An article posted this week in Natural Gas Asia  goes a long way toward explaining why any Alaska LNG project is challenged.

In a brief story headlined “Kogas, Cheniere Sign LNG Deal,” Natural Gas Asia reports that “South Korea’s Kogas and Cheniere Energy have signed a 20 year deal in which [Cheniere] will supply LNG from [its] Sabine Pass export plant in Louisiana.  Kogas has agreed to purchase approximately 3.5 million tonnes per annum of LNG [roughly 500 MMcf/d] upon the commencement of train three operations. Deliveries are expected to occur as early as 2017. ”

Why is it economic to export US Gulf Coast LNG to Korea?   A large part of the reason  is the projected 2014 completion of the $5.25 Billion Panama Canal expansion project. With the expansion, today’s modern LNG tankers will be able to use the Canal route to reach the Pacific Rim, significantly cutting transit costs, times and inefficiency which currently impeded the reach of such supplies (for a good discussion of that topic see “Panama opens Asia to US LNG exports,” Petroleum Economist (Nov. 2, 2011)).

What does that have to do with Alaska LNG?  By efficiently linking substantially lower priced L48 US gas supplies with the (currently) higher priced Pacific Rim markets, the Panama Canal expansion is anticipated to have a significant (downward) impact on Pacific Rim LNG prices.  Indeed, according to the Petroleum Economist analysis, the completion of the Panama Canal expansion project is expected to lower transit costs to the point that US Gulf Coast LNG poses a direct competitive threat even to already commenced Australian LNG projects, not to mention the much more distant (in time) Alaska LNG project.

The irony?  Having already undermined the economics of the proposed L48 Alaska gas pipeline, the L48 US shale gas revolution now appears well on its way  to undermining Alaska’s expansion also into the Pacific Rim LNG market.

The take away?  Alaska needs to concentrate even more on coming to grips with the current level of oil investment.  The “gas cavalry,” which some continue to hypothesize will yet save Alaska’s economy, is unlikely to be riding over the hill anytime soon.