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Natural gas is no silver bullet: Price risk remains, even while alternatives emerge

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Posted: Sunday, December 23, 2012 12:00 am

Community perspective

The cost of heating Interior Alaska’s homes continues to rise while many of our elected officials cheer an energy alternative with questionable viability as a long term solution. The Fairbanks North Star Borough would like to expand the use of liquefied natural gas beyond the current 1,100 customers and reported in June that proposed spur lines would carry LNG from Fairbanks to many outlying areas and save residents between $4,500 and $6,300 per year. The same report puts the average cost of retrofitting your home from heating fuel to gas at about $8,000.

The study estimates the local pipe to cost from $230 million to $600 million, but borough Mayor Luke Hopkins said the plan considered only local infrastructure, not the LNG source or funding.

Given the current price differential and unpredictable prices in the future, the estimated savings are not realistic. As of today, the cost differential between LNG at $3.08 per gallon (converted equivalents of LNG btus) and No. 2 heating oil (diesel) at $3.70 per gallon is 17 percent. On the surface this sounds like a nice break, but what about start up costs? Besides retrofitting your home and the lack of local infrastructure, the state has proposed a multitude of expensive ideas that use public funds.

Also, consider that the price of natural gas is not stable and could increase, the price of oil could come down, and the futures markets may begin to manipulate the price of natural gas as they have with petroleum. These points beg the question: Is there a real long-term tradeoff in replacing diesel fuel with LNG?

Concerning the LNG sources proposed by state government, there is the “bullet line” from the North Slope to Fairbanks at $8 billion (though some at the state say, due to additional infrastructure requirements on the North Slope, the cost is more like $15 billion to $20 billion); liquefying and trucking gas from the slope; and another gas line from Anchorage that died with voter redistricting.

Since 1959, the gas pipeline proposal (the bullet line) has essentially remained unchanged. It’s expensive and not economically viable. If it were viable, it would have been built already. Instead, it serves as a bully pulpit for many of our elected officials.

The proposed liquefaction plant currently has no interested private investors. Flint Hills and Golden Valley Electric Association talked about it but walked away. Big industry does not invest in unprofitable projects.

Besides that, trucking gas to town increases the traffic and maintenance requirements for the Dalton Highway, and transportation requires copious amounts of diesel fuel, the very fuel the plan aims to replace. These added costs have not been addressed.

The predictions about savings by both the borough and Gov. Sean Parnell are shots in the dark when you look at the means to arrive at their estimates. Parnell’s assessment that this local source will bring down the cost of LNG is more so because we are not isolated from world markets. The borough plan does not consider an LNG source, so the cost of tying the proposed local lines to whatever LNG source surfaces is unknown.

Add it up. From the source on the North Slope pipelines to a bullet line or a liquefaction plant is big money and trucking it to Fairbanks requires diesel fuel. If gas makes it to Fairbanks and the infrastructure arrives at your door, do you spend $8,000 hard-earned dollars retrofitting your home to use a fuel source whose price is just as predictable as the current source (oil)? Or do you come up with another plan?

I overheard someone say “this town (Fairbanks) is gonna die if we don’t get gas.” No it’s not; it has been here for over 100 years. In that time, humans have gone from harnessing energy by burning coal and wood to learning to refine fuels, then looking towards the sun, wind and tide.

Industry has told us the status quo is good enough. The politicians followed suit.

Progressive thinkers looked the other way and worked to develop technologies that just a few years ago seemed out of reach. There are people in Fairbanks now heating their homes with solar energy and geothermal technology. True, alternative energy is often expensive, but the long-term net benefit leaves this gas business out in the cold.

It isn’t likely that “alternative energy” is going be available to everyone right away but the gas line project is no silver bullet. It’s not a long-term solution. Interior Alaskans need advocates of long term community planning.

Mike Knoche, of Fairbanks, owns and operates Straight Ahead Construction, LLC. He is also a guide and naturalist in Alaska. More can be found on his website: http://alaskaninteriorbuilders.com.

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