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A focus on the gas price Interior Energy Project team continues to work on all elements of a supply chain for natural gas for the Fairbanks region ALAN BAILEY Petroleum News
The Interior Energy Project team continues to work on all elements of the supply chain for an expanded natural gas supply for Fairbanks and the surrounding Interior, Gene Therriault, IEP team leader, told the board of the Alaska Industrial Development and Export Authority on Sept. 22.
The team has established a term sheet for a gas supply in the North Pole area, and is waiting to hear back from a prospective gas supplier on whether the terms are acceptable, Therriault said. The team also needs to ensure that the gas supply terms fully meet the needs of the utilities in Fairbanks.
Importance of price “We’re very focused on price,” Therriault said. “The project cannot take a lot of risk as far as take or pay obligations, because we want to grow the use of the commodity but we’re not sure ... exactly how quickly that growth will take place.”
Supply arrangements need to be projected to a year or two into the future, when the gas becomes available for the Interior market, he added.
The team is also continuing to work with Salix Inc. on a plan for a gas liquefaction plant in the Cook Inlet region, looking for opportunities to squeeze down the cost of liquefaction. The idea is to build a new liquefied natural gas plant to greatly enlarge the supply of LNG to Fairbanks - the IEP team previously set a target price of $15 per thousand cubic feet for gas delivered to consumers in the Fairbanks area. The team has recommended Salix as having the most appropriate concept for the LNG plant.
The overall concept is to alleviate the high cost of energy in Fairbanks while also reducing air pollution that results from the use of wood stoves for the heating of buildings in the region.
LNG for Tok Meanwhile, gas utility Fairbanks Natural Gas has negotiated an agreement with Alaska Power and Telephone, the power producer in the town of Tok, for the supply of LNG as a possible fuel for power generation in Tok, Therriault told the board. FNG already supplies LNG to Fairbanks from a small LNG facility at Point MacKenzie on Cook Inlet. The LNG is transported to Fairbanks by road using LNG trailers - the Interior Energy Project anticipates greatly expanding this supply.
Dan Britton, president of FNG, told the AIDEA board that the Tok utility has converted one of its reciprocating generator engines to use a mixture of diesel fuel and natural gas, rather than just diesel. The economics of LNG usage will depend on how high a proportion of gas can be used in the mix, Britton explained.
Therriault added that the Interior Energy Project has always been envisaged as benefitting the Interior, and not just Fairbanks, and that potentially any community on the road or rail system could see advantage from what the project anticipates achieving. The town of Glennallen has expressed an interest, he said, commenting that FNG already delivers LNG to a hotel in Talkeetna.
LNG transportation From the perspective of the LNG transportation component of the anticipated gas supply for the Interior, last year the Interior Energy Project tested the use of a prototype large-capacity LNG trailer on the Alaska road system. Following success with that test, FNG has purchased the prototype trailer and has ordered three additional similar units, Therriault said. These additional trailers will be delivered around the middle of 2017, he said.
Another possibility is to ship LNG on the Alaska Railroad. With that in mind, the railroad has recently taken delivery on loan of two cryogenic containers and has embarked on the trial use of these trailers for LNG shipment. As part of the testing, the railroad is shipping the containers to Fairbanks empty, with that initial test run to be followed by a trial involving the transportation of the trailers when filled with LNG, Therriault explained.
“The railroad is very aggressively exploring how they can take on this supply chain in the future in a way that helps to drive down costs,” Therriault said.
For test purposes, it is necessary to transport the containers by truck to and from the railroad terminals at either end of the route. However, should the railroad transportation option work out, ways of avoiding those end-route costs would be figured out, Therriault explained.
Storage and distribution An expanded LNG supply to Fairbanks will require expanded LNG storage facilities in the city. The Interior Energy Project now has an understanding with the Interior Gas Utility, the second gas utility in the city, over storage requirements for a gas distribution system that combines the systems of FNG and IGU, Therriault said. The Interior Energy Project envisages the two utilities combining, to achieve economies of scale and efficiency. Meanwhile, given the high capital cost of storage expansion, the expansion is on hold pending the establishment of the enlarged gas supply arrangements, Therriault said.
Similarly, continued expansion of the gas distribution pipeline network in Fairbanks has also been suspended, until the other components of the expanded gas supply move forward. Both FNG and IGU had started expanding their pipeline systems but put that work on hold in October 2015.
Gas conversion A critical component of the project viability is the question of how many Interior residents will convert their house heating systems to the use of natural gas rather than fuel oil. And the current low oil prices have created something of a challenge in making gas use competitive. As a consequence, the project team has been seeking incentives for gas use, including, for example, government clean energy and energy efficiency grants.
One program of interest is the Property Assessed Clean Energy, or PACE, program. PACE, a mechanism that is in operation in several states, would provide low interest, relatively long-term loans to assist energy efficiency projects. A bill for PACE legislation proposed for Alaska narrowly missed the cut at the end of the last legislative session. The hope is that a similar bill will see quick passage in the upcoming session, Therriault said. He commented that PACE legislation had been a significant topic of discussion at a recent energy efficiency and renewable energy workshop organized by Gov. Bill Walker.
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