Legislature(2015 - 2016)BARNES 124
01/27/2015 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Alaska Center from Energy and Power (acep) | |
| Presentation: Alaska and Interior Energy Study | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE
January 27, 2015
8:01 a.m.
MEMBERS PRESENT
Representative Cathy Tilton, Chair
Representative Paul Seaton, Vice Chair
Representative Shelley Hughes
Representative Harriet Drummond
Representative Dan Ortiz
MEMBERS ABSENT
Representative Benjamin Nageak
Representative Lora Reinbold
OTHER LEGISLATORS PRESENT
Representative David Guttenberg
Representative Jim Colver
Representative Liz Vazquez
Representative David Talerico
COMMITTEE CALENDAR
PRESENTATION: ALASKA CENTER FROM ENERGY AND POWER (ACEP)
- HEARD
PRESENTATION: ALASKA AND INTERIOR ENERGY STUDY
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
GWEN HOLDMANN, Director
Alaska Center for Energy and Power (ACEP)
University of Alaska Fairbanks (UAF)
Fairbanks, Alaska
POSITION STATEMENT: Provided an overview of ACEP.
DOUG REYNOLDS, Professor
Energy and Economics
University of Alaska Fairbanks
Fairbanks, Alaska
POSITION STATEMENT: Provided a presentation entitled "Alaska
and Interior Energy Study."
ACTION NARRATIVE
8:01:08 AM
CHAIR CATHY TILTON called the House Community and Regional
Affairs Standing Committee meeting to order at 8:01 a.m.
Representatives Seaton, Hughes, Ortiz, and Tilton were present
at the call to order. Representative Drummond arrived as the
meeting was in progress. Also in attendance were
Representatives Guttenberg, Colver, Vazquez, and Talerico.
^Presentation: Alaska Center from Energy and Power (ACEP)
Presentation: Alaska Center from Energy and Power (ACEP)
8:01:56 AM
CHAIR TILTON announced that the first order of business would be
an overview of the Alaska Center for Energy and Power (ACEP).
8:02:32 AM
GWEN HOLDMANN, Director, Alaska Center for Energy and Power
(ACEP), University of Alaska Fairbanks (UAF), began by
highlighting that ACEP is a relatively young research group
within the University of Alaska system as it was formed about
seven years ago. The ACEP is housed within the College of
Engineering and Mines within the Institute of Northern
Engineering at UAF. She told the committee that ACEP works with
researchers across the university system and also has an office
in Anchorage. She explained that ACEP was formed with regard to
how the university could do business and engage with the state's
communities. Therefore, the decision was made not to hire a
traditional academic to build and direct the program. She
informed the committee that her background is in the private
sector as an engineer who has developed projects in the state
and worked with the university from the perspective of the
private sector and a community member. The goal, she indicated,
is to take advantage of the university's resources and build on
those.
8:05:26 AM
REPRESENTATIVE HUGHES inquired as to the type of work Ms.
Holdmann did in the private sector.
MS. HOLDMANN informed the committee that she has lived in Alaska
for 21 years, her entire adult life. Although she said she has
worked in a variety of fields, she highlighted her work as a
design engineer in Fairbanks for a small engineering firm and
noted that she owned her own company for which she designed and
installed energy systems for individual homeowners, many of
which live in rural areas without access to the traditional
electric grid. In fact, she noted that she has never been
connected to the electric grid in Alaska, and thus has lived
completely off the grid for the last 21 years. Most recently,
prior to her position with ACEP, Ms. Holdmann said she was the
project manager and engineer for the geothermal power plant at
Chena Hot Springs, which is the lowest temperature operating
geothermal power plant in the world. In fact, the Chena Hot
Springs geothermal power plant received the R&D 100 Award, a
prestigious national award. She noted she was involved in the
green house project [at Chena Hot Springs], which she opined is
the only year round operating green house in Northern Alaska, as
well as the ice museum that is cooled using geothermal heat. In
further response to Representative Hughes, Ms. Holdmann informed
the committee that she was hired seven years ago to build the
program from the ground up and was its only staff at the time.
8:07:29 AM
MS. HOLDMANN, returning to her overview, stated that ACEP is
technology agnostic and the mission of ACEP is to develop and
disseminate practical, cost effective, [and innovative] energy
solutions for communities in Alaska. Currently, ACEP has about
22 staff, primarily engineering staff, with which it works and
30 faculty. Some faculty work with ACEP on every ACEP project,
but researchers from various areas of the university are
utilized on an as-needed basis. She characterized the
aforementioned as a strength as it affords ACEP to be dynamic
and flexible. The role of ACEP and the University of Alaska
(UA) is to develop information for decision makers, which
includes everyone from legislators to individual citizens. The
ACEP, she opined, has the opportunity to provide neutral
unbiased information so that people can make the best possible
decisions. Therefore, ACEP does lots of technology testing for
industries and communities by bringing in and testing equipment
that has potential for use in Alaska as well as planning for
deployment of technology outside of the laboratory. Although
ACEP is fundamentally an engineering program, ACEP believes in
the need to review the economics of a project. To that end,
ACEP has an energy analysis group that performs a lot of work
assessing the various options in the state. Students, she
highlighted, are a large part of this program. There are about
50 students a year who work on research programs and are
embedded in communities as ACEP makes partnerships with various
regions. For example, ACEP had a partnership with the Northwest
Arctic Borough to assess performance in the Arctic. She then
pointed out that ACEP is also involved in commercializing energy
innovation as evidenced by the 10 invention disclosures that it
submitted last year alone. Commercializing energy innovation is
an area where the university has the potential to work with the
private sector to develop new ideas that can be used in Alaska
and beyond.
8:11:08 AM
REPRESENTATIVE HUGHES recalled discussions with folks affiliated
with the Pacific NorthWest Economic Region (PNWER) regarding the
university research in Alberta, Canada, in which they were
careful to ensure it was industry driven rather than
academically driven. To that end, she asked whether ACEP or
industry starts the conversation [on a potential project].
MS. HOLDMANN emphasized that one of ACEP's fundamental tenets is
not to compete with industry but rather facilitate the success
of industry inside and outside of the Alaska market. For
example, there has been a lot of interest in Alaska in terms of
hydrokinetic energy due to the state's tidal and river
resources. Many communities in Alaska are interested in the
notion of extracting energy directly from rivers. Furthermore,
the industry has recognized there is the opportunity to test its
devices in Alaska. The aforementioned allows ACEP to play a
dual role such that ACEP facilitates the industry developing
devices that work in Alaska while protecting communities. For
the hydrokinetic industry ACEP worked on uncovering the
industry-wide barriers to placing the equipment in Alaska's
rivers and tidal areas. One of the barriers identified was
debris, which led to ACEP developing a debris diversion device
that's technology agnostic, and thus it can be used with any
vendor. This device, she related, has been running for three
years in a river in Nenana and has been tested against actual
turbines and manufacturers. The industry, she further related,
has been extremely pleased with what ACEP has accomplished,
particularly since the industry couldn't individually afford to
do the development and testing.
8:13:43 AM
REPRESENTATIVE HUGHES asked if ACEP has conversations with those
outside of the power industry.
MS. HOLDMANN said that since ACEP is an energy research program,
the organization focuses on problems that are relevant to energy
questions. However, at the homeowner level there is no good
data with regard to how much fuel is used to heat homes in rural
Alaska. The lack of real data makes it difficult for private
sector investment. Therefore, one of ACEP's recent invention
disclosures is a heat metering system to measure fuel use for
individual structures without breaking into the fuel line. The
aforementioned has the potential to be an important element for
residents and policymakers in terms of how much heating fuel is
being used to incentivize private investment.
REPRESENTATIVE HUGHES encouraged ACEP to increase conversations
with those outside of the power industry, such as the refineries
and mining industry.
MS. HOLDMANN informed the committee that ACEP performed a test
of an innovative flywheel in which the laboratory was configured
to emulate a remote mine in Canada. The aforementioned resulted
in ACEP's test configuration being replicated in a remote mine
site in Northern Quebec, Canada. Therefore, ACEP is working
with industry to support its needs.
8:17:00 AM
REPRESENTATIVE SEATON recalled passage of legislation that gave
free peat, of which there is a lot in Alaska, to communities
across the state, but noted that he hasn't heard of anything
going forward. Therefore, he asked whether there are any
programs going forward utilizing the resource while providing
local jobs in the harvesting and supplying of the peat resource
within the communities.
MS. HOLDMANN agreed with Representative Seaton that there is a
lot of peat resource in Alaska. The use of peat [as an energy
source] has been considered for one community in the Interior as
it has an excellent peat resource across the river from it.
However, Ms. Holdmann expressed the need, in terms of energy
planning for communities across the state, to broadly consider
the options with regard to the available local resources. The
options under review should include peat, coal, gas, oil, or
renewable energy.
REPRESENTATIVE SEATON related that one of the unique aspects of
using peat is the external burner rather than the internal
combustion engine, which avoids the need for refining and
shipping [both of which] hold the potential for spill
contamination problems. Furthermore, there would be local jobs
for harvesting the supply. He expressed dismay with the U.S.
exporting its technology and pilot programs elsewhere.
8:20:35 AM
MS. HOLDMANN, continuing her overview, reiterated that ACEP's
emphasis is on understanding the critical challenges that face
the state. The ACEP is forming teams of researchers from the
university system. She noted that members should have an
overview at a glance of the program, which includes a list of
researchers, their location, and the project with which they are
working. She highlighted that ACEP focuses on meeting the
timeline of both the industry and the community. With regard to
funding, ACEP receives a relatively small base allocation
through the university budget. Programs such as ACEP make both
the university and the state more sustainable as it brings in
funds from elsewhere that are applied to challenges faced in
Alaska. Ms. Holdmann said ACEP works hard in communities in
order to determine how to make a difference for individual
Alaskans and track via a metric. She then directed attention to
a slide entitled "Conducting meaningful research for Alaska,"
which highlights some of the places ACEP has been working
recently as well as the type of research. The research has been
driven by specific questions, she noted. For example, small
modular nuclear reactors were of interest to the legislature a
few years ago and resulted in ACEP conducting a comprehensive
study of the technology existing at that time. The findings
were presented to the legislature a couple of years ago and ACEP
continues to monitor that in order to understand whether there
is potential for Alaska without deciding whether a particular
technology is the appropriate solution for a particular
community.
8:23:55 AM
MS. HOLDMANN then turned to three areas in which ACEP has
invested resources. With the Power System Integration Program,
which looks at how village systems operate, ACEP has observed
that individual manufacturers and developers are very focused on
their products. However, how those products work together in a
system in a small isolated electric grid as is the case in many
locales in Alaska isn't reviewed. Therefore, there is a lot of
opportunity for optimization of energy systems and that has
become a major priority for ACEP. Ms. Holdmann returned to
ACEP's testing of a high performance flywheel and informed the
committee that it was a privately funded project, and thus a
company paid ACEP to test their equipment in ACEP's laboratory
that was setup to emulate the entire power spectrum of a rural
village. Therefore, ACEP's laboratory can be configured to
emulate any particular village in the state and determine how
the equipment works to support that grid prior to sending it to
a rural location. Although this test was for a remote mine site
in rural Canada, the technology seemed like it would have
relevance in Alaska, which is why ACEP was interested in testing
it.
8:26:12 AM
REPRESENTATIVE SEATON inquired as to how the flywheel performed
in the integrated system.
MS. HOLDMANN answered that it performed quite well. In fact,
the test demonstrated the goal, which was to turn off a diesel
generator and run the community grid with wind power, provided
there was adequate wind power. She noted that the most cost
savings would be achieved when the diesel generator could be
turned off for periods of time in rural communities. The
inverter and the fly wheel system were able to support power
quality on the grid for meaningful periods of time even when no
diesel generator was operating. She characterized the
aforementioned as success and now the same system is being
installed in a mine in Northern Quebec.
8:27:20 AM
MS. HOLDMANN, returning to the overview, directed attention a
photo of a previously tested inverter system that was designed
to go into the community of Kokhanok and support a wind project
there. Although this inverter didn't work as well as it could,
ACEP was able to work with the developer and manufacturer to
make changes in the system in the laboratory that were then made
in the community. The next project for ACEP is the testing of a
liquid battery technology designed at Massachusetts Institute of
Technology (MIT) for potential use in the community of Eagle.
She then directed attention to the slide entitled "Alaska
Hydrokinetic Energy Research Center." Although hydrokinetic
turbines are not a broad solution for Alaska communities, there
is a lot of interest in them from manufacturers and communities.
Therefore, ACEP has been testing devices in the river in Nenana.
In fact, ACEP has the only river test site in the world that can
test these devices. The ACEP has been working closely with
industry to address environmental concerns, such as fish
interactions with these devices, and to do performance testing.
She highlighted that Oceana came to Alaska because of ACEP's
test site and paid ACEP to test the turbine for weeks. Oceana
will return next summer for additional testing and to utilize
the time purchased with ACEP's power systems laboratory to work
on an integration question for their particular turbine.
Therefore, ACEP is bringing people to Alaska to work on
technology that's relevant to Alaska.
8:29:13 AM
REPRESENTATIVE SEATON inquired as to the kilowatts of the
turbine prototype.
MS. HOLDMANN explained that the turbine was a small device, a 5
kilowatt system, with a plan to scale it up to the level of the
needs of a small community. She emphasized that ACEP had
nothing to do with developing that technology and isn't saying
that it's the appropriate technology either. However, ACEP is
working with Oceana to support them and other vendors to be
successful in Alaska, if possible.
8:30:04 AM
REPRESENTATIVE HUGHES asked if ACEP has an agreement such that
it can benefit from the information and knowledge gathered.
MS. HOLDMANN clarified that the Oceana project is partially
funded from the Emerging Technology Fund, and thus the state has
invested in this project as well as some others. The ACEP has
worked with the Alaska Energy Authority (AEA) to develop the
program, and thus the performance data for the systems is public
information. Although to the greatest degree possible ACEP does
want information, at least performance assistance, to be public
so that decisions can be made as to whether various
[equipment/systems] are appropriate for communities, ACEP does
have nondisclosure agreements with entities as well.
8:31:28 AM
MS. HOLDMANN, continuing the overview, directed attention to
photos of the Nenana project, which has mostly been funded
through private money, contributions from a major foundation,
and some funding from the federal government. The Nenana site
is the only one like it in the world and has been
internationally recognized. Furthermore, ACEP is recognized by
the International Standards Committee for this technology and
ACEP's base report is being used to develop those standards
internationally. Ms. Holdmann acknowledged that just because
something works technically doesn't necessarily mean it will
work for Alaska, which is the category in which hydrokinetics
falls. The hydrokinetic systems work, but the question is
whether they work economically. In fact, ACEP recently formed
an energy analysis group that reviews how to maximize available
government and private sector resources to address energy issues
at the local level in Alaska. She then noted that ACEP is
involved with review of the unified system operator of the
Alaska Rail Belt grid and on behalf of the Regulatory Commission
of Alaska (RCA) is providing technical support. The ACEP has
also looked at liquefied natural gas (LNG) shipping for coastal
communities for AEA. The ACEP has also reviewed diesel pricing
volatility such that there is an understanding of all of the
factors that go into pricing for rural Alaska in order to
develop better projections for future pricing and [items] that
impact energy costs more generally. She mentioned that ACEP has
also done a fairly major study for Interior Alaska reviewing the
various energy options and comparing projects on an equal basis.
8:33:51 AM
REPRESENTATIVE COLVER asked if ACEP has any published research
on the unified system operator.
MS. HOLDMANN clarified that for that project, ACEP is serving as
technological support for the RCA, and thus ACEP is not
preparing a final report. Therefore, any forthcoming
information has to come through the RCA.
REPRESENTATIVE COLVER further asked if ACEP has any findings
that she could relate in terms of how the concept of moving the
lowest cost power to Fairbanks consumers could play out.
MS. HOLDMANN highlighted that there has been a lot of work in
this area, and thus there is a fairly good understanding of the
pros and cons. She offered to speak with Representative Colver
about putting together something for the House Special Committee
on Energy.
8:35:22 AM
MS. HOLDMANN, returning to her overview, said she wanted to
address an example in which Alaska has the potential to solve
its problems at the community level while also building an
economy with global relevance. Referring to the slide entitled
"Strategic Initiative: Global Applications Program," informed
the committee that this initiative isn't funded and thus ACEP is
working on this with industry in the state. She then related
ACEP's vision: "Alaska leading the way in innovative
production, distribution, and management of energy." The vision
is very much about partnership such that Alaska is leading the
way, which means that ACEP does a great job getting reliable and
affordable energy to all of Alaska's residents and finding
innovative ways to achieve those goals that are potentially
exportable. Ms. Holdmann then highlighted that Alaska is the
global leader in microgrids, which are small electric grid
systems. In fact, the Railbelt grid is one large microgrid
because it's not connected to another grid in Canada. From a
technical perspective, Alaska has developed much expertise in
building and managing these energy grids. The expertise Alaska
has developed in this area is very valuable and exportable to
other markets. Alaska has about 12 percent of the microgrids in
the world and the market is expected to grow four-fold to a $40
billion a year in revenue in the next decade or so. Therefore,
Alaska should pay attention to this market so that Alaskans can
be positioned to benefit from it. She informed the committee
that ACEP has done a lot of research regarding where markets
similar to Alaska are located and where Alaska's expertise and
knowledge could be exported. The countries with markets similar
to Alaska and with whom there has been Alaska involvement
include the South Pacific and Guam. There has been significant
interest in what Alaska is doing in this area. Ms. Holdmann
related that there are about 100 Alaska companies involved in
microgrids and the expertise is located throughout Alaska. She
acknowledged that there is work to do as there are challenges to
engage in this market and it's difficult for individual
companies to enter new markets. Therefore, having a strategy
with which everyone can work is important. Alaska has the
operational expertise, particularly since [companies in Alaska]
have been running these systems for decades. Ms. Holdmann then
highlighted an example from Iceland, which has extended its
geothermal expertise globally and has brought much revenue back
to Iceland after working with others around the world. Although
Iceland is smaller than Alaska in terms of population, they are
involved in almost every major geothermal project around the
world. She related her understanding that Iceland has achieved
the aforementioned by developing a training program in which
people from around the world are brought to Iceland for a free
education in geothermal energy, which results in those students
returning to their home countries as an advocate for Iceland.
Students work closely with the university and industry. The
individual participants get to know the industry capabilities
and skills, and therefore when they return to their home country
to champion geothermal energy they invite the Icelanders to
respond to request for proposals (RFPs). Ms. Holdmann expressed
the desire to emulate what the Icelanders are doing. She noted
that Icelanders invest in research and development (R&D); to
that end, she noted that she is pleased that the governor
included $1 million in the Emerging Technology Fund.
8:43:09 AM
REPRESENTATIVE HUGHES inquired as to the amount of funding
Iceland invested for R&D and demonstration projects and the
benefit Iceland is receiving from that.
MS. HOLDMANN answered that she didn't know, but offered to find
out and provide that information to the committee.
8:43:41 AM
MS. HOLDMANN, continuing her overview, highlighted that Iceland
has also developed a nonprofit business to pool and market
Icelandic know-how. She expressed interest in exploring
Iceland's strategies in Alaska in order to become more engaged
in other parts of the world.
8:44:15 AM
REPRESENTATIVE HUGHES encouraged conversations with Joe
Jacobson, Director, Division of Economic Development, Department
of Commerce, Community & Economic Development (DCCED), and with
the House Special Committee on Economic Development, Tourism,
and Arctic Policy regarding Iceland.
8:45:13 AM
The committee took an at ease from 8:45 a.m. to 8:48 a.m.
^Presentation: Alaska and Interior Energy Study
Presentation: Alaska and Interior Energy Study
8:48:21 AM
CHAIR TILTON announced that the final order of business would be
a presentation entitled "Alaska and Interior Energy Study."
8:48:45 AM
DOUG REYNOLDS, Professor, Energy and Economics, University of
Fairbanks, clarified that his presentation will include
information that's not his, but that he has reviewed. He
directed attention to page 4 entitled "Summer 014" and explained
that in July and August 2014 there was no Organization of
Petroleum Exporting Countries (OPEC) action, the dollar was
stable, the world supply was only a 0.2 percent increase, but
the oil price fell 10 percent, which is unusual for oil markets.
What's really happening is a demand decline that's causing the
price decline rather than a supply inundation. Europe, Russia,
Brazil, and Japan are in recession. He said it's difficult to
know whether China is in recession because they don't have very
good statistics. The problem is, as expressed on page 6, when
the price decreases on a demand-side push supply will be
effected. In fact, there is already a 28 percent decrease in
investments in the oil and gas sector, which will eventually
result in reductions in the supply such that oil projects will
stop and there will be fewer new oil shale projects. If world
growth increases and the supply decline declines, there could be
a price shock up to $120 per barrel in the next one to five
years. Although that's good for Alaska, it's not for others. A
price shock, as related on page 8, could result in a wage-price
spiral or rather inflation that hits many of the costs for the
region. In summary, oil prices, wages, costs, and interest
rates increase. Other businesses in the Interior, he
emphasized, get hit hard through the heat, electricity,
transport, and overhead, services, and food costs.
8:54:15 AM
DR. REYNOLDS moved on to page 11 entitled the "Natural Gas
Alternatives." The Arctic Fox pipeline is a small 12-inch
pipeline [that would cost] $750,000. He informed the committee
that to get the pipeline to Anchorage would cost another $1
billion and would take two to three years. The Arctic Fox
pipeline, he opined, is probably the best option if the desire
is to go that route. He then moved on to the Alaska Stand-alone
Pipeline (ASAP) pipeline, a 36-inch pipeline, which would cost
$10 billion. Since no open season has been done, there is no
knowledge as to the route. Furthermore, the ASAP pipeline is
low pressure and just natural gas. Dr. Reynolds then directed
attention to page 16, the "Big Pipeline," which might take a
while to achieve. Japan, he noted, is returning to nuclear. At
this time, most of the LNG in the world is being bought by Japan
and Korea. He opined that China will stick with coal for a
while rather than go to LNG. With regard to LNG trucking, he
offered that trucking is more costly than fuel oil. He noted
that any time LNG is being [produced] it's a phase change in
which natural gas is being changed to LNG and back, which adds
costs. He then highlighted the fact that Alaska is broke.
DR. REYNOLDS moved on to page 22 regarding propane, liquid
petroleum gas (LPG). He explained that LPG is not dense, which
is why it's not used a lot for automobiles. Although there is a
lot of propane used around the world, it's not used nearly as
much as normal gasoline and diesel, which he attributed to its
density. To address the density of propane, it can be bottled
and kept under pressure but that makes it difficult to use.
Furthermore, propane isn't as cheap as natural gas, which is why
electricity power production doesn't use propane. Moreover,
propane is volatile chemically. As far as Alaska is concerned,
the costs of the transfers, middlemen, fees, and delays make it
unaffordable. In fact, propane has some of the highest amount
of transit fees and payments per British thermal unit (Btu) of
any energy. He then directed attention to page 29 entitled
"Propane is Ubiquitous," and said there is a lot of propane in
oil shale and there is a lot of supply in the Lower 48 and
Canada. Propane is portable as it's bottled and can be
transported on the Rail Belt, the roadways, the river systems,
and coastal regions. Furthermore, propane is flexible as it can
be used in its pure form for residential applications, butane
for industrial uses, and there could be a mixture of both.
Moreover, propane is fast in that a big project could be
accomplished in one to two years and paid off in three years.
Actually, at this time a propane project could be paid off in
one year. He then highlighted that propane is a reasonable cost
energy source, with a price of about $1/gallon over the last
couple of years. Currently, propane costs less than
$.50/gallon, and thus he projected that propane wouldn't get too
high in price. Propane is like natural gas and those who use it
won't know the difference, except the cost is cheaper, it can be
moved faster, and is really doable for Alaska in terms of
economies of scale. Therefore, he suggested reviewing a larger
project that could go further than Fairbanks and into other
areas of Alaska. Although the ports of Vancouver, British
Columbia, or Seattle are obvious sources, Prince Rupert is
closer and it's getting a supply hub near there. In response to
why the North Slope wouldn't be used, Dr. Reynolds explained
that North Slope propane would require a new facility for
processing and the batches transported via truck would be small.
Therefore, the economies of scale wouldn't be achieved.
However, Alaska's rail and barge system could make [the
transport of propane] work because it's not just closeness that
should be considered but also the size of the system. The idea,
he explained, would be to transport the propane from Prince
Rupert to Fairbanks, then barge it to Whittier, and rail it from
Fairbanks in order to achieve economies of scale that would
reduce the cost. The Alaska Marine Highway System (AMHS) could
run this as an option.
9:01:28 AM
DR. REYNOLDS, referring to page 39, suggested that a dedicated
rail only barge with two levels could be used. A simple barge
at a cost of $22 million could be obtained or an articulated
barge that goes a bit faster [for a cost of $25 million] could
be obtained. The faster articulated barge reduces the transport
time and can reduce the cost and make the logistics work better
while saving money. He emphasized that the key is filling the
tanker rail cars while they remain on the barge, which would
have all the infrastructure to fill the tanks, at Prince Rupert.
The ability to fill the tanker rail cars on the barge without
disembarking cuts down on time, costs, and fees. Once a barge
is filled in Prince Rupert, it would sail to Whittier where the
[tanker cars] would be placed on the rail to North Pole, which
he characterized as a center of energy. Once a terminal is
setup in North Pole, the propane could be trucked on the rail
system or via a barge into the Interior. Propane distribution
in Alaska could be via roadways, a coastal highway, or a river
system. The goal is to move the propane to Fairbanks and then
expand from there. He highlighted that there would be no piped
distribution costs and the trucks hold a dense fuel, and thus
the cost per Btu would be lower. Dr. Reynolds then informed the
committee that the Interior market amounts to about [30] billion
cubic feet per year (bcf/year), which is about 1 bcf equivalent
of natural gas. Currently, fuel oil is $24/mcf, about $3.00 per
gallon, but there is the potential to have propane delivered to
one's door for $14/mcf, which would amount to a $10 million/mcf
in savings or $300 million per year in savings for the Interior.
As one moves farther away, the savings would be more. He
pointed out that the to start with it would be a 5/bcf project,
but there would be the potential to expand. The key is to
incrementally expand such that a 5/bcf project could be expanded
incrementally at about 2.5/bcf per incremental expansion. The
expansion could include coastal distributions and use existing
systems to move along the coast and enter the rivers. The main
point, he emphasized, is to start with a 5 bcf/year project such
that $15/mcf fuel enters Fairbanks and as it travels further,
the cost increases.
9:06:17 AM
DR. REYNOLDS moved on to page 48 entitled "Economics" and
informed the committee that the capital expenditure (CAPEX) of
the 5/bcf project starts with $50 million and the operating
expenditures (OPEX) start with $15 million/year, and the revenue
would amount to $30 million/year with a three year payoff. He
noted that these numbers are from Energia Cura LLC engineers he
knows in Fairbanks. At this time, with a selling price of $15
and purchasing [the propane] in Canada where it's $5/mcf, the
project could be paid off in a year and save a lot for
residences. He then directed attention to page 49, which
relates the operations side that would include leasing rail
cars. Currently, with a $15/mcf price in Fairbanks, which would
amount to about $18/mcf to the resident, the savings would
amount to roughly $20 million/year for Alaskans. The savings
could be even more, say $10/mcf in Fairbanks or the barge could
be paid off quicker and expansion begun. Therefore, the two
strategies as outlined on page 51 are to either use the savings
to lower the price or use the savings to add expansion.
Furthermore, there could be a cooperative or a partnership with
the Alaska Marine Highway System (AMHS) such that AMHS could own
it and make money. The Alaska Railroad Corporation (ARRC) could
also be a part of this. He noted that now is the time to obtain
a [long-term] contract at a better price, even though it's an
index price. It would also be a fixed loan, he stated. Canada,
he informed the committee, needs propane buyers and thus now is
the time to enter this market. Referring to the graph on page
55 regarding the price differential, he opined that the price of
propane is always going to be significantly less than oil and a
little bit more than natural gas. Furthermore, propane is easy
to refine and thus its costs will be a little less. Currently,
the price of propane in Canada is less than $.50/gallon, which
means it could be transported to Fairbanks for less than $10/mcf
with this project. The project could be expanded to address a
lot of needs. He acknowledged that once the price of oil
increases, the price of propane will increase while still
remaining a lot lower price than the price of oil and a little
higher than the price of natural gas. When all the costs of the
infrastructure projects and paid off, propane will match
anything that can be done with natural gas.
9:10:08 AM
DR. REYNOLDS, referring to page 56, projected that propane could
be transported to North Pole at a cost of $15/mcf and to
residences at a cost of $18/mcf. Currently, propane could be
transported to North Pole at a cost of $10/mcf and residences at
$12/mcf or so. Propane could help gold mines expand and re-open
the [North Pole] refinery. He pointed out that each tanker
could have specific products that would help the mines or other
necessary industrial processes. He then directed attention to
page 59, which is an example of how a river system can be used
in Nenana. Nenana has a propane terminal and there are lots of
storage tanks that can be filled in the summer and drawn down in
the winter, which allows the system to continue year round. In
contrast, the storage for pipeline systems is costly. Since
everyone has a little bit of storage for propane, it costs less
and will work a lot better. Propane, he opined, can be used to
help with the existing Anchorage pipeline distribution system
for natural gas. If extra gas is needed in that system, propane
could be injected into the natural gas system.
DR. REYNOLDS concluded by highlighting that there are high
heating costs, even though the price has decreased and there is
a lot of pollution. Propane, he emphasized, has a weird niche
advantage; "It's not exactly perfect which is why perfect," he
said. Since no one uses it pervasively in the Lower 48 or
Europe, there's extra supply available. He reiterated that
propane is a cheap solution, but a large system with one
transaction is necessary to achieve economies of scale.
Furthermore, with rail transport to Fairbanks, the $15/mcf can
be achieved easily even when the price of propane rises. The
project could be ready in one to two years and paid off in three
years. However, at this time, the pay-off could be achieved in
one year or the price could be lowered. He noted that a lot of
value could be leveraged to achieve potential savings for
residences in proportion to expansion, which he estimated could
be in the $100 millions depending upon size and expansion. With
a 5 bcf project, something on the order of $20 million a year
could easily be saved and paid off in one year or savings could
amount to $30 or $40 million for residences and a pay-off in
three to four years. He highlighted that multiple markets
could be reached along the river and coast, including Cold Foot,
Houston, Dawson, Tanana, Juneau, Valdez, and Anchorage.
Further, there are various dimensions that could be used,
including heat, industry, mining, pipelines, and cars.
9:15:36 AM
REPRESENTATIVE COLVER inquired as to the technical challenges of
the low temperatures in Fairbanks and maintaining the flow of
propane for residences.
DR. REYNOLDS pointed out that propane has been used in Fairbanks
for 50 years, although [the system] must be engineered
correctly. Typically the tank is located underground where the
system works fine so long as the temperatures stay 10-30 degrees
above 0. If the tank is located above ground, it can be
insulated or heated.
9:16:55 AM
REPRESENTATIVE HUGHES remarked that she wasn't aware that Japan
is returning to nuclear rather than seeking LNG, and inquired as
to when that switch occurred and to the hard facts to support
that.
DR. REYNOLDS stated that Japan has never declared that it's
decertifying all its nuclear power plants, and thus he opined
that they will ramp up and use more nuclear. From what he has
read, he said he understands that roughly 90 percent of LNG is
going to Japan and South Korea because they suddenly have this
large need. China is in a recession and using coal rather than
purchasing LNG that would require spending funds to set up
systems to use it. Japan, on the other hand, is paying high
prices for electricity as it tries to use up the LNG. For
Japan's existing nuclear power plants, they just have to ensure
they are safe by putting a few extra safety systems in order to
reopen them. He opined that Japan is on track to reopen its
nuclear plants.
REPRESENTATIVE HUGHES expressed interest in learning more about
Japan reopening its nuclear plants since she had the impression
otherwise.
9:19:59 AM
REPRESENTATIVE HUGHES, returning to propane, recalled Dr.
Reynolds proposal for AMHS to acquire the barges he described
and not use existing AMHS vessels.
DR. REYNOLDS confirmed that the barges would have to be
acquired, designed and built, because they don't exist. A
dedicated system is necessary such that the system can be
streamlined and expanded to do one thing very well. He
projected that the barges could be built in about a year, after
which they could arrive at Prince Rupert where the tanks would
be filled without disembarking. The AMHS would own the barges,
rent the tug boats, and manage the system to the rail after
which the [ARRC] would manage the system to Fairbanks.
DR. REYNOLDS, in further response to Representative Hughes,
related that he did send letters to DOT&PF and AMHS to which the
response was that they are under budget. He noted that he
hasn't sent a letter to ARRC yet. With regard to obtaining gas
from Cook Inlet, Cook Inlet doesn't have a lot of propane
available. The North Slope, on the other hand, does have a lot
of propane but it's being used in the pipeline. To use propane
from the North Slope outside of the pipeline would require
systems changes and shipping, which would require investment.
Although the road distance is less from the North Slope [than
the Prince Rupert route proposal], the economies of scale [of
using propane from Prince Rupert] reduces the costs per Btu.
Specifically, only one truck at a time from [the North Slope]
would come down whereas multiple rail cars and a barge could
come up. The aforementioned really cuts the cost per Btu. In
terms of whether one would want to use North Slope propane, Dr.
Reynolds pointed out that the North Slope [producers] received
lower taxes and have no qualms with getting propane wherever
it's the cheapest. However, to help the villages, the project
must start in Fairbanks. Although the cost would increase the
further away from Fairbanks the propane is distributed, it would
still be fairly reasonably priced energy.
9:24:55 AM
REPRESENTATIVE SEATON related his understanding that already
there is a hydro train that travels from Seattle to Whittier
with dedicated rail cars that are pulled off. He asked if
that's the same kind of system to which Dr. Reynold's is
referring or is a double deck necessary or can the hydro train
be dedicated with a different stop and tanks and enter Prince
Rupert as an entry point.
DR. REYNOLDS said he didn't know exactly what the hydro train
has, but related his understanding that normally the upper deck
of barges are filled with various other things besides energy
and the lower deck with a lot of rail cars. He said he would
have to look into how the hydro train works.
9:26:07 AM
REPRESENTATIVE SEATON expressed interest in seeing the analysis
of using the existing hydro train, which only hauls rail cars
not any other freight. He then asked whether the filling
facilities in Prince Rupert already exist and whether the
propane comes from St. Johns.
DR. REYNOLDS clarified that the Prince Rupert facility is
planned and will be a hub. Therefore, [Alaska] could obtain a
contract as the barge is being built. However, the barge he is
proposing will be made such that the [tankers] would be filled
on the barge without disembarking, which lowers costs
significantly, saves time, and then the cars could roll off onto
the train tracks in Whittier. Therefore, he suggested that the
state could be in a position to get a contract [with the hub].
9:28:09 AM
REPRESENTATIVE COLVER asked if Dr. Reynolds has reviewed the
availability of these rail cars and what that would add to the
delivery cost of the propane. He then asked whether the federal
safety rules that require there to be a dedicated port when
shipping LNG from an American port would apply when delivering
propane in bulk quantities.
DR. REYNOLDS answered that although he hasn't reviewed specific
regulations, there should be no problem because the [tankers]
roll off. He noted that empty tankers coming down from
Fairbanks might have to be held on one side of the mountain into
Whittier; of the exact sequence he was not sure. If it takes a
year to build the barge, that should provide enough time to
lease tanker cars. He noted that the lease rate is included in
the costs.
9:29:57 AM
REPRESENTATIVE VAZQUEZ inquired as to the cost of converting to
propane, whether for a residential or commercial application.
DR. REYNOLDS stated that one might have to buy a new tank, which
he hasn't priced. He noted that the provider will include the
price in [the conversion] over a long-term contract and do the
work so that a little extra is paid to cover the cost of the
tank. In further response to Representative Vazquez, Dr.
Reynolds clarified that although it would be a case-by-case
basis, most existing modern oil systems the burner tips can be
changed for propane use and the existing system can continue to
be used.
CHAIR TILTON requested that Dr. Reynolds return information to
the committee regarding conversion costs.
9:32:41 AM
REPRESENTATIVE HUGHES asked if the plans for these nonexistent
barges have been designed or drafted. She then questioned why
the state would have to put forward the capital because if this
is such a good idea wouldn't industry be doing it. Furthermore,
she inquired as to why the LNG trucking project moved forward
instead of this.
DR. REYNOLDS, noting that he has contacted some private
businesses, opined that it's difficult for small businesses that
have to start slowly and build up, particularly with projects
such as this because such a big system is necessary right away.
Whereas, this project is perfect for the state because it could
provide leverage to start the project. As far as the design,
Energia Cura LLC has had discussions with shipyards regarding
these [barge] designs and obtained quotes on getting these
designs built. For many years, natural gas and oil has been
used and dictated the thinking [of energy]. Now that there is
more propane on the markets, it has been slow to materialize
these markets and use them in new ways because shale oil and
shale gas include a lot of propane. The price advantage of
propane is achieved because propane just isn't used as much as
natural gas or oil. He reiterated that although there are
designs available [for these barges], they are not being used
because filling the tankers on the barge prior to transport is a
new and innovative idea. Dr. Reynolds mentioned that he hasn't
talked with ACEP regarding this particular idea.
REPRESENTATIVE HUGHES remarked that although being the first for
such a new project is a risk, a three-year payoff would seem to
invite private sector interest and funding. Therefore, he
encouraged Dr. Reynolds to engage with others as well as
industry.
9:37:28 AM
REPRESENTATIVE SEATON, returning to the issue of converting to
propane, informed the committee that the entire city of Homer
has converted to natural gas. He explained the conversion
process in Homer. He further explained that in Homer, the oil
burners could be converted but most of the time they were so
much less efficient than new modulating gas burners and boilers,
and thus it made more sense to replace the heating system.
Representative Seaton mentioned that in the last 10 years
propane was one of the most expensive energy sources in Homer
other than electricity. Therefore, he expressed interest if
this proposal is cheaper and available under a long-term
contract at Prince Rupert. He then pointed out that
ConocoPhillips Alaska, Inc., is trucking roughly 100 tons of
propane to North Slope where it's used for enhanced oil
recovery, and thus those companies won't supply propane from the
North Slope fields for such a project. With regard to this
proposal, Representative Seaton stressed the need to ensure the
propane terminal is already being planned in Prince Rupert and
is not reliant on natural gas lines from the coast such that
propane would be a sub-product from the liquefaction of LNG as
that would require the LNG terminal to be developed and he
wasn't sure the economics were present for it.
DR. REYNOLDS reminded the committee that there is a train all
the way to Prince Rupert, and thus it can be transported via
rail all the way to Prince Rupert. Furthermore, Alberta,
Canada, can't always sell all of its propane, which oftentimes
results in them selling their propane under the Texas price.
Therefore, he opined that one should be able to obtain whatever
propane supply needed and if not, then it could be obtained from
Seattle or Vancouver where there are existing [propane]
facilities.
9:43:30 AM
ADJOURNMENT
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 9:43 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Reynolds UAF Interior Energy Study 012715.pdf |
HCRA 1/27/2015 8:00:00 AM |
|
| ACEP Overview - House Community and Regional Affairs 1-27-15 (1).pdf |
HCRA 1/27/2015 8:00:00 AM |