Political pressure builds as state-led Alaska LNG project goes another year without a deal

Political pressure is building on Alaska Republican Gov. Mike Dunleavy’s administration to show progress on its huge state-sponsored liquefied natural gas export project, as it asks the Legislature for another $4.5 million to keep it alive.

Boosters say there’s still substantial interest from potential investors and partners in the $43 billion Alaska LNG project, amid turmoil in natural gas markets stemming from the wars in Ukraine and Israel. Officials from two separate companies, Virginia-based Venture Global LNG and South Korea-based Hanwha, held discussions with Alaska’s state-owned gas agency and visited the state last year, and a labor-backed group is now pitching its own participation in the project.

But skeptics point to how, in spite of favorable industry trends, no major deals or investments were announced in 2023 by the Alaska Gasline Development Corp., or AGDC.

On Monday, three members of the Legislature’s powerful Senate Finance Committee, when presented with the $4.5 million budget request for the gas line corporation, aimed some sharp questions and comments at Dunleavy’s budget director, Lacey Sanders.

“In my eight years of being a legislator, I don’t think they’ve inked one investment. And so is this a good use of those funds?” asked Wasilla Republican Sen. David Wilson. “Or do we need a change in leadership over there?”

Elected leaders have for decades dreamed about building a pipeline from the North Slope oil fields, much like the existing trans-Alaska oil pipeline, that could generate thousands of construction jobs, export gas to markets outside of the state and provide cheaper heating fuel for Alaska residents.

But while the state has spent hundreds of millions of dollars in public money in pursuit of a project, it has not yet been able to assemble the necessary combination of customers, investors and oil companies willing to sell their gas at a competitive price.

The current version of the project, geared toward exports to Asian markets, came about under Republican former Gov. Sean Parnell more than a decade ago, and his successors, including Dunleavy, have continued to advocate for it.

In a prepared statement Tuesday, Dunleavy said he remains “optimistic AGDC will be able to secure the financing needed to bring this resource to market.”

“We continue to meet with investors to inform them about the opportunity,” Dunleavy said.

A spokesman for AGDC, Tim Fitzpatrick, wrote in an email that market interest in the project remains “healthy” and that the corporation continues to explore “solicited and unsolicited investment opportunities.” He also said the project’s value rises when geopolitical tensions rise.

“LNG traffic has been blocked in both the Panama and Suez Canals in the past 12 months and our allies are searching for secure new energy sources,” Fitzpatrick said. “Alaska LNG is the only U.S. LNG project with direct Pacific access, free of canals and other chokepoints, offering increased reliability, lower costs and fewer emissions.”

[Biden administration stalls gas export projects that activists say are ‘climate bombs,’ but some see national security threat]

Two possible partners step back

Alaska’s statewide elected officials have intensified their efforts to advance the pipeline project since Russia invaded Ukraine two years ago, causing chaos in global energy markets and a spike in natural gas prices.

Republican U.S. Sen. Dan Sullivan has pushed Alaska LNG to potential investors and buyers in Asia, with help from Rahm Emanuel, President Joe Biden’s ambassador to Japan, and the project is eligible for tens of billions of dollars in federal loan guarantees.

Alaska LNG involves building a treatment plant on the North Slope, where gas would be pulled from the enormous Prudhoe Bay and Point Thomson oil fields owned by ExxonMobil, ConocoPhillips and Hilcorp. Then, a new 800-mile gas pipeline would run south to the Kenai Peninsula, where a liquefaction plant would ready the fuel for loading onto tankers bound for Asia.

Recent efforts have focused on finding investors or partners to pay the $150 million that AGDC says it would cost to finish the engineering and design work required before a final investment decision can be made on the project. In exchange for paying those bills, the agency is offering ownership of more than half of Alaska LNG, whose construction cost would be funded largely by investors or gas buyers.

Critics say that the project’s enormous scale — its output would amount to roughly one-fourth of Japan’s yearly LNG imports — would worsen the climate crisis, and that its potential Asian customers have climate goals that could conflict with long-term purchasing deals. The Wall Street Journal in July reported that potential customers in Japan and South Korea were uninterested, citing more attractive, competing LNG projects elsewhere.

Nonetheless, multiple sources familiar with Alaska LNG said that two companies were both seriously examining the project last year.

Venture Global is a successful startup company that already has another operating LNG export plant in Louisiana — albeit one that’s embroiled in a feud with its oil company customers.

Shell and BP are among three companies seeking billions from Venture Global through arbitration, saying the firm is selling its LNG cargoes on the open market at high prices instead of fulfilling previously negotiated long-term contracts with BP, Shell and Italy-based Edison. Venture Global says it’s not obligated to fulfill those contracts until its unfinished export plant is fully online.

Venture Global’s chief executive, Michael Sabel, and co-chairman, Robert Pender, had a dinner with Dunleavy in Anchorage in July, according to copies of the governor’s public calendar. Dunleavy also visited the company on a trip to the East Coast in October.

Hanwha, a South Korean company with wide-ranging, global operations, had a team visit Alaska that met with Dunleavy in July, according to the governor’s calendar.

Officials from Venture Global and Hanwha did not respond to requests for comment, and AGDC’s spokesman, Fitzpatrick, would not comment on the agency’s discussions with the two companies, citing “typical commercial confidentiality provisions.”

But a person who’s followed the state’s negotiations with potential partners said neither company decided to invest the $150 million that AGDC is trying to raise.

The person, who requested anonymity because of the sensitivity of the negotiations, said that Venture Global paused their review to keep its focus on other projects in its portfolio. Hanwha chose not to invest based on the specific terms of the deal, which include the price at which Alaska’s petroleum companies would sell their gas, which is outside the state’s control, the person said.

Labor leader wants to “take control”

News of those developments has trickled out to policymakers, who are now trying to decide how to treat Dunleavy’s $4.5 million request to keep AGDC operating in the fiscal year that starts July 1.

At this week’s committee hearing, Sitka Republican Sen. Bert Stedman said he shares his colleagues’ concern that “we have no investors at the table.”

“At some point, we need to have a conversation on mothballing it. It appears that that project is uneconomic because there’s nobody standing in line to build it,” Stedman said. “That’s a lot of money going out the door. And at some point, we’ve either got to get a gas line or stop the outflow.”

Two House members sounded similarly uneasy with continued spending on the gas line corporation. Fairbanks Republican Rep. Will Stapp said that while his constituents want to see the project built, which could reduce their heating costs, “people inherently don’t want to keep giving money to people who can’t produce any results.”

Wasilla Republican Rep. Jesse Sumner also said he would take a “real hard look” at AGDC’s budget request this year. In an interview, he said he’d made a “mistake” by signing a non-disclosure agreement with AGDC — one that gave him access to certain details about Alaska LNG’s progress but limited him from sharing them publicly.

“I do think the Legislature needs information, and I don’t regret trying to seek out information that I think we need,” Sumner said. “I think it’s a mistake to try to bind legislators and the sharing of that information.”

Fitzpatrick, in an email, said that AGDC officials provide “frequent public strategy and status updates” during board meetings, legislative presentations and stakeholder discussions, and he added that “an open and transparent development process is important for a project like Alaska LNG.”

“Because AGDC is empowered to negotiate commercial agreements with potential project partners, a small, limited amount of selective financial and partner information remains confidential during negotiations, as is typically the case in business transactions,” he said.

Eight lawmakers have signed confidentiality agreements with AGDC, Fitzpatrick said.

Meanwhile, a prominent Alaska labor union leader said he’s leading a new group that’s pitching AGDC on a potential investment in the project.

Joey Merrick, the leader of the influential Laborers’ Local 341 union, said he’s working with two separate firms: Ullico Inc., a labor-aligned insurance and investment company, and Fengate, an asset management business.

Their newly formed company, chaired by Merrick, is called Alaska Gasline & LNG and also includes Tom Barrett, the former head of the company that operates the trans-Alaska oil pipeline, as a board member, Merrick said. Bill Walker, the attorney and former governor who’s long pushed for construction of a gas line, is listed as the company’s agent in state corporate records.

Merrick said his partners have access to the $150 million needed to advance Alaska LNG to its next stage, and his group has sent a proposal to AGDC, which is being reviewed by the agency’s investment advisor, Goldman Sachs.

“We’re trying to, basically, take control of the project and work with AGDC and move it to the next step, " he said. “I’m very optimistic. I think this is exactly what the state needs — something to be able to give us some cheaper energy, and something to be able to get us a little income in a different way.”

Fitzpatrick, the agency spokesman, said that “AGDC evaluates every potential partnership offer to determine whether parties have the financial wherewithal for a project of Alaska LNG’s scale and complexity.”

This piece was originally published in Northern Journal, a newsletter published by Nathaniel Herz. Subscribe here.