House Finance hears AGDC update on Alaska LNG phase 1, AIDEA backstop negotiations

Juneau — The Alaska Gasline Development Corporation told the House Finance Committee on Jan. 28 that it is advancing a phased Alaska LNG project and negotiating with the Alaska Industrial Development and Export Authority (AIDEA) over a possible backstop of up to $50 million to secure front-end engineering and design (FEED) work toward a final investment decision.

Frank Richards, president of the Alaska Gasline Development Corporation, said the state-owned corporation is marketing a phase 1 build that would prioritize a 42-inch, buried pipeline to deliver North Slope gas to Alaskans and to tie into the existing Enstar distribution system in Southcentral Alaska. Richards said the pipeline concept would run roughly 747 miles from Prudhoe Bay, with lateral and interconnect opportunities including a designed lateral to Fairbanks he estimated at about $200 million.

The committee heard that AGDC has begun negotiating a project development agreement with a private developer—identified in presentation materials as Glenfarn—that would fund FEED work. Under the term sheet described to the committee, the developer would take majority control of a state-created project vehicle, 8 Star Alaska LLC, while the state would reserve the right to take up to a 25% equity share at the project’s final investment decision (FID).

Why it matters: Richards and Matt Kissinger, AGDC’s venture development manager, said phasing the project could deliver in-state gas sooner and reduce the price Alaskans pay for natural gas compared with importing LNG into Cook Inlet. The committee was also focused on the financial risk to state institutions if the developer-led FEED does not result in FID.

Wood Mackenzie economic review and jobs: AGDC presented key takeaways from an independent Wood Mackenzie analysis requested by the legislature that compared a phase 1 pipeline to various imported LNG scenarios. AGDC summarized Wood Mackenzie’s central estimates as showing in-state delivered gas prices in a range that could be comparable to or lower than the modeled imported-LNG cases depending on downstream demand; AGDC also reported construction-phase job projections of roughly 221 direct and indirect Alaska jobs for the phase 1 pipeline and an operational estimate of about 1,138 jobs for the life of the initial phase.

Costs and timing: Richards said the integrated Alaska LNG project has past estimates in the mid-$40 billion range (AGDC cited roughly $43.8–44.0 billion as recent estimates) and that the FEED-to-FID work that AGDC seeks from a developer is about $150 million. AGDC said the phase 1 pipeline option would avoid building initial compressor stations by relying on existing head compression and that, if executed, the pre-build pipeline could be in service by about 2031.

AIDEA backstop: Richards and a representative of AIDEA told lawmakers that AIDEA’s board adopted a Dec. 4 resolution authorizing the authority’s executive director to negotiate binding agreements with AGDC for a FEED backstop. AGDC described a backstop structure in which the private developer would fund FEED and AIDEA would provide a credit facility—parked cash to be used only if the project fails to reach FID—up to an exposure ceiling of $50 million. AIDEA’s on-call executive director told the committee AIDEA has cash and invested assets but noted liquidity commitments and existing board-approved projects that affect available funds.

Committee concerns and clarifications: Lawmakers asked whether Enstar and other utilities would need regulatory approval from the Regulatory Commission of Alaska (RCA) before approving utility offtake contracts; Matt Kissinger said, "For in state sales, it's anticipated that the RCA would have [a] regulatory role." Committee members pressed for clarity on who bears cost risk if FEED expenses are incurred but FID is not achieved, and AGDC said the developer would carry most development risk and that the backstop would only reimburse limited FEED costs if required. Members also asked whether the state would be bound by prices offered to utilities at FID; Richards said offtake contracts underpin financing and could include inflation terms but that increased offtake volumes would tend to lower unit tariffs.

Route, offtakes and community provisions: AGDC described likely mainline interconnects and potential laterals serving communities including Fairbanks, Nenana, Minto, Healy and connections into the Enstar/Beluga system around Cook Inlet. Richards said AGDC is holding 500 million standard cubic feet per day (as an in-state reservation) and said the legislature established an Alaska Energy Relief Fund within AGDC's enabling statute to distribute some benefits to communities not directly on the pipeline route.

Next steps: AGDC and AIDEA are negotiating three agreements described to the committee—a development finance agreement between 8 Star Alaska and AIDEA, a FEED/backstop agreement with a pipeline developer, and a related project-development agreement. AGDC told the committee it will return with FEED-updated cost estimates that would inform any choice by the state to exercise an equity option at FID. The committee did not take a formal vote during the hearing.

Credits: Presentation and testimony to the House Finance Committee provided the basis of this report. Quotations are attributed to Frank Richards (Alaska Gasline Development Corporation) and Matt Kissinger (AGDC).