Alaska LNG Project
The Alaska LNG project may cost more than twice as much as similar projects along the U.S. Gulf Coast, raising concerns about its economic viability.

TAIPEI — The United States is pressing ahead with plans to develop Alaska LNG, but high construction costs have raised doubts about the project's commercial viability. Reuters reported that total investment in the project could reach US$44.5 billion to US$54.5 billion, with construction costs per unit of capacity more than twice those of comparable export projects on the US Gulf Coast.

US President Donald Trump has recently urged South Korea to invest as much as US$54 billion in Alaska LNG and related projects as part of a broader US-South Korea investment arrangement. The South Korean government, however, has said it has not yet decided whether to provide funding and will first assess the project's commercial viability.

The Alaska LNG project is designed to export 20 million tonnes a year. Developer Glenfarne Group estimates total project costs at about US$44.5 billion to US$54.5 billion, equivalent to construction costs of roughly US$2.2 billion to US$2.7 billion per million tonnes of annual capacity. That would make it one of the most expensive LNG export projects proposed in the United States.

By comparison, recently approved and under-construction LNG projects along the US Gulf Coast generally have investment costs of about US$1 billion or less per million tonnes of annual capacity. Cheniere Energy's Phase 3 expansion at Corpus Christi in Texas is estimated to cost about US$8 billion and add 10.5 million tonnes of annual capacity, equivalent to about US$760 million per million tonnes of capacity.

The high cost of Alaska LNG is largely linked to the region's distinctive geography and infrastructure requirements. The project must build a gas pipeline roughly 800 miles, or 1,287 kilometers, long to transport gas from Alaska's North Slope to the export terminal at Nikiski.

The pipeline is estimated to cost about US$13.2 billion to US$16.9 billion. Gas treatment facilities would also need to be built on the North Slope, at an estimated cost of US$7.7 billion to US$9.2 billion. The LNG export terminal itself is expected to require US$23.6 billion to US$28.4 billion.

The high costs have led some energy analysts to question whether the project can meet the commercial thresholds required for investment. Alex Munton, head of global gas and LNG research at Rapidan Energy Group, said Alaska LNG “may not meet the threshold for commercial investment.”

Supporters of Alaska LNG, however, say its biggest advantage is its location. Alaska is closer to major Asian LNG import markets, including Japan, South Korea and Taiwan, than the US Gulf Coast. Shipping gas from Alaska to Asia could therefore take significantly less time than transporting it from the Gulf Coast.

Shorter shipping distances could reduce transit times and some transport costs, while giving Asian buyers access to another source of US natural gas. Some market participants believe that, amid heightened concern over energy security, Asian buyers may be willing to pay a premium for more stable gas supplies.

Market participants also point out that LNG projects on Canada's west coast offer a similar geographic advantage because of their proximity to Asian markets. Alaska LNG would therefore still have to compete with other North American gas export projects.

For Asian energy importers, the Alaska LNG project is drawing attention not only because of US-South Korea energy cooperation, but also because it could diversify the region's future gas supplies.

Japan, South Korea and Taiwan are all major gas import markets in Asia. If Alaska LNG ultimately begins production, Asian buyers could gain another North American gas supply source, helping reduce reliance on any single supply region.

For Taiwan, natural gas is an important part of the power-generation mix. As Taiwan relies heavily on imported energy, international gas prices, transportation costs and the stability of supply sources could all affect energy security and electricity costs.

The biggest issue facing Alaska LNG, however, remains its cost. If production and transport costs are significantly higher than those of other LNG projects on the US Gulf Coast, whether Asian buyers are willing to pay more in exchange for shorter shipping distances and supply security will be crucial to the project's final investment decision.

Whether Alaska LNG can move forward will therefore depend not only on policy support from the US government and South Korea, but also on whether Asian markets are willing to pay higher costs for energy security and supply diversification.