OPINION: Enabling AGDC distracts attention from serious gas supply solutions

Suppose I go to my banker and say I want to buy a $1 million house, but right now I can only afford a $50,000 house. But I may be able to afford the $1 million house someday. And then I ask them for the $1 million. If the banker is polite, they will simply turn me down without making any judgmental comments or giving me any funny looks.

This is essentially the latest plan by the Alaska Gasline Development Corp. (AGDC) to finance a North Slope natural gas pipeline to Southcentral Alaska.

Since its inception 11 years ago, AGDC has not been able to commercialize a liquefied natural gas export project. Their vision is a 42-inch, 800-mile pipeline that can carry 3.5 billion cubic feet of gas per day. A small part of that would be used for consumption in Southcentral Alaska. Total Southcentral Alaska gas consumption is currently about 70 billion cubic feet annually, or 0.190 billion cubic feet per day. So, if the North Slope gas replaced all the Cook Inlet gas, about 5% of the pipeline volume would be used in Southcentral Alaska.

AGDC estimates the pipeline would cost $10.7 billion, but that estimate was made in 2019, pre-COVID and pre-inflation. No one knows what it would cost now, but it would surely be much more. The estimated additional infrastructure for liquefying and exporting the gas would also be very large, estimated back then to be in excess of $30 billion.

Since AGDC has been unable to put together an export project, in February they introduced the concept of “phased development,” with Phase 1 being just the 42-inch pipeline, which they say could deliver gas to Southcentral Alaska by 2029. Phase 2 would be everything else when an export project is viable — if ever.

There is just too much other competing gas out there (which can be brought to market for less cost) for North Slope exports to be feasible. Worldwide, there are about 200 North Slopes worth of gas reserves. Much of this gas is sitting at tidewater, and unlike Alaska’s gas, it does not need a long expensive pipeline to move it to the point where all other projects start.

So, AGDC’s plan is to somehow finance a multi-billion-dollar pipeline that’s going to sit 95% empty for many years, perhaps forever. AGDC has never identified a firm that is going to bankroll this, or how. This is like me trying to get the $1 million mortgage. Local consumers can only pay their proportional 5% of the cost. I hope AGDC is not looking to the public for the rest.

AGDC recently announced, with the usual promotional fanfare, an agreement with a small producer to supply them gas (should they have it) for Phase 1 (should there be a pipeline).

Enabling this kind of activity is not costless. First, the millions and millions of dollars that the state has appropriated to AGDC over time could have alternatively been used for education, public safety, roads and the vast inventory of other crumbling infrastructure in Alaska.

Second, the project hype has created unrealistic expectations that has diverted attention from serious solutions to real problems. Southcentral Alaska is running out of gas. To the degree that citizens believe that North Slope gas is viable, it distracts focus away from the need to attain feasible alternative supplies. Southcentral Alaska is probably going to need to import LNG soon. Given large additional supplies entering world markets in the next few years, world LNG prices are expected to decline, and may be competitive with current Cook Inlet prices. And these imports will also provide a check on what the current monopolistic Cook Inlet supply structure can charge.

But considerable infrastructure with long lead times will be necessary to accommodate the imports. Facilitating these requirements needs to be addressed soon. Creating false hope that North Slope gas is going to be available only weakens the extensive planning effort that needs to begin.

Roger Marks is an economist in private practice in Anchorage. From 1983-2008 he was a senior petroleum economist with the State of Alaska Department of Revenue Tax Division. He has no financial ties to the oil industry.

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