Econ 919 — Is now the time for AK LNG?
For decades, Alaska was Japan’s sole supplier of liquefied natural gas, or LNG — a version of the substance used to heat homes and electrify power plants. Those exports stopped when competition from other producers edged Alaska out of the picture.
But this month, Brad Chastain told an audience in Kenai that Japan is once again interested in importing natural gas from Alaska — and that his project is the best way to get it there.
“The best way I can describe it is, every planet possible that we can think of is aligned right now,” he said.
Chastain manages the $39-billion Alaska Liquefied Natural Gas project, which would construct an 800-mile pipeline to send North Slope natural gas to Nikiski, where it would be liquified, shipped out and sold.
It’s been on the table for as long as Alaska has been an energy state, though the steep costs of constructing the pipeline have long been too prohibitive to make it a reality.
That was before global demand for LNG shot up. Today, overseas buyers are desperate for gas, as they look to move away from their dependence on Russia — which has historically supplied some European countries with as much as half of their supply. Russia, in turn, is responding to the opposition by cutting off its natural gas flow to Europe.
“And so what’s happening is Europe is sucking up all available LNG, and everyone is paying the price,” said Ben Cahill, a senior fellow at the Center for Strategic and International Studies in Washington D.C.
He said natural gas prices in Europe rose last summer, even before Russia invaded Ukraine. But the war has supercharged that crisis.
Cahill said LNG project developers are noticing — and, like Alaska LNG, trying to push their projects to the finish line while the timing is right.
“There are a lot of proposed LNG projects,” Cahill said. “And there's no way they can all move forward.”
He said to get projects financed, producers first have to convince buyers they have long-term supply and that their project rises above the others, which he said mostly comes down to cost.
That high project cost has stymied the Alaska plan in the past. And Cahill said he still sees that as a big hurdle.
Larry Persily said that hurdle is simply too large to overlook. Persily was previously tasked with getting an Alaska gasline built, under President Barack Obama.
And said with all the competition, there’s no way Alaska LNG will come out on top, due to "the cost and the risk, and the fact that there are a lot more projects out there that are less risky and a lot cheaper than ours,” he said.
Many of the new proposed gas projects are on the country’s Gulf Coast, which is the top exporter of LNG worldwide. Gas, and the costs of shipping it out, are generally cheaper there.
Plus, Persily said he’s skeptical that buyers overseas will want to sign long-term contracts with gas companies as renewable energy picks up steam.
“And that move has been accelerated by the high cost of oil and gas,” Persily said.
Industry analyst Jason Feer from intelligence firm Poten & Partners said it’s true that the Gulf Coast is better positioned to deliver gas to Europe.
But he said Alaska has at least one potential advantage over its competitors— it’s proximity to Asia.
“I think that sort of dynamic, where you might see Gulf Coast LNG being pulled to Europe, may create opportunities for projects on the west coast,” Feer said. “So I think that’s a very interesting dynamic.”
He said demand in Asia is high, too — and he doesn’t see it dropping any time soon.
This spring, Gov. Mike Dunleavy visited Japan to talk up the plan. Feer said Japan has for years been the world’s biggest importer of LNG.
“So those are hugely significant markets that are accounting for the bulk, or very significant shares, of global LNG,” Feer said.
That demand, in Asia and elsewhere, is already driving a slate of natural gas projects toward development. Cahill said there has been an uptick in signed contracts in recent months, as buyers look to secure their energy futures.
But even if the planets are aligning, like Chastain said, analysts say there’s still just no guarantee one of those contracts will be inked in Alaska.
Correction: A previous version of this story mistakenly stated that the pipeline would be 800 feet long. It would be 800 miles long. We regret the error.