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Fairbanks gas supply makes progress
While LNG storage tank nears completion, FEED for expanded Titan plant moves ahead and IGU prepares for increased customer base Alan Bailey Petroleum News
The Interior Energy Project, an initiative sponsored by the Alaska Industrial Development and Export Agency, is making significant progress towards its objective of bringing increased quantities of affordable natural gas to Fairbanks and the surrounding Interior, the Interior Gas Utility reported to the AIDEA board on Oct. 23.
“It will be here this spring. It’s happening,” said Steve Haagenson, chairman of the IGU board, with reference to the pending increase in gas supplies as a consequence of the project.
Part of the purpose of bringing more natural gas to the Fairbanks region is to encourage consumers to use a relatively clean fuel, thus addressing the severe air pollution that the region suffers during the winter.
LNG storage facility Construction of a 5.25 million gallon liquefied natural gas storage tank in Fairbanks is scheduled for completion in mid-November, with LNG to be put into the tank in November and December, and the tank to be commissioned in December, Dan Britton, IGU general manager, told the AIDEA board. In fact, the tank itself was completed a couple of months ago - continuing work is focusing on associated facilities such as pipework, instrumentation and electrical system, Britton said.
The double-walled tank will greatly increase the LNG storage capacity in Fairbanks, thus enabling IGU to increase the number of customers who can enjoy firm gas supplies in the city.
“It’s the heart of the Interior Energy Project,” Britton commented.
IGU has also embarked on the construction of new LNG storage facilities at North Pole, to enable the implementation of a new gas supply to customers in that region. As part of the IEP, IGU has already constructed the first phase of a gas pipeline distribution network in the North Pole area.
In September IGU closed on the purchase of a 20-acre site for the North Pole storage facility, and ground work construction began on Oct. 1. IGU has asked for bids for the infrastructure construction, Britton said. The plan is to install two 75,000 gallon LNG tanks which are currently in use in Fairbanks, but which will become redundant when the new large Fairbanks tank comes online.
The Titan plant LNG for Fairbanks comes from a small 50,000 barrels per day LNG facility, referred to as the Titan plant, near Point MacKenzie on Cook Inlet: The LNG is shipped to Fairbanks by road using LNG trailers.
The IEP plan involves staged 100,00 barrel expansions of the Titan plant, as gas demand in Fairbanks grows: Front-end engineering and design is in progress for this expansion. The plan is to conduct engineering for an initial expansion and for a subsequent expansion. Then, if that second expansion is required, it could proceed relatively rapidly after the first expansion, Britton explained.
FEED should be completed by the end of 2019, at which point the IGU board should be able to make a final investment decision for a Titan expansion project, he said.
In association with the FEED project, IGU issued requests for proposals for further work on the Titan expansion and had received 10 proposals in response, Britton said.
“We’ve now finalized our review and will be issuing shortly our notice of intent,” he told the AIDEA board.
As an alternative to the Titan expansion, industrial company Siemens, in conjunction with Knik Tribe, had proposed the construction of a new LNG plant next to a spur of the Alaska Railroad near Houston. The idea would have been to ship the LNG to Fairbanks by rail. However, IGU was unable to conclude an agreement with Siemens that made sense for either party, Britton said.
Shipment by rail? IGU is also evaluating the shipment of LNG to Fairbanks by rail rather than by road. In 2016 the Alaska Railroad successfully tested the carriage of LNG in special containers. At that time the Railroad had to obtain a permit for the testing - the federal Pipelines and Hazardous Materials Safety Administration has recently proposed regulatory changes, allowing the transportation of LNG in a specific type of rail car in the United States.
Britton commented that at present the strategy for shipping LNG to Fairbanks involves the carriage of modest sized cargos, to top up the LNG storage tanks in the city, as required. This mode of operation is particularly appropriate for a trucking operation. The use of railroad transportation would be more suitable for the batch transportation of larger LNG volumes, a situation that may emerge as LNG demand in the Interior increases. However, the lack of a railroad spur at the Titan liquefaction plant significantly impacts the economics of the railroad transportation option, Britton pointed out.
Expanding the customer base Currently IGU’s 1,150 customers are served by 140 miles of gas distribution pipeline in Fairbanks. This summer 50 more customers signed up, in anticipation of more gas coming available when the new LNG storage tank comes online, Britton said. By enabling the warehousing of summer produced LNG, and by providing a higher level of gas supply security, IGU will be able to increase its gas supplies in Fairbanks by 50% without any Titan plant expansion, Britton said. In an earlier phase of the IEP, 70 miles of new distribution pipeline were added to the central Fairbanks area, while 70 miles of pipeline had also been laid in North Pole.
In anticipation of the need for more gas, IGU has hired an Anchorage contractor to contact potential gas suppliers in the Cook Inlet region, Britton said.
And, at the customer end of IGU’s business, the utility has been updating its marketing plan. A gas conversion group has been figuring out and assessing ways in which the conversion of buildings to the use of natural gas can be made as cost effective as possible.
Began in 1998 Gas supplies in Fairbanks started back in 1998 when Fairbanks Natural Gas, a private utility, started operating in the center of the city, using LNG from the Titan plan, which was completed in that same year. In 2012 Fairbanks North Star Borough established its Interior Gas Utility, with the intent of encouraging increased gas use.
In 2013 the Alaska Legislature passed legislation establishing AIDEA’s Interior Energy Project. Initially the IEP plan involved the construction of an LNG plant on the North Slope. And work moved ahead on the expansion of the gas distribution pipeline network in central Fairbanks and in North Pole. However, in 2015, when the North Slope concept appeared uneconomic, another piece of state legislation switched the plan to the potential use of Cook Inlet gas, while also requiring AIDEA to approve a plan for the project, as a prerequisite to any further use of project funds.
Also in 2015, in the interests of furthering the IEP, AIDEA used its revolving fund to purchase Pentex Natural Gas Co, the owner of the Titan plant, the LNG trucking operation and FNG.
In 2017 the AIDEA board approved a plan for the IEP, thus enabling a resumption of funding for the project. Subsequently, in 2018 IGU purchased the Pentex assets from AIDEA, thus establishing a single gas utility in Fairbanks. IGU then took responsibility for managing and pursuing the project, with AIDEA continuing as a project sponsor.
Original state funding for the IEP consisted of a $57.5 million state capital appropriation and $125 million in SETS loans from the Sustainable Energy Transmission and Supply Development Fund.
Britton told the AIDEA board that much of the SETS funding has already been used and that he anticipated that funding to be fully drawn by the first quarter of 2020. This funding was used primarily for the 140 miles of distribution pipeline laid in central Fairbanks and North Pole, and to cover a portion of the cost of the Pentex purchase. An additional $10 million of financing agreed with AIDEA has also enabled the North Pole LNG storage and gas supply project to proceed. $15 million of the capital appropriation was used to fund the original project involving a North Slope gas supply, while the remainder of the appropriation was used in IGU’s Pentex purchase.
IGU is now planning to issue bonds, with an initial offering of $60 million in bonding, primarily for the expansion of the Titan plant, Britton said. Under the original state financial arrangements for the IEP, AIDEA can make up to $150 million in AIDEA bonding available.
Britton has told Petroleum News that the current price of gas for Fairbanks residents is $20.81 per thousand cubic feet. He said that this price is expected to fall somewhat, as the delivered volumes of gas increase. He also commented that the gas price is competitive with the cost of fuel oil and that gas offers the benefit of relatively stable pricing, compared with the price hikes that can happen in the oil market.
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