Pprocessing facilities at Prudhoe Bay. (iStock / Getty Images)

If one wants to understand the economics of the Alaska LNG project, one need look no further than comparing the situation before Donald Trump became president, and now. Before, there was very little interest because it is so expensive. Many legislators were ready to pull the plug on funding. Now, subsequent to trade threats, Japan, South Korea and Taiwan are talking about it while complaining about how expensive it is.

Relative to other competing LNG projects, Alaska would have to incur two additional huge capital expenditures that the competition would not have: the 800-mile pipeline, and, because North Slope gas has so much CO2, very costly processing to remove it. In 2022, the Alaska Gasline Development Corp., or AGDC, estimated these would cost $22 billion. Inflation since then would put it at $25 billion. This is in addition to $20 billion for the liquefaction and export facility.

Asian customers do not want to spend an extra $25 billion for gas. That was the situation before, and that is the situation now.

During the campaign, Trump promised that on day one, he would stop inflation and end the war in Ukraine. On day one, Alaska LNG became part of his trade policy.

Some Alaskans are naturally quite giddy over this. AGDC has given 75% of the project to Glenfarne, a company that appears to have never actually exported LNG. The Legislature, much less the public, is not privy to the contract terms, although the Alaska Industrial Development and Export Authority, aka AIDEA, has agreed to reimburse Glenfarne $50 million if the project does not go ahead. Glenfarne says it might get to the final investment decision this year after spending $150 million. That would be about 0.3% of the estimated project cost. This is laughable; conventional wisdom is that spending of 5%-10% is necessary for FID on megaprojects, upwards of $3 billion in this case.

But the president cannot always act unilaterally. His intent to institute large global tariffs was contained last week, as financial turmoil caused the bond market to be the house of bricks the wolf could not blow down. So, the tariffs were paused.

What will Asia think about all this? Can they be coaxed into a project they do not want to do? No one knows whether the tariffs will return, or, if they do, what form they will take. Today, the plan is for 10% in most places, in which case there would be no reason for Asia to give Alaska special treatment. Exporting Alaska LNG would not help the U.S. to either revive manufacturing, defend against unfair competition, maintain security, or protect emerging industries. The control of Congress may change in 19 months, and the president is gone in four years. No investor will touch a project until they are confident policies will endure over the long term.

The U.S. runs trade imbalances with more than 100 countries. Should it embark on implementing country-by-country tariffs, it unleashes a volatile system with no coherent strategy, especially when coupled with the transactional nature of the administration. Negotiating with them all can only succeed to the extent to which it can exercise forcible leverage. This would result in the same kind of uncertainty and instability that just blew up financial markets.

The fate of the Alaska LNG project will depend not on the merits of the enterprise, but on how much strong-arming can be applied. As we saw last week, that is not much.

Roger Marks is an economist in private practice in Anchorage. From 1983-2008 he was a senior economist with the Alaska Department of Revenue Tax Division.

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