Alaska LNG: High Costs and Oversupply... Is There Real Benefit for Korea’s Participation? [Why&Next]

As the United States has designated Korea as a strategic partner and a key potential buyer for the $44 billion Alaska liquefied natural gas (LNG) project, there is growing caution in Korea regarding the practical feasibility of its participation. This is due to concerns over a global supply glut and low profitability. Attention is now focused on how the Korean government will respond ahead of high-level talks between Korea and the United States.

Reuters Yonhap News

The Reality of Business Viability in Numbers

The starting point of the Alaska LNG project, led by the state-owned Alaska Gasline Development Corporation (AGDC), lies in the region’s energy supply and demand structure. The Cook Inlet gas field, which has supplied gas to southern Alaska, is now depleted.

According to a report by global natural resources consulting firm Wood Mackenzie published in October last year, 34 exploratory wells were drilled in the Cook Inlet region over the past 15 years, but the commercial success rate was only 9% (3 wells), and the proven reserves amounted to just 270 bcf (billion cubic feet). In contrast, the projected demand over the next 40 years is about 2.3 tcf (trillion cubic feet), meaning the supply gap is more than eightfold. To fill this gap, the Alaska state government plans to use gas from the North Slope region, construct a pipeline connecting the interior and southern areas, and export a portion as LNG to ensure the overall profitability of the project.

The main issue is price competitiveness. The report estimates that the gas supply cost for Phase 1 of the project will range from $8.97 to $12.80 per MMBtu (million British thermal units), depending on demand scenarios. This is higher than the average LNG export price from the U.S. mainland, which is $6 to $8 per MMBtu.

However, the report also analyzed that pipeline supply could generate approximately $10.3 billion in added value within Alaska, energy cost savings of up to $5.7 billion, and a total job creation effect of over 3,400 jobs per year on average, including both construction and operation phases.

However, these benefits are based solely on the economic impact within Alaska. If Korea were to import or invest, it may have to bear all the risks related to price, demand, and supply.

While price competitiveness remains low, global LNG supply is rapidly increasing. According to the International Energy Agency (IEA), worldwide LNG production capacity is expected to exceed 600 million tons per year by 2027, a roughly 25% increase compared to 2022. The U.S. mainland has already become the world’s largest LNG exporter, and Qatar plans to expand its production to 126 million tons annually by 2027. Australia, Mozambique, and Canada are also actively expanding their export terminals.

While supply is abundant, the Alaska project has not even broken ground yet. Amid the global trend of falling prices, Alaska LNG, with its higher costs, is likely to be less competitive in terms of price.

Why Korea?

Despite these challenges, Korea’s interest in the project is driven by a complex mix of diplomatic and security strategies. The Ministry of Trade, Industry and Energy recently raised Alaska LNG as an agenda item in high-level trade and energy talks with the United States, and Vice Minister Choi Namho is scheduled to visit Alaska soon for working-level discussions.

Notably, the Alaska LNG project is likely to be formally discussed at the upcoming Korea-U.S. high-level "2+2" (industry and trade ministers) meeting, scheduled for April 24 (local time) in the United States. As the U.S. seeks to expand supply and Korea seeks to diversify its import sources, the issue could be elevated to a matter of strategic energy cooperation between the two countries.

It has also been reported that Korea Gas Corporation recently held a video conference with AGDC, initiating early contact. However, Korea Gas Corporation has stated that "there is insufficient information on the project’s feasibility," and emphasized the need for caution regarding solo investment or long-term purchase commitments.

Some observers suggest that importing Alaska LNG could be used as a card to expand imports from the United States, which may positively influence negotiations to ease reciprocal tariff measures by the U.S. However, there are also concerns that such an approach could end up being a "political decision" with no real economic benefit. An energy industry official commented, "While the Alaska project may have certain effects on the local economy, from Korea’s perspective, there are clear structural risks such as cost burdens, lack of supply stability, and intensifying global supply competition," adding, "It is time for the government to make a strategic choice between being swayed by justification without economic benefit or opting for a practical response."