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Increasing natural gas usage in Fairbanks Natural gas costs substantially less than fuel oil but other energy sources compete for electricity generation in the Interior Alan Bailey Petroleum News Staff Writer
One thing is obvious about natural gas as a fuel in the Fairbanks area of Alaska’s Interior: gas costs substantially less than the fuel oil that many people and businesses currently use. So, an increased use of gas in the city should reduce energy bills. But at an Aug. 23 joint meeting of the Alaska Legislature’s House and Senate Resources committees and the House Special Committee on Oil and Gas several people from industry and government outlined some of the issues relating to this apparently simple picture.
Savings of $50 million
“There’s a $50 million (per year) difference (with fuel oil costs) if Fairbanks is on natural gas, based on Henry Hub prices,” Curtis Thayer of Enstar Natural Gas Co. told the lawmakers. “That’s $50 million in the back pockets of consumers.”
Enstar is the major distributor of natural gas in Southcentral Alaska. The $50 million figure came from applying the Henry Hub gas price and the fuel oil price on June 21, 2005, to an estimated energy demand for Fairbanks. The gas pricing also included an assumed gas transportation cost for delivering gas to Fairbanks.
Dan Britton, president of Fairbanks Natural Gas, also compared natural gas prices with fuel oil prices — Fairbanks Natural Gas distributes natural gas in Fairbanks, using LNG trucked from Point MacKenzie, across Knik Arm from Anchorage. The company supports a gas supply pipeline network that has grown steadily in the past few years and now supplies gas to commercial and residential customers in many parts of Fairbanks.
“If you take the same amount of energy from gas as one gallon of oil, our gas for residential customers is a little over $1.60 per gallon,” Britton said. “The current price (of fuel oil) for residential customers is $2.59 per gallon.”
Fairbanks Natural Gas recently completed a contract to supply gas to Fairbanks Memorial Hospital, a large energy user, Britton said.
“Compared to their (fuel) alternatives they’ll save anything from $400,000 to $600,000 in energy costs this year,” he said. Gas cleaner burning Both Britton and Rocky Pavey of Rocky’s Heating Service, a Fairbanks heating contactor, also commented on the environmental benefits of clean-burning natural gas. And Pavey contrasted the efficiency of natural gas burners with oil burners that become clogged with deposits from the fuel.
“(Clogging of oil-burning heat exchangers) decreases your efficiency and in the long run it causes you to burn more fuel,” he said.
But an antiquated and expensive procedure that involves manufacturing LNG at Point MacKenzie, trucking the LNG to Fairbanks and converting the LNG back to gas in Fairbanks limits the current gas supply in Fairbanks. The process to convert LNG back to gas is, by itself, only 80 percent efficient, Britton said.
Andex Resources is currently exploring for gas in the Nenana basin. The proximity of that basin to Fairbanks would shave about 30 percent off the current $1.50 per mcf trucking cost in the event of Nenana gas production starting, Britton said. But Fairbanks Natural Gas would really like to see the long-term supply of gas through a pipeline, to eliminate the inefficiencies of the current transportation system, he said. Enstar looking at Parks Highway route So, what’s the possibility of connecting a gas line to Fairbanks?
Enstar has partnered with Arctic Slope Regional Corp. and Michael Baker Engineering on a $4 million conceptual study of the construction of a spur line to connect the gas infrastructure in Anchorage and Wasilla to Fairbanks. The proposed route would parallel the Parks Highway, with an estimated completion date in 2009 or 2010. Thayer said that the conceptual study should be completed in the next 12 to 18 months.
“Notionally we say the (cost of the) spur line could be up to $500 million, but that’s truly dependent on the price of steel — that is the biggest unknown,” Thayer said.
The Parks Highway route would take the pipeline through part of the Nenana basin.
“The advantage of the Parks Highway (route) is the Nenana basin … if there’s gas along the proposed route,” Thayer said. The possibility of using the existing highway, railroad or electrical intertie corridor appears also to be an advantage for this route, he said. Thayer also said that a Parks Highway spur line might eventually supply gas to Southcentral Alaska from the Nenana basin or from a North Slope gas line. ANGDA permitting Glenn Highway route However, the Alaska Natural Gas Development Authority is in the process of permitting a $400 million spur line from Glennallen to Palmer along the route of the Glenn Highway, to transport gas into Southcentral Alaska from a future North Slope gas line (note that Glennallen lies within the gas-prospective Copper Valley basin).
“This is a very feasible route,” Harold Heinze, chief executive officer of ANGDA, said. “We’ve done enough work to be very comfortable with it … We expect that we could be granted the right of way … certainly before the end of the year.”
Heinze said that ANGDA will synchronize its plans for a spur line with plans for a main North Slope gas line. And he urged the lawmakers to keep all pipeline options open.
“It is still very cheap for the state and all of us to keep open all these options and keep them moving forward,” he said. “… There are a lot of synergies between everything that is going on.” For example, pipeline design parameters worked out for the Glenn Highway route might also apply to a Nenana pipeline.
Heinze also emphasized the importance of ensuring adequate pipeline throughput.
“The efficiencies and the economics of, in particular, moving gas by pipeline are very sensitive to the volume that’s moved through that pipeline,” he said. “… Having a good industrial customer or two to help pay the way is very important.” Options for electrical power However, when it comes to generating electricity for industrial or residential use, there are fuels that can compete with natural gas. And Kate Lamal, vice president of power supply for Golden Valley Electric Association, said that Golden Valley uses natural gas, coal, oil and hydropower in its power plants; the association also buys electricity generated in Southcentral Alaska from natural gas. As the electric utility for the Fairbanks area, Golden Valley supplies electricity for the Fort Knox gold mine and plans to supply electricity for future mines such as Pogo.
“We want to have energy affordable but (price) stability is almost as important,” Lamal said. “… We’re fuel diverse right now — it’s one of the best ways we have to keep power costs stable and relatively low.”
Lower valued products from the oil refinery at North Pole can provide one cost-effective source of fuel for power generation; Golden Valley is currently building a new power plant fueled by naphtha. However, coal is the biggest competitor for gas as a power generation fuel — Golden Valley operates a coal-fired 25 megawatt power pant next to the Usibelli coal mine near Healy.
“It’s going to be real difficult for natural gas to compete with coal in the long run,” Lamal said.
But Golden Valley is positioning itself for an increasing use of natural gas and the company’s new naphtha plant will be capable of burning gas.
“Nenana (basin) gas would be very attractive to us,” Lamal said. Cheap gas won’t last forever Steve Denton of Usibelli Coal Mine Inc. also said that coal has become very competitive with natural gas for electricity generation. Denton said that in the 1970s no fuel could compete on price with cheap, stranded gas in the Alaska Railbelt. But people are now coming to terms with the fact that cheap gas isn’t going to last for ever, he said. And Denton presented some data that shows a trend towards lower electricity prices in U.S states that use a preponderance of coal for electricity generation. He also cited a 2004 study done by engineering firm R.W. Beck for the Railbelt energy utilities. That study recommended a large coal-fired power plant at each end of the Railbelt. Denton also emphasized the stability of coal prices.
“Coal prices are very stable,” he said. “They have been over the long haul and there’s every reason to expect that they will be — gas prices, you’re guess is as good as mine as to where they’re going.”
However, Denton sees coal and gas as complementary fuels.
“Diversity is really the thing that we need to be looking for,” Denton said. “We’re sitting right on top of an enormous storehouse of both forms of energy. The challenge is to use them in an appropriate and prudent fashion so that we get the best benefit for all the consumers.”
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