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Flint Hills seeks market input after ending talks with GVEA about natural gas trucking plans

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Posted: Monday, November 19, 2012 11:15 pm | Updated: 12:09 pm, Mon Jan 21, 2013.

FAIRBANKS — Flint Hills Resources Alaska announced Monday that it has terminated discussions with Golden Valley Electric Association on a natural gas trucking plan, saying it now wants to hear from two state agencies about market demand for a natural gas processing facility.

The company, in a news release, said it has completed an engineering phase on the project and that the next step is determine if there would be sufficient demand for a gas processing plant beyond the needs that Flint Hills would have at its North Pole refinery.

The news release said the company thinks the Alaska Industrial Development and Export Authority and the Alaska Energy Authority are the proper entities to undertake such an analysis.

“We don’t think that we would build the plant for our needs and the needs of other industrial users alone, so we will wait for AIDEA or AEA to do further investigation and present a proposal if they think that is appropriate,” said Mike Brose, vice president of Flint Hills Alaska.

“In the 15 months since the project was announced we have made significant progress,” Brose said in the news release. “Flint Hills still believes LNG trucking is a valuable project for Fairbanks and Interior Alaska.

“However, there are a number of other entities that have expressed interest in this project, and we think the time is right for a third party to determine if there is sufficient support for the project outside of the industrial demand that Flint Hills has been targeting,” Brose said.

The two companies announced in August 2011 that they had formed a partnership to truck liquefied natural gas from the North Slope to the Interior, with the expectation that gas would start being delivered in early 2014.

The project was aimed at providing natural gas to both companies. It called for construction of a processing plant on the North Slope to liquefy the gas and a fleet of about 40 trucks to deliver the gas to a storage facility, which would need to be built. For GVEA, the project would allow the utility to replace its costly power plant fuel source — oil — with the lower-cost natural gas, thereby lowering the cost of power for consumers. Flint Hills said at the time that natural gas would allow the company to end its use of fuel oil by 2014.

A third company, Fairbanks Natural Gas, and other companies would be able to buy gas at some point because the North Slope plant would be expandable.

GVEA interim President Cory Borgeson said in an interview Monday that Flint Hills’ decision wasn’t a surprise and that utility is continuing with its plans to use natural gas. GVEA in September announced it had reached a 20-year agreement with BP Exploration for the purchase of natural gas, though that is just one component of a plan that also calls for state aid to build a processing plant.

“I think we knew that Flint Hills’ needs and goals for this project had changed over the course of the last 15 months,” Borgeson said. “We had prepared for it and is why we have been out advising interested parties that Golden Valley was going to step up and do this.”

Borgeson said the departure of Flint Hills could actually hasten a project. The two, for example, had different views on how construction of the processing plant would come about.

“We might be able to move faster. When you’ve got two parties working on things together, it takes longer to coordinate, come to consensus,” he said.

The Flint Hills news release noted that the company “has been and continues to be opposed to all government mandates and subsidies as they have reviewed the LNG project and never requested state assistance for this project.”

Borgeson said Golden Valley has a different view but that the difference of opinion with Flint Hills wasn’t a factor in the breakup of the partnership. Golden Valley is “absolutely” hoping for state assistance on the project, he said.

“I’m looking forward to the governor making good on his promise to help the people of the Interior,” he said.

Contact managing editor Rod Boyce at 459-7585. Follow him on Twitter: @FDNMeditor.

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