The latest push in a decadeslong effort to commercialize vast stores of Alaska’s natural gas got a boost when the state announced a deal with three Chinese companies. But the $43 billion project is far from reality.
The agreement advances a project to move gas through a pipeline to the Alaska coast, where it would be liquefied and shipped to China and other points in Asia. U.S. President Donald Trump and Chinese President Xi Jinping looked on as Alaska’s governor and representatives from the companies signed the deal Thursday in Beijing.
But the fanfare does not ensure one shovelful of tundra gets overturned. Similar efforts to build a natural gas pipeline have fizzled repeatedly.
Here’s a look at the new project:
WHAT’S THE PLAN?
Alaska’s prodigious North Slope is known for its vast deposit of oil, which fueled construction of the 800-mile trans-Alaska oil pipeline in the 1970s. Since then, oil production has declined, and the recession-racked state hopes to tap into natural gas to fill the gaps.
The North Slope has proven gas reserves over 35 trillion cubic feet, but no way to move it. State efforts to find partners willing to shell out billions for a pipeline have flopped over the years, with major oil companies the latest to step away. Gov. Bill Walker has since courted Asian markets.
Sinopec, the Bank of China and China Investment Corp. signed on, but financial terms have not been released. Walker said 75 percent of the gas would be earmarked for China, and Alaska would keep the rest to sell to other Asian markets. The state would be the majority owner.
Walker said he wants final agreements in place by the end of next year, with groundbreaking in 2019.
The plan includes building a gas treatment plant on the North Slope, a pipeline that would go 800 miles to the town of Niksiki and a liquefaction plant there. Walker anticipates all of it to be running about five years later.
Larry Persily, former U.S. coordinator for Alaska natural gas projects, said it could cost $1 billion to get to that point, and he doesn’t think the timeline is realistic.
“But if the first tank left the dock in 2025 instead of 2023 or 2026, everyone would still be ecstatic,” he said.
WHY DID OIL COMPANIES BACK OUT?
BP, ExxonMobil and ConocoPhillips had been working on the pipeline plan but backed away to concentrate on other projects. That left pipeline skeptics wondering, Persily said.
“If companies don’t think this is a good time to put their money into it, why should the state?” he said. “As the governor has explained, the state has an overriding interest in getting this done — companies have other places they can invest their money.”
The Chinese companies also don’t have the same shareholder pressures as U.S firms.
“From what I’ve seen from China, they make decisions like this and they pursue them generally to completion as a matter of strategy and are less worried about some of the short-term economics,” said Mark Barteau, director of the University of Michigan’s Energy Institute.
It has an insatiable need for natural gas as it struggles with pollution and tries to end its reliance on coal.
“They have exhibited a long-term interest in having a large and secure gas supply, and I think this is just perhaps the largest — but by no means the first — step they’ve taken to achieve that,” said Barteau, who also serves on the science advisory board for the National Institute of Clean and Low Carbon Energy in Beijing.
Charlie Riedl, executive director of Washington, D.C.-based advocacy group the Center for Liquefied Natural Gas, sees no reason to be skeptical, saying the Chinese have wanted to get involved in a natural gas project in the U.S. for some time.
The agreement “is a really positive indicator that there is demand, and there is an appetite in Asia for this gas, and the proximity to market being in Alaska is obviously a good thing,” he said.
WHAT ARE THE DOWNSIDES?
Without seeing the details of the agreement, some analysts pointed to the large amount of gas earmarked for China and the possible terms of the deal.
Barteau said he assumes it would guarantee pricing for a set period.
“If gas prices were to go way up, and we’re locked in selling it at bargain basement prices, that wouldn’t be such a good deal down the line,” he said.
Persily said that if Alaska contracts to sell three-quarters of the gas to one nation, it would “be stuck with one big customer that you sink or swim with.”
WHAT DO ENVIRONMENTALISTS SAY?
The Center for Biological Survey called the project a “massively terrible idea” and expects legal action if the Trump administration fast-tracks it or skirts permit requirements in environmental laws.
“It is just a massive investment in new fossil fuel infrastructure at a time when we should be rapidly transitioning to clean energy, and it’s just the wrong decision,” said Kristen Monsell, an attorney for the environmental group.
Her concern is not only what extracting the gas from the ground might do to the environment but also increased tanker activity through habitat of the endangered Pacific right whale.
Another environmental group didn’t foresee plans to stall the pipeline, calling it a safer option than opening up part of the Arctic National Wildlife Refuge to oil drilling, said Lois Epstein with The Wilderness Society.