A preliminary agreement with China for the development of a massive liquefied natural gas export project in Alaska will boost its profile, but does not ensure the $43 billion development will go ahead, analysts said on Thursday.
China`s biggest state oil company Sinopec, one of its top banks and its sovereign wealth fund agreed early on Thursday to develop the Alaska LNG export terminal and an 800-mile (1,290 km) pipeline to deliver fuel to China.
It is one of dozens of projects racing to join a second wave of U.S. LNG projects set to come online in the middle of the next decade.
The announcement, made with fanfare as part of U.S. President Donald Trump`s state visit to China, lacked key details about binding offtake agreements or financing, analysts said. The parties involved have pledged to work out details over the next year.
"This is a typical announcement that comes out of these big summits," said Jason Feer, of energy consultancy Poten & Partners.
"You really can`t build, or get financing for a big project, unless all those pieces are in place."
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 United States pushing the project, it will likely ensure Chinese LNG buyers seriously consider Alaska LNG when they look to sign new offtake deals, said Feer.
With planned output of some 20 million tonnes per year, Alaska LNG would need to sign numerous major offtake deals, likely with customers beyond just China, before it can secure financing for construction, analysts said.
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.
"This joint development agreement is really non-binding and allows Sinopec Group the ability to quietly back out down the road," said Lord in an email to Reuters. "There are still many steps before a final investment decision is reached."
The AGDC did not immediately respond to a request for comment on criticism of the deal. But Alaskan Governor Bill Walker said earlier that the project will generate $8 billion to $10 billion in revenue each year, including $1 billion from gas sales.
"This is an agreement that will provide Alaska with an economic boom comparable to the development of the Trans-Alaska Pipeline System in the 1970s," Walker said in a statement.The U.S. State Department said in a separate statement the project will create up to 12,000 jobs during construction and reduce the trade deficit between the United States and Asia.
Shipping distances from the Pacific Coast to Asia are far shorter than from the East, making western projects attractive to Chinese buyers, though 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.
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)