Vol. 22, No. 15 Week of April 09, 2017
Providing coverage of Alaska and northern Canada's oil and gas industry

A deal in the offing?

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Documents being prepared for purchase of Pentex by Interior Gas Utility

Alan Bailey

Petroleum News

The Alaska Industrial Development and Export Authority’s Interior Energy Project is finalizing purchase and financing agreements for the purchase of Pentex Natural Gas Co. by Interior Gas Utility, Gene Therriault told the AIDEA board on March 30. The documents were to have been completed by the end of March but the work on the documents is a bit behind schedule - during its March 30 meeting the AIDEA board passed a resolution deferring the target completion date for the documents to April 30. IGU is a gas utility in Fairbanks.

But, under the terms of a memorandum of understanding signed between AIDEA and IGU in January, the sale of Pentex to IGU cannot be completed until IGU and the IEP have secured a gas supply for Fairbanks from a Cook Inlet gas producer at a workable price and volume. Therriault told the AIDEA board that IGU has taken a lead in gas supply negotiations but that a supply has not yet been established.

Fairbanks gas supply

The objective of the IEP is to greatly expand natural gas supplies for Fairbanks and the surrounding Interior, to alleviate the high cost of energy in the region and help address problems with poor air quality in the city during the winter.

The current relatively low price of fuel oil in Fairbanks is creating challenges for the project, given that the project economics depend on sufficient Fairbanks residents converting their building heating systems from oil to gas. The IEP has set a goal of a Fairbanks gas price of $15 per thousand cubic feet at the burner tip. The project involves the establishment of a new Cook Inlet gas supply, expanding an existing small liquefied natural gas facility near Point MacKenzie on Cook Inlet, expanding the transportation arrangements for shipping LNG to Fairbanks and building out the gas distribution infrastructure in the city.

In 2015 AIDEA purchased Pentex, the owner of the existing LNG facility, a trucking operation for shipping LNG to Fairbanks, and gas utility Fairbanks Natural Gas. The idea of the purchase was to help move the IEP forward. AIDEA wants to sell Pentex to IGU to enable the formation of a single integrated gas utility in Fairbanks, with that utility also owning and operating the LNG plant and the LNG trucking operation. Proceeds from the sale would go into AIDEA’s revolving fund that the agency used for its Pentex purchase.

Project funding for IGU’s planned expansion of the Fairbanks gas supply, including all of the various components of the IEP, would come from established IEP funding which consists of a state capital appropriation, AIDEA Sustainable Energy Transmission and Supply, or SETS loans, and AIDEA bonds.

Expanding the LNG supply

Given the plan to expand the existing LNG facility, a number of vendors have expressed interest in carrying out the expansion project, Therriault told the board. And, from the perspective of the trucking arrangements to Fairbanks, FNG is now using a new large-capacity road trailer that had been shipped to Alaska in 2015 for road tests. FNG has ordered three more of these trailers, to achieve economies of scale in its trucking operation. The utility has also been conducting talks with the Alaska Railroad over the possibility of shipping LNG by rail. However, the need to truck LNG between railroad locations and FNG’s facilities currently renders the rail option uneconomic.

The IEP will require significantly expanded LNG storage facilities in Fairbanks. There is some urgency in moving ahead with the storage construction, given that the project economics assume the use of a state LNG storage construction tax credit that applies to new storage facilities that go into operation by Jan. 1, 2020. The IEP team is currently assuming that the IGU purchase of Pentex will complete in time for IGU to take on the storage expansion project, Therriault said. In the event of the purchase not completing, the AIDEA board would need to decide on a storage expansion by FNG, he commented.

Encouraging conversions

In the interests of encouraging Fairbanks commercial organizations to convert their premises to gas heating, AIDEA’s IEP team has been carefully following the progress of a Property Assessed Clean Energy, or PACE, bill though the state Legislature. The on-electric-bill payment of conversion loans could provide a similar loan arrangement to PACE for Fairbanks residents to help handle conversion costs, Therriault said.

Another possible means of increasing natural gas demand in Fairbanks would be the conversion of the city bus fleet to the use of natural gas as fuel, Therriault commented. A conversion of this type might attract funding support from a funding award for Alaska through a Volkswagen emissions violation settlement trust, he said.

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