Alaska LNG supply costs slashed 43%, sponsor says
Alaska Gasline Development Corporation (AGDC), which is pursuing the development of the Alaska LNG project, said January 31 an updated competitive analysis shows the project’s supply costs to Asia have been cut by 43%, making it competitive with Gulf Coast LNG projects.
AGDC asked global consultant Wood Mackenzie to update its original 2016 competitive analysis of the 20mn metric tons/year project and incorporate improvements that have been implemented over the last five years, including federal project authorisations, reduced construction costs and a new project finance structure which utilises third-party tolling.
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“Wood Mackenzie calculates that these changes, along with a reduction in the expected natural gas purchase cost, reduce Alaska LNG’s cost of supply to Asia to $6.70/mn Btu, a 43% reduction, while delivering a market-rate return,” AGDC said. “This new potential cost of supply falls below the expected price from Gulf Coast projects targeting the same Asian markets.”
Key elements of the improved competitive position, the study shows, are a capital cost reduction to $38.7bn from $45bn and feed gas costs which have been reduced, based on AGDC estimates, to $1.15/mn Btu from $2.09/mn Btu. Shipping costs, however, have increased to $0.76/mn Btu from $0.60/mn Btu, largely reflecting higher tanker charter rates.
“As our work continues to transition Alaska LNG to a privately led project team, this economic analysis demonstrates that Alaska LNG can deliver LNG at competitive prices,” AGDC president Frank Richards said. “This report comes on the heels of the recent climate study that determined Alaska LNG will reduce greenhouse gas emissions by 77mn mt of CO2, a 50% reduction for a typical coal energy supply chain, and adds further momentum to our progress.”
The 45% reduction in feed gas cost estimates, an AGDC spokesman told NGW, largely reflects the fact that North Slope gas reserves are considered stranded, and thus not linked to prevailing North American commodity prices, which have recently spiked to near $5/mn Btu. The reduced purchase costs, he said, are AGDC estimates only – no contracts have yet been signed.
The WoodMac report also identified additional opportunities for reducing costs, most notably the $26bn Alaska LNG federal loan guarantee included in US president Joe Biden’s $1.2 trillion infrastructure legislation signed into law in November 2021.
With the US government backing 80% of the project’s debt, WoodMac said, lenders could be expected to accept a lower interest rate, which would allow facility owners, including AGDC to lower their breakeven hurdle rates.