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China deal seen as no guarantee for Alaska LNG export project

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LNG Industry,

According to the latest Reuters report, a preliminary agreement with China for the development of a massive LNG export project in Alaska will boost its profile, but does not ensure the US$43 billion development will go ahead.

Sinopec, one of China’s top banks and its sovereign wealth fund agreed early on 8 November to develop the Alaska LNG export terminal and a 1290 km pipeline to deliver fuel to China.

It is one of dozens of projects racing to join a second wave of US LNG projects set to come online in the middle of the next decade.

The announcement lacked details about binding offtake agreements or financing. 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.

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 US pushing the project, it will likely ensure Chinese LNG buyers seriously consider Alaska LNG when they look to sign new offtake deals.

With planned output of some 20 million tpy, Alaska LNG would need to sign numerous major offtake deals, likely with customers beyond just China, before it can secure financing for construction.

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.

The project is expected to create 12 000 jobs during construction, and reduce the trade deficit between the US and Asia.

Alaska Governor Bill Walker said the project would generate US$8 billion to US$10 billion in revenue each year, including US$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.

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