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Analysis: Alaska LNG deal falls short of Trump's Asian ambitions

Singapore (Platts)--9 Nov 2017 713 am EST/1213 GMT


With US President Donald Trump's China trip expected to test his administration's "America First Energy Plan", the multi-billion dollar Alaska LNG deal will likely be presented to the electorate at home as a trade success.


  • Project roles to be defined mid-2018, FID in 2019
  • Sinopec potential customer and 75% capacity holder
  • Remaining 25% reserved for other Asian markets

The non-binding deal does signal the growing role that US LNG plays in Asian energy security, but it is a far cry from the type of commercial agreements the US would need to reduce its trade deficit in goods with Asia and China, in particular.

LNG imports to China by source

"This kind of commercial agreement allows Trump to portray himself as a master dealmaker, while distracting from a lack of progress on structural reforms to the bilateral trade relationship," Verisk Maplecroft Asia analyst Hugo Brennan said.

Three of China's largest energy and finance companies signed the joint development agreement Wednesday to advance the $40 billion-plus Alaska LNG export project, the parties announced in a statement Thursday.

The agreement was signed by China Petrochemical Corporation or Sinopec, CIC Capital Corporation, Bank of China, Alaska Gasline Development Corporation and the State of Alaska during Trump's China visit.

Alaska LNG is a 20 million mt/year export project comprising three liquefaction trains at Nikiski in south central Alaska, an 800-mile gas pipeline, a gas treatment plant on the North Slope; and various interconnecting facilities to link the Prudhoe Bay gas complex to the treatment plant.

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Under the deal, the parties have agreed to cooperate on project investment and financing, as well as LNG marketing.


ROLES DEFINED BY 2018


"Today's agreement brings the potential customer, lender, equity investor, and developer together with a common objective of crafting mutually beneficial agreements leading to increased LNG trade between Alaska and China," AGDC President Keith Meyer said.

Speaking by telephone in a briefing for Alaska reporters, Meyer said the parties had agreed to have their respective roles defined by mid-2018 and a final agreement in place by the end of 2018, allowing for a final investment decision to be taken in 2019.

What is being discussed is state-owned Sinopec being the customer for the LNG and the holder of up to 75% of the project's capacity, with the remaining 25% being reserved for other Asian markets such as Japan, South Korea and Vietnam, Meyer said.

"Sinopec is interested in the possibility of LNG purchases on a stable basis from Alaska LNG," Sinopec said in the statement.


PROJECT OWNERSHIP


The ownership of the project would be different, Meyer said, with the state, through AGDC, having a possible majority ownership.

North Slope producers and gas owners BP, ConocoPhillips and ExxonMobil would be expected to sell the gas to the project, with no project or capacity ownership.

The state owns about 5 Tcf of royalty and tax-share gas, while the remaining 30 Tcf is owned by BP, ConocoPhillips and ExxonMobil, who would need to agree to a price to sell gas to the Chinese-backed LNG project, or to become partners themselves.

Alaska has 35 Tcf of proven gas reserved on the North Slope in the Prudhoe Bay and Point Thomson fields.

If the Alaska LNG project proceeds, construction could begin in 2019 with the project in operation in 2025, according to the schedule laid out by AGDC.


CHINA A KEY PARTNER


Trump arrived in Beijing Wednesday with a large business delegation, including US LNG companies Cheniere Energy, and Texas LNG, a sign of the government's resolve to promote LNG exports and secure commercial agreements from the trip.

China is the third largest LNG consumer in the world after Japan and South Korea, but unlike the other two, Chinese importers have yet to sign long-term deals with the multi-billion dollar LNG export projects being built along the US Gulf Coast.

China's gas consumption is expected to soar as it moves away from coal-fired power generation in a bid to reduce chronic air pollution. It imported more than 25 million mt of LNG in 2016 and is expected to double imports to over 50 million mt by 2019, according to S&P Global Platts Analytics.

The Alaska LNG deal follows a government-to-government agreement in May, aimed at promoting economic engagement and cooperation between the two world powers in a range of issues including energy, agriculture, investment and finance.

"The United States welcomes China, as well as any of our trading partners, to receive imports of LNG from the United States," the announcement said. "Companies from China may proceed at any time to negotiate all types of contractual arrangement with US LNG exporters, including long-term contracts, subject to the commercial considerations of the parties."

It continued to say the US treats China no less favorably than other non-free trade agreement trade partners with regard to LNG export authorizations.

China is already an importer of US-sourced LNG, having received 212,000 mt in 2016 and 910,000 mt so far in 2017, according to Platts Analytics, through a combination of spot deals and long-term contracts with portfolio suppliers.

It imported its first LNG from the US in late August 2016, when state-owned CNOOC received a cargo from the Sabine Pass export facility on the US Gulf aboard the LNG carrier Maran Gas Apollonia, cFlow, Platts trade flow software, showed.

It was the first cargo from the Lower 48 States to reach Northeast Asia since Sabine Pass commenced operations in February 2016, and the first LNG tanker to transit the newly expanded Panama Canal.

--Abache Abreu, abache.abreu@spglobal.com
--Tim Bradner, newsdesk@spglobal.com
--Edited by Jonathan Dart, jonathan.dart@spglobal.com




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