AIDEA to provide $50 million in backstop funding for final engineering on North Slope gas pipeline

The Alaska Industrial Development and Export Authority, Alaska’s development finance agency, will backstop a $50 million financing plan for Front End Engineering and Design, or FEED, for a 42-inch gas pipeline from the North Slope to southcentral Alaska, the agency said Thursday.

The project is important to the Matanuska-Susitna Borough because a substantial part of the pipeline distance is through the borough, creating industrial tax base, but also because it would bring a long-term, assured supply of gas to the Mat-Su region as an alternative to liquified natural gas imports.

Imports of LNG will soon be needed to offset declining volumes of gas expected in Cook Inlet fields.

Like Anchorage, the Mat-Su region depends on gas for building heat and most power generation.

The FEED for the 42-inch pipeline from the North Slope will include an update of earlier cost estimates. Alaska Gas Development Corp., of ADGC, the state gas corporation, is working with an unidentified pipeline contractor, reported to be Enbridge, to finance and do the work with a state guarantee of repayment if the project does not move forward, according to sources.

If the project proceeds Enbridge would have an option to take an equity interest, the sources said.

The pipeline would serve Alaska communities which are facing pending shortages of natural gas used for heating and power generation but it Is also part of a larger project, the Alaska LNG Project, that could be developed in stages and would involve a large natural gas liquefaction plant in south central Alaska that could export LNG to markets in Asia.

Frank Richards, CEO of AGDC, said the pipeline is a phase one of the larger project that would get gas to Alaska communities but also be a “pre-build” of an important part of the larger LNG export project, the 42-inch pipeline.

Building the pipeline first would help de-risk the larger project and encourage investors and for Asian LNG buyers to sign long-term purchase contracts, Richards has said in interviews.

The pipeline-only project envisioned now is estimated to cost more than $10 billion, but the FEED would confirm that. A previous cost estimate for the entire Alaska LNG Project of about $40 billion was done in 2016 by a consortium led by ExxonMobil that included that company as well other North Slope gas owners and AGDC.

The full Alaska LNG Project is designed to export 20 million tons of LNG yearly based on about 3 billion cubic feet per day of gas moving through the pipeline but the pipeline-only phase plan would move only 500 million cubic feet per day mainly to serve communities in Interior and southcentral Alaska.

AGDC would contract with U.K.-based Pantheon Resources for an initial gas supply. Pantheon has discovered gas as well as oil in discoveries in the central North Slope south of Prudhoe Bay. If the larger Alaska LNG Project were built the major gas owners on the slope including ExxonMobil, Hilcorp Energy and the state of Alaska with its royalty gas would supply the 3 billion cubic feet/day needed.

“The State of Alaska is facing a looming energy crisis and Alaska LNG represents the best long-term energy solution for our state. The Alaska LNG pipeline will deliver reliable, affordable, low-emissions energy and uniquely provide billions of dollars in economic benefits for Alaskans. Building the Alaska LNG pipeline also strategically positions Alaska to increase the energy security of our Pacific allies by derisking construction of the other Alaska LNG components that will generate and commercially export LNG.”

“AIDEA is now authorized to negotiate and sign a letter of credit to backstop front-end engineering and design (FEED), bringing Alaska a critical step closer toward a privately funded in-state natural gas pipeline,” Richards said in a statement.

But while AGDC’s goal is a privately-owned large LNG export project with financing guaranteed by long-term LNG purchase contracts the phase one in-state pipeline costing $10 billion-plus may be difficult to finance privately because of Alaska’s small population and lack of industrial customers.

The state could, however, step in to help fund the 42-inch pipeline through its $60 billion Alaska Permanent Fund. While the Permanent Fund is now invested out of state in diversified assets the Legislature, if it chose, could allocate part of the Fund it was to ensure a supply of energy to the state’s main population centers.