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Vol. 14, No. 40 Week of October 04, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

AGPA changes tack

Port authority purchases Fairbanks Natural Gas, looking to develop LNG on slope

Stefan Milkowski

For Petroleum News

It was a busy few days for the Alaska Gasline Port Authority.

On Sept. 28, AGPA’s project manager and general counsel, Bill Walker, announced he is running for governor to push for an “all-Alaska” gas pipeline.

On Sept. 29, the voter-created group announced it has executed a letter of intent to buy the natural gas utility in Fairbanks and develop a North Slope liquefaction plant that would allow liquefied natural gas to be trucked to Fairbanks.

AGPA has long pushed for a publicly developed project involving a pipeline from the North Slope to Valdez and LNG tankers. But port authority officials earlier this year said they would pursue their LNG project within the confines of the Alaska Gasline Inducement Act and in collaboration with TransCanada, the AGIA licensee. TransCanada has promised to build a pipeline to Valdez if there is sufficient demand from customers.

Walker said in an interview Sept. 30 that he and AGPA’s board have since lost some faith in TransCanada’s ability to attract customers at an open season. “I think there’s a concern (over) how viable that process is going to be,” he said.

Walker added that he is promoting an all-Alaska gas line as a candidate and that AGPA’s board has not taken any official steps recently to renew its push for such a project.

Walker said it is still possible that AGPA will bid for space in a TransCanada open season, but said the group is now focused on the deal with the Fairbanks utility, Fairbanks Natural Gas.

North Slope LNG plant

Under the terms of the agreement, AGPA would buy Fairbanks Natural Gas and all its assets and would develop the North Slope liquefaction plant, relying on an existing gas supply contract between FNG and ExxonMobil.

The project would cost about $250 million and would provide roughly 21 million cubic feet of gas per day and 20,000 gallons of propane, which proponents say could be distributed throughout the state.

The liquefaction project and the local distribution of natural gas through would be done on a cost-of-service basis rather than a for-profit basis, as it is now.

Walker said AGPA’s nonprofit model, its tax-exempt status, and the lower cost of gas on the North Slope will lead to “pretty significant” savings for Fairbanks customers. FNG, which has about 1,100 residential and commercial customers, currently liquefies natural gas from Cook Inlet at a plant in Wasilla and trucks the gas to Fairbanks.

Walker said he hopes to complete economic modeling on the North Slope project within 30 days. According to a news release from AGPA, the project would be financed through revenue bonds and would not incur any financial obligation to AGPA’s three member municipalities — the Fairbanks North Star Borough, the North Slope Borough, and the City of Valdez.

In talks for about 6 months

FNG President Dan Britton said the project would reduce costs, ensure a stable supply of gas, and encourage development of the limited Fairbanks natural gas grid.

Britton said in an interview Sept. 30 that discussions with AGPA started about six months ago and grew naturally from other efforts to bring public support to the project. FNG asked lawmakers this year for a grant to develop the project, but the request was unsuccessful.

Britton did not disclose any anticipated sale price and said the letter of intent remained confidential. He added that the sale of FNG to AGPA is contingent on the development of the North Slope project and that existing management, including himself, would remain in place should the deal go through.

MOU with Golden Valley

AGPA is looking to Golden Valley Electric Association as an anchor customer and has signed a memorandum of understanding with the utility related to the use of North Slope gas in its plants.

GVEA President Brian Newton said preliminary cost estimates for the project are promising, thanks to the port authority’s ability to use tax-exempt revenue bonds. “We’re hoping that it’s going to be comparable to 50, 55 dollar a barrel oil,” he said, adding that one of GVEA’s power plants could be converted to burn gas within six months.

Newton said the MOU with AGPA simply states that the parties will meet and work toward developing a term sheet and final agreements.

Britton said the next steps will be to firm up agreements between the port authority and GVEA, develop a bond package for the project, and create a final purchase agreement between AGPA and FNG.

No interference with main line

Proponents say the project would not interfere with the development of a large-scale pipeline from the North Slope into Canada. Financing of the project would be based on a 10-year period, and customers would not be required to enter long-term contracts that would prohibit them from taking advantage of gas delivered more economically through a pipeline.

“We see this as a bridge project and an insurance policy for the big line,” Britton said.

Britton added that it’s unclear whether a smaller “bullet” line will get built, and he warned that even the smaller line would take years to build. The LNG project from the North Slope could begin shipping gas within two years, according to FNG and AGPA.

Britton said the North Slope facility would not necessarily become obsolete with the development of a gas pipeline. Among other things, the LNG could be used as a diesel substitute for transportation, he said.

Fairbanks North Star Borough Mayor Jim Whitaker commended the port authority board for focusing on the North Slope project. “It will deliver gas soon from a reliable source at a reasonable price,” he said.

Whitaker added that an all-Alaska line remains an option.

“AGPA thinks that the best long-term solution is a project that sells gas into multiple markets and that is an LNG project,” he said. “Long-term, we’re in full support of that effort.”

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