New cost estimate for AK LNG Project shaves off $5B

More than $5 billion has been shaved off the price of the massive Alaska LNG Project in an effort to attract private firms to take over the LNG export plan currently led by the state, Alaska Gasline Development Corp. officials announced Thursday.

The latest cost estimate of $38.7 billion is 12 percent less than the $44.2 billion projection made in 2015 when ExxonMobil was leading the Alaska LNG Project in a joint venture with BP, ConocoPhillips and AGDC.

AGDC spent the past 14 months looking for ways to reduce the cost of the North Slope gas pipeline and LNG export plan with help from BP, ExxonMobil and global engineering and construction firm Flour Corp.

The expected savings largely come from technological and modular construction advancements made in the rapidly evolving LNG industry since the last estimate was made in 2015 as well as updated material and equipment costs and leveraging third-party services, according to AGDC officials.

AGDC President Frank Richards said the new cost figures strengthen the development prospects for the long-sought gasline but noted global markets will ultimately determine the fate of the Alaska LNG Project.

He said during the Thursday morning AGDC board of directors meeting that the cost savings exceeded expectations and actually totaled $8.5 billion when the $44.2 billion cost from 2015 was inflated to fourth quarter 2019 dollars.

“These updates improve the competitive position of the Alaska LNG Project and its ability to deliver LNG and natural gas at favorable prices. We are incorporating these results into our discussions with potential partners as we work to transition to a new market-let project team and maximize project benefits for the State of Alaska,” Richards said in a formal statement.

At its core, the project consists of a large North Slope gas treatment plant; an 807-mile buried natural gas pipeline from the Slope to the Kenai Peninsula; offtake points for state use, and a three-train liquefaction plant at Nikiski capable of producing up to 20 million metric tons of LNG per year for export to Asian markets.

AGDC has led the Alaska LNG Project since 2017 when the major producers decided depressed prices in global energy markets would prevent the project from generating the returns they deemed necessary to continue investment.

The state-led Alaska LNG Project was a priority of former Gov. Bill Walker’s administration but also garnered significant criticism from Gov. Mike Dunleavy and other lawmakers who contend the megaproject is too complex and risky for the state to develop on its own. As a result, AGDC under Dunleavy has shifted to seeking to sell the projects plans and permits to a private firm or consortium likely sometime next year.

The previous cost estimate used for the state-led project was $43 billion; AGDC officials explained the $44.2 billion estimate included the expected cost of a payment in-lieu of taxes, or PILT, which a privately-owned project would pay to local governments with project infrastructure within their jurisdictions.

Richards said the economic evaluation focused on ways to cut $100 million or more from the Alaska LNG capital costs. The review also found nearly $98 million per year in savings to the expected operating costs of the project, which are now pegged at $739 million per year.

BP and ExxonMobil also assisted AGDC with $10 million each to help complete the final work on the project’s environmental impact statement. AGDC received a favorable record of decision from the Federal Energy Regulatory Commission May 21.

Matanuska-Susitna Borough officials have appealed FERC’s decision on the project, contending the agency did not adequately consider the borough-owned Port MacKenzie as a viable location for the large LNG plant.

Look for updates to this story in an upcoming issue of the Journal. Elwood Brehmer can be reached at [email protected].

06/25/2020 - 10:44am