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Senate passes LNG trucking bill $275 million financial package goes to House; Ray Latchem moves ahead on LNG project, suggests role for state involvement Eric Lidji For Petroleum News
The Alaska Senate unanimously passed a bill on March 13 to move ahead on financing a liquefied natural gas trucking operation from the North Slope to markets in the Interior.
Senate Bill 23 provides up to $275 million in loans and bonding authority for AIDEA to dispense to private partners able to get the project operational by 2015. AIDEA is also seeking a $50 million general fund appropriation for the project, but lawmakers are considering that request as part of the larger capital budget still under deliberations.
The primary goal of the project is to reduce the cost of energy in the greater Fairbanks area while simultaneously expanding distribution infrastructure in advance of some more permanent transmission system in the future, such as a large-diameter natural gas pipeline. The project is also meant to address chronic air quality problems in the region.
“I appreciate the Senate’s work to jumpstart this project and provide energy relief for Alaskans by developing Alaska’s gas,” Gov. Sean Parnell said in a statement. “Our focus continues to be on providing the lowest cost of energy to as many Alaskans as possible. This legislation will serve as a springboard to leverage our abundant North Slope gas reserves to the Interior and Southcentral Alaska, as well as other regions of the state.”
The bill is scheduled to appear before the House Labor and Commerce Committee on March 20 and the House Finance Committee on March 21, pending a quick referral.
An alternative idea The financial package is meant to spur private investment in the region.
The initial phase of the project is expected to cost some $400 million, with as much as $355 million coming from the state in grants, loans, bonds and tax credits, but in recent testimony, AIDEA officials also imagined a natural gas distribution system costing as much as $1 billion at full build-out, with the majority coming from private sources.
The early stage is almost certain to involve more than one private partner, because the entities farthest along on project planning and permitting lack a financing component.
The 16 responses AIDEA received to its letter of request for interest in late December included two turnkey projects — from the regional electric cooperative Golden Valley Electric Association and from Pentex Alaska Natural Gas Co. the parent company of Polar LNG LLC and local distribution company Fairbanks Natural Gas LLC.
The responses also included six companies interested in engineering, procurement and construction components of the project, three financial institutions and five responses that “did not indicate interest in being a turnkey or component part of the development.”
Spectrum among five Among those five companies is Spectrum LNG LLC, an operation run by Ray Latchem that has been pursuing a small scale LNG project on the North Slope since last year.
The company has already applied for permits from the Regulatory Commission of Alaska, the State Pipeline Coordinator’s Office and the U.S. Army Corps of Engineers.
In his response to AIDEA, Latchem questioned why the state should be involved in a North Slope LNG project that has already attracted interest from the private sector.
“Frankly, we don’t understand the exact role AIDEA is taking on, but it appears to be responding to stakeholders seeking subsidies,” Latchem wrote. “We do believe that the notion of state subsidies is out there amongst the market, and therefore they have resisted Spectrum’s sales efforts, holding out for cheaper LNG from a free LNG plant.”
If the state is interested in lowering the cost of energy for Alaskans, Latchem wrote, why stop with natural gas? “If the state were to build a third refinery in North Pole, and treat the investment as a give-away, certainly the cost of fuel oil would fall,” he wrote.
Help with price, delivery point While Latchem said Spectrum would not seek public funding for its project, he believes the state can play an important role in any North Slope gas project by negotiating a natural gas price that is not tied to oil and by helping to facilitate the best delivery point.
Concerning price, Latchem wrote, “We believe the state could very quickly and easily secure supply agreements with all producers for a price much lower than any current agreements.” As for the delivery point, he suggested using excess capacity in the TAPS fuel gas line to save on trucking. “Accessing the excess and currently wasted capacity by a private firm is a virtual impossibility. The likelihood of getting all the TAPS owners to agree to some sort of transportation agreement with anyone but the State is nil,” he wrote.
GVEA and Pentex have already negotiated supply contracts with BP and ExxonMobil, respectively. Although AIDEA officials told lawmakers they have yet to see those contracts in detail because of confidentiality issues, they said both contracts are benchmarked to crude prices, but would remain cheaper than oil even at low oil prices.
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