IGU board considers Siemens proposal for alternative natural gas source for Fairbanks

Members of the IGU board, along with members of the Siemens Government Technologies team and AIDEA board member Gary Wilken and others, meet Tuesday in the Mt. McKinley Bank Building conference room downtown. (Photo by Tim Ellis, KUAC)

An affiliate of the Germany-based industrial giant Siemens is offering to build an LNG plant near Wasilla and transport the gas it processes there to Fairbanks at no cost to the Interior Gas Utility – if the IGU board of directors agrees to a long-term LNG-sales contract. Officials with Siemens Government Technologies outlined the proposal to the IGU board during a special meeting Tuesday.

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IGU board Chairwoman Pam Throop says there’s a lot to like about the Siemens Government Technologies proposal, but she says it all comes down to helping the IGU “get cheap gas real soon so we can get conversions immediately and start building.”

Siemens proposes to bring natural gas to Fairbanks from a plant it would build near Wasilla by the end of next year at a price that’s about the equivalent of $2-per-gallon heating oil, the price point IGU officials say it must attain to attract enough customers to convert from oil to gas heat to make the project viable.

“The other thing that I think is really, really attractive about Siemens’ (proposal) is bringing in other users, big users, possibly military, hospital, university,” Throop said in an interview after the meeting.

The Siemens team pitching the proposal said in addition to developing gas projects, the company has marketing expertise to help IGU promote conversion to gas. And they said it also has experience working with the federal government and Native American organizations.

Throop says the Siemens plan would enable the IGU to avoid cost overruns it may encounter in buying and refurbishing the aging Pentex Alaska gas-liquifaction plant at Point McKenzie that the IGU plans to buy from the Alaska Industrial Development and Expert Authority.

“Any cost overruns have to be absorbed by us,” Throop said. “Therefore, they will affect the price of gas at the end of the day. I have a huge concern about that. And I also have a concern about us running a plant that’s 300 miles away.”

The Knik-Siemens 40-acre parcel is located just off the intersection of Pittman Road and Parks Highway near Wasilla. (Interior Gas Utility graphic)

The Siemens plant would be built in increments, based on demand, on land owned by Knikatnu, a local Alaska Native village corporation that Siemens is partnering with on the project. Using that facility would save IGU from having to incur bond debt to expand the Pentex plant to meet future demand. Instead, it would become a backup for the Siemens facility.

Throop also likes Siemens’ plan to use Alaska Railroad cars to transport gas, instead of the trucks that Pentex uses to deliver to its subsidiary, Fairbanks Natural Gas.

“I also am concerned about having all the trucks on the highway to serve the number of customers that we’re supposed to be getting,” Throop said. “I would much rather that gas be on iso-tainers on the railroad.”

The Siemens officials declined to comment and referred queries to their corporate headquarters. Throop says her concerns include Siemens projections that show the natural gas retail price rising over the next several years to a level that’s higher than the $2-per-gallon heating oil equivalent.

But overall, Throop is inclined to support the proposal, and she says some of her fellow board members are, too. Some had questions at Tuesday’s meeting, especially Jack Wilbur, Mike Meeks and Steve Haagenson. And so did Gary Wilken, a former state lawmaker from Fairbanks who now sits on the Alaska Industrial Development and Export Authority board of directors. AIDEA’s board also would have to approve Siemens’ proposal. Wilkens says it would have to offer the certainty of bringing in gas at the lowest price possible, as he says AIDEA’s plan does.

Wilkens says it would have to offer the certainty of bringing in gas at the lowest price possible, as he says AIDEA’s plan does.

“The Siemens challenge is to bring the certainty that we have with our other proposal to the table, to decide whether it is indeed a viable one,” Wilkens said after the meeting.

Wilkens says he and the other AIDEA board members haven’t had a chance to fully review the Siemens’ proposal. He says AIDEA officials will do that, and will be especially mindful of its impact on keeping prices low for IGU customers.

“Our focus is on the family on Badger Road,” Wilkens said, referring to the typical IGU customer. “The meter price. And everything you want to talk about is just detail.”

Throop says the IGU board must decide whether to accept Siemens’ proposal by May 29th, when the board is scheduled to vote on going ahead with the $58.2 million dollar Pentex purchase.