Ambitious LNG Project Could Revive Alaska’s Fortunes

Ambitious LNG Project Could Revive Alaska’s Fortunes

Alaska was long at the vanguard of America’s energy industry. At one time the State of Alaska accounted for as much as one-quarter of the entire country’s domestic oil production. Alaska’s vast fields also served as a source of pride – and the backbone of the state’s economy. As production surged, it was common to hear industry men revel in the United States’ diminishing reliance on foreign supplies as they worked rigs up and down regional reserves.

Yet, as energy development in the lower 48 has burgeoned over the past decade, those refrains have waned – as has production. Fed by output from the emerging shale reserves in the Mid-Atlantic and Midwest, state policymakers have watched demand plummet, alongside the price of a barrel of oil. Since its peak in the 1980s, Alaskan oil production has dropped nearly 75 percent. As a result, in 2013, gross domestic product fell by 2.5 percent. By comparison, all other states posted gains.

However, all is not lost for the Last Frontier. Alaska’s energy reserves still possess huge potential, especially with the prospect of increased natural gas production along the North Slope. But lawmakers would be wise to make hay while the sun shines; while the country remains on the sidelines debating liquefied natural gas (LNG) exports – the shippable form of natural gas – global demand is quickly being met elsewhere.

A recent study by the Brookings Institution, a Washington-based think tank, concluded that as foreign suppliers begin to flood global markets, projects planned for in the States face tougher odds of reaching fruition – including the proposed AlaskaLNG project, which would be the largest capital investment in the history of Alaska.

Valued between $45 billion and $65 billion, the AlaskaLNG proposal has the potential to create as many as 15,000 jobs during the design and construction phases and another 1,000 permanent positions for long-term operations. Anchored by the Prudhoe Bay and Point Thomson production fields, the 800-mile pipeline will deliver some 3.5 billion cubic feet (bcf) of gas daily. A plant in Nikiski will process and super-cool the natural gas produced to be shipped to markets across the world.  While natural gas prices in the United States hover between three and four dollars per thousand cubic feet, in Europethe same products demand between $10 and $11. In the growing Asian market, prices reach as high as $15 per thousand cubic feet. As such, domestic producers have a substantial incentive to ship output overseas.

That may very well prove to be the elixir the state economy needs. In 2013, former Governor Sean Parnell gave Alaska’s energy industry a boost by cutting taxes and pledging to jump start construction of the AlaskaLNG pipeline. The resulting exploratory activity launched more than 350 jobs at the start of 2014. While this may seem paltry, it reversed industry slides, and it could be just the beginning. “The Alaska comeback is clearly under way,” Gov. Parnell said at the time.

A comeback will take a concerted effort among state policymakers and industry partners to ensure that any LNG venture Alaska undertakes is done right. There has been talk of developing Alaska’s gas resources for years.  When I worked for the Bush administration as head of the Pipeline and Safety Hazardous Materials Administration (PHMSA), there was a proposal to build a line to the lower 48 states. While the goal has shifted towards meeting demand from Asia rather than from the lower 48 states, the work needed has not.

LNG export facilities require huge overhead and front-end costs. A highly complex project like AlaskaLNG has a direct relationship between overall timing and final project cost. Political uncertainty, fiscal solvency, and a lack of financial commitments all have the potential to derail projects like AlaskaLNG. History has demonstrated time and again that the only way mega-infrastructure projects are successful is if all parties are collaborating in good faith and taking the time necessary to make thoughtful decisions that aren’t beholden to artificial deadlines and schedules.

Alaska simply cannot afford to rely on an outdated model of energy production. The AlaskaLNG pipeline promises to breathe fresh life into the region’s production fields, which will reverberate through every sector of the state economy. Alaskans can once again reclaim the hard-earned reputation of the nation’s energy leader, but it will require cooperation and prudent planning by state policymakers.

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