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Infrastructure bill could allow loan guarantees for struggling Alaska LNG project

Highlights

Project would still have to be bankable

High price, lack of customers in way

The bipartisan infrastructure package being debated by Congress could make federal loan guarantees available to Alaska's long-struggling effort to develop a multi-billion dollar LNG export terminal. But even that may not significantly boost the chances of the project ever getting built.

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The text of the 2,702-page bill as written does not call for direct funding to the Alaska LNG project. The legislation would, however, make several changes to the US Department of Energy's lending and loan guarantee authorities.

One provision would make changes to the Alaska Natural Gas Pipeline Act of 2004 to remove specific destination requirements that restricted federal loan guarantees for projects commercializing North Slope gas to projects supplying the Lower 48. Analysts at ClearView Energy partners said they interpreted the change as making the existing loan language eligible for use in the Alaska LNG project. As did Larry Persily, a former federal coordinator for Alaska gas pipeline projects under the Obama administration.

"If you did have a quasi-viable project, and you could get a federal loan guarantee, then your cost of debt would be lower," Persily said in an interview.

The existing law authorizes DOE to issue up to $18 billion of project loan guarantees -- indexed to inflation -- with the portion that could be used to cover an LNG project limited to $2 billion.

A project would still have to be bankable to secure financing, though, which remains a major obstacle for the Alaska LNG project. The project has faced persistent challenges, including a lack of customers and a price tag that remains high at about $38.7 billion, even after cost-cutting efforts.

"It's good politics back home," Persily said of the Alaska LNG project efforts. "It keeps the dream alive, and there is a lot to be said for keeping a dream alive, particularly if it doesn't cost anything. But I don't think by any stretch if this were to pass it moves the project ahead on anyone's list of viability, of [projects] next in line, because it has got all the same problems as before."

Building infrastructure to move otherwise stranded North Slope gas resources, amounting to about 35 Tcf of proven gas reserves, has been a goal of Alaska and the federal government for decades. The advantage of a major LNG export plant in Alaska would be a shorter shipping route to major demand markets in Asia than for rival Gulf Coast projects. The Alaska LNG export terminal, on the Kenai Peninsula in Nikiski, would be capable of producing 20 million metric tons per year of LNG.

The state-run entity tasked with overseeing the project, Alaska Gasline Development Corp., or AGDC, said earlier this year that it would shift its focus toward developing a pipeline project that would deliver North Slope gas to the Fairbanks area in the central part of the state. The plan would be to use that $5.9 billion pipeline — one part of the proposed 800-mile-long, 42-inch-diameter line that would feed the planned LNG terminal in southern Alaska — as a first step toward advancing the broader project. AGDC said it would seek federal clean energy infrastructure funding to cover about 75% of the pipeline costs and rely on a private partner to cover the rest of the project costs and spearhead the line's development.

The draft legislation does not spell out such funding. And the pipeline to Fairbanks by itself does not appear to qualify for the proposed loan guarantees included in the bill, Persily said.

AGDC officials said they are working to understand whether the project could be eligible for funding under different areas of the proposed legislation and that their talks with private parties are focused on developing the entire LNG project, instead of the pipeline to Fairbanks alone. The LNG project has the federal regulatory permits it needs to advance to construction, although the DOE in July ordered a supplemental environmental review amid legal challenges by environmental groups.

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