China examines huge LNG potential deal in Alaska

A Chinese energy company, Sinopec, said it may be interested in looking at whether or not it can buy liquefied natural gas from Alaska on a regular basis.

Alaska’s state government and the Alaska Gasline Development Corp. signed an agreement with Chinese lenders and China Petrochemical Corp., or Sinopec, to advance discussions on the LNG potential in Alaska. The agreement was signed in the presence of U.S. President Donald Trump and Chinese President Xi Jinping.

In April, after a couple of days of high-profile talks with Trump in Florida, Xi made a refueling stop in Alaska, using the time to meet with the governor and discuss the LNG gasline–at Trump’s nodding, according to AP. China is the state’s top export market, buying nearly US$1.2 billion worth of goods in 2016, according to the US Census Bureau and seeks additional revenue avenues.

“Sinopec is interested in the possibility of LNG purchase on a stable basis from Alaska LNG,” Sinopec stated.

Chinese demand for LNG is on pace to grow by about 30 percent from last year by 2020.

Analysts said cost may be an impediment to the arrangement, noting that China could secure LNG from cheaper reserves closer to home, notably from Australia or Qatar, which already have established LNG infrastructure.

However, Xi is the first Chinese President having spent time in Alaska’s largest city, on his way back to China from his first summit with Trump back in April where he discussed the huge trade deficit and ways to narrow it.

Russian independent gas producer Novatek reached an agreement with a Chinese bank to help implement an Arctic LNG project last week.

Nevertheless, Alaska Gov. Bill Walker was optimistic about the prospects of the deal. His state has already cut 44 percent from its spending obligations over the last four years and tapped into more than $14 billion from savings. With oil prices low by relative standards, he said the state needed to find new sources of revenue to pay the salaries of teachers and police officers.

With all major parties at least agreeing on direction, the governor said the LNG plan was a “big project” with “big benefits.”

“There are more steps before a final investment decision is reached, but having the largest LNG buyer in the world participating in this project means the Alaska LNG project has favorable market engagement at the highest level,” he said in a statement to UPI.

Reuters adds: China, seizing the moment of Trump’s trip to Beijing, is now offering to invest in the project which requires new plants along with 800 miles of pipe. It is undeterred by a report by Wood Mackenzie, a consultant for the oil majors, which last year said oil prices would have to be above $70 a barrel before an investor could ink the kind of 12 percent return most global oil producers target.

A few things are different for the People’s Republic. Even though oil is still below $70, Chinese state oil companies like Sinopec have access to cheap debt, and might accept a lower return in exchange for securing a patch of liquefied natural gas. China’s shift from coal means that gas demand is set to rise 8.7 percent per year through 2022, according to the International Energy Agency.

The risk, though, is on the western side of the Bering Strait. Thursday’s tie-up is fuzzily worded, non-binding and sidesteps questions like who pays what, when. And there are other places to get supply – like Qatar, Australia, other parts of the United States and even China itself. The country will by 2040 be the second-largest shale gas producer in the world behind the United States, says the Energy Information Administration.

The U.S. state has been trying to tap its considerable resource since the 1970s. Exxon Mobil and BP walked away from projects last year because the costly endeavor doesn’t compute at current prices. China’s cheap debt and need for gas alter the equation, but other energy sources still look better than the Last Frontier.

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