Alaska’s latest Arctic gas pipeline dreams are on hold — again

Trump's trade war with China and a new administration in Juneau mean Alaska's most recent LNG plans may fail to materialize — just like previous generations of gas line plans.

By Dermot Cole - February 18, 2019
So far — and perhaps now for the foreseeable future — there’s just one pipeline crossing Alaska north of Fairbanks, and it doesn’t carry natural gas. (Kim Mincer / Bureau of Land Management)

In Alaska, some things are eternal: Denali on the horizon. Midnight sun in summer. And politicians in every season talking about a natural gas pipeline that will reshape the economy for generations.

The political and economic debate for an Arctic pipeline began during the Nixon administration and continues under Trump.

We had a fresh reminder of this timeline Feb. 7 with the death of former Michigan Rep. John Dingell, who served in Congress for a record 59 years, retiring in 2015.

Dingell had already served in Congress for two decades when he was a key figure in the first round of Alaska gas pipeline arguments in the 1970s.

In 1978, an aide to Dingell summarized the congressman’s worries about the project to build a pipeline along the Alaska Highway that would connect to markets in the Lower 48.

“Why would people want to invest in something if first of all, the gas ends up being too expensive to buy and secondly, it’s going to run out eventually?”

The latter question applies to all nonrenewable resource projects, but the former question has always been the most difficult one for those trying to develop Arctic gas reserves in Alaska.

That’s as true today as it was in 1982, when a major U.S. business publication concluded that the gas line was on “death row” because the gas was too expensive.

Numerous companies and combinations have resurrected the project over the decades, only to fall short every time because the financial package could never be completed.

The latest setback took place in early January with the firing of the leader of the Alaska Gasline Development Corp. by Gov. Mike Dunleavy.

It was not a surprise because Dunleavy, elected to the state’s highest office in November, had repeated raised doubts about the gas line approach taken by former Gov. Bill Walker.

The reshuffling of the top management of the agency did not halt work on the pipeline, but it will slow it down because the new governor is looking to cut the budget.

In a way, the state is facing the same dilemma that occurred in 2016, when Walker hired Meyer for $550,000 a year.

“You can either delay the project or we can look for something different. And I think we’ve got enough support from among the parties to look for something different,” Meyer said.

The Dunleavy administration will be looking for something different, hoping to establish a stronger connection with the oil companies that own the gas.

The Alaska LNG project, a plan to pipe gas from fields on the North Slope to a tidewater liquefaction plant  in Southcentral Alaska has to deal with what the companies call “economic headwinds” — which in this case means lower prices on world markets and higher costs of building in Alaska.

Before the state-led project under Walker, the companies had been spending about $30 million a month on planning, but declined to take the next step to detailed engineering, which would have been about $30 million a week.

The corporation is now spending about $3.6 million a month and may be out of money later this year, depending upon what the governor decides.

Meyer’s work centered on making agreements with China to purchase large quantities of gas under contracts that would make construction financing possible on the $43 billion venture.

A recent presentation to the gas line board referred to “macro trade challenges,” a euphemism for the Trump trade war with China that has made long-term commitments impossible to conclude.

In November, Meyer predicted to the gas line board, “I expect a whole level of alignment and harmony here that really is going to free us up” to compete with natural gas projects around the world.

Two months later he was fired and the governor called for a review of where everything stands to decide how to proceed.

A draft environmental impact statement, which began nearly two years ago, is expected by the end of February from the federal government.

The report will cover thousands of items related to the 1,300-kilometer pipeline across Alaska and the export terminal to be constructed in Nikiski in Southcentral Alaska.

The corporation has spent about $480 million on preparation for a pipeline and an alternative project promoted as a backup plan, which would cost about $10 billion to build.

The common thread among all the pipeline projects in Alaska was that all were easy to build on paper.

As I once wrote, Fred Pratt, a veteran Alaska journalist, always said he would believe in a gas pipeline as soon as he could drive north of Fairbanks and count two pipelines, one for oil and one for gas.

I’m not ready to abandon the decades-old Pratt Pipeline Principle, which has proven to be accurate thus far.

Columnist Dermot Cole, who lives in Fairbanks, can be reached at [email protected].