Cost uncertainty clouds $44b-plus project as Seoul weighs investment amid US pressure
A $44 billion-plus LNG project in Alaska that Washington is pressing South Korea to back could face sharply higher costs, a consulting report warns.
The report, submitted to Alaska lawmakers in January, came under renewed scrutiny Wednesday as questions grow about the project’s financial viability and the risks it could pose to potential investors, including South Korea.
Energy consultancy GaffneyCline, in a report for the Alaska Senate Resources Committee, found that cost estimates for the Alaska LNG project remained at a preliminary stage, known as Class 5, the least detailed and most uncertain category under a five-tier industry cost-estimation standard.
Under the Association for the Advancement of Cost Engineering’s classification system, Class 5 estimates typically carry an accuracy range of minus 20 percent to minus 50 percent on the low side and plus 30 percent to plus 100 percent on the high side.
This means actual costs could theoretically reach as much as twice the initial estimate.
Glenfarne Group, the project's lead developer, has estimated total costs at between $44.5 billion and $54.5 billion, according to a Reuters report earlier this month. Applying the upper end of the Class 5 uncertainty range, those figures would translate into $89 billion to 109 billion.
However, the range reflects the uncertainty inherent in early-stage projection rather than a specific projection of cost overruns for the Alaska LNG project.
The estimates were also carried out based on a review of publicly available information, rather than a comprehensive examination of the project’s latest engineering and development documents, it said. It is also not clear whether Glenfarne's cost estimates fall under the same Class 5 classification.
Class 5 estimates are typically prepared during the earliest stages of project development, when engineering and design details remain largely undefined. As a project progresses, cost estimates could be refined and reclassified as more detailed engineering and financial information becomes available.
The report also stressed the project’s heavy dependence on capital-intensive infrastructure, including the pipeline, gas processing facilities and liquefaction terminal.
“Facilities capital costs are large and a dominant part (84 percent) of the overall cost of supply,” the report said.
It added that the project would need more advanced engineering, reliable cost estimates and a comprehensive financing framework before reaching a final investment decision, or FID, the formal commitment to proceed with construction.
The report adds to longstanding questions surrounding the Alaska LNG project, which would transport natural gas produced on Alaska’s North Slope through an approximately 1,300-kilometer pipeline to Nikiski on the state’s southern coast, where the gas would be liquefied and shipped to markets such as Asia.
The project's enormous construction costs and competition from other LNG suppliers have long raised concerns about its economic viability.
The Alaska LNG project is among the projects Washington has identified under Seoul's broader $350 billion US investment commitment tied to the bilateral trade agreement clinched last year.
However, Washington and Seoul have offered differing accounts of South Korea's commitment to the project.
US President Donald Trump has repeatedly pressed Seoul to participate in the development, including recently claiming that Seoul had already committed to the project.
The South Korean government, however, has maintained that no final investment decision has been made and that involvement would depend on the project’s commercial viability and compliance with domestic legal requirements.
sahn@heraldcorp.com