Alaska reacts as China announces retaliatory tariffs on LNG

Gov. Bill Walker and officials at the state’s Alaska Gasline Development Corp. reacted cautiously last Friday to reports that China will apply retaliatory tariffs on U.S. natural as imports in the latest tit-for-tat moves in a trade battle.

In separate statements Walker and AGDC officials said they expect the U.S.-China trade disputes to be settled and that the exports of U.S. energy to China will help ease the current trade imbalance, the cause of the current disputes.

Alaska LNG involves an 800-mile pipeline built from the North Slope to Nikiski, on the Kenai Peninsula, the proposed site of a large liquefied gas manufacturing export plant. The pipeline would be built through parts of the Matanuska-Susitna Borough, adding substantial new industrial tax base for the borough.

AGDC will hold a scheduled meeting of its board on Thursday, August 9, during which the trade dispute impacts will be discussed.

Officials of the state corporation said they are meanwhile continuing planning and regulatory work for the $43 billion Alaska LNG Project and also expect to receive the Record of Decision Aug. 22 on the Alaska Stand Alone Pipeline, or ASAP, a companion project to the larger Alaska LNG, from the U.S. Army Corps of Engineers.

ASAP was planned as a smaller backup North Slope gas pipeline to get gas to Alaska communities in case the larger Alaska LNG, which includes an export capability, is stalled.

Final approval of a Supplemental Environmental Impact Statement for ASAP will release a right-of-way across 210 miles of federal land and an approved wetlands impact mitigation plan that can also be used by Alaska LNG project, which follows the exact corridor approved for ASAP for most of its length.

China included U.S. LNG imports on its list of proposed tariffs for the first time Friday. The move wouldn’t prevent imports of U.S. LNG but the tariffs would make the gas more expensive compared with gas imported from other places.

In his statement, Walker said, “Alaska’s vast reserves of natural gas can satisfy market demand (in China) for nearly a century, and short-term trade tensions do not change this long-term value proposition. Alaska LNG would be the largest job-creating infrastructure project in the country and would generate billions of dollars in revenue. My team and I will continue our work with the Trump Administration to ensure that Chinese and U.S. officials strike a fair compromise so that Alaska’s natural gas reaches the market.”

In its statement, AGDC said, "The Alaska Gasline Development Corp. believes the current trade tensions between the United States and China will be resolved well in advance of Alaska LNG exports to China. The Alaska LNG Project represents a multigenerational project that matches China's 100 years of natural gas demand with Alaska's 100 years of supply on the North Slope."

However, Sinopec, the major Chinese energy company that would be Alaska LNG’s key customer and joint-venture partner, also signaled its role in the trade battle with an announcement also made Friday that it would suspend all imports of U.S. crude oil. Sinopec is China’s largest refiner.

The proposed agreement for Alaska LNG would have it purchase 75 percent of capacity in the project’s liquefied natural gas plant and 800-mile, 42-inch pipeline. The capacity purchase is the contract that would allow financing of the giant Alaska project. Chinese banks and investment groups are also included in the plan being negotiated by Alaska LNG.

As the trade battle continues state and AGDC officials can only watch and wait. “From our part, we can only monitor what is published and realize that a lot of it is rhetoric,” said Frank Richards, AGDC’s vice president for engineering.

Until Friday, when China announced its tariffs on LNG, the state gas corporation had been focused on U.S. tariffs announced for machinery and manufactured materials imported from China. Richards said it appears those, at least, would have modest impacts on the Alaska project.

“If we assume we import all 800 miles of our 42-inch pipe from China, we believe the effect of a 25 percent U.S. tariff would be about $250 million on the estimated $1 billion spent for pipe,” Richards said.

“However, that assumes we buy all the pipe in China, which we wouldn’t do. We would very likely source the pipe and other critical steel components from several countries including the U.S.,” he said.

AGDC has located a U.S. pipe mill in Little Rock, Arkansas that is capable of manufacturing 42-inch pipe as well as an Illinois manufacturer that can make steel coils that are needed for the pipeline, Richards said.

“With enough lead time these companies could be able to supply part of our need,” he said.

AGDC will do planning for procurement 2019 and will also place orders for short lengths of pipe to do testing required by the Pipeline and Hazardous Materials Safety Administration, the federal pipeline safety agency.

Strength tests had been carried out for the ASAP project with the 36-inch pipe planned for that project but additional tests are needed for the 42-inch pipe to be used for Alaska LNG, to validate that the results of ASAP tests can also be used for the bigger project, Richards said.

Procurement activity in 2019 will also include an assessment of critical parts and components needed for Alaska LNG overall and, possibly, decisions to reserve capacity with suppliers for certain long lead-time items, he said.