Japan Inc. remains coy on Alaska LNG despite Trump push
Analysts say project too expensive, with final cost likely to exceed $50bn
TOKYO/NEW YORK -- When Japan and the U.S. concluded tariff talks in July, there was one stark difference between the two countries' announcements: Alaska LNG.
President Donald Trump spoke of how the allies would create a joint venture for the project, slated to cost tens of billions of dollars. An official statement from Prime Minister Shigeru Ishiba, on the other hand, did not include any mention of Alaska, only noting that both countries will "work closely" in various sectors, including energy. A Japanese official at the time said he was not aware of any joint venture talks.
The $44 billion project has become a poster child of Trump's second term, under his push to expedite the development of his country's natural resources. The president has pressed countries like Japan, the world's second largest LNG importer, to back it by including it in tariff negotiations.
But a month after those ended, there is little or no progress, with the Japanese LNG industry remaining coy on importing from the project, let alone investing in it.
"We are yet to place someone dedicated [to] looking at the project," one Japanese LNG industry insider said, "as the available information is limited."
Japan and LNG from Alaska have a long history. The country imported its first ever cargo of the super-chilled fuel from the state in 1969, which continued until 2015.
That was from a different project than the one Trump is pushing, which looks to produce the feed gas in northern Alaska, ship it through a 1,300-kilometer pipeline south to Anchorage, the largest city in the state, and then liquefy it near the coast for shipping.
The concept has been around for decades, and for a time it seemed possible that Japan would get involved. For example, a Nikkei report from 1998 talked about how Marubeni, one of Japan's five major trading houses, planned a feasibility study with a U.S. oil major and other partners, aiming for production in 2007.
Various Japanese LNG industry players believe that the project, at its core, can be beneficial to Japan and Asia. "The concept is really good. The LNG arrives in Tokyo in just 8 days," said Yukio Kani, global CEO of JERA, a major buyer of the fuel, at a press conference in June.
Current U.S. LNG export facilities are mostly located in the Gulf of Mexico, and carriers need to pass through the increasingly congested Panama Canal or take the longer route around Africa.
Another Japanese LNG industry insider said that participation in the project "isn't off the table" if political pressure from the U.S. significantly increases. But he stressed that this depended on whether the project "has moved forward enough that it is a viable option, and the economics of the project [are] much clearer."
The person added that he sees "little chance" of Japanese companies getting involved in it at this point and that it is really hard to "look at the project positively," given the "uncertainties around the cost and the schedule."
LNG analysts believe that should the project move ahead, the bill would be much higher than the projected $44 billion due to global inflation and labor shortages driving up costs.
Industry insiders have also pointed to the impact of Trump's 50% tariff on steel imports. The pipelines carrying the gas will need to be highly specialized to withstand the harsh Alaskan winter, and most will need to be imported.
Analysts agree that the overall cost of the project will likely exceed $50 billion, given that the initial cost estimate was given nearly a decade ago.
"Industry costs have risen dramatically over the last 10 years, even in the last few years," said Alex Munton, director of global gas & LNG research at Rapidan Energy Group, a consultancy. "If cost is rising for construction of LNG [plants] in the U.S., where there is a lot of activity, it is inevitably the case that costs will be more expensive to build something in Alaska now than it would have been 10 years ago," he said.
Alaska LNG is "too large a project, so [any arrangements] won't be for pure commercial terms but rather government to government," said Masanori Odaka, senior analyst of gas and LNG market research at Rystad Energy, a consultancy. "The cost might be more than $50 billion by the time the project is complete. It is difficult to believe that such large sums of money will be invested in the current environment," he added.
Adam Prestidge, president of Glenfarne Alaska LNG, which holds a 75% stake in the project, recently told Nikkei Asia that efforts are underway to keep the cost down. He added that the joint venture behind the project is planning to make its final financial commitment to the pipeline by the end of this year and start supplying gas to Anchorage by the end of 2028.
Masayuki Omoto, CEO of Marubeni, told Nikkei Asia in an interview in August that despite its earlier ties to the project in the 90s, it has not received any approaches to participate.
"Cost competitiveness is everything in the world of LNG," he said. "If we receive any proposal, the key criterion should be whether it is cost competitive. Right now, there are several projects in the Gulf of Mexico, and sourcing from there would be more economically viable."
Trump has made energy a key focus for his administration and Alaska a cornerstone, having signed an executive order to make the project's development a priority in January.
An analysis by energy consultancy Wood Mackenzie found that the project would lower Alaska gas prices by 75% and provide predictable delivery of natural gas. It would also bring $16.5 billion in economic benefits, including jobs, tax consumer savings and business growth to the state.
Ellen Wald, senior fellow at the Atlantic Council's Global Energy Center, said that the U.S. sees Asia playing a large role in buying natural gas from Alaska because shipments to the region would be more cost effective and the commodity from Alaska would not be easy for other American states to access.
"The idea is that you'd also see less price volatility in the natural gas, because it really can only go to Asia, so it wouldn't necessarily be affected by the same price volatility that we get in [a natural gas price index] like Henry Hub," Wald said.
Despite the potential benefits to Asia and to Alaska, analysts believe it will be hard to get the project off the ground.
The project is "just too expensive," said Jason Feer, global head of business intelligence at shipbroker Poten & Partners. He said the project may become attractive "10-15 years from now" given the projected fall of LNG supply from countries like Australia, Indonesia and Malaysia, which have traditionally served the Asian market.
"There may come a time when that high cost is less of an issue, when there is less cheap LNG in the world ... but the timing now, when you are competing against [projects on the U.S.] Gulf Coast, Qatar, it is hard to see how it can get done."