The AKLNG special session continued this week, giving more clarity on what will be an undeniably difficult project, no matter the subsidy lawmakers ultimately approve. And, it showed just how hard it is to build any large-scale energy project that counts on Alaskans as its primary customers.
From the 30,000-foot view, the project and its phased approach remain in the realm of “It Could Work” with a foundational belief that if you simply build it (an 800-mile, large-diameter natural gas pipeline connecting the North Slope to Southcentral Alaska), they (the demand needed to support the costly export facilities needed to make the project pencil out for Alaskans) will come. The issue for lawmakers continues to be: what happens if they sign away billions of dollars in tax breaks, build the pipeline, and the demand never comes?
The answer’s contained in the details of a proposed contract between AKLNG developers and Enstar, the gas utility serving much of the Southcentral region, that was released this week. In simple terms, it shows that the big benefits to Alaskans’ energy bills are realized only once the project’s second, much more costly export terminal phase comes online.
The contract starts at a fixed $16 per thousand cubic feet of gas (MCF), which is not quite double what Enstar currently pays for gas (it charges an additional $3.75 to deliver it to residential customers). But that’s not what they’re targeting; they’re just trying to be competitive with imported natural gas, which is expected to offset the dwindling supply of Cook Inlet gas. And that $16 price point would be a dollar less than the forecasted price for imported gas.
For some lawmakers, the promise that it would, at the very least, not be more expensive than imported LNG was a huge selling point.
“That is really huge news for us to get that,” Rep. Alyse Galvin, I-Anchorage, said during Tuesday’s hearing (it should be noted that Galvin’s partner works at a natural gas explorer that, at one point, hoped to be the primary source of gas for the AKLNG project). “It means that ratepayers do not bear the risk of cost overruns or periods of low throughput.”
The big goal, though, isn’t to put as much as $16 billion into a pipeline to save a buck on natural gas.
For the AKLNG project to deliver gas that would be competitive with today’s prices — about $10 — or to reach truly cheaper energy, it would need to find a lot more customers. Developers hope that potentially lucrative contracts with utilities in Asia will be that missing demand. That’d allow them to spread the cost of the project – the latest estimate puts the all-in price of the pipeline and the export terminals in the range of $44.5-$54.5 billion, which, if you believe it, means they’ve done a better-than-expected job of keeping control of costs — over more molecules of gas, thereby bringing down the cost for everyone.
But until those international buyers materialize and the export terminals go to construction, Alaskans will be the only ones paying to recoup the cost of the 800 miles of steel pipeline.
And while developers hope they can get it going in parallel — on paper, the treatment facilities go up faster than the pipeline — the gap between one hope and another is one that legislators have been keenly interested in because it’s where things could, frankly, fall apart.
The big thing is that if the pipeline never finds those international customers and all it ever sells to are Alaska customers, it would require the demand of several additional Anchorage-sized cities and a half-dozen industrial megaprojects to even begin to touch the price dial on that $16 contract.
According to Wednesday’s presentation to Senate Finance, the price levers would come into play once total pipeline demand crosses 500 million MCF per day. That’s technically only 50 million MCF more than the state’s current total gas consumption, according to the U.S. Energy Information Administration, but that total includes gas used at oil and gas sites and in pipeline use, which accounts for nearly 70% of the state’s total demand and won’t ever need to take a ride on the AKLNG pipeline.
That means the total demand we think of for the common day-to-day uses that affect Alaskans – home heating, electricity and commercial and industrial use – amounts to just 131 million MCF.
That’s an incredibly long way to go before the cost cuts would come into play, not to mention achieving the maximum in-state discount of $10 per MCF, which would require a whopping 700,000 MCF in daily in-state demand.
Which is all to say that legislators are understandably skeptical that enough demand will materialize during the first few years of the project for Alaskans to pay anything under that $16 figure. Power-hungry large-scale industrial projects, like the Donlin Gold Mine, would add about 50 million MCF to demand, still leaving in-state demand well below any of those cost-changing levers.
And that’s not to mention President Trump’s latest shot in the arm to a coal-fired power plant in the Susitna River watershed, which is also banking on Southcentral’s energy woes as a market.
While the announcement of the $16 price point was great news to some, many skeptical legislators remain skeptical.
The biggest sticking point remains doubt about the project’s cost estimates. So far, lawmakers have largely relied on back-of-the-envelope guesstimates from the Department of Revenue that simply adjusted a prior cost estimate for inflation. The working number for the project’s cost has been $46 billion to 100% more, with most projections suggesting it’d stop being profitable at about 40% or more in overruns. The latest estimate offered this week narrows it to between $44.5 billion and $54.5 billion, but listen to hearings, and you’ll hear about a dozen other levers legislators worry haven’t been taken into account.
On the Senate Finance Committee — where a majority of the lawmakers are from districts that won’t and never will directly benefit from the AKLNG pipeline’s potentially cheaper gas — there’s been a strong focus on the potential downsides for the state when it comes to the concessions needed to bring the pipeline to construction. Of particular concern is whether the state could be giving up too much for too long, with the proposed tax breaks lasting 36 years compared to the industry standard of about 10 to 15 years.
At Wednesday’s hearing, Juneau Sen. Jesse Kiehl urged Glenfarne to support a fair tax rate on the project and fair prices to Alaskans, noting that there’s nothing this Legislature can do to prevent future lawmakers from changing the law. That’s something, he said, that will be that much more likely to happen if Alaskans aren’t feeling like they got the benefits they were promised — whether it be in affordable energy or the tax revenue that helps those benefits flow to communities that won’t be able to tap into the pipeline.
“If you want a stable tax, something that makes a material change in the project economics, but doesn’t leave Alaskans with the sense that over the long term we’re giving up value from our resources, value from taxes to foreign LNG buyers for longer than we have to is going to be important,” he said. “Who gets the benefits starts to gall people, so I submit that a reasonable period at a reasonable rate gives you stability you can count on.”
It should be noted that when Glenfarne backers were asked in the House Finance Committee whether they would like a lower rate on the proposed volumetric tax, officials said no because they didn’t want to undermine the agreements they had made with local governments earlier this year.
There are two full weeks left in the special session.
Expect committees to start working on amendments as early as next week.
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.
