State wins option to buy 25% of Alaska LNG after investors commit

Alaska has secured the right to buy up to a quarter of the Alaska LNG project, but only after private investors commit their money first. The state would get six months to decide whether to invest between $230 million and $1.16 billion in the gas treatment plant, pipeline, and liquefaction facility.

The arrangement gives Alaska a chance to own a piece of infrastructure that could reshape the state's energy economy. But it also means the state sits on the sidelines while institutional investors take the first risk.

Alaska Gasline Development Corporation President Frank Richards told the Alaska Senate Finance Committee on Thursday that the state can take up to 25% of each equity raise in the project's components after final investment decision. That's the point when all debt and equity financing is lined up and construction is ready to start.

"What AGDC has reserved for the state and Alaskans is the opportunity after FID to take up to 25% of the equity stake," Richards said.

The structure requires other investors to commit first and wait up to six months while Alaska decides. AGDC Commercial Director Matt Kissinger said that creates a disadvantage for those investors.

"They fill out the whole book of how much equity needs to be raised, and then they have to wait," Kissinger said. "They have to tie up that capital with a slight bit of uncertainty."

The dollar figures are based on a $15.5 billion pipeline with roughly 70% debt and 30% equity. In that scenario, the state could back into 25% of the equity raise, which would translate to 16.25% direct ownership of the total project. The state would also keep its separate 25% carried interest in Eight Star Alaska, the entity that holds the project assets, adding another 8.75% for a combined 25% total ownership stake.

Kissinger said the negotiated structure includes a 5% minimum participation threshold because pushing investors out of their committed capital is a meaningful transaction.

The state's equity would be on the same terms as other investors, with no premium or discount. Richards said the equity participation is an option, not an obligation. The project will proceed without state investment if Alaska chooses not to participate.

Richards said the equity option will be offered to the legislature first. Any portion not taken by legislative appropriation would then be offered to individual Alaskans, Alaska companies, and other state corporations.

State Senator Bert Stedman, a Sitka Republican, reminded AGDC that the pipeline carries the most risk of the three project components. He said the state is not an investment company and will not be the one blocking construction by declining to invest.