Legislature(2013 - 2014)SENATE FINANCE 532

03/05/2014 09:00 AM Senate FINANCE


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09:11:18 AM Start
09:12:08 AM SB138
11:00:21 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 138 GAS PIPELINE; AGDC; OIL & GAS PROD. TAX TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
SENATE BILL NO. 138                                                                                                           
                                                                                                                                
     "An Act relating to the  purposes of the Alaska Gasline                                                                    
     Development Corporation to advance  to develop a large-                                                                    
     diameter  natural   gas  pipeline   project,  including                                                                    
     treatment  and  liquefaction  facilities;  establishing                                                                    
     the large-diameter  natural gas pipeline  project fund;                                                                    
     creating  a  subsidiary  related  to  a  large-diameter                                                                    
     natural gas  pipeline project, including  treatment and                                                                    
     liquefaction facilities;  relating to the  authority of                                                                    
     the  commissioner  of  natural resources  to  negotiate                                                                    
     contracts related to North  Slope natural gas projects,                                                                    
     to enter into confidentiality  agreements in support of                                                                    
     contract negotiations  and implementation, and  to take                                                                    
     custody  of  gas  delivered  to   the  state  under  an                                                                    
     election  to pay  the  oil and  gas  production tax  in                                                                    
     kind; relating  to the sale,  exchange, or  disposal of                                                                    
     gas delivered  to the  state under  an election  to pay                                                                    
     the oil  and gas  production tax  in kind;  relating to                                                                    
     the  duties of  the commissioner  of revenue  to direct                                                                    
     the   disposition  of   revenues   received  from   gas                                                                    
     delivered to the state in  kind and to consult with the                                                                    
     commissioner of  natural resources  on the  custody and                                                                    
     disposition  of gas  delivered to  the  state in  kind;                                                                    
     relating  to  the  authority  of  the  commissioner  of                                                                    
     natural resources to  propose modifications to existing                                                                    
     state oil  and gas  leases; making  certain information                                                                    
     provided  to the  Department of  Natural Resources  and                                                                    
     the Department  of Revenue exempt from  inspection as a                                                                    
     public record;  making certain tax  information related                                                                    
     to an  election to pay  the oil and gas  production tax                                                                    
     in  kind exempt  from  tax confidentiality  provisions;                                                                    
     relating  to   establishing  under  the  oil   and  gas                                                                    
     production tax  a gross  tax rate  for gas  after 2021;                                                                    
     making  the  alternate  minimum  tax  on  oil  and  gas                                                                    
     produced north of 68 degrees  North latitude after 2021                                                                    
     apply only  to oil;  relating to  apportionment factors                                                                    
     of  the  Alaska  Net  Income  Tax  Act;  authorizing  a                                                                    
     producer's election  to pay the oil  and gas production                                                                    
     tax  in  kind  for  certain gas  and  relating  to  the                                                                    
     authorization;   relating    to   monthly   installment                                                                    
     payments of  the oil and  gas production  tax; relating                                                                    
     to  interest payments  on monthly  installment payments                                                                    
     of  the  oil  and   gas  production  tax;  relating  to                                                                    
     settlements  between producers  and royalty  owners for                                                                    
     oil  and   gas  production  tax;  relating   to  annual                                                                    
     statements  by  producers  and explorers;  relating  to                                                                    
     annual  production   tax  values;  relating   to  lease                                                                    
     expenditures;  amending the  definition of  gross value                                                                    
     at the  'point of production'  for gas for  purposes of                                                                    
     the  oil and  gas  production  tax; adding  definitions                                                                    
     related to  natural gas  terms; clarifying  that credit                                                                    
     may not  be taken against  the in-kind levy of  the oil                                                                    
     and  gas production  tax for  gas for  purposes of  the                                                                    
     exploration incentive  credit, the oil or  gas producer                                                                    
     education credit,  and the film production  tax credit;                                                                    
     making  conforming  amendments;  and providing  for  an                                                                    
     effective date."                                                                                                           
                                                                                                                                
9:12:08 AM                                                                                                                    
                                                                                                                                
Vice-Chair   Fairclough   wondered    if   the   forthcoming                                                                    
amendments should be drafted for  the CS version O. Co-Chair                                                                    
Kelly replied in the affirmative.                                                                                               
                                                                                                                                
JOE BALASH,  COMMISSIONER, DEPARTMENT OF  NATURAL RESOURCES,                                                                    
(DNR)   discussed  the   fiscal   notes   attached  to   the                                                                    
legislation. He  explained that FN3:  DNR, showed  funds for                                                                    
both FY  15 and  FY 16 needed  for expenses  associated with                                                                    
supporting the development of contracts.  He stated that DNR                                                                    
was unable  to determine  ongoing costs associated  with the                                                                    
legislation,  because the  contracts must  be developed  and                                                                    
see if they met with  favor from the public and legislature.                                                                    
He  felt that  the explanation  of the  agreements had  been                                                                    
clearly outlined:  some upstream with the  producers related                                                                    
to   the  offtake   and  balancing   agreements;  and   some                                                                    
downstream  that   were  targeted  toward   those  midstream                                                                    
service  providers, which  included TransCanada  in the  GTP                                                                    
and  pipeline, and  Alaska  Gasline Development  Corporation                                                                    
(AGDC) for  liquefaction. In addition,  DNR would  begin the                                                                    
sales  and disposition  process for  the liquid  natural gas                                                                    
(LNG). He  stated that there  was some analysis  attached to                                                                    
the fiscal note.  He directed attention to the  last page of                                                                    
the  analysis, and  stressed  that  some in-house  expertise                                                                    
must  be established  at DNR,  specifically  related to  the                                                                    
upstream questions and agreements with the producers.                                                                           
                                                                                                                                
9:16:36 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough   wondered  if  the   discussion  was                                                                    
related  to the  fiscal note  dated 1/20/2014.  Commissioner                                                                    
Balash  stated  that  he  was looking  at  FN3:  DNR,  dated                                                                    
1/24/2014. He  did not  believe that a  new fiscal  note had                                                                    
been  generated  for the  CS  that  passed from  the  Senate                                                                    
Resources Committee.                                                                                                            
                                                                                                                                
Co-Chair Kelly asked for a  quote from the document that was                                                                    
referenced. Commissioner  Balash replied that the  top read,                                                                    
"SB 138."                                                                                                                       
                                                                                                                                
Co-Chair  Kelly asked  for a  detail  of the  page that  was                                                                    
referenced.  Commissioner Balash  looked  at page  3 of  the                                                                    
fiscal note, which  was a detail of how  the requested funds                                                                    
would be used and utilized.                                                                                                     
                                                                                                                                
Co-Chair Kelly wondered if the  first word was "allocation."                                                                    
Commissioner Balash responded in the affirmative.                                                                               
                                                                                                                                
Commissioner  Balash  stated  that  the  total  request  was                                                                    
slightly  less  than  $9  million for  DNR  to  support  the                                                                    
development of  the contracts.  Some of  the funds  would be                                                                    
aid to the Department of  Law (DOL) to support the contracts                                                                    
for  outside   council.  There  was  a   present  budget  of                                                                    
approximately $3  million. The  above items, with  regard to                                                                    
the marketing expertise,  was a total of  six positions: one                                                                    
lead,  four  supporting,   and  one  administration  project                                                                    
assistant.  He  stated  that   there  had  been  discussions                                                                    
related  to where  the  positions would  be  housed and  who                                                                    
would do the  hiring. He shared that there was  an option to                                                                    
work with AGDC,  which was equipped with  certain tools that                                                                    
could be useful in attracting  the kind of talent needed for                                                                    
this effort. He felt that  AGDC could provide some marketing                                                                    
services,  in addition  to  transportation and  liquefaction                                                                    
services.  He  stressed  that the  decisions  about  royalty                                                                    
sales would  be for  DNR and  the legislature.  He announced                                                                    
that  there was  a significant  travel expense,  because the                                                                    
team  of marketing  experts should  travel to  Asia and  the                                                                    
various  marketplaces often.  He  observed  that the  fiscal                                                                    
note  from  Department  of  Revenue  (DOR)  was  quite  low,                                                                    
relative  to  the DNR  fiscal  note,  because there  was  an                                                                    
effort to focus all of the  work in a single agency to avoid                                                                    
duplication.                                                                                                                    
                                                                                                                                
9:21:07 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough  looked  at  the  $340  million,  and                                                                    
wondered  how  the  salaries were  determined  a  reasonable                                                                    
amount in  the market. Commissioner Balash  replied that the                                                                    
specific  number  was  a  result of  a  starting  salary  of                                                                    
approximately $250,000, which came  from a conversation with                                                                    
prospective employees  that DNR was  seeking to hire  in the                                                                    
year prior. He felt that  the salary should attract the kind                                                                    
of talent  necessary for  the task,  but understood  that it                                                                    
was not a normal salary for a state agency.                                                                                     
                                                                                                                                
Senator  Bishop wondered  if the  proposal  was an  adequate                                                                    
amount  of  money.  He  stressed that  he  wanted  the  best                                                                    
possible  people working  in  these positions.  Commissioner                                                                    
Balash  replied  that  he  felt the  budget  could  work  to                                                                    
support the efforts  of the state. He  understood that there                                                                    
could be a possibility for more money.                                                                                          
                                                                                                                                
Commissioner  Balash  stated  that  the  likelihood  of  the                                                                    
expenditures   carrying  through   year  to   year  depended                                                                    
entirely   on   the   negotiations  and   actions   of   the                                                                    
legislature. He felt that the  funding should be maintained,                                                                    
but  the  development  of  contracts   and  terms  would  be                                                                    
completed  at  a  certain point.  The  largest  expenditures                                                                    
moving  forward would  be based  on monitoring  and carrying                                                                    
out the contract  terms. He hoped to see a  reduction of the                                                                    
budget amount over time.                                                                                                        
                                                                                                                                
MICHAEL PAWLOWSKI,  DEPUTY COMMISSIONER,  STRATEGIC FINANCE,                                                                    
DEPARTMENT  OF  REVENUE, (DOR)  looked  at  the fiscal  note                                                                    
dated  1/20/2014, which  was  fiscal note  number  4 with  a                                                                    
number in  the FY 15 column  of $750,000. He stated  that it                                                                    
was a  one-time request for FY  15, and the analysis  was on                                                                    
page  2 of  the fiscal  note. He  noted that  there was  the                                                                    
establishment of the  mechanism as tax as gas,  so the state                                                                    
could  take  a   larger  share  of  the   molecules  than  a                                                                    
traditional tax.  The second request was  for a reimbursable                                                                    
services  agreement  with  DOL to  develop  the  regulations                                                                    
called for by  the implementation of the  tax provision. The                                                                    
total request from DOR was  $750,000. The intent was to work                                                                    
consultatively with DNR and AGDC  to conduct the majority of                                                                    
the contract development support.                                                                                               
                                                                                                                                
9:27:40 AM                                                                                                                    
                                                                                                                                
Mr.   Pawlowski  explained   the  new   fiscal  note   dated                                                                    
2/24/2014. The FY 15 column  had a request for $500,000, and                                                                    
an additional  request in FY  16 for $160,000.  The analysis                                                                    
was on  page 2,  and was  a response  to the  direction from                                                                    
Senate Resource that DOR prepare  a plan to allow individual                                                                    
Alaskans  to invest  in the  project. The  analysis outlined                                                                    
the  contractual  costs for  DOR  to  prepare the  plan  and                                                                    
conduct the  due diligence and structure  the opportunity to                                                                    
provide  a  recommendation  for  the  legislature  to  allow                                                                    
Alaskans to engage in the project.                                                                                              
                                                                                                                                
DANIEL   FAUSKE,  PRESIDENT,   ALASKA  GASLINE   DEVELOPMENT                                                                    
CORPORATION   (via    teleconference),   (AGDC)   introduced                                                                    
himself.                                                                                                                        
                                                                                                                                
MILES  BAKER, DIRECTOR,  GOVERNMENT  RELATIONS AND  EXTERNAL                                                                    
AFFAIRS,   ALASKA  GASLINE   DEVELOPMENT  CORPORATION   (via                                                                    
teleconference),  spoke  to  two fiscal  notes  prepared  by                                                                    
AGDC. He began with FN:  2 (CED), dated 1/20/2014. He looked                                                                    
at the FY  15 column with a total amount  of $3.802 million,                                                                    
with one  full-time position.  The FY 16  column also  had a                                                                    
request  for $3.802  million, and  the  FY 17  column had  a                                                                    
request  for $410,000  for  personal  services. He  remarked                                                                    
that there  was an FY  14 supplemental request  of $700,000.                                                                    
The total  request for the  fiscal note was  $8.714 million,                                                                    
and represented  the operating costs that  would be incurred                                                                    
by AGDC  to participate in  the pre-FEED through the  end of                                                                    
FY 16.  It was  anticipated that  there would  be additional                                                                    
costs in the  out years, but it was too  early to anticipate                                                                    
the exact  cost to the  state. The  second page of  the note                                                                    
was a  high-level description of  the AGDC  involvement, and                                                                    
it  was anticipated  that  the subsidiary  would  be a  true                                                                    
subsidiary of  AGDC with the utilization  of existing staff.                                                                    
He explained  that an  executive would  be hired  to oversee                                                                    
the new  subsidiary, and contract council  would conduct the                                                                    
majority  of the  negotiations for  the major  documents. He                                                                    
noted  that   there  would   be  significant   travel  costs                                                                    
associated with participation with  other signatories of the                                                                    
HOA.                                                                                                                            
                                                                                                                                
9:33:38 AM                                                                                                                    
                                                                                                                                
Senator  Hoffman looked  at the  first  page of  FN: 2,  and                                                                    
asked for further explanation of  the capital request for FY                                                                    
15.  Mr. Baker  responded  that the  $83.7  million was  the                                                                    
amount that needed  to be capitalized. He  stated that there                                                                    
was a cross-reference to FN: 1.                                                                                                 
                                                                                                                                
Co-Chair  Meyer asked  for assurance  that there  was not  a                                                                    
duplication of effort.  He wondered if the  state was paying                                                                    
for the  same service  twice. Mr.  Fauske replied  that AGDC                                                                    
was not  going to duplicate  efforts. He explained  that the                                                                    
work was on the liquefaction side of AKLNG.                                                                                     
                                                                                                                                
Co-Chair Meyer wondered  if the expertise could  be used for                                                                    
the  standalone line,  if the  large  line did  not come  to                                                                    
fruition. Mr.  Fauske responded that the  expertise could be                                                                    
used, as long  as the state had access or  had possession of                                                                    
the data that  was developed. He felt that there  could be a                                                                    
fairly seamless transition.                                                                                                     
                                                                                                                                
Co-Chair Meyer  asked if  the $83  million request  could be                                                                    
reappropriated to  the standalone pipeline. Mr.  Fauske felt                                                                    
that it was at the will of the legislature.                                                                                     
                                                                                                                                
Co-Chair   Meyer   recalled   that   the   legislature   had                                                                    
appropriated $335 million to AGDC  the year prior. Mr. Baker                                                                    
clarified that the appropriation was for $355 million.                                                                          
                                                                                                                                
Vice-Chair    Fairclough    wondered     if    there    were                                                                    
confidentiality  agreements with  the subsidiary  within the                                                                    
subsidiary, and  asked if  AGDC was  allowed access  to that                                                                    
date. Mr.  Fauske responded that  it was a  possibility that                                                                    
the subsidiary  would be under a  confidentiality agreement.                                                                    
He  stressed  that  the   legislation  outlined  a  separate                                                                    
division  that  was created  which  would  be separate  from                                                                    
AGDC. The  new subsidiary  would be completely  separate. He                                                                    
stressed   that   the   language  was   currently   slightly                                                                    
confusing.  He  explained  that there  were  confidentiality                                                                    
agreements regarding the sharing  of data. He understood the                                                                    
concerns about managing the money.                                                                                              
                                                                                                                                
9:40:50 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough surmised  that  there  would be  cost                                                                    
savings,  if  the  enterprise entity  within  AGDC  was  the                                                                    
repository  of  all of  the  data.  Mr. Fauske  agreed,  and                                                                    
announced   that   there   were  cost   savings   and   some                                                                    
efficiencies that should be made before moving forward.                                                                         
                                                                                                                                
Co-Chair  Meyer  stressed  that the  finance  committee  was                                                                    
focused  on   savings.  He  looked   at  the   $355  million                                                                    
appropriation  from  the year  prior,  and  wondered if  the                                                                    
$83.7 million  could be reappropriated  from that  amount to                                                                    
apply  to the  project. He  surmised  that it  would not  be                                                                    
possible, because  this was a  separate project.  Mr. Fauske                                                                    
responded  that the  reappropriation  was  possible, but  it                                                                    
would affect the  ability of the standalone  project to move                                                                    
forward at its current pace.                                                                                                    
                                                                                                                                
Senator Hoffman looked  at page 3, item I of  the HOA, which                                                                    
explained  the current  situation. He  noted that  the third                                                                    
sentence  said that  the  administration  and AGDC  intended                                                                    
that AGDC  would participate in  the project. He  noted that                                                                    
AGDC  would  continue  to  pursue  the  standalone  pipeline                                                                    
project. He  queried the priority  of AGDC. He  wondered how                                                                    
AGDC  was prioritizing  the projects.  Mr. Fauske  responded                                                                    
that there  would be  a point  in time  where prioritization                                                                    
must  occur. There  would be  an eventual  shift of  project                                                                    
development.                                                                                                                    
                                                                                                                                
9:48:28 AM                                                                                                                    
                                                                                                                                
Senator  Hoffman  remarked that  the  ASAP  would have  open                                                                    
season in  2016, which was also  the first year of  FEED for                                                                    
the  proposed project  within the  legislation. He  wondered                                                                    
how that  would affect  each other. He  also noted  that the                                                                    
board  membership  was  critical, but  stressed  that  there                                                                    
should  be  specifications  and   guidelines  of  the  board                                                                    
memberships.  He  felt  that  there should  be  a  focus  on                                                                    
delivering gas  to all Alaskans. Mr.  Fauske responded there                                                                    
could be  one board to  focus its energy and  efforts toward                                                                    
the change. The  current board had a  strong and experienced                                                                    
membership,  and  brought  expertise  to  a  wide  array  of                                                                    
discussion topics.                                                                                                              
                                                                                                                                
9:52:04 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
10:00:07 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
10:01:37 AM                                                                                                                   
                                                                                                                                
DEEPA PODUVAL,  PRINCIPAL CONSULTANT, NATURAL GAS  AND POWER                                                                    
FUELS  GROUP,   BLACK  AND  VEATCH   MANAGEMENT  CONSULTING,                                                                    
displayed  the  PowerPoint   presentation,  "Senate  Finance                                                                    
Committee, Clarifications  on Previous  Presentations" (copy                                                                    
on file).                                                                                                                       
                                                                                                                                
Ms. Poduval  discussed slide 2,  "Long-term North  Slope Oil                                                                    
and Gas Revenues  are Driven by AKLNG  Project Success." She                                                                    
announced that the question on  this slide, which showed the                                                                    
projected  revenue  forecast  for  the state.  There  was  a                                                                    
remarkable  difference of  approximately $4  billion between                                                                    
revenue  from oil  only versus  oil and  gas combined,  from                                                                    
2024 to 2040.                                                                                                                   
                                                                                                                                
10:03:18 AM                                                                                                                   
                                                                                                                                
Vice-Chair Fairclough  wondered if  oil was included  in the                                                                    
green line, and to what extent  it was included in the graph                                                                    
analysis. Ms.  Poduval replied that the  green line included                                                                    
oil and  gas, and  the green line  should be  considered the                                                                    
blue line, plus the revenues from the AKLNG project.                                                                            
                                                                                                                                
Ms. Poduval  highlighted slide 3,  "Preserve Value  to State                                                                    
from Royalty and  Taxes." She stated that  the revenues were                                                                    
only attributed to  the AKLNG project. The  graph showed the                                                                    
distribution   between   royalty   production   tax,   state                                                                    
corporate income  tax, and property  tax. She  stressed that                                                                    
there were some oil revenues  that were included, which came                                                                    
from  two  different  sources.   It  was  assumed  that  Pt.                                                                    
Thompson  would produce  more oil  with the  investment that                                                                    
would be  made to produce gas  out of Pt. Thompson,  than it                                                                    
would  without  the   incremental  capital  investment.  The                                                                    
revenue  at  its peak  was  approximately  30,000 to  40,000                                                                    
barrels per day, with the  additional oil production assumed                                                                    
from Pt.  Thompson. The production  had a  fairly aggressive                                                                    
decline to  approximately 15,000 barrels per  day. The value                                                                    
at Pt. Thompson came from the  gas. The second source of oil                                                                    
related revenues  were from "yet  to find" fields,  later in                                                                    
the  project's  life.  It was  assumed  that  production  at                                                                    
Prudhoe  Bay and  Pt.  Thompson would  begin  to decline  by                                                                    
2040, but new fields would  be discovered on the North Slope                                                                    
to keep the project intact.                                                                                                     
                                                                                                                                
10:07:51 AM                                                                                                                   
                                                                                                                                
Vice-Chair  Fairclough  wondered  if the  graph  represented                                                                    
terminology that would be considered "blow down."                                                                               
                                                                                                                                
Co-Chair Kelly  asked Vice-Chair  Fairclough to  restate her                                                                    
question.  Vice-Chair Fairclough  clarified  that there  had                                                                    
been   discussions  regarding   where  the   gas  would   be                                                                    
available.  She  stressed  that there  was  a  challenge  to                                                                    
define the actual  reservoir of gas, in  order to understand                                                                    
what could  be recovered. She  wondered if the 6  percent on                                                                    
the chart would be considered "blow down."                                                                                      
                                                                                                                                
Commissioner  Balash  stated  that   the  oil  impacts  were                                                                    
accounted for,  but were not  a part  of the 6  percent that                                                                    
was displayed on the graph.                                                                                                     
                                                                                                                                
Vice-Chair   Fairclough   queried   what   the   6   percent                                                                    
represented.  Ms.   Poduval  replied  that  the   6  percent                                                                    
referred to how much of  the revenues displayed on the chart                                                                    
came from the oil assumptions.                                                                                                  
                                                                                                                                
Co-Chair Kelly handed the gavel to Co-Chair Meyer.                                                                              
                                                                                                                                
10:10:34 AM                                                                                                                   
                                                                                                                                
Senator Hoffman looked at 2018  through 2023, and noted that                                                                    
the green line  was below the blue line on  slide 2. He felt                                                                    
that the  green line  would always be  above the  blue line.                                                                    
Ms. Poduval replied  with slide 3, "Preserve  Value to State                                                                    
from Royalty and Taxes." She  stressed that there would be a                                                                    
negative  impact  to  the  state   before  the  project  was                                                                    
operational.                                                                                                                    
                                                                                                                                
Senator Hoffman  noted that enalytica  showed the  same dips                                                                    
in value, but  total for the years would be  in the billions                                                                    
of  dollars. He  queried  the assumptions  on  graph 2.  Ms.                                                                    
Poduval  replied  that  graph  2  was  used  in  an  earlier                                                                    
presentation to  level set, and  display the picture  of the                                                                    
North Slope project without any state equity investment.                                                                        
                                                                                                                                
Senator Hoffman felt that there  was not a reconciliation of                                                                    
the numbers that were presented by enalytica.                                                                                   
                                                                                                                                
Co-Chair  Meyer remarked  that the  state would  continue to                                                                    
heavily  invest  in  the  project  in  the  downstream,  but                                                                    
wondered if  it was too risky  to have no say  or investment                                                                    
in  the  upstream  portion  of   the  project.  Ms.  Poduval                                                                    
stressed that  the project was extremely  expensive, and the                                                                    
only  way the  producers made  money was  through investment                                                                    
with the return of production from the North Slope.                                                                             
                                                                                                                                
Co-Chair  Meyer stressed  that the  producers had  many more                                                                    
global opportunities than the State of Alaska.                                                                                  
                                                                                                                                
10:16:45 AM                                                                                                                   
                                                                                                                                
Vice-Chair  Fairclough  asked  if  AOGCC  would  define  the                                                                    
highest benefit  for the particular  reservoir. Commissioner                                                                    
Balash  responded that  the off-tick  was what  mattered the                                                                    
most for DOR and DNR.                                                                                                           
                                                                                                                                
Ms.  Poduval looked  at slide  4, "Preserve  Value to  State                                                                    
From Royalty and Taxes."                                                                                                        
                                                                                                                                
     IMPLICATIONS:                                                                                                              
                                                                                                                                
     AKLNG is currently out of the money:                                                                                       
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
          ~340 MTPA  new supply, more than  required to meet                                                                    
          global LNG  demand (~250 -  300 MTPA)  AKLNG faces                                                                    
          significant competition                                                                                               
                                                                                                                                
                                                                                                                                
          supply  stack   which  will  compete   with  AKLNG                                                                    
          However,   the  risk   levels  of   competing  LNG                                                                    
          projects also needs to be considered                                                                                  
                                                                                                                                
                                                                                                                                
          some    in    the    money   projects    may    be                                                                    
          delayed/cancelled,  leading  to  range  of  needed                                                                    
          capacity                                                                                                              
                                                                                                                                
Ms. Poduval displayed slide 5, "On the Global Supply Curve,                                                                     
AKLNG Appears to Currently be Out of the Money,                                                                                 
Modifications Required for Competitiveness."                                                                                    
                                                                                                                                
     IMPLICATIONS:                                                                                                              
                                                                                                                                
     AKLNG is currently out of the money:                                                                                       
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                
          ~340 MTPA  new supply, more than  required to meet                                                                    
          global LNG demand (~250 - 300 MTPA)                                                                                   
                                                                                                                                
     AKLNG faces significant competition                                                                                        
                                                                                                                                
                                                                                                                                
          supply stack which will compete with AKLNG                                                                            
                                                                                                                                
     However, the risk levels of competing LNG projects                                                                         
     also needs to be considered                                                                                                
                                                                                                                                
                                                                                                                                
          some    in    the    money   projects    may    be                                                                    
          delayed/cancelled, leading to range of needed                                                                         
          capacity                                                                                                              
                                                                                                                                
Ms.  Poduval  explained that  the  slide  showed the  Alaska                                                                    
project  within   the  context  of  the   other  global  LNG                                                                    
programs.                                                                                                                       
                                                                                                                                
10:25:12 AM                                                                                                                   
                                                                                                                                
Co-Chair  Kelly  stated that  Mr.  Persily  had delivered  a                                                                    
detailed presentation of the projects.                                                                                          
                                                                                                                                
Ms.  Poduval  stressed that  the  graph  displayed a  moving                                                                    
picture. It  was one point  in time which was  analyzed. She                                                                    
remarked that every  project would undergo the  same kind of                                                                    
analysis and  scrutiny. The position  of the  project inside                                                                    
the queue was dynamic, but  she stressed that other projects                                                                    
would  be more  expensive and  attempt to  lower their  cost                                                                    
structures to satisfy market demand.                                                                                            
                                                                                                                                
Senator Hoffman  looked at the  AKLNG project,  and remarked                                                                    
that  it  was  the  largest  bump  of  the  second  tier  of                                                                    
projects.  Under  the  assumptions   of  the  range  of  the                                                                    
projects, he queried the production  costs in the graph. Ms.                                                                    
Poduval explained  that the assumption  was the  midpoint of                                                                    
the range.                                                                                                                      
                                                                                                                                
Senator Hoffman wondered if the  assumption was $35 billion.                                                                    
Ms. Poduval  explained that the  $45 to $65  billion project                                                                    
cost  was for  upstream and  midstream costs.  The midstream                                                                    
component was only  the GDP pipeline and LNG  plant, and was                                                                    
approximately $37  and $54  billion. The  rest of  the costs                                                                    
would be  spent at Pt.  Thompson. The capital cost  that was                                                                    
assumed for the GDP pipeline and  LNG plant on the graph was                                                                    
$45 billion.                                                                                                                    
                                                                                                                                
Senator Hoffman  assumed that  the construction  costs would                                                                    
be  $55  billion, and  the  breakeven  for Alaska  would  be                                                                    
$12.30/MMBtu.  Ms. Poduval  agreed, and  furthered that  the                                                                    
lower side  of the range  after the FEED work  was complete,                                                                    
it would move further left.                                                                                                     
                                                                                                                                
Senator  Hoffman queried  where the  state would  be at  $45                                                                    
billion and $65 billion. Ms.  Poduval agreed to provide that                                                                    
information.                                                                                                                    
                                                                                                                                
10:30:05 AM                                                                                                                   
                                                                                                                                
Commissioner  Balash stressed  that  the  slide showed  that                                                                    
Alaska needed to participate in the project soon.                                                                               
                                                                                                                                
Senator  Hoffman   looked  at  slide  4,   and  wondered  if                                                                    
Commissioner  Balash could  speak to  the state's  cash flow                                                                    
and  the displayed  potential drawdowns.  He would  like the                                                                    
numbers  from 2017  to 2024,  and  the cash  demands of  and                                                                    
impacts  to the  states.  He understood  that the  decisions                                                                    
would  be made  at the  end of  2017, but  would like  see a                                                                    
comparison.  Commissioner  Balash  agreed  to  provide  that                                                                    
information.                                                                                                                    
                                                                                                                                
10:34:00 AM                                                                                                                   
RECESSED                                                                                                                        
                                                                                                                                
11:00:14 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
SB  138  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                

Document Name Date/Time Subjects
030514 SB 138 SFIN Black Veatch.pdf SFIN 3/5/2014 9:00:00 AM
SB 138
030514 SB138 SFIN enalytica Mar 5.pdf SFIN 3/5/2014 9:00:00 AM
SB 138
SB138-CS(RES)-DOR-TRS-03-04-14.pdf SFIN 3/5/2014 9:00:00 AM
SB 138
030514 SB138 Kelly Requests to Enalytica.pdf SFIN 3/5/2014 9:00:00 AM
SB 138