In Alaska, it's the little LNG that could

— While Alaskan officials continue a years-long debate over which of several competing LNG export projects will be serve the state’s needs, one state entity is pushing ahead with a small-scale plan to bring gas to interior residents.

The state government-backed Alaska Industrial Development and Export Authority is determined to meet a stringent two-year timeline to truck relatively cheap natural gas to Fairbanks and nearby areas through development of a small regional LNG facility, an official connected to the project said at a one-day energy summit held in conjunction with the annual Alaska Oil & Gas Congress this week.

The $205 million, 9 Bcf/year project would be partly funded by AIDEA, with a portion coming from private funds that would take equity in the project, AIDEA deputy director for project development and Asset Management James Hemsath told the gathering in Anchorage.

“We believe we can meet our goal” of a late 2015 timeline, Hemsath said, several times calling the timeline “aggressive.” But he admitted “it’s a Rubik’s cube" to tie together the funding, engineering, timely orders of long-lead-time materials and selection of project operator together in time to start bringing LNG to Fairbanks in September 2015, the start of the winter heating season.

In the state’s remote interior, energy costs are “extremely high, nearly $30/Mcf” for natural gas, he said, which is “almost five times” the cost of gas in the Cook Inlet area further south.

By the end of this month, AIDEA will have narrowed down the selection of potential operators to one. It will then begin serious negotiations with that party; the operator would also take an undetermined equity stake in the project, Hemsath added.

Besides the operator, another unanswered question is how much LNG storage would be required; some numbers being bandied about are two to five million gallons.

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For now, the project would require about 60-70 trucks devoted to delivering LNG about 500 miles from North Slope production fields to Fairbanks area residential users. But the system could be expanded to serve not only more of those customers in more areas, but industrial and commercial users such as the 85,000 Flint Hills refinery near Fairbanks and the Golden Valley Electric Association which powers Alaska’s interior, Hemsath said.

Eventually, the LNG gasification facility could be as large as 20-21 Bcf/year, he said.

In its early days, the project would trim current fuel costs. Hemsath said AIDEA believes gas can be delivered to Fairbanks for about $15-$17/Mcf, about half the current cost, for a savings of $2,500-$3,000 per household per year, he said.

Even more sweeping, the project could create what the official called “a new economy in the state, including use of LNG in truck fleets.”

“It provides a bridge to a couple of activities” besides lowering fuel costs, he said. It would spur a gas-based infrastructure compatible with potential future gas pipeline projects and could bring LNG use to heavy industry, replacing fuel oil typically now used for heating in that sector.

At some future point, rail might even be more economical than trucks for moving LNG, said Hemsath. “A lot of different things are out there -- a new, gas-based economy," he said.

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