Alaska LNG may in time justify investment capital, but existing market signals do not justify overriding private hesitation with federal guarantees.
While many Americans have watched energy prices rise with trepidation amid President Trump’s war on Iran, the residents of one state, Alaska, have done so with anticipation.
Alaska is energy rich, sitting atop oil and gas reserves of global significance. With the war bottling up one-fifth of the world’s natural gas flows behind the Strait of Hormuz, Alaskan energy exporters stand to benefit by comparison. Because of the surging spot price on world markets, a long-discussed 800-mile natural gas pipeline connecting the state’s North Slope to a liquefaction facility at Nikiski on its southern coast has new life.
Foreseeing positive second-order effects for his state, Alaska Governor Mike Dunleavy took to the pages of the Wall Street Journal to seize political momentum. “President Trump’s bold confrontation with Iran,” he wrote, “is a strategic master stroke.”
But Alaska’s excitement should be met by the rest of the country with caution. Just before the Pentagon launched the war on February 28, I spent a week in Alaska speaking with energy experts, economists, and politicians to try to disentangle the liquefied natural gas (LNG) project’s facts from its fictions. I flew back to the Lower 48 far less optimistic than when I set off. The war, paradoxically, changes little.
Governor Dunleavy’s advocacy for his state’s energy development is laudable, but his geo-economic analysis lacks rigor. The governor wrote that on trips to Japan, South Korea, and Taiwan, he has “seen firsthand how seriously our partners take energy security.” He notes, reasonably, that energy is “the foundation of economic and national security” and that these East Asian economies are “eager for Alaskan gas.” The truth is that importers from these countries are playing for time, willing to wait out this moment of upward price pressure. “There’s recognition in Japan of the need to focus on LNG security and diversification,” William Chou, a Japan expert at the Hudson Institute told me recently, “But there’s no clarity on how to price in such security; until they do, there won’t be more impetus for Alaska LNG.”
For more than a year, the Trump administration hailed the Alaska LNG project as a key point of economic synergy with these Asian partners, citing off-take agreements and broader agreements on foreign direct investment. And yet the Japanese, Koreans, and Taiwanese have proven unwilling to commit the necessary capital. Likewise, American investors remain hesitant. The upshot is that Governor Dunleavy is arguing that American taxpayers should take on the risk, in the form of loan guarantees for the project’s developer Glenfarne. U.S. Energy Secretary Chris Wright said in March that the administration “will look at every way we can to get a large infrastructure project like that built,” up to and including loan guarantees from the federal government that could reach $30 billion.
Time may validate Governor Dunleavy’s hunch that Alaska’s stable gas supply is worth the near-term financial risk, but natural gas futures markets reveal why the Japanese, Koreans, and Taiwanese are not putting their money where their mouths are. Despite the Hormuz closure, Asia futures prices for natural gas have hardly budged. In fact, they’re lower in inflation-adjusted terms than 20 years ago.
The reason is that technology has made natural gas more abundant than ever. In places across the world, including in less remote parts of the U.S. like West Texas, gas is easier to access than in Alaska, and consequently more affordable. For most Americans and natural gas buyers on the global market, this is unalloyed good news. For Wall Street, burned by over-investment in the 2010s shale revolution, it has begotten a more disciplined approach — and the intuition that investment in Alaska’s North Slope is unlikely to generate profit. Underlining that point, if the Hormuz crisis reaches the durable conclusion the Trump administration seeks, the Gulf Cooperation Council exporters, freed from the Iranian threat, will be the beneficiaries, not Alaska.
Alaska LNG may in time justify investment capital, but existing market signals do not justify overriding private hesitation with federal guarantees. In the near term, natural gas is vital, but it is not among the critical commodities on which any geopolitical foe has a stranglehold. The North Slope’s reserves will be there if, someday, global conditions demand federal action. But if the geopolitics of Asia make Alaska’s LNG attractive today, it should be the Japanese, Korean, and Taiwanese importers and Wall Street who put their money on the line, not American taxpayers.