Not everyone is on board with Fairbanks Utility’s deal to source North Slope natural gas

Fairbanks’ sole natural gas supplier signed a 20-year contract with Hillcorp earlier this month to begin supplying gas from the North Slope. It’s a historic deal — the first time North Slope gas will be commercialized for use elsewhere in the state, and in this case, in a region heavily dependent on expensive heating oil.

But some Fairbanks residents and utility experts are concerned that the deal was not the best option for the region, where turning off an affordable, stable source of heating fuel is a central issue.

“The whole Fairbanks area is hurting, hurting for some sort of reasonable energy cost so that we can live and grow economically and in every other way,” said Patrice Lee, a former member of the Interior Gas Utility Board.

IGU is a relatively small business. It is a public corporation owned by the Fairbanks North Star Borough with approximately 2,000 customers and a network of gas storage tanks and pipelines that cross Fairbanks and the North Pole.

Natural gas, generally speaking, cheaper than hot oil And cleaner By burning wood, coal or diesel.

For years, IGU has purchased natural gas from Hilcorp operations in Cook Inlet. They process it at an IGU-owned liquefaction plant in Point Mackenzie, and truck the liquefied gas more than 300 miles north along the Parkes Highway to the interior.

Two weeks ago, IGU signed another contract with Hilcorp. This one, to bring gas to the south From Hilcorp’s Prudhoe Bay oil fields.

“It is going to be their footprint for any other businesses that need gas. And that’s all well and good, but many of us realize that we may need smaller amounts of gas,” Lee said.

Lee and others question whether it would have been cheaper to import liquefied natural gas, or LNG, from Canada.

The price of Canadian LNG fluctuates, said Mary Ann Pease, an energy consultant who helped IGU with sourcing and contracting in 2021. But at the time, rates were competitive with the Cook Inlet gas supply, she said.

“It provided a nice additional amount of gas and at a cost that was in line with the other option of liquefying and trucking it to Point Mackenzie,” Pease said.

This time, IGU general manager Dan Britton said the utility did not conduct a direct price comparison using Canadian LNG because of concerns about the risk of exchange rate and price volatility. Britton said the transportation distance from Canada was also a concern.

IGU began looking for new sources of natural gas last year after Hilcorp announced plans to warn utilities about uncertain gas supplies at Cook Inlet.

IGU spokeswoman Elena Suduth said the utility was ready to quickly switch to a new source.

“We are already prepared to transport LNG from anywhere and we are closer to the North Slope than any other utilities source of natural gas,” she said.

Eventually IGU and Hilcorp entered into an agreement to buy North Slope gas. The plan involves a Hilcorp-affiliated company called Harvest Midstream building a liquefaction plant near Deadhorse. Then, IGU plans to truck the gas 500 miles south to Fairbanks under the Dalton Highway.

Both Harvest and Hilcorp say they are happy to supply North Slope gas to Interior, but neither would comment further for this story.

Critics see issues with this plan.

One is the selection by IGU of a Hilcorp-aligned company like Harvest to build the liquefaction plant instead of calling for competitive construction bids.

“I don’t think it makes sense at all,” said energy contractor Pease. “Why would you have someone controlling the entire value chain from gas supply to liquefaction?”

Britton said that while the utility has called for bids on other projects, they went with Harvest this time because the company has worked on similar projects in the past.

“Given their ability and their ability to build the project in a reasonable time frame, and the fact that they operate assets in the North Slope today,” he said.

IGU has signed 20-year contracts with Hilcorp and Harvest, which it says will provide its customers with stability and value comparable to what they are paying now. According to the IGU, over that 20-year period, the contracts state that rates cannot increase by more than 20%.

Still, it’s a long time from closing with the same suppliers, Pease said.

“What if other options come online in the near future where the price is more competitive?” He said. “If there are other options that materialize what kind of carvings do they have?”

Pease said the deal is low-risk — and it’s something utilities are looking for — but long term, he’s not sure it’s the best price IGUs can be delivered for an area so in need of affordable heating fuel.

IGU said plans to build the North Slope Liquefaction Plant are already underway. It is expected to be online by the end of 2024.