Fairbanks’ only natural gas supplier signed a 20-year contract with Hilcorp earlier this month to begin sourcing 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 the deal wasn’t the best option for the region, where locking down an affordable, stable source of heating fuel is a central issue.
“The whole Fairbanks area is hurting, hurting for some kind of reasonable energy cost so we can live and grow economically and every other way,” said former Interior Gas Utility board member Patrice Lee.
IGU is a relatively small business. It’s a public corporation owned by the Fairbanks North Star Borough with about 2,000 customers and a network of gas storage tanks and pipelines that crisscross Fairbanks and North Pole.
For years, IGU has purchased natural gas from Hilcorp operations in Cook Inlet. They process it at an IGU-owned liquefaction plant at Point Mackenzie, and truck the liquid gas north more than 300 miles up the Parks Highway to the Interior.
Two weeks ago, IGU signed another contract with Hilcorp. This one, to bring gas south from Hilcorp’s Prudhoe Bay oil fields.
“That’s going to be their footprint for any other businesses up there that need gas. And that’s all good and fine, but many of us feel that we could have found the amount of gas we need for less,” Lee said.
Lee and others question whether it would have been cheaper to import liquid 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 their Cook Inlet gas supply, she said.
“It provided a nice additional amount of gas and at a price that was commensurate with the other option of liquefying it at Point Mackenzie and trucking it ,” Pease said.
This time around, IGU general manager Dan Britton said the utility didn’t do a direct price comparison using Canadian LNG because of concerns about the exchange rate and the risk of price volatility. Transportation distances from Canada were also a concern, Britton said.
IGU started looking for new sources of natural gas last year, after Hilcorp made an announcement warning utilities about uncertain gas supplies in Cook Inlet.
The utility was ready to transition quickly to a new source, IGU spokesperson Elena Sudduth said.
“We are already set up to transport LNG from somewhere and we are closer to the North Slope than any of the other utilities that source natural gas,” she said.
Eventually IGU and Hilcorp came to an agreement to purchase 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 down the Dalton Highway.
Harvest and Hilcorp both say that they are pleased to supply North Slope gas to the Interior, but neither would comment further for this story.
Critics see issues with this plan.
One is IGU’s selection of a Hilcorp-aligned company like Harvest to build the liquefaction plant, instead of putting out a call for competitive construction bids.
“I don’t think it makes sense at all,” said Pease, the energy contractor. “Why would you have someone controlling the entire value chain from gas supply to liquefaction?”
Britton said that while the utility has called out for bids on other projects, they went with Harvest this time because the company has worked on similar projects in the past.
“Given their capacity and their ability to get the project constructed in a reasonable timeframe, and the fact that they operate assets in the North Slope today,” he added.
IGU signed 20-year contracts with Hilcorp and Harvest that they say will offer stability to their customers and a comparable price to what they’re paying now. Over that 20-year period, the contracts stipulate that rates cannot increase more than 20%, according to IGU.
Still, that’s a long time to be locked in with the same suppliers, Pease said.
“What will happen if other options come online in the near future, where the price is more competitive?” she said. “What kind of carve outs do they have if there’s other options that materialize?”
Pease said the deal is low-risk — and that’s something utilities tend to look for — but long-term, she’s not sure it’s the best price IGU could have delivered for a region so in need of affordable heating fuel.
IGU said plans are already underway to build the North Slope liquefaction plant. It’s expected to be online by late 2024.