The biggest takeaway from the first full week of hearings on Gov. Mike Dunleavy’s proposed multi-billion-dollar, multi-decade subsidy for the natural gas pipeline project is that the state sure is lucky that lawmakers’ efforts to rush the bill through didn’t pan out.
With the table cleared of all other legislation, lawmakers on the powerful House and Senate Finance committees have spent the week hearing from consultants, economists, local borough mayors, Dunleavy administration officials, North Slope producers and other experts. They’ve drilled down into details that hadn’t received much scrutiny, like the risks not only if the pipeline doesn’t get built, but if it does.
What they’ve found is far more questions than answers about the 800-mile megaproject aimed at selling the North Slope’s vast gas reserves to international buyers, delivering potentially affordable gas to Alaskans living in Southcentral Alaska and Fairbanks and putting a bit of money into the state treasury. The big fundamental question is whether the project makes sense in the first place, or whether there’s a good reason the North Slope producers walked away.
And what’s becoming clear is that even with the preferred give-them-everything-they-want approach adopted by Dunleavy, the project remains only marginally competitive in the world market. Tax cuts only go so far when a 100% cost overrun is a potential outcome and the actual source of the gas hasn’t been identified.
How much will AKLNG cost?
It’s been particularly evident in the Senate Finance Committee — a committee that would have been locked out by the rushed process, which is probably the point — where Sitka Republican Sen. Bert Stedman has been steadily picking apart the project’s fundamental claims and assumptions.
“So that number is complete garbage, and it makes it very misleading,” he said at Wednesday’s hearing with the Legislature’s oil and gas consultants about the cost estimates on the project. “We knew it, a lot of us have been around knew that’s not at all that case, but that’s the line of razzle dazzle they gave us.”
The $46 billion estimate is simply a back-of-the-napkin update, adjusting a 10-year-old cost estimate for a prior iteration of the project for inflation.
For Stedman — who frequently raises the issue of rising construction and maintenance costs in Alaska when discussing the ever-growing backlog of aging public infrastructure — and for most anyone else watching, it’s clear that more than just inflation will likely be driving up costs. After all, a lot has changed in a decade.
For their part, Dunleavy and developer Glenfarne have been tight-lipped about where the cost of the latest iteration of the AKLNG project will land, arguing that divulging that information to lawmakers would undercut the project’s chances of competing in an already-competitive investment market.
While that may be debatable, what’s not debatable is that the project’s cost overruns will have a far greater impact on its economic viability than even the generous cuts envisioned by Dunleavy. A 20% difference in the final cost could easily wipe out any competitive edge Dunleavy generated. The Legislature’s oil and gas consultant, Nick Fulford from GaffneyCline, provided this helpful overlay identifying the “zone of profitability” for the project on the state’s modeling of the project’s sensitivity to overruns and gas prices.
In it, he’s highlighted the areas essentially where the project would be a go in the red outline. It’s also important to note that this only illustrates the difference between the status quo — a position that almost no one seems committed to actually maintaining at this point — and the governor’s maximally generous position. By giving nearly $21 billion in local and state tax cuts, the zone only expands that window’s range by a square in each direction, meaning it could probably weather up to a 40% cost overrun as long as gas on the North Slope doesn’t go north of $1.50 per MCF, as opposed to a 20% cost overrun under the status quo.
Another 20% overrun, and the project falls out of the profitability zone altogether.
At today’s meeting of the Senate Finance Committee, state chief economist Dan Stickel told lawmakers that while he still doesn’t have any firm knowledge of the price range, project developers at least say the state’s in the ballpark.
“We’ve been told that while AGDC and Glenfarne are not sharing the updated cost assumptions, we are told that they are within the range of our sensitivity analysis for construction of between $46 billion and 100% cost increase,” he said.
So, anywhere between $46 billion and $92 billion. Not exactly helpful, a point that Stedman didn’t let slide.
“I’d like to see the lender lend on those numbers and keep his job.”
How much will AKLNG cost the state?
Having the project cost as a complete unknown is, of course, a major issue for lawmakers because it has a trickle-down effect on nearly every other aspect of the project. It’ll impact the price of gas for Alaskans — playing a big role in whether it delivers cheap energy, affordable energy or barely competitive energy — as well as future cash calls on lawmakers.
One of the big things that wasn’t discussed much in the final mad dash to the session is what’s next for the AKLNG project if lawmakers approve the subsidy. To hear some boosters of the project, this bill is the one and only thing lawmakers need to do, but listen to the presentations, and it’s clear that if it goes ahead, legislators could be dealing with the project — and its hard sell — for years to come.
That’s because the current agreement includes various stages in which the state could be asked for additional funding to cover the project’s construction costs, a move it would need to make if it wants to maintain its 25% equity ownership in the project. If not, the state’s stake in the project would soon get diluted to nothing.
That’s because the state owns only 25% of a holding company — 8 Star Alaska — that will own subsidiaries that will ultimately build, own and operate the pipeline and treatment facilities. Once investors come in to provide capital to actually build it, their money will go into those subcompanies, and they’ll get an ownership stake. It’s not a question of if that will happen, but when. And, when they do, the state’s ownership will get diluted, potentially to a near-worthless level.
“In order to raise the funds to build 8 Star Pipeline, they’re going to have to issue out the equity to other investors in order to bring in the cash necessary to build the thing,” explained AGDC’s Matt Kissinger to House Finance on Thursday. “That is called dilution, and that is exactly how it was designed. This should not be an aha moment; this is truly how it works. Is just like in Shark Tank, when they go in and make their trade, they’re getting diluted. They walk in owning 100% of their company, they walk out owning 70% 60%. It’s the same exact model here.”
He said the state will be able to “dilute the diluters” and protect its 25% stake by contributing 25% of the project’s latest cash call, including to cover overruns. Lawmakers would have a six-month window to pony up the cash or risk losing out. And that’s not to mention the inevitable political pressure to keep the project moving if other investors don’t materialize to cover the overruns.
That could be anywhere from a few hundred million to several billion dollars at each stage of the project. It’s also important to note that, given those tight turnarounds, Legislators would have few realistic sources of cash to tap beyond the Alaska Permanent Fund’s earnings reserve account, which is a can of worms.
This week, many legislators were still wrapping their heads around what the entire process would look like, because it’s quickly becoming clear that this subsidy bill is just the start of lawmakers’ asks.
And while project officials have framed the buy-in as offering legislators the opportunity to invest in the project, suggesting there will be thorough vetting at each decision point, the current ploy of trying to ram the project through with little opportunity to ask those questions isn’t exactly setting a great precedent. AKLNG backers have bombarded legislators with everything from ad blitzes to a former U.S. senator and angry news conferences, where the governor has tried to preemptively pin blame for the projects’ failure on individual lawmakers.
This “Why are you asking so many questions when you could just pass it, what are you a chicken?” approach very nearly worked on legislators, so there’s no reason for them to abandon it at the project’s next junction.
How much will AKLNG cost the state, and what’s the state going to get for all its money?
It also doesn’t sound like the current issues around transparency will actually be solved if legislators put a bunch of equity into the project.
At the House Finance Committee hearing on Thursday, officials with the Alaska Gasline Development Corporation — who started out the hearing by proclaiming they’re “100% aligned with Glenfarne” — conceded that even if lawmakers choose to invest, they won’t necessarily get the answers they’re looking for on the project economics. That information, they said, will flow to them at the “100%-aligned-with-Glenfarne” AGDC, which will make the pitch to lawmakers.
If and when lawmakers get the insight they want on things like the project schedule, debt levels, cash flow and tariffs will basically be left to the folks at the “100%-aligned-with-Glenfarne” AGDC to decide what they actually need to know and what can be papered over with a “What are ya? Chicken?” sales pitch.
For lawmakers like Sen. Stedman, the situation leaves Alaskans with way too much risk exposure, whether it’s calls on the treasury to keep the project profitable or the risk that the project won’t live up to its lofty promises and will leave Alaskans paying for way more pipeline capacity than they could ever use.
“I don’t wanna be here like I’m bitching about everything, but I got a couple sniffles,” Stedman said, noting that legislators were effectively “bamboozled” with overly optimistic claims about having a good source of natural gas lined up on the North Slope.
That source — from the Great Bear Pantheon fields — turned out not to be reliable enough for the project to bank on. Not only will the AKLNG project have to look elsewhere for gas sources, but the other sources will likely require a costly treatment facility that wasn’t originally envisioned when Dunleavy renewed the pitch for the project.
“That was nothing but hot air, because they’re not bankable, they don’t have any gas,” Stedman said. “Who’s gonna put down the $3 billion in cash when there’s nobody on the other end to put any gas in it. It’s ridiculous. … Some of the real high-level underwriting numbers, I’d like to see those, because I just have a hard time getting comfortable if we’re stuck with a 42-inch line at 8 or 10% capacity, and the folks in the Railbelt are stuck with a bill.”
But as Fairbanks North Star Borough Mayor Grier Hopkins told the House Finance Committee on Thursday, the ultimate goal for many along the pipeline corridor is to secure affordable energy. While we have focused a lot on cost comparisons with Southcentral’s import plan — where the worst-case scenario for AKLNG doesn’t look favorable — Fairbanks is already grappling with far higher energy prices. Even the worst-case scenario for the AKLNG project — where they build a massive pipeline but never get around to exporting the gas, so Alaskans are stuck paying for an overbuilt pipeline — is likely cheaper than what the city’s paying.
When asked by Ketchikan GOP Rep. Jeremy Bynum if Fairbanks had to pick between cheap gas and the revenue to cover the anticipated impacts on roads and emergency responder services (a sticking point for AKLNG boosters who worry those payments would cut into profits), Hopkins stressed that while Fairbanks will likely feel the impacts of the pipeline construction more acutely than in any other region, thanks to its existing pipeline manufacturing infrastructure and rail access, the potential for low-cost energy is too big an opportunity to pass up.
“If you’re asking me to pick one or the other, we’ve been waiting 60 years for a gasline,” Hopkins said, “We haven’t been waiting for 60 years for a gasline’s ancillary impacts to the communities, so I think that choice would be easy.”
Hearings on the AKLNG bill are set to continue on Monday. The special session runs through late June.
Matt Acuña Buxton is a long-time political reporter who has written for the Fairbanks Daily News-Miner and The Midnight Sun political blog. He also authors the daily politics newsletter, The Alaska Memo, and can frequently be found live-tweeting public meetings on Bluesky.
