ANCHORAGE — Hilcorp Energy has agreed to purchase the Southcentral liquefied natural gas plant that supplies Fairbanks Natural Gas.
Fairbanks Natural Gas President and CEO Dan Britton said the prospect of the sale was spawned from discussions between the companies on how longer-term gas supplies could be secured.
Titan Alaska LNG, a wholly owned subsidiary of Fairbanks Natural Gas, operates the Point MacKenzie LNG plant. Britton is also president of Titan.
There is currently a gas contract in place from Hilcorp through 2018 to supply the plant.
Hilcorp Alaska Vice President Kurt Gibson said Nov. 21 that the sale agreements were signed “several days ago.”
The sale is tentative pending approval from the Regulatory Commission of Alaska.
Hilcorp spokeswoman Lori Nelson said acquisition of the plant would mark the company’s first foray into LNG.
“The Titan plant basically represents an opportunity for us to expand within the state to Fairbanks where less expensive energy is certainly something they are looking for and we have the opportunity to provide,” Nelson said.
Financial terms of the sale were not disclosed.
The plant will be operated by Hilcorp’s subsidiary Harvest Alaska because it is a midstream asset.
Britton said Hilcorp has the resources and the will to expand LNG processing, another reason for the sale.
“We were having ongoing discussions around expansion of the facility and how we might facilitate that,” he said. “Those discussions led to the transaction that we have today.”
Expansion plans won’t be formalized until the sale is approved, according to Nelson. She said Hilcorp is working to secure equipment necessary to grow the plant.
Fairbanks Natural Gas’ LNG trailers and two LNG-powered trucks are included in the sale, Britton said.
The company’s also put in place a 10-year LNG supply agreement for up to the equivalent of 0.95 billion cubic feet, or bcf, of gas annually, which covers what the utility’s current customer base demands, according to Britton.
The plant has the peak production capacity to process slightly more than 1 bcf of gas per year.
Fairbanks Natural Gas has about 1,100 mixed residential and commercial customers in the city’s core. It is in the midst of a multi-year expansion to its gas distribution network. The first phase of distribution construction was financed by the Alaska Industrial Development and Export Authority as part of the state-sponsored Interior Energy Project — a plan to truck North Slope LNG south to the Interior by late 2016.
Gibson said the 10-year supply agreement is essential because the Point MacKenzie plant is the only option for getting gas to the Interior now.
“For now, (Fairbanks Natural Gas) needs to know they’ve got a secure supply and turning loose of the plant from their perspective, I think, was conditioned on making sure that they have a long-terms supply of natural gas,” Gibson said.
The producer has recently signed five-year supply contracts with larger Southcentral utilities.
An integral part of the plan, Britton said his company is still committed to the Interior Energy Project.
“(The Interior Energy Project) has challenges that the parties are all trying to overcome,” he said. “For Fairbanks Natural Gas, what we want is LNG available for expansion. We want that available in the most secure and cost effective manner as we can and this transaction with Harvest Alaska I think opens up an alternative opportunity.”
Hilcorp has discussed its plans with AIDEA and is not looking to compete with the Interior Energy Project, Gibson said.
No decisions have been made as to what will happen to Titan, but given the current situation the company “essentially goes away,” according to Britton.
Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.
