Oil & Gas
Rescuing Alaska’s Stranded LNG
Alaska’s public and private entities continue to explore options to bring North Slope LNG to market
By Tasha Anderson

ccording to Setting the Bar for Global LNG Cost Competitiveness, published in October by McKinsey & Company, a global market intelligence and analytics group focused on the energy sector, “By 2035, global liquefied natural gas (LNG) demand is expected to increase to between 560 million metric tonnes per year (MTPA) and 600 MTPA, up from 315 MTPA in 2018.” But that looming demand is no secret. From October 2018 to October 2019, eight LNG projects have reached a final investment decision (FID), boosting available supply by 84 MTPA, and “this capacity addition is expected to prolong excess supply in the global LNG market into the late 2020s, well beyond the 2022-2023 forecast of just a year ago. However, the Qatar North Field LNG Expansion—the world’s most cost-competitive source of LNG, expected to add a further 33 MTPA of supply—may, depending on its construction start date, extend the expected period of oversupply by a couple of years.

“Taking into account existing supply, recently announced post-FID projects, and Qatar North Field LNG Expansion, we expect that an additional 100 MTPA to 140 MTPA of new LNG supply will be required to meet demand: the equivalent of adding 25 standard LNG trains globally. However, more than 100 projects totalling 1,100 MTPA of proposed capacity are in contention to fill this supply gap, indicating that global competition among pre-FID supply projects is set to rise sharply.”

Short and sweet: Alaska’s approximately 32.4 trillion cubic feet of stranded natural gas resource is likely to remain stranded unless a globally-competitive project can be planned and constructed relatively quickly (in industry terms). The good news for Alaska is that, according to McKinsey, approximately 50 percent of global gas demand growth by 2035 is expected to come from Asia—already the largest region for Alaska exports internationally. This growth is “supported by population increases, greater wealth, rural electrification schemes, and gas’ rising share of national primary energy mixes,” according to a Nexant report, Global LNG Outlook. Through 2040, additional demand is also expected in the Middle East, Africa, Latin America, Asia Pacific, and North America.

So what are Alaska’s options to enter the LNG market instead of injecting a highly valuable commodity back into the ground?


In March the Alaska Gasline Development Corporation (AGDC) secured the final federal permit needed to make a FID on the approximately $10 billion Alaska Stand Alone Pipeline (ASAP). Instead of delivering natural gas to global markets, this 733-mile pipeline would provide natural gas to Alaskans.

While this milestone is significant for the project, the project itself has been more or less shelved. AGDC’s website describes ASAP as a “backup project,” and ADGC Interim President Joe Dubler says it’s “uneconomic.” He continues, “The state of Alaska will not pursue any LNG project on its own, period. The private sector is desirable in large projects to ensure that only those projects that meet economic hurdles will be built. Since the ASAP line was not economic, no private entities would participate, causing AGDC to abandon the effort.”

There is precedence for fully-state-funded industry projects going awry. Dubler gives the example of a seafood plant built in Anchorage in the late ‘90s using $50 million in state funds. The 202,000-square-foot factory was intended to provide 450 jobs and create an Alaska-based value-added market for Alaska salmon. Instead the plant closed its doors in 2003 and the facility was sold in 2005 to a private entity (after renovations to meet building codes for educational and public use, today the building is occupied by ChangePoint church).

ASAP’s goal was to provide natural gas to Fairbanks, Southcentral, and other areas of Alaska. However, Southcentral Alaska is already using natural gas supplied by operations in Cook Inlet, and moving north, the Interior Gas Utility (IGU) announced in October it would begin receiving LNG fill deliveries at the end of November. IGU General Manager Dan Britton said of the project in October, “Balance of plant work is one of the final steps toward completing the construction of our 5.25 million gallon LNG storage facility designed to provide security of winter supply and increase access to natural gas for thousands in our community… This is a massive step forward for affordable, clean-burning energy.” IGU is also being supplied by Cook Inlet operations.

Alaska’s natural gas needs just aren’t significant compared to global markets and don’t justify a $10 billion project to transport natural gas from the North Slope, especially with ongoing innovation and development of natural gas in Cook Inlet.

Alaska LNG

If AGDC’s backup is a non-starter, how is Alaska LNG—the entity’s current focus—shaping up?

It’s moving forward, though with a more conservative mindset than in previous years. While under previous-Governor Bill Walker the state aggressively pursued the project, even potentially considering a FID regardless of private investment, Governor Mike Dunleavy’s deep concerns with state budget spending levels led him to order a “full project review” of Alaska LNG in January 2019, which coincided with new appointments to AGDC’s board of directors and Dubler’s appointment as interim president.

Shortly after his appointment, Dubler said, “AGDC plans to seek strategic investors as part of the project viability review in 2019 in order to advance Alaska LNG and share in the risk.” In February, he told the legislature, “If it is viable we are going to solicit world-class partners for FEED… if we do all of our work and we determine that the project does not look like it’s going to be viable, we will wind the project down, close the corporation up, and return all current funds that remain to the General Fund.”

Similar to ASAP, without private investment, the state will not proceed with Alaska LNG.

“[Qilak LNG] will benefit Alaskans in several ways: the expansion of the Point Thomson field, that this project enables, will create many new construction jobs and will significantly increase condensate production into TAPS.”
David Clarke, COO, Qilak LNG

But that decision hasn’t been made yet. The public comment period for the draft EIS closed in October, and a final EIS is on track for March 2020, Dubler says. A FID will follow, though the timeline on that is uncertain, as it requires funding partners to be secured.

In May BP and ExxonMobil committed up to $20 million ($10 million each) to move Alaska LNG through the federal environmental review process, and the two entities have been working with AGDC to look at how the project can be made more competitive.

Of course BP has now sold its assets to Hilcorp and will cease operations in Alaska. Dubler says, “Short term, there should be no impact [from the sale]—BP has committed to fulfilling their obligations under our funding agreement. Long term, the impact will need to be determined.” As of press time Hilcorp has not indicated its intentions for the project, though in years previous the company has been positive about Alaska LNG.

Hilcorp’s participation will be vital, as if the sale passes regulatory hurdles, the company will own a one-third share of the Point Thomson gas field, valued at $4 billion and operated by ExxonMobil.

Another uncertainty related to Alaska LNG is where to build the project’s liquefaction plant and marine terminal.

Alaska LNG’s preferred site is in Nikiski on the Kenai Peninsula, which the Kenai Borough supports; however, the Matanuska-Susitna Borough contends that facilities should be built at Port MacKenzie.

According to Mat-Su, Kenai Boroughs Continue Arguing Over Project Site Review written by Larry Persily in October, “The Mat-Su accused the state team and Kenai Borough of misrepresenting one of the project’s many objectives—to serve Southcentral Alaska—in a ‘blatant attempt to eliminate all reasonable alternatives in order to rig the process in favor of Nikiski.’”

With the question raised, Valdez also joined the fray. “The City of Valdez has also asked FERC to add to its review. Valdez has argued that its community on Prince William Sounds is a better site than Nikiski, on Cook Inlet, and that the draft EIS failed to ‘rigorously explore and objectively evaluate’ the pipeline route and LNG terminal site at Valdez,” Persily wrote.

Thus far the arguments haven’t delayed the project, but they could. Dubler is optimistic about a good resolution for all parties, but “I still feel that the extensive engineering we have done has proven that the Alaska LNG facility location [in Nikiski] is the best for the project,” he says.

Dubler’s vision for Alaska LNG is steady forward movement with private participation. “I would like to see us get a final EIS from FERC and use the updated cost numbers we are gathering to see if the project can be competitive. If so, I would like to see private sector builders/owner/operators take over and build it. Our grandkids deserve the same Alaskan opportunities that we had.”

Qilak LNG

That opportunity this time around may take a different form than an 800-mile pipeline. Qilak LNG, a subsidiary of Lloyds Energy (a LNG portfolio developer headquartered in Dubai), is proposing to build a near shore liquefaction plant (NSLNG) and shipping LNG to Asian markets directly from the North Slope.

The company hasn’t finalized an exact development plan and currently has three ideas for the liquefaction facility. “The first option is to mount a liquefaction plant on a grounded barge next to an offshore barrier island (similar to the Snohvit LNG project in Norway and the Seawater Treatment Plant at Prudhoe Bay). The second option would build an ice resistant harbor located about 6 miles offshore that accommodates the NSLNG plant and will provide sheltered LNG loading. The third alternative under consideration would bring a large gravity based structure to an offshore location that will accommodate liquefaction, storage, and offloading (similar to the recently sanctioned Arctic LNG 2 project in Russia),” the company states.

Qilak LNG believes there are several advantages to its project over Alaska LNG: no pipeline is required, reducing costs and reducing construction-related environmental impacts; the facility can be built off-site “in a shipyard under very controlled conditions which minimizes the risk of overruns”; and the LNG facility will run more efficiently on the North Slope because of the colder climate.

Qilak LNG would be a smaller project than Alaska LNG, with a planned capacity of 4 MTPA to 8 MTPA, versus Alaska LNG’s 20 MTPA. Additionally, because of the smaller scale, Qilak LNG would provide approximately 200 Alaskans with jobs during construction and about the same after construction, while Alaska LNG potentially created thousands of jobs throughout its construction and operations.

But direct job creation doesn’t accurately reflect other positive impacts for Alaskans. Qilak LNG COO David Clarke says, “The project will benefit Alaskans in several ways: the expansion of the Point Thomson field, that this project enables, will create many new construction jobs and will significantly increase condensate production into TAPS, providing additional royalties to support the PFD. Additional property (ad valorem) taxes will be paid to the state and the North Slope Borough.”

The company is estimating a project life of twenty years, though Clarke says, “This could be extended if the gas is produced at a slower rate or if additional fields are tied in; alternatively, it could be shortened if the gas is produced at a higher rate.”

While it’s not guaranteed, Qilak LNG is looking at ways that natural gas could still be distributed to communities in the Alaska Arctic and in Western Alaska. “We appreciate that affordable fuel is vitally important to coastal communities,” Clarke says. “We are prohibited by the Jones Act from delivering gas in our fleet of large ice breaking LNG carriers [as the current fleet is comprised of vessels constructed outside the United States] from the North Slope to ports within Alaska… Once the market is established and our project is operating, smaller, purpose-built and Jones Act compliant vessels could also deliver gas from the North Slope, perhaps through a hub in the Aleutians or Port Clarence.”

While a pre-feasibility study has already been conducted for the project, a more comprehensive feasibility study was being planned at the end of 2019, and Clarke says Qilak LNG plans to kick it off early this year.