Efforts to bring cheaper energy to Fairbanks took a step forward on Thursday, when officials announced that an evaluation committee recommended a Washington company as part of a plan to deliver liquefied natural gas to the Interior.
The committee recommended Salix Inc. over a dozen other companies that had competed in the Interior Energy Project, an effort led by the Alaska Industrial Development and Export Authority. AIDEA, a state agency, was authorized by the Legislature to provide more than $300 million in financing to support a project.
Fairbanks relies largely on fuel oil and wood for heating, leading to bad air quality in winter and energy bills that rise with oil prices. As part of the plan, heating systems in homes and buildings would have to be modified to burn natural gas, a cost expected to be borne by consumers.
With some project terms still being negotiated with Salix, staff with the Interior Energy Project plan to make a final project recommendation to the AIDEA board on March 31, according to AIDEA staff.
AIDEA spokesman Karsten Rodvik said he could not disclose the members of the committee until after the AIDEA board ratifies the decision.
Salix has proposed building a $68 million plant at Port MacKenzie that would produce 100,000 gallons of liquefied natural gas a day, converting natural gas delivered from Cook Inlet. That's about three times the capacity of the existing Titan LNG plant, which provides gas to about 1,100 Fairbanks customers.
Salix is a subsidiary of Spokane-based Avista, which owns Alaska Electric Light and Power in Juneau.
AIDEA has already spent $54 million to acquire Pentex, which owns the existing Titan plant at Port MacKenzie and a distribution system operated by Fairbanks Natural Gas. AIDEA plans to sell Pentex to a utility later this year.
The Salix plant could share operations with the existing Titan facility, said Rodvik.
"The ultimate goal is continue to serve more and more customers in Fairbanks between the current system and an expansion," said Dan Britton, president and chief executive of Fairbanks Natural Gas.
The committee picked Salix over a company that built the Titan plant in the 1990s. Oklahoma-based Spectrum LLC had proposed building an LNG plant on the North Slope to serve Fairbanks, a $73 million project.
The committee favored the Salix plan for its lower capital and transportation costs. Members also liked Salix's proposal to turn over the plant to utilities at the end of the 30-year loan term, while Spectrum planned to keep the plant.
With heating fuel prices low because of the worldwide crash in oil prices, demand for natural gas may be lower than anticipated, the committee said. Because of its lower costs, Salix's plan could "handle low-demand scenarios better than the Spectrum approach."
The cost of heating fuel is currently about $1.90 a gallon in Fairbanks, said Britton. That currently makes it a slightly cheaper fuel than the gas Salix could provide under the proposal, he said.
Salix has proposed getting gas to meters for $15.74 per thousand cubic feet, according to a third-party analysis.
"The project is challenged at these current low oil prices but Interior Alaska still needs a long-term energy solution and improved air quality," said Rodvik.