Kazuki Oishi/Sipa USA via AP Images
U.S. Ambassador to Japan Rahm Emanuel attends the signing ceremony of the official participation agreement for Expo 2025 Osaka-Kansai, April 25, 2023, in Tokyo.
The Biden administration is going to bat for a new pipeline and liquefied natural gas (LNG) export infrastructure complex that has long been seen as commercially nonviable.
The Alaska LNG Project, which would help the U.S. sell more gas to Asia, has struggled for years to raise capital, despite billions of dollars in federal loan guarantees. Oil companies ExxonMobil, ConocoPhillips, and BP pulled out of the project in 2014, after a natural gas supply glut caused prices to collapse.
Alaska LNG would include multiple interlocking pieces of infrastructure: a gas processing facility with carbon capture and an export terminal, connected by 800 miles of pipeline across melting permafrost.
Officials have fought to persuade investors that demand for LNG will remain tight for years to come. A raft of new LNG projects being built along the Gulf Coast, in the Middle East and Australia, as well as projected decline in global demand for the fuel, makes the Alaska project a tough sell.
But the White House has stepped into the gap to provide certainty, putting up more subsidies and dispatching officials to hawk the $44 billion facility. That includes one unlikely ally: Rahm Emanuel, the former Chicago mayor and Obama alum turned unusually enterprising U.S. ambassador to Japan, who has become a top crusader.
Japan, which is this year’s leader of the Group of Seven (G7) industrialized nations, has struggled to meet gas import targets amid the global supply crunch. Emanuel is using his post to gin up support for the Alaska project, writing in a December op-ed that an export terminal on the West Coast of the U.S. could help make Japan “the energy export hub for the Indo-Pacific.”
Emanuel hosted a summit last October on Alaska LNG with investors including Goldman Sachs and BlackRock, and is expected to continue his promo tour with next week’s keynote address at the Alaska Sustainable Energy Conference.
State Department energy envoy Amos Hochstein has joined Emanuel in attempting to restore confidence in the flagging gas market. Hochstein’s former chief of staff Samantha Carl-Yoder is now lobbying the State Department, the Department of Energy, and the National Security Council on Alaska LNG, filings show.
Investors remain wary of LNG. Prices for the fuel soared last year after Russia’s invasion of Ukraine, prompting Europe to import more gas short-term but also to accelerate its transition off fossil fuels.
If built, Alaska LNG would have a potential carbon footprint of 2.7 billion metric tons of CO2, or roughly ten times the pollution of the recently approved Willow Project. The prospect that it would incentivize more dependence on fossil fuels has enraged activists.
“Rahm Emanuel did more than any single individual to sabotage Barack Obama’s climate agenda at a time when there were congressional majorities,” said Lukas Ross of Friends of the Earth, a climate group. “It comes as no surprise to find him 13 years later trying to light the fuse of a massive carbon bomb.”
THE PACIFIC HAS LONG BEEN CONSIDERED a massive growth market for LNG. Most export terminals in the market-leading U.S. are on the Atlantic side, raising costs for exports to Asia by forcing ships to travel across the continent and through the Panama Canal.
The Alaska LNG Project, which would help the U.S. sell more gas to Asia, has struggled for years to raise capital, despite billions of dollars in federal loan guarantees.
Last year, Europe bid up LNG prices as it replaced missing Russian pipeline gas, pricing Asian countries out of the market and leading many emerging markets to sour on LNG. In countries like Pakistan and Bangladesh, rising gas prices stoked social unrest.
“In Asia, LNG has now earned a reputation as an expensive and unreliable fuel source, clouding future demand,” the Institute for Energy Economics and Financial Analysis (IEEFA), an energy think tank, finds in its LNG outlook.
IEEFA analysts predict another supply glut and falling prices about five years from now. Others remain bullish on a Chinese demand rebound, but given the new sources of supply being built now, that may not be enough to sustain profits.
“There’s tremendous pressure in the consulting industry to create rosy forecasts of endless growth in demand for LNG,” IEEFA analyst Clark Williams-Derry told the Prospect.
Yet given strategic interests in sending more gas to Asia, the Biden administration has expanded existing guarantees to move risks associated with Alaska LNG onto the public balance sheet.
In 2004, the Natural Gas Pipeline Act authorized up to $18 billion in loan guarantees for the Alaska project, meaning the government would act as a backstop to assure lenders that they would be repaid. That commitment, which was indexed to inflation, is worth nearly $30 billion in guaranteed debt today.
Alaska Gasline Development Corporation (AGDC), the state-owned corporation now developing the project, estimated that federal guarantees could reduce interest rates on the debt by as much as 2.5 percent. And because AGDC is a state entity, it gets to issue tax-free debt and does not pay taxes on equity.
The bipartisan Infrastructure Investment and Jobs Act passed in 2021 sweetened the deal. The 2004 law would have required that the Alaska project send gas to the continental United States to be eligible for subsidies. But an IIJA amendment allowed any project that exports natural gas from Alaska’s North Slope, including outside the U.S., to qualify.
Alaska LNG also stands to gain from last year’s Inflation Reduction Act. The IRA dialed up federal subsidies for carbon capture in the Section 45Q tax credit. Alaska LNG could collect between $4.2 and $6 billion in subsidies under 45Q alone, according to an IEEFA estimate.
Underscoring the Biden administration’s support for Alaska LNG, the Department of Energy last month approved the project’s export license, giving it permission to sell gas to countries with which the U.S. has no free-trade agreement for a term of 30 years (the standard is 20 years).
MORE PUBLIC SUPPORT COULD COME SOON. The Export-Import (EXIM) Bank, a federal credit agency for large industrial projects, is dialing up its support for domestic fossil fuel infrastructure.
In 2021, EXIM announced its first deal for the U.S. LNG industry with a loan guarantee for Houston export plant Freeport LNG, touting the deal as “groundbreaking.” What made the agreement innovative was that EXIM had worked with a pioneer in a new field of banking called “supply chain finance.” EXIM guaranteed 90 percent of a $50 million loan from Greensill Capital, a SoftBank-backed lender, to Freeport. Two months later, Greensill collapsed.
Despite that hiccup, EXIM is forging ahead with its sponsorship of U.S. LNG. Last year, it launched its “Make More in America Initiative,” aimed at subsidizing domestic production. Kate DeAngelis, an attorney who tracks the deals for Friends of the Earth, says Freeport was merely a “token” deal meant to appease the domestic LNG industry.
“I would expect to see way bigger numbers if they were to support Alaska LNG,” DeAngelis said.
This week, with G7 meetings under way in Hiroshima, Japan, Emanuel has focused his pitch on confronting China. “G7 members are developing the tools to deter and defend against China’s economic intimidation and retaliation,” he wrote on Twitter on Monday. “Trade and investment should be used as paths to economic prosperity, not political weapons.”
Yet Emanuel is selling the Alaska gas complex as a blunt political instrument. “If America, Australia and other friends can supply the majority of Japan’s LNG needs, why would Japan need to rely on its adversaries?” he wrote in the December op-ed.
Emanuel is also working on behalf of senators from fossil fuel states, including Joe Manchin (D-WV), Ted Cruz (R-TX), and Dan Sullivan (R-AK), who in March wrote a letter complaining of “excessive restrictions on public financing of gas projects and unnecessary delays in approving privately-financed projects.”
As one consultancy for the refining sector put it, “incredible growth in U.S. LNG export capacity over the past few years has been facilitated by a mostly predictable federal permitting process.”
The Department of Energy, which manages LNG export terminal approvals, is trying to bring projects online faster or get them to move out of the way. Once terminals are granted an export license, they must begin exporting cargoes within seven years.
Williams-Derry said the Alaska LNG project could still get built, despite inferior financials, because incentives are about getting the deal financed, not getting it to ship commercially viable cargoes.
The same was true of the fracking boom. Investors lost billions, but executives designed deals shrewdly, for example by tying their incentive packages to production targets that were easy to hit. “The incentive is to get the deal done,” Williams-Derry said. “It’s not to build a successful project over the long haul.”
