Trucking North Slope LNG south deemed feasible in study

ANCHORAGE, Alaska, July 25 Fri Jul 26, 2013 12:11am EDT

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ANCHORAGE, Alaska, July 25 (Reuters) - A proposal to truck liquefied natural gas from Alaska's North Slope 400 miles south (640 km) to Fairbanks is economically and technically feasible and an improvement for the environment, according to a report issued on Thursday by a state agency.

The proposal, already embraced by Governor Sean Parnell and endorsed by the state legislature, is to build a $207.5 million liquefaction plant at Prudhoe Bay and truck the LNG to Alaska's second-largest community.

Prudhoe Bay and other North Slope fields hold vast amounts of gas, with 35 trillion cubic feet already proven and much more believed to be above the oil layers. But the gas is stranded for lack of an export market that would justify a costly pipeline.

A report from the Alaska Industrial Development and Export Authority (AIDEA) found the project made sense, as long as the state makes good on intentions to subsidize it and private investors chip in at least $37.5 million for the plant and provide the trucks.

The plan envisions LNG deliveries to Fairbanks by late 2015. Lawmakers this spring approved measures that would provide $57.5 million in direct grants and $125 million in low-interest loans.

Volumes are predicted to be relatively small, at just 9 billion cubic feet a year. Still, it would be the first ever commercial delivery of natural gas from the North Slope oil fields to any area outside that oil-producing region.

While the Fairbanks North Star Borough, with about 99,000 residents, is much smaller than most markets considered in the past for North Slope gas, the area's customers would be well-served by the trucking project, the AIDEA report said.

Residents now depend on costly fuel oil or wood-fired stoves to provide heat over the bitterly cold winters. Apart from the cost - fuel oil is about $4 per gallon, equivalent to $30 per thousand cubic feet of natural gas - those energy sources cause air pollution, the report noted. Wood-smoke pollution has prompted alerts about unhealthy air in and around Fairbanks.

Trucked LNG would likely cost Fairbanks consumers $14.09 to $17.09 per thousand cubic feet, the report said.

Plans to develop much-larger North Slope natural gas projects have languished. Since the 1970s, Alaska officials have sought to entice industry to build an overland pipeline to bring North Slope gas to other parts of the United States.

State officials are now eyeing the alternative of an 800-mile pipeline from Prudhoe Bay to a new liquefaction plant at a southern Alaska port, from where tankers could ship 2 billion cubic feet a day of LNG to Asian markets. That idea also dates back to the 70s, but has gained support from Parnell and others who note the United States is now saturated with shale gas.

But oil companies have estimated the cost of building the overland pipeline to be as much as $41 billion, and the LNG project plus the pipeline to be as much as $65 billion.

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