Legislature(2003 - 2004)

01/28/2004 03:35 PM RES

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

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