Legislature(2007 - 2008)TERRY MILLER GYM
06/10/2008 10:00 AM Senate SENATE SPECIAL COMMITTEE ON ENERGY
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| SB3001|| HB3001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB3001 | TELECONFERENCED | |
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HB3001-APPROVING AGIA LICENSE
Before beginning the hearing CHAIR HUGGINS addressed some
administrative items before the body.
10:11:01 AM
SENATOR STEDMAN asked if the May 25, 2005 press release
referring to the Federal Energy Regulatory Committee (FERC)
should be read into the record for the benefit of those not
present.
CHAIR HUGGINS replied it could be done later in the day and the
document would be posted to the website.
10:11:34 AM
CHAIR HUGGINS reviewed agenda changes for the day. He asked
Commissioner Galvin to introduce the presenters.
10:12:20 AM
COMMISSIONER PATRICK GALVIN, Department of Revenue, said after
yesterday's economic analysis presentation it was brought to his
attention it was difficult to understand some of the liquefied
natural gas (LNG) comparisons without having some explanation of
how the costs were built up and the schedule crafted. To
address those questions, Bill Sparger who headed up the
technical team and Keith Dobson from Westney Consulting, the
expert on the issues of costing, were present.
Before their presentation Commissioner Galvin gave some
background on the selection of LNG cases to be evaluated. He
said when the decision was made to analyze LNG in addition to
the TransCanada Alaska (TC) application, a choice needed to be
made about what would be analyzed. Four different projects were
submitted during the application process. One came from Little
Susitna in connection with Sinopec. That proposal was a very
large capacity line with the objective of buying the gas at the
North Slope, shipping it through a 4.5 bcf/day line, and then
shipping to China. The Port Authority's (PA) initial
application was a combination of two different projects. They
subsequently significantly amended it to a 2.7 bcf/day project.
COMMISSIONER GALVIN said when making comparisons the Department
was not trying to develop any particular project. The objective
was to frame the economics of LNG to provide a comparison to the
TC project. Since there was no particular project a range was
established and they looked at the applications that came in for
information on what that potential picture would look like.
10:16:00 AM
COMMISSIONER GALVIN said one applicant proposal of 4.5 bcf/day
became one side of the potential range. That range point
provided a good comparison for the TC project because of the
similar initial capacity terms. Similarly, he said the Port
Authority's (PA) smaller capacity proposal provided a way to
look at the potential to ramp up over time. The Department
wanted to look at that type of project development plan as well
to compare the economics and likelihood of success criteria.
COMMISSIONER GALVIN explained the technical team was asked,
using those parameters and data obtained in applications to
provide economic models for LNG projects using the same
assumptions that they used for the TC analysis. He said the
presentations made today will be the results of that analysis.
The Department's goal was to provide a fair comparison of
potential LNG projects without singling out one in particular.
10:18:01 AM
BILL SPARGER, Energy Project Consultants, LLC., referring to
page 2 of the document "LNG Project Costs/Schedule (June 9,
2008)" said the three cases Commissioner Galvin mentioned are
one similar to the PA application, one is the TC Y-line option,
and one is similar to the Little Susitna application. He said
it was important to note in all three cases, assumptions were
made absent any hard information, and that all of the gas went
to the end of the pipe. This was important in cases one and
three because both of the applicants assume five hundred million
came off somewhere. Case one cannot be directly compared to the
PA numbers because it is actually a larger LNG project.
MR. SPARGER said the results of the LNG comparative analysis
show capital costs are higher. He referred to the 4.5 bcf/day
LNG project as an apples to apples comparison to the TC project.
The capital costs are higher driven by the cost of the
liquefaction plant which does not exist in the TC application.
10:20:00 AM
MR. SPARGER, referring to page 3 of the document, said the
schedules are similar and restated that "we are not using
anyone's cost or anyone's schedule" but developed a schedule of
around ten years. The ten year time period is within four to
five months of the PA application and two to three years faster
than Little Susitna's application.
10:20:55 AM
MR. SPARGER said a later start date was assumed for LNG. The
reason was if TC were awarded a license they could start work
immediately. This was not the case for the LNG project as there
is no applicant.
10:21:26 AM
MR. SPARGER said the addition of the liquefaction plant required
a higher cost and schedule risk. The pipeline, even though cut
roughly in half, is no more complex or risky than the all Alaska
pipeline. The development phase was shortened slightly by taking
out the Canadian regulatory and personations risks. He said the
Gas Treatment Plant (GTP) and pipeline to Delta Junction were
exactly the same regardless of where the gas goes when it gets
to Delta Junction. Additionally, the miscellaneous development
phases were factored from the TC application with the exception
of the Canadian regulatory issue.
MR. SPARGER noted the reports contain cost ranging curves for
all of the sub-projects, though will not talk about development
GTP or a pipeline to Delta Junction since it was exactly the
same.
10:22:54 AM
MR. SPARGER, referring to page five of the document, said in his
opinion the terrain from Delta Junction to the Canadian border
is more conducive to pipelines. Also, the Trans Alaska Pipeline
System (TAPS) pipeline drives up complexity and costs going to
Valdez. Additionally, Thompson Pass and Keystone Canyon, have
huge amounts of snow and rain. On a dollar per diameter inch
mile basis the costs are a little bit higher. The main driver
is the LNG plant itself.
10:24:07 AM
KEITH DODSON, Westney Consulting Group, said he has forty years
experience in large capital projects around the world and has
been involved in LNG projects for thirty-five years. He was in
Alaska during the LNG boom in the late 1970's and was personally
responsible for the design and construction of the world's
largest LNG facilities.
MR. DODSON stated no one knows exactly what an LNG to Valdez
would cost in the time frame discussed. What is known is the
range of costs of today's plants. Since the first quarter of
2005 costs of LNG facilities have tripled or quadrupled. A
third of the cost increase is due to the inflation of
commodities and other components such as steel and copper. A
lot of components for LNG facilities are not in dollars so the
weakness of the dollar has a big effect on some of the
multipliers. Another element is that contractors in the early
days of LNG construction did not charge risk premiums and lost
money. Current risk premiums for contractors and vendors are
exceptional. He said these three factors have combined to
create a wide array of outcomes in LNG projects.
10:26:28 AM
Mr. DODSON said page 6 of the document "LNG Project
Costs/Schedule (June 9, 2008)" was a large 4.5 bcf case. The
curve plots the Westney database and two other public sources.
One is a Petroleum Finance Corporation (PFC) study done for the
State on a 2005 PA submittal. The other is the Norwegian Snovit
LNG project. He said he understands there are issues with
Snovit's Arctic conditions, but he believes the issues are
actually with the marketplace. Snovit was eliminated from
consideration because of unexplainable factors. For this
analysis his firm looked for a range of costs for LNG facilities
that they have extensive knowledge about. Because of their
knowledge of these projects they were able to adjust them for a
Valdez location.
10:28:18 AM
MR. DODSON stated there are no large negatives associated with a
LNG facility located in Valdez. Valdez has some downsides but
also upsides because of the temperature of the water. LNG
liquefaction is a cooling process so the efficiencies are
actually increased with cooler water. In general, Valdez is not
a bad site compared to most around the world.
MR. DODSON said the comparison facilities fall into two groups.
Many in the lower quartile have schedule issues. Nearly every
facility in the completion phase is one year behind, adding to
costs. A number of LNG projects around the world are done on a
lump sum performance guaranteed basis, principally by Japanese
contractors. For example the Sakhalin project had huge cost
overruns, none of which were associated with the LNG facility
because Shell had a lump sum turnkey price from Chiota
Corporation.
10:29:50 AM
MR. DODSON performed a simulation of the outcome to see what the
predictive range would be in the middle. This was basically
what was used in the net present value (NPV) analysis. He said
"E" on the chart on page six is where the two applications fell
out. The cost in the middle is only about 25 percent higher than
the two applicants and about 50 percent below the top of the
range. The applications are consistent with current
information; on the lower end, but not the lowest.
10:30:49 AM
MR. SPARGER continued to page 7 (integrated project costs) of
the document "LNG Project Costs/Schedule (June 9, 2008)." He
said the probability 50/50 point is about $43 billion which is
about $11 billion dollars more than the for the TC base case.
MR. SPARGER said the years referred to on page 8 of "LNG Project
Costs and Schedule (June 9, 2008)" are not really relevant; the
duration was the important point. The start date would be
whenever an LNG project would start commercially.
10:32:26 AM
MR. SPARGER said the chart on page 9 of the document shows the
relationship between all the components. He said it was
important to remember that gas cannot flow until all three of
the major components, the GTP, the pipeline, and the LNG, are
complete and ready for service. The "schedule" refers to the
overall project schedule including the development phase. The
LNG and GTP develop in steps, called "trains," so staggered
steps are seen as the gas comes on stream.
10:33:15 AM
MR. SPARGER, referring to page 10 of "LNG Project Costs/Schedule
(June 9, 2008)" said the schedule for the Y-line was different
because it has a different set of assumptions. One assumption is
negotiations are complete and there is a shorter development
phase and basically the same construction phase. He believes a
Y-line can be done in seven to eight years as opposed to over
ten years for the larger project.
10:34:50 AM
SENATOR WAGONER asked for an explanation of the difference in
the percentage of gas it will take to operate the LNG project
versus the pipeline project.
10:35:21 AM
MR. DODSON replied LNG liquefaction was a process of compression
and cooling. There is some shrinkage of material that is used
for refrigerant.
10:35:47 AM
MR. SPARGER said GTP was a huge percentage of the fuel in the
overall project. The pipeline is much more efficient from a
fuel standpoint. The LNG plant is very similar to the GTP. The
fuel usage shrink is close to 10 percent for both facilities.
The pipeline is somewhere around 2 percent.
SENATOR WAGONER clarified that about 7 percent more will be lost
with the LNG project.
MR. SPARGER replied yes.
10:36:36 AM
SENATOR DYSON said he believes it unlikely that Congress would
be open to an LNG project that shipped anywhere but to North
America and thought that was evident from visits from the
Federal Energy Regulatory Commission (FERC) members. He asked
if that was a fair assessment, and about the ability of West
Coast receiving facilities to handle the volume that a LNG plant
in Alaska might produce.
10:37:16 AM
MR. DODSON replied there are two issues with the United States
market. First, the heat value in the gas itself has to be
lowered to fit the U.S. pipeline system. The gas to the Far
East is about 1,033 btu/cubic foot versus the U.S. btu of 1,050.
The heat content of the gas has to be reduced either at the
liquefaction site or the re-gasification site and there are
consequences to both. Shipping is required in Jones Act
carriers which are far smaller than the carriers that go to the
Far East. He said probably the largest issue was that the West
Coast had plenty of gas. The one terminal currently operating
ships to Arizona and New Mexico because there is no need in
California.
10:39:07 AM
SENATOR DYSON said his question had to do with whether gas from
Alaska would be allowed to be exported in the short term. When
the senator worked for British Petroleum (BP) during the 1970's,
any talk about Prudhoe oil going oversees caused the nation to
get its "collective hair on fire." He believes in the current
political climate Alaska's gas going oversees would not be
allowed even if it made economic sense.
COMMISSIONER GALVIN responded the consultants did not
participate in the Washington, D.C. political dialogue so are
not in a position to comment on that question.
10:40:02 AM
CHAIR HUGGINS asked if they are skeptical of a Y-line in a large
capacity LNG project.
MR. DODSON answered yes. LNG projects around the world do not
get built in large capacity, but are started in one "train."
None of the last ten projects around the world are over ten
million annual tons because it is very difficult to get
contracts for the off-take. It is much easier to get off-take
for five to eight million annual tons which is the economical
capacity of one train. The focus is normally on getting one
train then going on to multiple units. He said he was not a
market expert but selling more than that would be challenging.
CHAIR HUGGINS asked for a synopsis of how LNG is evolving around
the world.
MR. DODSON said a big expansion in capacity has occurred. The
demand for LNG facilities outran the engineering capacity, and
outran the ability to produce compressors and exchangers and
other components. It is now outrunning the world's labor
supply. LNG facilities are slowing down as a result of cost
shock. But he believes LNG will go forward because there are
many places in the world where LNG makes sense as a fuel. It may
move slower and will go through peaks and valleys, but he
believes it is here to stay. Investment in re-gas terminals and
LNG facilities would not be moving forward if there was not
evidence of its future.
10:43:11 AM
CHAIR HUGGINS asked if "sticker shock" was unique to LNG.
MR. DODSON answered yes. Cambridge Energy Research Associates,
the industry body for price indexes, says that all oil and gas
facilities from the first quarter of 2005 to the present are
about two times higher. For LNG, costs can be three to four
times higher, a significant increase over other oil and gas
facilities. This is demand pricing as opposed to inflation.
10:43:50 AM
MR. SPARGER added all facilities had gone up, but react
differently depending on what market is driving the prices.
Pipelines are more effected by the North American market,
whereas LNG plants or GTPs are driven more by the world market.
In the total cost estimation they used 4 percent per year for
the capital as a basis. Though it may seem low compared to the
last three or four years, the industry never sustains price
escalations for long periods of time. Forty years of price
escalation data for industrial type facilities show the peaks
are always followed by a fallback.
10:45:11 AM
SENATOR THERRIAULT asked about the technical possibility of high
grading a gas stream from the tank off-point to tide water so
more of the gas to liquids (GTL) could be processed into a
higher grade finished product.
10:45:47 AM
MR. DODSON replied a natural gas liquids (NGL) extraction
facility could take all the liquids out and is not technically
challenging.
10:46:03 AM
REPRESENTATIVE GARA said he had heard various numbers but knows
the TC line is not 4.5 and wonders how that affects the
comparative risk and benefit. He also asked if shipping costs
were being factored into the LNG plant costs.
MR. SPARGER answered shipping costs are not included in capital
cost figures, but as an operating expense. Shipping costs were
included in the analysis.
REPRESENTATIVE GARA asked about the relevancy of shipping costs
when looking at comparative costs and risks for a LNG plant.
10:47:41 AM
SCOTT SMITH, Black and Veatch, replied there is a capital
expense getting the gas to Valdez and an incremental shipping
cost. In the analysis a capital estimate was made to get the
gas to Valdez. They then developed a tariff and added an
additional cost that incorporated the shipping cost, moving the
gas from Valdez to Asia. Shipping cost was estimated by Gas
Strategies at approximately a dollar in 2020. It was included
as an additional fee paid after incorporating the capital.
10:48:24 AM
REPRESENTATIVE GARA asked if what was presented previously is
impacted by the different pipeline sizes.
10:48:32 AM
COMMISSIONER GALVIN replied that the analysis shown was LNG at
the highest NPV to the State and to the producers. The goal was
to show a range. He said a later presentation will show side by
side comparisons between various pipe sizes and the conclusions
were presented in the report.
CHAIR HUGGINS reminded all participants to identify themselves
for the record.
10:50:32 AM
SENATOR WIELECHOWSKI said he appreciated the analysis that had
been done. He is convinced the line to Canada is more economic
than the line to Valdez, but he is concerned about the risks.
When he compares the two projects many red flags such as first
nation, treaty, and right of way issues surface. These issues
may not emerge with a LNG. He also sees problems with the
Canadian regulatory system and environmental lawsuits which have
been dealt with in Alaska but not with the Canadians. Another
unknown is if there is enough gas for the off-take to support
4.5 bcf. There is enough for a LNG line. The LNG project seems
safer because it has less relative risk even though it may not
bring as much money to the State. He thinks this is something
to think about when analyzing the relative risk.
COMMISSIONER GALVIN responded that Senator Wielechowski had hit
upon the whole design of the analysis which was weighing net
present value, the economic value, and ranking by likelihood of
success. What has been presented thus far is the economic side.
A likelihood of success analysis that is just as complex has not
been presented yet. Chapter three of the findings report
contains an analysis of the TC application. Commissioner Galvin
asked the committee to report back to him if they see areas in
the analysis that need further attention.
10:55:19 AM
CHAIR HUGGINS said Senator Wielechowski brought up a good point.
He also believes it would be valuable for the presenters to
identify their process, timeline, and critical decision points
as they continue through the presentation.
10:55:59 AM
REPRESENTATIVE EDGMON asked if any analysis had been done on
off-take points that might be used to get gas to rural Alaska.
COMMISSIONER GALVIN said analysis of in-state gas demand and
potential projects thus far had been done primarily through the
Alaska Natural Gas Development Authority (ANGDA). They are at
step one of what will be a multi-step process of analyzing and
identifying opportunities for Alaskans.
10:58:47 AM
SENATOR STEDMAN asked what discount factor and modifications of
that factor were used to adjust for the risk exposure of LNG.
10:59:00 AM
MR. SMITH answered they used the same discount factor of 5
percent.
SENATOR STEDMAN asked how decision makers are to choose options
if there is no risk adjustment in the discount rate.
MR. SMITH replied there are different ways to think about the
discount rate. Exposure to Asian prices was examined. They
also looked at ranges of costs, schedules, interest rates, and
escalation factors. All those factors were explored in
different scenarios to understand how the NPV would vary.
11:00:46 AM
COMMISSIONER GALVIN added the discount rate used was an
indication of the value of the cash flow coming off the project.
In order to have a true comparison of the cash flows that would
be generated by a LNG project versus an overland project, the
same discount rate must be used.
SENATOR STEDMAN said he did not agree with Commissioner Galvin's
answer and the discount rate should have some component parts
added for the producers, for the midstream participants, and for
the State in order to help select the best project for the
State.
11:02:42 AM
COMMISSIONER GALVIN replied the analyses showed the different
discount rates of the cash flows. He added it is simple to show
the cash flows for the LNG projects at any discount rate and
compare those to an overland project at any discount rate. The
statute required a NPV analysis with five different discount
rates which are in the report and subject to comparison. He
said he is willing to discuss another discount rate but does not
believe different rates for an overland project and LNG is a
fair comparison.
11:03:48 AM
SENATOR STEDMAN said there is a large amount of data to review
in the reports and asked if there was a section covering
discount rates and what was considered in some of the risk
factors.
MR. SMITH replied they used different discount rates for the
producers and the State, than for the TC/LNG project developer.
They elected to keep the rates consistent between scenarios to
minimize the comparative impacts. Instead they looked at
scenario analysis to highlight the different risks of the
different projects. The discount rates ranged from 2 to 8
percent so they used 5 percent as the base. In the analysis
they started with the cash flows generated by the project, which
are significant whether it be a LNG or an overland route, and
then looked at what the implications are associated with
discounting those cash flows to current dollars. The next step
was understanding the implications of different discount rates.
He believes it is easier to understand and highlight the risk of
different projects by looking at the factors that lead to a
higher or lower cash flow versus trying to embed the risk in the
discount rate itself. That was the process used to perform the
analysis.
11:06:28 AM
SENATOR STEDMAN said he had a hard time understanding how the
same discount rate applied under substantially different risk
parameters. There are different risk components and capital
requirements in LNG. He agreed with the conclusion that LNG was
something radically different but found it difficult to compare
the cash flow benefits and risk of the two projects.
11:08:06 AM
COMMISSIONER GALVIN said one method of financial analysis was to
use a discount rate as an indication of risk tolerance or
expectation. In this analysis a different method was used
because there are so many different risk factors involved.
Rather than use the discount rate to analyze the comparative
risks the cash flow was risked. The analysis shows the
potential range of the ultimate cash flow and then discounts it
at the same rate between the projects so the relative risks of
each factor between the two projects can be compared.
11:09:53 AM
REPRESENTATIVE NEUMAN asked if he was correctly interpreting
that the main pipeline would be running in 2018 and LNG exports
would be going out of Valdez in 2022 or 2023.
MR. SPARGER answered the years indicated on the chart did not
matter much because it depends on when the expansion starts or
when the LNG option of the Y-line starts. It could start as
early as 2012, but the main project has to be far along in the
project development phase before the LNG could start. A start
date prior to 2012 is probably not feasible.
REPRESENTATIVE NEUMAN said he was glad to hear that because that
would put the LNG plant out twelve to thirteen years. He
remembered a PA proposal that said a line could be up and
running in six to seven years and hopes a plan will continue to
move forward.
MR. SPARGER replied he did not have any information that showed
six to seven years. Their analysis says a stand alone LNG
project as proposed by the PA is ten years including the
development phase. The development phase is a lengthy process
that requires making the business deal, doing the open season,
and all the regulatory approvals. In the TC schedule, it takes
five and half years. The PA schedule was shortened somewhat but
not three or four years.
11:14:11 AM
REPRESENTATIVE NEUMAN asked if a spur line to Valdez would be a
competing project.
COMMISSIONER GALVIN replied a spur line off the TC line would
not compete because it would be coming off of the main line. The
question is if the TC project would be set aside and attention
devoted to a LNG project. Based on the analysis he does not
believe that is in the State's interest. The start date of the
expansion could be moved back four years and end up with the Y-
line in place at the same time, with first gas coming in the
same time as the overland project. He said it was a matter of
being ready when the opportunity comes about.
REPRESENTATIVE NEUMAN was happy to hear that the projects would
not compete.
11:16:00 AM
REPRESENTATIVE NEUMAN asked if there was any way to get gas from
the North Slope to Alaskans any sooner.
COMMISSIONER GALVIN replied that was related to the idea of a
bullet line. With a smaller line there are fewer GTP timing
issues and smaller pipe can be put in place quicker. The
decision is about how the State wants to assist in the economics
by providing additional money that would not have to be recouped
through the rate payer.
CHAIR HUGGINS asked if it was still supportable, based on the
assumptions of volume available, if it was done concurrently.
COMMISSIONER GALVIN answered what was analyzed was on the main
line coming off the existing reserves. The main line can be
built with the known reserves. Expanding to 2 bcf/day will
require finding more reserves between now and then. Different
opinions exist on the likelihood of finding more reserves.
Current activity is targeting gas and is going on now in areas
that is both gas and oil prone. The level of early success in
those operations will lead to the potential for first gas to
include what is considered today to be new gas. He believes the
potential exists and is just a matter of when explorations begin
and how successful the initial investments are going to be.
11:18:54 AM
CHAIR HUGGINS said investments would be based on new discoveries
and new production.
COMMISSIONER GALVIN agreed.
REPRESENTATIVE NEUMAN reiterated that because the projects can
work in parallel, he hoped it was a long term goal of the State
to assist the Development Authority and the Pipeline Authority
to work towards those goals.
COMMISSIONER GALVIN agreed when talking about lines off the main
line.
11:19:14 AM
REPRESENTATIVE FAIRCLOUGH asked if all the reference points on
page 6 of "LNG Project Costs/Schedule (June 9, 2008)" were for
known LNG projects.
MR. DODSON answered yes.
REPRESENTATIVE FAIRCLOUGH asked for dates of the projects.
MR. DODSON replied they are from the last ten years.
REPRESENTATIVE FAIRCLOUGH commented that the chart shows a broad
cost escalation range.
MR. DODSON replied LNG projects do not finish every year, most
of them being seven or eight year projects.
REPRESENTATIVE FAIRCLOUGH asked for a reference date in the
points shown on the chart. She said she did not question the
projects were expensive. But, she said, time does matter in
terms of cost investments because of a prior statement made
about historical high costs followed by lows.
COMMISSIONER GALVIN said the points plotted on the chart were a
result of personal project knowledge. The reason they were
indicated in letters is because they are based on proprietary
information that cannot be divulged.
REPRESENTATIVE FAIRCLOUGH said she appreciated that but is sure
someone from the administration asked for verification.
MR. DODSON said there are three verifiable points on the chart.
One is (indiscernible), one is Snovit, and the third is the Port
Authority represented by "E".
REPRESENTATIVE FAIRCLOUGH said she does not think the chart is
relevant if she cannot confirm the costs are accurate to what
was being compared.
11:23:29 AM
REPRESENTATIVE FAIRCLOUGH asked how long the cost point stayed
high in the forty year historical period of high construction
costs.
MR. SPARGER replied that information was in the technical
findings report. It goes up for two or three years historically
and then falls. Sometimes it has gone through decades of
flatness. The scatter is worse now than in the last ten to
fifteen years. He said the types of increases seen over the
last few years were not historically sustainable.
REPRESENTATIVE FAIRCLOUGH said for the last three to four years
construction costs had gone up by 30 percent annually. She
believes she just heard the cycles had been in shorter segments.
She is trying to determine how far costs will drop in the future
when higher construction increases for a longer period of time
are already occurring.
MR. SPARGER replied they were not saying the prices were going
to drop. They are saying the 2007/2008 historical high point
will escalate 4 percent. They are not trying to predict how far
it will drop when it drops, but saying it cannot sustain twenty-
five, thirty, or even 10 percent on a historical basis. This
applies to any project of any type to move gas off the North
Slope. He said all projects face the same issue of fluctuating
capital costs.
REPRESENTATIVE FAIRCLOUGH asked if it was fair to say
construction cost increases were higher and stayed higher longer
than any other period of time in the forty years that were
examined.
MR. SPARGER replied there could be some but he could not say for
sure.
11:26:30 AM
REPRESENTATIVE FAIRCLOUGH asked what type of LNG product, dry or
liquid, the Asian market typically buys.
ROB VENTON, Gas Strategies, answered the gas typically bought in
the United States was dry, meaning the natural gas liquid
components of the methane had generally been taken out,
resulting in a lower btu content. Asian market LNG is high btu,
meaning the natural gas liquids are generally left in.
REPRESENTATIVE FAIRCLOUGH asked if the Asian markets were also
buying the dry product.
MR. VENTON replied they buy small quantities of low btu LNG when
they need it, but have to add back one of the components,
usually propane, before they can use it.
11:28:32 AM
REPRESENTATIVE FAIRCLOUGH asked if the LNG projects presented on
page 6 of "LNG Project Costs/Schedule (June 9, 2008)" were
producing different types of gas.
MR. SPARGER said he did not know but would get the answer.
11:29:07 AM
REPRESENTATIVE WILSON asked if the TC and LNG projects could be
done at the same time with the State's limited workforce. She
does not know if there is an answer to her question but is
something that needs to be considered.
COMMISSIONER GALVIN agreed the capacity to do both at the same
time was necessary and Commissioner Bishop of the Department of
Labor was looking at the question. There is some concern among
industry personnel that simultaneous construction of the
McKenzie and TC project is going to be very difficult with the
existing workforce. People are hoping the relative timing of
the two projects will enable workers to transfer from one to the
other. He said it would also be necessary to look at the impact
of a potential Y-line project.
11:32:03 AM
SENATOR FRENCH asked for clarification of the State's ability to
assist with royalties or taxes under the Alaska Gasline
Inducement Act (AGIA).
COMMISSIONER GALVIN responded under AGIA the State cannot assist
with tax and royalties on a competing project. The TC
application says they will build the line wherever the customers
will be. In that regard it would be the same project, just
going to a different end point and the State could assist in the
LNG component. It would not be a competing project because a
different project sponsor would not be trying to get the gas
from the North Slope away from the TC project.
SENATOR FRENCH asked how far "assistance" goes and if that would
include something along the lines of the State buying or
building a LNG facility in Valdez.
COMMISSIONER GALVIN replied he would get back later with further
information on that question.
11:35:06 AM
SENATOR STEDMAN said page 14 of Black & Veatch's "NPV Analysis
Report" [May 22, 2008], Section 2.0 Net Present Value Modeling
Objective, referred to the methodology used to deal with the
present value and anticipated cash flows to the State from the
project proposals using various factors. The document also
states Black and Veatch's role was to perform the AGIA NPV
analysis. Senator Stedman asked how the process worked between
the administration and Black and Veatch and how to interpret the
data on page fourteen.
MR. SMITH replied that page 14 restates AGIA requirements and
Black and Veatch's role which was to do the analysis, understand
the NPV, understand sensitivity to the NPV, understand risks of
how those cash flows may vary and provide that information to
the State, so they could form their opinion. Black and Veatch
is not advocating one project over another.
SENATOR STEDMAN said his question can be addressed later because
it is a different project outside of AGIA. He is struggling
with the concept of the same discount rate for the State cash
flows when there are huge risk differences between the two
projects.
11:39:53 AM
COMMISSIONER GALVIN said the essence of the analysis was looking
at the likelihood of success and was done for both the TC
project and for a generic LNG project. In the NPV analysis
similar overlapping issues exist dealing with risks and the
assessment of those risks affecting the cash flow. This analysis
did not make specific assumption on price, cost escalation, or
on cost factors, everything was ranged. The range that results
from the cash flows is reflected in the reports. The final step
was taking those cash flows and creating a net present value
number. The discount rate is dependent upon a number of
different factors. He said it was important to look at the use
of risk in the analysis and the relationship of how that risk
changes the outcomes and which of the "knobs were turned" based
on that risk. In this analysis they decided to "turn a whole
bunch of knobs" based upon risk rather than just one in the
discount rate.
11:42:20 AM
CHAIR HUGGINS asked if there were any concluding comments from
the presenter on LNG. Hearing none, the chair asked the
panelists to continue their presentations.
11:42:33 AM
MR. SMITH, continued the presentations starting on page 7 of
Black and Veatch document "Liquid Natural Gas (LNG) NPV Analysis
and Results" (June 9, 2008). He said, a start date was
estimated for a Y-line. It would be a 4.5 bcf/day project to
Canada, starting in 2020, and a 2 bcf/day LNG project to Valdez,
starting in 2025. The chart shows how the cash flows start off
and change through time and are shown in annualized dollars in
any given year. Other information shown on the chart is how the
total of all the cash flows are aggregated for the different
parties. NPV is not shown, just the total dollars and what has
been collected. The graph shows the State is collecting the
largest share, 43 percent of all the cash, whereas TC is
collecting 14 percent and the producers 23 percent. To
calculate the NPV, the 2045 dollars are converted into 2008
dollars to make a relative comparison.
11:46:00 AM
DEEPA PODUVAL, Black and Veatch, reiterated cash flows were
determined by adding up whatever was generated in 2020 through
2022 without applying any discounting. The State generates $353
billion dollars of total cash flow during the 25 year analysis
period. She said $353 billion dollars in the future was not
worth the same today so it was discounted using a rate of 5
percent each year which equates to the $86 billion dollars shown
on page 8 of "Liquid Natural Gas (LNG) NPV Analysis and Results"
(June 9, 2008) for the 6.5 bcf/day Y-line. Similarly, the total
cash flows generated for each of the other LNG projects
presented on the table were discounted to what they would be
worth in 2008. The NPV for these different projects ranges from
about $29 billion dollars for the 2.7 bcf/day LNG, to $48
billion dollars for the 4.5 bcf/day LNG. As she mentioned on
June 9, the Y-line assumed the 4.5 bcf/day project took the gas
to AECO Hub. She said adding the 2 bcf LNG project to that
configuration adds about $20 billion dollars in additional NPV
to the State. The direct comparison is not shown on the chart
but the 4.5 bcf/day project to AECO alone has an NPV to the
State of $66 billion dollars. She said these projects were
profitable by any standards, just not as profitable as the
pipeline project.
11:48:42 AM
REPRESENTATIVE SAMUELS asked if it was assumed everything went
into production on the same day when NPV numbers were run.
MS. PODUVAL answered no, those figures assumed the 4.5 bcf/day
project started in 2020 and the LNG line started in 2025. If
production from the LNG line started in 2020, as is possible,
then the NPVs would be higher than what is shown.
11:49:24 AM
REPRESENTATIVE SAMUELS asked how to get somebody willing to
invest in the LNG line when 2 bcf of gas is needed to pay for
it.
11:50:44 AM
MS. PODUVAL believes it will be driven by commercial interests.
11:51:24 AM
MR. SMITH added developing a pipeline or a LNG project has a lot
of variables. They made a simplifying assumption of a 2 bcf
start up in their analysis because it is impossible to evaluate
every scenario that could be imagined. There are other
scenarios to consider such as starting at 1 bcf/day and ramping
up from there.
REPRESENTATIVE SAMUELS asked if numbers were run for 1 bcf/day.
He said nobody will sit on their gas until it is economically
viable to go to LNG.
11:53:31 AM
COMMISSIONER GALVIN replied the opportunity existed to analyze
the economics of a potential Y-line. When looking strictly at
the economics of an incremental increase of a large overland
project it will be more economical to send gas down that line
than it will be to create a new LNG project strictly because of
the costs. However, there is potential that other producers may
be discovering gas and ultimately decide where they want their
gas to go in the market. They may have strategic reasons to
want to have LNG on the Pacific Basin and that may be much more
valuable than the strict economics of where the gas from the
North Slope will ultimately get the highest return. He said an
opportunity existed for a Y-line to provide access to an
attractive market to a producer for strategic reasons.
11:55:45 AM
REPRESENTATIVE SAMUELS agreed the market place would take over,
but the minute a big line gets built, it becomes problematic to
build a competitive pipeline unless you have a large quantity of
gas at one time.
11:57:09 AM
COMMISSIONER GALVIN said because LNG is constructed in "trains,"
meaning you construct an entire new processing facility with its
full capacity one chunk at a time, incremental expansion for a
LNG project would be in bigger chunks than it would be with just
a pipeline to market. He said Representative Samuels is
alluding to the fact that for any LNG project, whether it is the
initial run of a Y-line or an expansion of an LNG project
discovering enough gas is needed to justify the initial run of
that expansion. He is concerned about building an overland route
off a LNG project for much the same reason. He said a potential
constraint exists on the desire for exploration because of the
risk that a significantly larger volume will need to be found to
get the gas to market. He believes given the potential of the
North Slope, particularly since it is under-explored as has been
indicated by the geologists, the opportunity is best now for a
LNG project as a Y-line off the main line, when new exploration
and larger finds are likely.
12:00:13 PM
SENATOR STEDMAN asked how the 20 percent capital credit and
capital credits applicable to the gas treatment plant were
handled when calculating the revenue stream.
MR. SMITH replied they did deal with all the estimates of
capital costs from GTP all the way through to the liquefaction
facility. He said associated costs were converted into a tariff
assuming similar type structures for an overland project. They
mirrored what TC proposed to try to minimize any differences.
COMMISSIONER GALVIN clarified that he thought Senator Stedman
was referring to production tax credits associated with upstream
production costs and wanted to insure those had been
incorporated into the tax flow analysis.
MS. PODUVAL said the capital cost credits were incorporated in
the estimation of the production tax. They recognized the
capital expenditure associated with upstream exploration and
development activities would be subsidized by the State through
lower production taxes.
SENATOR STEDMAN said he thought the analysis showed capital
expenditures growing by five or 6 percent a year. He asked the
presenters to address the dollars being looked at over the next
twenty years because of the desire to get more capital
investment into the basin to increase oil production.
MS. PODUVAL replied capital expenditures for the gas treatment
plant were not considered as upstream capital costs that would
earn credit from an ACES (Alaska's Clear and Equitable Share)
perspective.
12:03:24 PM
REPRESENTATIVE CRAWFORD said he started listening to these
analyses in 2001 and a lot of estimates were made about what the
future would hold. He said he learned over the years that all
the analyses were wrong. He expressed the need to look ahead for
future generations, think about all possibilities, and keep all
options open.
12:06:27 PM
CHAIR HUGGINS said there appeared to be an air of certainty and
he did not have that confidence.
12:06:45 PM
REPRESENTATIVE HOLMES asked what the NPV of an expanded overland
route would be.
MS. PODUVAL answered that information is in the report and she
would find it and report back later.
12:07:54 PM
REPRESENTATIVE RAMRAS asked what the billings with Black and
Veatch had been so far.
COMMISSIONER GALVIN replied he did not have that information
with him and would have to report back later.
12:09:11 PM
CHAIR HUGGINS announced an at ease until 1:30pm.
1:42:15 PM
CHAIR HUGGINS called the meeting back to order at 1:42pm. The
panel continued with their presentation.
1:42:57 PM
MS. PODUVAL continued with her presentation of "Liquid Natural
Gas (LNG) NPV Analysis and Results" (June 9, 2008). She said
the NPV to the State and producers was evaluated under a
baseline LNG price assumption, but Gas Strategies also provided
a high and low LNG scenario to risk the NPVs. When applying the
Gas Strategies price assumptions to the 4.5 bcf/day LNG project,
the NPVs to the State varied from about $13 billion to $61
billion dollars (page 9). Producer NPVs discounted at 15
percent vary between about $3 billion dollars to a negative $1.8
billion dollars. The relationship between gas and oil prices
was also evaluated to see how high oil prices would have to be
relative to gas to make an LNG project more desirable to AECO
than an overland project.
1:45:38 PM
MR. SMITH said price was a large component when assessing the
different risks of the project. With LNG there are more
dynamics for estimating price, such as the price of the gas
delivered in Asia. Another factor is the relative comparison to
the domestic price. He said they looked at those relationships
historically and what happened when they changed. Page 10 of
"Liquid Natural Gas (LNG) NPV Analysis and Results" (June 9,
2008) shows the price difference between crude oil and natural
gas at Henry Hub. Since 2000, crude oil is eight times the gas
price. Also a potentially higher ratio of crude oil to gas
prices occurs when crude is at $125 to $130 dollars a barrel.
1:48:29 PM
MR. SMITH said the basic analysis was to test the sensitivity to
different ratios of oil prices to gas. They found sustained
high oil prices over the entire project period are necessary,
starting in 2008 and all the way through to 2045. He said given
Gas Strategies forecast, price ratios had to be fairly high
compared to what has been seen historically, for LNG to be of
higher profitability relative to the overland route.
MR. SMITH said market performance would need to be different
along with different behaviors within the Asian LNG market. The
Gas Strategies report generated a tie of prices between
continents. Under the base case LNG price forecast projected by
Gas Strategies, the ratio needs to be 10/1 or higher for the
State to benefit from a LNG project. For the producers it is
almost 12/1 or higher depending on the discount rate. Prices
need to be at the top end of what has been seen historically for
the parties to benefit given these price relationships. The
price differential between Asia and the United States has to be
slightly higher than $6 dollars for LNG to be more favorable
than an overland route because of the capital cost difference.
CHAIR HUGGINS asked if there were questions from the committee.
Hearing none the committee moved on to the next agenda item.
1:52:38 PM
COMMISSIONER GALVIN said a question was asked a few days ago
about a section of the Request for Application (RFA) regarding
"parole evidence" and its relationship to potential
interpretations of the license. As background, he said, the
license was a combination of multiple documents. In the history
of contract law certain practices were developed that courts use
to interpret contracts. One practice is the courts will look at
the document itself for interpretation, not at what is called
"parole evidence." Parole evidence consists of other agreements
outside of the contract itself that conflict with or add to the
provisions of the contract. There have been a number of
exceptions that have evolved over time. One exception is that
parole evidence can be used when there is ambiguity in the
contract or something needs to be explained. He said there had
been courts that found outside evidence would not be allowed,
only applies when a wholly integrated contract exists; where all
the documents are captured in one memorialization of the
agreement. Because of that finding lawyers starting inserting
merger clauses into agreements. A merger clause states the
entire agreement is an integrated document. Some go farther and
say no parole evidence will be allowed. This clause is now
found in the fine print of many documents.
1:54:15 PM
COMMISSIONER GALVIN said concerns had been voiced that because
the license constitutes the statute, the RFA, and the
application, and aspects of the application particularly reflect
expectations of TC, that could be interpreted in the future as
being an additional condition. He said TC stated explicitly
that was not their intent. It would take a court to find the
license is uncertain or ambiguous. If this occurred the court
would then look for additional evidence and at that point the
testimony becomes relevant. He believes the language of the
application and license is clear.
1:58:22 PM
REPRESENTATIVE GRUENBERG asked if the issue could be resolved by
including a clause that says "the document shall be construed in
favor of the State and against the lessee" rather than go to
trial.
COMMISSIONER GALVIN answered that had been done in the case of
the AGIA license. Further, the license says if there is any
conflict, the statute is the clearest statement of the State's
commitments and obligations, followed by the RFA, then the
application. The State's declaration of what the agreement is
ends up controlling any issue.
REPRESENTATIVE GRUENBERG asked if under the current clause the
State's interpretation would prevail.
COMMISSIONER GALVIN said the license itself, and the RFA made
clear the statute controls, followed by the RFA, and finally the
application.
2:01:11 PM
REPRESENTATIVE HAWKER said he was the one who raised the
question about the nature of the license. Commissioner Galvin's
explanation makes sense that should terms be disputed a court
would look at the testimony to solve the problem. He is
concerned ambiguity still exists.
COMMISSIONER GALVIN suggested looking at the transcript from the
previous testimony. His recollection was that he clearly
articulated the State did not have to do anything more than what
was obligated in the statute and the RFA. He recalled Mr.
Palmer was asked if he agreed with that assessment, and he said
yes. He also recalled during Mr. Palmer's presentation he said
he would expect the State to do a number of different things
according to the State's sovereign authorities. They were asked
if they would attempt to get out of the license obligations if
the State did not do those things. Mr. Palmer said no.
Commissioner Galvin believes the record is extremely clear.
REPRESENTATIVE HAWKER asked if it would be prudent for the State
to define the roles and agreement among the parties in a binding
contractual relationship.
COMMISSIONER GALVIN answered the contract established the
obligations. Once the license is issued obligations of the
parties will be clearly stated. He also observed that
regardless of what was done, someone may perceive ambiguity. He
believes the substance of the license and the obligations of the
parties are clear.
REPRESENTATIVE HAWKER replied he could see the same facts and
come to different conclusions. He thinks the lack of a defined
document will create ambiguities rather than resolve them.
COMMISSIONER GALVIN suggested addressing particular ambiguities
that Representative Hawker perceives.
2:07:34 PM
REPRESENTATIVE ROSES asked whether the bullet line would
conflict with the TC agreement.
2:08:42 PM
COMMISSIONER GALVIN said the question of what will constitute a
conflicting project was not a question of ambiguity in the
license itself. There is nothing in the TC application that
would inform that particular decision.
REPRESENTATIVE ROSES said he would like an answer to his
question before making a decision because it was important to
those who had concerns about in-state gas. He hopes for an
answer from the administration as well as TC so there is clarity
between the parties.
COMMISSIONER GALVIN agreed that clarity on this issue was needed
before a vote and he would obtain the information requested.
2:11:19 PM
REPRESENTATIVE GARA said the parole evidence rule did not have
anything to do with the disputes that will come up about the
statutory terms in AGIA. It will involve interpretation of
contract terms. He does not share Representative Roses' concern
that the statute is ambiguous. He accepts the interpretation
that there is no danger, but suggests it would not hurt to have
a memorandum of understanding (MOU) to address the concerns of
those who believe the statutory provision is ambiguous.
2:13:17 PM
COMMISSIONER GALVIN replied the technical team would get
together and get back to the committee.
2:13:28 PM
SENATOR FRENCH said what was being expressed was a "healthy dose
of Alaskan skepticism." One ambiguity he sees in the license
says "including licensee commitments and all responses to
additional information requests." When he read that statement
he thought every exchange between the Legislative Budget and
Audit Committee (LB&A) and TC needed to be included. He said an
administration official said LB&A responses did not count which
did not seem clear in the license. He also thinks the record
needs to be supplemented by posing some questions to a TC
representative about their interpretation of what a competing
project is and what it means to offer assistance. He believes
there is still plenty of time to do this.
2:16:20 PM
COMMISSIONER GALVIN replied he appreciated the concerns and will
try to provide responses to perceived ambiguities.
2:16:56 PM
REPRESENTATIVE HAWKER said he shared Senator French's concerns.
He has been involved in many business contract interpretations
and disputes over what something meant. He asked if someone
could open up the whole body of debate that led to the creation
of the AGIA statute.
COMMISSIONER GALVIN replied those kinds of questions could not
be completely avoided. There will be a multitude of options for
dealing with what is found in the analysis of the project. He
agrees that further discussion is necessary so the body is
comfortable with the outcome.
2:19:57 PM
REPRESENTATIVE HAWKER said his real concern was with the
questions that would arise in the future that are beyond
contemplation today.
COMMISSIONER GALVIN replied the relationship established through
this license is the end result of a competitive process put into
place with passage of AGIA. Most people think everything has
been covered by the time a contract is signed. He said 80 to 90
percent of contracts probably go through their whole term
without dispute. Some end up being disputed because there was
not enough work done up front or because times change and people
want to interpret things differently.
2:23:25 PM
SENATOR MCGUIRE said this was one of the largest projects in the
world and she does not think things can be left to conjecture.
She is particularly concerned about any projects that fall
outside of what is permitted by TC. She suggested the Judiciary
Committee could highlight areas of concern and a MOU could
memorialize intent.
2:25:52 PM
REPRESENTATIVE GRUENBERG commented that significant concerns had
been expressed and he believed the contract must be written as
clearly and concisely as possible.
COMMISSIONER GALVIN stated he thought care needed to be taken
about how this discussion was being characterized. He does not
want to give the public or the Legislature the impression that
the document is ambiguous or full of uncertainties. The
administration thinks the license documents are clear and they
have not heard a legal opinion that differs. Senator French
raised an issue regarding what documents were included in the
interpretation of the words of the license. The administration
will provide information why they believe it is documents
limited to interactions between the administration and TC. He
will continue to work towards increasing confidence in the
document by clarifying language relating to competing projects.
2:29:38 PM
CHAIR HUGGINS asked if Commissioner Galvin could satisfy some of
the concerns stated so when people vote they know what they're
voting for.
COMMISSIONER GALVIN replied "yes sir we will."
2:30:31 PM
SENATOR MCGUIRE said the concern she had was by granting the
license they are obligating the State to terms that need to be
clear.
2:31:14 PM
REPRESENTATIVE DOOGAN asked how many options were available to
them within the next sixty days.
CHAIR HUGGINS replied he was asking for remedies that were
reasonably available within the current time frame.
2:32:47 PM
REPRESENTATIVE KELLY said he would like to know whether there
were legitimate legal concerns about going to a contract.
2:34:33 PM
CHAIR HUGGINS asked if there were further questions or comments.
Hearing none he proceeded to agenda item five, Net Present Value
(NPV) Analysis.
2:35:53 PM
CHAIR HUGGINS called a brief at ease.
2:36:37 PM
COMMISSIONER GALVIN introduced the presenters for the next
agenda item; NPV and likelihood of success of the TC
application.
2:39:24 PM
TIM ROMER, Managing Director, Goldman Sachs, Los Angeles,
introduced the associates working on the project and gave a
summary of the company's role in the project. They were asked
to assess the proposal from the standpoint of financing. Their
findings are outlined in "Financial Review of TransCanada and
Proposal" (June 10, 2008)).
CHAIR HUGGINS asked if Goldman Sachs had any previous experience
with the State on this gas line project.
PAUL BLOOM, Vice President, Goldman Sachs, said the company had
a long history working with the State on a variety of matters
and had been informally consulted by various administrations on
the gas line.
2:41:42 PM
MR. ROMER said their task was to look at the financial viability
of the project. They considered it from two perspectives.
First, given the nature of the project if it could be financed
and the capital raised in the timeline needed to build the
project. Second, if TC has the capacity to meet the financial
obligations involved with the project and AGIA. Goldman Sachs
concluded there are very strong economic underpinnings to the
project and after looking at a large number of factors they
believe the project is financeable. Additionally, for a project
of this size, ongoing considerations need to be managed through
time.
2:43:57 PM
MR. ROMER, referring to page 3 of the document, said shipping
commitments, loan guarantees, an overall strong package offered
to the lenders, and a cooperative market were necessary
components for success. They believe the project can be financed
given these considerations.
2:44:24 PM
CHAIR HUGGINS asked about use of the term "cost overrun
surcharge."
MR. ROMER said his understanding of the tariff structure was if
there was a cost overrun to the project it would be built into
the tariff on a "go forward" basis.
MR. BLOOM said the federally guaranteed cost overrun loan laid
out in the TC proposal would be a loan guaranteed by the federal
government and repaid through a surcharge mechanism in the
tariffs.
2:45:21 PM
CHAIR HUGGINS asked what the mechanism for paying overruns would
be if a federal guarantee was not in place.
MR. ROMER replied the legislation put in place for the federal
guarantee for cost overruns was in compliance.
COMMISSIONER GALVIN clarified that nothing suggested the federal
loan guarantee was going to be expanded or the amount of the
loan guarantee was going to be raised by Congress. The question
is whether they will hold off on exercising the full extent of
the loan guarantee in their initial financing and reserve a
certain amount in order to have a lower cost overrun debt cost.
If the cost overrun use of the loan guarantee is not in place
overall project financing shifts and use of the loan guarantee
for initial financing is more than what is being assumed. He
said it actually makes that financing more attractive.
MR. ROMER agrees with Commissioner Galvin's statement. If there
is a cost overrun there must be access to capital to pay for it.
An effective use of the federal loan guarantee is to withhold
some of it in that circumstance.
SENATOR STEDMAN asked the presenters to expand on the risk
shifting dealing with cost overruns.
2:48:05 PM
MR. ROMER replied he was not sure what risk shifting was being
referred to.
SCOTT SMITH, Black & Veatch, said Black and Veatch looked at a
tariff for the pipeline with and without cost overruns. For a
4.5 bcf pipeline to AECO and a 20 percent increase in costs, the
tariff went from $4.73 to $5.35 if the loan guarantee was in
place. If not, the tariff would go twenty cents higher to
$5.53. Scenarios were considered associated with cost increases
with and without the loan guarantee to understand the
implications should it not be approved by the federal
government. They also looked at NPV benefits associated with
the loan guarantee.
2:49:54 PM
COMMISSIONER GALVIN said the term "risk shifting" associated
with cost overruns was a mechanism proposed by TC to shift some
of the risk borne by the shippers onto the pipeline by having it
be completely debt financed.
SENATOR STEDMAN noted the closing paragraph on page 169 [of the
May 22, 2008 NPV Analysis] says "If the U.S. loan guarantee were
not included in the proposal, TransCanada's net present value
would increase significantly with cost overruns...." He said
there were winners and losers as far as who would benefit from
the present value of the cash flows and it was necessary to be
clear about the scenarios and who benefits.
2:51:21 PM
COMMISSIONER GALVIN agreed. He said TC was proposing to
actually lower their NPV by using the federal loan guarantee.
This is the risk shifting referred to in the document and is
value added provided by TC's proposal that the State would not
otherwise receive.
2:51:48 PM
CHAIR HUGGINS asked for an overview of the federal loan
guarantee parameters.
MR. ROMER answered the federal loan guarantee was a powerful and
beneficial feature to this project and helped from a number of
perspectives. One benefit is the ability to use the lower cost
debt available and to use it as a mechanism to cover overruns on
a much lower cost basis. He said the law was clear about the
Department of Energy (DOE) governing and issuing the guarantee
and a variety of conditions were set forth for compliance.
There are limitations of how much nominal dollar amount and how
much as a percent of the project the loan guarantee can cover.
2:53:58 PM
CHAIR HUGGINS said the term "bridge shipping" with federal loan
guarantees had emerged and he asked for thoughts about that
concept.
MR. BLOOM said they assumed the bridge shipper concept would not
be implemented and ignored it in the analysis. They understood
it to be completely separate from the loan guarantee.
CHAIR HUGGINS asked if Mr. Romer and Commissioner Galvin could
clarify any discussions about federal loan guarantees that they
may have participated in.
MR. ROMER said Goldman Sachs looked at what was in the
legislation and did not participate in any specific meetings
with the government on loan guarantees.
COMMISSIONER GALVIN replied the administration did not
participate in any discussions regarding the "bridge shipper"
idea. The administration has talked a great deal with DOE about
the federal loan guarantee program and implementation. The
commissioner feels fairly confident in that relationship and
said the loan guarantee is there for a contract that qualifies.
The use of loan guarantees for cost overruns is not explicitly
stated in the statute, but they have determined that it is
allowable.
MR. ROMER clarified the term "cost overrun" was terminology used
by the federal government. What the federal government provides
is a guarantee to a bank loan within the two year window of the
start of the project. The guarantee makes it easy to get a bank
or group of banks to provide funding knowing the federal
government backs up the loan.
2:57:53 PM
MR. BLOOM added the language in the federal statute defining a
qualified project included "construction and completion of
pipelines." He said it seemed clear a guarantee of loans
dedicated towards construction completion was within the bounds
of the statute.
2:58:22 PM
SENATOR STEDMAN said cost overruns had come up previously as a
major concern. He said some had participated in a mega-project
seminar with the administration a couple years ago and were told
20 percent cost overruns on megaprojects were normal and would
still be considered a success. He said it would be conceivable
to have a 30 to 50 percent overrun on a project of this
magnitude. He asked if that was a risk exposure to be concerned
about.
2:59:14 PM
MR. BLOOM replied the project finance market was extremely
sensitive to a number of risks, construction and completion
paramount among those. It is common for large projects to have
substantial overruns. That is why Goldman Sachs believes TC's
proposal to preserve a portion of the federal loan guarantee for
cost overruns will be extremely comforting to the markets. It
was not clear in the proposal how much would be reserved, but
Goldman Sachs suggests reserving as much as $16 billion of the
28 billion federal loan capacity against cost overrun risk.
3:01:02 PM
REPRESENTATIVE HAWKER said he was concerned about the optimism
he was hearing juxtaposed against the caution advised throughout
the written report.
3:02:26 PM
MR. ROMER answered it was difficult to summarize a hundred page
report on one page. They approached this analysis by looking at
the fundamental soundness by which the whole project is put
together. An implicit assumption was there were reasonable and
rational people operating on all sides. At one point in time,
there was clear intent from the federal government that they
would step forward in a way to help this project succeed. In
Goldman Sachs view the best role for the federal government to
play is in cost overruns.
REPRESENTATIVE HAWKER encouraged his colleagues to study the
report.
3:05:18 PM
REPRESENTATIVE SAMUELS quoting the Black and Veatch "likelihood
of success" report said "in general, TransCanada's proposal does
not offer shippers strong protections from cost overruns."
3:07:01 PM
MR. ROMER said Black and Veatch could clarify the context of
that statement. He said there was risk in every project and
their goal was to provide information so risks were understood.
He said he was not troubled by the Black and Veatch statement
because shippers will weigh the risks and benefits and decide
whether to participate based on an economic interest. A risk in
and of itself is not a problem unless it is put into a context
of the totality of the project and all associated costs and
benefits are weighed.
3:08:37 PM
MR. BLOOM clarified they were looking at the risks investors and
lenders would bear not specifically the shippers.
COMMISSIONER GALVIN said a future Black and Veatch presentation
addressed risk allocation issues and their impacts. He said
cost overrun risk transfer was not a requirement of AGIA but was
one thing to consider as part of a likelihood of success. The
next presentation covers the impact of cost overruns on
potential NPV to the producers.
3:10:21 PM
SENATOR STEDMAN reflected that there were a lot of concerns
about cost overruns on the previous proposal and substantial
concern on this proposal. Given the uncertainties of the risks
of a project of this magnitude, striking a balance between risk
allocations is likely to be critical in the ability to obtain
capital commitments for the completion of the project.
3:12:02 PM
REPRESENTATIVE ROSES said he wanted to go back to the question
of whether the project is financeable. He was concerned about
investors willing to commit to the project because the financial
model was speculative. He wonders what the likelihood of
financing will be if the commitment is two to 2.5 bcf and the
rest was speculative.
3:15:37 PM
MR. ROMER replied they looked at a number of alternatives and
did a variety of analytical sensitivity cases. They came up
with a conservative base case, did some more detailed analysis
and concluded that it was financeable. He said a better sense
of what can be built and what is affordable will come at open
season.
3:16:36 PM
COMMISSIONER GALVIN said the information presented about the
opportunity for exploration and additional finds was not meant
to imply that was what was necessary to get the project to
sufficient capacity for financing.
3:17:56 PM
REPRESENTATIVE ROSES said he appreciated that clarification. He
said it seems all assumptions were built around a 4.5 bcf and
asked if there was enough flexibility in the AGIA legislation
for the project under different capacities.
3:18:57 PM
COMMISSIONER GALVIN replied TC said they would accommodate
everything from 3.5 bcf/day up through 5.6 or 5.9. Although the
so called "proposal" or "application base case" is 4.5 it was
examined across a range of options to ensure its viability.
3:20:40 PM
REPRESENTATIVE HAWKER said he was still wary about the optimism
versus the serious cautions presented in the report in addition
to construction completion, risk allocation to lenders, clarity
on reserves, and contract length, that had not yet been
addressed.
3:22:01 PM
MR. ROMER responded there are many large projects built which go
through their own evolutionary process. The Goldman Sachs
report outlines typical project financing and how projects
achieve an investment grade rating. He said they wanted to make
sure the benefits and risks were understood. They feel they are
laying out the way things are when a big project is considered
which can be perceived as cautionary. He said every project has
construction risk; the question is how the risk is managed. In
this case they looked at the sponsor, their experience and
capabilities for building pipelines, and at other mechanisms in
place such as access to capital and the federal loan guarantee.
He said the best way to look at this project was to compare how
it has been done elsewhere, then identify the specific unique
features to this project and outline a way to mitigate risks.
REPRESENTATIVE HAWKER thanked Mr. Romer for his response and
said he agreed with it.
MR. ROMER said he wished he had a crystal ball but a decision
must be made based on the project and its fundamental tenants
and whether the sponsor can do what it needs to do.
3:26:16 PM
REPRESENTATIVE RAMRAS thanked Goldman Sachs for their
participation and asked them to talk about their conversations
with the FERC.
MR. ROMER answered they had had no conversations with the FERC.
REPRESENTATIVE RAMRAS asked him to talk about the risks
associated with Arctic gas projects globally.
MR. ROMER replied they had looked at the project from a
financing perspective. He asked for clarification on the
question.
3:27:20 PM
REPRESENTATIVE RAMRAS said he was interested in risks and cost
overruns associated with an Arctic gas project peer group.
3:28:02 PM
MR. ROMER suggested the question may be more appropriate for an
engineering or construction expert.
REPRESENTATIVE RAMRAS said no, his question was about
construction and completion risks associated with Arctic gas
projects globally and identifying the peer group for this
particular project.
MR. ROMER said they looked at the project from a financing and
lending perspective. The unique nature of the project and use
of the federal loan guarantee, as set forth under the TC
proposal, led to the conclusion that access to capital to
complete the project is likely.
3:30:07 PM
REPRESENTATIVE RAMRAS said he was looking for a definition of
the peer group used for this particular project to assess the
construction and completion risks.
MR. ROMER said he did not believe he was the right person to
answer the question since his firm looked at the project from a
financing perspective.
CHAIR HUGGINS asked Representative Ramras to talk with the
consultants during a break to get an answer to his question.
3:31:57 PM
REPRESENTATIVE KELLY asked if TC proposed a reasonably robust
project.
MR. ROMER replied the project had very sizeable NPV benefits to
the participants, good cash flow abilities so that debt would be
repaid, and an attractive return to the equity sponsors. The
firm looked at TC and found the financial capacity and interest
to do the project.
REPRESENTATIVE KELLY asked if cost overrun elements would apply
to whomever built the project.
MR. ROMER replied yes.
REPRESENTATIVE KELLY asked if TC is a fourth quartile performer.
MR. ROMER said he could not respond to quartiling.
REPRESENTATIVE KELLY asked if 500 million was a reasonable
investment in the project.
3:35:45 PM
SENATOR THOMAS asked if the loan guarantee would provide a more
favorable rate compared to other debt money.
MR. BLOOM answered yes because any loans guaranteed by the
federal government trade close to the treasury rate. He said
bonds backed solely by the revenues of the project would be
rated somewhat lower and would carry a higher interest cost.
SENATOR THOMAS asked if the federal loan guarantee could be
applied to offsetting debts other than cost overruns.
MR. BLOOM replied it would depend on the actual terms of the
loans, how they were structured and how the guarantee was
overlaid. The most conservative analysis assumes the loan
guarantee sits without being used. As the project progresses an
independent engineer hired by the bond trustee and the lenders
looks over the project from financing through completion. The
engineer will inform lenders, investors, and rating agencies
about construction risks and do comparisons against other
projects. As the project proceeds through construction, the
equity sponsors can make a case to the engineer that some of the
cost overrun capacity should be released.
3:39:05 PM
MR. BLOOM said as a project proceeds through construction the
risk abates and equity sponsors would seek to apply some of the
federal loan guarantee preserved for overruns to ongoing project
costs. He does not see a circumstance where federal loan
guarantee capacity would be left on the table.
MR. ROMER said another way to think about using the loan
guarantee was as a way to refinance other debt that may be more
expensive.
3:40:18 PM
SENATOR THOMAS said he did not think anybody was planning to let
the cost overrun beyond what would be considered reasonable.
3:41:28 PM
REPRESENTATIVE WILSON asked if the federal government had
indicated availability of the loan guarantee.
COMMISSIONER GALVIN replied no, DOE would articulate a position
after receiving a project discussion package. He said the State
must look at the entire package of risk profile to see the
impact of the loan guarantee on overall project viability.
Commissioner Galvin believes it is more likely the federal
government would prefer the loan guarantee be held out for cost
overruns.
3:44:18 PM
MR. ROMER added the TC proposal to use the federal loan
guarantee in this way was a novel idea, but there are other ways
to manage construction risk.
MR. ROMER continued to page 5 of the analysis. He said TC was a
large, stable company with very durable free cash flow. Free
cash flow is very important because the company will need to
provide an equity contribution at some point in the future.
Goldman Sachs concluded TC could meet that obligation and have
the financial capacity to do so. They also concluded this
pipeline has a very positive long term impact and substantial
financial benefit to TransCanada.
MR. ROMER said they also examined whether TC could issue debt to
raise the amount of money needed for the project. Goldman Sachs
believes they can, but rating agencies might have some concerns.
There is a risk that TC's ratings could be downgraded under
complete debt borrowing. He said it was also possible they
would not be a downgraded because TC had a lot of time to plan
and raise the capital in anticipation of the contributions they
will need to make. Another issue is what exposures TC might
have, what is called "the trough." He said the most difficult
point in time for TC will be the construction process. After
that the cash flow becomes positive.
MR. ROMER said TC's ability to contribute more capital if there
was a cost overrun was also considered. Goldman Sachs thinks TC
has the ability, but again, it could be a rating agency concern.
He said the federal loan guarantee would help mitigate this
concern. In summary, he said TC was an "A" rated company with a
strong investment grade rating. Assets total about $30 billion
dollars and revenues about $9 billion. The company has much
experience building pipelines and this project is core to their
mission and long term goals. He said not only do they have the
financial capacity, but the value and importance of the project
to them is substantial, so they have incentive to make the
project succeed.
3:49:05 PM
CHAIR HUGGINS referring to page 5 of "Financial Review of
TransCanada and Proposal (June 10, 2008)," asked Mr. Romer to
state the top three things TC could do to fortify its financial
strengths.
MR. ROMER replied TC will need to anticipate the equity
contributions they will need to make to the project and start to
raise that money early. In the last two years TC has raised
over $8 billion capital dollars, both debt and equity, for
various projects and has demonstrated the capacity to raise
capital in substantial amounts.
3:50:22 PM
REPRESENTATIVE FAIRCLOUGH asked Mr. Romer to describe how TC was
related to a subsidiary that was formed with a contingent
liability close to $10 billion dollars. The new company has no
assets so she wondered how that related financially to the
market and the potential downgrade.
MR. ROMER said TC as a parent company did not have the assets of
the prior entity in which they were a partner so those assets
were not reflected in the assets or liabilities of TC.
REPRESENTATIVE FAIRCLOUGH said she just heard TC was financially
sound and had large assets. She asked what the entity, entering
into a contract with the State, had in the form of assets.
3:51:01 PM
MR. ROMER said he did not know the answer to that question.
REPRESENTATIVE FAIRCLOUGH said she would like to know the
financial credibility of the TC subsidiary, which does not
appear to have any assets of its own.
3:52:46 PM
COMMISIONER GALVIN replied TC had committed all necessary
resources of their corporation to TransCanada/Alaska. He said
TC was analyzed to ensure all the necessary assets were
available to finance the project.
3:53:11 PM
REPRESENTATIVE FAIRCLOUGH said TC was involved with a subsidiary
with a contingent liability of about $10 billion dollars which
was not reflected in the financial information. She said TC
just went through an acquisition that has the financial markets
"sputtering a bit" and looking at downgrading. She asked why
the $10 billion dollars was not of concern and why it does not
affect TC's potential contingent liability and borrowing
ability.
3:54:22 PM
COMMISSIONER GALVIN said the contingent liability issue was not
related to financial statements or accounting methods of
TransCanada Corporation or TransCanada/Alaska. Goldman Sachs
and outside counsel determined the liability was not a risk to
this project.
REPRESENTATIVE FAIRCLOUGH stated it appeared the administration
was unconcerned about the $10 billion dollar potential
contingent liability.
COMMISSIONER GALVIN said Goldman Sachs looked at the contingent
liability issue from a financial perspective, and Gruman/Charwig
(ph) reviewed liability and rate making tariff issues. All
parties concluded the risk and exposure of the liability was not
necessarily an issue associated with the financing, potential
partnerships, tariff, and ultimately, whether to issue a
license.
3:56:08 PM
CHAIR HUGGINS asked Goldman Sachs to respond to the issue
presented by Representative Fairclough.
MR. ROMER replied that contingent liability relating to the
partnership entity was not reflected in the balance sheets of
TC. He does not believe the TC accountants consolidated a
thirty year old partnership liability into their financial
statements because they do not view it as a true liability.
MR. ROMER said TC has committed their full resources in order to
make the project a success. Goldman Sachs looked at the
capacity of the parent company. He said it was common for
companies to use subsidiaries.
MR. ROMER added TC was put on credit watch because they made a
commitment to buy a power generation plant called Ravenswood; a
$2.6 billion dollar acquisition. He said it was very common
after the announcement of an acquisition of that size for rating
agencies to announce they are going to take a closer look. He
believes Standard and Poor's has taken TC off credit watch
because they demonstrated how they will finance the acquisition.
He said Moody's has not concluded their review. But TC is an
"A" rated company, strong in comparison to worldwide pipeline
companies. Goldman Sachs is not concerned about "credit watch"
status because it is a normal course of action.
3:59:08 PM
REPRESENTATIVE FAIRCLOUGH appreciated clarification of her
questions. She asked if TC was limiting their liability by
forming this smaller subsidiary company.
COMMISSINOR GALVIN answered in general, yes by forming a
subsidiary they do limit their liability other than to those
things specifically outlined as liabilities under the license.
REPRESENTATIVE FAIRCLOUGH said she would still like to know how
much TC as the parent company is putting into the subsidiary
company. The State has not formed a subsidiary to limit its
liabilities, but has pledged the full faith and credit of the
State and all of the assets that come under that umbrella.
CHAIR HUGGINS said Representative Fairclough brought up an
excellent point and the question will be stated in writing to
the administration who will work with their experts to get an
answer.
4:00:37 PM
REPRESENTATIVE GARA said he was trying to decide whether the
loan guarantee was an issue that should concern him. He is not
worried about TC seeking out and using the best credit possible
and there is a requirement under AGIA that the project be
financed with at least 70 percent debt. He does not believe TC
would willingly give up a debt instrument that is valuable to
them and if the loan guarantee cannot be used for cost overruns
it will be used elsewhere. The State's protection is the tariff
is kept low by the loan. If TC decides to reject a loan
guarantee that absolves them of any liability that is their
business.
4:02:01 PM
MR. ROMER said Representative Gara's assessment was generally
correct. The value of a loan guarantee is it reduces the cost
of debt which is beneficial to the project. There is no reason
to think TC would not seek to maximize the use of that loan
guarantee.
REPRESENTATIVE GARA asked if there were any concerns about the
loan guarantee.
MR. ROMER said from Goldman Sachs perspective the legislation is
clear and the loan guarantee was available. It will be
necessary to outline details with the DOE before the guarantee
is issued.
4:03:56 PM
REPRESENTATIVE RAMRAS said there was wide speculation that no
gas will be nominated during the open season anticipated in
twelve to eighteen months. He asked what exposure the State may
be subject to given TC's participation in other projects, and
what rights the State has to protect itself from risk from the
company making poor decisions.
4:05:20 PM
MR. ROMER said Goldman Sachs looked at TC's current capacity and
capabilities. He said TC has demonstrated the ability to raise
substantial amounts of capital to fund their growth strategy.
It is also important to look at the importance of this project
to them. Goldman Sachs looked at four different ways TC could
come up with the capital and the way they might do it. After
developing those hypothetical's they examined how TC's income
and balance statement might look, and it looked very attractive.
TC has shareholders to which they are accountable and they need
to operate in a way to preserve their capacity to deliver.
4:06:59 PM
REPRESENTATIVE RAMRAS said the same could be said of looking at
the past performance of City Bank, Wachovia, Lehman Brothers,
etc. He said there was little certainty and if gas was not
nominated into an open season he questioned the risk element.
4:07:32 PM
MR. ROMER responded that Goldman Sachs looked at other big
project financing done around the world in different sizes and
locales and the fundamental financing credits. He does not
believe it is fair to draw corollaries between financial
institutions and a pipeline company. A pipeline company and the
nature of the business are evaluated differently and the risks
are much different. Global energy markets and the Canadian
market analysis is also relevant when looking at risks. In
Goldman/Sach's opinion TransCanada's competencies and current
financial situation prove they can perform the project.
4:10:02 PM
SENATOR STEDMAN said as AGIA evolved the viability of loan
guarantees came up. He asked for Goldman/Sach's opinion on the
viability of loan guarantees if Exxon or BP bid on the gas and
if these loan guarantees would be of any interest to a firm the
size of Exxon. He also asked if Exxon would be able to secure
cheaper financing without the loan guarantee.
MR. ROMER said energy and oil markets are doing great but he
believed the federal government was doing a little better. He
said having the federal government willing to shoulder some risk
and provide access to low cost capital can lead to a lower
tariff and more successful project.
SENATOR STEDMAN clarified his question with Exxon as the
builder.
4:12:50 PM
MR. ROMER replied as a builder having the capital available to
pay your bills was essential. He said if the project company
had access to loans backed by the federal government he would
sleep better at night.
SENATOR STEDMAN said he was looking for a marginal benefit.
Exxon, an extremely large, well run, efficient company didn't
express much interest in the loan guarantees. He is not sure
there is a lot of financial difference between Exxon and the
U.S. government.
MR. ROMER said Exxon was very large, substantial, highly rated
entity that has deep pockets and access to capital. But, he does
not think Exxon borrows at the same interest rate as the federal
government. He does not have the answer to how capital
guaranteed by the balance sheet of Exxon compares to the federal
loan guarantee. He said he could not answer how producers would
value the loan guarantee, but from his perspective U.S.
government backing is valuable and highly coveted in the
marketplace. The guarantee creates liquidity and benefit to the
lenders because of the extra certainty of repayment. Producers
might look at the guarantee and determine maybe it has value,
maybe it does not. As business people, they will do a
cost/benefit analysis and look at costs with or without the loan
guarantee.
4:16:19 PM
REPRESENTATIVE ROSES said he was less concerned about TC
finances than if the project itself was financeable. He assumed
this analysis was done prior to the announcement by BP and
Conoco Phillips of the Denali projects. He said there was also
a competing project on the Canadian side of the border in the
McKenzie valley. He said Robert J. Reid, who was with TC for
thirty-three years before he became president of the Aboriginal
Pipeline Group, was concerned that the Alaska pipeline would
"kill" the McKenzie Valley project if it got started first. He
asked if financing parameters would change knowing there are
competing pipelines having a direct impact on the viability of
this project.
MR. ROMER said a fundamental tenant to the success of the
financing was shippers showing up in the open season. He does
not have expertise in global competitive markets and supply and
demand characteristics of gas. He thinks the question has to do
with the value and price of gas because of competing projects.
REPRESENTATIVE ROSES added his concern was also with cost
overruns. The longer the project is delayed the more potential
for higher costs. He said Mr. Rolheiser from Imperial Oil also
commented that if both pipelines got going at the same time
costs would significantly increase on both projects because of
supply and demand and labor needed. Representative Roses asked
if Mr. Romer agreed that attention must be paid to monitoring
the progress of pipelines in Canada.
MR. ROMER said he could not add further to what he had already
said. Others have looked at the economic supply/demand features
within North America and globally.
4:20:26 PM
MR. ROMER said Goldman Sachs covered the key highlights of their
report and would answer any other questions.
4:20:50 PM
COMMISSIONER GALVIN said risk assessment had also been added to
the agenda and a slide on this topic was in the Black and Veatch
NPV analysis.
CHAIR HUGGINS asked that copies of the slide be made for the
members.
COMMISSIONER GALVIN said the information was in the packet on
pages 14 and 18. The information shown includes various risk
sensitivities for the State and producer, NPV associated with
price, cost escalation, percentage assumptions, schedule
timelines, capital costs and overruns. He also asked for
clarification that his experts would be able to participate in
discussions on "FERC Day" in Anchorage.
CHAIR HUGGINS replied he would discuss those details separately
with Commissioner Galvin.
4:23:32 PM
REPRESENTATIVE HAWKER said he wanted to state for the record
that his questions about financing issues were no reflection on
TC as a corporation but about the risks that would effect any
project. As pointed out in the presentation rating agencies say
the biggest challenge facing TC right now is the need for more
gas. He said the report showed a decline of 2.5 "B" a day
between now and 2020. Moody and Standard and Poor's identify
the increasing supply risk as the key weaknesses to the
entities. He asked what the consequences may be for TC should
they not be involved.
4:26:58 PM
MR. ROMER said this project obviously was valuable to TC, but if
they were not involved they would probably pursue a number of
projects built into their business strategy.
4:28:47 PM
COMMISIONER GALVIN added that AGIA was set up to enable someone
to come forward with a proposal so the State could take control
of moving the project ahead under favorable terms to the State.
TC came forward, he said. He questioned the relevancy of
whether or not TC was otherwise motivated to move this project
ahead. He thinks recognition of the viability of the project
outside of TC's proposal is in order. The analysis shows the
project is financeable and something the markets would embrace
and bring forward to fruition.
4:31:42 PM
REPRESENTATIVE SAMUELS said he disagreed with Commissioner
Galvin that the question was not relevant. Lesa Adair of Muse
Stancil was asked specifically how badly the corporation would
be hurt if .5 "B" of gas did not get into their system. He said
her models showed it would hurt but not break the back of the
corporation. He thinks it is an extremely relevant question in
terms of leverage. He also asked how many of the current
shippers were also the shippers on the reduced capacity in the
TC line.
4:33:44 PM
CHAIR HUGGINS said some of these concerns would be addressed in
summations when returning to Juneau.
4:34:00 PM
SENATOR THERRIAULT said LNG or gas projects being developed in
Northern latitudes like Norway have run into construction
problems. He asked with TC in particular, if the risk was lower
technologically.
MR. SPARGER said a LNG facility project was inherently riskier
than an overland pipe. Risk is not really reduced because the
pipe is reduced.
[SB 3001 and HB 3001 were held in committee.]
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