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State picks contractor for North Slope LNG to slash Fairbanks energy costs

Dermot Cole

FAIRBANKS -- The state selected a preferred contractor for the proposed North Slope Liquefied Natural Gas project Tuesday, an important milestone in an ambitious effort aimed at cutting the sky-high cost of heating in Fairbanks by 50 percent. The project would see natural gas trucked to the city from Alaska's North Slope.

The Alaska Industrial Development and Export Authority Board picked a plan from MWH over competing offers from the company that owns Fairbanks Natural Gas and from Spectrum Alaska.

MWH is a multinational company with considerable Alaska experience that joined with contractor WorleyParsons for the venture, lining up financial backing from a Toronto-based pension fund.

AIDEA and the company will try to work out a contract over the next few months on terms for a facility that could cost $160 million to $200 million.

The state Legislature and Gov. Sean Parnell approved a package last year that combines loans, bonds and grants to support the effort. A municipal utility has formed to promote the building of a natural gas distribution system that extends far beyond the existing private utility -- Fairbanks Natural Gas -- that has 1,100 customers.

The AIDEA portion of the project is aimed at building a liquefaction plant on the North Slope to treat gas that would be trucked to the Interior.

“It is the AIDEA technical team’s opinion that the MWH team is the most capable and experienced and has the highest probability of bringing the project to completion on time and on budget,” the AIDEA staff said.

The staff also said the commercial terms of the MWH plan envision more private investment, which would allow a larger part of the state assistance to boost the expansion of a distribution system.

While the state development agency voted unanimously to put the MWH offer first, board members said they did so with some trepidation.

“The Interior Energy Project continues to scare the heck out of me,” said board member Gary Wilken, a former state senator from Fairbanks. “It has multiple opportunities for failure, but I respect the wisdom of the Legislature, the staff work that’s gone on, and I sure know the need in Fairbanks to do something.”

He said the biggest question is the economics of running dozens of trucks hauling natural gas from the North Slope to Fairbanks.

“That is the single piece right now that is the wild card. I don’t think we understand it. I don’t think we appreciate it. I’d like to know everything we don’t know,” he said.

AIDEA should test the assumptions that have gone into estimates that the cost of trucking gas will add up to about $5 per thousand cubic feet of gas, about one-third of the total cost to the consumer, he said.

The plan predicts that with heating oil at close to $4 a gallon, natural gas would be about half of that price. The switch from fuel oil to natural gas could save homeowners about $3,000 a year, the state estimates.

But the uncertainties that could still get in the way of that goal are considerable, said Wilson Hughes, a GCI executive from Anchorage and public member of the board.

“I don’t see that we have a project until the final deal gets in front of us,” he said. “The next three months will tell the story one way or the other.”

He said the selection of MWH “puts us on the path to getting this thing to a conclusion,” but it’s not a foregone conclusion that it will work.

Another board member, Russell Dick, president of a Sealaska subsidiary in Juneau, said the MWH proposal provides the most certainty to the state.

MWH has been working with the nascent municipal-owned Interior Gas Utility to assist in planning and development of the expanded distribution system in Fairbanks. It also drew support from the Golden Valley Electric Association.

Board Chairman Dana Pruhs, an Anchorage contractor, said Fairbanks Natural Gas and MWH should see if they can work together because of the importance of this project to the community.

If they don’t work together, he said, there is a big risk that the state would scale back the plant on the North Slope, reducing the chance of success.

“I’ll support this. I have my fingers crossed that it gets to the finish line,” he said.

After the vote, Steve Haagenson, a member of the Interior Gas Utility Board, said the decision was good news for Fairbanks.

"Now is the time for MWH, AIDEA and user groups representing the community to come together and finalize the terms of construction for the liquefaction plant," he said.

Dermot Cole can be reached at dermot(at)alaskadispatch.com. Follow him on Twitter at @DermotMCole.