Providing coverage of Alaska and northern Canada's oil and gas industry
January 2018

Vol. 23, No. 3 Week of January 21, 2018

Interior Energy Project moving ahead

Work starts on Fairbanks LNG storage; AIDEA board urges provision of guidance to residents on natural gas conversion options

Alan Bailey

Petroleum News

During its Jan. 11 meeting the board of the Alaska Industrial Development and Export Authority reviewed the status of the Interior Energy Project, an AIDEA project to bring affordable, clean energy to Fairbanks and its surrounds. The plan is to greatly expand the existing LNG supply to Fairbanks and thus enable more businesses and residents to convert to the use of natural gas for heating their buildings.

Following decisions in December by the boards of AIDEA and Fairbanks based Interior Gas Utility to approve the terms of the sale of Pentex Natural Gas Co. to IGU, work is progressing on a new LNG storage facility for Fairbanks while AIDEA and IGU take the necessary steps to complete the Pentex sale by the end of May.

Consolidated utility

The concept is to consolidate the two existing Fairbanks gas utilities, Fairbanks Natural Gas and IGU, into a single utility, thus achieving gas distribution efficiencies and economies of scale. FNG is a subsidiary of Pentex. The new LNG storage facility, with an anticipated capacity of 5.25 million gallons, will be needed to support the expanded LNG supply.

Pentex also owns the Titan LNG plant near Point Mackenzie on Cook Inlet and a trucking operation to transport LNG to Fairbanks.

During the Jan. 11 meeting, questions from AIDEA board members particularly focused on the construction of the new LNG storage facility, and on the need to ensure that information is available to Fairbanks residents about future options for the use of natural gas. Conversion of Fairbanks buildings to the use of gas for heating will drive the future gas demand, a key underpinning for the economics of the IEP.

Storage facility

Meanwhile, the construction of the new LNG storage facility in Fairbanks is being started as early as possible: The facility needs to be in use by Jan. 1, 2020, to obtain a $15 million state tax credit to cover part of the facilityís cost. The economics of the IEP assume that the tax credit will be forthcoming.

Gene Therriault, IEP team leader, told the AIDEA board that the contract for construction of the LNG storage tank had been signed on Dec. 22 and that there were continuing negotiations for construction of other components of the storage facility. The project is also waiting for a land use permit from the Fairbanks North Slope Borough, he said.

However, the brush clearing and trenching at the storage site have been completed, Therriault said.

David Prusak from IGU told the AIDEA board that excavation for the foundation of the facility is likely to begin around Jan. 17. He said that Preload Cryogenics has been awarded the contract for tank construction, with various subcontractors, including some Alaska contractors, engaged in the project.

Double-wall tank

Prusak said that, although the original concept had been the construction of a single walled tank, the selected proposal for tank construction involves an attractively priced two-wall design. The construction cost of this design is higher than that of the single-wall concept, but the leakage containment capabilities of the two-wall arrangement enable a reduction in the total footprint of the facility, Prusak said.

Therriault assured the board that, overall, the double wall design is competitive on price, and that the storage construction project is progressing to schedule, within the authorized total funding of up to $45.5 million. He also mentioned that a Fairbanks landowner had offered to sell a land tract adjacent the LNG storage site to the IEP project, an option that could have appeal in accommodating future expansion and improvement of the facility.

Therriault also commented that a bill has been filed for the upcoming legislative session, to extend the deadline for authorizing AIDEA bonding for the IEP by a further five years, to June 30, 2023.

Information for consumers

AIDEA board members asked about the extent to which IGU has picked up the baton of promoting the future availability of gas for Fairbanks consumers. Although the gas distribution pipeline system in Fairbanks has previously been built out, in anticipation of an expanded gas supply, the utilities cannot offer gas to new customers until the supply is increased.

Jomo Stewart, CEO of IGU, told the board that IGUís recent focus has been on sealing the deal for the Pentex purchase. Board members urged the need to be able to respond to questions from people in Fairbanks regarding the status of the IEP and future options relating to natural gas availability.

The IEP has been investigating options for assistance with the cost of converting heating systems to the use of gas, including Property Assessed Clean Energy, or PACE, legislation that was passed last year, and Environmental Protection Agency grants targeting air quality improvement - a key objective of the IEP is the reduction of winter air pollution, resulting in particular from the widespread use of wood stoves.

Gravel pad

In conjunction with the purchase of Pentex, IGU is buying a gravel pad that was constructed as a site for a potential North Slope LNG facility in an earlier phase of the Interior Energy Project. AIDEA is requesting approval from the Department of Natural Resources for the transfer of the pad to IGU. Issues involved include the approval of commercial activities on the pad, and the subleasing of pad usage, Therriault said.

As previously reported in Petroleum News, IGU and AIDEA have applied to the Regulatory Commission of Alaska for the transfer of Fairbanks Natural Gasís certificate of public convenience and necessity to IGU.

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