Alaska Diesel Strategy - Rural Alaska Economic Analysis

Significant Findings of Cost Assessment for Diesel Fuel Transition in Western and Northern Alaska Communities Report

The project area consists of northern and western Alaska not connected to the road or ferry system. The area has 151 communities categorized as hubs, subregional hubs, towns, and villages. The number of communities in these categories and their population statistics are shown in Tables 1a and 1b.

Table 1a. Project Area Population and Growth, 2000 and 2006

(Source: Northern Economics, Census 2000, Department of Community, Commerce and Economic Development, 2007) Note: CAGR refers to compound annual growth rate.

Community Type	2000 Population	2006 Population	2000-2006 CAGR (%)
Hub	19,105	18,918	-0.16
Sub-regional Hub	4,975	5,028	0.18
Town	20,620	21,642	0.81
Village	16,105	15,357	-0.79
Total	60,805	60,945	0.04

Table 1b. Project Area Community Numbers and Size, 2000 and 2006

(Source: Northern Economics, Census 2000, Department of Community, Commerce and Economic Development, 2007)

Community Type	Community Count	% of Total 2000 Population	% of Total 2006 Population
Hub	5	31.42	31.04
Sub-regional Hub	9	8.18	8.25
Town	37	33.91	35.51
Village	100	26.49	25.20
Total	151	100.00	100.00

Typical fuels consumed in the project area are Jet A for heating fuel and certain aircraft, diesel No. 1 and No. 2 (sometime with additives for the Arctic), aviation gasoline, and unleaded gasoline.
Jet A is the main fuel consumed in the project area. The cost differences between ULSD and Jet A are estimated at 1.32% in Anchorage, 3.3% in Fairbanks, and 1.4% at Anacortes, Washington which is representative of the refineries located in northern Puget Sound that supply fuel to Alaska. Cost differences between these fuels are getting smaller as ULSD volumes increase.
Anchorage cost differences per gallon ranged from a low of 0.6 cents to a high of 13.2 cents, averaging 9.1 cents for the period from mid-2006 to the end of 2007. These costs are for the fuel only and do not reflect additives for pour point adjustment or lubricity.

Three scenarios were used to analyze two main cost centers (storage and distribution, and heat and electrical power):
- Scenario 1 - the Warranty scenario reflected just enough shipment of ULSD to meet 2007 and newer engine requirements.
- Scenario 2 - the Compliance scenario reflected more consumption of ULSD to meet EPA-mandated timelines.
- Scenario 3 - the Full Conversion scenario, with ULSD shipped for all purposes (heating, engines, and power plants) except aircraft Jet A needs.

Table 2 summarizes results by household costs, in the year 2010, by Scenario. Note that a rapid transition is less expensive than a gradual process.

Table 2. Estimated Incremental Cost of ULSD compared to Jet A for rural Alaska households – Selected Scenarios

(Source: ULSD Economic Model. Note: household costs represent an aggregate weighted average of coastal hub and upriver community costs.)

Scenario	$/Household/Year	Number of households in Study Area
Scenario 2A: Gradual Transition to ULSD (excluding heating oil)	300	14,700
Scenario 2B: Rapid Transition (excluding heating oil) with blend down	278	14,700
Scenario 3: Rapid Transition (including heating oil) with blend down	189	14,700

The analysis suggests the household costs of transitioning to ULSD fuel are highest for the regions of the state with the lowest income populations. This disproportionate impact is due to the greater reliance of project area communities on diesel for heating and power generation in comparison to the rest of Alaska. The analysis further indicates several characteristics of project area communities would exacerbate this disproportionate adverse economic effect.
By starting to burn ULSD in 2008, villages could benefit from a process called “blend-down”, where average sulfur concentrations decline, over three years, to less than the mandated 15 ppm. Subsequent report sections address each of these factors and suggest the blend-down approach is a low-cost alternative to new tanks, cleaning and waste disposal, or temporary drum use.

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