Alaska LNG Energy Security Promise Faces Cost Challenges

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Japan's largest thermal power generation company, JERA Co, Inc, is considering procuring liquefied natural gas (LNG) produced in the state of Alaska in the United States.

In September, it signed a letter of intent with Glenfarne LLC to advance discussions about LNG offtake from the Alaska project. The letter of intent is not legally binding and does not promise future purchases. However, it is a preliminary step to negotiate actual prices and procurement volumes.

Alaskan LNG can be transported to Japan in just under 10 days. Unlike Middle Eastern LNG, Alaskan LNG can also be freely resold to other countries. Therefore, there is no risk of being stuck with surplus LNG. Moreover, it can also be imported in times of emergency.

Increasing Japan's LNG procurement volume from the United States would contribute to Japan's energy security and strengthen Japan-US relations. US-sourced LNG currently accounts for around 10% of Japan's LNG imports.

*(Created based on data from The Institute of Energy Economics, Japan.)*

Cost is a Challenge

The problem is the enormous cost of the project, estimated to exceed ¥6 trillion JPY (about $40 billion USD). If project costs are passed on in LNG prices, Japan may be forced to purchase LNG at higher prices. JERA's final decision will come after assessing the economic viability based on detailed information obtained from Glenfarne, including the project's development status and other matters.

Related to this, the Japanese and US governments stated that they would "pursue new purchase agreements for Alaskan LNG" in their joint statement following the tariff negotiations.

JERA's move is in line with this agreement. However, Japanese government involvement will be essential to keep prices down and ensure that Japan benefits from the project.

Meanwhile, the Alaska LNG project calls for laying a pipeline approximately 1,300 kilometers long. It would extend from gas fields in northern Alaska to a new liquefaction plant in the southern part of the state.

The Japan Organization for Metals and Energy Security and other organizations would need to provide development support for its success. They should also consider the feasibility of sharing the investment burden through collaboration with other Asian LNG-importing countries and regions. Several have already announced their intention to procure LNG from Alaska, including Taiwan and Thailand.

Benefits of LNG

LNG can be used not only as a raw material for city gas, but also as fuel for thermal power generation. Currently, LNG thermal power generation accounts for over 30% of Japan's power generation mix.

Compared to other fossil fuels, LNG emits less carbon dioxide when burned. Consequently, global demand for it is expected to continue to grow. Increasing stable sources of supply is also important for energy security.

We hope that the government will provide effective support to make Alaskan LNG an effective energy resource for Japan.