Proponents of a relatively clean and plentiful fuel say it needs to be produced in commercial quantities so Alaskans can slash village energy prices, grow jobs and save big bucks at mines, oil fields and other operations.
To get large amounts of propane into the state's energy mix, the Alaska Natural Gas Development Authority hopes to convince oil companies to build or upgrade a plant at Prudhoe Bay to extract the rich propane.
The oil companies would produce about 20,000 barrels a day, selling most of it Outside to the estimated tune of about $383 million a year, under a new plan presented by the authority.
The authority, meanwhile, would purchase some of the propane to support a growing in-state market with relatively cheap energy, selling it throughout the state without marking up prices, said Mary Ann Pease, propane supply coordinator with the authority.
As the thinking goes, the plan will lead to lower propane prices in part because propane shipped from the North Slope - to communities statewide by truck and barge - will be cheaper than propane shipped in from Outside as most is today.
The prospects for propane in Alaska are expected to grow as diesel fuel gets pricier. The most important argument for getting North Slope propane to Alaskans? The huge energy costs crippling villages, said Pease.
Energy costs soaring in villages
Diesel fuel is the energy that powers the Bush, warming homes and running rural generators. But it's costly, usually hovering around the price of unleaded gasoline, which is more than double the national average in many villages.
Unleaded gas is especially expensive in the Kotzebue region. Five of 10 villages pay $7.55 a gallon or more for unleaded gas, with Noatak paying the highest at $8.99. Diesel fuel prices are sometimes higher, contributing to monthly electric and heating bills that run several hundred dollars apiece.
"There's a need for alternative energy today," said Pease, speaking at the gas authority's second annual propane conference last week
Pease recently sent letters seeking the input of ExxonMobil, ConocoPhillips and British Petroleum.
The idea faces hurdles, including the tens of millions of dollars that will be spent before there's a processing plant and enough tanks, barges and trucks for statewide distribution.
The new plan replaces an earlier proposal that didn't get much traction because it didn't interest oil companies, Pease said. That called for building a plant outside the Prudhoe Bay facility and removing 2,500 barrels of propane daily from natural gas, then sending the propane to Fairbanks for sale in Interior villages.
Processing such small amounts of propane outside Prudhoe Bay was considered extremely inefficient. Oil companies could benefit much more under the new plan, Pease said.
"The other project was so small they would miss it if they blinked, so it didn't capture their attention," she said.
Propane would be cheaper
Once its removed, most of the North Slope propane gets shot back into the ground along with natural gas, where it helps in future oil extraction.
Alaskans use it to run barbecue grills and appliances in motor homes and cabins. Oil companies use it to power oil patch electric plants, conference speakers said. It provides about 1 percent of Alaska's energy, according to a 2009 report by the Institute for Social and Economic Research.
That study analyzed the authority's old plan. It found that propane trucked from the North Slope to Fairbanks would cost significantly less than fuel oil packing the same amount of energy.
Diesel fuel is processed from oil, so the value of using the propane would rise as oil prices rise. At $100 a barrel, propane would be almost half as expensive as diesel, the study found.
Crude oil has sold well above that threshold in recent weeks, most recently sparked by Middle East unrest.
The propane used in Western Alaska comes from Seattle. High transportation costs help make it more expensive than diesel fuel. Ship it from Prudhoe Bay, and those transportation costs will fall, the argument goes.
Now saving money for some
Propane, even at today's high prices, is already saving money for some rural Alaskans, said Ingemar Mathiason, the Northwest Arctic Borough's energy coordinator.
That's because businesses don't receive the state's "power-cost equalization" subsidy that reduces electric bills for rural residential customers. Big households can also lose the subsidy toward the end of each month, since it disappears after 500 kilowatt/hours are used.
Without the subsidy, rural electric costs are huge. In Northwest, the village of Deering pays 75 cents a kilowatt hour, about six times higher than rates paid by customers with Anchorage Municipal Light and Power. The highest Northwest rate is in Kobuk at 87 cents a kilowatt hour, said Mathiason, who spoke at the conference.
More and more families and businesses burdened with such costs are tossing out their electric stoves and replacing them with propane stoves to save money, he said. About 16 percent of the region's households use propane and more will follow.
A Kobuk family with a recent monthly bill of $380 could have saved $81 a month if they'd owned a propane stove, he said. Replace the electric drier, and savings rise even more, said Mathiason, who lives in Ambler and cooks with a propane stove.
If propane prices fell just 20 percent lower than today's prices, rural Alaska would see widespread conversions to propane appliances.
"It would really change the Bush," he said.
And if that happened, the state would save massive sums on its rural power subsidy, which helped nearly 200 communities and cost $37 million in 2009.
Diesel fuel will get costlier
Dean Westlake, head of NANA Regional Corp.'s village economic development, said a cheaper alternative to diesel fuel would lower the cost of living across Northwest Alaska, since high energy costs force businesses to boost the price of every product they sell.
Rural Alaska expects even higher prices this summer, perhaps 20 to 30 percent higher because of the rising price of oil, said Scott Henderson, operations manager with Bonanza Fuels in Nome in Western Alaska.
Federal requirements that diesel-fueled trucks, heavy equipment and generators use ultra-low-sulfur diesel also began in rural Alaska last year. Without much infrastructure to support that new requirement, it's uncertain how quickly it will come into play, but the requirement is another factor that's expected to push costs higher.
Some families already spend their last dollar on fuel oil, said Henderson, also a conference speaker.
"It's a huge issue," he said. "I'm very concerned about this summer."
Chris Birch, vice president of business development with NANA Regional, said the Kotzebue-region Native corporation wants cheaper energy for Red Dog Mine, which ships in millions of gallons of diesel fuel every year to power plants and vehicles.
Inexpensive propane could also save huge amounts of money on the North Slope, where NANA Oilfield Services distributes diesel fuel for oil patch vehicles.
Randy Breaux, with Crowley Petroleum Distribution, said his company's selling increasing amounts of propane throughout Alaska, usually in 4-foot-high, bullet-shaped tanks used by families. But orders are rising for larger 1,000 gallon tanks that help power fish-processing operations.
"The demand's out there," he said. If people want propane, Crowley will bring it to them.
Just another pipe dream?
Energy experts and others addressed additional benefits of propane at the meeting:
• It produces less carbon dioxide than diesel fuel.
• It vaporizes when released from pressure, so there's no spill to clean up.
• Despite past concerns, severe cold isn't a problem for today's propane-fueled vehicles.
But there are plenty of questions.
Who will build and install the new storage tanks to bring large amounts of propane to rural Alaska?
And rural transportation costs are so high, getting the propane to remote villages by truck and barge could quickly eat up potential savings, said Henderson from Nome.
Maintenance costs of tanks and other equipment in much of rural Alaska, with its wet, frigid weather, are also extreme, he said. Those expenses need to be considered, including who will pay for them.
The biggest question: Will the oil companies sign on?
Pease said this week she hasn't yet heard back from them.
She wants to know their level of interest, and if they think the plan is viable.
"We see this as a huge win for the producers and the communities, and a great business opportunity," she said.
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