AIDEA selects Colorado company as partner for Slope gas plant

Elwood Brehmer

The Alaska Industrial Development and Export Authority board unanimously selected MWH Americas Inc. as its preferred partner in developing a North Slope natural gas liquefaction plant for the state-sponsored Interior Energy Project.

The decision at the Jan. 14 AIDEA board meeting came after months of studying LNG plant proposals submitted to the state authority by Pentex Alaska Natural Gas Co., which owns the utility Fairbanks Natural Gas, and Spectrum LNG, a stakeholder in a small gas utility in Deadhorse, in addition to MWH's plan.

MWH is an environmental engineering and construction company based in Broomfield, Colo.

Mark Gardiner of Portland-based Western Financial Group, hired by AIDEA to consult on the project, said that all three companies estimated final "burner tip" gas prices in the range of $15 to $16 per thousand cubic feet, or mcf, which is within an acceptable margin of error.

"The (AIDEA) staff recommendations conclude that the MWH proposal would most efficiently meet the IEP (Interior Energy Project) objectives and AIDEA's business and financial requirements," Gardiner said.

MWH's proposal stood out because it allocates more private capital to the North Slope plant than those submitted by Pentex and Spectrum, Gardiner said.

By contributing $82.5 million in debt and equity towards a projected $185.5 million, 9 billion cubic-foot, or bcf, plant, MWH would allow AIDEA to finance a larger chunk of the gas distribution network that must be built out in the Fairbanks area. While their cost estimates for a North Slop LNG plant are less, Pentex and Spectrum proposed contributing $30 million and $20 million, respectively, in private capital towards the plant.

AIDEA estimates getting natural gas to Interior with MWH as a North Slope plant partner could save residents who burn fuel oil approximately $2,800 per year on heating costs. That calculation is based on $4 per gallon fuel oil and a conservative estimate that the average household in the region spends $5,200 per year on heating fuel. Earlier studies have estimated that yearly expenditure to be up to $5,700 per household.

By going with MWH, AIDEA should be able put $57 million of Sustainable Energy Transmission and Supply fund loans allocated to it as part of Senate Bill 23 toward the Interior Gas Utility's distribution infrastructure. Spectrum's plan leaves $40.1 million of SETS financing for distribution and Pentex's leaves $15 million.

Gov. Sean Parnell signed SB 23 last spring to authorize AIDEA to issue $150 million in bonds and $125 million in SETS loans to further the IEP goal of getting trucked LNG from the North Slope to Interior residents. Additionally, the project received a $50 million capital appropriation and up to $30 million in tax credits for gas storage facilities.

In December, the state Regulatory Commission approved an Interior Gas Utility, or IGU, plan to install 663 miles of pipe in the high and medium-population density areas of Fairbanks and North Pole. The borough-owned startup's plan would make gas available to roughly 12,000 new customers, utility officials have said. That is in addition to the 1,100 customers Fairbanks Natural Gas serves in the core of Fairbanks with LNG trucked north from Cook Inlet.

The projected $15 burner tip gas price is contingent on a large customer base. A concern for the IEP has been whether or not Interior residents would be willing to invest the thousands of dollars required to convert their homes from fuel oil to natural gas heat.

AIDEA Energy Development Finance Coordinator Nick Szymoniak told the board that, with financing, most homeowners could expect to see a net savings to their heating costs in the first year after conversion.

"The savings that we're projecting over 10 years mean no rational person would stay on fuel oil," Szymoniak said.

Another reason the AIDEA team recommended MWH was its relationship with Golden Valley Electric Association, a possible large, interruptible customer that could help drive down cost for smaller gas customers. Golden Valley's need to buy gas for electrical generation has been in question throughout the progression of the project, but MWH foresees selling 2 bcf of gas to Golden Valley, 3 bcf to IGU and 4.5 bcf to Fairbanks Natural Gas by 2026.

The Interior Energy Project has been labeled an interim solution to the Interior energy situation until the time one of the proposed gas pipelines is built from the North Slope to Southcentral.

Despite the initial approval of MWH, Pentex and Spectrum are still in play as a plant partner if a final agreement cannot be reached with MWH. AIDEA officials said their goal is to have a formal contract with MWH signed by May 31, with plant construction beginning in September and first gas arriving in Fairbanks in late 2015. If a deal isn't reached, Pentex would be sought as a partner, with Spectrum next in line if both deals fall through.

Outside of the North Slope gas project, the AIDEA board approved the authority's participation in a $35 million loan Fairbanks Natural Gas is seeking for construction of a 5.2 million-gallon LNG storage facility. According to the terms of the financing, AIDEA agreed to purchase $20 million of the loan originated by Northrim Bank, which will participate with the remaining $15 million.

Fairbanks Natural Gas President and CEO Dan Britton told the board that the gas storage would allow the utility to expand its customer base within its service area by storing gas produced during off-peak times from its Southcentral LNG plant. Britton has said his company has not been able to add customers because it hasn't been able to secure additional gas contracts as a small utility.

Alaska Journal of Commerce