Economic Feasibility of North Slope Propane Production and Distribution to Select Alaska Communities

Could propane from Alaska’s North Slope reduce energy costs for electric utilities and residential space heating, water heating, and cooking demands? We explored the hypothesis that propane is a viable alternative for fourteen selected communities along the Yukon and Kuskokwim Rivers, coastal Alaska, and Fairbanks. Our analysis forecasts propane and fuel prices at the wholesale and retail levels by incorporating current transportation margins with recent analysis on Alaska fuel price projections. Annual savings to households associated with converting to propane from fuel oil can be up to $1,700 at $60 per barrel (bbl) of crude oil, and amount to $5,300 at $140 per barrel. Fairbanks residents would benefit from switching to propane for all applications at crude oil prices of $60/bbl. Interesting to note is that switching to propane for domestic water heating makes more sense at lower oil prices than conversions for home space heating. Three of the fourteen communities are projected to benefit from switching to propane for home heating at crude oil prices greater than $80 per barrel, and four communities at crude oil prices of more than $110/bbl. On the other hand, nine communities would benefit from conversion to propane for water heating as crude oil prices reach $50 and above. The realized household savings are also sensitive to assumptions surrounding the operating cost of the production facility and barge transportation delivery costs.