The Alaska LNG project is critical to Alaska's future. It will provide an important source of new state revenue, jobs, economic opportunity and a long-term energy supply for Alaskans. It will allow Alaska to finally commercialize the vast North Slope gas resources while facilitating new oil and gas investment in the state. Without a way to bring this stranded natural gas resource to market, there are few alternatives to attract investment into Alaska.
Alaska is poised to be an extremely successful supplier of LNG to the global market. We're home to one of the largest proven gas resources in the world, an installed base of oil and gas production infrastructure to provide economies of scale, and four decades of dependable LNG exports from ConocoPhillips's liquefaction facility in Nikiski.
We're well positioned geographically, given our proximity to growing Asian energy markets and our colder climate, which allows for peak production of LNG when market demand is highest. Alaskans have reliably supplied oil and gas to the world for generations and it is the combination of all of these advantages that make our Alaska LNG project superior over the global competition.
Forecasts by world-renowned energy economists agree that in the 2022-2025 time frame there will be increased demand for LNG. Projects and contracts are being negotiated now to ensure there is reliable supply to meet this future customer demand. It is important that Alaska is at the table for these conversations so the state can maintain options for the future.
Now it’s time to look at every possible option
The Alaska Gasline Development Corp. is evaluating a number of financing options that would reduce the need for the state to make substantial direct investment in the construction of the project, and would place the liabilities of the project on those entities best placed to mitigate the risks to ensure maximum protection for the project owner. It is not unusual for LNG projects to go through a period of transition as they mature.
Many sovereign entities have some form of ownership in LNG ventures in their territories and take active roles in overseeing and managing those projects. Ownership and investment are not equivalent.
A larger state ownership could lead to tax benefits. Financing the project as an infrastructure project can lower the return thresholds of the investors. State ownership could serve a public purpose similar to other transportation infrastructure.
Large infrastructure funds have demonstrated a significant appetite for U.S. pipeline and LNG projects. These investors are willing to accept lower returns for reduced risk and therefore can reduce the overall cost of supply from the project.
Transitioning the project to a different structure does not infer that the project is unprofitable or disadvantageous to Alaskans. If we can structure this properly, it will be a prosperous project, attractive to infrastructure investors, and enable natural gas usage throughout the state and increase Alaska's export trade.
Producers are supportive and enabling a seamless continuation
Everyone wants to monetize their gas, but we want to open the project to broader market participation. AGDC welcomes producer investment but also recognizes that investing in the project assets as an equity owner may not generate the return they need. Setting up a transparent tolling structure allows the project to provide access to unbundled services, typical of other transportation pipelines, maximizing upstream revenues.
Producers have already agreed to sell gas under commercially reasonable terms to the state or another third party. Conversations are taking place to work with producer parties on these commercial terms. Each producer co-venturer has publicly declared support for the Alaska LNG project and wants to enable a seamless continuation. Right now all the firms are working together to consider commercial options to improve the project's ability to compete in the global LNG market.
AGDC has the technical capabilities to do this project
The state, through AGDC, is better prepared than it's ever been to assume a more prominent role in managing the project. AGDC will continue to engage competent technical and commercial advisors in the same fashion the Alaska LNG project team does now. These projects are all built by world-class contractors, not the sponsoring companies.
AGDC has demonstrated the ability and capacity to establish a 100-plus person professional project management team. AGDC completed FEED on the $10 billion Alaska Stand Alone Pipeline project. This was the culmination of a substantial body of work, conducted over several years and it was achieved on time and under budget.
We still have lots of work ahead of us. We need to progress the regulatory process which is imperative to eliminate regulatory risk. Customers will be needed to obtain financing, and financing will be needed to build the project.
We need to work together to enable project success
The winning combination is Alaskans doing what Alaska does best: working together to tackle the toughest energy and infrastructure challenges. Now is not the time to shelve the incredible amount of quality research and planning already completed. It is the time to step into the lead and move toward the finish line.
Keith Meyer is president of the Alaska Gasline Development Corp., an independent public corporation of the state of Alaska. He has more than 35 years of global energy industry experience.
The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email firstname.lastname@example.org. Send submissions shorter than 200 words to email@example.com or click here to submit via any web browser.