Legislature(1995 - 1996)
02/01/1996 10:10 AM House O&G
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
JOINT HOUSE STANDING COMMITTEE ON RESOURCES AND
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
February 1, 1996
10:10 a.m.
HOUSE RESOURCE COMMITTEE MEMBERS PRESENT
Representative Joe Green, Co-Chairman
Representative William K. (Bill) Williams, Co-Chairman
Representative Scott Ogan, Vice-Chairman
Representative Alan Austerman
Representative John Davies
Representative Pete Kott
Representative Don Long
Representative Irene Nicholia
HOUSE RESOURCE COMMITTEE MEMBERS ABSENT
Representative Ramona Barnes
HOUSE OIL AND GAS MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative Scott Ogan, Vice-Chairman
Representative Gary Davis
Representative William K. (Bill) Williams
Representative Tom Brice
Representative Bettye Davis
Representative David Finkelstein
HOUSE OIL AND GAS MEMBERS ABSENT
All members present
OTHER HOUSE MEMBERS PRESENT
Representative Terry Martin
Representative Gene Kubina
COMMITTEE CALENDAR
Presentation by Yukon Pacific Corporation: Proposed Natural Gas
Pipeline from the North Slope to Tidewater in Prince William Sound
WITNESS REGISTER
JEFF LOWENFELS, President
Yukon Pacific Corporation
CSX Corporation
1049 West 5th Avenue
Anchorage, Alaska 99501
Telephone: (907) 265-3100
POSITION STATEMENT: Presented information on the proposed natural
gas pipeline from the North Slope to tidewater
in Prince William Sound.
ACTION NARRATIVE
TAPE 96-4, SIDE A
Number 000
The Joint House Standing Committee on Resources and House Special
Committee on Oil and Gas was called to order by CHAIRMAN NORMAN
ROKEBERG at 10:10 a.m. House Oil and Gas members present at the
call to order were Representatives Rokeberg, Ogan, G. Davis, B.
Davis, and Finkelstein. CO-CHAIRMAN JOE GREEN announced that House
Resource Committee members present at the call to order were
Representatives Ogan, Nicholia, Davies, Austerman, Long and Green.
This meeting was teleconferenced to Anchorage, Barrow, Cordova, and
Valdez on a listen only basis.
CHAIRMAN ROKEBERG announced the agenda for the meeting was a
presentation of the TransAlaska gas pipeline project by Yukon
Pacific Corporation.
Number 115
JEFF LOWENFELS, President, Yukon Pacific Corporation, explained
that his company was sponsoring a project known as the TransAlaska
Gas System. He announced he would present a slide presentation
which sets out the fundamentals of the project and addresses Yukon
Pacific Corporation concerns over project timing, and then discuss
the Blue Book titled, "Briefing on Alaska Natural Gas Project,"
which contains answers to questions put forth by the Alaska Senate
Resources Committee, and finally to answer questions by the joint
committees.
Number 203
MR. LOWENFELS began his slide presentation. He said Yukon Pacific
Corporation is the sponsor of the TransAlaska gas system. Yukon
Pacific Corporation was incorporated in 1982 and is a single
purpose corporation working on the TransAlaska gas system project.
Yukon Pacific Corporation is a business unit of the CSX
Corporation. CSX is an international company which contains
SeaLand Service which is a shipping company serving 120 different
ports of call including ports in Alaska. CSX also owns a large
intermodal system which transfers freight throughout the United
States and the American Commercial Barge Line serving the MidWest
on the Mississippi and Ohio Rivers. CSX owns a large railroad on
the East Coast of the United States. To explain its size, he said
this railroad system incorporates two of the railroads listed in
the Monopoly board game. He said CSX is a large transportation
corporation and operates business throughout the world. He said
CSX received $9.5 billion in revenues and employs 50,000 people
worldwide.
Number 355
MR. LOWENFELS pointed to a map projection which depicted the
TransAlaska Gas System (TAGS) project Yukon Pacific Corporation has
been working on for 14 years. He said TAGS is designed to take
Prudhoe Bay Unit (PBU) natural gas and possible Point Thomson Unit
natural gas down through the existing corridor, following the
existing TransAlaska Pipeline, in a buried, chilled pipeline. At
the terminal in Valdez where it will be converted into liquified
natural gas and then placed on tankers which will take it to Japan,
Korea, and Taiwan. He said the natural gas will not only go to
Asian ports, but also to communities located along the pipeline
corridor such as Tok, Fort Yukon, Fairbanks, Glennallen, and
Valdez. He said the 90,000 people living along the corridor pay
the highest utilities rate of anyone in the United States with
Valdez being the ranked the highest. He said the economics of TAGS
works because of Japan, Korea and Taiwan but this project is also
designed to get natural gas into the communities along the pipeline
corridor.
MR. LOWENFELS said the project costs, as depicted on the next
slide, were $10 billion for Alaskan facilities and $3.4 billion for
ships. He pointed to the figures mentioned that were listed up at
the top of the slide and said these were 1991 figures. He said in
most circumstances you would escalate those figures which would
result in a higher cost and then explained why those figures are
not higher. In 1983, the Alaskan Facility Design Work derived a
$10 billion cost which included the conditioning facility, the
marine terminal, the pipeline and compressor stations. In the 1991
figures, a 20 to 25 percent contingency factor was built into the
costs depending on the facility. He said the ships have certain
fixed prices. He added that the shipping numbers have dropped as
economy of scales are reached in the worldwide ship construction
market. The Alaskan facility figure is still $10 billion, despite
inflation, because of technological advances which have lead to
some cost saving economies. He cited the improved pipe material
which has been proven to be effective and is less expensive.
MR. LOWENFELS said other cost savings have been achieved and he
remained confident that the cost of the natural gas pipeline would
be $13 billion instead of the $15 billion which is the cost
generally associated with the 1991 figure plus inflation. He said
the producers, at the Monday meeting in the Senate, had estimated
costs in the $12 billion to $13 billion range.
Number 639
MR. LOWENFELS said differences between Yukon Pacific Corporation,
BP and ARCO are usually stressed. He said there are differences,
but he said the similarities should be stressed. He said Yukon
Pacific Corporation is usually seen as a competitor with the North
Slope producers in the same way the North Slope producers are
usually seen as competitors with the state of Alaska. He said
Yukon Pacific Corporation wishes to be partners as the producers
wish to be partners with the state. He said there are differences
that these need to be discussed.
Representative Kott from the House Resources Committee and
Representative Finkelstein from the House Oil and Gas Committee
joined the committee meeting as witnessed by Co-Chairman Green.
Number 708
MR. LOWENFELS said the North Slope contains 26 trillion cubic feet
of natural gas at the PBU and five trillion CF at Point Thomson.
He said these sources are believed to be the natural gas sources
which would be used for TAGS. He said other sources might be added
once TAGS becomes a reality. He added, because there is no current
transportation system for natural gas, there is a joke that if you
discover natural gas in the North Slope you are fired. He said
that marginal oil and gas fields could be developed if there was a
gas market. Point Thomson has the potential to be a gigantic
natural gas field and it would be considered to be one if it were
not located next to a 26 trillion CF accumulation of gas at the
PBU.
Number 890
MR. LOWENFELS said Yukon Pacific Corporation talks about shipping
liquid natural gas (LNG). LNG is a colorless, odorless, non-toxic
and sulfur-free liquid. LNG is made by taking natural gas, the
same type of gas that is used in the Anchorage ENSTAR system, and
chilling it to minus 259 degrees Fahrenheit. At this temperature
the gas turns into a liquid and stays in this liquid for ten days.
LNG is a safe and efficiently handled material and it is the
cleanest burning of all the fossil fuels. Because of these
reasons, it is sought by markets within the United States and
throughout the world. He said the advantage to LNG is that 600 CF
of natural gas condenses down to 1 CF of LNG which makes the
transportation economics possible.
Number 890
MR. LOWENFELS said Yukon Pacific Corporation has been around for 14
years and although he could go into the project in detail, he would
prefer to cover the fundamentals of what would allow TAGS to
succeed this includes; marketability, economic feasibility,
technical feasible, and whether permits are available.
MR. LOWENFELS asked a rhetorical question about whether or not
markets in Asia needed natural gas from Yukon Pacific Corporation
and the North Slope producers. He repeated that the similarities
between North Slope producers and Yukon Pacific Corporation need to
be emphasized. He pointed to a slide of the supply and demand
projections in Asia. The diagram contained a bar graph of existing
projects. These project figures listed were producing at maximum
capacity and with the full expansion of their supplies of gas. The
graph showed that these projects are unable to keep up with the
demand in Japan, Korea, and Taiwan. He said starting in 2000 there
is a shortfall of about 1.5 million tons of natural gas per year.
He said in the year 2005 there is a shortfall of 23.5 million tons
of natural gas per year and in the year 2010 there is a shortfall
of 36.5 million tons of natural gas per year. He said to make TAGS
economically successful 14 million tons of natural gas need to be
placed into the marketplace.
MR. LOWENFELS said this amount of natural gas needed to be sold
because of the costs associated with the development of the natural
gas pipeline. The pipeline would be 800 miles long, from PBU to
tidewater, costing $5 billion. He discussed the start up procedure
of a pipeline. He said that a pipeline does not start up at
maximum capacity, but slowly builds up until you reach the capacity
that you are trying to achieve. This period of fill up is referred
to as ramp-up. He said the entire pipeline must be finished before
one drop of LNG can be produced. He reiterated, saying the whole
pipeline, plus the interest on that money, must be paid before any
of the benefits of the pipeline can be realized.
MR. LOWENFELS said 14 million tons of natural gas cannot be
accepted into the Asian market in the year 2000, but it can be
accepted into the market starting in the year 2005.
Number 1122
MR. LOWENFELS discussed natural gas projects around the world
seeking to get that Asian market. He listed Sakhalin as well as
projects in Indonesia, Papua New Guinea, Australia, Yemen, Oman,
Qatar and other potential projects including two cited last week by
ARCO. He said competition exists for the Asian market and added
that the demand numbers are similar to those derived by the oil and
gas producers. The fact that there are projects being developed
show this demand exists. He said difference in the competition
comes from the fact that Alaska has only one project to place into
the market and other producers have more than one project than can
go into the market. He said this makes for a different affinity
for serving for the market.
Number 1213
MR. LOWENFELS said the competitive projects are seeking to get into
the marketplace before Alaska. He pointed to the slide projection
and said none of the announced start up dates occur after 2005. He
said some of these projects, especially those in Natuna and Qatar,
contain deposits far larger than the Alaskan natural gas deposits.
He said that once a project is built, it can be expanded at a lower
cost than building a new project. Once a project enters the market
it can hold on to that and meet market demand through expansion of
it's facilities. He reiterated that the project start up dates all
begin between 2005 and 2010, which is the projected start-up date
of the Alaskan project.
Number 1304
MR. LOWENFELS said there is consensus, between Yukon Pacific
Corporation, the producers and the state of Alaska, that the Asian
markets will obtain LNG whether or not Alaska enters the market.
He said the Asian market is dependent, in an ever increasing way,
on LNG. He said the situation, in which a demand is perceived, is
commonly referred to as a market window. The LNG market has to
make long range plans such as permitting the receiving facilities.
They have to build energy plants and pipeline systems knowing that
there will be LNG in place when the shortfall occurs in 2001 and
2002. He said he talked with an Asian contact who listed the
projects his company is currently working on and stated that the
Alaskan project is not on his list because Alaska is not competing
effectively.
MR. LOWENFELS said the pipeline that Yukon Pacific Corporation is
proposing is not designed to produce 14 million tons of LNG, but 28
million tons of LNG. He said this amount is by far the best
economics of any of the competing projects or their expansion
potential. He said the disadvantage lies in whether or not Alaska
can get into the market. If other projects get into the market
before, then Alaska will not have the market to ramp up to the 14
million tons of LNG let alone the 28 million ton figure.
Number 1450
MR. LOWENFELS said between 2001 and 2003 the market window expands.
He said Alaska cannot get the full 14 million tons into the market,
but it is at that time that the ramp-up needs to begin. He said
this is the first time in the history of the LNG market where 14
million tons can be inserted. He said this market window may never
happen again and the risk Alaska faces is that they might not get
the LNG into the market during this time period.
MR. LOWENFELS said the first LNG introduced into Asia was LNG from
the Kenai Peninsula. Alaska now has 1.5 percent of the LNG market
in Asia and has the potential to go up to 14 percent. He said a
difference in the presentation between Yukon Pacific Corporation
and the producers is that although both sides agree that it is
difficult placing 14 million tons of LNG into the market, the
producers expressed concern that 14 million tons is 25 percent of
today's market. He said Yukon Pacific Corporation feels that
Alaska should not be daunted by putting a large amount of LNG into
the market and cited examples where Indonesia is currently
supplying 50 percent of the market. He added that Alaska supplies
20 to 25 percent of the nation's oil and we should take a large
share of this Asian market.
MR. LOWENFELS said the risk to Alaska is that it is a serious horse
race. He referred to a slide showing the existing supply sources
of natural gas which can no longer expand to meet the growing
demand. The next slide showed the decreased potential demand when
Exxon's Natuna project entered the LNG market. He then showed a
slide showing the decreased potential demand when BP's proposed
projects entered the market. He said he did not have a slide
projecting the demand when ARCO's projects entered the market, but
suggested that there would be no potential demand.
MR. LOWENFELS mentioned the competition between the Alaskan
producers and their international counterparts. He suggested that
the Alaskan producers want to see an Alaskan project enter the
market place first. He said the competing projects are a serious
problem for the Alaskan producers and everything should be done to
encourage them to look at TAGS in the best light possible. He said
it is not that Alaska gas is not competitive, but rather that it is
not competing. He said until the producers and Yukon Pacific
Corporation can form a united team, in cooperation with the state
of Alaska, they will not be able to fully compete.
Number 1820
MR. LOWENFELS discussed aspects of the Natuna project being
developed by Exxon. The time line for the project is between 2004
to 2005 in order for it to compete in the Asian market window. The
Natuna project is being built at a cost of $20 billion dollars, 50
percent more expensive than the cost of the Alaskan project. He
said Exxon International is promoting this project because it
believes that the market place will pay the cost of the gas they
can produce. He mentioned examples of how Exxon International is
promoting this project to the twelve buyers of LNG in the Asian
market. He then compared the Alaska project with the Natuna
project and said Alaska already has the production facilities, is
producing 7.5 billion CF per day, and contains 12.5 percent carbon
dioxide. Whereas the Natuna project does not have existing
production facilities, has not produced any LNG and has LNG
consisting of 70 percent carbon dioxide.
MR. LOWENFELS said the Alaska project is still in the horse race
because of the work done by Yukon Pacific Corporation, the state
and the federal government. The state has set up a joint pipeline
office and the federal government has participated in that office.
Even though Alaska is in the horse race, we won't be competitive
until the gas supply is linked to the transportation system.
Number 1901
MR. LOWENFELS discussed marketability by saying that Yukon Pacific
Corporation has been working solely on this project for 14 years.
They have made 56 trips, the equivalent of 21 months, within the
Asian market during the past six years. He said the Asian buyers
recognize Yukon Pacific Corporation, know the project in terms of
economics and engineering and the buyers know Alaska. Alaska
started the LNG business in the Asian market and have been stable
and secure for 27 years. He said the buyers like Alaska because
the gas is already being produced by ARCO, Exxon, BP, and the other
members of the PBU. He complimented the ability by the producers
to bring up the gas from the ground and said currently Yukon
Pacific Corporation is using the fact, that Alaska is producing 7.5
CF per day, to impress upon the buyers the strength of Alaska.
Number 2090
MR. LOWENFELS said existing projects are being paid $3.55 per
million BTU's into the marketplace. These existing projects
include Alaska, Indonesia, Malaysia, Brunei, Abu Dhabi and
Australia. These projects cannot expand without at least one new
grassroots, also known as greenfield, project. Those new projects
are going to require a higher price than $3.55 and it is those
projects with which Alaska is competing. He mentioned the concept
of the oil patch which describes how small the oil market is and
then mentioned that the LNG market is comparatively smaller and
suggested that it could be referred to as the LNG weed. He said
the publications produced and conferences for this market are
expensive because of the small size of interested parties.
MR. LOWENFELS said that using the $13 billion project cost as
suggested by Yukon Pacific Corporation and the oil producers or if
you took the commissioner's project cost of $15 billion dollars,
even with that higher cost it still beats the projects costs of
Qatargas, Natuna, and Sakhalin, the three projects that have had
real numbers published. He said there is no dispute about these
numbers, and if Alaska competes, Alaska can get that market place.
Number 2203
MR. LOWENFELS said the project is economically feasible. The
expected price of getting LNG into the marketplace is somewhere
around $4.00 million metric BTU and pays a substantial wellhead
price for the gas. The state of Alaska uses a $5.00 in the
commissioner's report, do not include a wellhead price, is a
pessimistic view.
Number 2235
MR. LOWENFELS said project costs and price reductions can be
achieved in two ways. The first is seller side opportunities which
are the things that Alaska can do to reduce the construction costs
of the pipeline. Oil companies as well as Yukon Pacific
Corporation have attempted to reduce the costs of building the
project such as adjusting the pipe size, looking at different types
of compressors, looking at a different size of the manufacturing
facility at the terminal of TAGS.
MR. LOWENFELS said the second set of opportunities come from
discussing the project with the buyers. Suggested savings come
from using larger ships which attain increased economies of scale,
accelerating the ramp up time from five years to three years,
discussing the potential of more than 14 million tons which reduces
the per unit cost and finally receiving low interest financing from
the markets. He said that not only is the LNG market small, but
that companies who purchase LNG also finance it at a subsidized
rate because they want the product. Korea, Japan, and Taiwan have
little indigenous supplies of LNG and have assisted chosen
projects.
MR. LOWENFELS said the project in Qatar received 4.9 percent
financing from Japan. He said the project is 88 miles in length
and in the Straits of Hormuz, a SCUDs throw away from Kuwait, Iraq
and Iran. The Japanese gave this project 4.9 percent financing a
year and a half ago. He said there is no stronger and more stable
producer of natural gas than Alaska the project will be able to get
less than 4.9 percent financing.
MR. LOWENFELS said he believed that prices can be reduced 40 cents
from the $5.00 worse case scenario just by working on costs in
Alaska. He said when the project was designed, Yukon Pacific
Corporation was told by the Alyeska folks and the oil companies
said they must stay 200 feet away from all oil facilities on the
pipeline. However, if the oil companies and Yukon Pacific
Corporation can work together the savings represent 40 cents. He
said by working with the buyers there is the potential to save
$1.50 to $2.00 off that hypothetical $5.00 price. He said these
savings can only be achieved by negotiating with the buyers. He
added that you can not begin negotiations if you do have the
permits for transportation and you do not own the gas. He said
maximum savings can reduce the cost of the LNG to $3.57 which not
only beats Natuna and Qatar but leaves a high wellhead price for
the producers.
TAPE 96-4, SIDE B
Number 000
MR. LOWENFELS reiterated points about the numbers. He said showing
the numbers was a sensitive issue, but he wanted to give an
indication of what Yukon Pacific Corporation thought was happening
in the market, in order to compare it with the commissioner's
report. He reiterated points about Yukon Pacific Corporation. He
said the president and chairman of the board of CSX and the chief
financial officer of CSX are both on the board of Yukon Pacific
Corporation. The combined economic weight of the advisory group,
that advises CSX, scrutinizes Yukon Pacific Corporation. He said
if these numbers did not work, CSX would not have invested 14 years
in Yukon Pacific Corporation.
MR. LOWENFELS said the commissioner's report says it is hard to get
the TAGS project to work from their perspective. He added that the
commissioner's report should be regarded as a first, because it
marks an optimistic outlook from the state officials, state
administration and the state legislature. It appears that all
involved parties want to make this project work.
MR. LOWENFELS discussed the technical feasibility of TAGS. He said
the LNG design is large, but within the manufacturer's
capabilities. He said in some cases parts of the design have been
priced and even contracted. LNG tankers are already in service and
larger tankers are on the drawing board. The pipe size has changed
from X-80 to X-90 or X-100. This pipe is better and clearly works
for TAGS. "This is now the standard and clearly works with our
project and the X-90 and X-100 will also clearly work."
Number 130
MR. LOWENFELS said TAGS has no new technical problems. Gas is
already being produced at the rate of 7.5 billion cf to 8 billion
cubic feet per day. He said only 2 billion cf are needed to reach
14 million tons. He pointed to the Natuna project and said new
technology will need to be developed to remove the carbon dioxide
content from the gas.
Number 158
MR. LOWENFELS discussed permit issues, he said Yukon Pacific
Corporation has spent ten years obtaining these permits. Yukon
Pacific Corporation now has these permits, many of which were
obtained prior to the Exxon Valdez oil spill. He said he did not
believe that these permits could be duplicated. He pointed to the
time in which it took Yukon Pacific Corporation to obtain the
permits and said that even if the oil and gas companies could
obtain these permits, he didn't think they could get those permits
in less time than ten years.
MR. LOWENFELS said Yukon Pacific Corporation obtained the permits
in a tiered permit process. He said worse case scenarios were
built into Yukon Pacific Corporation's two environmental impact
statements. Based on those statements, there are no deal killers
from now on, in regards to permitting issues. He said the
environmental community was brought into to work on the project
from the very beginning. With their concerns, Yukon Pacific
Corporation built around those issues. Chosen routes avoid
wetlands and incorporates suggestions made by the environmental
community.
MR. LOWENFELS again complimented the state and federal governments
on the joint pipeline office. He said to obtain permits you go to
one place at one time and which avoids staff duplication.
Number 268
MR. LOWENFELS summed up by saying there is a market window and LNG
will be supplied by anyone who can deliver it to that market. He
said he hoped it would be Alaskan LNG as it will be the lowest cost
producing LNG of the new grassroots projects. He said the Alaskan
project is economically and technically feasible, and that the
permits have already been obtained.
Number 294
MR. LOWENFELS said the problem with the Alaskan project comes from
issues concerning the North Slope producers. He again emphasized
the need for cooperation between all interested parties. He said
the producers face problems that are real and need to be addressed.
He said there is no consensus about gas issues and long term
operations between the owners at PBU or Point Thomson because there
is a difference in ownership between oil and gas at PBU. He said
it is the only place, he knew of in the United States, where you
have two participating areas and your ownership of oil does not
equal your ownership of gas. He said this situation has made
disincentives for producing one product versus the other product.
He added that the state of Alaska approved the unit agreement. He
said no one should blame the producers for this problem.
MR. LOWENFELS said the state has now stepped forward, through the
Oil and Gas Conservation Commission, in issuing Order 360 which
asked the oil companies to voluntarily resolve this problem. The
oil companies are currently working on resolving this problem. He
said this issue needs to be resolved soon because of the other LNG
projects currently being developed. He said to understand this
issue you should read the Oil and Gas Conservation Commission
Order, the 1991 Issues Resolutions Agreement, the hearing record in
front of the Oil and Gas Conservation Commission and the Department
of Natural Resources, and the footnote on page 21 of the
commissioner's report. He said all parties need to resolve the
problem in a non-confrontational way and when that happens
consensus will be achieved and the gas project can go forward.
Number 419
MR. LOWENFELS said the second issue surrounding the gas issue is
the discussion of oil loss. Confusion surrounds this issue,
because at times it is said that there is no oil loss by taking gas
out of the unit around 2005 and another oil producer stated that a
potential 400 million barrels of oil would be lost from PBU if gas
sales began in 2005. Both of these statements were made in 1995.
He said BP and ARCO said that oil loss is a diminutive problem, at
the worst, when you start taking gas out at 2005. He said he
believed BP and ARCO, yet confusion about oil loss continues to be
a problem because it is an uncertain equation.
MR. LOWENFELS said oil is lost when an oil field shuts down. It is
the oil that is left in the field when the field shuts down. He
asked a series of questions based around this oil loss such as when
does oil loss occur, does the ramp up timing affect oil loss, when
will the TransAlaskan pipeline system (TAPS) shut down because
there is not enough oil to put into the system. He continued by
asking whether the shut down of TAPS causes the oil loss or if it
is due to taking gas out of the ground. He asked what is the
feasibility of operating PBU through 2030 with or without gas
sales. He concluded by asking if Point Thomson gas can be used to
alleviate or eliminate the possible oil loss at PBU. He said there
is a great deal of confusion about predictions surrounding the
future of oil.
Number 597
MR. LOWENFELS said gas sales insure certain revenues for 25 years.
Probable revenues can also be attained from the Point Thomson Unit
which has 5 to 7 trillion cf of natural gas. It has 300 million
barrels of condensate, the richest of the hydrocarbon column. Gas
sales insure revenues and employment. Gas sales stimulate the
state economy. He made a reference to how the budget gap affects
all people from branches of the government who are trying to
resolve this issue to the man interested in earning an income.
Number 700
MR. LOWENFELS said Asia is making the natural gas pipeline a
possibility, but communities along the corridor will also benefit.
He referenced Anchorage as also benefiting because it is predicted
that the Cook Inlet will run out of natural gas in 2010. If gas is
not developed on the North Slope, PBU and Point Thomson revenues
are lost, gas for our communities is lost, and the single largest
opportunity Alaska will see for years.
Number 739
MR. LOWENFELS said the second issue revolves around competition and
marketing. The risk to Alaska is that the window will close to a
project needing to sell 14 million tons of LNG to be economically
sound.
Representative Brice joins the committee meeting at 11:23 a.m.
MR. LOWENFELS said Alaska needs to get into the market before the
other projects. He added that the real risk is not competing. He
suggested other uses for gas and said they are not as productive
and stimulating to the economy in the way that a gas project is.
He said Yukon Pacific Corporation has been perceived as a smug,
little company, but he said at this time the oil and gas producers
as well as the state are realizing that a gas transportation system
is a question of when rather than if it is going to happen.
MR. LOWENFELS said Ken Thompson, President, ARCO Alaska, on Monday,
reported that $800 million was spent trying to build a natural gas
pipeline down to the continental United States. Mr. Thompson said
it was a lot of money to not build a project. Mr. Lowenfels said
the project did not work then, will not work now, and will not work
next week.
MR. LOWENFELS mentioned the western routes for the pipeline. He
said this is an area of disagreement between Yukon Pacific
Corporation and the gas companies. Studies examining western
routes are admirable in attempts to avoid the restraints of Alyeska
and the Alyeska right- of- way, but these routes do not work. He
said you need to use icebreaking LNG tankers and the Japanese have
said they will not buy LNG using these tankers. He said an act of
Congress would be needed to get through the National Petroleum
Reserve in Alaska (NPRA). He said the other disadvantage, is the
loss of natural gas for the communities along the southern route
corridor. He concluded, that for the proposed western routes no
environmental impact statements or leases have been done for those
areas. He said that until those have been obtained, no one should
be pinning their hopes on this project.
Number 1122
MR. LOWENFELS discussed cost reductions as a result of shared
facilities. He said these areas include the facility at PBU and
the pipeline right-of-way. He added that in most cases you do not
want to be next to a hot oil pipeline when you are a chilled gas
pipeline. There are instances when you can use the work pads which
are in place, pump stations, and camp sites. Yukon Pacific
Corporation have established right-of-way which allows for the
sharing of facilities right up against the pipeline. Yukon Pacific
Corporation has established that they are first in this right-of-
way permit.
MR. LOWENFELS said that shared facilities do not work at the
Alyeska terminal property for the LNG facility. Yukon Pacific
Corporation has studied this in great detail and have established
that it can not be permitted. He pointed to a slide and referred
to the location of Valdez as compared to the oil facility which
produces 25 percent of the nations oil. He said oil is a very
flammable product. The proposed shared facility concept is to
remove four tanks and insert a facility which uses a water cooling
process. He said an exclusion zone is needed around the LNG
facility and anything in that exclusion zone must be LNG related
and owned by the LNG facility. He said this would not be the case
by putting the facility next to the Alyeska property and another
issue is that this exclusion zone incorporates some of the city of
Valdez.
MR. LOWENFELS said the Department of Transportation/Public
Facilities requires that no flammable liquid is used in the
production of LNG within this exclusion zone. He said the new site
chosen by Yukon Pacific Corporation was based on their
environmental impact studies, it is the site where they have
received permits and added that you do not want to build a new
state of the art facility next to a facility which is 30 years old.
He said it does not make economic, political, or regulatory sense.
Number 1141
MR. LOWENFELS once again made the point of stressing the
competitive advantages of Alaska. It has a significant source
diversification, a secure and stable supply and the flexibility of
our cold climate which allows for continued production when Asia
needs the LNG supply. The international balance of trade can be
affected to the tune of $4 billion a year, every year for 25 years
at 14 million tons of LNG.
MR. LOWENFELS said the risk is not competing and losing 10,000
Alaskan jobs. He said Yukon Pacific Corporation calculates $40,000
to the state and local communities for 25 years and the loss of
natural gas supply to the communities along the southern corridor
if this project does not happen. He also said it is the risk that
electrical energy from waste heat as well as the spin-off
opportunities would be lost.
Number 1223
MR. LOWENFELS said a teamwork approach is needed. He said Yukon
Pacific Corporation is willing to throw their permits into the pot,
to subdue their ego, if that is what is needed to make this project
happen. Yukon Pacific Corporation will give up control of the
project in order to work in any possible way with the producers in
the state of Alaska to move this project forward as a team. He
said without the gas project, the future of Alaska does not look as
bright.
MR. LOWENFELS said that if it takes until 2005 to begin ramp up, so
be it, but urged making that decision now. He said let's guarantee
Alaska's place in the LNG market. He presented a slide with a
bumper sticker asking for another boom and said the LNG market,
within this time period, is that opportunity.
Number 1363
CHAIRMAN ROKEBERG recognized Representatives Brice, Kubina, and
Kott.
Number 1375
CO-CHAIRMAN GREEN expressed his appreciation for the presentation
and then apologized for needing to leave the meeting early.
MR. LOWENFELS complimented Co-Chair Green on his public and private
time which he has invested in this issue.
CO-CHAIRMAN GREEN said the Friday meeting with the gas producers
would be held in the House Finance Committee room at 8:00 a.m.
Number 1452
CHAIRMAN ROKEBERG said he was impressed by the amount of money
Yukon Pacific Corporation had invested in research. He said it
increases the credibility of the private sector when they are
willing to do this.
Number 1520
MR. LOWENFELS said that Yukon Pacific Corporation has invested tens
of millions of dollars into this project with no guarantee of
return. He said this project does not require investment by the
state of Alaska, although they would be encouraged if they wanted
to do so. This project does ask the state to pay attention to the
monetary situation. He said the oil companies are quite sincere
when they express concern over the states ability to balance their
budget. He said that if the state is not able to balance the
budget, somehow the state needs to allow this project to be off
bounds when it comes to balancing the budget. He said this
assurance would go a long way in encouraging investment and
research in this project.
Number 1707
REPRESENTATIVE JOHN DAVIES wanted clarification that the market
will not be able to be supplied by existing sources.
Number 1750
MR. LOWENFELS said that statement is correct. He said there are
one or two projects that will be expanding between now and 2001.
He added that there is a small expansion project which will combine
with a new discovery. He said that, in essence, 14 million tons
has to come from a grassroots project between 2001 and 2005.
Number 1790
REPRESENTATIVE DAVIES wanted clarification on the projected cost
which at first was said to be higher than $3.55, but that later
other numbers were used.
Number 1836
MR. LOWENFELS said all new grassroots projects, based on their
costs and the numbers they have published, will result in a higher
price than $3.55. He said the last published number of the Natuna
project was $7.00 to get into the market place. He said in Alaska,
the projected cost must take into consideration the requirements of
the state and the requirements of the producers for their wellhead
price. He the Yukon Pacific Corporation modeling indicates, on a
scenario based on a variety of factors deemed acceptable, that
$5.00 is the worst case scenario. He said cost savings within the
state can result in savings of 40 cents, lowing the figure to
$4.60. He said Yukon Pacific Corporation has identified $1.88
worth of savings by working with the market. He said Yukon Pacific
Corporation will not get the full benefit of those negotiations and
so the best guess figure is a $4.00 price range which includes the
wellhead net back. He said these numbers might seem soft, but
discussing numbers is a very sensitive subject and must be done
carefully.
Number 2028
REPRESENTATIVE DAVIES asked where the other half of the negotiation
benefit goes.
Number 2035
MR. LOWENFELS said the benefit goes to the buyers, to their trading
companies or the utilities. He said Yukon Pacific Corporation will
attempt to get the full $1.88 benefit, but it is not likely that
all of it will be gotten.
Number 2074
REPRESENTATIVE GENE KUBINA expressed support for this project. He
said he hoped that during this legislative session a resolution
could be passed supporting this project and asking the Governor to
do what he can and also what the President can do. He said then
the producers and Yukon Pacific Corporation need to come together
to decide what you need to make this project viable in the future.
He said that next year, when the legislature meets, he hoped that
everyone would have a better understanding of where we were going
with this project.
Number 2271
MR. LOWENFELS agreed with Representative Kubina and said no one can
be harmed by trying to get this project started. He said some
things that the state of Alaska can do are listed before the tabs,
of the Blue Book, titled "Briefing on Alaska Natural Gas Project."
He said his only area of disagreement is in timing differences. He
hoped for continuing discussions. He added that this project does
not have the luxury of waiting another year.
TAPE 96-5, SIDE A
Number 000
CHAIRMAN ROKEBERG said it appeared that with all the competitive
projects, and the advantages they have received such as the 4.9
percent financing, have already shoved Alaska out of the market
place.
Number 102
Co-Chair Williams enters the committee meeting at 11:45 a.m.
MR. LOWENFELS said that the project in Qatar can expand to obtain
their 300 trillion plus natural gas reserve and take over the whole
market. He said this probably will not happen because of three
reasons. The first reason is its location. Trading companies from
Asia have told Yukon Pacific Corporation that they will never
invest in projects in the Middle East again because of losses they
have suffered. He said another reason why this won't happen is
because of the expansion potential of those projects is not as good
as the Alaskan potential. Qatar is twice the distance to Japan
than the distance between Japan and Alaska. In addition, Qatar
cannot expand one project, but it consists of a series of
independent, grassroots projects. His third and final reason is
that Japanese do not like to put all of their eggs into one basket.
Number 385
CHAIRMAN ROKEBERG asked what the current investment is on this
project.
Number 427
MR. LOWENFELS said it is not the policy of Yukon Pacific
Corporation to reveal this amount. He said it is well over $50
million. He said 10 percent of Yukon Pacific Corporation is owned
by a charitable foundation in the state of Alaska.
Number 488
CHAIRMAN ROKEBERG asked for comment on whether CSX wants to sell
asset of Yukon Pacific Corporation to the producers.
Number 504
MR. LOWENFELS said that CSX intends to keep 15 to 25 percent of
this project. The balance sheet of CSX does not allow them to have
a larger amount, nor does CSX feel that they should have a greater
share than the North Slope producers. He said the North Slope
producers should control this project, but CSX is not seeking to
sell out this project. He added that compared with CSX's other
holdings, the gas project is a very steady and stable investment as
well as providing opportunities to increase business for their
shipping company.
Number 600
CHAIRMAN ROKEBERG asked, conceptually, if the state of Alaska or
the permanent fund would invest in the project.
Number 613
MR. LOWENFELS said he liked the idea of the state investing in this
project. He added concern for the need to have private closed
negotiations with the buyers and how that would balance out with
the freedom of information act which would require the state to
divulge information about its investments. He said despite this he
likes the idea of state investment because this will be a
profitable project and will be good for the people of Alaska. He
said the benefit of state investment is that when the state invests
it tends to tenderize the state view of the project and will cause
the state to think two and three times before increasing the taxes
on a project. He said conceptually, it makes sense but it is not
required. He added that current statutes limit investment to a
couple million dollars on any one in-state project.
Number 723
REPRESENTATIVE DON LONG asked for explanation on the 12.5 percent
figure.
Number 750
MR. LOWENFELS said the state of Alaska owns 12.5 percent royalty on
the gas on the North Slope. Alaska can take that gas in kind or to
have the gas project sold. If this gas project needs to be jump-
started, it is felt that some of that gas royalty should be used to
jump start the project. If there is a problem between the three
companies taking their gas out of PBU in a timely manner, maybe the
state can commit its 12.5 percent early. He said this is one of
the economic tools the state has to manipulate the economics of
this project as it starts. He said this tool was used in the 1960s
and resulted in a couple of in-state refineries.
Number 845
REPRESENTATIVE LONG asked if the 12.5 percent was large enough to
jump start the project.
Number 850
MR. LOWENFELS said the gas project requires a commitment of 16.5 to
20 trillion cf of natural gas before you can start. He said you
can then start the project with 12.5 percent if you know that there
is the rest of the gas coming on line at a specific time. He said
you need to have this 12.5 percent asset because it can be used in
your investment negotiations. He added that the state could also
use this gas in a "power equalization situation," as is done in
some instances with electrical power, and get gas into communities
which do not have access to natural gas.
Number 953
REPRESENTATIVE OGAN said he would not be able to attend the
presentation tomorrow, but would follow the issue from Anchorage.
ADJOURNMENT
There being no further business to come before the Joint House
Resources and the House Oil and Gas Committee, Chairman Rokeberg
adjourned the meeting at 11:57 a.m.
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