Alaska LNG's cheap-gas promise hinges on exports — and on costs staying in line

New state analysis of the Alaska LNG project lays bare the bet at its center: LNG exports are what would make natural gas cheap for Alaskans, but only if construction costs don't balloon.

The Department of Revenue sent the numbers to legislators on July 7 as they work through HB 381, the bill setting the project's tax framework.

Under the full project, sending LNG overseas spreads the pipeline's enormous fixed cost across a huge volume of gas, pulling the in-state price down to roughly $5 per thousand cubic feet. Strip the exports out — build only an in-state pipeline — and that break-even price more than doubles, to about $12.65. For ENSTAR customers in Southcentral, that gap is the difference between cheap gas and expensive gas.

The catch is that the export economics are only as good as the cost estimates. The department's baseline assumes $46.2 billion.

If costs run 20 percent higher, the price the project would need to break even on exports climbs to $9.99 per mcf — above the $8-to-$9 range where LNG for Asia has been trading, the state's chief economist, Dan Stickel, has noted, which would leave it selling at a loss. And 20 percent may be optimistic: one independent review found North American LNG terminals overrun their budgets by about 60 percent on average, which would put Alaska's cost closer to $87 billion.

The state gasline corporation argues exports and new demand are exactly what drive Alaskans' gas costs down, while critics warn that a pipeline built without exports could leave Alaska holding the costs and none of the revenue that makes the math work. The HB 381 conference committee is weighing it as it finalizes the bill.