GASLINE PROJECT RUNNING ON FUMES
The AK-LNG project is facing steep headwinds this month on several fronts: Tariffs on steel are going up, a stern letter from the Federal Energy Regulatory Commission is deeply troubling, none of the promised purchase agreements have been announced, and the agency has a rapidly dwindling bank account.
Now, the AGDC is hoping for a cash infusion from a foreign entity, possibly China, to stay afloat. This adds even further to the uncertainty.
Setting aside the dubious likelihood of a foreign entity investing substantial sums in the project, it is far from clear whether the Legislature would even allow the Alaska Gasline Development Corporation to accept foreign funding. Doing so would cut legislators off from their appropriating authority on the proposed $45 billion gasline and potentially hand authority to a foreign entity. That would be a tough sell.
TARIFFS ON STEEL
President Donald Trump on Thursday announced steep new tariffs on imported steel and aluminum, which will add 25 percent to the steel estimates for the Alaska gasline project. No one outside AGDC knows what those estimates are, as that is a closely held detail, but they probably got the calculators out today to recheck their numbers.
The Alaska AK-LNG gas treatment plant alone will require 250,000 tons of steel, while the 800-mile 42-inch pipeline will require approximately the same.
The Alaska Gasline Development Corporation has a fragile margin for the feasibility of the project and was depending upon cheaper imported steel. AGDC now must hope it can get a waiver from the tariff. The tariff was announced today at a White House meeting with U.S. steel and aluminum executives.
FERC LETTER OF REPROACH
In February, the Federal Energy Regulatory Commission sent a detailed and pointed letter to AGDC, warning the state agency that it had fallen far short in its application for an environmental impact statement.
FERC had already warned AGDC last year that it was not ready to file for a permit, but the agency, which is directed by President Keith Meyer, proceeded anyway. In April, it filed what AGDC said was the largest EIS filing in the history of the National Environmental Policy Act, which is the process for getting a permit. By August, FERC had replied and said too much detail was missing. In January, President Meyer told FERC he had given them all the information to which they were entitled.
February’s letter from FERC responded, saying there were hundreds of items that were incomplete or nonexistent in the filing.
Since FERC’s letter, AGDC has been silent, not issuing any statement about the shortfalls of its application or how it plans to proceed.
NO PURCHASE AGREEMENTS
Meanwhile, AGDC had announced last year that by March 1, 2018 it would have gas sales agreements in place with foreign buyers in Japan, Korea, Vietnam, and China. That date has passed and no agreements were announced, although such agreements could be just days away. The agency is hoping to have all of its agreements for financing and sales in place by the end of 2018, and gas flowing by 2025.
OPEN ENDED CHECKBOOK REQUEST
Another existential problem is available cash to continue as an agency, which now burns through millions of dollars a month and is supporting four separate offices: Anchorage, Houston, Tokyo, and Nikiski.
The agency is likely down to its last $57 million, although legislators have complained about the lack of transparency. The agency itself says it will have just $40 million in June, the end of the fiscal year.
During the past year, AGDC has spent at least $3 million on marketing the project, which is the largest in North American history. It has signed “agreements” with potential customers in China, South Korea, Japan and Vietnam.
Now, the governor has an item in his supplemental budget that would give AGDC “open-ended appropriation of SDPR (statutory designated program receipts) collected in FY 18 and FY 19 from investors.” This means the agency would have the ability to cut the Alaska Legislature completely out as an appropriator, and receive all of its money from outside investors, such as Chinese entities, and then proceed to make commitments on behalf of the state, without worrying about whether legislators have concerns about the level of ownership that those investors might acquire or the commitments the agency would make on behalf of the State of Alaska.
“AGDC expects to receive investments from outside parties as it continues to develop the Alaska LNG project. Investment funding will support the project as it contracts with engineering, procurement, and construction (EPC) firms to a conduct front-end engineering and design (FEED) prior to a final investment decision in calendar year 2019,” the governor’s description reads.
March 8 is the next board of directors meeting for AGDC. The meeting begins at 9 am at the AGDC corporate office, 3201 C Street in the Calais II building. The public may attend in person or via teleconference by calling 855-282-6330, access number 921 325 605.