News analysis
The hand-picked, natural-gas czar of former Alaska Gov. Bill Walker continues to tout his belief in a $43 billion liquified natural gas (LNG) project in the 49th state, but global markets appear to be conspiring against the plan.
All of those new projects are cheaper than Alaska’s plan to build an 800-mile pipeline from the North Slope to tidewater on Cook Inlet along with a LNG plant on the Kenai Peninsula, and some are significantly cheaper.
“The huge resource bases underpinning projects such as Russia’s Arctic LNG-2 and the onshore plants in Mozambique could see those ventures expand their capacities over many years,” wrote Interfax’s Andrew Walker. “Building additional trains at the plants would be relatively cheap, pressuring other liquefied natural gas ventures trying to sign up customers.”
“The global LNG market has offered absolutely no good news for the Alaska LNG project the past year,” Larry Persily, the former chief of the Federal Office for Alaska Gas Line Projects, said Friday. “Between President Trump’s self-inflicted trade tensions with China and progress toward final investment decisions on LNG export projects in Canada, Russia, Mozambique, Papua New Guinea, Qatar and the U.S. Gulf Coast, I believe Alaska’s dream of a North Slope gas line is going to wait.”
Persily spent five years from 2010 to 2015 trying to help move Alaska gas from the North Slope to markets in the Lower 48 or oversees. He took the job just as U.S. gas production began to surge due to technological improvements in fracking.
Gas production in the Lower 48 has reached the point that volumes in Texas and North Dakota have exceeded pipeline carrying capacity in those states. Both areas now face the same problem Alaska faces in trying to monetize its natural gas resources.
“The alternative is more flaring or we really limit oil production growth. And we really don’t want to do either one of those,” Lynn Helms, the N.D.director of the Department of Mineral Resources, told the state’s Industrial Commission. “If we can innovate here, we may have a way to allow oil production growth and not flare gas.”
Market lost
“And when that deal was struck, we began a nearly $40 billion natural gas pipeline to help lead America to energy independence. That pipeline, when the last section is laid and its valves are opened, will lead America one step farther away from dependence on dangerous foreign powers that do not have our interests at heart.”
Not long after, Alaska political leaders and the major producers with operations in the state began looking for a foreign power to buy the gas intended for Palin’s phantom pipeline.
The latest scheme calls for China to not only buy the gas but to get heavily involved in the financing.
“This nested structure does give us a little bit of a leverage advantage in that because of the way this is contemplated 8-Star would own a controlling interest in the project — 51 percent let’s say — by providing 51 percent of the $11 billion,” Keith Meyer, Walker’s gas czar, told Brehmer. “But then we, Alaska Gasline Development Corp., could have a controlling interesting in 8-Star, which could be a little more than half of 8-Star. So, if you do that math you could actually control the project company for about $3 billion.”
Control is an important issue. The Committee on Foreign Investment in the United States (CFIUS), which could block the project, does not like the idea of the Chinese holding controlling interest in an Alaska gas line, according to sources in the former Walker administration.
“CFIUS has taken a tough stance against Chinese or other foreign investment in sensitive industries ranging from high-end semiconductors to real estate,” Reuters reported in October.
Whether Meyer’s “nested structure” would satisfy CFIUS is an unknown.
Newly elected Gov. Mike Dunleavy now has former Gov. Sean Parnell – Palin’s successor – examining the Walker-Meyer gasline plan. As governor, Parnell helped broker an Exxon-led plan for the major oil companies to develop Alaska’s gas.
After Walker took over from Exxon, the globe’s largest, privately held oil and gas company turned its attention elsewhere. Exxon is expanding operations in Mozambique, Papua New Guinea, and Russia. And it is entrenched in Indonesia and Qatar, the tiny Mideast country that is a global leader in LNG.
Meanwhile, Royal Dutch Shell – once Alaska’s great Chukchi Sea hope for new oil production – has gone all in on a British Columbia LNG operation, having abandoned the Chukchi.
Shell, Malaysia’s Petroliam Nasional Bhd, Japan’s Mitsubishi Corp., PetroChina Co. and Korea Gas Corp. plan to invest $31 million in a Kittimatt, British Columbia, LNG terminal and a 420-mile pipeline from gas fields near Dawson Creek, B.C. to the coast.
Alaska’s project is still in the permitting phase. The Federal Energy Regulatory Commission has said it is hopeful it can complete the project’s environmental impact statement (EIS) by Feb. 2020.
Despite his skepticism about the gasline’s near-term prospects, Persily said he believes AGDC “should finish its work with the Federal Energy Regulatory Commission, get the final environmental statement and commission authorization for the project and then wait. That FERC authorization and final EIS have value and would help any effort in the future to resurrect the project.”
Walker ran for office mainly to try to ensure the gasline got built. On his way out of office, he offered this rosy report on the progress:
The Walker statement sent to newspapers around the state echoed the words of former governor Palin, who had a slightly better speech writer.