Sinopec drops interest in managing AK LNG construction
A Chinese oil giant is still in line to be a major buyer from, but not builder of, the $43 billion Alaska LNG Project.
Alaska Gasline Development Corp. President Keith Meyer said Sinopec Corp. is still interested in 75 percent of the LNG produced from the project, but is no longer being considered as a construction manager for Alaska LNG.
Gov. Bill Walker and Meyer signed a non-binding joint development agreement, or JDA, with Sinopec, the Bank of China and China Investment Corp. Nov. 8, 2017, in Beijing in front of President Donald Trump and China President Xi Jinping.
The framework agreement set the foundation for further negotiations over LNG purchases, project financing and possible construction involvement by the government-owned Chinese companies.
Sinopec is generally considered the world’s largest oil and gas company.
The JDA also set a soft May 31 deadline for setting the parameters of involvement in the project by the Chinese consortium with advanced negotiations leading to a Dec. 31 deadline for final agreements.
Meyer said Sinopec officials originally expressed interest in being a major participant in the four-year-plus Alaska LNG construction effort through its engineering and construction subsidiary, but that possibility was mostly nixed after a Chinese delegation spent a week in Alaska reviewing technical documents and examining the 807-mile pipeline route from the North Slope to Nikiski both from ground and the air.
Meyer and other AGDC officials met with the Journal and Anchorage Daily News in a July 26 editorial board meeting.
“(Sinopec) has never built an LNG plant and they do not have any Arctic pipeline (experience) — they’ve got a pipeline they built that is longer than ours; it’s got a higher altitude than ours, but it’s not this permafrost stuff,” Meyer said.
Sinopec officials have since indicated they would be open to a subcontractor role in final design and construction, according to Meyer.
“We said that’s fine because quite frankly it probably would have been a little more of a problem to fit them in than to not fit them in,” he added.
Numerous legislators have expressed concerns over the prospect of Sinopec being a major player in Alaska LNG construction if the project moves forward, fearing the company could bring its own workforce and displace Alaskans wanting to work on the project.
Some legislators have said they would be hesitant to partner with companies backed by a government with a litany of human rights violations but they would be comfortable with simply selling LNG into China — issues also raised by members of the public during recent AGDC board of directors meetings.
The Bank of China and China Investment Corp., which manages the country’s sovereign wealth fund, are also potential Alaska LNG debt financiers and equity investors, respectively.
From now until the end of the year the focus with will be on hashing out terms for the definitive, bankable LNG sale and purchase agreements.
Meyer said though unlikely, he could see a scenario in which Sinopec agrees to buy LNG from the project without China Investment Corp., or CIC, participating, but investment without LNG is very unlikely.
“The way it was originally contemplated CIC was really brought in as the equity investor and they’re supposed to be just like the Permanent Fund, completely independent of (Sinopec’s) decision and isn’t tied to the off-take. We were looking at Sinopec as just the off-take. It’s only been recently that Sinopec is sort of saying well, wait a minute, maybe we should be the investor, not CIC,” Meyer said. “We would be indifferent to that. Our focus is more on the total amount they might own or control.”
Meyer and other project officials have long stressed AGDC will retain a majority ownership in the project regardless of its equity partners.
The Bank of China’s lending to the project has been envisioned as a share of project financing equal to Sinopec’s capacity purchase amount.
The Bank of China or other lenders would loan to a project company set up by AGDC under non-recourse project loans. Customers would then pay into the project company’s escrow account, which would pay operations and maintenance costs first and then the senior project lenders.
The banks would lend based on the “sanctity of the commercial contracts,” according to Meyer.
“If the customer stops paying the bank can step into those contracts, but we’re keeping the bank short of stepping into those underlying assets,” he said.
“We want Bank of China to look at their sister company, if you will, they’re both owned by the state, as the credit support.”
Elwood Brehmer can be reached at [email protected].