$425 million LNG trucking project on its way

Gov. Sean Parnell signed a bill May 29 committing the state to finance $362.5 million of a proposed $425 million natural gas liquefaction plant on the North Slope as well as facilities in Fairbanks to “re-gasify” and store LNG trucked from the slope and to distribute gas to residential and business customers.

Private parties are expected to finance the rest of the $425 million total, mostly for the LNG project, according to a presentation given by the Alaska Industrial Development and Export Authority, the state’s development corporation, to state legislators in late March.

A feasibility study of the project is expected to be completed in late June or early July, AIDEA spokesman Karsten Rodvik said.

Meanwhile, two gas utilities are vying to build out the distribution system for Fairbanks. One is now serving a small core area of Fairbanks; the other is a newly formed public utility that does not yet have pipe in the ground.

The project is expected to deliver LNG for a wholesale price of about $10.15 per thousand cubic feet, or mcf, according to AIDEA’s preliminary estimates. That is expected to translate to a delivered retail price of gas in the Fairbanks area for $13.42 to $17 per mcf.

On an energy-equivalent basis that is about half what Fairbanks consumers now pay for fuel oil.

Other customers are expected to include Golden Valley Electric Association, the Interior electric co-op, and Flint Hills Resources, owner of a refinery at North Pole, east of Fairbanks. Both now use fuel oil.

Propane also would be available as a part of the project for use in the Fairbanks area or in rural communities.

The legislation signed by Parnell is Senate Bill 23, passed by the state Legislature in April. It commits AIDEA and another state entity, the Alaska Energy Authority, to finance and develop the LNG project with private partners.

AIDEA would own part of the North Slope LNG project, with a $50 million direct investment with a yet-unidentified private partner.

The state investment would give the state a share of the expected 9 billion cubic feet per year of processing capacity, amounting to about 6.5 billion cubic feet per year.

AIDEA’s share of the plant’s LNG output, amounting to about two-thirds, would be sold to public utilities in the Fairbanks area at cost, with no return charged on the state’s investment.

If AIDEA sells LNG to non-utility customers it can include charge for return on investment, however.

The state authority also would issue up to $150 million in authority revenue bonds to finance the gas distribution system. The gas utility would repay the bonds with fees charged to consumers.

The tentative plan developed by the authority envisions an interest rate of 3 percent to 4.5 percent on the bonds, depending on the tax-exempt component of the bond issue and the rates in the market when the bonds are sold.

Bonds also will carry the state’s “moral obligation” that the state itself would back the bonds if the Fairbanks gas utility did not make payments.

In addition, the plan calls for AIDEA to make $125 million available from the authority’s sustainable energy investment fund for financing for private parties on parts of the LNG plant and the gas distribution system. 

Senate Bill 123 set the interest rate for this financing at 3 percent.

Finally, the LNG storage tanks built for the project in Fairbanks, which would be constructed or owned by a local utility or private parties, would be eligible for state tax credits up to $30 million.

The project plan contemplates an LNG plant at Prudhoe Bay with LNG tank trucks carrying liquefied fuel down the Dalton Highway to Fairbanks, but a variation of this being studied by AIDEA, the state Department of Natural Resources and private firms would have the LNG plant built farther south along the highway, according to sources familiar with the discussions.

There is a small fuel gas pipeline built parallel to the Trans-Alaska Pipeline System that carries gas for fuel to pump stations north of Atigun Pass. The pipeline is now underused, and an idea being considered is using spare capacity to supply an LNG plant.

The plant could be built either at Galbraith Lake, just north of Atigun Pass, where there is a TAPS pump station reached by the pipeline, or it could be built at Chandalar, south of the pass, where the state has an existing highway maintenance camp.

Using state land adjacent to the camp could simplify permitting, but it would also require a short extension of the gas pipeline, according to the sources familiar with the idea.

Tim Bradner is a reporter for the Alaska Journal of Commerce.