Arctic Fox Natural Gas Pipeline

Proposal Summary

Fairbanks Pipeline Company (FPC), managed by Energia Cura, LLC is developing a natural gas pipeline system, The Arctic Fox, to deliver affordable natural gas from Prudhoe Bay to Interior Alaska, and potentially the Cook Inlet region. The size and operating pressures of the pipeline are economically designed to transport known gas volumes to major Alaskan load centers including certain local gas and electric utilities, mines and military bases. The proposed 12” or 18” primary transmission segment will be built within the Dalton, Elliot and Richardson Highway Rights-of-Way, starting at the BP Central Gas Facility (CGF) in Prudhoe Bay, and terminating in North Pole. The State of Alaska (SOA) has the option to increase the size of this primary segment from 12” to 18”, establishing a price ceiling for the Cook Inlet gas market via the construction of a future additional segment from the Livengood hub to Anchorage (Cook Inlet). Depending on the final configuration chosen, the pipeline will either exclusively supply Interior load centers or supply both Interior and Cook Inlet load centers.

arctic_fox1.jpg

Project Justification

The FPC project development approach is market-based. The Arctic Fox Pipeline does not require a drastic increase in global or domestic gas prices to become viable. Gas pipelines in the contiguous United States are typically installed in markets where the prices of competing gas supply sources vary by 1% to 5%. This project reduces current Interior Alaskan wholesale energy prices by nearly 65% (from $24/mcf to $9.66/mcf, energy equivalent.

Interior Market
Interior residents pay $24/mcf for natural gas, $23/mcf (energy equivalent) for heating oil, and their electricity provider, Golden Valley Electric Association, Inc., is paying in excess of $20/mcf (energy equivalent) for their naphtha fuel. The Fairbanks Pipeline Company has already secured 19 Bcf/yr in gas nominations from eight of the Interior’s major load centers, including both refineries, the largest military base, electric utility, a major new Livengood Mine, and FNG (the Interior’s sole gas utility). Negotiations with APSC (Alyeska Pipeline Service Company) to provide natural gas for its TAPS (Trans Alaska Pipeline) heating requirements will potentially increase nominated volumes to app. 32 bcf/yr.

Cook Inlet Market
Wholesale Cook Inlet natural gas prices are projected to rise by at least $5/mcf within this decade, according to the SOA Department of Natural Resources. Electric and gas utilities are discussing imports of liquefied natural gas, possibly as early as 2014, if the decline in local gas supply continues. Upsizing the primary transmission segment from 12” to 18” provides price certainty for the Cook Inlet market, capping prices at $8.27/mcf. Wholesale gas prices in the Cook Inlet are at $6.50/mcf today, but are expected to escalate beyond this point by 2016. Consequently, the installation of the 18” Livengood to Anchorage secondary transmission segment is expected to become feasible by or before 2016.


Funding

FPC's gas pipeline is not receiving State or Federal subsidies. Instead, Energia Cura's principle partners are underwriting the cost of its development. The partners’ intent for funding this project’s development is to expediently reduce energy costs by 50% and to contain the wealth generated from these savings within the state. Energia Cura is a consultancy headquartered in Fairbanks, Alaska providing a range of services and products to the power, oil & gas and mining industries. It currently operates and maintains Alaska's second largest pipeline system on a throughput basis. For more information on Energia Cura, go to www.energiacura.com

So Who Will Own the Arctic Fox?

The Arctic Fox will be owned by FPC (the Fairbanks Pipeline Company). FPC (the operating company) will be wholly owned by the Alaska Holding Company (AHC - the equity company) The goal is to capitalize the Arctic Fox with 100% Alaskan equity (zero debt ) by offering shares to:

• Alaskan Residents

• The State of Alaska Permanent Fund

• Alaskan companies hiring Alaskans and those making in-kind-contributions to the project

• The Fairbanks Pipeline Company’s Industrial Load Centers (customers)

AHC plans to issue only common shares at $100 per share. The Arctic Fox requires $716,000,000 to build and start operations (12” line @ 19 Bcf/yr to 30 Bcf/yr) At $100 par value, this transcribes into 7,160,000 total shares in the Alaska Holding Company The State of Alaska Permanent Fund will first be given 515,520 (7.2% of total ) shares in exchange for the State’s in-kind contributions such as pipeline easements, environment al permits, geophysical, survey, and LIDAR data. This leaves 93% or 6,644,480 shares available to offer Alaskan residents and companies The Alaska Holding Company will return dividends of $11.07 per year, per share to its Alaskan owners Par shares will be the currency basis for in-kind contributions issued as payments for services rendered by Alaskan companies participating in FPC’s in-kind-contribution program (sweat-equity)


Project Options – Costs, Scope and Delivered Price

Base Case - $716 million capital cost

- Moves 19 Bcf/year in current nominated volumes through a 12”, 514 mile pipeline from Prudhoe Bay to North Pole (Fairbanks) at a delivered bundled cost of $9.66/mcf ($5.44 Pipeline Cost of Service plus $4.22/mcf for purchase of specification grade, compressed gas at Prudhoe Bay). See Base Case hydraulic simulations:
http://www.fairbankspipelinecompany.com/technical.html under heading “Case 1”

Case 2 - $1,002 million capital cost

- Moves 19 Bcf/Year of current nominated volumes through an 18” pipeline for $9.66/mcf (SOA buys down the difference between the 12” and 18” Cost of Service). The 18” segment from Livengood to Anchorage is estimated at $1,084 million (2010 estimate). Should the SOA elect to install the secondary 18” segment, the total project cost in 2010 dollars is $2,086 million.
See Case 2 hydraulic simulations:
http://www.fairbankspipelinecompany.com/technical.html under heading “Case 2”

Natural Gas Liquids (NGL – Propanes, Butanes, etc.) options to be evaluated in Final Design Review

1. Dense-Phase Flow Regimen from the CGF to North Pole.
2. Two-Phase Flow Regimen from Atigun Pass south.
3. Parallel installation of 5” x .250” VHP, triplex coated flow line in tight-liquid service.


Capitalization and Schedule

Fairbanks Pipeline Company is currently accepting offers for equity participation from material suppliers, engineering and construction companies, financial institutions, SOA and nominating parties. Project equity assignments will be based on exchanging materials, services and/or cash for par value shares in the pipeline company. Customers purchasing gas (load centers) may acquire equity in proportion to their individual load volumes vs. total line volume. Current total volume is estimated at 19Bcf/year, according to nominations received during a preliminary, non-binding open season (completed October 2010). Gas supply contracts are now being negotiated with North Slope Producers.

Detailed Financial modeling and analysis is available on our website, grouped into the following four presentations:

Market and Services
http://www.fairbankspipelinecompany.com/pdf/1-11-11_Presentation_to_Bankers-1.pdf
Capex, Volume and Rate of Return Sensitivities
http://www.fairbankspipelinecompany.com/pdf/1-11-11_Presentation_to_Bankers-2.pdf
Revenues and Distributions
http://www.fairbankspipelinecompany.com/pdf/1-11-11_Presentation_to_Bankers-3.pdf
Bank Participation
http://www.fairbankspipelinecompany.com/pdf/1-11-11_Presentation_to_Bankers-4.pdf

The Arctic Fox requires two winter construction seasons and a parallel permitting timeline of approximately 1.25 years. Assuming commencement of construction activities during winter season of 2012/2013, the Arctic Fox Pipeline can be placed into service by June, 2015.

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License