Department of Revenue presents Senate Finance with Alaska LNG breakeven modeling across cost and tax scenarios

The Alaska Department of Revenue presented the Senate Finance Committee on Monday with modeling that lays out what the Alaska LNG project would need to charge for gas to break even, under varying capital cost and tax regime assumptions. The committee requested the analysis as part of its evaluation of Senate Bill 2001, which would restructure how North Slope gas is taxed.

Under current law and the department's baseline capital cost estimate, the project's breakeven price is $9.07 per thousand cubic feet, Chief Economist Dan Stickel told the committee. If capital costs reach $60 billion — the midpoint of estimated Phase 1 and Phase 2 costs plus a 20% contingency, Co-Chair Bert Stedman noted — the breakeven rises to $10.69.

Senate Bill 2001 would lower those breakeven prices but change the amount of revenue the state collects from North Slope gas. Under SB 2001, the breakeven would be $8.54 per thousand cubic feet at the baseline capital cost and $9.97 at the higher $60 billion scenario. The tradeoff — lower project costs and reduced state revenue — is the central question DOR's modeling is designed to help the committee evaluate.

The higher-cost scenario assumes 6% debt (up from 5%), an 80/20 debt-equity split, and a 30-year pipeline debt term. Stickel also presented a separate scenario with $59.4 billion in capital costs that produced a $10.34 breakeven under current law.

Sen. Jesse Kiehl asked which assumptions drove the biggest change in delivered cost. Stickel said both the higher capital cost and the higher debt rate carried significant weight.

Stedman flagged one important distinction about the 20% contingency in the $60 billion figure. "Cost overruns start above the 20% contingency. So the contingency does not include cost overruns," he said.