The economic viability of the Alaska liquefied natural gas (LNG) development project, which the United States hopes will attract significant investment from South Korea, remains under scrutiny. The project faces challenges due to its high initial construction costs, which are more than double those of LNG projects in the Gulf of Mexico, and it must also compete with Canada's already operational LNG ventures.
◆ Construction costs for Alaska LNG project exceed those of Gulf Coast projects
According to relevant authorities, the Alaska LNG project involves transporting natural gas produced in the northern North Slope through a 1,300-kilometer pipeline to Nikiski in the south, where it will be liquefied for export. The planned annual LNG production capacity is 20 million tons.
The issue lies in the substantial construction costs. Project operator Glennfarne estimated the total project cost to the Alaska state legislature in June to be between $44.5 billion and $54.5 billion. The pipeline construction alone is expected to require $13.2 billion to $16.9 billion, while the LNG liquefaction facilities will need $23.6 billion to $28.4 billion, and the northern gas processing facilities are projected to cost $7.7 billion to $9.2 billion.
When calculated per million tons of annual LNG production capacity, the investment cost ranges from approximately $2.2 billion to $2.7 billion, which is significantly higher than major LNG projects in North America. According to Reuters, the average investment cost for recent LNG projects in the Gulf of Mexico is below $1 billion per million tons of production capacity, indicating that Alaska LNG's construction costs are more than double that.
While Gulf Coast LNG projects can utilize existing gas supply networks, Alaska will require new pipelines and processing facilities. The extreme Arctic environment may also increase construction costs due to potential delays.
Proponents of Alaska LNG emphasize the cost savings in transportation. Glennfarne claims that transporting LNG from Alaska to Asia will be at least 65% cheaper than from the Gulf of Mexico. They also highlight the project's potential to secure a stable supply chain amid uncertainties in major maritime routes due to conflicts in the Middle East.
The government acknowledges this strategic value. Kim Jeong-kwan, Minister of Trade, Industry and Energy, stated during a parliamentary audit, "The Alaska LNG project has gained strategic new value due to the Middle East conflict. If the project succeeds and we can secure LNG, it will undoubtedly have strategic importance."
◆ LNG Canada expansion confirmed, highlighting investment cost differences
Alaska LNG's investment costs are also higher than those of its direct competitor, LNG Canada. LNG Canada sources natural gas from the inland market in western Canada and processes it into LNG for export at its liquefaction terminal in Kitimat on the west coast.
Having commenced its first LNG exports in June of last year, LNG Canada has an annual production capacity of 14 million tons. The project involves major stakeholders, including Shell, Malaysia's Petronas, China's PetroChina, Japan's Mitsubishi, and Korea Gas Corporation, which holds a 5% stake.
Notably, LNG Canada recently made a final investment decision (FID) for its Phase 2 expansion project on September 28, building on its Phase 1 operations. The expansion will add two liquefaction facilities, increasing its production capacity to 28 million tons annually, which is estimated to be 40% more than Alaska LNG.
Investment costs also differ significantly. Phase 1 of LNG Canada reportedly required approximately CAD 40 billion to CAD 47.9 billion. The estimated cost for the Phase 2 expansion is around CAD 33 billion. When combined, the total investment for both phases is approximately CAD 73 billion to CAD 80.9 billion.
Converted to U.S. dollars, this amounts to about $51.2 billion to $56.7 billion, resulting in an investment cost of approximately $1.8 billion to $2 billion per million tons of annual production capacity. While direct comparisons have limitations due to differing cost assessments, LNG Canada's investment costs per production capacity are lower than those of Alaska LNG. Additionally, LNG Canada plans to expand its capacity by utilizing its existing 670-kilometer pipeline.
In contrast, Alaska LNG has yet to reach a final investment decision. Glennfarne aims to secure long-term sales contracts for 16 million tons of its planned 20 million tons of annual production capacity to facilitate project financing. Currently, it has secured agreements for approximately 13 million tons, though many are still in preliminary stages. Ultimately, the key question will be whether potential buyers will accept LNG prices that reflect the high construction costs.
The South Korean government emphasizes that the "commercial viability" of the project hinges on its price competitiveness and profitability. While Alaska LNG benefits from a shorter transportation distance to Asia, it must compete with projects like LNG Canada that share similar advantages. Securing a revenue structure that can offset high construction costs is expected to be a critical factor in the investment decision.
* This article has been translated by AI.
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