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July 2018

Vol. 23, No.27 Week of July 08, 2018

Interior Energy Project into next phase

With the Fairbanks utilities consolidated into a single entity, work will focus on new LNG tanks and expanding the gas supply

Alan Bailey

Petroleum News

The Alaska Industrial Development and Export Authorityís Interior Energy Project has now moved into a new phase, following the completion of the purchase by the Interior Gas Utility of Pentex Natural Gas Co. from AIDEA. The purchase has achieved the consolidation of IGU with Fairbanks Natural Gas to form a single gas utility in Fairbanks, Gene Therriault, IEP team leader, confirmed to the AIDEA board on June 28. FNG is a subsidiary of Pentex. IGUís integration plan for the utilities indicates that the combined utilities would adopt FNGís management structure, with Dan Britton, CEO of FNG, becoming CEO of the combined utility, Therriault said.

The purpose of the IEP is to facilitate an expanded supply of affordable natural gas for the Fairbanks region, to alleviate the high cost of energy in the area and to reduce air pollution resulting from the use of wood burning stoves to heat buildings.

With IGUís purchase of Pentex, the newly consolidated Fairbanks utility will now move into the driverís seat for moving the IEP forward. Through Pentex the utility also owns the Titan liquefied natural gas plant near Point Mackenzie and a trucking operation for transporting LNG to Fairbanks. However, since the Pentex purchase was funded through AIDEA Sustainable Energy Transmission and Supply, or SETS, loans, AIDEA will have financial oversight of major expenditure on advancing the IEP.

Gas distribution infrastructure

FNG already has an established gas supply service in central Fairbanks. SETS funding enabled both FNG and IGU to build some new gas distribution infrastructure in the city in 2015. Therriault commented that FNG has been laying some additional gas distribution piping in conjunction with road construction projects in Fairbanks. The IGU board has approved capital expenditure of $350,000 for further pipe laying of this nature in fiscal year 2019, Therriault said, adding that the new pipe laying has already brought to light six light industrial businesses interested in obtaining a gas supply.

Key to using the new distribution infrastructure, and hence signing up more gas customers, is the provision of increased LNG storage capacity in Fairbanks. LNG storage expansion would enable summer-produced gas to be stockpiled for use during high winter demand, thus enabling more customers to be served without necessarily increasing the daily LNG production capacity.

LNG storage

In December, an IEP initiative, also funded through AIDEA loans, started the construction of a large new LNG storage facility in Fairbanks. The expectation is to have that facility completed in the fall of 2019. Therriault told the board that the storage project is proceeding on time and within budget. The last of the large concrete panels that will form the outer skin of the LNG tank has just been put in place, he said.

The financing for the facility construction assumes the availability of a state tax credit to cover part of the cost - there is some uncertainty regarding how the IEP will fit into the funding stream for tax credit payments, Therriault said. However, legislation passed to address the payment of a tax credit backlog increases the likelihood of the tax credit system working for the project, he said.

IGU has also purchased an option on land in North Pole, with the objective of being able to move one of FNGís existing LNG tanks in central Fairbanks out to North Pole. The concept is to do this in time to qualify for a tax credit for that project, Therriault said. To qualify for a credit a tank has to be operational and in use by Jan. 1, 2020.

Expanding the supply

Ultimately, the idea is to increase the overall supply of gas to Fairbanks, to support further expansion of the gas distribution infrastructure in the region. The agreement for the sale of Pentex to IGU assumes that the supply increase will be achieved through an expansion of the Titan LNG plant. However, the terms of the agreement accommodate the possibility of an alternative plan: IGU is also considering a concept put forward by manufacturing company Siemens, in conjunction with Knikatnu Corp., the Native village corporation for the Knik and Wasilla area, to build a new LNG plant next to the Alaska Railroad near Houston. Presumably, at some stage IGU will issue a request for proposal, seeking bids for the development of a means of increasing the LNG supply.

Converting to gas

The key to the overall economics of the IEP will ultimately be the number of Fairbanks residents and businesses that convert to the use of natural gas for the heating of buildings - the higher the gas demand, the lower the unit cost of producing LNG and delivering gas to the consumers. The current approved budget for FNG includes the hiring of someone who will conduct customer outreach, to facilitate gas conversions, Therriault said.

The state Legislature has passed legislation enabling the on-bill financing of conversions, to ease the pain of the conversion costs. An on-bill financing arrangement enables the payment of the conversion costs though installments added to a consumerís monthly gas bills. The Legislature had previously passed legislation enabling the implementation of Property Assessed Clean Energy, or PACE, arrangements that can bring low cost financing to businesses wishing to convert to natural gas use.






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