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Econ 919: A new study touts the economics of building the Alaska LNG Project. But some lawmakers have doubts.

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A chart created by Wood Mackenzie for Alaska lawmakers shows the economic impacts of building a natural gas pipeline as compared to importing natural gas.
Alaska House Resources Committee
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Wood Mackenzie
A chart created by Wood Mackenzie for Alaska lawmakers shows the economic impacts of building a natural gas pipeline as compared to importing natural gas.

Building a pipeline between the North Slope and Southcentral Alaska would be more economic for the state than importing gas from other countries. That was the conclusion of an independent firm hired by the Alaska Gasline Development Corporation to study the economics of both options amid projected natural gas shortfalls in the Cook Inlet basin.

The firm presented the study results to the House Resources Committee during a special meeting last month in Anchorage.

Costa Swift is the vice president of consulting for Wood Mackenzie Limited. That’s the analytics firm brought on by the legislature. He says the firm’s analysis found new natural gas development in the Cook Inlet basin won’t be enough to meet consumer demand in the coming decades.

“These discoveries have not been enough to help arrest the decline we’re seeing in Cook Inlet gas production,” he said.

Wood Mackenzie projects a roughly 2.3 trillion cubic feet natural gas shortfall between now and 2070. That’s eight times as much gas that’s been discovered in the Cook Inlet basin over the last 15 years. Of the 34 new wells drilled during that time, roughly 9% were successful.

Hilcorp first warned utilities in 2022 that it may not be able to fill future gas contracts without new development in the Cook Inlet basin. That set off alarm bells for utilities now exploring other energy sources and for ratepayers worried about paying more to heat their homes.

State lawmakers have considered importing natural gas to address those short-term concerns, but they’re also looking for long-term solutions. Some say that solution is the Alaska LNG Project.

The proposed 800-mile pipeline between the North Slope and Nikiski has been floated for decades.

Proponents say it would deliver cheap and reliable gas to Alaskans and foreign buyers while boosting the state’s economy. Skeptics doubt there’s really foreign demand for Alaska gas and question the practicality of the project’s scope and timeline.

If it’s built, the full pipeline project would move natural gas from the North Slope to Nikiski, where it'd be prepared for shipment overseas. It’s expensive, though. The latest estimates put the price tag at more than $40 billion.

The state agency the Alaska Gasline Development Corp. overseeing the project announced earlier this year it would break it into phases. Phase I includes the pipeline between the North Slope and southcentral with an estimated cost around $11 billion. And Swift says that’s on par, or a bit higher, than other pipeline projects currently in the works or recently completed that are being built in more populous areas.

“But Alaska and building in Alaska – there are other challenges that other pipelines that we see … do not have,” he said. “Just the weather and the harsh conditions. So it being slightly higher than that is a reasonable assumption to use. And it’s a conservative assumption to use.”

In an earlier analysis of the Alaska LNG Project, Wood Mackenzie found it was too expensive to be profitable. In this new report, the firm found that the economics are better for just the first phase of the project. The report assumes in-state demand for natural gas would increase, that gas could be available as soon as 2031 and that building the pipeline would create over 2,200 new jobs. And the cost of delivered gas could be lower.

But some lawmakers were skeptical.

Eagle River Republican Dan Saddler says Wood Mackenzie’s analysis clearly shows the per unit cost of gas would be cheaper if Phase I of the Alaska LNG Project is built. But, he says it fails to consider the whole picture.

For instance, Saddler says the state doesn’t have the nearly $11 billion needed to build the project. And it doesn’t know where that money would come from.

Alaska Gasline Development Corporation spokesperson Tim Fitzpatrick says the corporation is seeking private investment to pay for the pipeline, not state funding.

Saddler compared building the pipeline to buying a car.

“Buying a new car rides you lower maintenance cost, higher gas mileage, better resale value, more comfort, etc., local jobs,” he said. “Used cars (are) inefficient, old, plunky, they look ugly. But there's the initial entry cost. It costs a lot of money to build Phase I.”

Anchorage Democrat Donna Mears said she’s worried about putting the pipeline’s financial burden on Alaskans.

“My big concern here is that if all this risk of this cost is put on Alaskans, if we are not getting to the LNG part, we are locked into this capital project and these costs … and the only thing that relieves us is getting imports,” she said.

Swift says importing is likely to cost less upfront, but be a more risky investment. None of the infrastructure needed to import gas is permitted yet, and imported gas wouldn’t be available until three to four years after those permits are secured. The firm also says the cost of gas acquired through foreign imports would be higher, and Alaska would be subject to price volatility in other markets.

Prior to joining KDLL's news team in May 2024, O'Hara spent nearly four years reporting for the Peninsula Clarion in Kenai. Before that, she was a freelance reporter for The New York Times, a statehouse reporter for the Columbia Missourian and a graduate of the University of Missouri School of Journalism. You can reach her at aohara@kdll.org
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