IGU seeks more LNG
Fairbanks gas utility needs additional supplies for expanding customer base
for Petroleum News
Fairbanks based Interior Gas Utility has taken note of recent announcements regarding potential future limitations in gas supplies from the Cook Inlet and is “exploring all available options” for future supplies for its increasing number of customers, according to the latest quarterly report from the Interior Energy Project to the Alaska Legislature.
“A solution will likely come from a combination of Cook Inlet gas, North Slope gas and imported LNG,” the report says.
The Interior Energy Project, or IEP, is a project sponsored by the Alaska Industrial Development and Export Authority and authorized by the Legislature that has the objective of bringing supplies of affordable natural gas to the Fairbanks region, to reduce the cost of energy in the Alaska Interior while also improving air quality in the region. Businesses and residents in the region have traditionally used oil fired and wood fired stoves for heating buildings, with the consequence of severely poor winter air quality.
Cook Inlet LNG shipped to FairbanksIGU currently purchases Cook Inlet basin natural gas from Hilcorp Alaska and liquefies the gas at the Titan LNG plant near Point Mackenzie on the inlet. The LNG is shipped to Fairbanks by road tanker for storage in central Fairbanks and North Pole, for subsequent delivery to customers over a gas pipeline network. IGU had been planning to expand the Titan plant to support its expanding customer base. However, following a major drop in the price of fuel oil at the onset of the COVID pandemic in 2020, the utility indefinitely postponed a final decision on the plant expansion, pending more clarity over future energy pricing.
Meanwhile, at the end of 2019 IGU completed a new 5.25 million gallon liquefied natural gas storage facility in central Fairbanks. And in early 2021 the utility completed a smaller LNG storage facility at North Pole. The greatly increased LNG storage capacity in the Fairbanks region is enabling IGU to expand its customer base by warehousing excess LNG produced during the summer when there is little demand for gas for heating. The utility can connect new customers using extensions to the gas distribution network made in 2015 as part of the IEP, and through recent further additions to the network.
However, at some point the increasing demand for gas will require additional gas supplies.
“The IGU board of directors is expected to make a decision in 2022 regarding additional LNG capacity,” the new quarterly report says.
Backup LNG suppliesIn 2021 the board authorized a contract for backup LNG supplies from Cryopeak LNG Solutions in Nelson, British Columbia. In 2022 IGU is purchasing approximately 250,000 gallons of LNG under this contract to bolster its supplies and may purchase additional volumes, the report says. According to information previously made available about this contract, the LNG would be purchased at a negotiated price and could be transported to Alaska from Canada by barge using LNG trailers.
Any expansion to the Titan plant would require access to AIDEA bond funding - during this year’s legislative session the Legislature extended the sunset date for the issuance of these bonds through to July 1, 2028. AIDEA has previously issued bonds for the funding of expansions to the gas supply infrastructure in Fairbanks North Star Borough, and for design work associated with the expansion of LNG production facilities.
Extending the distribution systemThe new report says that IGU has budgeted $1 million for the construction of short extensions to the gas distribution main lines in the borough during the 2022 construction season. And the utility also anticipates installing 600 new service lines during the construction season, the report says. By comparison, IGU installed about 200 service lines in 2020 and 312 service lines in 2021.
By the end of the second quarter of this year, the utility had approved about 450 applications for service lines for this year: 100 of these service lines have now been installed, the report says. Commercial customers account for 18% of the applications, while the remainder are for residential properties. Of the applications, 35% are in North Pole and 65% are in Fairbanks.
IGU now serves a total of about 1,650 residential and commercial customers in Fairbanks, with an expansion in natural gas mains pipelines capable of serving up to about 8,500 properties. In North Pole, gas distribution lines now serve 125 customers, while the mains could serve up to about 3,000 properties, the report says.
Encouraging gas conversionsConsumers have been encouraged to convert to the use of natural gas through the availability of favorable financing mechanisms, including the potential availability of low-cost loans. Improved boiler technologies may also reduce the conversion costs. In addition, Fairbanks North Slope Borough has been able to appropriate about $1 million in funding associated with the federal coronavirus America Rescue Plan to assist with natural gas conversions, the report says.
Funding support for the conversion of solid fuel and oil burning equipment to natural gas technology is also expected to start becoming available in October through a $5.6 million Environmental Protection Agency award designed to help Fairbanks North Star Borough improve air quality within its jurisdiction. Also, under the state’s approved budget for the current fiscal year, $1.25 million has been allocated for the oil to gas changeout program, the report says.
For commercial consumers, low cost funding may be available through the state-approved Property Assessed Clean Energy, or PACE, program, designed to improve the energy efficiency of commercial buildings.
The state Legislature has previously passed legislation enabling the on-bill financing of gas conversions, to ease the pain of the conversion costs. An on-bill financing arrangement enables the payment of the conversion costs though installments added to a consumer’s monthly gas bills. However, IGU has encountered complications in this arrangement because of issues related to the utility’s debt coverage ratio and liability for any loan defaults, the report says.
Financing the projectTotal bond financing to date for the IEP has amounted to about $150.8 million, with $139 million of this coming from AIDEA Sustainable Energy Transmission and Supply, or SETS, bonding, and the remainder from other bonding, the report says. In addition, the Legislature originally approved a $57.5 million capital appropriation for the project, $15 million of which was subsequently spent investigating an initial concept involving the manufacture of LNG on the North Slope. Much of the remainder of the appropriation was used for part of the purchase cost of Pentex Natural Gas Co., which IGU purchased in 2018. Pentex owned the Titan plant, the trucking operation for shipping LNG to Fairbanks and gas utility Fairbanks Natural Gas - the purchase allowed IGU and FNG to combine as a single Fairbanks gas utility and hence achieve efficiencies of scale.