Alaska Aims to Amp Up Natural Gas Exports to Japan

With nuclear power waning, Japan needs another fuel source. Is natural gas from Alaska's North Slope the answer?

In this 2012 photo provided by ConocoPhillips Alaska Inc., a drill rig at Prudhoe Bay on Alaska’s North Slope is seen. This rig is testing a method for extracting methane from methane hydrate.

A ConocoPhillip drill rig located at Prudhoe Bay on Alaska’s North Slope is seen in 2012.

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Republican Alaska Sen. Lisa Murkowski will travel to Japan to discuss natural gas exports and nuclear energy with top government officials this week as the state looks at other markets for its huge supply of natural gas, a spokesman said Monday.

With the recent discovery of massive stores of shale gas in the lower 48 states and the consequent boom in production, the market in the U.S. for Alaskan natural gas has effectively been eliminated. The continent-wide glut has also depressed natural gas prices to the lowest levels in a decade.

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But across the Pacific Ocean, a potentially lucrative market for Alaskan natural gas exists. Almost two years after the disaster at Fukushima Daiichi shuttered the island nation's plans for the expansion of nuclear power, all but two of Japan's reactors are offline, making the country's need for alternative fuels greater than ever.

"They really have no other resource," says Robert Dillon, a spokesman for Murkowski. "There's interest [in Alaskan natural gas] but [the infrastructure isn't] built. Alaska is closer to Japan than the lower 48 states, so it makes sense to ship Alaska's gas there."

Alaska has a long history of exporting small amounts of natural gas to Japan, but the talks taking place this week will look at a bigger project, Dillon says, adding that Murkowski's visit will focus on big-picture strategy.

"We're just in the early stages of trying to create a market," he says.

But despite Japan's need to replace the waning output of its nuclear power plants, many obstacles remain. Even given the relatively high price natural gas sells for in Japan, the costs involved in moving the product to market take deep chunks out of the profit margin, making the enterprise less attractive to producers.

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"Alaska is in a strange place," says Dan Kish, senior vice president of the Institute for Energy Research. "It's energy rich and yet the stuff is located so far from markets that the cost of building a means to get it to markets makes it very hard to do."

For starters, it would cost about $65 billion to build a 800-mile pipeline from Alaska's North Slope to a more accessible liquefaction facility further south, Kish says. Another $10 billion would be needed to retrofit import terminals to export gas, with new terminals costing about $20 billion. The ships required to transport the liquefied natural gas to demand centers in Japan and Korea—the world's no. 2 importer of natural gas—cost another $200 million per ship.

The timeline is an issue, too. Even if Alaska approved a project to move forward with exporting more natural gas to Japan, building the infrastructure would take eight to 10 years to complete, Dillon estimates.

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"Japan wants to know what they're going to do in the meantime," he says.

Taxes could also hinder Alaska's ability to produce more natural gas for export. According to Kish, Alaska has one of the highest tax environments for oil and gas ventures, which makes new investment increasingly difficult to attract, especially when natural gas prices are so low and the input costs for infrastructure are so high.

Alaska relies on oil for about 85 percent of its revenue, Kish says, but given the opportunity that state has to capitalize on investment to produce and export more natural gas, policy makers could be strangling the golden goose with the current tax structure.

"If the state wants to make some money off that natural gas, they're going to have to do something to make it attractive [for companies to invest]," Kish says.

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Despite the bevy of obstacles, proponents say exporting natural gas would not only give a significant boost to Alaska's economy, it would also juice the manufacturing and construction industries that would supply the materials and labor for the massive project.

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