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GVEA and Flint Hills to truck LNG Proposal would provide natural gas at cost to both parties, but would compete against similar proposal by Fairbanks Natural Gas Eric Lidji For Petroleum News
A Fairbanks electric cooperative and a nearby oil refiner are teaming up on a plan to truck liquefied natural gas from the North Slope to the Interior starting in early 2014, a similar but separate project from one proposed by a regional natural gas distributor.
Golden Valley Electric Association and Flint Hill Resources Alaska recently signed a memorandum of understanding to build and operate the new liquefaction facility, the parties said Aug. 4. The companies said engineering is already under way.
GVEA would use the gas to power its North Pole Power Plant. That facility is currently running on naphtha, but designed to run on natural gas as well. Flint Hills, a subsidiary of Koch Industries, would use the gas as a supply fuel for its crude oil refining operations at its North Pole refinery. The companies would truck the LNG down the Dalton Highway.
The companies said they would each get natural gas “at cost” through the deal, allowing GVEA to lower its rates and Flint Hills to become more competitive and efficient.
The deal furthers the relationship between the two companies. Currently, GVEA provides electricity for Flint Hills operations and Flint Hill supplies the fuel for GVEA generation.
Another marketing option The new proposal adds another option for marketing North Slope natural gas.
That field is increasingly crowded, and includes ongoing efforts to build a large-diameter pipeline through Canada or to Valdez with a spur to Anchorage, a public-private effort to build a pipeline from the North Slope to Anchorage with a spur to the Interior, and a plan by Fairbanks Natural Gas LLC to build a North Slope LNG trucking operation.
“While GVEA supports a gas pipeline to Fairbanks, trucking LNG would lessen our dependence on high-priced oil thereby bringing energy cost relief sooner than other proposed projects,” GVEA President and CEO Brian Newton said in a statement.
Polar LNG LLC, an affiliate of Fairbanks Natural Gas, is currently working on a plan to truck LNG from the North Slope to the existing natural gas grid in Fairbanks.
Polar LNG recently applied for a certificate of public convenience and necessity from the Regulatory Commission of Alaska to operate a 3.8-mile pipeline from a natural gas supply at Prudhoe Bay to the site of its proposed liquefaction facility in Deadhorse.
The company wants to begin construction this winter and asked for a decision by the end of November. In an application for expedited consideration, an attorney for Polar LNG said the project “has been delayed due to several factors beyond its control, but Polar is now ready to begin serious development of the LNG project and the associated pipeline.”
Polar LNG and Fairbanks Natural Gas are both owned by Pentex Alaska Natural Gas Co. LLC. Fairbanks Natural Gas operates a distribution operation in the Interior, while Polar LNG exists solely to build and operate a North Slope LNG trucking operation.
FNG currently uses inlet gas Fairbanks Natural Gas currently gets its supply from Cook Inlet, liquefies it at a plant at Point MacKenzie and trucks it north to Fairbanks. That supply contract, though, is set to expire in May 2013. In 2008, Fairbanks Natural Gas signed a 10-year contract to buy Prudhoe Bay natural gas from ExxonMobil that begins when the project comes online.
Polar LNG needs big customers like GVEA and Flint Hills to make its project economic.
With those commitments, Polar LNG said it could begin construction this winter and begin installing the liquefaction facility in the summer of 2013, but without an expedited consideration from the RCA the company said the project could be delayed a full year.
GVEA previously considered joining that project and signed a 15-year agreement to buy LNG from Fairbanks Natural Gas and the Alaska Gasline Port Authority. AGPA once planned to buy Fairbanks Natural Gas, but that deal recently fell through for now.
“This project would partially eliminate the competitive disadvantage for our refinery due to high energy costs, and provide an environmental benefit to Fairbanks and Interior Alaska,” Flint Hills Vice President Mike Brose said. “We are also excited about additional opportunities such as propane production and LNG diesel production to provide more competitive clean fuel for Alaska’s trucking and transportation industry.”
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