An Alaska development agency on Wednesday moved to provide a commitment of $50 million that will act like an insurance policy to allow the long-challenged Alaska LNG project to move ahead.
Board members with the Alaska Industrial Development and Export Authority said they agreed to provide the support as a financial “backstop” to allow the project to complete a first phase to deliver gas to Alaskans.
The commitment, which may not need to be paid, is designed to allow a private pipeline company to spend up to $50 million in engineering and design studies needed for the initial phase of the $44 billion project.
Despite the move, it remains uncertain where the investment to build the megaproject will come from, one of the key questions that has halted Alaska gas line projects in the past.
An oil and gas analyst this week predicted the project will be too costly to move to construction, which would require the state development agency to make the $50 million payment.
A ‘privately funded’ gas line?
A statement from the Alaska Gasline Development Corp. on Wednesday said the decision brings the state agency closer to achieving a “privately funded in-state natural gas pipeline.”
The first phase has been estimated to cost $11 billion. It calls for the construction of a 750-mile pipeline to deliver the gas to the Interior and Southcentral Alaska, where utilities are looking at importing natural gas as Cook Inlet gas dwindles.
After the first-phase construction, the larger project to export the gas can be built, according to the plan.
The financial backstop is “critical” to unlocking private-sector funds to complete the studies and move to a final investment decision, said Frank Richards, head of the state gas line agency, which owns the project.
A large pipeline company in North America has a “keen interest” in working on the Alaska LNG project at its own expense, Richards told the board of the development agency.
But since the company would be studying the project’s first phase, it wants to make sure it can be repaid if there is no final investment decision to advance to construction, Richards said.
Current plans call for construction to start in 2027, and gas could begin flowing to Alaskans as early as late 2030, he said.
The financial support from the state’s development agency would be a letter of credit for up to $50 million, Richards said.
It will only be drawn on if that final investment decision is not made, he said. The state gas line agency will acquire ownership of the studies if that’s the case, the agency statement said.
The development agency’s decision allows its executive director, Randy Ruaro, to work with the gas line agency to finalize the plan for financial support.
Dana Pruhs, chair of the development agency, said after the vote that supporting the gas line project with the backstop is a “positive” move that could deliver natural gas to the majority of the state.
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A waste of state money?
The support comes at an important time.
Alaska leaders and a variety of companies for generations have unsuccessfully tried to complete a mega gas line project in an effort to sell vast quantities of natural gas contained in Alaska’s North Slope oil fields.
The full Alaska LNG project would require construction of the pipeline to Southcentral Alaska, and facilities to super-chill the gas into liquefied natural gas, or LNG, and load it onto tankers so it can be transported to utilities in Asia.
The Alaska LNG project has been in the works for about a decade, under three state administrations. But its high cost and a lack of buy-in from investors, among other challenges, have raised doubts that it will ever be built.
Larry Persily, an oil and gas analyst and former Alaska deputy commissioner of revenue, said the same problems that have previously stopped Alaska gas line projects will halt this one.
Its natural gas would be too expensive when there are cheaper projects elsewhere in the world, among other issues, he said.
“The only thing we’re closer to is wasting more state money on a dream,” he said in an interview Thursday.
The gas line agency early this year floated the idea of building the project in phases, in order to initially construct the pipeline to address energy concerns in Alaska. The proposal comes as the Southcentral region faces a gas crisis as natural gas production falls in the aging Cook Inlet basin.
In April, key gas line board members wrote Alaska lawmakers to say that if the gas line agency fails to secure funding for at least the first phase, the Alaska LNG project should be shut down and either sold or mothballed by the end of this year if the project has “insufficient value” for the state.
Global energy analyst Wood Mackenzie, in a report released in full last month, determined that the first phase of the Alaska gas line project would provide cheaper natural gas in-state compared to imported gas.
The report, commissioned by the gas line agency, did not answer where the money to build the gas line would come from.
Governor: An affordable gas supply
Richards said the project has taken important steps this year. The agency has signed a deal with a small oil and gas explorer in Alaska in an effort to provide gas for the first phase.
Great Bear Pantheon, however, currently does not produce oil or gas. There’s no guarantee it will produce gas in Alaska.
Also, Richards said, the pipeline company that wants to work on the project is seeking relatively modest rates of return, compared to large oil companies that were previously invested in the project.
Major Alaska oil producers including ExxonMobil and ConocoPhillips backed out of the Alaska LNG project in 2016, leaving the state as the sole owner.
In a memorandum to the Legislature highlighting findings of the Wood Mackenzie report, Alaska Gov. Mike Dunleavy said the Legislature requested the economic analysis.
The Legislature also established intent language that if the “analysis shows a positive economic value to the state,” then “all parties” would work to complete the engineering worked needed for the project’s first phase, Dunleavy said.
Dunleavy said the gas line agency developed the phased-construction approach at his direction.
He said the full Alaska LNG project will dramatically lower long-term Alaska prices for natural gas, even well below the current price of Cook Inlet gas, based on the Wood Mackenzie report.
The first phase will provide several billions of dollars more in additional benefit to the state, compared to other options, Dunleavy said.
“Completing Alaska LNG will ensure that an affordable and reliable supply of clean energy is available to Alaskans for generations,” Dunleavy said.