Legislature(2003 - 2004)
01/28/2004 03:35 PM Senate RES
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SB 247-AK NATURAL GAS DEV. AUTHORITY INITIATIVE
CHAIR SCOTT OGAN called the Senate Resources Standing Committee
meeting to order at 3:35 p.m. Present were Senators Stevens,
Seekins, Dyson, Elton and Chair Ogan. Senators Wagoner and
Lincoln were excused. The first order of business to come before
the committee was SB 247, sponsored by Senator Wagoner and
discussed the previous week.
MR. BILL POPP, Oil and Gas Liaison, Kenai Peninsula Borough,
supported SB 247 and said, "We believe there should be a
component of due diligence in the process if the Alaska Natural
Gas Development Authority Project does, in fact, go forward."
He explained the Cook Inlet Basin accounts for 85 percent of the
power generated from natural gas within the Railbelt grid, but
proven reserves are estimated to be enough for a 10-year supply.
Additional potential reserves are questionable in terms of
bringing them to market at this point. The Borough feels that
Cook Inlet should be a component of any project, at least during
the analysis, to see if that route offers any economies of sale
that reduce the overall project cost "... because that's what
this project will be all about...."
CHAIR OGAN asked why the Assembly passed a resolution supporting
a buyback of gas leases in the Kenai Peninsula when everyone
knows about the gas reserves problem. Supporting SB 247 is
inconsistent with that position.
MR. POPP replied that a split vote of the Assembly requested
buyback of 22,000 acres of state leased properties below Anchor
Point in the Homer Bench area. The mayor chose not to veto the
resolution and let it go forward based on the fact that there
are other ways to resolve the issue. Whether the buyback happens
is another policy that state government would have to make. The
administration strongly supports new development of gas
resources in the Kenai Peninsula Borough wherever they may be
and the south peninsula is a key area.
SENATOR SEEKINS said he was confused by that vote as well and he
still isn't clear about what the Kenai Borough Assembly wants
the legislature to do. He asked if a spur line from Glennallen
to the Southcentral gas distribution grid (page 1, lines 7 - 8)
would satisfy demand on the Kenai Peninsula for both residential
and commercial uses considering the current decline in existing
fields.
MR. POPP replied that the answer is complex and the spur line in
the greater scheme of Proposition 3 is a sideshow. The $12
billion estimate is strictly for the line from the North Slope
to Valdez. No cost analysis has been done on the 160 - 190 mile
spur line from Glennallen to the Cook Inlet Basin. If the
construction from the North Slope to Valdez is successfully
completed in 5 to 7 years and on budget, the spur line may be
another 2 to 4 years behind that, because of the issues of
manpower and simultaneous construction. He did not know what
need would be left by the time the spur line was completed.
The Kenai Borough already has an industrial base that relies on
plentiful supplies of natural gas, which is now over 120 BCF
annually (between the Agrium nitrogen plant and the LNG export
plant). Also, eliminating hundreds of miles of pipe would drop
the cost of the project. Expanding an existing LNG plant, which
can be done according to Conoco Phillips would eliminate the
need for a new plant completely. Us of existing capacity, dock
and support facilities and workforce can also reduce a project's
cost. That's why the borough thinks this route should be looked
at before a final route is chosen.
SENATOR SEEKINS related that Senator Wagoner had graphically
explained to the committee how, eventually, demand for
residential gas in the Anchorage Bowl would bring the supply for
commercial prospects to zero without some additional gas supply.
He asked Mr. Popp if he agreed.
MR. POPP replied that a pattern of growth is taking place in the
gas heating utility market that is showing that market will be
taking a bigger and bigger bite out of the overall supply
situation within the Cook Inlet Basin. High demand days will
necessitate utilities shutting down supplies.
That's becoming more and more pronounced with each
passing year with our current deliverability and
supply situation in the Cook Inlet Basin.
The ongoing exploration activities will not solve problems for
the 15 - 25 year horizon and longer term supply needs will have
to be found elsewhere.
SENATOR ELTON said this committee has talked about funding for
ANGDA and Chair Ogan's bill, which expands the scope of ANGDA to
the highway route and pushes back the date for the report by six
months to January 1, 2005. He said although that proposal makes
sense, the appropriation is for $2.15 million to accomplish the
existing scope of work. He asked if the scope is expanded and
the fiscal note as well, would the borough consider providing
matching funds.
MR. POPP replied that he would have to ask the Assembly and
Mayor. He noted that between $12 million and $14 million worth
of industry research has been performed on the route that is
being added. It is available - as is the Yukon Pacific research
- for a price, probably commensurate with the amount previously
spent. If $2.15 million is sufficient to gain access to Yukon
Pacific's research about the key pieces the Valdez route
requires, he thought a proportional amount may be required for
the research generated by the previous pipeline task force. The
task force's research was based on the premise that industry
could not do it at a reasonable rate of return.
CHAIR OGAN recalled that over $100 million was spent for design
and permitting, and expressed concern that a route change will
require a new EIS, engineering studies and permits. He didn't
know why BP decided that route wasn't feasible and said,
although he would love to see it happen, he didn't really feel
that it would.
MR. POPP understood his concerns and added that any number of
permits are still outstanding for the Valdez terminus, itself.
Seven hundred million metric tons of rock must be removed to
create a flat site and a barge operation must be permitted.
Industry officials indicated that they believe the Railbelt
route is permittable. Probably an EIS would have to be done, but
that issue would arise with the Valdez terminus, as well. Those
issues must be balanced and a fair comparison of routes should
be made.
CHAIR OGAN asked if Agrium and the LNG plant currently use 60
BCF each per year.
MR. POPP replied that those are round numbers; the LNG plant
uses approximately 70 BCF per year depending on temperature
conditions and other variables. At peak efficiency and full
capacity, Agrium could use 55 BCF per year.
CHAIR OGAN said the Valdez proposal is for about 530 BCF per
year for LNG. He asked if a new plant to process that much more
gas would have to be built.
MR. POPP replied that the existing plant is operating at
capacity now, but the existing footprint and dock facilities can
be expanded for larger capacity without the removal of anything
but trees and overburden. If a new plant is necessary, a number
of sites within the Cook Inlet Basin are readily buildable.
SENATOR SEEKINS asked if the Valdez line were built, whether the
Anchorage Bowl would depend on the deliquefication plant from
Valdez for natural gas?
MR. POPP replied that is a good question. The industrial base
would be the first to go, because home utilities would take
priority over industrial uses. Hundreds of jobs would be lost.
Gas could be imported to Anchorage, maybe even from a foreign
source.
CHAIR OGAN asked Mr. Popp to relay to the Assembly his and
Senator Seekins' concerns about its mixed messages. Legislators
want a consistent message for or against gas development.
MR. POPP said that the Assembly might be entertaining the
Chinese national gas buyer who is coming to Alaska in a couple
of weeks along with the vice president of the Korean National
Gas Company.
CHAIR OGAN thanked him for his testimony and held SB 247 for
further work.
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