Hilcorp signs deal with Fairbanks gas utility to truck liquefied natural gas Prudhoe Bay, replacing LNG trucked from Mat-Su

But Cook Inlet gas may be running short and IGU needs additional gas by 2024 to meet its planned growth of customers. Hilcorp has warned Southcentral utilities, and IGU, that gas reserves in the Inlet are being depleted.

Given that, the Fairbanks utility has opted against a $60 million expansion of its current Mat-Su plant that was planned earlier as well as imports of LNG from British Columbia.

Under the agreement Hilcorp affiliate Harvest would build an LNG plant at Prudhoe Bay to supply 150,000 gallons/day, three time what the small plant in Mat-Su now produces. Prudue Bay hold large volumes of gas, offering a secure gas supply and stable pricing, IGU told its board Jan. 18.

The trucking distances are about the same from Mat-Su north to Fairbanks or Prudhoe Bay south, but there are disadvantages, which include trucking over a rougher road, the unpaved Dalton Highway. Also, trucking costs can vary.

According to the proposal put before IGU’s board Jan. 17 the final cost to Fairbanks consumers is estimated at $21.80 per thousand cubic feet (mcf), the current cost, although it could range to $26/mcf, the proposal said. This would be competitive with heating oil at $3.51 per gallon or more, however.

IGU considered trucking LNG once before but rejected it because trucking from the Mat-Su seemed more reliable and the utility already owned the small Titan plant. However, the uncertainty of obtaining enough Cook Inlet gas to meet IGU’s growth has changed that. Hilcorp says it can build and have the plant operational by 2024.

The company owns substantial North Slope gas in the Prudhoe Bay and Point Thomson fields and is currently the operator at both fields.

A resolution adopted by IGU’s board Jan. 18 authorized its general manager, Dan Britton, to execute a gas sale and purchase agreement between IGU and Hilcorp. The gas supply contract is for an initial five-year term, with an option for IGU to extend it for two additional three-year terms. It would provide IGU with a reliable source of gas supply for the next 11 years.

“Hilcorp was selected because of their demonstrated operational capabilities and their diverse, substantial assets in the Cook Inlet,” said Britton. “Their operational redundancy through multiple gas fields, pipelines and gas storage facilities offers us the security we need to be able to fulfill our mission.”

“When negotiating the terms and conditions of the contract, we wanted to make sure that we allow IGU the flexibility to purchase natural gas from alternate sources, should better options become available,” said IGU Board Chair Steve Haagenson. “We make every decision with the customer in mind, and we found the flexibility to be a great addition to the supply security this contract brings.”

IGU now converts the Hilcorp Cook Inlet natural gas to LNG, which is then transported from Pt. Mackenzie, to Fairbanks in specialty transport trucks at -260F. It is then stored in one of the Fairbanks or North Pole storage sites until warmed back to gas for delivery into the buried distribution systems for customer consumption.

Hilcorp affiliate Harvest Midstream has a second agreement with IGU to construct a natural gas treating, liquification, and truck loading facility near Deadhorse, at Prudhoe Bay. Pending regulatory approvals, construction of the facility is expected to begin in the summer of 2023 and operations starting in late 2024, Harvest said.

“We look forward to continuing our work with IGU,” said Andrew Limmer, Vice President of Harvest Alaska. “By finding an innovative way to use a small portion of natural gas already being produced at Prudhoe Bay, we will be able to deliver a reliable source of energy to IGU customers nearly 500 miles away in Fairbanks.” 

Bringing LNG from the slope by truck raises other possibilities, however. Harvest acknowledgd that IGU will not require all of the plant’s 150,000 gal./day in the initial years and the plan now would be to operate the plant seasonally in winter when gas is inmost demand in Fairbanks. However, this means LNG could be available to other customers, at least on a short-term basis. But once the trucking concept is proven an expanded plant on the slope, for example, could supply LNG to copper mines being planned in the Ambler Mining District in northwest Alaska that would be connected to the Dalton if a proposed industrial road is built.

Presumably the delivery cost to the mines would be about the same as to Fairbanks, as the distances are similar. Also, LNG could be offloaded at the Yukon River bridge and shipped by barge to villages along the Yukon as a replacement for heating oil and diesel now used.