$54 billion in false promises about Alaska LNG

The claims by President Donald Trump and Alaska Republicans that South Korea has agreed to pay more than $54 billion to build the Alaska LNG project added up to nothing but a campaign stunt to try to boost the reelection campaign of Sen. Dan Sullivan.

Sullivan, Gov. Mike Dunleavy and Rep. Nick Begich the Third have yet to admit that Korea never agreed to do what they claimed when they gathered in the Oval Office to praise Trump.

The Alaska politicians even said we should not believe the Korean denials, but trust Trump that the Koreans must pay $54 billion to build the project.

A deal like that will never be the foundation for a successful partnership costing tens of billions and running for decades. It is not reluctance we are seeing from Korea.

It is recalcitrance, born of resistance to unreasonable demands by Trump.

Take a look at how South Korea is acting more than a month after the false promises that $54 billion was on the way.

This is the how Korea Business is presenting the issue. The government says it is about to begin its review of the commercial prospects.

It is reported that the government will soon commission a foreign advisory firm to assess the commercial rationality of the Alaska liquefied natural gas (LNG) project. This marks the first step of the ‘thorough verification’ that the government has been emphasizing. Analysts also suggest that the Democratic Party’s landslide victory in the United States midterm elections has increased the room for the South Korean government to take sufficient time to review whether to invest.

According to multiple government officials on Nov. 5, the government plans to soon commission a specialized foreign advisory firm to review the commercial rationality of the Alaska LNG project. The Alaska LNG project is an enterprise that transports natural gas produced in the north to the south through an approximately 1300-kilometer-long gas pipeline, and then liquefies it for export. Questions have been raised about its economic feasibility regarding the massive pipeline construction costs and price competitiveness.

United States President Donald Trump has repeatedly made remarks treating South Korea’s investment in Alaska LNG as a foregone conclusion, but the South Korean government has drawn a line against confirming the investment. Kim Jung-gwan, Minister of Trade, Industry and Energy, stated, “It is premised on commercial rationality” The South Korea-United States agreement (fact sheet) also explicitly states ‘initiation of review.’

South Korea is not the only country to have taken steps to review the feasibility of the Alaska LNG project through an external institution. The Japanese government reportedly commissioned energy consulting firm Wood Mackenzie to evaluate the project last year. Although the evaluation results were not disclosed, Japan has been negotiating with the United States focusing on a plan to act as a buyer of the LNG to be produced in the future rather than making a direct investment.

It is difficult to view the South Korean government’s current push for an external review as placing weight on the investment. Depending on the review results, the government could either push forward with the investment or secure grounds not to invest.

However, concerns also emerge that the push for an external review itself could be utilized by the United States as a signal of the initiation of investment procedures. An expert familiar with the United States investment negotiation situation said, “In a situation where the United States is treating South Korea’s investment as a foregone conclusion, the initiation of an external review could potentially be taken (by the United States) as the first step of pushing the investment,” and added, “We must approach this carefully so that the verification procedure is not considered a step toward investment.”

The results of the United States midterm elections are another variable that will affect the strategy for investment in the United States. With the Democratic Party securing a majority in both the Senate and the House of Representatives, congressional checks on the Trump administration are expected to strengthen starting in January next year. Reuters analyzed in a report on November 4 (local time), “Room has been created for South Korea and Japan to delay the final confirmation of their promises for $hundreds of billions in investments in the United States.”

Variables have also arisen in the construction of the Encinal combined cycle gas power plant in Texas, the number one strategic investment project in the United States. Democrat Gina Hinojosa, who was elected after defeating Republican Governor Greg Abbott, pledged to halt approvals for new data centers until the state legislature establishes relevant regulations. The Encinal power plant is a project that supplies power to an adjacent large-scale data center. Governor Abbott has also already temporarily suspended data center licensing, but as regulations are likely to be strengthened after the new governor takes office, the impact on the project remains to be seen.

Overall, forecasts suggest that the Trump administration’s investment pressure will continue. Hur-Jung, a professor of economics at Sogang University, assessed, “As investments in the United States, such as the Alaska LNG project, are matters agreed upon between the administrations of both countries, there is not much room for intervention by the United States Congress,” but added, “However, because President Trump’s power has weakened, it has become a slightly easier situation for South Korea to continuously demand specific conditions related to commercial rationality.”