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

Vol. 23, No.15 Week of April 15, 2018

IGU in pursuit of new gas supply

Alan Bailey

Petroleum News

On April 9, during a board meeting called at short notice, the board of the Interior Gas Utility passed a resolution authorizing Jomo Stewart, IGU general manager, to finalize the terms of a new gas supply contract for the utility. Neither IGU nor the board is disclosing either the identity of the gas supplier or the terms of the proposed contract. The board would need to approve the new contract before it can go into effect.

According to the April 9 resolution, IGU began negotiations with the supplier on March 31 and has agreed terms for the new supply “at an appreciably lower price and for an appreciably longer term, to succeed currently contracted volumes.”

As part of the Alaska Industrial Development and Export Authority’s Interior Energy Project, IGU is in the process of purchasing Pentex Alaska Natural Gas Co, with the purchase expected to complete by late May. Pentex owns gas utility Fairbanks Natural Gas - the idea is that IGU will combine with FNG to form a single, consolidated gas utility in Fairbanks.

Gas supply arrangements

As a necessary precondition for the sale of Pentex, the IEP formed a three-year gas supply agreement with Hilcorp Alaska. Hilcorp delivers gas to a small Pentex-owned liquefied natural gas plant at Point MacKenzie on Cook Inlet. A Pentex subsidiary transports the LNG by road to Fairbanks. Following the IGU acquisition of Pentex, the plan is to expand the gas supply, through the construction of a new LNG storage facility in Fairbanks, and potentially through the expansion of the existing LNG plant.

During discussions leading to the Pentex purchase agreement, comment was made that the relatively short term of the Hilcorp gas supply agreement would allow flexibility, should some alternative means of boosting the Fairbanks gas supply emerge. Possibilities include a proposed new LNG plant near Houston, on the Alaska Railroad, and the possibility of Doyon Ltd. discovering natural gas from exploration drilling that the Native corporation is conducting in the Nenana basin.

Flexibility remains

In an April 9 email Stewart told Petroleum News that IGU’s potential new gas supply contract would not jeopardize the possibility of other players becoming involved in the supply of gas for Fairbanks. The purchase agreement for Pentex allows flexibility in the means of expanding the Fairbanks gas supply and, given the potential scale of gas demand in Fairbanks, the opportunity for market entry by players other than Hilcorp and the new potential supplier will remain for the foreseeable future, Stewart wrote.


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