Gas probably won’t be economical village fuel source

State petroleum economist says rural use of natural gas from pipeline project doesn’t pencil out when compared to existing diesel supplies

Patricia Jones

PNA Contributing Writer

A state-produced economic analysis of the proposed natural gas pipeline project indicates that most rural Alaska power generation facilities will not benefit directly from that source of cheaper and cleaner fuel.

Greg Bidwell, a petroleum economist with the state Department of Revenue, presented his analysis of a liquefied natural gas delivery system for Yukon River communities with North Slope natural gas piped south as a feedstock at a rural Alaska energy conference held Sept. 17 in Fairbanks.

“A gas pipeline, if there is one, is still a stretch to think it will help rural Alaska,” Bidwell said.

Bidwell compared costs of the existing fuel source for electric power — diesel — to estimates of setting up and operating a natural gas delivery system to 16 villages along the Yukon River.

Those villages could receive natural gas via barge deliveries, starting from the only Alaska bridge across the Yukon River at the Haul Road some 150 miles north of Fairbanks.

Current costs for diesel delivered to those Yukon River villages are $10.50 per million Btu, according to Bidwell. His report estimates that LNG delivered to those same villages would cost somewhere between $14.21 to $25.36 per million Btu, considerably higher than diesel, the existing fuel source for electric power generation.

“Expertise is needed to take care of the gas in its liquefied form … it’s very expensive equipment to operate correctly, and if something goes wrong, you want an expert to address that,” Bidwell said. “If you are in the Bush, you probably do not have that expertise there.”

Uncertainty about gas pipeline project makes rural LNG use difficult to analyze

In his presentation about rural LNG use, Bidwell described costs related to the much-discussed natural gas pipeline project that would provide the necessary feedstock. Understanding of those costs is necessary to calculate estimates for an LNG delivery system on the Yukon River, he said.

Such a gas pipeline would run roughly 2,100 miles, starting at Prudhoe Bay and following the existing trans-Alaska pipeline corridor. At Delta Junction, the gas pipeline would track southeast along the Alaska Highway to existing gas infrastructure in northern Alberta, Canada.

Total cost to build that gas transportation system, including a North Slope conditioning plant, is about $19.4 billion, Bidwell said. With a project that produces 4.3 billion cubic feet of gas per day, that translates to a delivery cost of $2.39 per million cubic foot. And those construction estimates could vary by 20 percent, he said.

“Legislation that guarantees the price lowers the risk of the project,” Bidwell said. “The chances (of a gas pipeline project) increase dramatically if they do not have price risks.”

He estimated that the cost for natural gas delivered to the Yukon River, the starting point for the barge delivery system, would be $2.56 per million cubic foot. That includes the estimated gas cost of $1.81 per million cubic foot, as well as a pipeline tariff and a gas treatment plant tariff.

“If the state wanted to help out, the state could provide royalty gas and chose to get rid of that $1.81 gas cost,” Bidwell said.

Storage needs bump up estimates for LNG use in river villages

His analysis includes building an LNG plan capable of processing 2 million cubic feet of gas per day, for 100 days a year, with an estimated cost of $6 million.

Storage for a half-year’s supply of LNG — 1 million gallons — would cost another $3 million to $6 million, he said. Sixteen tractor trailers and barges and dock facilities at unloading points would add another $3.9 million.

The analysis also contains three remote storage and regasification facilities: at Galena, Fort Yukon and Pilot Station. That adds another $3.1 million to $12 million in construction costs. He also figured in an extra $2 million for project design and a range of $3.6 million to $6 million for contingency.

“It’s logistically challenging — it’s an area that experiences extreme cold seven months of the year,” Bidwell said. “The key is storage — you have to have a year’s worth of supply, because you can only transport LNG five months of the year.” He translated these construction expenses into costs per million Btu, assuming a 20-year life for the project and a 10 percent annual interest rate for this capital spending.

Those energy costs would range anywhere from $14.21 to $25.36 per million Btu for natural gas delivery and storage to those three central villages, to be dispersed to surrounding communities. Comparatively, diesel costs delivered to the same three villages is $10.50 per million Btu, Bidwell said.

Distant delivery of LNG currently in use in Fairbanks

“Fairbanks Natural Gas is an example of someone who is doing this on a shoestring,” Bidwell said.

In fact, his analysis included information obtained from Fairbanks Natural Gas general manager Dan Britton. Britton also presented information about the company’s system during the rural energy conference on Sept. 17.

One additional consideration for a rural LNG project is the amount of gas consumed in the process. “We consume gas in the process … about 70 to 80 percent efficiency,” Britton said. “It takes energy to make energy.”

Transportation costs are also big factor, as the specialized 12,000-gallon tankers pulled by semi trucks cost about $200,000 each. “Hauling costs are about $1.30 to $1.40 per mile,” he said, for the 700-mile round trip.