LNG container

The 40-foot cryogenic container is one of two the Alaska Railroad will be using to transport liquefied natural gas from Southcentral Alaska to Fairbanks as part of a demostration project this month.

FAIRBANKS - The Interior Gas Utility and Siemens Government Technologies, a U.S. division of the German firm Siemens, are discussing a potential contract for the delivery and purchase of liquefied natural gas.

Siemens approached IGU in fall 2017 to signal its interest in supplying Interior Alaska with LNG from an undeveloped site near Houston, between Wasilla and Willow on the Parks Highway.

Siemens has given IGU's board of directors multiple presentations about its desire to construct liquefaction plants, harvest natural gas, and transport and sell it to the Fairbanks market.

The company hopes to tap into coal-bed methane resources on 3,000 acres of Knikatnu Village Corp. land. Siemens proposes funding all project development, and in turn has requested a development agreement with IGU.

Kelly Laurel, director of energy and infrastructure for Siemens Government Technologies, said the proposed development agreement asks IGU for assurances that the project will move forward if gas can be provided at or below a certain price.

Laurel said Siemens is willing to shoulder the risk by funding project development to determine if the gas will meet target prices.

“If we can’t, no problem. But if we can, we need assurances we'll move forward,” she said via telephone from her headquarters in Virginia.

Siemens is proposing three micro-facilities called LNGo, each capable of producing 1 billion cubic feet per year. Each LNGo unit costs approximately $15 million plus site preparation and takes about one year to become operational — both cost and duration could rise because of usual Alaskan complications.

The facility would also have direct access to adjacent Alaska Railroad lines if an additional spur line is built.

If an agreement between IGU and Siemens eventually pans out, the Houston facility will become the primary source of gas for IGU, which last December approved the $60 million purchase of a gas liquefaction plant and parent company.

The newly acquired plant near Point MacKenzie and called Titan I would not become obsolete if Siemens’ plan is successful, according to IGU General Manager Jomo Stewart, but instead would provide backup and redundancy.

Stewart said Titan I was never capable of providing IGU with enough gas to meet usage forecasts. Currently the facility can produce 1 billion cubic feet per year, when IGU predicts needing 3.25 billion cubic feet per year by 2023.

"We need gas. We need more gas turned into LNG to be brought to town to expand gas service. We're at the front cusp of decision-making about what exactly that looks like," Stewart said. Discussions with Siemens are an attempt to optimize IGU's plans, he added.

If an agreement with Siemens can’t be reached, IGU has plans for approximately $71 million in both upgrades at Titan I and new liquefaction plants at the Point MacKenzie facility. Those upgrades and new facilities would likely be funded with revenue bonds.

In a related matter, the Alaska Senate on Wednesday unanimously passed Senate Bill 125, which extends IGU’s bond-purchasing authorization by five years.

IGU is authorized to issue up to $150 million in bonds, but that authorization was set to expire on June 30. Senate Bill 125 does not increase the amount of bonds the utility can issue, just the time frame.

Stewart said no specific change prompted IGU to enter discussions with Siemens; rather, he said, the situation and proposals have evolved. While Siemens is willing to front the capital investment, the company would likely look to sell the assets within a few years — be it to IGU or another entity, such as Knikatnu.

Laruel, the Siemens director, said she’d rather IGU preserve its limited funds “and use that to expand their gas network or conversion incentives.”

According to Laurel, Siemens has turned away non-Alaska investors for the project “to keep it by Alaska for Alaska,” which may include tribal economic development and training bonds. She believes the potential to transfer LNG from rail to barge then transport via rivers has the opportunity to be a game-changer in Alaska energy.

Contact staff writer Robin Wood at 459-7510. Follow him on Twitter: @FDNMcity.