This past summer, a major announcement was made that the State of Alaska would become the leader for the Alaska LNG project. Wood Mackenzie, a world-renown energy analyst, concluded the project could be competitive under a third party financing structure. Governor Walker accepted the opportunity to lead the project and enable the stranded natural gas on the North Slope to move to Alaskans and international markets.
The Alaska LNG project transition is expected to take place in late October and continue through the end of the year. AGDC, BP, ConocoPhillips, and ExxonMobil are currently holding transition meetings with the goal of enabling a seamless continuation of the project. AGDC is committed to maintaining momentum for the Alaska LNG project and has been working diligently on the efforts to market this project to potential investors, users, and buyers.
AGDC will become responsible for managing the project going forward and has targeted an in-service date of 2023-2025. AGDC will maintain its focus to file the Federal Energy Regulatory Commission (FERC) Section 3 application in early 2017.
The goal of transitioning to a State-led project is to reduce cost and ensure the project is competitive worldwide. The biggest potential cost reduction shown by the Wood Mackenzie study is re-structuring the project into a tolling model where users pay predictable fees to the infrastructure owner(s). This would enable the project to involve investors that will accept a relatively low utility rate of return in exchange for a secure and predictable cash flow. Federal taxes also play a large role in the overall cost of a project. As a tax-exempt entity, the State of Alaska may be uniquely positioned to deliver one of the most impactful levers to improve this project’s visibility. Therefore, to make the project more competitive, State ownership of the project may provide a successful path forward. If properly structured, the Alaska LNG project should be attractive to infrastructure investors, private equity funds, retirement funds, and other investment organizations.
We absolutely have a chance for the Alaska LNG project to succeed, but we have steep global competition ahead of us amongst the biggest players in the industry. Therefore, we need to be prepared. We need to secure unified state support and we need to maintain momentum.