New report says Alaska LNG project costs could top $70 billion, so it won’t get built. Legislature needs to see the analysis

Glenfarne, the company that received the Dunleavy blessing to study a proposed Alaska gas pipeline project, reveals far more than it intended with its latest press release, touting an alleged deal to sell LNG to a company controlled by the government of Thailand.

Glenfarne insists on exaggerating its actions, relying on fuzzy language and vague terms, a practice that Alaska political and business leaders have failed to recognize as a red flag.

This press release is another marketing gimmick, part of a pattern that gives me reason to question everything Glenfarne executives say about the viability of the project.

The company is making much of what it claims is a “cooperation agreement for strategic participation” with PTT Public Company Limited in Thailand.

Just what is a “cooperation agreement for strategic participation”?

Glenfarne suggests there is an agreement for the “procurement of 2 million tonnes per annum of LNG from Alaska LNG over a 20-year term.”

But there is one big problem.

There is no agreement to sell 2 million tons of LNG a year for 20 years to PTT.

Since there is no agreement to buy gas, Glenfarne has no real basis on which to claim it has now “reserved 50 percent of its available third-party LNG offtake capacity” for companies with deep pockets.

There does appear to be an agreement by PTT to keep talking to Glenfarne about buying 2 million tons of LNG a year for 20 years.

Glenfarne is overstating and overselling the significance of the so-called “cooperation agreement for strategic participation” with PTT.

An agreement to keep talking is not evidence of “Alaska LNG’s tremendous momentum,” or that the project is “well on its way to becoming a reality,” as alleged by Brendan Dual, CEO and founder of Glenfarne.

The overblown hype is no way to build credibility with Alaskans or with the companies in Asia that are talking with Glenfarne.

The latest evidence that no one knows what the gas will cost comes from an independent report by Rapidan Energy Group, which says the likely cost of the pipeline project is far higher than the $44 billion estimate still in circulation.

“Rapidan noted the second phase of the project alone could cost up to $60 billion based on current large-scale export projects underway along the Gulf Coast,” the website Natural Gas Intelligence reported.

Add in the cost of the so-called first phase—building a pipeline from the North Slope to Anchorage without compression and export facilities—and the total project cost would exceed $70 billion.

Rapidan is a Washington, D.C.-based consulting group.

Gov. Mike Dunleavy and others claim the first phase would be economic, but “Rapidan said phase one is uneconomic alone given the steep costs and challenges of building the infrastructure in remote and complex terrain. According to the firm, natural gas demand in the Railbelt region the pipeline would serve, which encompasses the state’s most populated areas, is less than 300 MMcf/d.”

I suspect that the pipeline promoters are hoping that President Trump will provide a giant subsidy to get the first phase of the pipeline built.

Rapidan said that financing “now seems to hinge on a mix of public and private capital, potentially tied to trade agreements with Japan, South Korea, Taiwan and India.”

There is also the risk that a future president might oppose the project and pull permits, the analysis said. The political future is uncertain, along with the finances of the project.

“Rapidan noted the costs for similarly complex projects such as the 416-mile Coastal Gaslink pipeline built to move natural gas across rugged terrain to the LNG Canada export terminal in British Columbia. The system’s cost ballooned from initial estimates near $5 billion to a total of about $15 billion by the time it was completed last year,” Natural Gas Intelligence said.

The real potential for higher costs than anyone is counting on has escaped the notice of Alaska politicians, who continue to say it would cost $44 billion.

“Given the scale and complexity of phase one, we doubt that Worley or any other EPC (engineering, procurement and construction) contractor would undertake construction on a fixed-price basis, as the financial risk is too great,” Rapidan wrote. “As a result, any cost overruns would likely be borne by the project’s financiers.”

A spokesman for Glenfarne disputes the notion of a much higher price for the project, NGI reported.

“This project has no true peers in terms of LNG infrastructure designs; all projects are different,” Micah Hirschfield said.

“The oft-cited LNG Canada and western Canadian pipelines, for example, are basically pioneer sites that had little existing infrastructure or pipeline right-of-way, which created challenges during construction.”

“Hirschfield added that the Alaska project would benefit not only from some existing infrastructure, but also from Glenfarne’s expertise in the sector. The company is working to sanction the Texas LNG facility and an affiliate is the largest LNG importer in Colombia.”

Rapidan questions whether the Glenfarne negotiations with Asian nations and companies will lead to contracts to promise to buy gas for 20 years.

Alex Munton, Rapidan’s director of global gas and LNG, is quoted as saying “we doubt they will translate into binding financial commitments and our base case is that the project will not reach a final investment decision.”

That means Rapidan believes the project will not be built, contrary to the assertions by Dunleavy, Sen. Dan Sullivan, Rep. Nick Begich the Third and many Alaska Republican legislators.

Hirschfield told Natural Gas Intelligence that Rapidan is wrong with its conclusions and the project is a winner.

“The comparisons Rapidan and other skeptics are relying on are not based on the correct fundamentals and true costs, and we welcome the opportunity to engage in meaningful dialogue with any party seeking information on the project,” the Glenfarne spokesman said.

In the interest of correct fundamentals, true costs and meaningful dialogue, the Alaska Legislature should hear the analysis from Rapidan, as it contains a perspective that the Dunleavy administration, the Alaska Gasline Development Corporation and Glenfarne have failed to provide.

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