Legislature(2013 - 2014)HOUSE FINANCE 519
03/28/2013 09:00 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB4 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 4 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 28, 2013
9:04 a.m.
9:04:52 AM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 9:04 a.m.
MEMBERS PRESENT
Representative Alan Austerman, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Mark Neuman, Vice-Chair
Representative Mia Costello
Representative Bryce Edgmon
Representative Les Gara
Representative Lindsey Holmes
Representative Scott Kawasaki, Alternate
Representative Cathy Munoz
Representative Steve Thompson
Representative Tammie Wilson
MEMBERS ABSENT
Representative David Guttenberg
ALSO PRESENT
Bill Walker, City of Valdez; Representative Hawker; Speaker
Mike Chenault.
SUMMARY
HB 4 IN-STATE GASLINE DEVELOPMENT CORP
HB 4 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 4
"An Act relating to the Alaska Gasline Development
Corporation; making the Alaska Gasline Development
Corporation, a subsidiary of the Alaska Housing Finance
Corporation, an independent public corporation of the
state; establishing and relating to the in-state natural
gas pipeline fund; making certain information provided to
or by the Alaska Gasline Development Corporation exempt
from inspection as a public record; relating to the Joint
In-State Gasline Development Team; relating to the Alaska
Housing Finance Corporation; relating to judicial review of
a right-of-way lease or an action or decision related to
the development or construction of an oil or gas pipeline
on state land; relating to the lease of a right-of-way for
a gas pipeline transportation corridor, including a
corridor for a natural gas pipeline that is a contract
carrier; relating to the cost of natural resources,
permits, and leases provided to the Alaska Gasline
Development Corporation; relating to procurement by the
Alaska Gasline Development Corporation; relating to the
review by the Regulatory Commission of Alaska of natural
gas transportation contracts; relating to the regulation by
the Regulatory Commission of Alaska of an in-state natural
gas pipeline project developed by the Alaska Gasline
Development Corporation; relating to the regulation by the
Regulatory Commission of Alaska of an in-state natural gas
pipeline that provides transportation by contract carriage;
relating to the Alaska Natural Gas Development Authority;
relating to the procurement of certain services by the
Alaska Natural Gas Development Authority; exempting
property of a project developed by the Alaska Gasline
Development Corporation from property taxes before the
commencement of commercial operations; and providing for an
effective date."
9:04:57 AM
BILL WALKER, CITY OF VALDEZ, presented the PowerPoint
presentation: "City of Valdez, presentation before the
House Finance Committee"(copy on file). He stressed that
the "right size project" that benefited Alaska, not the
location, was the highlight of his presentation. The city
of Valdez supported the best project for Alaska, regardless
of the pipeline destination. He recounted a historical
synopsis of gas pipeline efforts.
9:09:15 AM
Mr. Walker discussed Slide 2, titled, "Map with Trans-
Alaska Pipeline System (TAPS), El Paso, and YPC." The slide
depicted the map of Alaska illustrating the pipeline
routes. He noted that much effort was expended to develop
the El Paso Pipeline all American route from tidewater to
Point Conception, California. When the project did not
materialize, the Yukon Pacific Corporation (YPC) effort was
created. He related that $100 million in funding was
obtained to begin the permitting process. He turned to
Slide 3:
"Permits Previously Obtained for Gasline to Tidewater
by YPC."
Formed by Former Governors Bill Egan and Walter
"Wally" Hickel
The following permits have previously been received
(now expired) for this project route and terminal
location:
o FERC Declaratory Order Regarding its TAGS
Jurisdiction
o Presidential Finding Approving Export of Alaska
Natural Gas
o Coastal Zone Consistency Determination
o TAGS Project-Wide Final EIS
o Ahtna Corporation Right of Way Agreement
o Federal Pipeline ROW Grant
o State of Alaska Conditional ROW Lease
o DOE/OFE Authorization for Export of Natural Gas
(Order 350)
o DOE/OFE Confirmation of Order 350
o Anderson Bay (LNG Terminal) Final EIS
o FERC Authorization for Siting LNG/MT Facility
o Anderson Bay LNG/MT Facility Air Quality (PSD)
Permit
Mr. Walker noted that the YPC founders made significant
progress, the furthest to date, in the permitting process.
He reported that the effort ultimately failed because YPC
was not able to purchase the gas.
Representative Gara asked about slide 2. He wondered
whether the YPC right of way permits were still valid for
use with the Alaska Gasline Development Corporation (AGDC)
negotiated right of ways for a pipeline terminus in Valdez
or Nikiski. Mr. Walker stated that the YPC permits had
expired. He added that the collected data and the fact that
the permits were obtained made the effort important.
Mr. Walker turned to Slide 5:
"Alaska North Slope LNG (Liquefied Natural Gas)
Sponsor Study Group."
Formed in 1999
Participants:
Formed for Sole Purpose of Evaluating 3 Routes to
Tidewater from North Slope
1. Richardson Highway to Valdez Marine Terminal
2. Richardson Highway to Glennallen then over to
Nikiski via Glenn Highway Route
3. Parks Highway south to Nikiski
Conclusion of Study Group: Route most likely to be
permitted by federal/state agencies is the Richardson
Highway to the Valdez Marine Terminal route.
Mr. Walker stated that the LNG Sponsor Study Group focused
solely on route site selection and the likelihood of
successful permitting. The effort did not result in a
pipeline. The group authored a report that ranked the
different options.
9:14:18 AM
Mr. Walker moved to Slide 6: "Map with TAPS, El Paso
Pipeline, YPC, Alaska LNG Study Group, AGPA, ANGDA, and
AGIA" The slide depicted the pipeline routes and numbered
them in successive order as listed from number one through
seven. He noted that the Alaska Gasline Port Authority
(AGPA) was founded by the Fairbanks North Star Borough,
North Slope Borough and the City of Valdez. The effort
focused on cost estimates and market interest.
Subsequently, the Alaska Natural Gas Development Authority
(ANGDA) was created via a ballot initiative and formed in
statute in 2002. He pointed out that the first six projects
discussed were all in-state gas lines. The seventh and last
effort was the Alaska Gasline Inducement Act (AGIA). He
described AGIA as an out of state gasline. The AGIA
pipeline originally planned for two terminus points: one
line constructed to tidewater and another ending in
Alberta. The development of shale gas in the lower 48
states prevented the Alberta option from evolving. He
remarked that two open seasons on the tidewater option were
held.
Representative Wilson questioned whether AGPA held any
current right of way permits. He answered that the
exclusive permit rights expired.
Mr. Walker directed attention to Slide 7:
AGIA
Funded following $15 Million of analysis, presented to
the legislature following a several month long special
session with presentations from numerous industry
recognized consultants.
licensee
Million
gasline to Open Season to Tidewater
response from the Asian market
Mr. Walker explained that AGIA mandated the licensee,
TransCanada/Foothills Pipeline to match (50 percent each)
the State's $300 million share of the costs to reach the
first open season in July 31, 2010. Other provisions under
AGIA required that the project continue if the first open
season was not successful. The state was responsible for 90
percent of the costs for moving forward after a successful
open season. He defined that an "open season" culminated in
cost estimates that determined the contractual price of the
shipped gas.
Vice-Chair Neuman referred to the AGIA open season in
September 2012. He understood that the process was a best
interest finding; "significantly different" than a true
open season and that the result was non-binding. Mr. Walker
concurred. He expressed that the first open season was a
binding open season and the second was a non-binding
"solicitation of interest". He offered that every project
began with a minimum level of interest and progressed into
binding agreements.
9:19:57 AM
Vice-Chair Neuman indicated that AGIA required that an open
season take place every two years. He stressed that an open
season provided for a binding agreement and the September
2012 event was nothing more than an interest finding. Mr.
Walker agreed but concluded that the September 2012 event
complied with the AGIA open season requirement.
Representative Holmes thought that the AGIA pipeline was
designed to travel through Canada. She wondered how much of
the one million hours of engineering work was spent
exploring the route to tidewater versus Canada. Mr. Walker
responded that was difficult to determine. The first open
season contained a posted tariff to tidewater. He could not
offer a definitive answer but believed there was enough
time to conclude with the binding open season in 2010.
Representative Munoz asked what a "200 percent response"
was. Mr. Walker instructed the committee that initial
analysis concluded that a successful LNG project required a
certain amount of volume to flow through the pipeline. The
breakeven amount was 2/bcf (billion cubic feet). The
analysis was figured at 2.7/bcf. The AGIA solicitation of
interest response from the world's largest buyers of
natural gas added up to 5.5/bcf.
Representative Gara asked about the solicitation of
interest in 2012. He asked whether the terms of the
solicitation of interest were offered under conditions that
were not yet available. Mr. Walker stated that terms and
conditions were established with the project developer
after the solicitation of interest. He reminded the
committee that an open season was not about buying gas but
shipping gas. The problem lied in acquiring gas at the
wellhead; the reason AGIA held a solicitation of interest
instead of a binding open season.
9:25:09 AM
He referenced Slide 8:
"Results of September, 2012 Open Season."
AGPA
KOGAS (Korea)
POSCO (Korea)
GS Energy (Korea)
PTT International Company, Ltd. (Thailand)
PGN LNG (Indonesia)
East-West Power Company Ltd. (Korea)
2.8/bcf/d [billion cubic feet per day]
Resource Energy, Inc.
Japan Exploration Company, Ltd. (Japan)
Idemitsu Kosan Company (Japan)
JX Nippon Oil & Energy Corporation (Japan)
Mitsubishi Gas Chemical Company, Inc.(Japan))
Nippon Telephone and Telegraph (Japan)
2.7/bcf/d
5.5/bcf/d [Total]
Mr. Walker detailed that during the 2012 AGIA open season
the buyers expressed interest in purchasing specific
volumes of natural gas. He provided a brief description of
some of the Asian companies: (1) KOGAS was the largest
purchaser of LNG in the world. (2)POSCO was the top fifth
largest steel manufacturer in the world. (3)East-West Power
Company Ltd. was a subsidiary of PEPCO the largest national
power generator in Korea. He reported previous interactions
with many of the Asian companies and was "excited" to learn
of the response to the AGIA solicitation of interest in
2012. He remarked that Resource Energy, Inc, a Japanese
consortium, did not have a preference for a designated
pipeline location. The consortium recently opened offices
in Anchorage. He met with the company representatives who
expressed great interest in Alaskan LNG.
Co-Chair Stoltze asked what conclusions were drawn by the
information in the presentation. Mr. Walker hoped to prove
that there was a strong interest in the market place for
Alaskan LNG.
Representative Wilson expressed confusion about which plan
he was discussing and asked for clarification. Mr. Walker
stated that the information on slide 8 was relative to
AGIA. He wanted to demonstrate that the opportunity existed
to develop a large volume Alaskan line by some entity. He
had no bias towards a particular project. He wanted to
highlight the opportunity that currently existed for Alaska
in market interest. He proposed swift action.
9:30:44 AM
Representative Wilson expected that the presentation would
provide an examination of an alternate plan to HB 4. She
expressed interest in the AGPA plan. She asked whether his
presentation included an alternate plan supported by the
City of Valdez. Mr. Walker replied that the discussion
would evolve.
Representative Costello asked who Mr. Walker was
representing at the time of the discussions with the Asian
companies. Mr. Walker replied that he was representing the
Alaska Gasline Port Authority.
Representative Gara asked whether the Asian companies
expressed interest specifically under AGIA. Mr. Walker
confirmed that the interest was submitted under AGIA.
Mr. Walker continued with Slide 9:
"Results of September 2012 Open Season"
Volume used by Wood Mackenzie in their LNG analysis -
2.7 bcf/d
•Volume nominated at September 2012 Open Season by
ASIAN Market - 5.5 bcf/d
•In-State Market - .25 bcf/d
Total: 5.75 bcf/d
Mr. Walker informed the committee that 5.9/bcf was the
largest volume that can flow through a 48 inch pipe. The
open season resulted in interest in the full volume of the
pipeline.
Mr. Walker offered Slide 10, "Map with TAPS, El Paso
Pipeline, YPC, Alaska LNG Study Group, AGPA, ANGDA, AGIA,
ASAP (HB 4)" that depicted an image of the proposed routes
including the routes under HB 4, with HB 4 designated as
the eight project.
Mr. Walker turned to Slide 11:
"Alaska's Energy & Fiscal Challenges"
1. Fiscal Cliff - 90% Alaska revenues tied to oil
2. High Energy Cost - Interior / Statewide
3. Southcentral Gas Supply
Mr. Walker moved to slide 12:
Fiscal Cliff:
Is There Any Revenue to Alaska From LNG Exports?
Mr. Walker believed that Alaskan LNG was a resource that
offered the state a revenue base.
Representative Thompson asked about the Alaska Gasline Port
Authority (AGPA). He related that the North Slope Borough
withdrew from the agreement some years ago and that some
North Star Borough assembly members wanted to back out of
the agreement. He asked for clarification about the
direction of the project and who was still involved. Mr.
Walker confirmed that the North Star Borough was
considering parting from AGPA. He interjected that the AGPA
mandate was to "build or cause to be built." The port
authority supported any LNG project that was in the best
interest of Alaska. He believed that AGPA incited ample
interest in Alaska LNG and credited AGPA for the response
to the AGIA open seasons.
9:36:09 AM
Representative Thompson understood that the Fairbanks North
Star borough stopped contributing to AGPA. Mr. Walker
related that the last payment made by the Borough was in
2009. The private sector had contributed the majority of
the port authority funding.
Representative Wilson questioned why the private sector
pulled its AGPA funding. Mr. Walker voiced that the private
sector "lost faith" that Alaska would strive to bring
natural gas to the market. The private sector ultimately
believed that the gas was not attainable.
Representative Wilson asked whether the private sector lost
faith in the port authority or in Alaska. Mr. Walker
replied that the private sector wanted to buy gas at the
wellhead and it had nothing to do with AGPA. He pointed out
that the leaseholder, Exxon Mobil did not engage with
Mitsubishi, whose interest in purchasing natural gas was
solicited by AGPA. Within one months' time Mitsubishi made
other arrangements outside of Alaska.
Representative Wilson thought that it worked backwards to
find buyers for something someone else was not willing to
sell. Mr. Walker responded that the process was customary.
Terms of the lease required that leaseholders sell to an
offer with a reasonable expectation of profit.
9:40:22 AM
Representative Gara asked whether the leaseholders were
holding back from selling until they can negotiate terms in
their best interest. Mr. Walker discerned that based on
"letters to the Governor", that was a plausible conclusion
in regards to a pipeline. In addition, he reported that
purchasers were willing to buy natural gas at the wellhead
on a fixed dollar amount and agreed to participate in the
pipeline portion of the project. Yet, there was still no
action by the leaseholders.
Mr. Walker briefly turned to the following slides
Slide 13:
Does Alaska Make Money off LNG?"
From and economic perspective, Alaskan LNG
exports are competitive, viable across scenarios,
and could generate between $220 and $419 billion
for Alaska
Slide 14:
"Can Alaska's LNG Compete?"
Access to currently re-injected gas upstream puts
the Alaska LNG liquefaction project in and
economically competitive position relative to
others…
The slide included a graph that demonstrated Alaskan LNG
exports estimated at a cost structure of $8.50/MMBtu
[million British thermal units] (2011 estimates)
Slide 15:
"Can Alaska's LNG Compete?"
"…and It competes favorably with both proposed
Australian and other North American export
facilities which have yet to reach FID (Final
Investment Decision)
The slide contained a graph comparing the Alaskan $8.50/
MMBtu figure with other projects in Australia and North
America and showed Alaska at the lowest price.
Mr. Walker expounded that Wood Mackenzie, the consultants
who conducted the study used the AGIA open season
information and the landed costs to transport LNG from
Alaska to Japan including the highest costs for
liquefaction, to come to the conclusion that Alaskan LNG
was competitive and profitable.
Vice-Chair Neuman returned to Slide 14. He asked where in
the analysis were the costs to buy and build the pipeline
that was estimated to cost $40 - $60 billion. He asked for
the amortization of the cost as well as the timeline for
the investment. Finally, he questioned how the project was
ultimately funded. Mr. Walker indicated that the depicted
transport tariff of $1.70/MMBtu was the revenue used to pay
off the pipeline. The timelines were: (1) ten years for
construction. (2) 30 years to pay off a pipeline.
Vice-Chair Neuman questioned the payoff numbers and
wondered where the money to build the pipeline would come
from. Mr. Walker responded that that the consultant used
AGIA figures to determine the payoff costs over 30 years.
He added that besides the $1.70/MMBtu transport tariff,
$2.22/ MMBtu [for Processing and Shrinkage] and $.26/MMBtu
[for WH-Processing] contributed to the payoff of the
pipeline infrastructure. He elaborated that the use of
using tariffs over a 30 year period was common practice and
was similar to the payoff of a toll road. He continued that
the funding for megaprojects typically were market
generated. The financing was based upon the strength of the
market place and long term contracts. He remarked that
financing was never the problem. He mentioned a $55 billion
LNG project in Australia under current construction that
was one third smaller than the AGIA project. He explained
that Alaska had advantages over Australia with a larger
project and a colder climate, which was 40 percent more
efficient. Alaska's location provided low shipping costs at
$.59/MMBtu because Alaska was closer to the market as
opposed to the Gulf coast which costs $3.00/MMBtu. He noted
that Norway shipped to the Asian markets at higher shipping
costs. He believed Alaska had significant benefits over
other locations.
9:48:05 AM
Representative Holmes asked whether the costs depicted in
slide 14, included the cost of the gas. Mr. Walker stated
that it did not. He explained that the cost of the gas at
the wellhead was added to the $8.50/MMBtu and estimated at
$5.50 to $7.50/MMBtu.
Representative Holmes asked when the Wood Mackenzie study
took place. Mr. Walker replied that the study took place
July 27, 2011. Representative Holmes asked whether changes
in the market place occurred since then. Mr. Walker
answered that some up or down fluctuations had occurred.
The numbers were based on 2.7/bcf billion feet and if the
project was as large as 5.5/bcf the costs would drop by
half.
Co-Chair Austerman commented that today's natural gas
market would not support what the Asian market was willing
to pay in 2011. He wondered if the information remained
valid.
Representative Gara asked about the dis-insensitive rates
contained in AGIA for Alaskan communities. He wondered
whether the cost of natural gas for Alaskans would be less
than the $15.00/MMBtu costs shipping to Asia. Mr. Walker
stated that the rate for Fairbanks under AGIA dis-
insensitive rate was $5.29/MMBtu.
Co-Chair Stoltze requested that Mr. Walker share his
concerns regarding revenue issues and consumer costs
associated with the legislation.
Mr. Walker addressed Slide 17: "Post Treatment Gas
Composition Estimate." The slide contained a chart that
compared the BTU Content per cubic foot (pre LPG [liquefied
petroleum gas] extraction) of the chemical composition of
lean and rich gas. He elaborated that "gas liquids" had
market value. He worried that the gas liquids would remain
undeveloped. Gas liquids provided opportunities for value
added use within Alaska. He noted that the biggest benefit
of Alaskan LNG which was lacking in other localities was
its high BTU (British Thermal Units) content containing gas
liquids.
Mr. Walker moved to Slide 18:
"South central Gas Supply"
Long Term Gas Supply Work Group
Regulatory Commission of Alaska"
Public Meeting October 24, 2012 9:00 AM
Mr. Walker noted that a utility consortium was aggressively
exploring importing LNG into Cook Inlet.
Mr. Walker turned to Slide 19:
"Southcentral Gas Supply."
YNo Southcentral gas shortfall percentages are
anywhere near 100%
YNot all gas in Southcentral goes away
YExploration activity is up
YImport volume price blended with local gas
price
Mr. Walker related that according to testimony to the
Regulatory Commission of Alaska (RCA) imported gas could
supplement a possible supply shortfall of Cook Inlet LNG.
The idea was to blend a 10 to 20 percent volume of higher
cost imported LNG to the $6.00 [MMBtu] current cost
minimizing the cost increase to consumers.
Mr. Walker directed attention to Slide 20:
"How Does HB 4 Solve Alaska's Energy/ Fiscal Crisis?"
YRevenue to Alaska? - NO
YCost of Energy? Fairbanks [Lower] Southcentral
[Higher]
YBuilt in Time to Resolve Fairbanks/Southcentral
Energy Crisis? NO (2019-2020)
YLiquids for value added jobs? NO
Y$400 million to be able to hold an Open Season
- same place AGIA was on July 2010
Mr. Walker expressed apprehensions over HB 4. He commended
the work that was done on the in-state gasline, but, he
believed that the timing didn't solve Interior or South-
central energy problems. He added that the project doesn't
bring revenue to the state. He felt the thickness of the
pipeline design proscribed a higher volume of gas which
contained more of the valuable liquids. He exemplified that
it was illegal to extract raw natural gas liquids out of
Alberta. He felt that the natural gas liquids that were not
needed for export should be extracted out in Alaska and
value added.
Mr. Walker pointed to Slide 21:
"Options for Solving Energy Crisis"
YHB4 study to hold an Open Season in 2-3 years =
$400 Million
YFairbanks - LNG Trucking $250 Million = gas to
Fairbanks at $10.00-$12.00 range (2 years)
YSouthcentral - LNG Imports = $80 Million regas
for gas at $9-12 range (2-4 years)
YTotal cost for Fairbanks / Cook Inlet solution
= $330 Million
Mr. Walker felt that HB 4 was the "wrong project" to
advance. He added that the cost to advance HB 4 to another
open season was $400 million. He opined that the money
could be better spent solving the Fairbanks and Interior
issues with other options in a more timely manner.
9:55:44 AM
Mr. Walker turned to Slide 22:
"Why Are We Ignoring the AGIA Open Season?"
YAGIA Has Produced Volumes of Work Resulting
From Over 1 Million Hours of Engineering, Cost
Estimates, and Field Work. Approximately $500
Million spent to date on Open Season.
YWhen the $400 Million is expended under HB4, it
would take us back exactly to where we were on
July 31, 2010 under AGIA.
Mr. Walker thought that AGIA worked and brought offers to
the table. The HB 4 project was constrained by AGIA;
therefore was not a "whole project." He opined that the
state should move forward with a complete large diameter
pipeline to tidewater that benefitted the entire state,
travelled to tide water, was able to extract natural gas
liquids and tied to a market place. He emphasized that
whatever project advanced must be the right project for the
entire state.
Mr. Walker offered Slide 23:
"A Way Forward."
What Alaska Should be doing Rather Than Spending $400
Million to Begin Yet Another Open Season Process
(Third)
1. Engage directly with those companies in Asia
that responded to the AGIA Open Season (September
14, 2012)
2. Engage with AGIA licensee to direct next step
in engaging with Asian market
3. Engage with North Slope producers to determine
cost of "fiscal certainty" regarding gasline to
determine if it is cheaper for Alaska to own it -
built by the private sector now
Mr. Walker reported that companies that responded to the
AGIA open season contact him weekly to ask why there was no
response to its offers.
Mr. Walker reviewed Slide 24:
"Conclusion"
There is no logical reason to spend $400 million to
begin a study for another Open (Third) Season When the
last one had a 200 percent response from the Asian
market.
Mr. Walker continued that not only was the $400 million
cost of HB 4 to advance to a redundant open season an
issue, the development of shale gas changed the world
market. He thought that gas was more abundant than markets.
Time was being wasted with HB 4 instead of "engaging with
the market" and advancing a large Alaskan project. He
warned that enough work was completed on AGIA that lead to
a successful open season. He advised that if AGIA isn't the
right project the state should negotiate a way out so not
to hinder the right project from moving forward.
Mr. Walker concluded with Slide 25:
"Conclusion"
Risk to Alaska's Future?
While we begin yet another study process, the Asian
market signs long-term LNG contracts with projects
being built in Australia, British Columbia, U.S. Gulf
Coast, and Russia
Mr. Walker believed that the legislation would duplicate
work that already culminated in an open season when the
emphasis should be placed on delivering Alaskan gas to
market.
Representative Wilson asked which project he supported. She
wondered what was stopping the port authority from carrying
out the consortium's project of importing LNG using private
sector money. Mr. Walker replied that the Port Authority
was not advancing the LNG import project. The port
authority believed that the import project was the best
option for the short term. He noted that AGPA "always
advocated for a large volume line with an economy of scale
to benefit all Alaskans." He reminded the committee of the
AGPA goal, "build or cause be built." Therefore, AGPA would
rather see using the AGDC talent created in HB 4 to use
existing work to further a large volume line that
benefitted the entire state and not delay another two
years.
10:01:57 AM
Representative Wilson communicated that Fairbanks believed
that the state was standing in the way of advancing a
complete AGPA project, but she learned from the
presentation that AGPA wanted the state to "get a line
built." She asked for clarification. Mr. Walker offered
that the AGIA process moved ahead of the port authority
project and accomplished a successful open season. He
claimed that the port authority open season process was
interrupted by a North Slope producer asking Bechtel
[Bechtel Corporation] to terminate working for AGPA. He
reiterated that AGPA held back its efforts because AGIA
appeared to be moving forward. The port authority put
"jurisdictional interest" aside and recognized the AGIA
effort; a large volume project with promising benefits for
the entire state. He maintained that the $300 million for
HB4 and the efforts of AGDC were better served to advance
AGIA; a project with the economy of scale that better
served the interests of the market and provided revenue to
the state.
Representative Wilson reiterated her request on
clarification about the port authority project. She
maintained that Fairbanks was about to make an important
decision regarding AGPA. She interpreted from the
presentation that AGPA had no current project, but instead
was "cheerleading" the AGIA plan. She wondered if the
community was misrepresented about AGPA. She questioned his
opposition to the legislation. Mr. Walker declared that no
misrepresentation occurred. The port authority spent years
establishing a relationship with the market that AGPA
brought to the AGIA open season. He maintained that the
port authority's role accomplished cost estimates, obtained
permits and brought the market interest to Alaska. He
commented that the 2.7/bcf proposal by Asian companies was
"phenomenal." The port authority worked with 30 different
companies to make it happen. The market was the most
important piece of any project. The market paid for the
infrastructure associated with a project. The port
authority worked in the best interest of Alaska.
10:07:00 AM
Co-Chair Austerman felt the presentation shed light on the
AGPA's and City of Valdez's concerns. He shared the concern
and understood that a large major line produced a profit
and resulted in better prices for the state. He observed
that BP, Conoco Phillips, and Exxon were not responding to
the open season. He believed that the producers were not
interested due to shale gas development in the lower 48
states. The price of natural gas was no longer tied to the
price of oil and was low. He did not believe current market
prices could amortize the cost of a $40 to $60 billion
pipeline. He supported the legislation. He thought that
based on the current world market, HB 4 was the only viable
option today to bring gas to Alaskans. He agreed that many
purchasers were available but did not feel market prices
would support a large volume project in the foreseeable
future.
Representative Holmes concurred with Co-Chair Austerman's
statements. She understood the benefits of a large volume
line for the state. She felt she heard conflicting
direction in the presentation. She asked what direction the
state should pursue. Mr. Walker did not subscribe to the
state's wait and see approach. He argued that the state
needed to assess whether AGIA failed or required
advancement. He felt the state could not "sit on the
control of the future of the state under AGIA and not do
anything." He advised that the state directly confront the
leaseholders for a response. He announced that AGIA had an
exit provision and advised that the state seriously examine
it. The state needed to move on. He emphasized that Alaska
owned the resource. The leaseholders did not have the legal
right not to sell at the wellhead. In other parts of the
world leaseholders were required to develop leases or risk
losing the lease. The state should not let the producers
voluntarily make the decision to develop the leases or they
will procrastinate until it suits a best interest. He
warned that the state must take control of the situation or
will remain last in line for natural gas development. He
informed the committee that prices on a LNG contract were
locked in so project risks were known. He felt time was of
the essence.
10:14:50 AM
Representative Holmes asked if he advocated that the state
build a gasline. Mr. Walker advocated that the state build
the natural gas pipeline in partnership with the private
sector.
Representative Thompson asked about the [federal]
Department of Energy's (DOE) dismissal of the AGPA LNG
export application. He relayed that the DOE's stated
reasons were lack of a plan for the pipeline or plant. Mr.
Walker explained that AGPA was the only group pushing for
an export license. The port authority felt that the AGIA
process was developed enough for an export license but the
DOE disagreed. The port authority selected a specific site
for the terminal but the DOE wanted more specific
information. In addition, the DOE required gas contracts.
He noted that the DOE invited the group to reapply and AGPA
was engaged in the reapplication process. He revealed that
Alaska will lose its export license on March 31, 2013. The
state retained an export license since 1969.
Co-Chair Stoltze announced that he allowed the presentation
in order to offer dissenting views on the record. He
discerned that Alaska can only build one natural gas
project. He asked what would happen if Alaska chose the HB
4 project. Mr. Walker asserted that HB 4 was a mega
project. The gasline would be the largest project built in
the United States. He concurred that there was only room
for one mega project in the state. As a longtime advocate
for a gasline he felt uncomfortable arguing against HB 4.
But, based upon the evidence he feared that Alaska would
settle for far less than what we were entitled to. He
believed the sponsors were well intended.
Co-Chair Stoltze questioned whether it was "worth settling
for less or settling for nothing." Mr. Walker answered that
the project did not provide revenue to the state, did not
provide lower energy costs and actually increased the cost
of gas in Southcentral. He identified less expensive
options to solve the immediate energy problem in
Southcentral Alaska. He concluded that less was probably
not better than nothing.
10:21:42 AM
AT EASE
10:22:38 AM
RECONVENE
REPRESENTATIVE HAWKER appreciated the presentation. He felt
the committee agreed with the concerns and frustrations
expressed by Mr. Walker. He recapped that AGIA was not
working, there was no forward movement, and agreed that the
state should "go it alone." He stressed that the sponsors
shared the frustration. He was concerned that the private
sector project had languished. He agreed that there was a
strong Asian niche market for Alaskan LNG. However, his
foremost concern was to meet the in-state Alaskan energy
needs. He commented that the City of Valdez spent $900
thousand to kill HB 4 and supposed that Mr. Walker's
presentation was included in that amount. He believed that
the arguments put forward by Mr. Walker were exactly why
the committee should support the bill. He emphasized that
the sponsors intended to utilize the talent in AGDC to
benefit the entire state. The bill was designed to empower
AGDC to "build a brain trust" that was responsible to the
citizens of the state. He reminded the committee that the
state had a contractual obligation to TransCanada. The
state could not easily leave the contract. The legislation
was written to allow AGIA to move forward, but enabled AGDC
to move a viable project forward if AGIA failed. The
mechanisms to get out of AGIA involved arbitration and
proof that the project was non-economical. He deemed that
would last ten years. He stressed that HB 4 was in the best
interest of Alaska. He hoped that the legislation would
evolve into a bigger project and that HB 4 was "constrained
by commitments that the legislature made in the past" and
hoped to work around them.
Representative Hawker countered some of the conclusions
drawn in the presentation. He voiced that the cost of Cook
Inlet gas was already on the rise. He relayed that his
local utility purchased Cook Inlet gas this winter at $22.
Mcf (thousand cubic feet). The sponsors were aware that an
Alaska in-state gasline will not move forward unless it can
"beat the price of importing LNG." He reminded the
committee that the $400 million took the project "all the
way to the project sanction." He questioned the claims by
the City of Valdez. The mayor stated in a press release
that the AGIA open season in 2012 was successful and
justified moving forward with a large volume gasline to
tidewater. He believed that the open season was a non-
binding expression of interest. He investigated the
statement and questioned two of the producers involved who
could not corroborate the mayor's statements. He relayed
the administration's desire to move forward with both AGIA
and HB 4. He emphasized that both were the best prospects
for the state.
10:31:58 AM
SPEAKER MIKE CHENAULT, believed that Mr. Walker had the
best intention for the state of Alaska. He pointed out that
all of the previous gasline projects listed on the slides
had failed. He related that in discussions with Alaska Oil
and Gas Conservation Commission (AOGCC), the volume of 5.5/
bcf of gas would not be allowed to flow through a Prudhoe
Bay gasline. The loss of oil revenue would be greater than
the amount of income gained from that amount of natural gas
production. He noted that Pt. Thompson was not an
alternative because it was still classified as an
undetermined field and AOGCC would not permit a high volume
of production until the oil field was classified. He agreed
that the volume of the gasline in HB 4 should be as large
as possible; it was limited by current law and AOGCC. The
commission was tasked with ensuring Alaska received the
best value from its resources. He understood that a market
in ASIA existed but was changing. He thought that
relationships played a big part in contracts in the Asian
market, but they only go so far. The energy cost was the
important piece. The state lost historical LNG contracts
with Tokyo Light and Power of Japan (BP was providing less
than one percent of its LNG needs) notwithstanding an
established relationship with the state.
10:37:08 AM
Speaker Chenault reiterated that the cost of Cook Inlet gas
was $22. Mcf for peak gas. He wondered why there was so
much concern over a pipeline that could offer $9./Mcf for
year around gas. He believed that the $9/Mcf gas was
preferable to $22/Mcf. He agreed with Mr. Walker's desire
to construct the largest volume pipeline. He felt that the
time for waiting for a large diameter line was over. He
declared that if the state ended up importing LNG to meet
its energy needs then the state's elected officials failed
its citizens in our commitment to do what is best for
Alaska. The "means and mechanisms" existed to develop a
long term energy source for the citizens of the state.
Co-Chair Stoltze was glad that any gas was available for
his district at the coldest peak months regardless of
price. He stated that the consequences of no gas
availability were too severe.
Representative Hawker added that no gas pipeline would
provide an immediate solution. He related that short,
medium, and long range solutions were necessary. The Cook
Inlet Recovery Act (2010) that provided for a gas storage
facility was an example of an immediate short term solution
that worked, but was not enough for the long term. The gas
trucking legislation [SB 23-AIDEA: LNG PROJECT; DIVIDENDS;
FINANCING] would not provide a long term solution. He
offered that the long term solution was Alaska's vast gas
supply from the North Slope.
10:41:33 AM
Representative Gara recapped that a large volume line would
provide cheaper gas and more export revenue. He noted that
AGIA limited the size of other gaslines to .5 bcf or less.
He wanted to move ahead with both projects. He understood
that the governor was making progress on AGIA and if the
process was stalled HB 4 was another mechanism. He
expressed concern with the language of HB 4. The
legislature did not have an opportunity to respond. With
passage of the bill, the language allowed the project to
move forward if additional state funding was not necessary.
Previous legislation such as the Stranded Gas Act
authorized final legislative approval. He thought that the
state could "get stuck" with the HB 4 project if it proved
undesirable to the state. He questioned how the sponsors
felt about that outcome. Speaker Chenault replied that HB 4
and the Stranded Gas Act [Alaska Stranded Gas Development
Act, 1998] were different. The Stranded Gas Act required
that Alaska pay for 20 percent of the project which
amounted to approximately $9 billion. He felt that in that
instance, legislative approval was appropriate. He
reiterated that HB 4's total cost to the state was $400
million. He judged that at the point of moving forward with
contractual agreements the project was best left out of the
"political realm."
Representative Hawker agreed with the Speaker. He noted
that HB 4 provided for state involvement in the process.
The legislation built in the regulatory structure that
allowed the state to invest in the project, but only with
legislative approval. He did not feel that sending industry
the message that the state only wanted private industry
development that was state sanctioned was the wrong policy
call. He wanted a state that fostered economic development
in the private sector. He summarized that HB 4 contained a
"plethora of checks and balances to protect the states
interest without compromising the ability of the private
sector to move forward" with efficiency.
HB 4 was HEARD and HELD in committee for further
consideration.
10:50:27 AM
ADJOURNMENT
The meeting was adjourned at 10:50 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 4 Valdez Presentation to HFIN.pdf |
HFIN 3/28/2013 9:00:00 AM |
HB 4 |