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August 2018

Vol. 23, No.33 Week of August 19, 2018

Board wants proposal

IGU interested in LNG plant near Houston, but needs detailed plan for evaluation

Alan Bailey

Petroleum News

During the Aug. 7 meeting of the board of the Interior Gas Utility, several board members expressed concern that they need to see a detailed proposal for a concept being pushed by industrial manufacturing company Siemens and Knikatnu, the Native village corporation for Knik and Wasilla, to build a new liquified natural gas plant next to an Alaska Railroad siding near Houston. The plant would bolster LNG production for increased gas supplies for Fairbanks and its surrounds.

Board Chair Pamela Throop told the board that Siemens has committed to present a proposal for the plant during the boardís next meeting on Aug. 21.

Interior Energy Project

As part of the Alaska Industrial Development and Export Authorityís Interior Energy Project, IGU, a Fairbanks gas utility, has purchased Pentex Natural Gas Co. from AIDEA. Pentex owns gas utility Fairbanks Natural Gas, the small Titan LNG facility near Point Mackenzie on Cook Inlet and a trucking operation for transporting LNG from the Titan plant to Fairbanks. The Pentex purchase is enabling IGU to combine with FNG as a single, consolidated utility.

The concept behind the IEP is to enable a greatly increased gas supply for Fairbanks at an affordable price. The project is funded through a state capital appropriation and AIDEA loans - IGU used AIDEA loans to purchase Pentex. Also as part of the IEP, IGU is using an AIDEA loan to build a large new LNG storage facility in Fairbanks. The new tank, by enabling the warehousing of summer produced LNG, when gas demand is low, will enable IGU to expand its customer base. But the ultimate objective is to expand the supply of LNG to Fairbanks.

In addition to reducing fuel costs for residents and businesses in the Alaska Interior, an objective of the IEP is to address severe winter air pollution in Fairbanks by encouraging residents to use gas-fired heating systems rather than wood burning stoves to heat buildings.

LNG expansion

The default concept for the increased LNG supply is a two-phase expansion of the existing Titan plant. However, Siemens and Knikatnu have proposed the Houston plant as an alternative. The plant would be modular in design and could be expanded as needed. The proponents of the Houston concept argue that the location of the plant would easily enable transportation of LNG by rail, an option that they say presents significant advantages over road transportation.

To date, Siemens has made PowerPoint-style presentations of their concept to the IGU board. But, to enable a proper comparison between the Siemens and Titan concepts, and to evaluate the viability of the Houston option, board members want to see a formal and detailed proposal from Siemens.

Meanwhile the construction of the new Fairbanks LNG storage facility is progressing to plan. The outer wall has been erected, cover plates welded, and construction of the dome roof has started, according to a report to the board by IGU CEO Dan Britton.

North Slope pad

Another issue relating to IGU and the Interior Energy Project is the fate of a gravel pad that AIDEA had built on state land on the North Slope during an earlier phase of the project. The pad had been intended for the construction of a North Slope LNG plant, for the supply of LNG to Fairbanks. The plan for the use of North Slope LNG proved uneconomic and was not eventually pursued.

In conjunction with the sale of Pentex, AIDEA has committed to transfer the state lease for the North Slope pad to IGU. The concept is that the pad can be subleased for commercial operations, with rental fees from the sublease arrangements bolstering IGUís finances. Apparently Prudhoe Bay Chemical LLC wants to use about one-third of the padís 20-acre area to build a plant for manufacturing methanol, for use in the North Slope oil industry. Currently methanol has to be imported to the Slope.

But, before the pad lease can be transferred to IGU and any commercial sublease established, AIDEA has to reach an agreement with the Alaska Department of Natural Resources for a different use of the pad than had originally been intended. Gene Therriault, IEP team leader, told the IGU board that the formal process for changing the lease terms has involved a 30-day period, inviting other expressions of interest for use of the state land. With that offer now closed, without any interest expressed for alternative land uses, AIDEA can now negotiate with DNR over the new lease terms, Therriault said. And the next step would be to propose the transfer of the lease to IGU. Another option could be for AIDEA to retain the lease but to transfer earnings from the lease to IGU, although that option could raise issues regarding the purpose of the lease, Therriault said.






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