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AIDEA to narrow down LNG partners Plans to issue RFP to companies willing to invest in a turnkey operation for an LNG trucking operation; finishing feasibility study Eric Lidji For Petroleum News
As it pursues its new mandate to bring liquefied natural gas to the Interior by late 2015, the Alaska Industrial Development and Export Authority is narrowing down its list of potential partners and finishing up a feasibility study on the longstanding energy project.
AIDEA staff expects to present the feasibility study to the board at a July meeting, Deputy Director for Infrastructure Development Mark Davis said at a June 25 meeting.
The study will make the economic and logistical case for pursuing the project, which includes trucking LNG to the Interior and building out the local distribution grid there.
In anticipation of moving forward on the project, AIDEA recently created a Delaware corporation and registered it in Alaska. AIDEA plans to send out a request for proposals soon to help it choose the private sector partner responsible for running the system.
AIDEA received numerous proposals when it solicited interest in the project late last year, but many covered only a portion of the project, such as engineering or financing.
The new RFP will focus on companies interested in designing, building and operating the system, “essentially what might be termed a turn-key operation,” Davis said. While he failed to name companies, only three of the responses considered the full project: Pentex Alaska Natural Gas Co., Golden Valley Electric Association and Spectrum LNG LLC.
The RFP will require the companies to contribute at least $20 million to the venture, but, interestingly, it will also limit the company from providing more than $50 million.
The cap, Davis said, is designed to keep costs down on the project, and to prevent the private sector partner earning too high of a rate of return. While the deal will be structured in such a way as to allow a company to invest as much as it wants under terms the state finds desirable, AIDEA believes it can afford to limit the private sector investment because the project will be funded mostly by state grants, loans and bonds.
AIDEA is funding the project using the tools granted to it earlier this year through Senate Bill 23, which includes a $57.5 million appropriation, $125 million in low-interest loans through the Sustainable Energy Transmission and Supply fund and authorization for AIDEA to issue up to $150 million in bonds, as well as pre-existing gas storage credits.
Risks remain The two largest risks facing the project are the possibility — and what many hope will be the inevitability — of the plant becoming obsolete should a pipeline or some other alternative supply come online, and the possibility that demand falls short of projections.
To manage the first risk, AIDEA plans to make the plant modular, which would allow it to be moved to another region of the state. AIDEA is also starting discussions with potential customers, such as mining interests in Ambler, or transportation companies.
The demand question is important because it will determine the size of the plant.
Currently, AIDEA expects demand to reach 3 billion cubic feet over the course of 2016, the first full year the plant is online and increasingly “substantially” in 2017, Davis said.
“What the demand modeling that’s been done … indicates is that once the gas is available and if it’s at the price that’s anticipated, demand should roll up pretty quickly,” he said, meaning the plant needs to be able to operate at a low level for a while and also to ramp up quickly. The estimates are complicated by the seasonal swings in the Interior, he said, but storage and summer-only sales could allow the plant to produce evenly year round.
Major energy projects in Alaska tend to focus on anchor tenants capable of bringing the cost down for all consumers, but Davis said AIDEA is modeling this project to be economic using the cash flow from residential and commercial demand while staying flexible enough to accommodate any interested industrial customers at a later date.
Therefore, AIDEA expects the plant to have an annual capacity of 9 bcf.
In addition to correctly modeling the demand, the project will have to be sufficiently economic to entice people in the Interior to pay to convert their boilers, said AIDEA board member Gary Wilken, who is also a former state senator from Fairbanks.
Wilken is worried about AIDEA building a plant based on potential demand, only to find that many in the Interior decline to switch to natural gas to avoid the cost of conversion.
The worry is compounded by a trend: many in the Interior have failed to take advantage of existing energy efficiency programs offered by the Alaska Housing Finance Corp.
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