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‘Put Them Under the Gun’: IGU Board to Press Siemens for Details on Proposed LNG Deal

IGU, Frank Flavin Photography

The Interior Gas Utility’s board of directors continues to wrestle with a company’s proposal to supply natural gas for Fairbanks, as an alternative to the IGU’s plan to spend $46 million to upgrade an aging LNG plant at Point McKenzie. The board’s been considering the offer by Siemens Government Technologies since company officials first pitched the idea to the IGU in May. But on Tuesday, the board voted to demand answers to their questions about the proposal before they spend any more time on it.

The agenda for Tuesday’s meeting called for consideration of a technical adviser to study Siemens’ proposal and establishment of a negotiating team to work out details with the company. But when the issue came up, Vice Chairman Jack Wilbur told board members they should first insist that Siemens answers their questions about the proposal so they can compare it with the existing plan to get gas from the aging Pentex Alaska gas-liquifaction plant at Point McKenzie.

“I thought we were headed in the direction of a side-by-side analysis,” Wilbur said, “so we could make a decision as to whether or not a more in-depth analysis was warranted.”

The main question was whether Siemens could buy gas at a lower cost than the 7-dollars,72 cents per thousand cubic feet that IGU has agreed to pay Hilcorp as part of a deal largely brokered by the Alaska Industrial Development and Export Authority. AIDEA sold its Pentex Titan LNG plant as part of a $330 million deal the IGU finalized in June.

IGU General Manager and President Dan Britton told Wilbur he needs some board direction on the analysis he’s putting together.

“We are developing a side-by-side analysis,” he said, responding to board members’ queries. “I think the only question in my mind is how in depth is that side-by-side analysis.”

Credit Palmer Frontiersman
The IGU bought Pentex Alaska's mothballed Titan LNG plant at Point MacKenzie as part of deal finalized in June that included Fairbanks Natural Gas and a small trucking company.

Director Mike Meeks says Siemens could save the board a lot of time by answering members’ questions on how, specifically, they’d build a liquefaction plant and transport the gas to Fairbanks by rail at a lower cost than the existing plan to bring gas from the Titan plant up the Parks Highway in tanker trucks.

“I would just like to know, right off the bat – are we close?,” Meeks said, referring to the cost of gas Siemens would provide to the IGU compared with the price the Titan plant would produce. “Then, if we’re close, we can get into some more detail. If we’re not even close, let’s move on.”

Director Gary Wilken says based on his estimates, Siemens will have to charge more than the IGU plans to charge for gas from the Titan plant upon delivery to customers in Fairbanks.

“If you take their first year, and compare it to the Titan plan, they are 16.2 percent higher, at the meter,” he said. “If you take their three-year average, and take it out to the third year of the Titan plan, they are 35.7 percent higher.”

Credit IGU
IGU board Chairwoman Pam Throop, left, and Director Patrice Lee

Director Patrice Lee said she’d like to see whether Wilken’s calculations fully accounted for the cost of refurbishing the Titan plant and, if demand grew, expanding it. She also wondered whether he’d fully figured the cost of borrowing money for the work on the plant.

“We have the whole bonded, further indebtedness to the community,” Lee said. “I need to see exactly where all that is figured in.”

Board Chairwoman Pam Throop says she’d like to see estimates based on timeframes much longer than Wilken’s three-year projections, longer even than Siemens’ 20-year projections.

Wilken said the IGU board must set firm deadlines for Siemens to respond to its questions.

“We need to put them under the gun, (and insist) that they need to answer our questions,” he said.

Board members agreed, and unanimously voted on a motion by Wilbur to direct Britton to format and send members’ questions and to set firm deadlines on responses.

The board then approved Throop’s motion to postpone selection of a technical adviser and negotiating team until the next meeting .

Tim has worked in the news business for over three decades, mainly as a newspaper reporter and editor in southern Arizona. Tim first came to Alaska with his family in 1967, and grew up in Delta Junction before emigrating to the Lower 48 in 1977 to get a college education and see the world.