Lending markets

As energy markets soar, a gas pipeline could be closer than ever, Alaska politicians say

A war-induced spike in global natural gas prices is creating new hope for the much-sought-after Alaska pipeline, lawmakers say, even as the $38 billion project still lacks binding promises from customers and a clear picture of who will build it.

Governor Mike Dunleavy and U.S. Senator Dan Sullivan, both Republicans, spent time in Japan last week to boost demand for the project, which would stretch 800 miles from Alaska’s North Slope oil fields to Cook Inlet, not far from Anchorage.

“If we’re ever going to get a gas line, we’ll find out in the next few months,” Dunleavy said in an interview Wednesday. “All the conditions are there.”

Dunleavy pointed to prices that have more than doubled since governments around the world gave up Russian energy exports in response to that country’s invasion of Ukraine in February.

But Alaska’s state pipeline agency is not expected to make a final construction decision until 2024, officials said this week. And analysts point out that prices should fall back to pre-war levels long before that, as more export projects come online and governments cut fossil fuel consumption to meet emission reduction targets.

“It’s almost like a race to close the gap,” said Al Salazar, vice-president of the Texas energy analysis company Enverus. “These are the uncertainties I would wonder about if I were financing the Alaska LNG project.”

“The markets are okay,” he added.

Yet Alaska’s most powerful politicians are injecting new energy into the project, which they’ve sought for decades even as the state has invested hundreds of millions of dollars in research, design and promotion.

These recent efforts have resulted in at least incremental successes.

Alaska’s congressional delegation introduced language in the Biden administration’s infrastructure package that now allows federal loan guarantees for an export project, not just one that sells gas to the United States

[Alaska utilities plan $200M investment in grid to boost renewable power, increase reliability]

And Sullivan, in a phone interview this week, said that over breakfast in Japan, US Ambassador Rahm Emanuel agreed to set up an Alaska Gas Line Task Force at his embassy in Tokyo.

But the Biden administration’s full support for the gas pipe — which backers see as an important political signal to potential investors, given that the project needs federal approvals — is also uncertain.

Sullivan said there were two factions in the administration, each with their own view of the project.

One, including national security adviser Jake Sullivan, is likely to support the Alaska project as a tool to provide much-needed energy to U.S. allies in Asia, Sen. Sullivan said. The other faction, including climate advisers John Kerry and Gina McCarthy, prioritizes a rapid global transition away from fossil fuels that could rule out projects like gas pipeline, according to Sullivan.

“There is a split in this administration,” he said.

A White House spokesman, Haris Talwar, declined to comment.

“Not the project of the past”

The pipeline has long held an irresistible appeal to Alaskan politicians, and governors have promoted it for decades with little to show for it.

The project would create thousands of construction jobs and a hoped-for boom like that of the construction of the Trans-Alaska Oil Pipeline in the 1970s. Backers say the project would also provide communities on the highway system with State of cheaper heating fuel and electricity, which would boost businesses and the economy.

The pipeline concept has evolved over the years, with iterations including a 1,700-mile overland route connecting Canadian infrastructure that was pushed by former Republican Governor Sarah Palin.

The current version is run by the state corporation Alaska Gasline Development Corp.

The agency is trying to connect potential buyers in Asia with companies that could build and operate the expensive infrastructure in Alaska: a $9 billion processing plant on the North Slope that prepares gas for transportation; the $12 billion gas line itself, with eight compressor stations; and a jetty, liquefaction facility and storage tanks on the Kenai Peninsula that would cost $17 billion.

[Biden administration cites lackluster industry interest in canceling Cook Inlet oil and gas lease sale]

As Asian countries seek to meet their emissions commitments, the gas distribution agency has also been developing ideas to reduce the project’s carbon footprint. One is to ship fuel to Japan and then fill tankers for the return trip to Alaska with sequestered carbon to inject into empty tanks at Cook Inlet, the aging offshore oil and gas basin off the peninsula of Kenai.

The inlet has the potential to store about four decades of Japan’s annual emissions, according to the AGDC.

“This project is not the project of the past,” said former Democratic US senator Mark Begich, who works with a lobbying firm, Brownstein Hyatt Farber Schreckwho represents the Alaska Gas Pipeline Agency in Washington, D.C. He added, “This is a project that is fully authorized, that will impact our allies in the Pacific, and it will positively impact change climate, by bringing LNG to these countries which will eliminate coal-fired power plants.

Dunleavy only recently made the pipeline project a priority for his administration; when he was running for governor, he called it “not economically viable”. In the interview, he said skepticism about the project was warranted, but his newfound interest was driven by the dynamics of global energy markets.

Dunleavy’s predecessor, independent Bill Walker, was elected in 2014 on a promise to materialize the pipeline. And he tried, unsuccessfully, to strike a deal with Chinese buyers while he was governor.

In a phone interview this week, Walker, who is running for governor again this year, criticized Dunleavy for not pursuing the project with more energy.

“We had incredible momentum and interest. Even if the Chinese coin fell, there were a lot of other markets there,” Walker said. He added, “What’s frustrating to me is his reluctance to commit to the project.”

A 10 year window

Oil companies have never produced commercial scale quantities of gas from the huge Prudhoe Bay field on the North Slope. Instead, they reinject the gas to maintain pressure in the reservoir, which helps companies produce more oil.

But the technique produces diminishing returns over time, and experts say selling the gas from the field is becoming more and more meaningful.

The main North Slope oil producers – ExxonMobil, ConocoPhillips and Hilcorp – are not directly involved in the project, although they have said they will sell gas if customers and a pipeline materialize. ExxonMobil and Hilcorp both provided prepared statements endorsing the project this week.

“Hilcorp is committed to supporting Alaska LNG and others working to commercialize North Slope natural gas,” spokesman Luke Miller said.

Project officials say the crisis in Ukraine and the resulting oil and gas shortage are sparking new interest in Alaskan gas among Asian buyers.

[Two oil companies quietly spent $10 million to exit Arctic Refuge leases]

Europe needs new sources to replace the Russian imports it has forgone, and some shipments are coming from places that previously sent gas to countries like Japan and Korea. That, in turn, has left buyers from those countries looking more seriously at Alaska, pipeline proponents say.

“We’re not trying to drag them to Alaska and convince them,” Dunleavy said. “The global situation has caused them to turn to other gas reserves.”

Others, however, argue that the natural gas sales window is closing quickly and say the Alaska pipeline may be too late. Some competing projects are already closer to production as the world gradually shifts to renewable energy sources.

A huge project sponsored by Shell is already under construction on the west coast of Canada. Qatar, the world’s largest LNG exporter, is planning a major expansion of an existing project, and other US facilities are also progressing.

Industry experts say the Alaska pipeline would be relatively expensive, since competitors don’t need to pay for an 800-mile pipeline built with inflation-prone steel; the absence of committed investors makes it more difficult to find committed buyers, and vice versa.

“It just depends on whether the price that Alaska is willing to offer Asia for this gas is something they’re interested in,” said Salazar of energy analytics firm Enverus.

Matthew Jackson, a climate organizer with the Southeast Alaska Conservation Councilpointed to a luncheon presentation at Dunleavy’s own sustainable energy conference in Anchorage last month as evidence that the gasline project is unsustainable.

The governor asked Silicon Valley energy entrepreneur Tony Seba what role natural gas would play in the “great transformation.”

“None,” Seba said.

“In the United States, no one is building new natural gas power plants because only the operating costs are higher than solar,” he added. “There is a market over the next 10 years. But I wouldn’t look beyond that.

Jackson, in a phone interview, said investing in oil and gas infrastructure like the Alaska pipeline would “push us to the brink of climate catastrophe.”

“We need to wean ourselves off fossil fuels,” he said. “Don’t invest in more.”

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