Lower oil prices are beginning to be felt in Fairbanks in lower heating oil prices–reported most recently at $3.40/gal. and headed down–and that is threatening to upend a plan to build a small liquefied natural gas liquefaction plant at Prudhoe Bay and to truck LNG to the Interior city. Cost estimates of the LNG project are rising, which is increasing the expected price of gas to consumers.

Delivered costs could now reach $18 to $20 per million British Thermal Units, up from the revised target of $15 (originally, the target was $12). A delivered-to-consumers gas price of $18/mmbtu correlates roughly to an oil cost of $2.40/gallon, and a $20/mmbtu price is about the equal of $2.70/gallon.

The three Interior utilities being asked to sign up to buy trucked LNG are now worried that fuel prices edging down from previous highs of over $4/gallon will hike consumer resistance to paying the hefty conversion cost from oil to gas. If that happens it will undercut the demand for gas, undermining the economics of LNG trucking.

Another complication is that Hilcorp Energy, which owns Cook Inlet gas ans is the new owner of a small LNG plant in the MatSu Borough (formerly owned by Fairbanks Natural Gas) has offered to sell Cook Inlet gas as LNG to Fairbanks for $15 per mmbtu. WesPac Midstream, which hopes to develop a medium-sized LNG plant at Port MacKenzie, says it can supply LNG for $14.50 although the company has yet to nail down a gas supply. REI Alaska Inc., developing a one million LNG plant in Cook Inlet for export, said it can also supply Alaskan markets including the Interior.