Alaska LNG: Half a century on, can a $54.5b project finally get off the ground?

The Alaska liquefied natural gas project that the Donald Trump administration unilaterally announced Wednesday (local time) has long been mired in questions over its commercial viability and feasibility — concerns that surfaced as far back as 2017, when South Korea first explored the possibility of joining the venture during the first year of the Moon Jae-in administration.

The project would transport natural gas produced at the North Slope in northern Alaska through an approximately 800-mile (1,300-kilometer) pipeline to the southern port of Nikiski, where it would be liquefied and shipped to buyers. According to Reuters, the project aims to produce up to 20 million tons of LNG per year, with total project costs estimated at $44.5 billion to $54.5 billion.

Under the current plan, the project would reach a final investment decision on the pipeline this year, followed by an FID on the export facility next year, with the first LNG exports targeted for 2031. The pipeline FID had originally been set for late last year but was pushed back after Glenfarne Group, the US energy infrastructure developer leading the project, failed to secure the volume of purchase agreements it had targeted.

Glenfarne CEO Brendan Duval said at the White House announcement event Wednesday that "it takes three years to build the pipeline, and we can break ground as soon as financing is in place."

The project has been coveted since the discovery of the gas field in 1968, but has never moved into full development due to recurring disputes over its enormous costs and economic viability. Korea Gas Corporation examined the possibility of joining and investing in the project in 2017, the first year of the Moon administration, but ultimately did not follow through. ExxonMobil, BP and ConocoPhillips had also reviewed the project in 2014, only to withdraw one by one by 2017, blocked by the prohibitive costs.

The Alaska Gasline Development Corporation (AGDC), a state-owned entity, subsequently kept the project alive. Last March, Glenfarne acquired a 75 percent stake in 8 Star Alaska, an AGDC subsidiary that holds the project's assets, re-entering the venture. AGDC retains the remaining 25 percent.

Shortly after taking office last January, Trump threw his weight behind a project whose commercial viability had been questioned for more than half a century. He issued an executive order designating Alaska LNG development as a top priority and directed officials to pursue plans to sell and transport the produced LNG to other parts of the United States and to Pacific allies.

Commerce Secretary Howard Lutnick said last October that Alaska LNG pipeline investment was among the targets of South Korea's $200 billion strategic investment commitment to the United States. Trump said in January that he had "gotten underway" the Alaska pipeline project to export natural gas to Asia, claiming trade deals with South Korea and Japan had secured "an unprecedented level of funding."

The project's key advantage is that the shipping distance from Alaska to East Asia is shorter than from LNG terminals along the US Gulf Coast. Critics, however, note that laying a pipeline through permafrost in Alaska's extreme cold is no easy undertaking — and that costs could balloon significantly as a result. Pipeline construction alone is estimated at $13.2 billion to $16.9 billion.

That cost burden has led some analysts to conclude that despite the shorter shipping distance, the project's overall price tag is more than double that of Gulf Coast LNG terminals. Reuters reported Thursday (local time) that the $44.5 billion to $54.5 billion cost estimate Glenfarne presented to the Alaska state legislature last June works out to $2.2 billion to $2.7 billion per million tons of annual capacity — the highest cost of any US LNG export project ever proposed.

US LNG projects approved after Russia's invasion of Ukraine have generally been built at an average cost of under $1 billion per million tons. Cheniere Energy's Corpus Christi Stage 3 expansion in Texas was estimated to cost about $8 billion to add 10.5 million tons of annual capacity — roughly $760 million per million tons.

The Alaska LNG project is particularly expensive because, in addition to the 1,300-kilometer pipeline from the North Slope to Nikiski, it requires building an entirely new gas treatment facility on the North Slope ($7.7 billion to $9.2 billion) and a liquefaction terminal ($23.6 billion to $28.4 billion) from scratch.

Uncertain demand relative to the enormous construction costs is another reason the market remains skeptical about the project's viability. Reuters noted that agreements with companies from South Korea, Japan, Taiwan, Thailand and France cover 13 million tons per year so far, but that an additional 3 million tons must be secured and existing agreements converted into binding contracts before financing can be arranged.

"The question is whether Asian buyers are willing to pay a premium for supply security," said Jason Feer, head of business intelligence at energy consultancy Poten & Partners. "So far, we haven't seen evidence of that." Alex Munton, head of global gas and LNG research at Rapidan Energy Group, said the project "may not meet the commercial threshold for investment."

The fact that US policy on Alaska resource development has shifted with each administration adds another layer of risk to the project. Environmental and ecological concerns over Alaska gas field development have also sparked controversy in the past.

Lutnick said Wednesday that South Korea would invest more than $50 billion in the Alaska LNG project, but the South Korean government has said it will proceed only if commercial viability is confirmed. A joint press release issued by the US Department of Commerce and South Korea's Ministry of Trade, Industry and Energy stated only that the two sides had "agreed to commence a review" of the Alaska LNG project.