A Whole New Beast - Alaska LNG
The behemoth Alaska LNG Project, estimated to cost between $40 and $45 billion, is an outlier in our dataset due to its estimated cost, and may well end up an outlier because of other measures, as well. While it is clearly different from the typical liquefied natural gas (LNG) terminal project, will it prove to be a learning opportunity for other LNG developers, contractors and investors?
The Beast
The project applicant, Alaska Gasline Development Corporation (AGDC), is a state-owned entity, rather than a private one, and is backed nearly exclusively by China -- by China Petroleum & Chemical Corporation, or Sinopec, listed on the NYSE and the world's largest oil and gas company by revenue, as well as CIC Capital Corporation, China's investment arm, and Bank of China, a state-owned commercial bank. Instead of filing several applications for the various proposed facilities, AGDC filed a single application for authority to build a 3 train terminal, over 800 miles of 42-inch pipeline, a gas treatment plant, and a 63-mile long pipeline connecting the treatment plant to a gas production facility.
Typically, these various LNG facilities would be docketed individually at FERC. The unique circumstances of constructing an LNG terminal in Alaska, with little relevant precedent, in combination with the unique scope of project facilities and an inexperienced applicant, make the project even more risky than a typical project.
Lessons for other LNG Developers
As with any project, a key factor is lining up early support for the project, but this one has faced skepticism from both sides of the political aisle. This lack of support could explain why the project spent so much time in the pre-filing process. When Alaska LNG requested to initiate pre-filing in September 2014, it expected to file its Certificate application in September 2016. But the application was not filed until April 2017. Spending 31 months in pre-filing -- something to be avoided by all developers -- put the project in the 97th percentile for pre-filing duration since 2008.
Now that the project is formally before FERC, the next step is to complete the environmental review process. On March 12, 2018 FERC issued its Notice of Schedule (NOS) for the project's environmental impact statement (EIS). But the EIS is currently scheduled for issuance on December 9, 2019, which would make the project subject to the longest environmental review since 2008. Also, FERC's NOS is subject to revision. Of the projects which completed environmental review, 26.6% had a NOS that was revised at least once. And for LNG projects in particular, the NOS was revised for 36.4% of projects that completed environmental review. Such revisions to environmental review dates, as well as requested approval dates and estimated in service dates can be easily found in LawIQ's Project profiles, which allow our customers, including developers, investors and contractors, to quickly assess the shifting expectations during federal permitting.
In a statement issued after issuance of the NOS, Alaska Governor Walker, a long time supporter of the project, applauded FERC and stated that "[t]his is a major step forward that establishes clarity and predictability in the federal permitting process, which is critical for investors." However, the schedule issued by FERC makes it clear that the project will not receive its certificate by December 2018, which was the date AGDC had originally requested to receive its certificate.
Perhaps investors don't share Walker's sentiment regarding the "clarity and predictability" of federal permitting. After all, the Department of Energy authorized the Alaska LNG Project to export on November 21, 2014, allowing the project to engage in agreements necessary to make the terminal operational following the FERC's siting review. The authorization, on a long-term, multi-contract basis, authorizes the export of approximately 929 Bcf per year, or 2.55 Bcf per day, of LNG to nations with which the United States has a Free Trade Agreement. It is effective for a 30-year term, beginning on the earlier of the date of first exportation or 12 years from the date of DOE's authorization. And on May 28, 2015, DOE granted to Alaska LNG Project the authorization to export to non-free trade agreement countries, as well.
Despite this delay, AGDC has received support from the Trump administration. Specifically, during the president's visit to China in November, agreements were signed by the State of Alaska, AGDC, and various Chinese finance and banking institutions. By December 2018, AGDC intends to finalize LNG purchase agreements and financing with China's Sinopec and Bank of China that would cover three quarters of the project's annual LNG production. Memoranda of understanding or letters of intent have been executed with CIC Capital Corporation, Tokyo Gas, Korea Gas and Petro-Vietnam, who, in the aggregate, will likely sign on for the remaining 25 percent of Alaska LNG's capacity.
LNG Developers and Investors
LawIQ's data platform helps all parties involved in large projects like this one: LNG developers will know what to expect when they first file an application and would not be surprised by the extended timelines for such projects; Investors involved in financing major infrastructure projects, such as Alaska LNG, can understand whether an applicant's suggested schedule is aggressive or conservative; and engineering and construction contractors are able to anticipate when they would need to be prepared to provide materials and labor by tracking the project throughout the permitting process. (An overview of our platform is available on our website https://www.lawiq.com/ ).
Project Review Duration
