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Report: FBX should build distribution Heating costs in the Fairbanks North Star Borough could drop 60 percent by 2021 if leaders built a gas distribution system Eric Lidji For Petroleum News
A natural gas and propane distribution system would cut fuel bills in the Fairbanks North Star Borough by around 60 percent, according to a report commissioned by the borough.
With a non-private natural gas system in the cities and a propane system in the outlying areas, residents and businesses in Fairbanks would save some $315 million annually over fuel oil and wood starting in 2021, according to a report by Northern Economics Inc.
“These estimates will change with different assumptions or if capital costs or commodity costs change, but the magnitude of the savings is so large that it is evident that substantial savings will accrue under almost any future scenario that employs natural gas and propane,” the Anchorage-based firm concluded in its June 19 report to the borough.
In addition to the cost benefit, the switch would improve air quality in the borough.
Because of those conclusions, the report suggested the Fairbanks North Star Borough pursue a distribution system, according to Northern Economics President Pat Burden.
The borough paid for the $430,000 report using a state grant.
While the discussion around natural gas in Fairbanks is usually one of transmission, or how to get the fuel to the city, the report is among the first to consider distribution.
The report considered a “source neutral” system, meaning the economics should theoretically hold up regardless of how Fairbanks gets natural gas: by pipe or by truck.
That said, the borough sees a benefit to aligning the timeline of the distribution plan to ongoing private efforts to truck liquefied natural gas to Fairbanks from the North Slope.
“The only thing that’s going to get here soon enough is trucked gas. Trucking gas is the fastest solution. For us here, in our community we need to build out a gas distribution system and get LNG here,” the Fairbanks Daily News-Miner reported Borough Mayor Luke Hopkins as saying. The borough plans to use a recent $3 million grant from the state to begin addressing preliminary designs, permitting and right-of-way issues on the project.
By starting now, the natural gas system could be online by late 2015 and the propane system could be online by 2016 with the system running at full capacity by 2021.
Leaning toward public-private The system would cost between a low estimate of $282.8 million and a high estimate of $606 million to design and build, according to estimates from Michael Baker Corp.
The report imagined the system under both for profit and non-profit models, but ultimately determined “on a cost basis alone, the difference between business models is not likely to be the determining factor driving customers to switch over to natural gas.”
However, a private model would cost 9 percent more than a public-private effort.
Under the estimates, Fairbanks would pay between $16 and $25 per million British thermal units, roughly what current Fairbanks Natural Gas customers pay for their fuel.
Half of demand taken With all homes and businesses converting to gas, as well as some industrial users, the borough could consume 56 million cubic feet per day, or 20.5 billion cubic feet per year.
However, Fairbanks Natural Gas LLC — the only natural gas distribution utility in the Interior region — is capturing about 4 percent of that estimated demand. Fairbanks Natural Gas sold some 841 million cubic feet to its more than 1,100 customers last year.
Additionally, Aurora Energy delivers cheaper steam within a segment of Fairbanks. And a segment of the region isn’t dense enough to justify a pipeline distribution system.
And two major potential industrial customers, Golden Valley Electric Association and the Flint Hills Resources refinery in North Pole, have plans in the works to build a liquefaction plants on the North Slope and truck LNG to Fairbanks to supply their needs.
Altogether, those drop the estimated demand closer to 11.5 bcf per year.
Air quality benefits While price will drive the project, gas would also improve air quality in Fairbanks.
According to estimates in the report, the switch would reduce PM 2.5 to less than 200 tons per year from its current rate of 2,200 tons per year, as well as reducing sulfur oxides and nitrogen oxides, but increased water vapor emissions could increase the intensity of ice fog — the unique weather condition where exhaust freezes on extremely cold days.
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