02/26/1998 10:04 AM House O&G

HB 393 - DEVELOP STRANDED GAS RESOURCES                                        
                                                                               
Number 1069                                                                    
                                                                               
CHAIRMAN HODGINS announced the committee would hear HB 393                     
"An Act relating to contracts with the state establishing payments             
in lieu of other taxes by a qualified sponsor or qualified sponsor             
group for projects to develop stranded gas resources in the state;             
providing for the inclusion in such contracts of terms making                  
certain adjustments regarding royalty value and the timing and                 
notice of the state's right to take royalty in kind or in value                
from such projects; relating to the effect of such contracts on                
municipal taxation; and providing for an effective date."  He                  
stated that he asked his colleagues to present their concerns and              
suggestions regarding the bill.                                                
                                                                               
Number 1080                                                                    
                                                                               
REPRESENTATIVE TERRY MARTIN, stated that he has concerns about this            
issue.  He referred to the history of the issue of financing a gas             
pipeline.  He stated that he had voted against the bill that had               
initiated this because the legislature was giving too much up to               
the executive branch.  He referred to Title 9 of the constitution              
that stated the power of taxation should never be surrendered.  He             
stated that legislators should not force the economy one way or                
another.  He stated that the free market should be allowed to work             
and the legislature should not be in the way.                                  
                                                                               
Number 1282                                                                    
                                                                               
REPRESENTATIVE MARTIN stated that as legislators they should look              
at what is being done with the gas.  He stated that recycling of               
gas is producing more oil resulting in an estimated 2 billion                  
barrels of excess oil received.  He stated that if the pipeline is             
forced the oil will decrease because once gas is taken out the oil             
reserves will be depleted.  He asked how much this will cost the               
state of Alaska in oil royalties.                                              
                                                                               
Number 1401                                                                    
                                                                               
REPRESENTATIVE MARTIN stated that the incentive programs should                
make the participants, "run like mad".  He referred to Section 2,              
"The legislature further intends, however, that any fiscal terms               
agreed to in a contract under this Act in lieu of other taxes will             
fully and fairly compensate the people of the state of Alaska for              
the severance, production, and sale of natural resources belonging             
to the people" and "The value of the infrastructure that may be                
provided by the state to a project, including all the advantages of            
civilized society that may be provided by the state to the sponsors            
of a project."   He stated that clause should cause any investor to            
not participate in the project.  He stated that at the most                    
investors would receive 3 percent of what they invested even with              
the incentive.                                                                 
                                                                               
Number 1581                                                                    
                                                                               
REPRESENTATIVE MARTIN stated that a market should be established               
first and the market should invest in the pipeline if China had                
equity in the pipeline it could be assured that they would uphold              
their contract.  He stated that almost immediately the pipeline                
would be able to put 15 million metric tons on the market which                
will result in a drop in prices.  He stated that we are willing to             
give away gas to get more jobs.                                                
                                                                               
Number 1618                                                                    
                                                                               
REPRESENTATIVE MARTIN referred to the Alaska hire issue and feared             
that there would be a influx of people coming to Alaska to live off            
our welfare system and fill the residency requirement in order to              
work on the pipeline.  He stated that Alaska does not have 5,000               
top quality welders needed for the pipeline.  He stated that                   
Alaskan hire is misleading.  He asked that the reasons motivating              
the project be looked at.                                                      
                                                                               
Number 1946                                                                    
                                                                               
REPRESENTATIVE RAMONA BARNES stated that she was just here to                  
listen in on the committee process and did not intend to comment.              
She then stated that a big concern that she has with the bill is               
that it is called stranded gas legislation instead of the gas                  
pipeline legislation.  She stated that gas-to-liquids subject                  
should not be in this bill as it is a different tax regime.  She               
stated that a taxing regime for using the pipeline that exists is              
different from building a new one.  She asserted that the socio-               
economic aspect of the bill should be deleted and the section                  
dealing with local government needs a lot of work.  She stated that            
there is a section in the bill dealing with the commissioners                  
laying their plans before the Budget and Audit committee, she                  
objected to that and stated that any plan needs to come before the             
entire legislature.                                                            
                                                                               
Number 2157                                                                    
                                                                               
PAM LABOLLE, President, Alaska State Chamber of Commerce, stated               
that she did not have the expertise to speak to any of the details             
of the bill.  She stated that her testimony is in support of the               
concept of bringing the stranded natural gas into production and               
specifically their resolution on the subject urges the legislature             
and the administration to continue to take those steps to provide              
a stable appropriate fiscal and regulatory environment which will              
give the project the best opportunity to become commercially viable            
thus enabling the earliest possible development of the resource.               
                                                                               
Number 2266                                                                    
                                                                               
REPRESENTATIVE RYAN stated that the committee has asked a lot of               
questions to which the answers were not forthcoming because there              
has not been any conceptual engineering done, no one knows what the            
market is and who the investors may be et cetera.  He stated that              
these basic fundamental questions need to be answered.  He                     
reiterated his concerns on the bill and stated that he needs to                
know that we would be operating on a more secure basis.                        
                                                                               
TAPE 98-15, SIDE A                                                             
Number 0013                                                                    
                                                                               
CHAIRMAN HODGINS stated that the committee is trying to get answers            
to those questions.                                                            
                                                                               
Number 0038                                                                    
                                                                               
REPRESENTATIVE BARNES stated that the van Meurs' study went into               
great detail as to what is needed to be done to make the project               
economically feasible and it is known that there is at least 15                
trillion cubic feet of gas at Prudhoe Bay and 6 to 11 estimated                
trillion feet of gas at Point Thompson.  She asserted that it is               
known that 15 million metric tons a year would be needed to be put             
into the system to make the gas line economically feasible.  It is             
necessary in order get the gas into the market place, Alaska has to            
be in the market place by 2005.  She stated that some of the                   
purchasers are interested in holding an equity position in the                 
pipeline such as China Petroleum and would purchase 25 percent of              
the gas that Alaska would put into the market place.  She stated               
that Alaska is competing with the world market and the several gas             
projects that are scheduled to come on line.  If they get into the             
market before Alaska does, our gas "will sit up there in what they             
call a stranded gas hold for eternity I suspect."                              
                                                                               
Number 0290                                                                    
                                                                               
REPRESENTATIVE KEMPLEN stated that this proposed legislation is                
establishing a framework by which the Administration and the                   
private sector can move forward with this complex project.  He                 
pointed out that the legislation lays out the process for how the              
project is to be done and identifies the key issues that needs to              
be addressed by the sponsor group.  He stated that it gives                    
permission for the Administration to negotiate with a qualified                
sponsor group.  He stated that it will take a few years before                 
there is a contract presented to the legislature.  He stated that              
it is important to move forward with this bill and to make sure the            
project does happen.                                                           
                                                                               
Number 0456                                                                    
                                                                               
REPRESENTATIVE ROKEBERG advised everyone to read the memorandum by             
the Honorable Kay Brown.  He stated that area of interest is if                
there are going to be any equity issues as it relates to the                   
affected municipalities of the state, a decision on what is to be              
done on this needs to be made.  He stated that the financing                   
mechanisms need to be looked at, as it is key to this project.  He             
suggested that the bill may need to be sent to a subcommittee                  
because there will not be any progress until the committee starts              
making its changes.                                                            
                                                                               
Number 0622                                                                    
                                                                               
CHAIRMAN HODGINS stated that he agreed and would consider a                    
subcommittee.                                                                  
                                                                               
Number 0678                                                                    
                                                                               
REPRESENTATIVE BARNES referred to Representative Martin's statement            
raising the issue of gas re-injection to raise oil.  She stated                
that should not be an issue because if Point Thompson was developed            
first, we would not need any of the gas in Prudhoe Bay but beyond              
that, there is a tremendous amount of excess gas that is being put             
back into the holds.  She addressed the question of equity interest            
and if taxes are deferred in the up-front portion of the gas line              
to recoup at the back-end, that is an equity interest.  She stated             
that would be Alaska's contribution to making the project                      
financially feasible.                                                          
                                                                               
Number 0783                                                                    
                                                                               
CHAIRMAN HODGINS stated that he would talk with Representative                 
Martin to inform him on past meetings.  He stated that it is a big             
project for Alaska and a lot of work regarding the enabling                    
legislation will be done in this committee.