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Yukonomist: Alaska LNG aims for Asia

First came interest in our critical minerals, as Canada’s American, Asian and European allies formed the Mineral Security Partnership. Then President Biden approved Alaska’s giant Willow oil project. Now another commodity has put our part of the world on global security and climate agendas: liquefied natural gas (LNG).

First came interest in our critical minerals, as Canada’s American, Asian and European allies formed the Mineral Security Partnership. Then President Biden approved Alaska’s giant Willow oil project. Now another commodity has put our part of the world on global security and climate agendas: liquefied natural gas (LNG).

The Biden administration recently approved Alaska LNG, a US$39 billion project aiming to move up to 20 million tonnes per year (MTPA) of gas from existing wells on the North Slope via a new 1,300-kilometre pipeline to Kenai. From there, the gas will be liquefied and sent on tankers to Asian markets.

This is about the same amount of gas the Alaskans hoped — back in the 1970s and again in the early 2000s — to move to the Lower 48 via Whitehorse and the Alaska Highway Gas Pipeline.

This time the Biden administration has applied climate conditions, requiring carbon emitted from the project to be captured and put back underground. Combined with regulations on methane leaks, this should make Alaskan gas — like Canada’s — among the lowest carbon in the world. (This applies to the production and pipelining of the gas; it still emits as much gas from other places when burned by the end user.)

As with Willow, the project has widespread but not universal support in Alaska. The state’s Republican senators made sure the project would be eligible for low-cost federal financing in the bipartisan infrastructure bill. The tax credits for carbon capture pushed by Democrats will help out with the costs for that part of the project. Environmentalists who hoped Alaska’s new Indigenous congressperson, democrat Mary Peltola, would oppose the project ended up disappointed. She is also in favour of the Willow oil project.

The size of the project is of global significance. Since the Russian invasion of Ukraine, the world has faced a major shortage of LNG. As Europe attempted to replace gas it bought from Russian pipelines with LNG, prices around the world soared.

This hit poor countries hard and has prompted many to put off plans to address climate change and double down on coal-fired electricity plants. Indonesia already gets 61 per cent of its electricity from coal, Vietnam 47 per cent and the Philippines 46 per cent.

The crux of the issue is that coal is a very carbon-intense source of power. Solar and wind are zero-carbon and increasingly cheap, but intermittent and in limited supply in Asia. Natural gas provides baseload power like coal, but is much less carbon intense, less polluting and (until recently) cheap.

If you were the mayor of a smoggy tropical mega city, where millions can’t afford power to switch their cooking from wood and charcoal to electric stoves, you can see why you might be more interested in talking about LNG than North American environmentalists.

Geopolitics also comes into the debate. Russia aims to finance what could be a long war by ramping up its LNG exports to dodge European sanctions on its pipelines. It exported 33 million tonnes of LNG last year, mostly on ice-hardened tankers from Yamal on the Arctic coast. It is building a massive new LNG facility at Murmansk, near Norway, and another called Ob LNG in Yamal. Arctic LNG, another project in Yamal, will export 20 MTPA. It plans to start production later this year and, when complete, will be one of the biggest facilities in the world.

Meanwhile, Asian buyers are looking for cheap, secure supplies. Canada’s allies, such as Japan and Korea, are also looking for suppliers who — unlike the Russians — will not try to use LNG as a strategic weapon.

Reuters reports that Japan has been pushing its G7 partners to agree on the importance of growing global LNG capacity.

The result of all this is a race to build LNG plants and lock in long-term contracts with Asian buyers. Australia, Qatar, the United States and Malaysia are already major LNG exporters, and central Asian countries are building pipelines to get gas to China on land.

Rahm Emmanuel, formerly President Obama’s chief of staff and now the United States ambassador to Japan, recently organized a major conference in Japan to boost Alaska LNG. Top officials as well as executives from big Asian and U.S. banks and energy companies flocked to the event.

Our part of the world comes into all this via the Alaska project as well as the various LNG projects around Prince Rupert.

Alaska LNG’s 20 MTPA plan has been approved by the U.S. government, but the project has not yet confirmed enough buyers and financing to make a final investment decision.

Around Prince Rupert, Phase 1 of LNG Canada is under construction and plans to start shipping LNG to Asia in 2025. It is a 14 MTPA plant, sizeable but not as big as Alaska LNG or Russia’s biggest projects. Its owners are considering whether to build Phase 2, which would double the project’s size.

Several other Canadian projects are also on the table, still seeking their environmental permits and buyer contracts. These include the Indigenous-owned Cedar project near Prince Rupert, a three MTPA project involving the Haisla Nation.

The Alaska and Prince Rupert projects have some major advantages. They are closer to Asia than competitors in Australia or the Middle East. It is only 3,320 nautical miles sailing from Kenai to Yokohama, Japan, half the distance from Qatar. A tanker from the Middle East must also go through strategic choke points like the Strait of Hormuz or the South China Sea.

Alaskan and Canadian gas is also, as noted above, produced with significantly fewer production and transport emissions. LNG Canada is a world leader in using renewable power to drive its pipeline compressors and other equipment. This makes it more attractive from a climate perspective, at least as an interim fuel until wind, solar, nuclear and other zero-carbon options can be built out in Asia.

However, Alaska and Prince Rupert projects also face some hurdles. Both rely on gas production that is hundreds of kilometres and several mountain ranges away. It is not cheap to ship gas from Fort St. John to Prince Rupert, or from the North Slope to Kenai.

Both regions also have higher environmental standards than some countries, both in terms of local impacts as well as processing and pipeline carbon dioxide emissions. This is a good thing, but it will be a shame for the planet if major Asian countries end up buying their gas from producers without such standards.

It remains to be seen how many of these projects actually make it into production. Back in the 2010s, more than 20 LNG plants were proposed in Canada. An early version of Alaska LNG was on the table. Only LNG Canada made it into construction, however. Meanwhile, from 2015 to today, the U.S. built a half-dozen large plants in the Lower 48 and went from zero LNG exports to over 70 MTPA in capacity. The U.S. Energy Information Administration says that the U.S. became the world’s largest LNG exporter in early 2022.

This highlights the dilemma faced by anti-LNG activists here in the northwestern part of the continent until renewables are built on a large scale in Asia. If you succeed in blocking your local LNG plant, it doesn’t mean the emissions don’t happen. It just means that the emissions — and the jobs — happen somewhere else. Possibly in a hostile, low-regulation dictatorship. And possibly even at an Asian coal plant.

Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He won the 2022 Canadian Community Newspaper Award for Outstanding Columnist.