Alaska LNG's big secret: Who would pay billions in cost overruns?
The wave of political hysteria about the Alaska LNG project is something to behold.
And don’t worry about the potential for billions in cost overruns, the Alaska propaganda machine says, someone else that no one will name will write checks to cover all expenses, not Alaska consumers.
Gov. Mike Dunleavy, most Republicans, Glenfarne, the construction industry and the unions are the loudest voices pushing the claim that the Legislature has the power to “Build the Line!” .
Approve the tax cut bill and Glenfarne will “Build the Line!” Reject it and Glenfarne will “Not Build the Line!”
Spoiler alert: None of this is as simple as the propagandists claim.
“There is no cost overrun risk to Alaskan ratepayers. Glenfarne is entirely financially responsible for the project, with no risk to the state or local communities,” according to a press release from the financial experts of the Senate Republican caucus—Mike Cronk, Robb Myers, James Kaufman, George Rauscher, Cathy Tilton and Rob Yundt.
“And there’s real protections for Alaska ratepayers. This bill now contains hard protections, predictable protections,” said financial expert Rep. Chuck Kopp on June 12. “What does it do when gas is purchased by our utilities? They cannot charge more than $16 per MMBTU, that’s million British Thermal Units, a number that reflects the current contract being worked on by ENSTAR and Glenfarne.”
“The bill now ensures that the RCA cannot approve gas sales contracts that force Alaska ratepayers to pay for cost overruns on the project. We know that projects of this size frequently have cost overruns and it’s the goal of this bill that ratepayers do not bear the burden of the costs on their bills,” said Kopp.
To a large extent, this is a phony issue.
No utility would agree to buy gas for decades under a contract that allowed the developer to pass on billions in cost overruns to the utility.
So the provision in the bill that says the Regulatory Commission of Alaska can’t approve contracts under which cost overruns are passed onto consumers would only be necessary if the utilities are owned and managed by fools.
Regarding the price ceiling of $16, this column by Frank Bass about the potential for a massive LNG glut on world markets is a warning that this may not be a bargain.
“In northeast Asia, futures contract markets show LNG import prices falling from $18.90 per thousand cubic feet late last week to $12.50 by June 2027 and $7.57 by June 2031. It’s almost the same story in Europe, where the current contract price of $16.32 falls to $11.31 by this time next year and to $7.18 by June 2031. In Alaska, we’d be paying more than double those amounts by the time gas begins flowing from an LNG pipeline,” he said.
It was just last week that we were told by Glenfarne that the estimated price of the pipeline portion of the project was now up to $16.9 billion, which doesn’t include the possibility of cost overruns. The price of the total project that relies on massive exports is now up to $54.5 billion without cost overruns.
So who will cover the risk of cost overruns? The company that Glenfarne would hire to build the project? Banks that would be lending tens of billions and want to make sure they get their money back?
The Legislature has yet to hear from the volunteers who are prepared to face the risk of billions or tens of billions in cost overruns and face financial ruin if something goes wrong.
This will not be fixed by anything the Legislature does this summer. This risk has long been the major obstacle to a pipeline.
I think that there is one option—the plan/dream/fantasy that Trump will still pull a pipeline out of his MAGA hat.
A year ago, U.S. Commerce Secretary Howard Lutnick said Trump would tell the Japanese to pay for the Alaska pipeline, regardless of how much it costs. He claimed the Japanese government would give $550 billion to Trump before the end of his term.
“Alaska pipeline, scale, $50 billion, $100 billion, Donald Trump wants to unleash the Alaska pipelines. The Japanese will finance it. And it’s great for America. It’s fantastic,” Lutnick said.
The Japanese have not agreed to finance the pipeline for $50 billion or $100 billion.
But I would not discount the chance that Trump might still try to finagle a giant federal subsidy on grounds that this is a national security emergency to get gas to Alaska military installations, allow for the construction of data centers on military property near Eielson and JBER, enhance energy dominance, allow for critical minerals to be developed, fend off China, etc., etc., etc.
With a big enough federal subsidy, anything is possible for this private sector project. Then again, it could all go the way of Trump’s $1.776 billion slush fund.
All of this should temper the hysteria being spread now that portrays legislative approval of the tax cut as the action needed to “Build the Line!”
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