Alaska, China Sign Deal to Advance $43bn Alaskan LNG Project
A joint development agreement to advance the $43bn Alaska LNG project was agreed November 9 during US president Donald Trump’s visit to China.
However the project still has many hurdles to overcome and the economics are challenging at least while the wave of new LNG hits the market over the next few years.
The agreement was signed in front of Trump and Chinese president Xi Jinping by Alaska Gasline Development Corporation (AGDC), the State of Alaska, China Petrochemical Corporation (Sinopec), CIC Capital and the Bank of China.
Alaska LNG is a 20mn metric tons/year integrated LNG system consisting of a three-train liquefaction facility at Nikiski, on the Kenai peninsula in southcentral Alaska; a gas treatment plant on Alaska’s North Slope; an 800-mile, 42-inch gas pipeline connecting the treatment plant to the liquefaction facilities; and various gathering facilities to connect Prudhoe Bay gas reserves to the gas treatment plant.
“This is a big project with big players and big benefits,” Alaska governor Bill Walker said. “There are more steps before a final investment decision is reached, but having the largest LNG buyer in the world participating in this project means the Alaska LNG project has favourable market engagement at the highest level.”
Under the agreement, the parties have agreed to work co-operatively on LNG marketing, financing, investment model and China content in Alaska LNG, and get a “periodic result” by 2018.
“Today’s agreement brings the potential customer, lender, equity investor, and developer together with a common objective of crafting mutually beneficial agreements leading to increased LNG trade between Alaska and China,” AGDC CEO Keith Meyer said.
Sinopec said it was interested in the possibility of LNG purchase on a stable basis from Alaska LNG, while CIC Capital, China’s direct investment arm, said it has long been interested in investing in American LNG infrastructure.
AGDC filed a 55,000-page application for the project with the Federal Energy Regulatory Commission on April 17 and is currently awaiting the issuance of a draft preliminary environmental impact statement.
The project is anchored by the Prudhoe Bay and Point Thomson fields on the North Slope, which together will produce about 3.5bn ft3/day of natural gas, most of which – about 2.6bn ft3/day – will come from Prudhoe Bay.
The liquefaction facility at Nikiski will consist of three LNG trains, two 240,000m³ storage tanks and two loading berths capable of accommodating 217,000m³ Q-Flex LNG carriers.
Project costs 'very high'
The main issue for the Alaska LNG project is its high cost, according to Wood Mackenzie's head of gas research Asia, Kerry-Anne Shanks. "It's a large project at 20mn mt/yr of capacity, with an 800-mile pipeline. Sinopec may be able to secure cheaper LNG supply elsewhere. Alaska LNG has the advantage of being closer to China than US LNG projects located on the Gulf Coast," she said.
Political analysts at WoodMac's sister company Verisk Maplecroft added that the commercial agreement allows Trump to portray himself as a master dealmaker, while distracting from a lack of progress on structural reforms to the bilateral trade relationship.
"The deal is politically expedient, yet its non-binding nature gives Sinopec the flexibility to quietly back away from the deal down the line. Beijing is mindful of the need to maintain varied commodity import routes," it said.
LNG imports from Alaska align with strategic objectives cloaked within China’s Belt and Road Initiative. Alaskan LNG would help reduce China’s reliance on energy trade that must transit maritime chokepoints vulnerable to potential disruption.
Its strategic advantage over LNG supply from the East Coast is that it would not have to transit the Panama Canal, it said.
Dale Lunan