State denies gas plant sale, 13 companies submit proposals

  • Tuesday, August 11, 2015 7:14pm
  • Opinion

It’s been a hectic week for those following the Interior Energy Project. Attorney General Craig Richards on Monday denied the pending sale of a gas plant in Port Mackenzie that would be the most likely processing point for Interior-bound gas. And on Thursday, the Alaska Industrial Development and Export Authority announced it has received a whopping 13 bids from companies interested in supplying gas to the Fairbanks area. After a mostly quiet summer with little news about the project’s prospects, the picture is becoming clearer in a hurry.

The news about the processing plant appears to resolve — for now — one of the biggest question marks hanging over the project. When the state announced it would buy Fairbanks Natural Gas parent company Pentex, a sale of the plant to oil and gas producer Hilcorp’s subsidiary Harvest was already underway. The plant’s sale raised big questions for the state, as having multiple places along the supply chain where profit is extracted by third parties would damage the potential for the energy project to meet its price goal of $15 per thousand cubic feet of gas.

With the denial of the plant sale, the state has answered the question of what its plans for gas processing will be. If the plant remains a Pentex asset, it will be operated by the state and there won’t be issues with expanding capacity to meet Interior needs (in discussions about the sale, Attorney General Richards had sought assurance that Harvest would make such an expansion, and was rebuffed).

The state’s denial of the sale, however, may well lead to a court challenge. As the purchaser of Pentex, the state was in the odd position of being the direct beneficiary of the denial of the plant’s sale, a fact surely not lost on Hilcorp or its legal staff. But if the plant does remain in state hands, Interior residents stand to benefit from the fact gas processing will likely be undertaken as a zero-sum enterprise, rather than with a profit motive.

The other big question for the project was that of supply. In the project’s former North Slope focus, gas purchase agreements were already in place, so the supplier and price point for gas at the wellhead were known quantities. In the shift to a Cook Inlet focus, no such pre-existing agreements were lined up. During the legislative session, several Southcentral lawmakers were openly skeptical about the prospect of nailing down additional Cook Inlet gas supply for the project.

The announcement that a baker’s dozen of firms are seeking to provide gas to the Interior, however, indicates supplier interest is high. Five companies said they could supply gas to the liquefaction plant, one said it could provide the gas and liquefaction, and three said they could offer gas, liquefaction and transport. Three companies put in bids to supply the project under its original North Slope focus. And four other options also came in as bids, including imported natural gas and propane from outside the state.

As dilemmas go, having a surplus of gas supply options is vastly preferable to having too few, but there’s still no guarantee any bidder will offer gas at a price point that makes the energy project’s $15 price point a reality.

Should prices come in too high, AIDEA will be in the uncomfortable position of deciding whether to go ahead with a gas supply that costs more than expected, endangering the likelihood that most Interior residents will switch over.

That’s a decision that, if it comes, will take place later this year. For the moment, it’s good to have a sense that the wheels are still moving on the Interior Energy Project, and the goal of affordable energy for Fairbanks and North Pole-area residents is progressing toward reality.

— Aug 9, Fairbanks Daily News-Miner

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