Alaska LNG downplays Chinese tariff threats

09 August 2018, Week 31, Issue 705

While high-level tensions between the US and China have led Beijing to warn it would impose a 25% tariff on LNG supplies, those involved in the Alaska LNG project remain upbeat.

Alaska Governor Bill Walker and Alaska Gasline Development Corp. (AGDC) officials have insisted the threatened tariff should not have a long-term impact on the US$43 billion Alaska LNG project. 

The possible tariffs come at a pivotal time for the Alaska project. After all of the project’s major partners pulled out, Chinese interest resuscitated hope in 2017 that it could finally go forward. Walker was part of the entourage that accompanied US President Donald Trump on his trade mission to Beijing in November 2017. At this point, a non-binding preliminary agreement was secured for China’s state-run Sinopec to procure up to 75% of the LNG produced from the project in exchange for the Bank of China and China Investment Corp. (CIC) financing up to 75% of the project’s development costs. 

In early August, reports from Alaska said Sinopec would no longer play a major construction role in the project – although leaving open the possibility of a subcontractor role. The Chinese company is still interested in taking gas from the proposed development. The reason given pointed to a lack of experience from Sinopec in Arctic construction work, although political concerns are also likely to have played a role. 

In March, the Federal Energy Regulatory Commission (FERC) set a time line for the project to receive its final environmental impact statement (EIS) by December 2019.

Exactly how a 25% tariff on US-sourced LNG would affect the economics of Alaska LNG is unclear. While it certainly would not be good, the policy battle does not upend the fundamental benefits of the project, Walker said. 

“Alaska’s vast reserves of natural gas can satisfy market demand for nearly a century, and short-term trade tensions do not change this long-term value proposition. Alaska LNG would be the largest job-creating infrastructure project in the country, and would generate billions of dollars in revenue,” the governor added in a statement from his office. “My team and I will continue to work with the Trump administration to ensure that Chinese and US officials strike a fair compromise so that Alaska’s natural gas reaches the market.”

An AGDC statement said the company believed the current trade tensions between the US and China would be resolved well in advance of Alaska LNG exports to China. “The Alaska LNG project represents a multigenerational project that matches China’s 100 years of natural gas demand with Alaska’s 100 years of supply on the North Slope.”

Edited by

Andrew Kemp

Editor

Any questions? Please get in touch