FAIRBANKS — Discussions between the Interior Gas Utility and Siemens Government Technologies, a U.S. division of the German firm Siemens, have reached a new stage in the quest to find a long-term supply of liquefied natural gas for Interior Alaska.
IGU’s board of directors agreed to enter into a memorandum of understanding with Siemens at their Oct. 23 work session. Directors Jack Wilbur and Gary Wilken voted against the move. The nonbinding memorandum is a preliminary step in the process of securing a final gas contract between the two entities, essentially signaling an intent to move forward.
IGU is a voter-approved, public utility tasked with bringing natural gas to the Fairbanks North Star Borough.
Discussions between IGU and Siemens date back to fall 2017, when Siemens approached IGU expressing interest in selling gas to the utility from an undeveloped site on Knikatnu Village Corp. land near Houston on the Parks Highway.
The proposal is for Siemens to construct multiple small-scale liquefaction facilities called LNGos, then ship the gas to Fairbanks via railroad.
The memorandum prohibits IGU from soliciting, negotiating or entering any other competing contractual commitments, with some exceptions. Those exceptions include Titan expansion plans, use of propane in unserved areas, negotiations with Cook Inlet producers and the state of Alaska and negotiations based on already existing nondisclosure agreements.
Titan is a gas liquefaction plant recently acquired by IGU as part of a much larger deal. IGU is considering plans to upgrade and expand the Titan facility, which may or may not run congruently with Siemens’ proposal.
At the Oct. 23 work session, IGU legal counsel Robin Brena explained the purpose of the memorandum. “In order for them (Siemens) to get a price (gas), they need a term sheet. So we’re negotiating a term sheet that will allow them to go into the marketplace and firm up all their numbers and come back with a price.”
Agreements pursuant with the memorandum require a finalized term sheet for a gas supply with a target of Dec. 31, 2018. Siemens would be required to make a fixed-price offer for delivered gas no more than five months after the finalized term sheet.
Either party may cancel the memorandum of understanding with 30 days written notice.
Wilbur voted against the agreement because of the clause prohibiting IGU from pursuing other gas contracts and his skepticism that discussions will result in a timely agreement.
“We have a duty, as a board, to pursue any idea that’s brought to us that looks good. ... What happens if somebody else comes to us five months from now?” he asked at the work session.
Wilbur said IGU has fulfilled its responsibility to the public by considering Siemens’ proposal but that he doesn’t see a clear path forward with the firm.
“If I had more confidence that we would actually have a contract in place by the date that’s in here, I would be in favor of this memorandum,” he said.
Wilken also had doubts about the proposed time frame, which led to his opposition.
“We are deficient with money and we are deficient with time. ... I’m very concerned that we are doing nothing but extending this project and creating continued uncertainty, uncertainty that will hurt us financially,” Wilken said.
Board member Steve Haagenson took an optimistic view of the discussions with Siemens.
“It’s really rare, in my opinion and experience, to get a no-cost, no-risk proposal that will allow us to go forward in a parallel path with Titan. If we stand still and do nothing, shame on us,” Haagenson said.
According to the memorandum, some of Siemens’ responsibilities include designing the plant in Houston, designing loading and unloading platforms in Fairbanks and North Pole, procuring contractors and developing prices for capital expenses, securing financing details and supporting IGU in developing a plan for Titan.
IGU will be responsible for spearheading contract negotiations with the Alaska Railroad and the utility’s work on the final gas supply contract and Titan’s integration plan.
Contact staff writer Robin Wood at 459-7510. Follow him on Twitter: @FDNMcity.