Fairbanks is the sole natural gas supplier has signed an agreement for 20 years with Hilcorp earlier in the month to start sourcing gaz that comes from on the North Slope. It’s an historic agreement – the first time that North Slope gas will be utilized across the state, and, in this instance it’s in a region that is heavily dependent on heating oil that is expensive.
However, there are some Fairbanks residents and experts in the field are worried that the deal isn’t the best choice for the area, since securing a low-cost reliable energy source for heating is an essential problem.
“The entire Fairbanks region is in pain and is in need of some sort of affordable energy cost to allow us to prosper and thrive economically, and in every other way,” said former Interior Gas Utility board member Patrice Lee.
IGU is a small-sized business. It’s a publicly-owned corporation that is that is owned by Fairbanks North Star Borough which has around 2,000 customers, and an extensive network of gas storage pipelines and tanks that traverse Fairbanks along with North Pole.
Natural gas is, generally speaking, cheaper than heating oil and cleaner than burning wood, coal or diesel.
Since the beginning, IGU has purchased natural gas from Hilcorp operations in Cook Inlet. They then process it in an IGU-owned liquefaction facility located at Point Mackenzie, and truck the gas that is liquid to the north of about 300 miles on to the Parks Highway to the Interior.
A couple of months ago IGU entered into another agreement with Hilcorp. This one aims to transport gas south southfrom Hilcorp’s Prudhoe Bay oil fields.
“That’s going be their model for other businesses out there who require gas. That’s fine and good, but a lot of us believe that it would have been possible to find the quantity of gas we require without spending more,” Lee said.
Lee and others wonder if there would be more economical to import liquid natural gas, also known as LNG in the case of LNG, from Canada.
The cost for Canadian LNG fluctuates according to Mary Ann Pease, an energy consultant who assisted IGU in its the sourcing and contracting process in 2021. However, at the time, prices were comparable to their Cook Inlet gas supply, she explained.
“It offered a nice addition amount of fuel and at a cost that was comparable to the alternative of the liquefying process in Point Mackenzie and trucking it ,” Pease said.
This time, IGU general manager Dan Britton stated that the utility did not conduct a direct price comparison with Canadian LNG due to fears about rates of exchange and potential of price fluctuation. Distances to transportation from Canada are also a problem, Britton said.
IGU began looking for new natural gas sources this year, following Hilcorp announced a warning to utilities of the uncertainty in gas supply at Cook Inlet.
The utility was prepared for a rapid transition to a new provider, IGU spokesperson Elena Sudduth said.
“We are already in place to carry LNG from anywhere, and we are more close than our location on the North Slope than any of the other utilities that draw LNG,” She said.
In the end, IGU and Hilcorp reached an arrangement to buy north Slope gas. This plan involves a Hilcorp affiliated company known as Harvest Midstream building a liquefaction plant close to Deadhorse. After that, IGU plans to truck gas for 500 miles to Fairbanks along Dalton Highway. Dalton Highway.
Harvest Hilcorp and Harvest Hilcorp both state that they’re pleased to provide North Slope gas to the Interior However, neither company will comment on this story.
There are some concerns with this plan.
One of the reasons is that IGU has chosen an Hilcorp-aligned firm like Harvest to construct the plant to liquefy the liquid instead of putting out an open call for construction bids.
“I do not think that it is logical,” said Pease, the energy consultant. “Why should you have somebody who is in charge of the entire value chain , from gas supply to liquidation?”
Britton stated that, while the utility has reportedly called bids for other projects, they decided to go with Harvest this time due to the fact that the company has previously worked on similar projects before.
“Given their capabilities and capability to have the project built within a reasonable amount of time, as well as the fact that they have assets on the North Slope today,” he said.
IGU has signed contracts for 20 years in partnership with Hilcorp and Harvest that , according to them, will provide security to their customers as well as similar prices to the current rates. In the course of that 20-year period the agreements state that rates can’t increase by over 20%, as per IGU.
However, it’s an extended period to be locked into those same vendors, Pease said.
“What do we expect to happen if different options are made available soon, and prices are more than competitive?” she said. “What kinds of carve outs are they able to use if there’s alternatives that are available?”
Pease stated that this deal is risk-freeand that’s what utilities usually seek out. However, in the long run, she’s not certain that it’s the most cost-effective deal IGU could have given to the region that is in dire need of fuel for heating that is affordable.
IGU confirmed that plans are in the process of building plans to construct the North Slope liquefaction plant. It’s anticipated to be up and running by the end of 2024.
