Alaska LNG $46 billion claim is 'complete garbage'

Sitka Sen. Bert Stedman is right. The claim that the Alaska LNG project would cost $46.2 billion is “complete garbage.”

On Wednesday, Stedman asked Nick Fulford, the consultant hired by the Legislature, what capital expenditure cost estimates he is using now on the expected cost of the project, saying that recycling old numbers is one of the “indigestion points.”

“This uses the DOR (Department of Revenue) base capex assumption, which is I believe $46 billion, which is inflated from one of the previous capital cost estimates that was put out there I think in a Wood Mac (Wood Mackenzie) report a couple of years ago,” Fulford said.

Sen. Lyman Hoffman asked if the previous cost estimate was $35 billion.

“I think $35 billion was certainly around at one time. But I think that’s probably wishful thinking these days,” said Fulford. “So yes, base capex is $46 billion in this example.”

Stedman wanted to know if the $46 billion estimate is today’s number. It’s today’s value, said Fulford.

“Ok. So I hope when Glenfarne comes in here and has a discussion they use a little more accurate numbers,” said Stedman, adding that there has been massive inflation over the last decade in Alaska construction to finish old projects.

“So that number’s complete garbage,” said Stedman, about the $46.2 billion claim put forward by the Department of Revenue and repeated by Dunleavy, Glenfarne, etc.

“And makes it very misleading. We’re gonna have to deal with that somehow at this table to get a rough idea of what actual costs we’re looking at. Especially when somebody’s gonna sit at the end of the table and ask for a concession because if they need a concession on a $45 billion project, what are they gonna ask for when it’s $70 billion?”

Fulford, a cautious consultant, did not have a good reply to that.

“I think you’ve hit there on perhaps on one of the major features that needs to be addressed and developed with the developer,” said Fulford.

The consultant also did not have a good reply Tuesday when Rep. Alyse Galvin asked him to guess what the real cost of the proejct might be. He said it is “highly likely” to be higher than $46 billion. But he would not venture a guess.

In 2015-2016, the cost was pegged at $44 billion, Galvin said. Simply applying standard inflation would make that $57 billion to $60 billion now. The cost is the major assumption, she said.

Stedman made the same point Wednesday.

The numbers have to be as accurate as possible and the state is being asked to make decisions based on guesswork and magical thinking.

Hoffman said the Senate Finance Committee certainly doesn’t have what it needs. He mentioned how the trans-Alaska pipeline cost more than doubled from its original estimate.

The increase in the trans-Alaska pipeline cost from start to finish was a great deal more than a doubling. It was about 10 times more than the first estimates.

Glenfarne claims to have a refined cost estimate on the pipeline portion of the project, which could be in the $10 billion to $20 billion range. There is no evidence that it has a detailed cost estimate today on the full cost of the project.

About cost overruns, Fulford said he has heard discussion that the charges to consumers in Alaska would not be changed by cost overruns.

“But I’m not sure that I’ve seen that set out in writing,” he said. Until it is in writing, it is not something to count on.

One of the topics I’ve written about here recently is how Dunleavy, Glenfarne and the AGDC said a year ago that the Legislature did not have to do anything to get the pipeline moving ahead, but that all changed last December.

Stedman brought this up Wednesday.

“I think we asked well over a year ago if we needed to do anything from the state's perspective and the answer was no, we don't need to anything. Just stay out of the way and then we're gonna go build it. So I think they missed that mark by a mile,” he said.

He said legislators with experience knew that could not be accurate, but he said, that’s the line of “razzle-dazzle they gave us.”

AGDC President Frank Richards told the Legislature a year ago about this 2024 Wood Mackenzie study that analyzed a 90 percent reduction in property taxes as a way of making gas more affordable, but said that was not what Glenfarne was asking. Or what it had agreed to, he said.

Richards testified a year ago that “there’s no consideration for property taxes. The existing statutes are what are in place and will be abided by.”

On Wednesday, Richards offered a revisionist history to the House Finance Committee, instead of admitting his statement a year ago that “there’s no consideration for property taxes” in the deal with Glenfarne.

Rep. Will Stapp, who noted the property tax bill did not reach the Legislature until two months ago, wanted to know why AGDC and the governor didn’t act sooner if this was known about for years and is regarded as a big deal?

“Why wasn't at least a skeleton structure presented for us last year, the year before, year before that?” said Stapp.

“Should we have been more proactive and more forceful in saying you guys need to do this now? In hindsight, that's probably the case,” said Richards.

“Unfortunately though, when we were presenting these we were also out in the market trying to entire investors coming in, so we weren’t at the point where we actually had a developer on the hook, working with us to advance the project,” said Richards.

That was not true a year ago.

A year ago there was a developer on the hook, Glenfarne. Dunleavy and AGDC failed to get the Legislature to start work on the property tax issue a year ago, claiming that no legislative action was needed.

Meanwhile, AGDC executives told the House Finance Committee Wednesday that the Exxon-led effort a decade ago produced the $44 billion estimate in 2017. The increase in modularization and eliminating “gold plating” on project management costs and other items led to a downward revision to $38 billion by 2020, said Richards.

Richards defended the $46 billion estimate, saying that the latest cost estimate reflected the application of the consumer price index by the state revenue department from 2024 until now.

“So we feel that the work that has been done up to 2026, we kept current with the industry costs, meaning we wanted to make sure that we had what was current, that contractors were bidding on, that pipe suppliers were providing, what process equipment manufacturers were costing, to be able to make sure that we had something that was viable for, to entice investors and entice the market to come into the project,” he said.

The cost of the gas conditioning plant and the export facility, items that will cost tens of billions of dollars, has not been refined beyond the early-stage budget prediction stage. The $46 billion claim will be garbage until a great deal more expensive analysis is undertaken.

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