President Donald Trump announced on Sept. 30 local time that South Korea's investment in the United States would go toward a gas-fired power plant in Texas, eight large nuclear reactors and an Alaska liquefied natural gas project. Commerce Secretary Howard Lutnick put the scale of investment in the Alaska LNG project at more than $50 billion. That means most of the intended use of the $200 billion remaining from the roughly $350 billion U.S. investment commitment — after excluding $150 billion for shipbuilding cooperation — has now taken shape. The problem is the Alaska LNG project. Even though the Korean government had left it as a matter for "further review," the United States treated the investment as a done deal and announced it unilaterally. Without any agreement between the two countries or any verification of commercial viability, Washington pressured an ally into pushing ahead with a high-risk mega-project.
The Alaska LNG project involves transporting natural gas produced at northern gas fields through a pipeline of about 1,300 kilometers to the south, where it would be liquefied for export. But laying a pipeline through extreme cold and permafrost carries a high risk of cost overruns and schedule delays. If the increased construction costs are passed on to the sale price, competitiveness suffers; if they are not, investment returns inevitably shrink. That is why even energy giants such as Exxon Mobil pulled out of related projects one after another in 2017.
What is more, the White House announcement that day was attended by a large contingent of U.S. figures, including Republican politicians from Alaska, with no Korean officials present. With midterm elections coming in November, Trump effectively used the investment in the United States for political gain. By contrast, Industry and Trade Minister Kim Jung-kwan, who has led the investment negotiations with Washington, held a news conference on the 1st and said, "Korea and the United States share an understanding that the Alaska project will not proceed if it lacks commercial rationality," in effect denying that the investment had been finalized. The government must insist on thorough verification of commercial viability in its negotiations with the United States.
The investment in the United States is a momentous decision that pours in the equivalent of 58% of South Korea's budget for next year. The government says it has set up a "risk pooling" mechanism that would adjust returns from other projects to shore up the stability of principal and interest recovery if some projects fall short of expectations, but that is no cause for comfort. The Alaska LNG project requires several layers of safeguards, including a ceiling on construction costs and a minimum return guarantee. What the government must protect is not the investment amount or timeline presented by the United States but the national interest. It must scrutinize "commercial rationality," the guiding principle of the investment in the United States, to the very end.
