Alaska LNG could cost $70 billion; state's 25% stake faces dilution

The Alaska LNG project could cost $70 billion, not the $46 billion the state has been using in its planning. That is what the Senate Finance Committee heard Wednesday from Nicholas Fulford, a gas consultant with GaffneyCline. The higher number matters because it changes how much the state might have to invest and how much its ownership stake could shrink when private investors come in.

Senator Bert Stedman (R-Sitka), who co-chairs the Finance Committee, said the $46 billion estimate is outdated. He pointed to years of cost overruns on state construction projects. Fulford confirmed that economic models still use the old $46 billion figure, inflated from earlier reports by Wood Mackenzie.

The state owns 25 percent of a holding company called 8Star Alaska. That company owns three sub-companies for the gas treatment plant, pipeline, and LNG facility. When those sub-companies reach final investment decision, they will need billions in new capital. The state's 25 percent of the holding company may not translate to 25 percent of the operating projects.

"Once FID has taken on those 3 subunits, the state's 25 percent of the holding company may or may not have significant value," Fulford said.

Stedman pressed on how much the state's stake could shrink. The project could require $10 billion to $15 billion in equity. "And then when they go out to bring in other investors, we'll suffer a dilution issue. And the question is, how big is the dilution issue?" Stedman said.

AGDC has said the state does not have to invest more money to keep its 25 percent ownership. But if the state wants to invest up to 25 percent in each subproject, it could contribute about 7.5 percent of total funding under Glenfarne's stated financing approach.

Fulford said confidentiality concerns limit what legislators can see about project economics. That is different from the previous Senate Bill 138 framework with major producers. The current merchant structure requires separate negotiations over gas supply, equity participation, and LNG sales. "With the current arrangement, it's not surprising, frankly, that there is some degree of concern over confidentiality, capital costs, and so forth," Fulford said.

Fulford said federal loan guarantees could save hundreds of millions of dollars annually by lowering the cost of debt from 6.5 percent to 5 percent. Federal tax credits for CO2 removal could generate approximately $600 million per year over 12 years at $85 per ton.

Senator Lyman Hoffman (D-Bethel) asked why the federal government has not taken concrete steps to support the project despite presidential statements calling it important to the nation. Fulford said that while there has been support for trade missions to Asia, "currently there doesn't appear to be a tangible federal step to help the project."