Gov. Bill Walker announced to Golden Valley Electric Association leaders last week he has a plan on the way to significantly reduce Interior energy prices — by next winter. The announcement is certainly welcome news, coming not long after the departure of contractor MWH from the Interior Energy Project that aims to deliver natural gas to Interior residents. So far, there aren’t many details on the structure of Gov. Walker’s plan, but they’ll likely be quick in coming. As the governor, his administration, local leaders and stakeholders work to make the plan a reality, getting energy relief to the Interior as quickly as possible is important, but delivering it at a price that will represent a savings for residents is paramount.
It’s never been much of a secret Gov. Walker’s support for the trucking of gas from the North Slope was tempered by a skepticism that comes from his own analysis of the issue. As part of the Alaska Gasline Port Authority, he looked at multiple options for gas delivery. The group ultimately decided gas trucking didn’t pencil out economically — the end cost of delivered gas would be too high for the project to gain traction with Interior energy consumers. Under Gov. Sean Parnell’s leadership, the state put money toward gas delivery with a focus on North Slope gas liquefaction and trucking to Fairbanks and North Pole. Most of the project’s state funds and loan guarantees allocated so far have been focused on distribution and storage here in the Interior, a wise strategy that preserved flexibility to alter the supply side of the equation if the North Slope plan didn’t make economic sense.
Estimates for gas trucking from the North Slope initially were rosy, with delivered gas estimated to cost at or near the project’s $15 per mcf price point — the equivalent of heating fuel at $2 per gallon — for maximum gas adoption by borough residents. But late last year, cost and time schedules started to slip, causing the estimated cost of gas to creep upward to points north of $19 to $20 per mcf. That equates to a heating fuel equivalent cost nearing $3 per gallon, about par with today’s prices — no savings at all. Eventually, the escalating cost estimate for the liquefaction plant caused the departure of its contractor.
Now Gov. Walker appears to be favoring an alternate plan that would bring gas up from Cook Inlet via ISO containers on the Alaska Railroad. It’s a plan first broached in detail last summer, but at the time it appeared the North Slope trucking plan could deliver gas cheaper.
There are several potential positives for the Cook Inlet refocusing of the plan. Much of the infrastructure needed is already in place, and the railroad, struggling to cope with high costs and the possibility of decreased federal funding, could use the freight business. A recent influx of small operators in Cook Inlet has led to more diversification of the basin and less reliance on the production decisions of individual firms.
But the Cook Inlet plan also has question marks. What would the mechanism be for getting gas from platforms to rail cars, and what would its cost be? In the event of a market downturn or departure of producers in the region, would Cook Inlet still be able to supply both Anchorage and the Interior?
Most importantly, what would be the end price of delivered gas? When the Cook Inlet rail option was presented this summer, backers of the plan said they could deliver gas “to the city gates” for $14.50 per mcf, which is under the overall price target for the energy project — but distribution and storage costs add a considerable sum, estimated at about $5 per mcf, to the delivered price of gas. Can one of those cost groups — distribution and storage or production and transport — be brought down to keep the price point in the range at which residents will switch?
The answers to these questions are likely to come quickly if Gov. Walker’s timetable of next winter is to be met. That target seems tantalizingly, impossibly close already. But if it could be met, the benefits to the Interior and state would be tremendous. Until we hear otherwise, we’ll hope it’s possible and we hope all involved will work diligently to make it a reality.
— Fairbanks Daily News-Miner,