LNG plan faces numerous challenges, both local and global

Feb 7, 2019

No one should be putting plans on hold in anticipation of a route change of the Kenai Spur Highway through Nikiski, says Larry Persily.
Credit Redoubt Reporter

The effort to bring a natural gas pipeline from the North Slope to Nikiski may be running out of gas. Market conditions have changed a lot in the six years since the Alaska Gasline Development Corporation was formed by the legislature. In a presentation to a joint meeting of the Kenai and Soldotna Chambers of Commerce Wednesday, former Borough Chief of Staff Larry Persily, who has tracked this and previous plans for an instate gas line over the years, laid out the numerous challenges that he says make the project next to impossible, at least for now.

 

 


Persily spoke to a packed house at the Kenai Visitors and Cultural Center, wearing the hat of someone who has an almost encyclopedic knowledge of the state’s long history of trying to bring North Slope natural gas to market.

“Back when I was with the borough, as Chief of Staff, I got a phone call from a woman who said she and her husband live in Nikiski in the path of where the highway would go and the project would go. And she wants them to remodel their bathroom. And the husband said ‘No, no. The project is coming, don’t remodel the bathroom, (it’s a) waste of money.’ She said we decided we’d call you. I told her, tell him to remodel the bathroom.”

Some important milestones for the project could be made this year. But finding buyers for the gas and investors in the $43 billion plan aren’t likely on the list. A draft environmental impact statement is expected by the end of this month. Persily says the state would be wise to at least see that part of the process through and follow it up by getting approval from the Federal Energy Regulatory Commission. That’s a lot of valuable front-end work already done, should the project ever find more financial support.

“If they can get that authorization from the Federal Energy Regulatory Commission, they’re generally good for five years. Think of it as a building permit with an expiration, and they’re renewable. So at this point, and I think the (Dunleavy) administration will go this way, finish the environmental impact statement, stop spending money on anything else. Then hold on to that authorization. Should somebody at some point in the future want to build this, at least some of that work is done, even if you have to do a supplemental EIS, even if you have to go do some surveys, it still has value. It makes sense.”

What doesn’t make sense is the economics. China has been expected to be a customer of AK LNG exports. But as an energy market, China isn’t growing as fast as it was a half-decade ago. And it has other, more cost effective options for natural gas closer to home, like from Australia. Then there’s the fact that the world market isn’t clamoring for gas. There’s a lot of supply out there, and one of the leading exporters of gas, Qatar, is about to expand its capacity, Persily says.

“They are embarking on an expansion of almost 50 percent. Tens of billions of dollars, they will reclaim the number one (exporting) spot and they will not let go. They are placing orders for 60 new LNG carriers. They are doubling their fleet.”

And that’s one of the biggest challenges for AK LNG. Other projects around the world enjoy a lot of government support, while the state of Alaska seems to have given about all it can give, at least for now. There is still some interest in a stand-alone pipeline; a smaller pipe, but more or less the same project, just without the big export facility at the end. Persily says just because the big project doesn’t look economical, it doesn’t mean a smaller one pencils out any easier.

“As much as I think this thing isn’t economic, that thing is even worse. Even though it’s smaller, it doesn’t go to any export market...The only way it works is if the state subsidizes it with billions of dollars, and then you have to think, why should the state spend $5 billion to subsidize a $10 billion project to hurt Cook Inlet producers, because you’re going to dump subsidized gas from the North Slope into Cook Inlet. There are some people in the (Dunleavy) administration that think that’s a good idea. I would like to think at some point they’d realize it’s really a bad idea.”

Persily estimates the Alaska Gasline Development Corporation will run out the money it’s been appropriated by the legislature by the end of the year. And the official conversation about the gas line seems to be winding down on the Kenai as well. The borough’s AK LNG Project Advisory group, which has been meeting since last spring, will get together for its final scheduled meeting next week.