Despite sour trade relations between the United States and China, the public corporation planning to build a liquefied natural gas (LNG) project in Alaska has signed a supplemental agreement with three Chinese companies that agreed to finance the project nearly one year ago.
The Alaska Gasline Development Corp. (AGDC) signed the supplemental agreement last week with China's state-owned Sinopec Group, the Bank of China and CIC Capital, a wholly owned subsidiary of China Investment Corp. The four parties signed a joint development agreement last November to develop the Alaska LNG project, which is estimated to cost $43.4 billion and as designed could export up to 20 million metric tons/year (mmty).
Under the agreement, the signatories reaffirmed their intention to negotiate and conclude definitive agreements by Dec. 31. AGDC also renewed its pledge to reserve 75% of the project's LNG production capacity for Sinopec. According to AGDC, "Sinopec will be interested in being the offtake customer for the LNG, CIC Capital will have the opportunity to be an equity investor, and the Bank of China will continue to provide suggestions on refining the financing structure."
As designed, Alaska LNG includes a three-train liquefaction plant in Southcentral Alaska at Nikiski, an 807-mile, 1.1 meter diameter gas pipeline, a North Slope gas treatment plant, and interconnecting facilities to connect the Prudhoe Bay gas complex to the gas treatment plant.
The agreement “reaffirms the willingness to establish LNG trade between Alaska and China for the mutual benefit of all parties," said AGDC President Keith Meyer.
The new agreement comes at a less-than-optimal time, with the United States and China engaged in an escalating trade war and increased competition to develop LNG export projects. Last month, the Trump administration enacted a 10% tariff on $200 billion worth of Chinese products that is scheduled to increase to 25% after Jan. 1. Beijing retaliated with tariffs of 5-10% on more than 5,000 products imported from the United States, including LNG at 10%. Both sides have vowed to enact additional tariffs if the other side retaliates.
Analysts have been divided over whether the tit-for-tat tariffs will or will not impact a "second wave" of U.S. LNG projects, including Alaska LNG. But there was widespread agreement by analysts this week that a new trade deal between the United States, Canada and Mexico -- aka, the United States-Mexico-Canada Agreement, or USMCA -- could worsen Sino-U.S. trade tensions.
It was also unclear what effect, if any, the decision Tuesday by a Royal Dutch Shell plc unit and its partners to issue a final investment decision for the 14 mmty LNG Canada project would have on Alaska LNG. The export terminal on British Columbia’s west coast, designed to carry gas to Asian markets, is expected to be online by the mid-2020s.
AGDC spokesman Jesse Carlstrom told NGI Wednesday that the FID on LNG Canada "does not affect" plans to issue an FID in late 2019 or early 2020, which would put Alaska LNG on track to export its first cargoes in 2025.
"Although LNG Canada does not impact our timing, their FID is actually quite good for Alaska LNG because it showcases the advantages of North American west coast LNG projects," Carlstrom said. "Alaska LNG shares many of the same qualities that make LNG Canada attractive, including proximity to Asian markets, capacity, pipeline and cost."
Carlstrom said Alaska LNG is even closer to Asia and "is very attractive because it affords seven-to-nine day deliveries with no transits through third countries or physical constriction points." Shell estimated LNG Canada cargoes would take about 10 days to reach Asian ports. U.S. Gulf Coast cargoes can take 24 days to reach Asian ports, and tankers have to traverse the Panama Canal.
"As far as LNG Canada competing with Alaska LNG, the market has already accounted for the volume of gas LNG Canada will export,” Carlstrom said. “This supply is already factored into the conversations AGDC is having with potential customers. Demand for LNG in Asia is greater than both of these projects' combined capacities, so there's still plenty of room for Alaska LNG's 20 mmty."