Legislature(2013 - 2014)HOUSE FINANCE 519
04/09/2014 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Panel Discussion: Alaska Oil and Natural Gas Producers-transcanada and Alaska Gasline Development Corporation (agdc) | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
April 9, 2014
1:35 p.m.
1:35:19 PM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 1:35 p.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 David Guttenberg
Representative Lindsey Holmes
Representative Cathy Munoz
Representative Steve Thompson
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Bill McMahon, Senior Commercial Adviser, Alaska Gas
Development, ExxonMobil Development Company; Pat Flood,
Supervisor, Alaska North Slope Gas, ConocoPhillips Alaska.
PRESENT VIA TELECONFERENCE
David Van Tuyl, Regional Manager, British Petroleum
Exploration Alaska; Tony Palmer, Vice President, Major
Projects Development, TransCanada Pipelines Limited; Daniel
Fauske, President, Alaska Gasline Development Corporation.
SUMMARY
^PANEL DISCUSSION: ALASKA OIL AND NATURAL GAS PRODUCERS-
TRANSCANADA AND ALASKA GASLINE DEVELOPMENT CORPORATION
(AGDC)
1:35:36 PM
BILL MCMAHON, SENIOR COMMERCIAL ADVISER, ALASKA GAS
DEVELOPMENT, EXXONMOBIL DEVELOPMENT COMPANY, stated support
for SB 138 [Gas Pipeline; AGDC; Oil & Gas Prod. Tax]. The
legislation enabled the Alaska LNG (liquefied natural gas)
project to move forward. He believed that the bill was
consistent with the Heads of Agreement (HOA) (copy on file)
and with passage; Exxon would enter into the pre-FEED (pre-
front-end engineering and design work) stage. He explained
that during Pre-Feed the participants plan to pursue the
"ARC" of the project. The letter "A" stood for alignment
among the participants. The strongest ventures resolved
challenges when all of the participants were working
together. He added that state participation was "a strong
signal" to the LNG (Liquefied Natural Gas) market of the
host government support. Risk reduction was the R in ARC.
He noted various risk factors associated with the project:
regulatory, permitting, schedules, and sales. Reliability
was essential if energy from Alaska was to be trusted by
the market. He stated that "C" stood for cost of service.
Liquefied Natural Gas was a commodity and cost was a key
factor. The participants would "relentlessly" find
reductions in the cost of service to keep prices low enough
to remain competitive in world markets. The pre-FEED work
was "essential" to support the participants marketing
efforts to test the market for Alaska LNG.
1:40:26 PM
DAVID VAN TUYL, REGIONAL MANAGER, BRITISH PETROLEUM
EXPLORATION ALASKA (via teleconference), supported the HOA
and SB 138. He related that he participated in the
negotiation of the HOA and was a member of the management
committee of the Alaska LNG project. He emphasized the
importance of the HOA and explained that it was an aligned
way forward to successfully bring Alaska LNG to market. He
stated that the signed HOA represented a commitment by the
signatories to work together to address difficult issues.
The HOA sent a message to the rest of the world about the
intention to successfully advance the Alaska LNG project.
He believed that the HOA was critical to the advancement of
the project and that HB 138 was "faithful to the HOA." He
elaborated that British Petroleum (BP) understood the HOA
and SB 138 followed three essential elements known as the
"three "P's". The first "P" stood for participation
demonstrated by the State's participation, which enabled
"unprecedented commercial alignment." The bill authorized
the state to negotiate contacts. The second "P" denoted
percentage. The bill established a percentage of tax as
gas, and when added to the state's royalty in kind the
state's share totaled 25 percent; the high end of the range
specified by the HOA. The third "P" stood for process. He
reported that the legislation delineated a negotiation
process and provided transparency. British Petroleum also
supported the provision introduced by the administration
that ensured municipalities participation in the process.
He concluded that BP looked forward to working together to
fulfill the shared opportunity the legislation provided.
1:45:00 PM
PAT FLOOD, SUPERVISOR, ALASKA NORTH SLOPE GAS,
CONOCOPHILLIPS related that he worked in the oil and gas
industry for 30 years in Alaska and was dedicated to the
safe, economic development of the oil and gas industry. He
stated that ConocoPhillips agreed with the main points
discussed by Mr. Van Tuyl and wanted to advance a project
consistent with the HOA. ConocoPhillips understood that the
state needed to consider "significant policy issues"
regarding the state's role in the LNG project as delineated
by the HOA. He relayed the corporation's support of the
Senate version of SB 138 and believed it was consistent
with the HOA.
1:46:41 PM
TONY PALMER, VICE PRESIDENT, MAJOR PROJECTS DEVELOPMENT,
TRANSCANADA PIPELINES LIMITED (via teleconference), briefly
testified in support of SB 138, the HOA, and the Memorandum
of Understanding (MOU)(copy on file).
1:47:12 PM
DANIEL FAUSKE, PRESIDENT, ALASKA GASLINE DEVELOPMENT
CORPORATION (via teleconference), testified in support of
the HOA and SB 138. He voiced that he participated in the
HOA negotiation process with the major producers and
TransCanada and believed it positioned the state to advance
a large gasline project forward. He qualified that the
Alaska Gasline Development Corporation (AGDC) remained
committed to its work under HB 4. [HB 4-ALASKA GASLINE
DEVELOPMENT CORP; RCA Adopted in 2013.] He felt privileged
to be involved in a process verging on a major [LNG]
project for Alaska. He reported AGDC's participation in the
SB 138 process in the House Resources Committee.
Co-Chair Stoltze asked if the AGDC board had a formal
position in support of the legislation.
Mr. Fauske replied that the board was supportive of the
decision but did not engage in a formal process of support.
He reported that he briefed the board on the amendments to
SB 138 in the House Resources Committee and that the board
was in "absolute support."
Co-Chair Stoltze reiterated the question regarding formal
board support of SB 138.
Mr. Fauske replied that the board did not take formal
voting action. He noted that the AGDC board took one
informal vote regarding the creation of a subsidiary and
understood its role in the project.
Co-Chair Stoltze appreciated the clarification.
Representative Holmes asked a project finance question. She
offered that the state needed to determine whether it
favored its role under the HOA and MOU and how the state
would finance its part of the gas treatment plant,
pipeline, and LNG facility. She described another project
model where large, expensive projects were financed by a
"project finance model." The participants created a joint
venture to secure the financing and at least part of the
debt was "secured by the project itself." She added that
the project finance model typically had fewer participants
than the Alaska LNG project. She defined the Alaskan LNG
project as a "project within a project" and a "pipe within
a pipe" for the individual entities involved. She wondered
whether the financing model she described would lend itself
to the Alaskan LNG project when it came time for financing
the project considering the number of entities involved and
its individual role in the project.
Mr. Van Tuyl agreed that consideration of financing a mega
project of its kind was enormous and would want to be
understood in the early stages of the project. He thought
that the first step was developing a financing plan
simultaneously during the pre-FEED stage suitable for all
of the entities. As the project progressed into the FEED
stage, the potential investors and specific financial
arrangements could be worked out before the final
investment decision.
1:55:37 PM
Mr. Palmer interjected that the MOU contained terms offered
to the state for the financing of TransCanada's portion of
the project.
Representative Holmes related concerns regarding
confidentiality agreements in the early stages of the
project impeding the state's financial decision making
ability. She commented that the state might not want to
finance the TransCanada portion on its own. Notwithstanding
the TransCanada portion, she understood that just the
liquefaction plant was a massive endeavor and wondered how
the state will finance its portion. She mentioned that the
different partners might not share all of the information
with the state, obscuring the big picture and wondered how
that will affect the financing decisions.
Mr. McMahon agreed that confidentiality was the
administrations main concern during the HOA process. He
shared that the remedy granted the administration access to
confidential information when acting in a proprietary
capacity. The state will have full access to confidential
information when acting in a proprietary capacity, as the
"owner of gas" to make financial decisions in the pre-FEED
stage.
Mr. Flood concurred with the previous comments. He stated
that the pre-FEED process was a critical time for the state
to access information to make important financial decisions
and agreed the information should be available.
Representative Guttenberg sought clarification about the
state as the owner of gas. He wondered which agency would
have access to the information.
Mr. McMahon replied that AGDC and TransCanada would
routinely be privy to the information. The focus of the
confidentiality discussions centered around granting the
Department of Revenue (DOR) and Department of Natural
Resources (DNR) access.
Representative Gara asked Mr. Palmer about the balance
between the risk and benefit to the state. He maintained
that in lieu of taxes and royalties the state would receive
gas "in kind" that must be sold. The state would ship gas
through the portion of the pipeline it owns (Zero to 11
percent). TransCanada would own 14 to 25 percent of the
pipeline. He asked whether the information was correct.
Mr. Palmer answered in the affirmative.
Representative Gara asked whether the state owed payment,
to TransCanada for capacity and shipping even without the
gas to ship. He thought that the process was termed
"shipping capacity" and asked for clarification.
Mr. Palmer replied in the affirmative. He explained that
the payment was termed "demand charges" and TransCananda
would be obligated to provide daily access for the
capacity. The demand charges were not based on the amount
of gas flowing through the pipeline but based on the
contract tariff terms. The rationale was based on assuring
that the pipeline would collect revenue in light of the
"attractive commercial terms" the state received.
Representative Gara assumed that the demand charges would
be proportionate to the 25 percent ownership of the gas. He
questioned what the daily demand charge was if the state
was not able to ship gas in a particular day.
Mr. Palmer replied that the calculations were not
completed. He concurred that 25 percent of the demand
charges would be payable each day not related to the actual
gas in the pipeline.
Representative Gara noted the difficulty in accessing risk
without the figures. He asked whether the charges could
amount to millions of dollars per day.
2:04:41 PM
Mr. Palmer provided a projected number based on the
estimated cost of $45 billion for the project in addition
to another approximately $22.5 billion for the gas
treatment plant and the pipeline. The annual demand charge
was approximately in the "low billions of dollars per
year."
Representative Gara stated that Alaska was not a gas
producer and was reliant on other producers but would be
responsible for shipping cost whether gas was available or
not. He wondered what assurances the state had that its
portion of the gas would be shipping at capacity to avoid
demand charges.
Mr. Flood replied that the issue was addressed in the HOA.
He referred to section 4, and explained that during the
pre-FEED stage the parties would define "gas off-taking
balancing agreements in regards to their rights to capacity
in the Alaska LNG project." The issue was recognized and
encountered by each industry member. The issue gained
mutual recognition and discussion during the HOA
negotiations. The consortium would collaborate to craft an
agreement.
Representative Gara pointed out that historically with the
established tax and royalty system, Alaska never carried
the risk of an empty pipeline. Without enough gas in the
pipeline the state bears the entire risk with payments to
TransCanada. The producers were in control of the volume of
flow in the pipeline. He pondered whether it was fair for
Alaska to bear the entire risk of royalty and tax in-kind
and wondered why the producers did not share the demand
charges if the state's capacity was not met. He viewed the
arrangement as an additional risk for the state.
Mr. McMahon reiterated that the assurance issue was
addressed by the administration during the HOA
negotiations. Section 4.6 of the HOA addressed the issue
through gas off-take agreements defined during the pre-FEED
stage. He added that consideration of other mechanisms was
not discussed.
Co-Chair Stoltze asked how much TransCanada detracted or
added to the arrangement.
Mr. Van Tuyl replied that TransCanada added certain
expertise in the operation of pipelines and technical
capabilities in the Arctic. Each participant used a model
that would match its equity ownership with its resource
ownership, made possible by its global project branch. The
state did not possess the industrial organization or
capability to maintain its interest in the project. The
state's choices were to passively rely on third parties,
hire, or contract for the capability. He relayed that the
state chose to contract with TransCanada for project
capability and executed the MOU, strictly between the state
and the TransCanada. The state had to decide the value of
the terms of service provided in the MOU.
2:13:39 PM
Mr. Flood believed that state participation in the project
was vital and how the state chose to participate was the
state's decision. ConocoPhillips recognized the state's
choice in how to participate and executed the HOA with
TransCanada and AGDC as parties to the state's role in the
project.
Co-Chair Stoltze deemed that since the state involved
TransCanada's participation the financial terms were
matters of the state.
Mr. Flood concurred and added that the financial
obligations were negotiated between the state and
TransCanada and did not involve the producers.
Mr. Palmer believed that TransCanada brought tangible value
to the state. He specified that TransCanada's expertise
particularly in Arctic conditions was well-known and will
lead a team of players from the consortium in the pre-FEED
stage. He assured the committee that the companies
experience was both technical and commercial and utilized
both areas to negotiate the arrangements in the HOA and MOU
including the expansion provisions. He opined that the
expansion provisions were hugely valuable to the state. The
expansion provisions allowed future potential gas not owned
by the three original producer's access to the system. He
added that TransCanada offered the state "highly
competitive commercial terms."
Co-Chair Austerman commented that the LNG project would
heavily impact the state's infrastructure. He noted the
states investment costs and risks in the project. He asked
the producers whether the project would share in the
maintenance costs and upgrades of the state's existing
basic infrastructure.
Mr. McMahon replied that the upgrades to infrastructure
would be determined during the pre-feed process. The
infrastructure evaluation process would determine the
funding process either by state appropriation, federal
government, or project contribution. He felt it was too
early to define the specifics until the infrastructure
needs are understood.
Co-Chair Austerman wanted assurance that the producers were
not excluding project contribution for maintaining the
state's infrastructure.
Mr. McMahon reiterated that the infrastructure upgrades
would be discussed in the future when they were understood
in order to find the "broadest" solutions possible.
Mr. Palmer responded that during pre-FEED the
infrastructure would be carefully evaluated by all members
of the consortium and the state.
Representative Costello queried Mr. Palmer about the five-
year right to participate in a similar project. She asked
whether the right took effect before or after the firm
transportation agreement was voted on by the legislature.
Mr. Palmer replied that the five year right would take
effect only after the firm transportation agreement was
voted on and implemented.
Representative Costello voiced that TransCanada was hyped
as a valuable contributor on behalf of the state. She
wondered what type of work TransCanada accomplished to
date.
2:20:55 PM
Mr. Palmer stated that TransCanada brought expertise in
owning and operating regulated pipeline in North America.
The company brought expertise in permitting the project.
The company moved large volumes of gas through pipelines
every day. TransCanada built pipelines in Arctic conditions
and mountainous terrain in Northern Alberta, the Andes
Mountains, and currently constructed pipeline in Mexico
with terrain similar to the Brooks Range. He noted the
company's commercial and regulatory expertise. The company
contributed significant work on the Alaska Gasline
Inducement Act (AGIA) which contributed to the work going
forward on the Alaska LNG project. TransCanada also
contributed to all of the commercial work regarding the MOU
and HOA. Finally, TransCanada's was able to finance its
portion of the project.
Representative Wilson asked why the state needed to partner
with TransCanada and why it was a "good deal for the state"
to participate.
Mr. Van Tuyl replied that state participation was a key
element of the agreement. The state's participation
"brought an alignment that would not otherwise be possible"
when the resource owner was also an infrastructure owner.
He delineated that the state participation as a resource
and infrastructure owner would enable the state to view
issues similarly from a commercial aspect and similarly
problem solve. He believed that participation reduced the
projects risk. The state's participation ensured that each
party participated in the infrastructure at the level of
its resource ownership, which benefited producers by not
having to initially pay the state's portion of the
investment.
Mr. McMahon concurred with the comments of Mr. Van Tuyl. He
added that Alaska would participate in the early commercial
and technical decisions of the project that were critical
to the projects development further along. Early
involvement in the decision making process ensured that the
project met the state's needs.
Representative Wilson did not understand why it was
necessary for the state to be an investor when with the
inclusion of TransCanada the consortium could have four
parties with equal standing and the state would collect
taxes similar to oil taxes.
Mr. Flood replied that the state's participation and gas
share was a key element in the project. TransCanada did not
have a gas share or the ability to have one. TransCanada
can only participate in partnership with the state.
2:29:15 PM
Co-Chair Austerman observed that the state, as a partner
would have a more favorably aligned viewpoint on costs and
taxes and that would benefit all partners.
Representative Guttenberg referred to Representative Gara's
question related to unused capacity in the line. He noted
that the state was not a producer and would not control the
volume in the line. He wondered how a built-in uncertainty
in production would affect the state's ability to market
the gas with. He asked what kind of discount the state
would receive.
Mr. Flood answered that ConocoPhillips had operated in
Alaska since 1999 and it had never missed a shipment.
Representative Guttenberg clarified that he wondered how
the state could market the gas without a consistently known
volume to offer. A producer could guarantee a buyer a
consistent volume, but the state cannot.
Mr. McMahon replied that ExxonMobil shared a similar
situation; "lifting" gas from a field not owned by the
company and relied on the contracts with the operator for
the capacity. He reported that the state would have similar
contracts with another partner.
Mr. Van Tuyl referenced Section 8.3.3 of the HOA that
provided the state the option to approach any one of the
producers to rely on their marketing expertise rather than
the state taking an independent approach. He elaborated
that Representative Guttenberg's point had been discussed
during the HOA negotiations regarding the state's lack of
marketing experience. As competitors, the producer's
conversations regarding marketing LNG gas was limited due
to antitrust laws. Section 8.3.3 was carefully crafted with
regard to antitrust laws. The state may only engage with an
individual producer. The section was added to help
alleviate the state's "perceived" marketing risk.
Representative Guttenberg remarked that the maintenance
bill of the Dalton Highway was $900 million. He wondered
how the maintenance expenses of the pipeline would be
repaid to the state. He asked whether the producers
expected the state to pay for the maintenance costs.
Mr. McMahon replied that the partners would conduct a full
evaluation of the infrastructure needs for execution of the
project. Subsequently, the funding for the maintenance and
upgrades would be determined during the agreement process
with the administration. He hoped that federal funding
would be considered.
Representative Guttenberg relayed that according to
consultants, the state's partnership was a reflection of
the producer's uncertainty about the project. He asked at
what point a producer could decide to build the project
independently.
Mr. Van Tuyl replied that the HOA envisioned an aligned way
forward of advancing the project together. He expounded
that mega-projects were advanced through a "stage gate
decision making process" where a scope of work was agreed
upon and completed. The result of the work would provide an
updated view of the project. Each participant independently
evaluated the results and decided whether it wanted to
commit to the next phase. An incentive existed to solve one
partner's problems together in order to advance the project
to the next phase. Each step in the LNG project from Pre-
FEED to the final investment decision (FID) was a stage
gate or "on-ramp" opportunity to sanction the projects
advancement together.
2:39:35 PM
Mr. Palmer interjected that Alaska was currently assessing
whether to advance to the pre-feed stage along with the
timeframe for completion. He related that if all parties
were ready to advance after pre-FEED the state will have
another opportunity to review the project including the
firm transportation services agreement. He referred to the
demand charges and offered that they were only applicable
after the project was in service.
Representative Edgmon mentioned the state's several
previous attempts at developing Alaska's natural gas over
the years. He wondered how long the current agreement's
process was in development.
Mr. Flood remarked that he was a relative newcomer to the
process beginning in 2008. He stated that the gas project
in Alaska was evolving over many years. He mentioned that
different approaches were tried and the HOA was built on
many years of prior work. The HOA came about after many
months of engagement and collaboration initiated by the
governor and culminating with the HOA.
Mr. McMahon recounted some milestone moments leading to the
current collaboration. He reported that in January 2012, a
"milestone" meeting with the three CEO's (Chief Executive
Officers) of the three major producers in Alaska took
place. The settlement of Pt. Thompson litigation on March
29, 2012 was another key milestone. At the time an
agreement was signed by Exxon, BP, ConocoPhillips, and
TransCanada to explore an Alaskan LNG project. In February
2013 the entities selected a concept for an LNG project. He
indicated that it all began in 2011, with changes to the
market in the lower 48 states that made a pipeline to the
lower 48 uneconomical.
Representative Edgmon pointed to the challenging economic
nature of the project. He asked whether the Alaska LNG
project was the largest private sector project in North
America.
Mr. McMahon replied in the affirmative.
Representative Edgmon asked whether the parties considered
options without the state in the past.
Mr. Van Tuyl interjected that BP believed that state
participation was "absolutely critical" to the project's
success. He emphasized that besides alignment, state
participation sent a "critically important message" to
potential buyers.
Representative Edgmon inquired how a repeal SB 21 (SB 21-
OIL AND GAS PRODUCTION TAX Adopted in 2013) would affect SB
138, if adopted.
Mr. Flood replied that the reform of the oil taxes,
building a more competitive oil and gas environment, was an
important consideration as the LNG project moved forward.
The repeal of SB 21 would be unfortunate for the project.
2:48:00 PM
Representative Munoz asked about the values of the
TransCanada partnership including the commercial work under
AGIA and the financial value of the work.
Mr. Palmer replied that a significant amount of work was
completed under AGIA. Some of the right-of-way and
engineering work relating to the pipeline north of
Livengood was transferable. The work relating to the gas
treatment plant was "significantly transferrable." Some of
the work relating to the entire pipeline such as pipeline
integrity was applicable. He stated that it was difficult
to determine the exact value. He suggested that 20 to 40
percent of the work conducted under AGIA was directly or
indirectly transferable.
Representative Munoz asked whether the AGIA costs were
reimbursed by the state to TransCanada.
Mr. Palmer replied that funds were partially reimbursed to
TransCanada and ExxonMobil.
In response to a question by Representative Munoz, Mr.
Palmer answered that if SB 138 was adopted, the data
collected under AGIA would be contributed at no cost into
the new project.
Representative Munoz asked about the seven circumstances
TransCanada would be reimbursed with interest if the
project was terminated.
Mr. Palmer replied that both TransCanada and Alaska had the
right to terminate the project. He explained that, if at
any stage gate the state exercised its right to terminate
the agreement, TransCanada received reimbursement of its
costs plus an allowance for funds used for construction
(AFUDC) set at 7.1 percent. In the event TransCanada
terminated no return on its funds would be received. He
illuminated the rationale for reimbursement. TransCanada
earned its money back over the life of the project and did
not profit from development costs. The AFUDC was a low
return on the capital expended. He added that the actual
costs to the state were lower than if the state retained an
engineering firm.
Co-Chair Stoltze asked what the likelihood of the LNG
project was without SB 21.
Mr. McMahon responded that most of the wells for the LNG
project produced both oil and gas. A healthy oil industry
was required to support the gas project. He communicated
that at any stage gate the oil companies evaluated its
current situation. He felt the legislation factored into
the decision to sign the HOA.
Mr. Van Tuyl echoed the comments of Mr. McMahon and
emphasized that the LNG project required the extension of
the North Slope infrastructure for decades. He stressed the
importance of maintaining the health of the existing
infrastructure for oil and gas for an extended period. The
company invested in LNG projects because they typically
generated cash at low margins for decades. He mentioned new
investment in the oil industry and felt that was an
important sign of the industry continuing into the future.
2:58:00 PM
Mr. Flood added that the passage of SB 21 signaled an
improvement with the relationship with the state of Alaska,
which added to the success of a long-term relationship.
Representative Gara stated he disagreed with the comments
on SB 21. He asked whether the state began the LNG project
as a zero percent owner with the option of becoming an 11
percent owner or did TransCanada have the option of buying
the states interest down from 11 percent.
Mr. Palmer explained that if the state's ownership was 25
percent TransCanada would own 25 percent of the gas
treatment plant and 25 percent of the pipeline. The state
would have the right to purchase 40 percent of the
interest. In that event, the state would own 10 percent and
TransCanada 15 percent.
Representative Gara referred to alignment and noted that
the state did not have an equal share of the profit making
facilities of the project; the pipeline and gas facility.
In addition, the state shared its profit with TransCanada.
The producers received equal shares and do not owe anything
to TransCanada if the project died. He wondered how the
agreement was fair to the state.
Mr. Van Tuyl replied that the producers were liable for its
proportionate share of the costs should the project die. He
furthered that under the HOA all of the resource owners
have the opportunity to be infrastructure owners. The
agreement with TransCanada was negotiated between the state
and TransCanada and was the state's business. He reiterated
that although the alignment was "not perfect" the resource
owners were the infrastructure owners, which created a
"very different dynamic" for the project.
Mr. Palmer believed that if the state acted independently,
the state would incur the same costs for all of the
expertise TransCanada provided. He opined that what
TransCanada provided reflected a fair value. He voiced that
the legislature must decide whether the agreement was fair.
Representative Gara noted that all of the partners
benefitted from TransCanada's expertise. He wondered why
the producers were not contributing to TransCanada for the
expertise if the project was terminated.
Mr. Flood answered that TransCanada was not covering the
entire cost of the work. The producers would cover 75
percent of the cost and TransCanada 25 percent. The
producers already paid for their share of the costs
incurred in the event of the project's termination. He
added that the project was a co-venture and all parties
were contributing expertise.
Co-Chair Austerman clarified that Alaska and TransCanada
were partners in the 25 percent ownership. The MOU between
TransCanada and Alaska had nothing to do with the producers
or their 75 percent. If the project was terminated Alaska
and TransCanada share the costs of the 25 percent. He
offered that all entities shared in the risks and loss of
the project if terminated. The state's partnership with
TransCanada limited the risk to the state. The state
accepted TransCanada as a partner and expected it to front
the money for the project.
Representative Gara asked why Nikiski was chosen as the
port for the project. He pointed out that the Port of
Valdez was ice free year around. Cook Inlet was not ice
free, had strong tides, and never handled the size of
tanker the LNG project required.
3:08:45 PM
Mr. McMahon stated that 40 different locations were
considered for the pipeline terminus and LNG plant. He
stated that both Valdez and Nikiski had facilities and
access to waterways for tankers and ships. Nikiski was
chosen because it could accommodate the size of the LNG
plant required; hundreds of acres of flat land were
necessary. The final decision was a tradeoff between the
civil engineering work for sight preparation opposed to
managing ice conditions and tides in the Cook Inlet.
Nikiski was the lead site based on ice modeling, marine
engineering, and the civil engineering estimated for
preparing the sites, determined in 2013.
Mr. Flood added that the location was critical to the
decision to proceed with the project. He pointed out that
Nikiski was shipping LNG prior to the building of the Port
of Valdez. He felt that Nikiski was the best option for the
project.
Co-Chair Austerman asked about the size of the total
project. He asked what percentage of the total project the
LNG plant was.
Mr. Flood answered that the size was roughly 50 percent of
the project.
ADJOURNMENT
3:12:29 PM
The meeting was adjourned at 3:13 p.m.
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