Is it possible that we might build the all-Alaska gas line and not provide gas to Fairbanks? This nightmare scenario is possible, and avoidable.
The Alaska Gasline Port Authority has spent years developing relationships with the Asian liquefied natural gas market. This work has led to the completion of a successful, non-binding open season with Exxon and TransCanada. AGPA aggregated 2.8 billion cubic feet per day of market interest, more than enough gas to fill a large-diameter gasline.
Here’s the bad news. There is more market interest in Prudhoe Bay, Alaska gas than there is gas available. Even though 8.4 bcf is re-injected at Prudhoe Bay each day, the Alaska Oil and Gas Conservation Commission may only allow up to 2.7 bcf of North Slope off take per day. If too much gas is removed too quickly, valuable oil could be left in the ground.
A “big inch” line is the key to affordable natural gas for Alaska due to economy of scale. How affordable? Here’s a primer on what others pay for gas: North Slope gas is sold for $1 per million Btu among producers. The Lower 48 Henry Hub price for gas is about $2.78 per mmBtu. Anchorage gas customers pay $6, and Fairbanks Natural Gas customers pay $23. The wholesale price of gas from a large-diameter gasline should be between $4 and $5. By comparison, a gallon of $4 fuel oil contains about 138,000 Btu — seven times more expensive.
With more market interest in natural gas than available gas, it is vital that Fairbanks organize and be able to bid for gas in a large gas line, binding open season. If we fail to act as a community, we will have the long-hoped-for gas line, but the gas passing through that line will only go to those who participated in the open season, not us. If you think that cannot happen, think again. When the oil pipeline was completed, there was no oil off-take valve here. It was the litigation that Frank DeLong initiated on behalf of Earth Resources — the first North Pole refinery — that made oil available here.
For Fairbanks to participate in an open season, it is mandatory that we do two things. We must first quantify how much gas we need, and we need to be able to bid for that gas with a binding, take-or-pay, 20-year contract.
Because Fairbanks does not have a gas distribution system that serves 90 percent of the homes and businesses, we have a “chicken or the egg” dilemma. No one is going to bid for gas without an established gas grid. But no one is going to build the grid without a gas supply.
Mayor Luke Hopkins, with bipartisan support from the assembly, is working to unite the local governments behind an areawide gas utility that takes several critical steps. First, the concept is to get gas to most homes. Currently, of our approximately 26,000 households, only about 500 are connected to a gas grid. Second, the plan is to ensure the lowest cost gas through a “cost-of-service model,” and use of low-cost, tax-exempt bonds and state grants for the grid construction. Third, the utility would be comprised of a 100 percent local board that buys energy here and receives only a small stipend for its service.
I’ve listened with astonishment as some local politicians have spoken out of both sides of their mouths when they attack this plan. First, they tell us that we urgently need affordable energy. Then, in the next breath, they exclaim that there is no rush. Turn this over to the Alaska Industrial Development and Export Authority, they say. That would be the same AIDEA that has a seven-member board comprised of six board members who do not live here. The AIDEA that gave us the Healy coal boondoggle, and the same AIDEA that has rejected other short-term options that target energy relief for the Interior.
Interior residents, regardless of political affiliation, are collectively overpaying for energy to the tune of about $1 million dollars per day and breathing dirty air because we have yet to unite. If North Pole and Fairbanks join this effort, we will have 100,000 residents united behind a plan that will ultimately be ratified by the Borough Assembly.
Those of us who have worked for so long get a gas line project going would love to take Fairbanks’ order for cheap natural gas. Will we be ready?
Merrick Peirce of Fairbanks is a board member of the Alaska Gasline Port Authority, a organization established by public vote in 1999 and whose current members are the Fairbanks North Star Borough and the City of Valdez.