The development of liquefied natural gas (LNG) in Alaska is re-emerging as a target for South Korean investment, but evaluations of its commercial viability are mixed. The project requires the construction of approximately 1,300 kilometers of pipelines and liquefaction facilities, leading to substantial initial costs, while long-term sales contracts and financing arrangements are still pending.
On the other hand, the relatively short transportation distance to Asia, where LNG demand is high, is considered a key competitive advantage for Alaska LNG. The project is also seen as beneficial in reducing supply chain risks due to its lower dependence on major chokepoints, allowing for stable supply.
The Alaska LNG project involves transporting natural gas produced in the northern region to the south for liquefaction and export. According to the Federal Energy Regulatory Commission (FERC), the main pipeline will stretch about 1,300 kilometers and will include a 42-inch diameter pipeline, eight compressor stations, gas processing facilities, and a liquefaction facility with an annual capacity of 20 million tons.
The government has set a principle to manage total investment costs related to U.S. investments within $200 billion and to structure projects based on commercial viability. Recent reports to the National Assembly highlighted the construction of a gas-fired power plant in Texas, the construction of eight nuclear power plants, and the Alaska LNG development project.
International media have speculated that the Alaska LNG project, estimated at $54 billion, could be part of South Korea's investment in the U.S. Given the potential investments of $22.3 billion in the Texas gas power plant and about $120 billion in nuclear power, the combined scale of these three projects aligns with the investment goals of both countries.
However, uncertainty surrounding commercial viability remains a significant issue. Glenfarne, the operator of the Alaska LNG project, estimated the total construction cost to be between $44.5 billion and $54.5 billion in June. The first phase of pipeline construction alone is projected to cost between $13.2 billion and $16.9 billion, while the Nikiski LNG facility is estimated to require between $23.6 billion and $28.4 billion, and the northern gas processing facility between $7.7 billion and $9.2 billion.
In particular, the long-distance pipeline poses a burden that lowers expectations for the success of Alaska LNG. The construction of a large new pipeline is complicated by the harsh Arctic environment, which presents challenging construction conditions and time constraints. Consequently, potential delays in construction and increased financing costs could further elevate investment expenses.
The final project costs have yet to be confirmed. The Institute of Energy Economics, Japan (IEEJ) noted that Glenfarne's cost estimates have risen from $38.7 billion in 2022 to $44 billion in 2023, and now range from $44.5 billion to $54.5 billion. As the designs for liquefaction and gas processing facilities become more detailed, there remains a possibility for further cost fluctuations.
Securing sufficient LNG buyers in advance is also crucial for recovering investment. Glenfarne aims to secure long-term contracts for 80% of its annual production capacity of 20 million tons, or 16 million tons. Currently, it has preliminary long-term contracts for 13 million tons with buyers in South Korea, Japan, Taiwan, and Thailand, but these are not yet binding sales agreements.
Ultimately, the ability to convert preliminary agreements into actual long-term purchase contracts will likely determine the conditions for future large-scale project financing. If long-term sales volumes are insufficient, the financial risk for institutions may increase, leading to higher funding costs. This, in turn, could affect LNG production costs and the timeline for recovering investments.
Nevertheless, Alaska LNG has clear locational advantages. LNG vessels traveling from Alaska to Asia have a shorter sailing distance compared to those departing from the U.S. Gulf Coast. The project avoids major maritime chokepoints like the Panama Canal and the Suez Canal, which helps reduce transportation costs and time.
Additionally, its proximity to Northeast Asian countries with high LNG demand, such as South Korea and Japan, offers a strategic advantage, especially as it is relatively insulated from geopolitical risks associated with the Middle East and key maritime routes. Glenfarne has emphasized that Asian buyers are increasingly interested in energy supply chain stability amid uncertainties in the Middle East.
The key question remains how much these locational advantages can offset the substantial initial construction and financing costs. Even if transportation costs to Asia are lowered, an increase in pipeline and liquefaction facility construction costs or delays in securing long-term sales contracts could diminish the overall competitiveness of LNG supply prices.
* This article has been translated by AI.
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