Legislature(2015 - 2016)CAPITOL 17
03/19/2015 10:15 AM House ENERGY
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| Presentation: Alaska Gasline Development Corporation | |
| Adjourn |
* first hearing in first committee of referral
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ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
March 19, 2015
10:21 a.m.
MEMBERS PRESENT
Representative Jim Colver, Co-Chair
Representative Liz Vazquez, Co-Chair
Representative Benjamin Nageak
Representative David Talerico
Representative Cathy Tilton
Representative Matt Claman
Representative Adam Wool
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
PRESENTATION: ALASKA GASLINE DEVELOPMENT CORPORATION
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
MILES BAKER, Vice President External Affairs and Government
Relations
Alaska Gasline Development Corporation
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation
entitled, "AGDC Update" and dated 3/19/15.
FRANK RICHARDS, Vice President Engineering and Program
Management
Alaska Gasline Development Corporation
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the presentation
by the Alaska Gasline Development Corporation.
DARYL KLEPPIN, Commercial Operations Director
Alaska Gasline Development Corporation
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the presentation
by the Alaska Gasline Development Corporation.
ACTION NARRATIVE
10:21:28 AM
CO-CHAIR LIZ VAZQUEZ called the House Special Committee on
Energy meeting to order at 10:21 a.m. Representatives Colver,
Nageak, Talerico, Tilton, Claman, Wool, and Vazquez were present
at the call to order.
^PRESENTATION: ALASKA GASLINE DEVELOPMENT CORPORATION
PRESENTATION: ALASKA GASLINE DEVELOPMENT CORPORATION
10:22:18 AM
CO-CHAIR VAZQUEZ announced that the only order of business would
be a presentation by the Alaska Gasline Development Corporation.
10:22:29 AM
MILES BAKER, Vice President External Affairs and Government
Relations, Alaska Gasline Development Corporation (AGDC),
reviewed the presentation (slide 2). As an aside, he
acknowledged that pending legislation may change some facets of
the presentation, which covered AGDC's tasks "up till now." Mr.
Baker said AGDC is a public corporation of the state, with a
legal existence separate from the state. Enabling statutes in
AS 31.25.010 were created in 2013 and modified and expanded in
Senate Bill 138 [passed in the 28th Alaska State Legislature].
The current purposes of AGDC are: to develop gas pipelines, a
liquefied natural gas (LNG) project, and other gas
transportation mechanisms; to finance and operate gas
transportation systems; to provide economic benefit and revenue;
to assist the Department of Natural Resources and the Department
of Revenue to maximize the value of the state's gas resource; to
hold the state's equity in the liquefaction facility component
of the Alaska LNG (AKLNG) project; to advance an in-state
pipeline capable of delivering North Slope natural gas to the
Railbelt and Fairbanks at the lowest possible cost (slide 3).
The primary objectives of AGDC are: commercialize Alaska's
North Slope gas resource; secure a long-term supply of
affordable energy to Alaskans; generate jobs, revenue, and
economic growth; facilitate further oil and gas development;
maximize overall benefit to Alaskans understanding that not all
Alaskans will have access to the pipeline (slide 4). Mr. Baker
noted that AGDC has two principle initiatives: AKLNG, a large
scale, large volume LNG export project, and the Alaska Stand
Alone Pipeline (ASAP) project. The ASAP project was initiated
as a publically financed, state-owned project with a public
investment to date of over $400 million. The AKLNG project is a
joint venture between the state and BP, ConocoPhillips, Exxon,
and TransCanada - 99 percent of the gas resource owners on the
North Slope are equity partners. Regarding design, ASAP is to
deliver gas to Alaskans at the lowest possible cost, currently
by "lean gas" conditioned on the North Slope to utility grade.
10:31:02 AM
REPRESENTATIVE NAGEAK asked for the amount of the funds spent to
date.
MR. BAKER said the state has appropriated to date about $419
million; AGDC received $355 million of which $25 million was for
state agencies, and the balance was to move the ASAP project
through preliminary front-end engineering design (pre-FEED),
front-end engineering design (FEED), open season, and to a
project-sanctioning decision. In further response to
Representative Nageak, he reviewed the funding, adding that the
balance of $220 million is held in the Alaska in-state gas
pipeline fund which is managed by AGDC. The AKLNG project
received a separate appropriation of $70 million, specifically
so that AGDC could make equity contributions to 25 percent of
the liquefaction plant and for management costs (slide 5).
10:34:47 AM
CO-CHAIR COLVER surmised the funds have been spent on
permitting, rights-of-way, and pre-design work.
10:35:19 AM
FRANK RICHARDS, Vice President Engineering and Program
Management, AGDC, said the majority of the expenditures to date
has been for engineering design and permitting. The Class 3
cost estimate level work on the ASAP project is completed, and
$150 million has been spent as of December, 2014.
CO-CHAIR COLVER questioned whether the same contractors are
collecting field data for ASAP and AKLNG projects, and are
sharing information.
MR. RICHARDS said yes. In many instances, AGDC is using many of
the same contractors as are used by the state's partners in
AKLNG, such as the pipeline engineering service, the field and
environmental work, and the program management services.
REPRESENTATIVE WOOL directed attention to slide 5 and pointed
out discrepancies in the completion dates for the projects.
MR. BAKER responded that after the passage of Senate Bill 138,
AKLNG became a priority, but ASAP was further along; therefore,
the construction schedule was rescheduled to insert the AKLNG
FEED decision which is expected mid-2016. The ASAP timeline has
been slowed, and timelines for the two projects are now roughly
the same except for the LNG and gas conditioning facilities.
REPRESENTATIVE WOOL confirmed that both projects need
conditioning plants, and AKLNG needs liquefaction also.
10:40:50 AM
MR. BAKER returned to a comparison of the projects, noting that
the projects are very different in size, both with gas treatment
facilities on the North Slope; however, ASAP has compression
added on the North Slope, and AKLNG would have intermediate
compression stations. Terminus of AKLNG is in Nikiski, the
terminus of ASAP is near Big Lake at ENSTAR's distribution
facility with a lateral line into Fairbanks. Design capacity of
ASAP is 500 million cubic feet/day and AKLNG capacity is 3.3
billion cubic feet/day at the gas treatment plant and 2.2
billion cubic feet/day at the LNG plant. The estimated cost for
AKLNG is $45-65 billion, and for ASAP is $10 billion. The
estimated operations workforce for AKLNG is 1,000 employees and
150 employees for ASAP (slide 5).
MR. RICHARDS advised that all of the work that has been
accomplished are assets owned by the state. After the passage
of House Bill 4 [passed in the 28th Alaska State Legislature],
AGDC requested a lease for rights-of-way that provided a right-
of-way to AGDC for pipeline across state lands, other than state
parks. An environmental impact statement (EIS) was completed on
the concept of the original project, but following the intent of
the legislature, the design concept was changed in 2013 to
accommodate utility-grade gas, without further conditioning, and
an increase in the diameter of the pipeline. Subsequently, a
supplemental EIS was required because of the changes, and which
should be completed in the fourth quarter of 2015. Mr. Richards
described the federal right-of-way process, after which AGDC
will hold approximately 85 percent of the right-of-way for a
pipeline project. Furthermore, AGDC modified its plan of
development (POD) and drafted an environmental evaluation
document (EED), which is a precursor to the supplemental EIS and
can be utilized by the U.S. Army Corps of Engineers (Corps of
Engineers). The public scoping process has been completed,
which indicated the project has local support from communities
and federal agencies. Along the pipeline route, AGDC has also
completed field surveys, 2-dimensional (2-D) terrain unit
mapping, a cultural resource survey, and wetlands delineation
with jurisdictional determinations from the Corps of Engineers
(slide 6).
10:47:44 AM
REPRESENTATIVE NAGEAK inquired as to whether the assets are held
by both projects.
MR. RICHARDS answered that each project is advancing and there
is a cooperation agreement that allows for an exchange of data
and engineering information between the projects; however, the
inventory of all of the information has not been "melded." The
data exchange involves compensation for data that is transferred
between projects.
CO-CHAIR VAZQUEZ returned attention to slide 6 and asked whether
the assets are independent assets of the state regardless of the
pipelines.
MR. RICHARDS explained that corporate assets listed on slides 6
and 7 are held by AGDC as state assets. The assets have been
used for ASAP and some can be transferred to AKLNG. Mr.
Richards continued to identify further work that has been
accomplished over the last three and one-half years. The work
has been focused on the area south of Livengood because the area
north of Livengood has been studied by the AKLNG producer
parties. Therefore, AGDC drilled geotechnical boreholes,
assessed material sites, and purchased strain based design pipe
specifically tested to withstand stream accumulation, as
required by the U.S. Department of Transportation Pipeline and
Hazardous Materials Safety Administration (PHMSA). This is
testing information that can be shared with federal regulators
and will transfer to AKLNG. Finally, AGDC has completed its
Class 3 cost estimate Project Execution Plan (PEP) which
delineates pre-construction and design phase work, and work
through construction and into execution of a pipeline, including
a detailed project logistics plan (slide 7).
CO-CHAIR COLVER asked how the test sections of pipe are tested
for permafrost conditions in various types of soil.
10:54:05 AM
MR. RICHARDS said AGDC uses models to look at the demands placed
on pipe by stream accumulation due to frost heave, and that also
reveal the capacity and strength of the materials. The pipe
segments are welded and then cut into samples that are tested in
laboratories. The small scale testing has been completed, and
the medium scale testing of three-foot-long pipe segments is
underway.
CO-CHAIR COLVER recalled that during a previous gas pipeline
project test sections of pipe were buried and monitored in the
field. He asked whether testing for permafrost conditions is
now done in a laboratory.
MR. RICHARDS stated that AGDC has not initiated field trials,
but is using computer models which take less time. He then
directed attention to a graph that illustrated land ownership
along the ASAP right-of-way. State leases cover approximately
55 percent and, after a decision by the U.S. Department of
Interior, Bureau of Land Management, federal ownership will add
almost 30 percent. Rights-of-way across private land have not
been initiated (slide 8).
MR. BAKER pointed out federal regulations require special pipe
for the project; however, pipe to meet the specifications is not
made in the U.S. The special pipe is needed for about 10 miles
of the pipeline, and the remaining pipe will be sourced from
U.S. mills. He restated AGDC's intent to leverage any of the
work completed for either project. Turning to AKLNG, he
described the participation in the project, beginning with the
four resource owners: ConocoPhillips, BP, ExxonMobil, and the
state. ConocoPhillips, BP, and ExxonMobil hold 75 percent of
the interest in the project and the state holds 25 percent. The
state's 25 interest is represented by TransCanada in the gas
treatment plant (GTP) and the pipeline, and AGDC represents the
state's interest in the LNG facility (slide 10).
11:00:59 AM
CO-CHAIR VAZQUEZ asked for the cost of the LNG facility.
MR. BAKER estimated the LNG facility cost at $25 billion. In
further response to Co-Chair Vazquez, he said the current
terminus site is Nikiski.
CO-CHAIR VAZQUEZ questioned whether the ASAP pipeline has
secured contracts to supply gas.
MR. BAKER explained that in the case of AKLNG, the resource
owners that have the gas and the ability to transport and sell
gas, are investing the money to develop the transportation
mechanism and the liquefaction facility. In the case of ASAP,
AGDC is a pipeline company using public money to advance the
project to the point of a commercial open season where shippers
and buyers of gas would negotiate contracts. Final contracts
are then used to acquire financing to complete the project.
Therefore, ASAP would not go to project sanctioning and raise
the money to complete construction without commercial agreements
in place. Mr. Baker further explained that project sanctioning
is the term used for ASAP and final investment decision (FID) is
the term used for AKLNG. The AKLNG project is currently in pre-
FEED phase which will be concluded mid-2016, at which time the
five participants would decide to advance to FEED. After
approximately two years, FID would lead to preconstruction. For
ASAP, commercial open season is an extra step before the project
sanctioning decision.
CO-CHAIR VAZQUEZ observed approaching the capital markets for
financing is another additional step.
11:05:40 AM
MR. BAKER said yes. For ASAP, AGDC was given the ability to
bond and to evaluate ownership models, such as whether the state
would be the sole owner, or should solicit equity partners. In
fact, AGDC was in contact with owner, builder, operators (OBOs)
like TransCanada and Enbridge. A company like Enbridge could
bring equity to the project.
CO-CHAIR VAZQUEZ asked for a description of a commercial open
season.
11:07:27 AM
MR. BAKER said ASAP would be regulated by the Regulatory
Commission of Alaska (RCA); as with most utilities, RCA would
review the project's cost structure and return on invested
capital and must approve a tariff structure. This would happen
prior to an open season. If the project's recourse tariff
filing is approved, RCA would set the terms and conditions of
ASAP's open season.
CO-CHAIR COLVER asked for the differences between RCA's current
regime of pipeline and common carrier review and the new regime
directed by House Bill 4 [passed in the 28th Alaska State
Legislature].
11:09:36 AM
The committee took an at ease from 11:09 a.m. to 11:20 a.m.
11:20:43 AM
DARYL KLEPPIN, Commercial Operations Director, AGDC, in response
to Co-Chair Colver's earlier question, explained that oil
pipelines such as the Trans-Alaska Pipeline System (TAPS) are
common carriers. Gas pipelines are typically contract carriage,
which means a shipper in the pipeline signs a contract to ship a
given volume of gas over a long period of time, perhaps 25
years. Long-term contracts are needed in order to obtain
financing for a large project. Shippers agree to "take or pay
contracts," and the long-term commitment from a company with
significant financial resources is used to finance the
construction of the pipeline.
CO-CHAIR VAZQUEZ asked whether the contracts are approved by
RCA.
MR. KLEPPIN said the aforementioned contracts are for shipping
the gas, but RCA approves sales contracts for the sale of gas to
a party. For ASAP, House Bill 4 requires that RCA approve the
recourse tariff filing prior to open season; the recourse tariff
is the price for shipping through the pipeline. After the
filing of the recourse tariff, RCA has 90 days to act and, if
the tariff is approved, open season can be scheduled.
CO-CHAIR VAZQUEZ asked for a description of the open season
process.
MR. KLEPPIN advised that the details of an open season process
are part of the recourse tariff filing. Typically, an open
season requires advertising of its time period, the details of
the tariff, other special conditions, and the financial
requirements for purchasers. In further response to Co-Chair
Vazquez, he said open season cannot occur prior to the approval
of the recourse tariff by RCA, and can be scheduled up to two
years afterward.
MR. BAKER restated that ASAP commercial activities, including
tariff filing, open season, and post-open season, have been
delayed pending the FEED decision on AKLNG; if AKLNG does not
advance at FEED, AGDC would return to ASAP and complete its open
season by mid-2017. He returned attention to the presentation,
noting that since Senate Bill 138 [passed in the 28th Alaska
State Legislature] and the signing of the joint venture
agreements, AGDC has sought to coordinate the ASAP and AKLNG
projects utilizing historic baseline and engineering data from
past pipeline projects. The objective remains to minimize
duplication and to maximize the value of the historical data
such as geotechnical, hydrological, environmental, cultural and
routing information. Only one project will advance thus there
must be fair compensation for the use of data, and there are
efforts towards alignment on routing. In addition, AGDC has
field crews conducting borehole work for AKLNG (slide 11).
11:31:03 AM
CO-CHAIR VAZQUEZ asked for examples of datasets.
MR. BAKER advised that datasets would be for geotechnical work
such as borehole work and engineering data that can be used by
engineers in designing the project. Also, information on
materials sites has been collected which could be used for
either project.
CO-CHAIR COLVER told of his experience as a professional
surveyor mapping for pipelines.
MR. BAKER turned to AKLNG recent activity: 80 percent of 250
person workforce in the 2014 summer field season were Alaskans;
actively soliciting Alaska vendors; identifying in-state offtake
facilities for both projects. In addition, major engineering
contracts for early stages of the project have been awarded.
Regulatory documents were filed with the U.S. Department of
Energy which has authorized exports to Free Trade Agreement
(FTA) countries, and non-FTA are pending. The first drafts of
the Resource Reports have been filed with the Federal Energy
Regulatory Commission (FERC), notice of intent has been issued
by FERC, and public meetings will take place shortly (slide 12).
Mr. Baker directed attention to ASAP, noting that the current
design for the project completed FEED on time and on budget.
The major deliverables were the Class 3 cost estimate and the
project execution plan. The cost estimate includes pipeline
facilities, engineering cost, construction logistics and owners'
costs. The new estimated total capital cost is $9.968 billion,
with a contingency of 20 percent (slide 14).
11:40:03 AM
MR. RICHARDS added that Class 3 is a level of effort established
by the American Association of Cost Estimators and defines the
work product undertaken for the construction of a major
facility. A Class 4 cost estimate for ASAP was developed in
2012, and additional engineering and analyses over the past two
and one-half years has raised the effort to a Class 3 standard.
11:41:32 AM
MR. BAKER stated that from the Class 3 cost estimate models have
been developed to generate tariffs. The tariff rate represents
the cost of transportation, and when added to the cost of the
gas and local distribution, determines the burner tip cost to
the consumer. The cost of gas for Anchorage and Fairbanks is
estimated to be $2.00-$3.30 per thousand British thermal units
(MMBtu), and the local distribution cost is estimated to add
$1.50 in Anchorage and $4.00 in Fairbanks. Therefore, the
estimated burner tip cost of gas delivered by ASAP to utilities
and residents in Alaska is estimated to be less than the cost of
imported LNG. Mr. Baker pointed out that this price is based on
selling 500 million standard cubic feet per day (mmscf/d);
however, in-state use on an annual average is about 250 mmscf/d.
The question remains whether these rates are competitive to a
commercial user (slide 15).
11:44:45 AM
CO-CHAIR COLVER cautioned that upcoming proposed legislation
would prohibit export, but ASAP requires additional customers to
meet its burner tip projections of $11.50-$14.00 per MMBtu in
Anchorage. He expressed concern that the estimated cost is a 40
percent increase to Anchorage ratepayers, and questioned whether
it is necessary for a state-sponsored project to generate a 12
percent return on equity to investors.
MR. BAKER said demand in winter could peak at 450 mmscf/d;
however, he agreed that additional users are needed. An equity
partner could change the financing structure and the economics
of ASAP. Whether the state has a non-economic imperative to
provide gas to Alaskans, and other questions, would be addressed
at open season.
11:49:25 AM
REPRESENTATIVE WOOL surmised ASAP would displace all of the
natural gas production from Cook Inlet.
MR. KLEPPIN responded, "We assume that is the Cook Inlet demand,
assuming all of Cook Inlet production is displaced. It does not
assume any offset with production from Cook Inlet."
11:51:13 AM
REPRESENTATIVE WOOL asked what would happen to Cook Inlet
production if ASAP provides all of the in-state consumption
"times two."
MR. BAKER recalled in 2009 there was concern that Cook Inlet
production was declining, thus North Slope gas was sought.
Five years later, due to new exploration in Cook Inlet, that is
less of a concern; however, Railbelt utilities do not have long-
term supply contracts from Cook Inlet resources.
CO-CHAIR VAZQUEZ related that Chugach Electric Association has
gas contracts from Cook Inlet through 2019.
REPRESENTATIVE CLAMAN noted the Class 3 burner tip cost estimate
is an increase of almost 40 percent from the estimate in 2012.
MR. KLEPPIN answered that the significant driver in the tariff
increase was additional construction costs of $2.3 billion; in
addition, in 2012, an 11 percent return on equity was assumed
instead of 12 percent.
MR. BAKER acknowledged the burner tip costs are attractive for
Fairbanks, but not for Anchorage, although there would be long-
term price stability.
MR. KLEPPIN said Hilcorp entered into a consent decree to cap
gas prices through the first quarter of 2018, and it is unclear
what will happen to gas pricing after that date.
MR. BAKER referred to Governor Bill Walker's Administrative
Order 271 (AO 271) [the executive order which stopped
nondiscretionary spending on ASAP], and noted that in response,
AGDC has ensured that it is only working on the most essential
aspects of ASAP; in fact, everything possible has been delayed
and the spend plan through 2016 has been reduced by 60 percent,
from $150 million to $60 million (slide 16). In that regard,
schedule changes have been driven by the alignment of ASAP to
the AKLNG FEED decision (slide 17). New members to AGDC's board
attended their first meeting, and the board passed Resolution
2015-01, which directs that subject to withdrawal of AO 271,
AGDC staff will prepare a rough order of magnitude scope,
schedule, and budget associated with two potential upsizing
scenarios for ASAP on or before 4/9/15 (slide 18).
11:59:09 AM
CO-CHAIR COLVER recalled previous testimony that AGDC permitting
by the Corps of Engineers is on hold pending the resolution of
potential changes.
MR. BAKER said the supplemental EIS process was initiated for
ASAP and went through public scoping, and evaluation documents
were filed. On 3/2/15 the Corps of Engineers notified AGDC it
has suspended activity on the draft supplemental EIS.
CO-CHAIR COLVER inquired as to whether the state or AGDC has
clarified the Corps of Engineers position.
MR. BAKER assured the committee the process with the Corps of
Engineers has not been stopped or canceled, although an amended
document for the latest right-of-way changes has been held back
as well. The concern is that adding compressor stations along
the pipeline, or increasing the size of the footprint of the gas
conditioning facility may require AGDC to modify the
supplemental EIS to the point that it would have to be
reinitiated. Mr. Baker returned to the presentation and
provided a history of the basis for the design of ASAP (slide
19). The reconfiguration strategy directed by AGDC's board is
as follows: increase the state's leverage and options; expand
ASAP volume and capacity; extend terminus to tidewater; design
for both in-state and export markets; use existing funds; build
on existing work products; avoid duplication (slide 20).
Initial parameters tasked to AGDC are as follows: maintain 36"
diameter pipe; maintain lean gas composition; pursue pipeline
and a gas conditioning facility on the North Slope; develop
rough order of magnitude cost and timeline to look at the pipe
currently in design and at a higher strength pipe (slide 21).
Critical success factors for a North Slope gas pipeline project
are as follows: maintain alignment between the state and North
Slope producers; ensure the state's ability to advance a project
that is viable and economic if AKLNG falters; obtain concurrence
of AKLNG joint venture partners; ensure a complementary versus
competitive orientation; maximize financial resources to
accelerate a FEED decision and to leverage public resources
(slide 22).
12:05:57 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 12:05 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2015-03-19 - HENE - Agenda.pdf |
HENE 3/19/2015 10:15:00 AM |
|
| 2015 03 19 AGDC House Energy Committee.pdf |
HENE 3/19/2015 10:15:00 AM |