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FNG worried propane would kill LNG Fairbanks utility believes proposed propane facility is undercutting plans for LNG facility, ANGDA says project complimentary Eric Lidji Petroleum News
A Fairbanks utility believes plans for a propane facility on the North Slope are undercutting its attempts to sell North Slope liquefied natural gas to Interior markets.
The Alaska Natural Gas Development Authority is working on a facility to extract propane from the North Slope and sell it at wholesale prices to private distributors.
“You are getting in the way of a private entity that is trying to do a similar project,” Dan Britton, president of Fairbanks Natural Gas, told the ANGDA board on April 8.
Fairbanks Natural Gas is trying to raise money for a liquefaction plant on the North Slope, allowing it to truck liquefied natural gas to its distribution grid in Fairbanks.
ANGDA Chief Executive Officer Harold Heinze said the projects are complementary, because the propane facility is dependent on private companies to market the product.
As envisioned, the project would divert natural gas produced at Prudhoe Bay, allowing private companies to extract and sell the propane to any available market. The remaining natural gas, free of propane, would be returned to the owners of the Prudhoe Bay field.
ANGDA expects several companies to build and operate plants serving different markets.
“We believe we have a reasonable deal. I can’t tell you if it’s advantageous for him to come along on our deal. That’s a determination he can make,” Heinze said about Britton.
Britton says goals the same Britton said the ultimate goal of the Fairbanks Natural Gas facility is the same as the ANGDA facility: to provide a cheaper energy source for Interior and rural communities.
Fairbanks Natural Gas currently buys Cook Inlet natural gas, liquefies it and trucks it north to Fairbanks. Hoping to escape a declining basin, the company last year signed a 10-year supply contract with ExxonMobil to buy natural gas from the North Slope.
Because no gas pipelines connect the North Slope and Fairbanks, the plan requires Fairbanks Natural Gas to build a liquefaction plant, estimated at around $250 million.
“The only challenge right now is having the customers in place and the financing in place for the 10-year commitment that’s required to finance the capital investment needed, which is exactly the same thing that’s going to be required for the propane facility,” Britton said.
Mary Ann Pease, a contractor working with ANGDA on the propane project, said North Slope propane is abundant and available, creating the possibility for numerous markets from Fairbanks, to mining operations in western Alaska, to rural river communities.
“I think we’re complementary,” Pease said. “And I think anybody — any entrepreneur that wants to come in at that point and have at it — is more than welcome to do so.”
Pease said Fairbanks Natural Gas’ competition would come if a natural gas pipeline eventually runs through Fairbanks, making LNG unnecessary and more expensive.
Britton in the past has said the LNG facility could be recycled in that scenario.
ANGDA board members Dan Sullivan and Don Benson expressed some concern about possibly interfering with a private project, and requested dialogue between the groups.
Going after Golden Valley One potential customer ANGDA and Fairbanks Natural Gas are both courting is Golden Valley Electric Association, an electric cooperative serving the Interior of the state.
“That’s direct competition for the same customer,” Britton said.
Heinze said it is “improper” to compare the two projects because ANGDA wants to make propane available at wholesale rates and allow companies to own the production plants.
Britton said his proposal would provide fuel through a regulated model where “the consumers receive all of the benefits,” adding, “(The propane) scenario doesn’t do that.”
Britton said Fairbanks Natural Gas hasn’t been able to secure long-term commitments because potential customers want to see whether prices quoted by ANGDA will pan out.
Britton said the ANGDA proposal wouldn’t allow for both propane and LNG facilities, saying concerns by Prudhoe Bay producers would limit construction to a single plant.
“It’s going to be one company that builds it that is going to have a ring on the market. You’re not going to see multiple propane plants,” Britton said.
Pease disagreed, saying several potential customers have expressed interest because North Slope propane is abundant and the fuel is familiar, creating numerous markets.
ANGDA is negotiating with an unnamed Prudhoe Bay producer to buy propane.
At the meeting, the ANGDA board unanimously approved a resolution for Heinze to negotiate a contract with NANA Worley Parsons for the technical design of the interconnection between the Prudhoe Bay facilities and the proposed propane facilities.
ANGDA is asking the congressional delegation for a $25 million appropriation to help fund the public side of the project in the hopes of lowering the eventual tariff.
Kate Lamal, a board member of ANGDA and also vice president of Golden Valley Electric Association, recused herself from both the discussion and the vote.
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