Continuing Fairbanks gas negotiations

AIDEA’s Interior Energy Project in process of sealing deals with Cook Inlet gas producer and Salix for expanded LNG supply to city

ALAN BAILEY

Petroleum News

The Interior Energy Project team is continuing confidential negotiations over the terms for a proposed new gas supply for Fairbanks, IEP team leader Gene Therriault told the Alaska Industrial Development and Export Authority board on April 28. The team is working out the final details of a gas supply agreement with a Cook Inlet gas producer. The team is also nearing completion of negotiations with Salix Inc. over the commercial term sheet for a proposed liquefied natural gas plant in the Cook Inlet region, Therriault said.

The idea is to ramp up gas delivery to Fairbanks and the surrounding Interior, to alleviate the high cost of energy in the region and to reduce air pollution from the use of wood burning stoves. Following the issue of a request for interest for a gas supply, and a request for proposal for a means of delivering gas to Fairbanks, the IEP team is recommending that Salix build a Cook Inlet gas liquefaction plant for the delivery of LNG to Fairbanks by road truck, or possibly by railroad.

The IEP team expects to present a firm plan to the AIDEA board, seeking approval for the front end engineering and design phase of the LNG project. Therriault said that the team still anticipates being able to deliver gas to Fairbanks consumers at the target price of $15 per thousand cubic feet or less.

AIDEA has purchased Pentex Natural Gas Co., the company that owns Fairbanks Natural Gas, one of the two Fairbanks gas utilities. The agency wants to consolidate the two utilities into a single, coordinated operation and has been negotiating with Interior Gas Utility, the other utility, with a view to selling Fairbanks Natural Gas to IGU. However, these negotiations have taken something of a back seat while the team negotiates with Salix and with the potential gas supplier, Therriault said.

The team is also taking a keen interest in proposed legislation authorizing the implementation of the Property Assessed Clean Energy, or PACE, program in Alaska. A bill for implementing PACE is currently being considered by the state Legislature. PACE enables low cost local government financing for clean energy upgrades to buildings and, if implemented in Alaska, would help with the economics converting buildings in Fairbanks to natural gas heating. The rate of conversion of buildings to natural gas usage is a key parameter in the economics of the Interior Energy Project but, with the recent fall in oil prices, fuel oil has become more competitive with natural gas as a heating fuel. The IEP team has been exploring a number of options, including federal government clean air funding, to obtain government assistance with natural gas conversions.