract for IGU with a Cook Inlet gas producer, Therriault added.

Expanded gas supply

The IEP has the goal of establishing an expanded and economically viable natural gas supply for Fairbanks, to reduce the city’s dependence on fuel oil for heating and electricity, and to reduce air pollution in the city during the winter. Currently gas utility Fairbanks Natural Gas supplies gas to some consumers in the central part of the city via a small liquefied natural gas facility near Port MacKenzie on Cook Inlet and an associated trucking operation for transporting the LNG to Fairbanks by road.

AIDEA owns Pentex, which in turn owns the LNG plant, the trucking operation and FNG. The idea is that the purchase of Pentex from AIDEA by IGU will result in a single, consolidated gas utility in Fairbanks. IGU plans to expand the LNG plant and the Fairbanks gas distribution network, so that, with an appropriate contract with a Cook Inlet producer, gas can be delivered at a workable price to a greatly enlarged customer base in the Fairbanks region. In January IGU and AIDEA signed a memorandum of understanding for the Pentex purchase.

Funding arrangements

To execute the planned expansion to the various arrangements for the gas supply, IGU plans to use funding available through AIDEA. That funding consists of a combination of a $42.5 million state capital appropriation, $135 million in AIDEA Sustainable Energy Transmission and Supply, or SETS loans, and $150 million in AIDEA bonds.

Mark Gardiner from the Western Financial Group told the AIDEA board that the financing agreement that is being developed specifies the overall business structure for the relationship between AIDEA and IGU, including the elements of that business structure that will ensure that IGU will be an investment grade utility.

Therriault also said that negotiations with a Cook Inlet gas producer for a gas supply agreement have now been transitioned to IGU. IGU is keeping Dan Britton, president of FNG, informed of the status of the negotiations, to assure FNG that there will be continuity of supplies for FNG’s customers when FNG’s existing gas supply contract expires a little over a year from now.

‘Things in play’

Therriault said that there are currently “things in play” in the Cook Inlet gas industry that the IEP team has no control over. The team has let the state administration know that these issues impact the ability to close a gas supply deal, he said. Therriault also commented that he had heard that the terms of the deal under negotiation had been pushed up the gas producer’s management chain and that the local officials hoped soon to have an indication of the company’s view of the deal.

“All indications are that, although the progress is slower than I had been anticipating or hoped, there is still forward movement,” Therriault said.

Other options?

In his remarks to the AIDEA board Therriault commented on the possibility that some other vendor might propose some better means of delivering gas to Fairbanks. He specifically referenced a proposal, previously reported in Petroleum News, for the construction of an LNG plant in the Houston area for the transportation of LNG on the Alaska Railroad. Therriault said that he is passing any such proposals to Britton for technical evaluations.

“At this point we’ve not received any information on a counter proposal that has enough information to really do apples-to-apples comparisons,” he said.

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