House Rules chairman says state wants North Slope data center

Netricity executives get warm reception at hearing before rules committee, stress need for timely gas purchase deal

Steve Sutherlin

PNA Managing Editor

The Alaska Legislature is bullish on a proposed $1 billion North Slope data center planned by Netricity LLC, company executives were told at a legislative update hearing in Anchorage Oct. 23.

“In my mind (the data center) is the most viable economic project in the state of Alaska in the near term,” House Rules Committee Chairman Rep. Pete Kott said at the hearing.

Kott said that many members of the Legislature are very outspoken in favor of the data center and that he would urge gas owners to make a deal to sell gas to Netricity.

The company’s proposed data center would house a half million web-hosting servers in a 1 million-square-foot building, connected to clients and users by fiber optic lines.

North Slope gas producers are negotiating with Netricity on the sale of gas to generate electricity for the data center, but the producers have been focused on the proposed gas line, slowing an agreement for Netricity to buy gas, said Jim Dodson, executive vice president with Andex Resources LLC. Andex is a 25 percent partner in Netricity.

Dodson said the producers appear to favor a deal that would have all gas owners participating in sales to the company. It is unlikely that the state will provide all of the gas from its royalty share because of uncertainty about whether producers would allow the state to over lift its share of gas and concerns that if the state over lifts and sells all or most of its gas today, it would lose out on higher prices that might be available later. Netricity met with the state Department of Natural Resources on the issue in July, but at this point there is no time to negotiate a deal with the state.

“Acquiring gas is the first issue of business,” said Mike Caskey, vice president of Fidelity Exploration and Production Co., the other partner in the venture.

Construction planning and further engineering studies are on hold until a deal to buy gas is made, Dodson said. However, no new technical difficulties are anticipated when studies resume. Netricity will need to install a gravel pad deep enough to prevent heat transfer into the permafrost, and may have to preheat turbine input air, but challenges of that sort are expected in the Arctic environment.

Netricity still committed

“We’ve had the dot.com fallout and the telecom fallout, but the world will create more data,” Dodson said. “In fact, the increase in creation of data has not slowed.”

Dodson said time is of the essence, because competing server farms elsewhere will be aiming to tap the same customers as Netricity. Many data centers in the United States were built at a high capital cost and are uneconomic, but if they are acquired out of bankruptcy at a fraction of original cost, they might be strong competitors for a North Slope center.

The remote location on U.S. soil will make the North Slope center more attractive in today’s security conscious environment, Caskey said, adding that Netricity’s original security plans for the center appear to be adequate. A secure source of power, not subject to rolling blackouts or other interruptions, would also help make the project a strategic asset for the country.

Dodson said his company’s gas purchase would have no impact on the viability of a North Slope gas line.

“Our impact on the pipeline is zero,” he said. “We would use the gas only in the North Slope Borough — we can’t arbitrage.”

Netricity would be the largest single user of gas in a limited market, but would use only one-fortieth of the gas the line would carry each day.

Dodson said future value calculations favor early sale of the gas. “Some sale of gas today at some price is better than not doing anything.”