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Energy

State buys out private industry partner to lower costs of Interior LNG project

  • Author:
  • Updated: December 2, 2016
  • Published December 2, 2016

State officials behind a project to reduce energy prices and air pollution in the Interior have altered plans in an effort to lower costs, buying out the company that would have owned an LNG plant along Cook Inlet to pursue a publicly owned concept that eliminates taxes and finds other savings.

The Alaska Industrial Development and Export Authority decided in late October to pursue not-for-profit status out of concern low oil prices will delay the number of potential customers in the Fairbanks area wanting to convert their heating systems from heating oil to natural gas, officials said.

Expecting heating oil prices to rise again, the agency is still moving ahead with plans that call for the expansion of a small liquefied natural gas plant near the Inlet now owned by the state that has a small customer base in Fairbanks. Under one concept being pursued, the system would be owned by the Interior Gas Utility, a public entity created by the Fairbanks North Star Borough to lower energy costs and air pollution tied to stove oil and wood-burning.

"We're looking at squeezing out every cost in the supply chain so we can lower delivered costs to the consumer," said Gene Therriault, AIDEA's lead official for the Interior Energy Project.

The financing authority has received $57 million from the Alaska Legislature, plus loan and bonding authority worth another $275 million to support the project.

AIDEA is currently negotiating with the IGU on the utility's potential acquisition of assets, such as the LNG plant and distribution system. The AIDEA board will have to approve the acquisition, a decision that may be considered next year.

If IGU acquires the assets, the financing authority will continue to administer the legislatively approved funds, working in tandem with IGU before allocations are made, Therriault said. The agency and IGU are currently studying details related to the possible acquisition, including estimated costs and the best financing options to support the investments needed to expand LNG distribution in the Interior.

AIDEA acquired the gas-liquefaction and distribution assets when it purchased Pentex Alaska Natural Gas for $52.5 million in early 2015. If IGU acquires the assets, the agency expects to receive its full investment back, plus more, said Jomo Stewart, IGU general manager.

AIDEA, after a search for private industry partners, agreed in March to work with Salix, a subsidiary of Spokane-based power company Avista.

The company proposed building a for-profit LNG plant and pursued studies to receive permitting. But in recent months, the agency began talking with Salix about its concerns, said Therriault.

Salix was very cooperative and agreed to the change, said Therriault. In October, the AIDEA board approved paying $250,000 to acquire the studies performed by Salix. The Alaska Journal of Commerce initially reported the buyout.

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