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Alaska hears sales pitches from companies vying for North Slope gas plant

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Posted: Wednesday, November 20, 2013 12:07 am | Updated: 4:02 pm, Wed Nov 20, 2013.

FAIRBANKS — The rate difference among three companies vying for a state partnership on a North Slope plant designed to produce natural gas for trucking to the Interior is $1.09 per thousand cubic feet.

That was according to a report to the Alaska Industrial Development and Export Authority’s board of directors on Tuesday about plans put forward by a Fairbanks Natural Gas affiliate, Spectrum LNG and Golden Valley Electric Association.

The report broke down each of the three company’s proposals, including the cost of raw gas, fuel gas, operating costs, state loans, private loans, trucking and distribution.

After many months of meeting behind closed doors, this report was the first public look at the three proposals to develop the integral element of the Interior natural gas trucking project.

At the low end of the cost analysis is a proposal from Pentex Alaska Natural Gas Co., which owns Fairbanks Natural Gas, at $15.31 per thousand cubic feet to the consumer.

Obtaining equivalent energy from heating oil at $4 per gallon would cost about $30.

Golden Valley Electric Association, which has paired up with investors MWH, came in at the high end with $16.40 per thousand cubic feet of natural gas to the consumer. The electric company has been interested in the project for electric generation and it’s proposing the most expensive project at $207.6 million, with a large stake of private debt financing that accounts for $1.66 of the gas rate.

Spectrum LNG, which is headed by Ray Latchem, who helped found FNG and went on to operate Lower 48 facilities specializing in LNG for transportation fuel, came in just a few pennies more expensive than Pentex. Spectrum’s plant would cost $15.40 per million cubic feet.

Each plant also had a different cost structure and requirements from the state.

Spectrum required the least state financing, at $84.9 million, which Latchem pointed out would allow some of the state’s monetary commitment to be shifted to the distribution system in Fairbanks to help speed along available and conversion.

Fairbanks Natural Gas required the largest chunk of state financing, at $110 million. GVEA’s financing would come in at $90 million.

The Legislature approved more than $340 million of grants, loans, bonds and tax credits for the North Slope processing facility and distribution system in Fairbanks. Of that, about $50 million is available in cash grants for the plant as AIDEA’s equity stake, and another $125 million is available in low-cost financing from the states’ Sustainable Energy Transmission and Supply Development program.

Beyond just the numbers, representatives from each company also made pitches to the board.

“We have past experience and current experience in the whole project supply chain that we’re talking about today, not just the production of LNG, but also the transportation, the storage and the distribution to an end consumer in Fairbanks,” said FNG CEO Dan Britton.

Britton admitted that the first draft of FNG’s proposal came in too expensive for the end consumer, so the company put in extra work that resulted in “significant capital reduction.”

According to the financial term sheet analysis documents from the meeting, Pentex also is seeking the smallest return on its investment compared to the other projects. With $20 million of its own investment, it’s seeking a 12.5 percent return.

Spectrum is seeking a 25 percent return on its investment. GVEA and MWH are seeking a 20 percent return on a $21 million investment.

Spectrum LNG President Ray Latchem argued that his plant technology is more efficient than the other proposed plants. He would employ a mixed refrigerant system, while the others would use an electric drive system.

Because of that, he said, the cost for his plant will be the least, allowing for a larger chunk of the Legislature’s funding to be sent to Fairbanks to buy down the cost of distribution.

GVEA’s representative said the utility doesn’t have as much engineering work done on its plant as the other companies but added that the utility is focused on delivering gas to Fairbanks for electrical generation and home heating, which matches the legislative intention of the funding more than the other projects.

“We wanted to find a potential partner that would be interested in just providing financing and not transportation fuel,” said GVEA CEO Cory Borgeson. “It sometimes seemed that the transportation fuel was driving the project and not the utility gas.”

The board is expected to make a decision on which company to partner with for the North Slope plant at a meeting scheduled for Dec. 18. AIDEA spokesman Karsten Rodvik that the board will review everything presented on Tuesday and that the staff will present a recommendation at that meeting.

“At that time AIDEA staff will make its partner recommendation to the board. This recommendation will be based on today’s discussions, the term sheets and materials presented today and public comments,” he said. “Our goal remains the same: Get affordable energy to Interior Alaska as soon as possible.”

Contact staff writer Matt Buxton at 459-7544. Follow him on Twitter: @FDNMpolitics.

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