Interior Gas Utility to acquire all its natural gas from North Slope starting in October 2024 - Webcenter Fairbanks

Interior Gas Utility to acquire all its natural gas from North Slope starting in October 2024

FAIRBANKS, Alaska (KTVF) - Interior Gas Utility (IGU), which is responsible for providing natural gas as a heating source to thousands of homes and businesses around the Interior, is planning to change their source of Liquefied Natural Gas (LNG) from Cook Inlet to the North Slope.

In Interior Alaska, 2,750 households and businesses rely on natural gas from IGU for heat, with between 30 and 40 new customers added every month during winter and 100 every month during the construction season.

Going into 2024, this gas is currently being sourced from the Cook Inlet. According to IGU General Manager Elena Sudduth, “We have a liquefaction plant there in Point MacKenzie that is capable of producing up to 50 thousand gallons of LNG per day.”

This gas, once liquefied, is put into specialty trailers and driven to Interior Alaska, where it is stored.

A number of storage facilities in Fairbanks and North Pole hold a large supply until it is ready to be transmitted across the area to heat homes and buildings. “We have a storage capacity of five and a half million gallons, and when you compare that during the worst cold snap that we’ve had this year, we have sent out 110,000 gallons, so total capacity: five and a half million, biggest two-day send out: 110,000,” said Sudduth.

This means, depending on how much natural gas customers are using, the storage on-hand can shield the Interior from sudden disruptions in supply, Sudduth said. “By our statute, we will never go under five days of storage, but that is really not representative of anything because most of the time we have at least 30.”

However, a growing customer base led to an important conclusion in 2021. “We realized that soon enough, as soon as this year, our production capacity at the Cook Inlet would be lower than what we needed to produce in order to be able to serve all of our customers,” continued Sudduth.

As planning began to expand capacity in the South Central Alaska site, the utility learned that extractor Hilcorp would not guarantee a renewal of current contracts in the area. As a result, Sudduth said, “We were rather hesitant to make a 60 million dollar investment into an asset that might become unusable come a few years later.”

A search for solutions began, which eventually led to the North Slope, and a partnership with Harvest Alaska, LLC. “They are currently building a liquefaction plant on the North Slope near Deadhorse. That liquefaction plant is set to come online here very shortly. The targeted commencement date is October of 2024, and when it comes online, we will be sourcing 100 percent of our liquefied natural gas from there rather than from the Cook Inlet,” she explained.

At that time, the contract commitments agreed to by Hilcorp and IGU will end, per a mutual agreement between the two entities. “What that means is that IGU would be relieved of its minimum volume commitments from the Cook Inlet, and Hilcorp will be relieved of the obligation to sell us any natural gas in the Cook Inlet as soon as we move to the North Slope,” according to Sudduth.

At that time, IGU will still be working with Hilcorp, which extracts natural gas at the North Slope as well.

Natural gas there is brought to the surface as a byproduct of the oil being extracted. That gas is re-injected into the ground if it’s not planned to be sold.

At this time, 8.9 billion cubic feet of natural gas is re-injected every day on the North Slope, Sudduth said. “This year. Interior Gas Utility is going to need 1.3 billion cubic feet. So everyday they re-inject almost eight times as much as we need in an entire year on the North Slope.”

According to Sudduth, this agreement marks the first time natural gas is coming out of the North Slope to be used in Alaska. “It is going to mimic what we currently have in the Cook Inlet whereby the gas comes through a very short pipeline to the liquefaction facility, and then we liquefy the natural gas by freezing it to -265 degrees Fahrenheit.”

This more compacted LNG will be loaded onto trailers which will be transported, this time down the Dalton Highway to the Interior, according to Sudduth.

Asked what this will mean for pricing, she explained, “There is a lot that goes into the IGU pricing, to include the cost of gas, of course, but there are other influencers, and so natural gas cost has been relatively stable over the years.”

According to Sudduth, IGU has raised its prices three times since 2017. “When you compare that with our biggest competitor, which is currently heating fuel, you know how the heating fuel goes up and down constantly.”

In contrast, she said the price of natural gas typically changes only once per year, coinciding with the start of the next fiscal year on July 1st. “The costs that have the opportunity to change more often than that would be the cost of transportation, labor cost, cost of any new infrastructure that might need to be built.”

Sudduth said some of these costs are expected to change with the transition, making IGU’s overall cost of securing the natural gas go up. “The cost of gas itself is going to be significantly lower than it is in the Cook Inlet. The cost of liquefaction is going to be higher because now we’re going to pay a third party to liquefy it rather than doing it ourselves. The cost of transportation is going to increase because you take 350 miles on Parks Highway and make that into 500 miles on Dalton, so that’s a significant difference, and the cost of the storage and vaporization is going to remain the same because we’re not changing anything in our business model there.

While this won’t necessarily translate into increased consumer bills, Sudduth says it might. “All of the pricing is set by our Board of Directors. Our Board of Directors reviews budgets starting in March, and they adopt a budget in June of every year, and depending on the many, many different factors that create the business of IGU, rates are adopted.”

Meanwhile, the more customers IGU has, the more stable its prices can be, Sudduth said. “Then we have the opportunity to spread those fixed costs over a bigger population of consumers, which then gives us the opportunity to fight inflation better.”

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