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Vol. 24, No.46 Week of November 17, 2019
Providing coverage of Alaska and northern Canada's oil and gas industry

$25 million for port

Fed grant helps fund petroleum, cement dock, but tariff increases remain

Steve Sutherlin

Petroleum News

The Port of Alaska has garnered a $25 million grant from the federal “Better Utilizing Investments to Leverage Development (BUILD) Transportation Discretionary Grants program,” to build the third and final phase of an upgrade to its petroleum products and cement handling facilities, U.S. Secretary of Transportation Elaine L. Chao said Nov. 12.

The cost of the project is $81 million, based on current engineering projections, said Jim Jager, director of external affairs for the port. The port has yet to see any contractor bids on the project.

Despite a $25 million cash infusion, the port will not reduce initial tariffs under a 10-year, escalating user fee schedule adopted by the Port Commission, he said.

Reductions of the rates would be more likely once the total costs of the project - including financing - are known, Jager said, adding that the port’s overall cost estimate has already factored in some degree of success in attracting grants, as well as an anticipation of favorable financing terms.

Users seek a voice

Casey Sullivan, government and public affairs manager for Marathon Petroleum Corp. in Alaska, said the port is moving forward with the entire redo at lightning speed, based on plans drawn without significant input from the users of the facility.

“Marathon ... our issue is, we want to make sure that whatever the project is - whether it’s repairing and replacing what they have, because it could be there for some long term - or whatever they create new, we are just wanting to ensure that it’s effective, that it’s safe, and that it’s usable.”

Sullivan said Marathon has been active in discussions throughout the last year with the design team, the city and the port.

“It’s still a process; we’re not completely satisfied,” he said. “There are still a lot of questions out there about the design, and how it will interact with the existing infrastructure.”

“It’s not a done deal in our minds,” Sullivan said. “We still have a lot of concerns; they’re going full speed ahead.”

“As a group, the users group had a lot of questions about the financing model; we haven’t really seen a full financing package, and we’ve advocated that they get a full financing package,” he said.

The user group does however appreciate the federal assistance.

“We’re glad to see a lot of these grants come in,” Sullivan said, “We really wish that they would kind of pause until they get their heads wrapped around the rest of it.”

“It was fully designed, but without any real input from the stakeholders - the people that are actually going to use the dock,” he said. “That is a little bit of the crux of the issue, that we as the user group, and Marathon, to some degree, have had on the design aspect.”

“Unfortunately, they lacked the stakeholder buy-in,” Sullivan said.

To date “very few” of the stakeholders’ comments have been incorporated into the port’s plans, he said. “They’ve taken some comments, and they’ve not taken some others.”

The stakeholders are supportive, but they want to support the right project, Sullivan said. “We want that port to be successful, but we also want to do it in a prudent fashion, both financially and construction wise.”

Tariff increase plan

The Port Commission, in its October meeting “approved a tariff increase plan to pay for construction of the remainder of the petroleum cement terminal, PCT-1,” Jager said.

Shore side work finished in the summer of 2019, Jager said. It entailed stabilization work, and transitional dredging for the new dock.

“That’s all done, and that has been paid for with money that we already had,” he said.

The second phase is to be built in 2020.

“We contracted with Pacific Pile and Marine to do that work,” Jager said. “We already have money in the bank and a contract let, and we’re all set to start construction this spring, of just the trestle and deck - it will not be a usable dock.”

In 2021, the goal will be “to put in the mooring dolphins, and all of the fendering, and then all of the infrastructure on top of the deck that makes it useful - things like the pipes, the cement and fuel offloading systems, and equipment,” Jager said. “That work is what the tariff increase would pay for. We do not have money for that at this time.”

“When they came up with the number for the tariff increase, that assumed that we would get some grants and some favorable loan packages that would reduce the amount of the total project cost. We don’t know exactly which grants or which favorable loan terms we’ll get,”

Jager said the $25 million grant goes a long way toward answering that question.

“At some level, it was already cooked into the plan that the Port Commission has for how we’re going to pay for the new docks,” he said. “We’re not changing anything we’re doing; we’re still moving forward with the same tariff increases.”

Final construction out to bid early 2020

“This winter, probably in January-February - sometime in the first quarter of 2020, we will go out to bid for the construction for that final phase,” Jager said. “Once we get the construction bids back, probably in June, we’ll open those bids up, and we’ll know how much it’s going to cost to build that final piece of the dock.”

“We will look at that, and we will look at whatever other grants and beneficial loan arrangements we may have gotten, and that’s when we’ll be able to say, what is the final tariff have to be,” he said.

“For right now, we’re moving forward with exactly the plan we had, because there’s still so many unknowns that we don’t know exactly how it’s all going to shake out.”

Jager said he regretted confusion raised when a consultant’s presentation emphasized potential Alaska Industrial Development and Export Authority 50-year term financing as part of the basis for new tariff charges.

“If you look at the graphics he provided, he had what he called the AIDEA scenario, where we got certain beneficial loan terms from AIDEA,” Jager said. “We have pursued those further and at this point we think we’re not going to get those ... it should have said, ‘favorable grant and loan scenario.’”

“Based upon meetings that we had last week, AIDEA’s loan terms are more likely to apply to the cargo deck than to the petroleum cement terminal, but we still have some other loan options out there,” he said. “We’re working on a TIFIA loan that could give us terms that would be very similar to what we were expecting, or what we had factored in as a possible AIDEA scenario.”

The Transportation Infrastructure Finance and Innovation Act provides credit assistance for qualified surface transportation projects of regional and national significance, according to the U.S. Department of Transportation.

“We have a couple of other grant proposals out there,” Jager said. “You don’t know exactly what grants you’re going to get, and exactly what beneficial terms; it’s a ballpark, pretty good order of magnitude guess.”

“But on the other hand, if you go, ‘I can’t make a decision until I have a certain number,’ you’re stuck in the headlights; you’ll never make any progress,” he said. “We’ve basically made our best guess; we’re moving forward, and as the uncertainty disappears, the Port Commission will come back and adjust the tariffs.”

“We think we’ve got conservative numbers that are probably the worst case,” he said. “It could very well be better, meaning the ultimate tariffs will be lower.”

The tariffs are to be “smoothed” upward over 10 years, but if savings warrant, “we just won’t do the final increases if they’re not needed,” Jager said.

Jager said the port will continue to pursue grants up to and past the commencement of the project.

“Probably after construction is done, not so much,” he said. “There are a number of grants though, that are reimbursable grants ... for instance, FEMA has grants for resiliency - earthquake preparedness.”

Fuel terminals ‘most at risk’

Constructing an earthquake resistant dock is a priority for the port.

According to the port website, 94% of all refined petroleum products entering Southcentral Alaska enter through the Port of Alaska.

Jager said that at POL-2, the newest existing petroleum, oil and lubricant dock, 20% of the piles under the main deck of the dock failed during the 7.0 earthquake of 2018.

“Now we’ve gone in and put pile jackets on; we’ve fixed it, if you will - but the bottom line is, our two fuel terminals are our most at risk terminals,” Jager said. “It’s critical that we get a resilient dock built so that we’re ready for the next earthquake.”

The new dock will be robust in that regard.

“PCT will be built to what I’m calling super seismic standards,” Jager said.

“In order to build anything you have to hit building codes,” he said. “Normal building codes more or less hit what is called a life safety standard; if you’re standing on the dock when the big earthquake hits, you will get to shore alive. That’s the goal. The dock itself may not survive.”

“We’re building to super seismic standards that say, not only will the people who are on or in the vicinity of the dock survive, the dock itself will survive and will be more or less fully functional within seven days of the big event.”

“You’ve got to have piles that are a little heftier - a little more robust; your trestle needs to be more robust,” Jager said, adding that all the systems need to be extra strong to survive the design earthquake, which is just a bit bigger than the 1964 earthquake was.

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