Oct. 8--Fairbanks Natural Gas LLC has signed an agreement to sell the utility to the Alaska Gasline Port Authority, a public group organized by three Alaska municipal governments, the president of Fairbanks Natural Gas said Oct 1.

Fairbanks Natural Gas President Dan Britton said the port authority would finance the purchase through a sale of $250 million in revenue bonds to purchase the utility and construct a small liquefied natural gas plant on the Prudhoe Bay field on the North Slope.

The port authority has the ability to issue bonds. Britton said the financing could be tax exempt. If the deal is finalized, which depends on the financing, the existing Fairbanks Natural Gas management would be retained, he said.

In a related development, the board of Golden Valley Electric Association approved an agreement with the port authority to study the conversion of an oil-fired power plant the utility operates from naphtha to natural gas, contingent on the LNG plan moving ahead.

Golden Valley now purchases naphtha from a nearby refinery operated by Flint Hills Resources.

Fairbanks Natural Gas has supplied customers in the Interior Alaska since 1999 with LNG trucked from Southcentral Alaska. Britton said the company has planned to switch to the North Slope as a supply source because of concerns over dwindling supplies in Southcentral Alaska gas fields.

A contract has been signed with ExxonMobil Corp. to purchase up to 14 billion cubic feet of Prudhoe Bay gas per year for 10 years, Britton said. Fairbanks Natural Gas would liquefy the gas and truck it 350 miles south to Fairbanks.

The company now trucks about 1 billion cubic feet a year of gas as LNG from a small liquefaction plant in the Matanuska-Susitna Borough. The highway distance is about the same as from the North Slope. ConocoPhillips now supplies gas to the company from gas fields in the region.

Britton said Fairbanks Natural Gas would also hope to move gas through a natural gas pipeline if one is eventually built from the North Slope, and sees the LNG trucking plan as an interim measure.

The soonest a large gas pipeline can be in service is 2018 to 2010, although the state is also looking at an idea of a smaller "bullet" pipeline that could be in operation sooner. The LNG plant would be built on skid-mounted modules and could be moved, he said.

Fairbanks Natural Gas has regasification facilities and about 65 miles of gas distribution lines. The utility serves about 1,100 customers.

The port authority was formed in 1999 by the city of Valdez, the Fairbanks North Star Borough and the North Slope Borough to pursue a gas pipeline to Valdez and a large LNG plant at the southern Alaska port city.

The authority is an independent entity and is not dependent on the three municipalities, according to Bill Walker, its general manager.

The group is now working with Mitsubishi Corp. and Sempra LNG on a possible bid for capacity in an open season for a pipeline from the North Slope to Valdez that will be offered in 2010 by TransCanada Corp., Walker said.

TransCanada's open season will offer space in a pipeline planned from the North Slope to Alberta, but under and agreement with the state the pipeline company will also offer the option of a line to Valdez if there are customers willing to commit to capacity.

Tim Bradner can be reached at tim.bradner.@alaskajournal.com.

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