Vol. 23, No.24 Week of June 17, 2018
Providing coverage of Alaska and northern Canada's oil and gas industry

Purchase is confirmed

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IGU board has approved Pentex acquisition thus enabling completion of deal

Alan Bailey

Petroleum News

On June 12 the board of the Interior Gas Utility voted to agree on final terms for the purchase of Pentex Natural Gas Co. from the Alaska Industrial Development and Export Authority, thus enabling completion the Pentex purchase.

IGU can now combine with Pentex subsidiary Fairbanks Natural Gas to form a consolidated utility for the Fairbanks area. The purchase will also bring IGU ownership of the Titan liquefied natural gas plant near Point Mackenzie and a trucking operation for shipping LNG to Fairbanks. The move comes as part of the Interior Energy Project, an AIDEA project to greatly expand the supply of natural gas in Fairbanks, to address issues relating to the high cost of energy in the city and air pollution from the use of wood burning stoves. The Fairbanks utility consolidation represents a major step in the project.

The IGU board passed the Pentex purchase resolution by a majority of four to one, with board member Patrice Lee voting against the resolution.

Letter of agreement

The IGU had previously approved the completion of the Pentex purchase, subject to AIDEA board approval of a letter of agreement altering some of the terms of the purchase and sales agreement. The AIDEA board, during its May 31 meeting, partially concurred with the letter of agreement but rejected terms that would have specifically accommodated changes to plans for expanding the LNG supplies for Fairbanks. AIDEA was concerned about the possible impacts of the changes on other aspects of the sale agreements and commented that the terms of the sale already accommodated the possibility of changes to the LNG development plan.

AIDEA board Chair Dana Pruhs has assured the IGU board that AIDEA will act in good faith in resolving any future difference of opinion over the appropriate arrangement for expanded LNG production. And IGU has accepted AIDEA’s position.

Alternative LNG plans

When AIDEA and IGU originally negotiated the purchase and sale agreement for the IGU acquisition of Pentex, the organizations specified a plan for expanding the LNG supply for Fairbanks through the expansion of the Titan LNG plant. But since then manufacturing company Siemens, in conjunction with Knikatnu Corp., the Native village corporation for the Knik and Wasilla area, has proposed the construction of a new LNG plant near Houston, as an alternative to the Titan plant expansion. The proponents of the Houston proposal argue that this concept would offer the advantages of having a new modular and easily expandable plant, with the possibility of conveniently shipping LNG to Fairbanks by rail rather than by road.

In mid-May the IGU board held a workshop, at which Siemens described its proposal and the board reviewed the pros and cons of the Siemens and Titan alternatives. It appears from the results of this review, that the Siemens option may present a lower capital risk than the Titan option.

Clearly the IGU board is taking the Siemens option seriously and wants to be able to evaluate this option as an alternative to the Titan expansion. But, with the utility’s purchase of Pentex and the LNG expansion being funded through AIDEA loans, as part of the IEP, AIDEA will have a say in how the LNG expansion is done.

Working together

In a June 11 letter to IGU board Chair Pamela Throop on behalf of Pruhs, AIDEA board member Fred Parady said that the AIDEA board is “open to consideration of lower cost alternatives to LNG supply.”

“In short, together we have built the foundation for achieving the Interior Energy Project’s goals - ‘to bring affordable natural gas to as many residents of Interior Alaska communities as possible as quickly as possible,’” Parady wrote in relation to the working relationship between AIDEA and IGU.

In a June 11 letter to Pruhs, Gov. Bill Walker stressed the important of the IEP to the state administration and said that he agreed with the need for clarification over a mechanism for resolving any disputes over how to proceed with capital projects.

“One important reason for this administration’s support of IGU is our commitment to ensure maximum, local utility control over the capital projects underlying the project,” Walker wrote. “My administration firmly believes that Alaskans living in the Interior should have the necessary control to shape the best natural gas solutions for their communities, and we believe IGU will provide this control.”

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