|
Hilcorp’s Harvest purchasing LNG facility Titan Alaska Port Mackenzie facility liquefies Cook Inlet natural gas which is then trucked to Fairbanks; Harvest plans expansion Kristen Nelson Petroleum News
Hilcorp Alaska subsidiary Harvest Alaska is in the process of purchasing Titan Alaska’s liquefied natural gas facility at Port Mackenzie, and plans to expand the facility.
Hilcorp and Harvest said Nov. 20 that an agreement to purchase has been executed for the LNG plant and related LNG transportation equipment.
The Titan plant has a maximum output of 50,000 gallons of LNG per day, most of which is trucked to Fairbanks, offloaded at Fairbanks Natural Gas’ re-gasification facility and sold to FNG for pipeline distribution.
Sean Kolassa, president of Harvest Alaska, said in a statement that Harvest is interested in expanding the facility.
“We’re working to locate the equipment needed to increase production” from the facility at Port Mackenzie, he said.
Harvest will continue to transport LNG by truck, but due to the facility’s proximity to the Port Mackenzie rail extension under construction, Harvest may also construct a short rail spur, allowing it to deliver LNG to Fairbanks via railcar.
Hilcorp provides 100 percent of the natural gas that supplies the LNG facility and its gas sales to Fairbanks utilities will continue under consent decree pricing established by the state in 2013, with costs for processing and transportation additional. Hilcorp said the final delivered price would still provide Interior consumers with a source of energy cheaper than fuel oil.
Hilcorp said it has increased natural gas production from its Cook Inlet properties almost 40 percent over the last three years, with capital projects, drilling, facility and maintenance all a part of the nearly $1 billion investment the company has made since it entered Cook Inlet in 2012.
There are nine full-time Titan employees operating the Port Mackenzie facility and Harvest said it anticipates making employment offers to all of them.
The transaction is expected to close pending receipt of all necessary government and regulatory approvals.
RCA One of the approvals needed is from the Regulatory Commission of Alaska.
On Nov. 21 FNG requested approval from the commission for a new LNG supply agreement, LSA, with Harvest, replacing its existing LSA with Titan because of the pending sale.
FNG said the new agreement is for 10 years, replacing an agreement with Titan which ends in 2018. It said Harvest offered a favorable price, with a base of $15 per thousand cubic feet, mcf, escalating 2 percent beginning in year three, with adjustments to market during years six through 10.
FNG said the Titan LSA is based on the Hilcorp Consent Decree, with annual price escalations of 4 percent, while under the proposed Harvest LSA FNG’s price will remain level for two years and thereafter increase 2 percent.
Potential future new supplies of LNG are projected to be comparable to pricing under the LSA, FNG said, with WesPac Midstream LLC recently providing a conceptual proposal from its proposed 250,000 gallons per day LNG plant using Cook Inlet gas and an estimated price of $14.57 per thousand cubic feet beginning in early 2017, “under terms that are much less favorable than the LSA.”
WesPac said in an Oct. 30 proposal to FNG that it “has reached an agreement to acquire Cook Inlet gas reserves,” with that transaction expected to close by the end of the year and reserves to be in production by 2016. WesPac said the reserves would be able to serve “the entire Fairbanks market for at least 20 years based on publically available projected demand profiles.”
‘Take-or-pay’ FNG said the WesPac proposal was “essentially for a take-or-pay agreement” with a penalty if the buyer takes less than a month’s projected usage. “There is no similar penalty provision in the LSA,” FNG said.
The WesPac proposal is also for a 20-year term, raising the possibility that Fairbanks utilities would have to pay a termination fee to get out from under the agreement if pipeline gas became available in the mid-2020s.
The Harvest LSA does not contain a take or pay provision and in years six through 10 under the LSA the price “will be adjusted toward the lowest price available in the Fairbanks market” and thus would “reflect any significant drop in the cost of supplying LNG to Fairbanks.”
FNG said no other LNG supplier had suggested a similar provision.
“Similarly, no other supplier has indicated a willingness to offer a supply contract without take-or-pay provisions, or the flexibility of the LSA for daily changes in nominations.”`
FNG said it had negotiated “very favorable” terms under the LSA, terms not available from its current suppliers, Titan and ConocoPhillips, and not likely to be offered by potential providers, including WesPac and the Alaska Industrial Development and Export Authority/MWH.
| 