Photographer: Daniel Acker/Bloomberg

China Steps Toward U.S. LNG Deal as Sinopec Inks Alaska Pact

Updated on
  • Sinopec, Bank of China, CIC sign JDA with Alaska Gasline
  • Alaska LNG project to pipe natural gas across state for export

China took steps toward its first investment in U.S. liquefied natural gas as one of its energy giants agreed to advance a $43 billion project that’s been years in discussion and already sidelined by American majors.

China Petrochemical Corp., known as Sinopec Group, signed a joint development agreement with Alaska Gasline Development Corp. on the plan to pipe gas from the state’s northern shore to a proposed liquefaction terminal in the south, where it would be shipped abroad. The state of Alaska, China Investment Corp. and the Bank of China Ltd. also signed the agreement.

The pact was announced among $250 billion in U.S.-China deals unveiled this week during President Donald Trump’s visit to Beijing. It doesn’t include any financial commitments or gas-purchasing agreements.

To read more about the agreements inked in Beijing this week, click here.

“There are more steps before a final investment decision is reached,”  Alaska Governor Bill Walker said in an emailed statement. “This agreement has all five necessary signatories: the buyer, the lender, the investor, the developer and the state.”

The project would involve a total investment of as much as $43 billion and create 12,000 construction jobs for the Alaska LNG project, he said in the statement. The companies agreed to work together on marketing, financing, and finding an investment model for the project, Alaska Gasline, which applied for federal approval for the development in April, said in a separate statement.

Exxon Mobil Corp., ConocoPhillips, BP Plc and TransCanada Corp. have been involved in the effort, but have distanced themselves after estimating in 2012 that it would cost as much as $65 billion and take more than a decade to construct. As of this year, all of those companies had withdrawn from the project’s application. A global oversupply from new ventures coming online from Australia to the U.S. Gulf Coast has slowed further investment, including in cheaper and less-complicated expansions of existing developments.

‘Master Dealmaker’

“This kind of non-binding 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,” Hugo Brennan, an Asia analyst at Verisk Maplecroft said in an email.

Alaska LNG is designed to produce 20 million metric tons a year of LNG through three liquefaction trains built at a facility in Nikiski, on the state’s southern coast. Gas would be fed to it through an 800-mile pipeline connected to fields on the state’s North Slope. 

Sinopec expressed interest in an agreement to buy stable supplies of LNG from the project, according to a statement released by Alaska Gasline. Sinopec did not immediately respond to requests for comment.

Alaska Gasline President Keith Meyer said Sinopec could take part in the construction of the project in return for up to 75 percent of capacity on the pipeline and liquefaction plant. That means the cost of LNG would depend largely on Sinopec’s cost of capital.

‘Cost of Finance’

“The price of the LNG is going to be tied to the cost of finance,” he said. “It’s going to result in a low cost of LNG, depending on the creativity and the largess of the Chinese banks.”

The gas belongs to drillers like Exxon and BP, and deals to purchase it would need to be done separately, according to Governor Walker.

China’s thirst for LNG is a result of an ever-growing economy and a new push by President Xi Jinping’s government to replace dirtier fuels like coal and petroleum to limit pollution. Total natural gas use in the country could grow to about 600 billion cubic meters by 2040 from 206 billion last year and overtake the U.S. as the world’s largest consumer by 2050, according Sanford C. Bernstein & Co.

The nation has already signed deals with suppliers in Qatar, Australia and other nations for more than 40 million tons a year of LNG through 2030, but still needs more than 20 million tons to meet demand by the end of that period, according to Bloomberg New Energy Finance. Chinese LNG buyers have not yet inked any long-term purchasing agreements or investment deals with U.S. LNG exporters.

China signing a binding long-term agreement was highly unlikely because there are still too many unknowns about the Alaska project, said Larry Persily, outgoing chief of staff to the mayor in Kenai Peninsula Borough, where the liquefaction plant would be located.

“You don’t have a permit to export gas here. You don’t really know where you’re going to get your financing,” Persilly said. “There are just a lot of unknowns at this point.”

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