A new administration in Alaska promises to take a second look at the $43 billion LNG project with China
By: Dominick Harnett
Alaskan and Chinese officials from three major corporations met in 2017 to discuss a partnership to build a massive liquid natural gas (LNG) pipeline that could extract Alaskan LNG and bring it to Asian markets. Since then there have been several meetings between Alaskan and Chinese officials. Both sides agreed to a deadline of December 31, 2018 to release definitive agreements outlining the project. The details still haven’t been released, but this was expected as there has been a switch in governorship in Alaska to an administration that is more skeptical of Chinese investment. With this new administration, what is the future of Chinese involvement in the $43 billion LNG project?
In April 2017, following his meeting at Mar-a-lago with President Trump, President Xi Jinping stopped in Anchorage, Alaska to meet with then Governor Walker. They discussed a massive LNG pipeline intended to tap into the massive LNG reserves of Alaska. It is estimated that almost a third of the world’s LNG is in the Arctic region and half of that is in Alaska. Despite its large reserves, Alaska has not been able to capitalize on the recent LNG boom across the world. This is due to the higher than average costs to extract Alaska’s LNG. Alaska was ranked among the lowest return on investment for LNG projects. The higher than average costs deterred many other private corporations, but not the Chinese. When President Xi visited Alaska it showed the seriousness of the Chinese to secure its own energy needs and to participate in the development of an Alaska LNG pipeline.
The Alaska Gasline Development Corp. (AGDC) and Chinese officials have since been working on definitive agreements detailing the initial construction of the project. The AGDC and three Chinese companies signed an initial agreement in November 2017 in Beijing and set the deadline for the definitive agreements to be hashed out by the end of 2018. The release of these agreements was delayed by six months until June 2019. The delays come after November elections that ousted the incumbent governor, Bill Walker, who had been the primary advocate for the LNG partnership with Chinese corporations. Alaskans elected Republican Governor Dunleavy to replace incumbent and independent candidate Bill Walker. The new administration has signaled it will more scrutinize the deal with Chinese corporations. Governor Dunleavy in 2016 had questioned the withdrawal of private energy corporations from the project and the takeover of state owned AGDC. Former Governor Bill Walker had placed much of the planning for the project into the hands of the AGDC, run by the Alaska state government, after an exodus of private corporation involvement.
Since Governor Dunleavy’s election, not much new information has come out in regards to the future of the project, but Governor Dunleavy did replace two members of the board on the AGDC. He also appointed former Governor Sean Parnell to be his special assistant on LNG projects. Parnell is a strong advocate for more private investment and less control by the AGDC. These changes give us some insight into the possible future of the project. It signals a shift to more lobbying of private corporations to invest in the project, and away from state owned corporations.
How does this affect Chinese involvement? There are three state-owned Chinese corporations that have partnered with the AGDC to invest in the $43 billion project: China Petrochemical Corp., CIC Capital Corp, Bank of China. All three of which are run by the Chinese government. Governor Dunleavy showed pushback to this partnership when asked about the project during the recent campaign. “We have to make sure that we’re going to make money off of our resources. This is a big project. I think it begs a lot of scrutiny and a lot of questions.” said Dunleavy. There is a clear skepticism of the Chinese involvement in the project and the large shares promised to Sinocorp, at 75% of extracted LNG, which will use the money received from sales of the LNG to repay the Bank of China. In other words, China will gain a majority of the LNG and much of the profits from the project. Many of the more important financial details signed between the Chinese corporations and AGDC have been confidential so it will be interesting to see what Governor Dunleavy decides once he has access to this information.
It is unlikely that Governor Dunleavy will explicitly ban Chinese investment in the project. What is more likely to happen is that the details of the agreement will change to be less favorable to the Chinese corporations which may force them to back out. Extracting Alaskan LNG comes at already higher costs than in other markets and a change in the deal could easily push away Chinese investment.
China is the second largest importer of natural gas and they are continually searching for new resources to feed their growing appetite for LNG. Alaska provides the opportunity to secure future LNG demands for the Chinese. The Chinese have hit a huge roadblock in the new Alaskan administration which could put the Chinese investments in jeopardy.
Dominick Harnett is a lifelong resident of Alaska that is a fourth year undergraduate studying International Political Economy and Diplomacy at the University of Bridgeport.
Alaska LNG-China Agreement At a Glance, released on November 9, 2017. For more details, see https://agdc.us/alaska-lng-china-agreement-glance/
Arctic oil and natural gas resources released by the EIA, U.S. Energy Information Administration, for more details, see https://www.eia.gov/todayinenergy/detail.php?id=4650
Brehmer, Elwood. “Dunleavy replaces two AGDC members amid project review,” Alaska Journal of Commerce, January 9, 2019, http://www.alaskajournal.com/2019-01-08/dunleavy-replaces-two-agdc-members-amid-project-review#.XHNvPYhKiUl
Earl, Elizabeth. “Alaska LNG Project to Move Forward, with Changes,” Peninsula Clarion, May 2, 2017, https://www.peninsulaclarion.com/news/2016-09-06/alaska-lng-project-to-move-forward-with-changes/
Hobson, Margaret K. “New Governor hints at Alaska megaproject’s future,” E&E News, November 14, 2018, https://www.eenews.net/stories/1060106035
Passut, Charlie. “Alaska, Chinese Firms Extend Negotiations for LNG Export Project,” NGI’s Daily Gas Price Index, January 4, 2019, https://www.naturalgasintel.com/articles/116974-alaska-chinese-firms-extend-negotiations-for-lng-export-project
Zaretskaya, Victoria. “China becomes world’s second largest LNG importer, behind Japan,” U.S. Energy Information Administration, February 23, 2018, https://www.eia.gov/todayinenergy/detail.php?id=35072
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