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Proposed billion-dollar North Slope data center wants to buy royalty gas from state Netricity LLC says it will generate reliable electricity and 300 year-round jobs; state says gas price too low and request exceeds state’s daily royalty share of gas Steve Sutherlin PNA Managing Editor
A company that wants to power a $1 billion North Slope data center with a portion of the state’s royalty gas may have to refigure the deal with a sharper pencil, because its offer on the gas is too low, said Kevin Banks, petroleum market analyst at the state Division of Oil and Gas.
Netricity LLC, an Alaska limited liability company, asked to purchase 8.5 million to 120 million cubic feet of state royalty natural gas at a price of 36 cents per thousand cubic feet, Banks told PNA.
The offer presents two problems for the state, Banks said. First, the price is too low relative to recent gas sales on the slope; and second, the quantity exceeds the state’s daily royalty share. Norgas pays $1.30 per mcg From the 36 cents per mcf offered, the state must deduct a 21-cent per mcf field cost, leaving only a 15-cent royalty value to the state under the proposal, Banks said. Currently the state is selling North Slope gas to Alyeska Pipeline Service Co. and the local utility, Norgas for $1.30 per mcf.
Banks said the state gets a lot of ideas for royalty gas and oil that attempt to justify a low price because of producing jobs, construction projects or products for people in the state, but those side effects, while worthwhile, can’t be considered in evaluating a proposal.
“We are not allowed to sell for less than we can get if the producers sell it for us,” Banks said. “If the idea doesn’t have merit at a competitive market price, we can’t subsidize it.”
The maximum 120 million cubic feet per day of gas requested by Netricity also would present a challenge because the state is slated to receive only 120 million cubic feet of royalty gas per month. Fulfilling the contract would require the state to negotiate with producers to take a portion of its gas early, Banks said.
Because the Netricity plant would use approximately 25 percent of the state’s gas with a value of $1 billion to $2 billion, the state must proceed carefully, said Mark Myers, director of the Division of Oil and Gas. A one-cent price difference over the life of the contract could amount to $10 million dollars. Legislature asks for further study A resolution passed the House and Senate directing the Division of Oil and Gas to go through the process of evaluating Netricity’s offer, and to determine if a competitive sale of the gas should be held, Banks said.
The North Slope is one of the few places in the United State with stranded gas. The power reliability in a jurisdiction that wouldn’t censor web content lends considerable merit to the project, he said.
Netricity’s offer consists of 14 options, each to purchase 8.5 million cubic feet of gas per day for a period of 25 years, beginning in 2002.
In testimony to the Legislature on the proposal, Myers voiced concern about the length of the contract, saying gas is currently sold on spot or five-year contracts. Normally an option would carry a significant premium, he said.
There is no guarantee Netricity would exercise the options but the terms are take or pay once the options are exercised, Banks said. Slope isolation enhances project The data center proposal “is incredibly well tuned for Alaska,” according to Mike Caskey, vice president of Fidelity Exploration and Production Co., one of two partners in the venture. “The things that have prevented business in Alaska work for Alaska in this case.”
Facilities elsewhere in the United States are on power grids subject to fluctuation or rolling outages, but at the Netricity facility the power supply would be dedicated for one purpose, Caskey said.
The facility, commonly known as a server farm, would provide web-hosting services and would be connected to clients and users by the fiber optic system that runs the length of the trans-Alaska crude pipeline.
“We project photons rather than molecules,” Caskey said.
When completed the center would provide an estimated 300 year-round jobs located in the North Slope borough, Caskey said.
“We would like to hire North Slope residents that are interested in high paying technical jobs,” Caskey told PNA, adding that North Slope residents won’t need any special background, just a desire to learn a technical field. Netricity would train workers in Anchorage or Fairbanks, he said.
“We anticipate that at the North Slope location we would have primarily hardware oriented people, changing out computers and circuit boards and keeping the system humming,” Caskey said.
“Look at the pipeline, Alaska has one shot at revenues, but our project provides jobs, a tax base, and business in an area where there isn’t business,” he said.
Netricity partner Fidelity Exploration and Production Co. is a subsidiary of MDU Resources Group, the parent company of Knife River Corp. which owns Alaska Basic Industries and Alaska Sand and Gravel.
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