Interior Energy Project loses GVEA business to Petro Star

Golden Valley Electric Association is favoring oil over natural gas to fuel large generators in North Pole. The move reduces the utility’s role as an anchor tenant for the state-backed Interior Energy Project.

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Golden Valley Electric Association is committing to a reduced quantity of natural gas from the Interior Energy Project — a little over half a billion cubic feet of natural gas per year when IEP comes on line in 2017. That’s well short of a predicted 2 billion Bcf.

GVEA present and CEO Corey Borgeson says the utility is instead moving ahead with a contract to buy naphtha from the local refiner Petro Star.

The decision to go with naptha backs down Golden Valley’s commitment to buy LNG from 3 billion Bcf, to a little over half a billion cubic feet a year.  Borgeson says the Petro Star naptha comes in $7-70 million dollars cheaper than projected LNG prices over 10 years.

“The differential between the two, the savings from ‘LNG-cheap’ let’s call it, is in about the $7 million range…. ‘LNG-medium’ is about in the $30 million range… and ‘LNG-expensive’ is in about the $70 million range.”

Golden Valley’s board of director made the decision to commit to naptha at a meeting Monday, despite requests from local leaders that they delay until the Alaska Industrial Development and Export Authority lead IEP firms up a natural gas plan and price. Golden Valley was targeted as an anchor tenant for the Interior Energy Project and Local AIDEA Board member and former state legislator Gary Wilken is disappointed with the utility’s decision.

“It was a surprise. It was frankly a blow to the stomach. I’m not particularly happy about it… I don’t think GVEA fulfilled their obligation to be a community partner in this.”

GVEA’s purchase of IEP’s gas will be during the summer months — a focus that will balance out winter heating demand. But Wilken maintains the lesser commitment will make it more difficult to make a target gas price, equivalent to $2/gallon heating oil.

GVEA’s Borgeson says the utility could not wait for the IEP plan to develop and needed to give Petro Star an answer on naptha.

 

 

“They needed to go forward. They’re going to have to invest about $20 million of capital in order to develop the naptha splitter that they need to do to make the fuel… and we had to make a commitment to Petro Star to go forward on this deal.”

Under the 12-year contract Petro Star agrees to drop the price GVEA pays for naptha as of Jan. 1 while it builds a new facility to produce a lighter blend of the fuel. Borgeson adds that the contract includes off ramps, allowing increased future use of natural gas, and that GVEA’s North Pole generators will be set up to burn both fuels.