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Say What, Now?
After many hours of testimony this week from the Alaska Gasline Development Corporation, I still have more questions than answers.
The state-owned company was supposed to find a private sector partner to build the long-dreamt-of line delivering natural gas from the North Slope to southcentral Alaska and, hopefully, an LNG export facility, too. Over the decades we've spent at least $650 million on that dream.
This session AGDC brought in a company few Alaskans have ever heard of, and asked for $50 million dollars to guarantee the new 'partner' wouldn't lose any money if they don't end up building a project. I have concerns.
AGDC is pitching the line in two phases: (1) an oversized in-state only pipeline and (2) all the stuff you need to export liquified natural gas. Let's just talk about that first part.
AGDC says the first phase alone (a pipe big enough to move 5 billion cubic feet of gas per day that would only move about 400 million for in-state consumption) pencils out. Barely. For that to work, they have to buy gas at less than a dollar per unit. That’s about 1/3 of what it costs in the Lower 48 these days.
The line would also have to be the only provider of natural gas to Alaska. That ignores the contracts Alaska utilities are signing for LNG import right now. It also ignores that companies will still be pumping gas out of Cook Inlet when the line theoretically gets built. Cook Inlet production isn’t keeping up with local needs. But it’s also not vanishing overnight.
AGDC's numbers also ignore the new steel tariffs. That's unrealistic of them, but I'm more worried about their assumption the line can get U.S. loan guarantees without buying even more expensive American steel. The way I read the federal Buy America/Build America Act, a federal loan guarantee requires American steel in your project.
While Buy America waivers are theoretically possible, AGDC goes on to ignore rising construction costs. Those have been in the headlines of late. They also assume the line will get a 90% discount on state and municipal property taxes from the legislature. Nobody has introduced a bill for that yet.
Another big 'if' is the source of the gas. AGDC is counting on it coming from a new field called Great Bear. The company behind it, Pantheon, isn't moving any Alaska hydrocarbons yet, and hasn't greenlit the Great Bear project, but we're told the test wells look good. Pantheon's gas is attractive for two reasons. First, it probably wouldn't need an expensive treatment plant to take other naturally-occurring but corrosive gases out before the useful methane goes into a pipe. Second, the field doesn't really let them re-inject the gas the way we do at Prudhoe Bay if they can't sell it, so if they develop the thing, theyre likely to sell it cheap.
So what if an AGDC line can’t buy untreated gas at rock bottom prices from an unready field? The backup plans are a lot more expensive. Point Thompson has gas, but would take another 60+ miles of pipeline. And it would probably need processing to take out propane, butane, and other liquids. That costs money. Prudhoe Bay gas unquestionably needs a multi-billion dollar gas treatment plant to remove corrosive hydrogen sulfide and carbon dioxide.
Realistically, one or another of that long list of issues could go sideways and AGDC might still deliver gas to Anchorage at the same cost as imported LNG shipped to Cook Inlet. But two (or more) of them would likely tank the whole thing.
That's incredibly risky. So past legislatures told AGDC to bring in a private sector partner to take on risk, bring expertise to bear, and make future profits from building this megaproject.
They brought in a company called Glenfarne. It seems to be a company that helps finance pipelines and power plants. Despite the Scottish-sounding name, it has worked mostly in Latin America and the American South. It’s never developed a pipeline to completion. And when it comes to megaprojects? You can add up the cost of all the projects Glenfarne has ever worked on and it’s about half the cost of the Alaska gas line. The group has also never operated in the Arctic. That's all worrisome.
I asked AGDC how they picked this new partner. They didn’t take competitive bids. They didn't get a recommendation from their financial advisor, Goldman Sachs. But AGDC staff didn't say what they did rely on before signing an exclusive agreement with Glenfarne. We do know they didn't get it approved by the AGDC board before they signed, though.
The exclusive agreement is also confidential. So they won't tell legislators whether they put the state on the hook for penalties if we pull the plugon the corporation. Or even if we just say no to guaranteeing that the first $50 million Glenfarne spends is risk-free. It's one thing to gamble with house money in Vegas. It's altogether another thing when we're talking about Alaskans' money.
All of this comes as President Trump just announced there will be a joint venture with Japan to build the full-scale Alaska natural gas pipeline and export LNG to Asia. AGDC told the Senate Resources Committee it doesn’t know anything about this joint venture. If the Japanese and U.S federal governments will finance it, we can keep Alaskans' money in the bank. If the federal administration is throwing project-killing chaos into the mix (AGDC holds all the relevant permits, after all...) we shoudl absolutely keep Alaskans' $50 million out of harm's way
Either way, there are far too many question marks for comfort.
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