AK LNG leaders navigate trade battle with China
The $43 billion Alaska LNG Project is in a rather unique spot when it comes to the United States’ trade relations with China.
It was a central piece of a Nov. 9, 2017, meeting between President Donald Trump and China President Xi Jinping in Beijing, a ceremony at which numerous deals totaling roughly $250 billion in potential trade between the countries were announced.
That day Gov. Bill Walker and Alaska Gasline Development Corp. President Keith Meyer signed a joint development agreement with the state-owned Chinese companies Sinopec, China Investment Corp. and the Bank of China; it was one of a select group of trade pacts chosen to be signed in front of the two presidents.
Although nonbinding, the JDA has been touted as the early stages of a foundational deal to support the gasline as it calls for selling up to 75 percent of the project’s LNG’s production capacity to Sinopec in exchange for a like percentage of the needed financing. It could represent billions of dollars per year of Alaska LNG exports to China, which would be a significant step towards rebalancing trade between the two countries.
However, business relations between Beijing and Washington, D.C., have been on a well-publicized downhill path since.
AGDC leaders acknowledge the 25 percent tariff the Trump administration levied on Chinese steel imports this spring could impact the viability of sourcing the steel for the project’s 800-mile, 42-inch natural gas pipeline and other components such as pipe racks.
Reuters reported July 16 that the Trump administration recently rejected a request for a waiver from the 25 percent tariff on Chinese steel by Plains All American Pipeline LP, despite the fact that the company signed a contract for the steel to be used in a 550-mile Texas oil line last year prior to the tariffs taking effect or even being announced.
At the same time, state gasline officials note that prefabricated modules and other constructed units that would make up large portions of the North Slope gas treatment plant, the Nikiski LNG plant and the pipeline compressor stations are exempt from the new tariffs, for now, at least.
Many such components will have to be sourced internationally if the Alaska LNG Project is built because there simply are too few, if any, U.S. manufacturers. Additionally, cost savings are often available in world markets versus domestically sourced materials, according to AGDC Vice President Frank Richards.
During a July 11 project update to legislators, Richards highlighted that China has not included U.S. LNG in its retaliatory tariff measures as part of the tit-for-tat trade dispute.
It seems unlikely that LNG, or any energy form for that matter, would be hit with such a tariff as such a move would ultimately increase prices for Chinese consumers at a time when the government is making a major push away from coal for electric generation to cleaner fuels such as natural gas.
“We feel that we have high visibility. China wants clean, efficient natural gas; Alaska has it; the U.S. wants to produce and export it, so we feel that we are in a good position as a project and as Alaska, too, to not hopefully be impacted by that (trade dispute),” Richards said.
He added that AGDC learned in early July that there are pipe manufacturers in Arkansas and Illinois capable of rolling 42-inch steel pipe; AGDC previously didn’t know if sourcing the primary gasline steel from the U.S. was even possible.
As for Alaska LNG’s end product, AGDC Commercial Vice President Lieza Wilcox told legislators asking about financial risks in the project that if China does puts a tariff on imported LNG, the downstream sales contracts will be structured so the additional tariff cost is borne by the LNG buyer.
“Once the contract is concluded the price is not going to be discounted for tariffs,” Wilcox said.
She — as other AGDC leaders have since the November announcement — emphasized that the Alaska LNG Project is well regarded in the trade circles of both countries and said it has the opportunity to “continue to be a force for good in the continuing discussions about trade.”
Elwood Brehmer can be reached at [email protected].