Alaska LNG project cost? No one really knows.
The Alaska Department of Revenue has lately been claiming the cost of the Alaska LNG project is $46.2 billion, a statistic that will be repeated so often during the special session that some people might be tempted to think it is real.
The news coverage that refers to a “$46.2 billion project” is misleading. The repetition conveys a false and unwarranted sense of precision about what would be one of the world’s largest construction ventures.
The truth is that no one knows the real cost of this gigantic project, which is the biggest challenge.
“The single most significant hurdle for the project is the high capital cost and related risk of cost inflation,” the company said.
“Although there have been multiple budget assessments over the years, these reviews have remained at a Class V level of estimation. In order to derisk the cost uncertainty, better ascertain the project economics, and enable commercial negotiations to proceed, much more detailed engineering and design work is required,” GaffneyCline said.
What is a Class V estimate?
It is the “least detailed and accurate type of project cost estimate, used in the earliest stages of a project for feasibility studies. It is based on very limited information with an accuracy range of approximately —50% to +100%,” the company said.
It is used in the “concept screening” stage.
Apply that to the $46.2 billion claim and the estimate could be anywhere from $23 billion to $98 billion.
Glenfarne, in presentations to the Legislature, is calling the $46.2 billion number a “Class IV” estimate.
A Class IV estimate is the “study or feasibility” stage, with a cost range of minus 30 to plus 50 percent. It means that 1 percent to 15 percent of “project definition deliverables” are complete.
Apply that to the $46.2 billion claim and the estimate could be anywhere from about $30 billion to $66 billion.
In an attempt to deal with this world of uncertainty, the Dunleavy administration, the Alaska Gasline Development Corporation and Glenfarne have said that if the pipeline piece is separated from the rest of the project, the pipeline will be easier to digest and finance.
Removing the immense gas conditioning plant and the immense export processing facilities, which will cost tens of billions, would trim the costs of the so-called “Phase 1,” perhaps to $10 billion to $20 billion.
It’s still an immense amount of money to build a 42-inch pipeline to supply gas to Fairbanks and Anchorage.
But reaching a final investment decision on a $10 billion or $20 billion project would be easier than doing the same on a project that is three to five times larger.
In December, GaffneyCline said there were “a number of unresolved features of the Phase 1 gasline project that would typically put the timeframe for FID (final investment decision) much further out than the project developers Glenfarne have indicated.”
Glenfarne contracted with Worley to update the cost estimate of the pipeline in 2025 with a “scope focused on updating pricing” to 2026 dollars. Glenfarne won’t release that information.
Nick Fulford of GaffneyCline said Tuesday that Glenfarne said it now has a more detailed Class II estimate on the pipeline portion of the project that has not been made public. Lacking that estimate, Fulford used $14 billion as the upper limit on a slide estimating the cost of the pipeline.
A friend of mine with long experience in the politics of Alaska oil and gas says that studies going back decades have demonstrated that a property tax reduction needed to be part of the overall plan.
Dunleavy, Glenfarne and the Alaska Gasline Development Corporation made an enormous mistake when they failed to bring the property tax issue to the municipal governments along the proposed pipeline route and the Legislature until last December. Then Dunleavy delayed introducing his tax-cut bill until late March.
The claim by Fulford Tuesday that everyone should have known that a property tax was needed because it has been discussed for years and years was not at all convincing. It sounded as if he was trying to make excuses for the failure of Dunleavy, Glenfarne and AGDC to mention this for nearly all of 2025. The message from them was that no property tax cut was needed.
But their failure does not mean that a property tax reduction is unwarranted. The question for the Legislature is what to do next.
I am inclined to think that the Legislature should pass some version of the Dunleavy tax cut, a measure that would deal with potential pipeline impacts and have an expiration date—giving it enough time to see whether the project will proceed. At some future date, the Legislature will have to reassess.
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