Alaska shifts plan for gas pipeline supporting Alaska LNG project

Alaska is seeking to revive its struggling effort to develop the multibillion-dollar Alaska LNG export terminal by shifting its focus toward a pipeline project that would deliver natural gas produced on Alaska's North Slope to the Fairbanks area in the central part of the state.

Alaska's plans would use the $5.9 billion pipeline — one part of the proposed 800-mile-long, 42-inch-diameter line that would feed the planned LNG terminal in southern Alaska — as a first step toward advancing the broader project. To do this, the state-run Alaska Gasline Development Corp., or AGDC, said it will seek federal clean energy infrastructure funding to cover about 75% of the pipeline costs and will rely on a private partner to cover the rest of the project costs while spearheading the line's development.

"This is an initial phase of the project we feel will significantly de-risk the Alaska LNG project in total," AGDC President Frank Richards said in an interview Feb. 8. "Why? Because the pipeline that leaves from the north part of the state to the southern part of the state was always going to be one of the higher-risk elements of the project."

Richards said the new approach would also reduce costs associated with the LNG export project the state wants to turn over to private interests.

The AGDC on Feb. 4 approved a resolution for the state agency to work with a "lead private sector party" for the first phase. "The private sector would build, own, and operate," according to a report presented during the meeting.

The state developer has not identified the private party it is working with, citing ongoing commercial negotiations. Richards said he hopes to name the private partner at the state corporation's next board meeting in March.

Larry Persily, a former federal coordinator for Alaska gas pipeline projects under the Obama administration, said the state's new plan is likely to fail.

"The project is dead," Persily said in an interview. "It's been dead for a while, and reconfiguring it to be a smaller dead project is the same outcome."

Building infrastructure to export otherwise stranded North Slope gas resources, amounting to about 35 Tcf of proven gas reserves, has been a goal for the state for decades. The advantage of a major LNG export plant in Alaska would be a shorter shipping route to major demand markets in Asia than for rival Gulf Coast projects. The Alaska LNG export terminal, on the Kenai Peninsula in Nikiski, would be capable of producing 20 million tonnes per year of LNG.

The Alaska LNG project hit a major development milestone in 2020 when the Federal Energy Regulatory Commission granted Natural Gas Act certificate approval, which is the subject of a court challenge by environmental groups. Richards said the state agency is confident that its new approach is consistent with the project FERC authorized.

But Alaska LNG has faced persistent challenges, including a lack of customers and a price tag that remains high at about $38.7 billion even after cost-cutting efforts. By starting with the pipeline to Fairbanks, state leaders would like to reap near-term economic benefits after a hard hit from the COVID-19 pandemic and also deliver cleaner-burning natural gas to Alaskans in the state's interior who rely on diesel fuel or wood. If the plan is successful, the pipeline could start delivering gas in 2025, Richards said.

Persily questioned the economics of building a multibillion-dollar pipeline to supply gas to the Fairbanks area of fewer than 100,000. And he described the state's expectation that the federal government would supply 75% of the pipeline costs as unrealistic.

"Do they really think the Biden administration, this Congress and this country is going to contribute $4.5 billion to a fossil fuel pipeline in the Arctic in 2021?" Persily said.

Alaska's Republican governor, Mike Dunleavy, called federal funding a "real possibility" in a Feb. 1 editorial published in the Anchorage Daily News announcing the new plan. Dunleavy has repeatedly questioned the economics of the Alaska LNG project and the state's role in managing. His editorial mentioned that he "was a skeptic of the previous proposal myself." That skepticism prompted the state to work on "developing a phased, manageable plan that addresses these past points of failure," the governor wrote.

"It's a phased approach, which is something different than we thought about previously," Richards said. "And this initial phase, from the governor's perspective, is about cleaner-burning energy for Alaskans, Alaska's rural native communities, and cleaning up the air in Fairbanks."