(Reuters) - A preliminary agreement with China for the development of a massive liquefied natural gas export project in Alaska will boost its profile, but does not ensure the $43 billion development will go ahead, analysts said on Thursday.
China’s biggest state oil company, Sinopec, one of its top banks and its sovereign wealth fund agreed early on Thursday to develop the Alaska LNG export terminal and an 800-mile (1,290-km) pipeline to deliver fuel to China.
It is one of dozens of projects racing to join a second wave of U.S. LNG projects set to come online in the middle of the next decade.
The announcement, made with fanfare as part of U.S. President Donald Trump’s state visit to China, lacked details about binding offtake agreements or financing, analysts said. The parties involved have pledged to work out details over the next year. Offtake deals are agreements to buy a fixed amount of LNG for a set period of time.
“This is a typical announcement that comes out of these big summits,” said Jason Feer of energy consultancy Poten & Partners.
“You really can’t build, or get financing for a big project, unless all those pieces are in place.”
Alaska LNG, backed by the state-owned Alaska Gasline Development Corp (AGDC) with input from North Slope energy producers, envisions a lengthy pipeline from the North Slope to an export terminal in south-central Alaska.
With both China and the United States pushing the project, it will likely ensure Chinese LNG buyers seriously consider Alaska LNG when they look to sign new offtake deals, said Feer.
With planned output of some 20 million tonnes a year, Alaska LNG would need to sign numerous major offtake deals, likely with customers beyond just China, before it can secure financing for construction, analysts said.
Genscape analyst Jason Lord said the deal with Sinopec was far from secure, with any investment decision on the project still a long way off.
“This joint development agreement is really non-binding and allows Sinopec Group the ability to quietly back out down the road,” said Lord in an email to Reuters. “There are still many steps before a final investment decision is reached.”
When asked about criticism from industry watchers, a spokeswoman for the AGDC said the deal with China was the “most important agreement in the history of Alaska LNG,” solidifying a working relationship to move forward to commercial negotiations.
The project is expected to create 12,000 jobs during construction, and reduce the trade deficit between the United States and Asia.
Alaska Governor Bill Walker said the project would generate $8 billion to $10 billion in revenue each year, including $1 billion from gas sales.
Shipping distances from the Pacific Coast to Asia are far shorter than from the East, making western projects attractive to Chinese buyers, although construction costs are generally far higher.
Alaska is pursuing foreign investors for further energy development as it struggles to compete with lower-cost shale projects.
Reporting by Julie Gordon in Vancouver; Editing by Tom Brown and Peter Cooney
Our Standards: The Thomson Reuters Trust Principles.