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Vol. 12, No. 26 Week of July 01, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Local LNG could help in Cook Inlet

Fairbanks Natural Gas has facility at Point MacKenzie; with larger storage tank it could help meet area’s cold-weather needs

Kristen Nelson

Petroleum News

Fairbanks Natural Gas trucks LNG to Fairbanks and re-gasifies it for distribution to more than 1,000 customers.

That liquefied natural gas has been coming from Cook Inlet since the company began serving customers in 1998, but with rising natural gas prices in Cook Inlet and a tighter supply the company has started looking to the North Slope for its supplies.

Fairbanks Natural Gas President Dan Britton told the Alaska Natural Gas Development Authority at a June 20 board meeting in Fairbanks that when the company started, Cook Inlet natural gas prices were “very low” and the company could liquefy, transport and store LNG, “and still compete effectively with oil in the Fairbanks market.”

That’s no longer true today, he said, because of the “tightening of gas supplies in Cook Inlet and the changing of the way that gas is priced.” In just the last year the cost of the company’s natural gas has doubled, Britton said.

Until January natural gas prices in Fairbanks were lower than heating oil; now those prices are “about 12 percent or more higher than oil,” Britton said. The company has been looking for alternative sources of supply for more than a year.

“Because we liquefy the gas we can do it anywhere. We don’t have to liquefy at Point MacKenzie,” he said.

The company is well along with a project to liquefy gas on the North Slope and truck it to Fairbanks.

Most permits in hand

Fairbanks Natural Gas has a development permit from the North Slope Borough for the land it is acquiring and has a lease negotiated with the Alaska Department of Natural Resources for a pad. The company also has necessary permits from the Federal Aviation Administration and the U.S. Environmental Protection Agency, although it is still working on an air permit.

“We’ve been in negotiations for a gas supply contract on the North Slope for much longer than I’d like to admit: It’s been over a year we’ve been having discussions” with the producers. “We are a long ways down the path and I am very confident that will soon be done,” Britton said.

“We’re dealing with entities that have a different agenda than we do, different priorities, although we think we’re starting to get alignment,” he said.

Once a gas supply contract is in place Fairbanks Natural Gas will acquire a new LNG plant for the North Slope. “At that point we’ll be trucking LNG from the North Slope into Fairbanks.”

Point MacKenzie could be used locally

Once the company begins producing LNG on the North Slope its Point MacKenzie facility will be redundant, although Britton said the company will keep it in warm operations for at least a year “until we’re comfortable that we understand all of the logistics around trucking on the Haul Road” and are comfortable with the new supply situation.

He said the company has already been approaching Anchorage area users to discuss using the Point MacKenzie facility for peak shaving. To do that, Fairbanks Natural Gas would add a 1 billion-cubic-foot storage tank at its existing Point MacKenzie facility. “We’d liquefy about 200 days of the year our 1 bcf of gas and then be able to deliver about 80 million (cubic feet) a day out of that facility into the Anchorage system to meet their peaking demand, that deliverability challenge that they have.”

Because the company already has an LNG facility at Point MacKenzie, Britton said it would probably take about two years to get a peak-shaving facility up and running.

And peak shaving, he said, is a way to solve the Anchorage deliverability issue.

Drilling more wells isn’t a sure thing because you don’t know for sure what you’re going to find, he said.

And with underground storage “you don’t know exactly how it’s going to work or if it’s going to work … or how much deliverability you’re going to get back out of the reservoir.”

And if you look to a North Slope pipeline, he said, “we don’t know how long the permitting is going to take for sure; you don’t know whether you’re going to get gas. …

“The only definitive project today that will solve an immediate issue in the Anchorage area is the LNG peak shaver,” he said.

Izzo: need to handle both base load, needle peak

Tony Izzo, formerly head of Enstar, the Southcentral Alaska gas distribution company, and now a consultant to ANGDA, called it an “infrastructure policy need.” Some sort of base-load storage is needed in the Cook Inlet area, Izzo said, so “you can balance deliveries over the year.”

“We’ve built an infrastructure here that’s based on a very large (gas) overhang. You won’t find that in other markets.” In the Lower 48 and Canada, Izzo said, “they’ve got a much more integrated infrastructure with storage that meets not only base-load requirements but the needle peak where you have that three-day spell, you’ve got a need for a high-volume, relatively short period of time … sharp increase in demand.”

Izzo said you could throw peak shaving at the problem, “but I would add that there are other things that need to be done to address what consumers value, which is going to be reliability of long-term supply in addition to reasonable prices.”

Underground storage is being added in the Cook Inlet area and ANGDA’s proposal to bring North Slope natural gas into the area via a spur line would be a line ending at the Beluga River field, where the gas could be stored.

Distribution lines an advantage for Fairbanks

And what happens when a gas line comes south from the North Slope?

“We are preparing Fairbanks for that day,” Britton said. If Fairbanks Natural Gas didn’t exist, a gas utility would come, but Britton said a utility would be unlikely to compete for labor with the pipeline, but would likely wait to build distribution lines until the pipeline was built and gas was flowing. “It could be two, three years before the first customers start to be able to take advantage of that,” he said.

But Fairbanks Natural Gas already has a system in place, so customers could take advantage of North Slope gas from when it begins to flow.

And what would become of the company established to truck LNG to Fairbanks?

If a gas line comes to Fairbanks, it doesn’t make sense to truck in LNG, Britton said. “But that facility could be reutilized; we can look further at what other areas that can benefit from that LNG.”

And because it has some LNG storage in place in Fairbanks, the company may be able to continue to use that to handle peaking needs, Britton said.

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