Legislature(2009 - 2010)Anch LIO Rm 220
09/01/2010 01:30 PM House ENERGY
| Audio | Topic |
|---|---|
| Start | |
| Review of the Proposed Cook Inlet Natural Gas Storage (cings) Project | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
Anchorage, Alaska
September 1, 2010
1:40 p.m.
MEMBERS PRESENT
Representative Bryce Edgmon, Co-Chair
Representative Charisse Millett, Co-Chair
Representative Kyle Johansen
Representative Pete Petersen
Representative Chris Tuck
MEMBERS ABSENT
Representative Jay Ramras
OTHER LEGISLATORS PRESENT
Representative Mike Hawker
Representative Craig Johnson
Senator Lesil McGuire
COMMITTEE CALENDAR
REVIEW OF THE PROPOSED COOK INLET NATURAL GAS STORAGE (CINGS)
PROJECT
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
COLLEEN STARRING, President
ENSTAR Natural Gas Company
Anchorage, Alaska
POSITION STATEMENT: Offered a review of the proposed Cook Inlet
Natural Gas Storage (CINGS) project.
RICK GENTGES, Project Manager
Cook Inlet Natural Gas Storage Alaska (CINGSA)
Anchorage, Alaska
POSITION STATEMENT: Testified and answered questions during the
update on the CINGS project.
KEVIN BANKS, Acting Director
Central Office
Division of Oil & Gas
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Testified and answered questions during the
update on CINGSA.
ROBERT PICKETT, Commissioner, Chair
Regulatory Commission of Alaska (RCA)
Anchorage, Alaska
POSITION STATEMENT: Testified and answered questions during the
review of the CINGS project.
DANIEL SEAMOUNT, Commissioner/Chair
Oil & Gas Conservation Commission (AOGCC)
Anchorage, Alaska
POSITION STATEMENT: Testified and answered questions during the
update on CINGSA.
ACTION NARRATIVE
1:40:33 PM
CO-CHAIR CHARISSE MILLETT called the House Special Committee on
Energy meeting to order at 1:40 p.m. Representatives Millett,
Edgmon, Petersen, Johansen, and Tuck were present at the call to
order. Representatives Johnson and Hawker, and Senator McGuire
were also in attendance.
^Review of the Proposed Cook Inlet Natural Gas Storage (CINGS)
Project
1:40:59 PM
CO-CHAIR MILLETT announced that the only order of business would
be a review of the proposed Cook Inlet Natural Gas Storage
(CINGS) project. She pointed out that Representatives Hawker
and Chenault had started this latest conversation for the need
of regulation on gas storage by introducing HB 280.
1:42:14 PM
REPRESENTATIVE HAWKER reflected on HB 280, and said that he and
his staff had canvassed the community stakeholders in the Cook
Inlet to ascertain the needs to improve energy security. He
shared that storage capacity was the most necessary. He noted
that the impediments to this goal were the lack of a statutory,
regulatory structure which had allowed for "de facto regulatory
obstructionism" from the state regulatory agencies. He
described HB 280 as "an exercise in defining the regulatory
structure in a manner that allowed the stakeholders to operate
with minimal government interference." There were no mandates
placed on the industry, nor an overly strict regulatory
authority.
1:43:48 PM
COLLEEN STARRING, President, ENSTAR Natural Gas Company, said
that from the standpoint of utility customers of a storage
service, it was important that the facility be economically
regulated. She offered her belief that HB 280 provided a clear
direction and framework to construct the facility. She defined
CINGSA, Cook Inlet Natural Gas Storage Alaska, as a joint
venture agreement between project partners SEMCO Energy (70
percent) and MidAmerican Energy Holdings Company (30 percent).
She disclosed that the initial customers will be ENSTAR, Chugach
Electric, and Anchorage Municipal Light & Power (ML&P). She
explained some of the project background, and projected a desire
to have the project in service for withdrawals by 2012-13. She
said that CINGSA was formed in July, 2010, and an application
with the Regulatory Commission of Alaska (RCA) was filed, which
included precedent agreements with customers, storage service
agreements, an application for a certificate of public
convenience, and a tariff.
1:47:14 PM
MS. STARRING relayed that, on August 4, 2010, RCA had given a
notice to the facility and asked for public comment, and, on
August 25, the RCA deemed that the application was complete.
She opined that everyone understood the need for a storage
facility in Kenai. She pointed out that the gas would be stored
in a nearly depleted reservoir, from which Marathon had been
producing. She explained that gas would be injected into the
reservoir during the summer and would be withdrawn during the
peak demand in winter.
1:49:19 PM
MS. STARRING detailed the benefits of the project, which
included reliability and deliverability.
1:49:40 PM
RICK GENTGES, Project Manager, Cook Inlet Natural Gas Storage
Alaska (CINGSA), offered a history of gas storage, noting that
the first facility opened in 1915. He stated that gas storage
had a safe operating history, and there were more than 400
facilities storing more than 4 trillion cubic feet of gas
currently operating in the lower 48. He estimated that 75
percent of the stored gas was used in an average winter, during
peak demand times. He explained the criteria for a suitable
storage reservoir, which included a porous, permeable, well-
defined subsurface structure that would allow gas to be injected
during the summer core period and depleted during the winter.
He noted that an ideal facility is a depleted oil or gas
reservoir, which constitutes about 90 percent of the current
reservoirs. He mentioned salt cavern facilities, which allow
for high injection and withdrawal rates, but he noted that there
are none in Alaska. He explained that the water bearing
sandstone aquifer facilities also allow gas injection, and
constitute 7-8 percent of the reservoirs. He specified that the
CINGS project was in a depleted gas field reservoir, the Cannery
Loop Sterling, which originally contained about 26.5 billion
cubic feet of gas. He pointed out that the reservoir underlies
the Kenai River, so all the wells are directional drilling from
on-shore. He reported that five new directional wells from a
single on-shore well location will be drilled for injections and
withdrawals. He noted that a compressor station would also be
built to pump the gas. He presented a photo of a 15 acre
storage field, as an example, and pointed out the 7 acre gravel
pad for the compressor station and other buildings, with roads
and gravel areas for the wells covering an additional 7 acres.
He said the CINGS facility would be a similar size. He noted
that the facility would have a "high degree of automation" and
that everything would be monitored on a "real time basis." He
displayed an aerial photograph with hash marks showing the
actual boundary of the underground storage reservoir, including
a 1/4 mile buffer area.
1:57:27 PM
MR. GENTGES, pointing to the photo, indicated the 7 acre
compressor station, and the well pads for 5 wells. He detailed
the project considerations, which included selection of the
reservoir and placement of the surface facilities. He explained
the considerations for local neighborhoods, traffic patterns,
and proximity to existing infrastructures to ensure a minimal
impact on the community. He said environmental, cultural, and
local community impacts were reviewed, so the compressor station
and the well pad will be built on upland areas to minimize the
wetland impact to be less than 1/2 acre and to be near existing
pipelines to minimize the need for more pipeline construction.
2:00:22 PM
CO-CHAIR EDGMON asked if it was necessary to build more
pipelines.
2:00:38 PM
MR. GENTGES said that an existing Marathon Oil pipeline will be
tied into, so approximately 1400 feet of pipe will be built on
the highway right of way.
REPRESENTATIVE TUCK asked how the reservoir size was determined.
2:01:29 PM
MR. GENTGES, in response, said that production data is analyzed,
three dimensional well drillings are reviewed to approximate the
shape of the field, and seismic data is studied.
2:02:03 PM
REPRESENTATIVE TUCK asked about the possibility for gas loss.
2:02:14 PM
MR. GENTGES said that the design intends to eliminate the
prospect. The operating data will give real time feedback for
indications of loss. He noted that its responsibility is to
store gas for third parties, not own the gas, so they measure
the amount of gas entering the field, and measure pressure to
verify the amount of gas stored.
2:03:13 PM
MR. GENTGES detailed the necessary authorizations to include:
Division of Oil & Gas for a storage lease and lease plan of
operations; Division of Mining, Land and Water; Division of
Coastal and Ocean Management; Alaska Oil and Gas Conservation
Commission (AOGCC) to review and approve the drilling and
injection permits; Regulatory Commission of Alaska (RCA);
Division of Air Quality for air permits; US Army Corps of
Engineers for wetlands delineation and evaluation; and the Kenai
Peninsula and Borough for local permits.
2:05:41 PM
CO-CHAIR MILLETT asked how many permits would be applied for.
2:05:56 PM
MR. GENTGES replied that there were between 24 and 30, and that
it was hoped the permitting would be accomplished by November,
2010, with the surface construction completed by September,
2012. He said the drilling construction should begin in
September, 2011 through March, 2012. It was projected to inject
gas in May, 2012, and the withdrawal facilities would be
constructed during the summer of 2012.
2:07:31 PM
REPRESENTATIVE HAWKER shared that a goal of HB 280 was for a
regulatory framework with minimal regulatory conflicts. He
shared a concern for too many overlapping layers of regulatory
interference. He announced that he would continue to work
toward "one stop shopping for this sort of permitting activity
to facilitate all the development."
2:08:23 PM
REPRESENTATIVE JOHANSEN asked if the public has been receptive
to the project.
2:09:14 PM
MS. STARRING replied that Trans Canada had started the project
and that the permitting was 90 percent complete when CINGSA took
over. She stated that the Kenai public hearing was very well
accepted. She pointed out that the facility was good for jobs,
as well as the recognized need for gas storage.
2:10:28 PM
REPRESENTATIVE JOHANSEN asked if Trans Canada had faced any
issues.
2:10:45 PM
MS. STARRING said that the transfer of the permit package was "a
pleasant surprise." She agreed that there was still a great
deal of work to be done, but opined that it would be completed
during the projected time frame.
2:11:49 PM
MS. STARRING, in response to Representative Johansen, said that
there were no groups of opposition.
2:12:05 PM
MS. STARRING concluded her presentation and said that the
initial capacity was 11 billion cubic feet (bcf) of gas, and had
been fully subscribed by the three aforementioned customers.
She pointed out that there was expansion capability to 16-17
bcf, should there be a need for additional storage.
2:13:17 PM
CO-CHAIR MILLETT asked about the timeline for the current gas
contracts.
2:13:41 PM
MS. STARRING said that the UNOCAL and Marathon contracts were
through 2018. She explained that a contract with Anchor Point
had been approved to begin in 2011. She said a "non-firm
contract" with Conoco Phillips had been submitted to the RCA,
which would meet the peaking needs. She noted that there were
also excess gas options in each of the above contracts. She
said that storage facilities should enable a better cost to the
customers.
2:15:32 PM
REPRESENTATIVE TUCK asked about the new housing subdivisions'
need for gas.
MS. STARRING said that a decline in growth, coupled with the
weatherization programs, had allowed ENSTAR to meet the demand,
with a projection for the ability to meet a normal growth rate.
She expressed concern that this was the first winter in which
ENSTAR did not have all the projected gas needs under contract,
as peak demand could necessitate gas that was not guaranteed
available.
2:17:04 PM
REPRESENTATIVE PETERSEN asked about any additional cost to
consumers.
2:17:28 PM
MS. STARRING said that the project cost was $180 million. She
projected a $3 cost to the customers, but the exact amount would
be determined by the RCA. She pointed out that the purchase of
gas for storage, during the summer, could help to keep cost
increases under control.
2:19:15 PM
KEVIN BANKS, Acting Director, Central Office, Division of Oil &
Gas, Department of Natural Resources (DNR), stated that there
was no place in Alaska for gas storage without an oil and gas
lease. He explained that the first step in the project was to
separate the requested reservoir area from the other Marathon
leases, and then create a separate oil and gas lease assigned to
CINGSA. He stated that one of the rights not included in an oil
and gas lease was for the storage of outside substances, so a
storage lease agreement was necessary. This storage lease and
oil and gas lease will be managed and operated under separate
contract/lease to CINGSA. In response to Representative Tuck,
he explained that there will be well integrity if the pressure
is kept less than the native pressure.
2:22:47 PM
REPRESENTATIVE JOHNSON asked how many wells had Marathon drilled
into this reservoir.
MR. BANKS replied that he would get that information.
REPRESENTATIVE JOHNSON asked if the integrity would be
maintained with the drilling of new wells, and was it necessary
to do any work on the existing wells, in order to maintain the
integrity.
MR. BANKS agreed that it was necessary to monitor the integrity
of the existing wells. He pointed out that these wells did not
share the same reservoir area. He expressed support for the
AOGCC permitting process. He mentioned the need for a
certificate of public convenience and necessity from the RCA.
He stated that the regulatory "backstop" would lend assurance to
the public that a fair and reasonable price would be charged for
storage.
2:25:29 PM
CO-CHAIR MILLETT asked how many gas storage facilities were
currently in use.
MR. BANKS replied that there were three others in the Cook
Inlet: Pretty Creek and Swanson River operated by Chevron, and
Kenai Gas Field operated by Marathon. He offered to send the
capacities for each. He foresaw no major problems with the
remainder of the storage lease terms.
REPRESENTATIVE HAWKER asked about the ten year waiver of fees
for the storage leases, followed by a five year storage fee, and
stated that the intent of the sponsor was for a fair and
reasonable price. He asked if DNR was going to back load the
fees to make up for the loss of revenue during the first ten
years.
MR. BANKS said that he would dissuade those fears as there was
no deviation from other land contracts.
2:29:27 PM
MR. BANKS reported that the DNR land use planning permit was
moving along smoothly.
2:30:57 PM
REPRESENTATIVE JOHNSON asked if there was any compensation to
Marathon, or was the state charging twice for the permit.
2:31:32 PM
MR. BANKS replied that the leased area is now assigned to
ENSTAR, so that Marathon no longer has a leasehold interest
therefore, there is no rent or royalty charged to them. He
explained that any excess gas removed from storage would be
billed to CINGSA.
2:32:24 PM
REPRESENTATIVE JOHNSON asked if Marathon had any opportunity for
recovery.
MR. BANKS said they were probably compensated by ENSTAR.
2:33:15 PM
ROBERT PICKETT, Commissioner, Chair, Regulatory Commission of
Alaska (RCA), said that CINGSA has made application for the
certificate of public convenience and necessity. As this is a
docketed matter on a compressed time frame, there could not be
any procedural missteps, so he requested indulgence as he may
not be as forthcoming as possible. RCA is reviewing the
complete application and will begin adjudication next week. He
reported that ENSTAR has requested a determination by December
1, 2010. He noted that he would not speak to any of the merits.
2:37:15 PM
CO-CHAIR MILLETT asked if there was any information about the
petitions to intervene.
MR. PICKETT said he that could not comment.
CO-CHAIR MILLETT asked about the dates for ruling on the
petitions.
MR. PICKETT replied that adjudication was due the next week.
2:37:59 PM
MR. PICKETT said that the reply date for the comments is
September 10, so determination would be the following week.
2:38:38 PM
DANIEL SEAMOUNT, Commissioner/Chair, Oil & Gas Conservation
Commission (AOGCC), offered to discuss the process, and said
that AOGCC deals mainly with subsurface issues. He noted that
AOGCC wants to protect the resource, ensure the gas does not
escape, and protect the reservoir, as well as underground
drinking water sources. He pointed to four things in a storage
injection application request: write a storage injection order,
so applicant must be compliant with the regulations; write an
act for exemption order for aquifer, so applicant must show
water is not good for anything else; said that HB 280 gives
authority to certify storage volume potential; make decisions
for drilling and well workover applications. He shared that
hearings are scheduled for the aquifer exemption order and the
storage injection order applications on October 9, and it is
required for a decision within 30 days. He said that AOGCC
determines that the wells have integrity with no leakage, that
there are geological confining layers which contain the gas
within the reservoir, that the reservoir will not be damaged by
injection of the wrong materials or fluids, and that there will
be special rules setting limits for pressure. He stated that
there were 18 pieces of required information for the permit.
2:44:34 PM
REPRESENTATIVE PETERSEN asked if the old production wells had
been capped.
MR. SEAMOUNT said that the integrity of each well is verified.
2:45:07 PM
REPRESENTATIVE JOHNSON asked if any existing wells could be used
for the injection.
MR. SEAMOUNT replied that CINGSA could best answer this.
REPRESENTATIVE JOHNSON asked if any of the existing wells were
still functioning.
MR. SEAMOUNT replied that there are.
REPRESENTATIVE JOHNSON asked if using existing wells would
prevent leakage and save money.
MR. SEAMOUNT replied that this was an economic question for
CINGSA.
2:46:22 PM
CO-CHAIR MILLETT asked Mr. Banks if there was the possibility of
permit consolidation for one project.
MR. BANKS replied that his department was trying to determine
what is an appropriate security for activities incurring with an
oil and gas lease. He said that they were trying to work
through the issues to create a more streamlined bonding process,
when a single bond may be better than a lot of little ones. He
said the division was working on a fair, consistent, streamlined
process. In response to Representative Hawker, he said that the
number of permits was a requirement response to the Legislature.
2:51:09 PM
CO-CHAIR MILLETT agreed that a dialogue to review the process
would be useful.
MR. BANKS explained that this project was with responsible
applicants, but it was necessary to be wary of other not so
capable applicants.
2:52:06 PM
REPRESENTATIVE JOHNSON asked if the remediation bond
requirements had changed.
2:52:48 PM
MR. BANKS replied that there was no change in the last 5 years.
He detailed that the required bonding for this lease will be the
standard oil and gas lease bonding requirements. He opined that
remediation bonds were being contemplated for the surface.
REPRESENTATIVE JOHNSON asked if there was any surface difference
on this project and had surface remediation changed on any other
projects over the last eighteen months.
MR. BANKS replied that he did not think so.
2:55:09 PM
REPRESENTATIVE JOHANSEN asked if any these issues have been
forwarded to the Governor for introduction to legislation.
MR. BANKS said that he could not answer this as his department
was "in deliberative process with the governor's office on
topics just like that." He shared that DNR has identified
important issues to be solved, and they are internally reviewing
certain regulations regarding unitization and royalty relief
modifications. He expressed an unwillingness to reveal what was
being discussed with the governor's office.
REPRESENTATIVE JOHANSEN asked to ensure that specific issues are
brought to the attention of the governor's office, so that
changes can be implemented.
MR. BANKS said that concerns for natural gas supplies, and
bankruptcies, have highlighted the weaknesses and strengths of
regulations for the division. He remarked that many of these
are just "house cleaning activities."
REPRESENTATIVE JOHANSEN agreed that there are internal
departmental processes.
3:00:29 PM
REPRESENTATIVE HAWKER expressed frustration that Mr. Banks has
offered a dialogue, but has stated there are many things that he
could not speak about. He asked Mr. Banks "what kind of
dialogue can we have?"
3:01:39 PM
MR. BANKS, in response, said that he that cannot share
everything, but that his department has made many suggestions to
the process. He offered to speak with any legislators to hear
their perception of the problems.
3:02:43 PM
REPRESENTATIVE HAWKER expressed his desire for the governor's
office to offer solutions rather than obstruction to
legislation, which would often arise due to a lack of
communication with various agencies. He cited an inability of
the legislature to engage a dialogue with many agencies because
they "clam up under a cloud of executive privilege, and that's
really what's wrong with the situation, and I really hope you
guys see that."
3:03:28 PM
CO-CHAIR MILLETT expressed hope for honest conversations to
share problems, with a result being good legislation.
3:05:18 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 3:05 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Energy Committee Agenda 09012010.pdf |
HENE 9/1/2010 1:30:00 PM |
|
| Banks CINGS Talking Points 09012010.pdf |
HENE 9/1/2010 1:30:00 PM |
|
| (H) ENE ENSTAR Presentation 09012010.pdf |
HENE 9/1/2010 1:30:00 PM |
|
| Pickett RCA CINGS Hearing 09012010.pdf |
HENE 9/1/2010 1:30:00 PM |