Interior group aims to simplify gas conversions

Fairbanks utilities are investigating ways to simplify and encourage conversion to natural gas when it becomes available.
Interior Gas Utility board chairman Bob Shefchik told the Alaska Industrial Development and Export Authority board of directors Aug. 25 that the goal of a conversion working group is to provide a “one-stop shop” for natural gas service, a boiler or furnace and financing for residential conversion. IGU was formed by the Fairbanks North Star Borough to distribute gas through the state-sponsored Interior Energy Project.
Converting a home heating system from fuel oil to natural gas could cost Interior residents up to $10,000 for a new boiler and gas hookup.
If AIDEA is able to hit its target of supplying gas to the region at about $15 per thousand cubic feet, or mcf, the fuel savings would be substantial. At $15 per mcf, natural gas would be about half the price of fuel oil at $4 per gallon.
The working group — which includes representatives from Fairbanks Natural Gas, IGU, the Fairbanks North Star Borough, Cold Climate Housing Research Center, Alaska Housing Finance Corp. and mechanical contractors that would perform the conversions — is looking closely at a system where the service area utility would work as a pass-through for conversion costs. Under that proposal, a conversion surcharge would be added to a customer’s monthly gas bill until the boiler is paid off.
Shefchik said such a system is good in theory, but must allow for cash-strapped customers to realize the benefit of conversion right away.
“There needs to be immediate savings to customers,” Shefchik said. “If you can’t afford $4 (fuel) oil right now, to say, ‘Well, if you pay for your furnace it will pay off in five years and then you’ll get the savings in year six’ won’t do.”
Financial institutions also have participated in the working group discussions. They are providing input on what they would be willing to offer for private financing, which could be best utilized if it is backstopped by the borough or state, he said.
Depending on what protection public money can give against defaults, Shefchik said 10-year loans in the 3 percent range are possible for conversion.
He said pushing conversion early is key because the utilities, FNG and IGU are spending 100 percent of their capital in gas distribution and storage upfront and hoping for a 60 percent conversion rate after three to four years.
“Anything we can do to push conversion will bring those lines closer together,” he said.
A final conversion program should be ready by February, according to IGU.
Fairbanks Rep. Dave Guttenberg has been pushing for AIDEA and the utilities to develop a pilot conversion program since early July.  He said in an interview that conversion must happen in order to make the project viable.
Guttenberg said he has been frustrated with the lack of incentive for conversion and would like the state to subsidize about 100 conversions around Fairbanks and North Pole essentially to advertise that lower cost natural gas is on the way.
“It’s like the supermarket,” he said. “They sell you eggs for cost because they want you to come in and buy other things. This is basic marketing.”
There are multiple ways to back broader conversions when gas becomes available and there is openness amongst the Fairbanks delegation to ask the Legislature for help with that, he said.
“If I have to wait to get to Juneau that’s what I’ll do,” Guttenberg said. “It’s important that we break the egg here. It’s important that we break the cycle of not being able to make a decision.”
Not knowing the final cost of Interior Energy Project gas, which should become clear in the coming weeks and months according to AIDEA, has slowed momentum for conversion, according to Guttenberg.
Still, he said Interior residents come up to him on the street and ask how they can get involved in a gas pilot program.
In the first full year gas is made available — currently 2017 under the Interior Energy Project — IGU is expecting to have 850 residential customers. Conversions should ramp up to about 2,000 per year by year three, according to Shefchik.
IGU’s six-year distribution build out is starting in the heart of North Pole next summer, an area Shefchik said is referred to as the “trapezoid of death” in winter partially because of its poor air quality.
“It’s the coldest; it’s the lowest; and there’s no air movement. There’s also a lot of wood burning,” he said.
Additionally, North Pole is the portion of IGU’s service area with the lowest socioeconomic status, meaning its residents could benefit the most from lower energy costs.
Overall, Shefchik said the utilities are expecting about half of residents to finance conversion themselves, or simply write a check for a gas boiler system.
The working group also is asking mechanical contractors to push sales of convertible boilers over the next two years for customers who need a new oil boiler in the interim. He said switching a convertible boiler from fuel oil to natural gas runs about $1,500, rather than buying a whole new gas system again in a few years.
Fairbanks Natural Gas President and CEO Dan Britton said the private gas utility, which has operated a small but growing gas network in the center of Fairbanks since 1998, has tried to help mechanical contractors and boiler retailers learn about natural gas systems and their installation.
“We had a decision to make: either work with the mechanical contractors or become a competitor,” Britton told the board Aug. 25. “We chose to help them and stay out of the boiler business.”
WesPac proposes Cook Inlet LNG
A new plan to liquefy Cook Inlet natural gas could provide the Interior and other parts of Alaska with lower cost fuel if the Interior Energy Project falls through.
In a presentation to the Matanuska-Susitna Borough Aug. 26, Irvine, Calif.-based WesPac Midstream LLC proposed an LNG facility, power plant and pipeline system valued at more than $600 million. The plant would churn out about 250,000 gallons of LNG per day, or about 7.5 billion cubic feet of gas per year, WesPac Senior Vice President Brad Barnds said.
That is the same amount the Fairbanks utilities are estimating their demand will be after total build out of their gas distribution systems. Barnds said in an interview that Fairbanks would be a target market for the project.
WesPac would lease 100 acres at Port MacKenzie for the plants, which is owned by the borough. Unlike other LNG proposals, WesPac’s is not for export, according to Barnds.
“This is our way of putting private money and private investment into Alaska,” he said. “We want to provide Alaska gas to Alaskans first and foremost.”
When the Legislature approved more than $330 million to finance the ground-up North Slope LNG project that is the Interior Energy Project in 2013, it did so in part because long-term gas contracts were not available from Cook Inlet producers. Supplies have grown since then, and the producers have said they would like to sell their gas to Fairbanks on contracts up to four years.
Barnds said WesPac is in close talks with an inlet producer about taking “a substantial position in the reserves themselves,” which would allow for a gas supply through at least 2035.WesPac LNG would be shipped via intermodal, or ISO, containers by rail to Fairbanks, he said.
In December, Alaska Railroad CEO Bill O’Leary told the AIDEA board that the railroad could transport LNG in ISO containers from Southcentral to Fairbanks for as little as about $1 per mcf, or about one-fifth of the cost AIDEA is projecting it will cost to truck LNG south from the Slope.
An ISO container can hold roughly the same amount of LNG as a tanker trailer, but they can be doubled up on a rail car and then loaded on a flatbed trailer.
“We think that the ISO container is the preferred route. They’re fungible; they can be redeployed; they act as rolling storage to some extent,” Barnds said. “They can be transported to remote locations.”
The fact that Port MacKenzie is accessible by water, road and rail was key to the site selection, Barnds said.
He declined to speculate on a final price for gas, but said it will be better known when demand is gauged and is something WesPac is working on.
“We’re keenly interested in providing an alternative for Fairbanks and we’re working hard to secure all the components so that we can have a credible project for them to consider and we intend to provide that in the next 60 to 90 days to make sure that they have an alternative to look at before the final bell is rung on the other project,” Barnds said.