North Slope gas could be delivered to Southcentral Alaska at costs similar to imported LNG, consulting firm says

A new study of natural gas supply costs to Southcentral Alaska released Thursday, Sept. 12, puts the estimated cost of importing gas as liquefied natural gas, or LNG in the same range as the cost of gas delivered though a 42-inch natural gas pipeline built from the North Slope.

The study was by Wood MacKenzie, an international energy consulting firm. It was commissioned by the Alaska Natural Gas Development Corp., or AGDC, a state corporation formed to develop a project to move North Slope gas “stranded” by lack of a pipeline to Interior and Southcentral Alaska.

Utilities in Southcentral Alaska are considering imports of LNG to augment natural gas production from Cook Inlet gas fields, which is expected to decline beginning in 2027.

Exploration in Cook Inlet has seen limited success in the last 15 years, with 24 exploration wells drilled and only three commercial discoveries, Wood MacKenzie said.

“Cook Inlet production is expected to be depleted by the mid-2030s,” the consultants said, citing internal data.

That’s a problem for Southcentral Alaska communities that depend on natural gas for space heating and as fuel for power generation. Renewable energy like wind, solar and hydro can supply some, but not all, electrical generation but there is no feasible substitute for gas used to heat buildings.

AGDC has been working for several years on the large Alaska LNG Project which would build the gas pipeline from the North Slope toi a planned large gas liquefaction plant at Nikiski, on the Kenai Peninsula. The pipeline part of the project would also supply gas to Fairbanks and the Mat-Su region as well as Anchorage.

The LNG would be exported to buyers in Asia. However, the large project is stalled by the difficulty in persuading Asian buyers to sign long-term contracts to purchase the liquefied gas. That may be changing but there has still been little progress in recent years.

However, AGDC believes that it could build a “phase one” of the project – the pipeline – to deliver North Slope gas to Alaska communities, eliminating the need to import LNG.

Construction of the pipeline to meet in-state demand would also speed the eventual development of the large export project because the pipeline, the most expensive part of Alaska LNG, would be built and ready to move gas when Asian buyers decide to buy Alaska gas. It would also “de-risk” the large project for buyers, who are leery of problems developing during pipeline construction.

Wood MacKenzie estimates the cost of moving North Slope gas to Southcentral Alaska at $10.20 to $13.70 per million British Thermal Units, or mmBTUs (an international measure of energy), which is in the range of LNG import costs of $10.20 to $13.70 per mm BTUs.

A key advantage of the pipeline is that it will bring North Slope gas to Fairbanks and also supply new industrial demand which will be difficult for imported LNG to do. The pipeline is fully permitted and has rights-of-way established and could by in operation by 2031, Wood MacKenzie said. LNG imports could begin a little sooner if decisions were made soon.

The big challenge for the pipeline, however, is that it would cost about $10.8 billion to construct which means it would likely need some form of state of Alaska support. Alaskans might be willing to accept that if it brings security of gas supply at a stable price for decades into the future.

Imported LNG prices would essentially be set by world LNG markets, which are very volatile. They could be low at some times and higher at other times.