With some $275 million on the table, many companies have formally expressed their interest in partnering with the state on a North Slope liquefied natural gas project.
While currently unable to list all the respondents, Alaska Industrial Development and Export Authority spokesman Karsten Rodvik told Petroleum News, “We are pleased to have received a significant number of responses to our request for letters of interest. These responses are from a variety of organizations, and they involve proposals ranging from specific services to full turnkey operation. AIDEA is now in the process of evaluating all the responses. We expect to have a preliminary analysis in February.”
Both Pentex Alaska Natural Gas Co. LLC and Golden Valley Electric Association confirmed that they had submitted project proposals to AIDEA. Although the two entities are describing similar turnkey projects to truck North Slope LNG to Interior markets, they appear to have different attitudes about the best way to fund the construction.
In a statement, Pentex — the parent company of Fairbanks Natural Gas LLC and Polar LNG LLC — said the loan idea “provides the opportunity for a public-private partnership between Pentex and the State of Alaska resulting in abundant, lower cost, environmentally friendly natural gas and propane to the Interior and other areas of Alaska.” While the member-owned cooperative GVEA is interested in the loan, it argues a state grant would ultimately provide the lowest cost gas to consumers in the Interior.
Gov. Sean Parnell is proposing a $355 million financial package to promote natural gas and propane use in Interior Alaska (and potentially Southcentral, as well), including a $275 million loan guarantee from AIDEA to build a North Slope liquefaction plant.
The loan guarantee would require legislative approval. The matter is under consideration as House Bill 58, recently introduced by North Pole Republican Rep. Tammie Wilson.
Regulatory changes for FNGThe Pentex Proposal, as it as being called, is a “turnkey” project including the acquisition and liquefaction of gas on the North Slope, transportation of LNG to the Interior, vaporization and storage in the Fairbanks region, and an expansion of the existing distribution grid currently serving some 1,100 customers in Fairbanks.
Under its proposal, Pentex estimates that Fairbanks customers would pay a delivered price of about $15.98 per thousand cubic feet once the project comes online in 2015, with the price “rapidly declining” to $13.00 per mcf as the distribution system expands.
The proposal is essentially the same one the Pentex subsidiaries have been promoting for some time, but it comes as one of those companies is undergoing major changes.
In a December settlement with the state Attorney General and the Fairbanks North Star Borough, Fairbanks Natural Gas voluntarily agreed to become a fully regulated utility after nearly a decade of being allowed to adjust its rates, up and down, mostly at will.
Under the deal, Fairbanks Natural Gas would file a rate case by June 30, 2014, which, barring a major regulatory delay, could set rates by the time the project came online.
Additionally, Polar LNG, the company that would operate the North Slope liquefaction plant, is proposing “cost of service rates,” according to Pentex President Dan Britton.
With the two decisions, Britton said, “consumers of natural gas can be assured to receive the full benefit of State of Alaska involvement and complete transparency in the process.”
Some local supportThe decisions also helped earn Pentex the limited support of local officials.
A Pentex press release announcing the proposal included supportive comments from Fairbanks Mayor Jerry Cleworth, Fairbanks North Star Borough Assembly Presiding Officer Diane Hutchison and Fairbanks Chamber of Commerce Executive Director Lisa Herbert, although none of the three officials appeared to offer an exclusive endorsement.
“I’m encouraged to see several responses to the Governor’s initiative, including FNG from the private sector with a proposal for a public-private partnership” Cleworth said.
Hebert hinted at the need for lawmakers to approve HB 58, or something similar, as soon as possible. “Our community can’t wait any longer for energy relief. We must make progress this session and it’s encouraging to see movement towards lowering Fairbanks’ energy costs, which is the Chamber’s number one priority again this year,” she said.
Toward the end of 2012, Hutchison helped create the Interior Alaska Natural Gas Utility, a borough-wide municipal utility with the power to someday build and manage a gas distribution grid that could collaborate or compete with Fairbanks Natural Gas. “Now that FNG will be a fully regulated utility,” Hutchison said, “I’m pleased with the interest they’ve shown in responding to the Governor’s effort toward energy cost relief.”
GVEA prefers grant fundingWhile Britton said the Pentex Proposal “provides the earliest and greatest opportunity for energy price relief to the Interior of Alaska,” Golden Valley Electric Association believes it can generate more value for consumers because, as a member owned cooperative, “not a penny of the LNG price would be used for paying income taxes or profits to investors.”
The GVEA project also covers the entire project from acquisition to vaporization and storage, and anticipates coming online as soon as 2015, but would require third-party distribution, such as Fairbanks Natural Gas or the Interior Alaska Natural Gas Utility.
Because GVEA is primarily interested in lowering the cost of power for its members, it included a provision in its proposal saying that its “leadership in providing community space heating relief must also protect co-op members from excessive financial risk.”
Along similar lines, GVEA argues that funding the project with a grant instead of a low-interest loan would result both in cheaper gas and steadier pricing over time. (Because an operator could pay down the loan more quickly as the distribution system expanded, the earliest customers would initially pay higher rates, as suggested by the Pentex Proposal.)
With a $50 million state grant and $150 million in low interest AIDEA loans, GVEA believes its project could deliver gas to consumers between $11 and slightly more than $14 per thousand cubic feet, depending on the total throughput of the liquefaction plant.