Houston LNG plan shot down

ANCHORAGE — The Alaska Industrial Development and Export Authority’s board turned thumbs-down on a request by two former Mat-Su city mayors and Knikatnu Inc., a local Alaska Native village corporation, to make what would seem to be minor changes in a proposed agreement to sell a small natural gas liquefaction plant near Point MacKenzie, along with a Fairbanks gas utility, both owned by AIDEA.

The sale would be from AIDEA to the Interior Gas Utility, which is building a natural gas distribution system in areas around the Interior city. Knikatnu Inc. CEO Tom Harris told AIDEA’s board Thursday that the sales agreement as drafted would lock IGU into having to expand the existing Titan LNG plant near Point MacKenzie.

Harris urged the board to allow the Fairbanks utility to explore other options, including an alternative developed by his Knikatnu group and Siemens, a major technology company, rather than be required to expand the existing plant.

Harris’ group is working with Siemens on a plan for a new technology, modular LNG plant at an industrial site at Houston, between Wasilla and Willow on the Parks Highway. IGU should be allowed to consider that, Harris told the board.

Language in the agreement, now approved by the board, says the seller (AIDEA) and the buyers (the IGU), “must have agreed on and adopted a plan of development for the existing Titan Alaska LNG, LLC (plant) designed to expand and improve that facility.” The words are in Part 7.9 of the agreement, the “Plan of Development.”

Harris asked that the specific reference to the Titan plant be removed.

Following an executive session, which was closed, the authority’s board voted to approve the sale agreement as previously written, without the change requested, according to AIDEA spokesman Karsten Rodvik.

The attractiveness of the Houston plan is that the Alaska Railroad currently ends right at the spot where a modular LNG plant could sit, the state would no longer need to use only the current Titan plant to supply natural gas to the Interior. Such a move would also allow the movement of LNG via rail and avoid transporting explosive materials along the already dangerous Knik-Goose Bay Road south of Wasilla, via truck.

Getting an ear for the idea from government agencies has been a challenge, says project consultant Roger Purcell, a former mayor of Houston.

Getting an ear from the private sector, however, has not.

Last week representatives from Siemens Corp., one of the powerful technology companies in the world, were in the Valley working with Purcell, fellow project consultants Dave Nufer and former Wasilla mayor Vern Rupright, as well as Harris and other Native corporation officials.

John Saams, Director of Strategy and Operating for Siemens Government Technologies and fellow program director Kelly Laurel said that even the weight of the Siemens brand couldn’t get them an audience with the Alaska Industrial Development and Export Authority.

“Somebody at AIDEA is not wanting this to go through,” Purcell said.

Ultimately the group decided the only way to be heard was to show up to the call to the public portion of the AIDEA board meeting on Thursday and each take their three minutes, as allowed by agenda rules.

“Bottom line, our multidisciplinary team found serious and critical deficiencies with the current Titan expansion plan that could jeopardize people’s lives,” Laurel told the board with her three minutes, followed by questions from board members. “Unlike the current plan that hinges on trucking LNG, the railroad, which already exists at the Houston site, is a valuable existing asset with sufficient capacity to meet all of the transport needs for the IEP with no hidden cost or additional safety concerns.”

Some board members attested to knowing about the Houston plan, while others asked why they were only hearing about it now, so late in the process.

Harris acknowleged the plan is “conceptual” at this point and that more definition is needed. However, he expressed frustration with AIDEA.

“We had been working to get on the board’s agenda for this meeting for some time and we were rebuffed by AIDEA’s staff including John Springsteen,” the authority’s CEO, Harris said.

Two board members, Gary Wilken and State Deputy Commerce Commissioner Fred Parady, expressed surprise at not knowing about the proposal until it was presented in the public comment period.

Purcell said after the public comments portion of the meeting, before the board went into executive session, that repeated attempts to get an audience were stonewalled, an assertion Siemens officials affirmed.

The last of the public comments came from IGU general manager Jomo Stewart, who expressed frustration with the board.

"Right now today AIDEA is operating (Fairbanks Natural Gas) outside the operating covenant," Stewart told the board, adding that his ‘father didn’t raise him’ to do something so against his conscience. "When you took ownership of Pentex, you reduced the rate, the charge to the consumer, for political and PR purposes, not charging for interest or principal. You are operating outside the covenant right now… If I were to sign this, before the ink was dry I would be in violation of the operating covenant.”

IGU will not sign the agreement as it is drafted for several reasons, according to Stewart. In addition to the requirement to use the Titan plant, Stewart cited last-minute changes to the agreement by AIDEA, including some that appeared Thursday morning that IGU had not previously seen.

But in the end, AIDEA stuck to its guns and voted unanimously for the Titan requirement.

“The group indicated their support for the sale of Pentex (Fairbanks Natural Gas) to IGU, which of course was the major topic of yesterday’s meeting,” Rodvik said.

“The Board gave them an opportunity to present testimony and their white paper, and gave them the opportunity to provide more information,” Rodvik said in an email. The language in the agreement is specific in requiring use of the Titan plant and does not seem to give the Interior utility the option to consider other options.

Rodvik said the AIDEA board decision on Thursday does not preclude the Mat-Su group from coming back with more detailed information. “In the future, when LNG expansion moves forward, they can put in a proposal with refined numbers. In other words, the documents that were approved yesterday do not preclude them from submitting a future proposal for consideration,” he said.

Stewart said the IGU board has 30 days to accept or reject the deal and/or seek changes. Stewart also said the price AIDEA will charge IGU is $60 million, and AIDEA will help finance the deal

Knikatnu’s site is on 3,000 acres of land zoned for industrial use near Houston, on the Parks Highway and the Alaska Railroad, and is near an existing gas pipeline, Harris told AIDEA’s board. It would be superior in terms of safety as well as long-term costs, he said.

Purcell and Rupright told AIDEA’s board that expanding the Titan plant would require expensive road improvements and create safety problems for residents along Knik-Goose Bay Road because of increased heavy truck traffic.

Purcell cited safety and congestion concerns with the proposal to increase LNG trucking from an expanded Titan plant. The road route along Knik-Goose Bay to the existing plant “traverses one of the fastest residential-growth areas of the state,” he told the authority’s board.

“There will be a number of hidden costs that are not accounted for, among these the upgrade of roads, realignment of recent road modifications and wear and tear on roads even after they are upgraded,” Purcell said. “In addition, the heaviest traffic will occur in winter when road conditions are the most treacherous,” he said.

Recent road improvements, such as roundabouts on Burma Road, are designed more for residential use and not for heavy trucks, he said. If the number of LNG trucks is increased the roundabouts will have to be rebuilt or else there will be accidents.

Rupright agreed with Purcell: “The trucking congestion is a hidden cost but it also presents a significant safety risk.”

Purcell and Rupright are working as consultants to Knikatnu, Harris said, under a contract to develop industrial customers for the Houston site.

Michael Walhof, sales director with Siemens Energy, told the AIDEA board that the company’s new modular LNG plant units offers advantages of flexibility and reliability because the production modules can be added incrementally as LNG demand grows. The approach improves reliability because if one module goes down because of a problem, or for maintenance, the additional models can remain in production.

In an interview, Walhof said Siemens have one of its new plants in operation in Dawson Creek, B.C., from where LNG is trucked to customers in Yukon Territory. Three other plants are operating in the Lower 48, one in New Jersey and two in Pennsylvania, he said.

A single production module with the plant design is capable of producing 30,000 gallons of LNG per day, so three module units would produce 90,000 gallons per day, he said.

Construction costs would be in the $30 million range.

An important advantage of the Houston location is that it is on the Alaska Railroad, which will allow LNG to be shipped to Fairbanks by rail, at lower costs, but with the option of trucking as a backup.

The reliability of the railroad transportation and the Siemens plant design, compared with the older technology of the existing Titan plant, some components of which were used when it was assembled years ago, will improve prospects that LNG can be sold to federal government customers in the Interior, such as military bases, Harris said.