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Anchorage firm pushes propane-air project Company wants to bring natural gas to Southeast Alaska communities Larry Persily Petroleum News Juneau Correspondent
An Anchorage company that has looked since 1986 at bringing natural gas to Alaska coastal communities has contracted with a North Dakota utility to conduct a marketing study and engineering review for bringing propane to Juneau, Ketchikan and Sitka, mixing it with air and then piping it to customers.
Depending on the survey results, the company next would solicit investor and bond financing. Assuming it can arrange tens of millions of dollars in financing, the company says it could start construction in 2004, according to a press release.
Alaska Intrastate Gas Company, however, faces a Dec. 31, 2003, deadline to show proof of financial fitness and financing to the Regulatory Commission of Alaska in order to maintain its unused 1998 certificate to operate a gas utility. The commission’s latest order in the case, issued June 17, 2002, also gives Alaska Intrastate until Dec. 31, 2004, to begin service, though the company could ask for another extension. Company started in real estate “We have really been through the mill,” said Frank Avezac of Alaska Intrastate Gas. Avezac said he is an accountant by trade and in 1986 transformed his Anchorage real estate company into the envisioned gas distribution company.
He believes he can bring propane to the three Southeast Alaska communities and pipe it around town at a lower cost than diesel fuel or electricity, though he acknowledges financing has always been a problem.
Alaska Intrastate applied to the state utility regulation commission in the mid-1990s to barge liquefied natural gas to as many as 17 coastal communities, then later amended its application to serve the cities with a mixture called propane-air, or utility gas. Project has changed over the years Its first application to what was then called the Alaska Public Utilities Commission sought approval in 1995 to serve Homer and Seward on the Kenai Peninsula. The company later withdrew that application and in 1997 filed to serve most every city in Southeast Alaska, Cordova and Valdez in Prince William Sound, and Kodiak.
A February 2002 assessment prepared by engineering firm CH2M Hill for Alaska Intrastate looked at the economics of barging propane to just Juneau, Ketchikan and Sitka in Southeast Alaska. October’s on-site feasibility review by Montana-Dakota Utilities was limited to just those three communities, with a combined population of about 54,000.
The propane would be brought to town by barge — either in railcars or large tanks — then gasified and mixed with air before it is fed into an underground pipe distribution system to fuel furnaces, hot water heaters and other appliances much the same as methane, the conventional natural gas used in cities with pipeline connections to gas wells. Utility sends two staff members to Alaska A project manager and a marketing representative for Montana-Dakota Utilities visited Southeast Alaska in October, working under contract to Alaska Intrastate to help determine the feasibility of the gas distribution business, said Dan Sharp, spokesman for the Bismarck, N.D., oil, gas, electricity and construction materials company. The two workers will prepare a report this fall on potential customers, the volume of gas they might purchase, and the feasibility of storing propane before mixing it and sending it out as a gas.
Montana-Dakota is not new to Alaska. It owns Alaska Basic Industries, which owns Anchorage Sand and Gravel Co., one of the largest aggregate suppliers in the state, Sharp said.
The North Dakota company operates natural gas utilities in Minnesota, Montana, Wyoming and North and South Dakota, and operates a propane-air system similar to what is envisioned for Southeast Alaska in a North Dakota town of 1,500 people, Sharp said. The utility used to have a few more propane-air operations but converted them to conventional natural gas piped into the communities.
The liquid propane used in such operations also has some butane and methane mixed in, Sharp said, with about 11 gallons of the propane mixture producing 1 million Btu.
“Our end of it is the feasibility study,” Sharp said, and perhaps engineering work if Alaska Intrastate Gas goes ahead with the project.
In addition to contracting with Montana-Dakota Utilities, Avezac said he is working with Foster Energy as one of several potential propane suppliers. The 71-year-old company has an office in Calgary, Alberta, and markets about 500,000 gallons a day of heating oil, gasoline, diesel and propane in western Canada and Michigan. Study assumptions The CH2M Hill study looked at several factors in serving the coastal communities with gas, using the following assumptions:
• The propane could come from gas production facilities in Alberta or British Columbia via railcar to Prince Rupert, B.C., where barges would take the propane to Alaska.
• The estimated cost of the dock and storage facilities, vaporization or “send-out” facilities, and underground pipe throughout much of Juneau would total $37.2 million, with a $13.4 million estimate for Sitka and $20 million for Ketchikan. Directional, horizontal drilling could help reduce the cost of running pipe beneath city streets, perhaps placing 500 feet of pipe from a single drill hole, according to the Montana-Dakota team.
• Additional start-up costs for Alaska Intrastate are estimated at $7.2 million, not counting fuel inventory and the cost of possibly purchasing railcars to move the propane.
• The study assumes the gas utility would achieve 60 percent market penetration of residential and small commercial customers after five years.
• Alaska Intrastate would capture 100 percent of the fuel market for seafood processors in the communities. Possible cost savings The consultants determined residential consumers would see a small savings after factoring in the cost and possible efficiency loss of converting home heating systems from oil to gas, but consumers could realize a substantial savings if costs were measured on new, high-efficiency gas furnaces.
Avezac said his company would help finance boiler and hot water heater conversions to attract customers, noting that conversion costs for a residential furnace could run as high as $1,600.
The company’s original plan almost a decade ago was to get state royalty gas at a discount for its operations, which would have required legislative action. Though Avezac has moved away from that idea for start-up, he said he would like to someday “buy royalty gas and bring it to the residents of Southeast Alaska.”
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