Legislature(1999 - 2000)

03/23/2000 05:15 PM House O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                                                                             
                         March 23, 2000                                                                                         
                            5:15 p.m.                                                                                           
                                                                                                                                
                                                                                                                                
COMMITTEE CALENDAR                                                                                                              
                                                                                                                                
OVERVIEW: TRANS-ALASKA GAS LINE PERMITS/YUKON PACIFIC CORP.                                                                     
                                                                                                                                
TAPE 00-20, SIDE A                                                                                                              
                                                                                                                                
CALL TO ORDER                                                                                                                   
                                                                                                                                
REPRESENTATIVE WHITAKER convened the meeting at 5:15 p.m.                                                                       
                                                                                                                                
PRESENT                                                                                                                         
                                                                                                                                
Members  present  at  the  call  to  order  were:  Representatives                                                              
Harris, Kemplen, Green and Chairman Whitaker                                                                                    
                                                                                                                                
SUMMARY OF INFORMATION                                                                                                          
                                                                                                                                
CHAIRMAN WHITAKER  stated that the  purpose of the meeting  was to                                                              
get  an update  from Yukon  Pacific Corporation  (YPC), a  company                                                              
that has committed itself to taking North Slope gas to market.                                                                  
                                                                                                                                
MR.  JEFF LOWENFELS  introduced  himself  as President  and  Wayne                                                              
Lewis as Executive Vice President of YPC.                                                                                       
                                                                                                                                
MR. LOWENFELS  presented new  cost estimates,  the result  of work                                                              
conducted by  Kellogg Engineering  and Wilbros (William  Brothers)                                                              
to "re-cost" the  Trans-Alaska Gas System.  These  numbers replace                                                              
previous  estimates developed  in 1986.   This  new cost  estimate                                                              
contains three  sets of numbers starting  out with a project  of 9                                                              
million metric tons,  increasing to 13.5 million  metric tons, and                                                              
then going up to 18 million metric  tons.  The numbers include the                                                              
conditioning   facility,  the  pipeline,   the  compressors,   the                                                              
Liquefied  Natural  Gas  (LNG)  facility  in  Valdez,  the  marine                                                              
terminal  in Valdez  and  ships to  take  the gas  to  Asia.   The                                                              
numbers are  based upon  a "permitted  project," allowing  them to                                                              
complete the  economic model,  with the  variable in the  economic                                                              
model  being the  wellhead  price.   These  numbers represent  the                                                              
three-phase expansion  for a 36-inch pipeline carrying  very high-                                                              
pressure gas  from Prudhoe  Bay through Fairbanks  to Valdez.   He                                                              
compared  the  1986 cost  estimate  on  a  14 million  metric  ton                                                              
project  at $15  billion, with  the  cost for  their 13.5  million                                                              
metric  ton project  at $10.42  billion.   The  reduction in  cost                                                              
comes  from  technological  advances  in  construction,  decreased                                                              
labor costs, lower cost of pipe, etc.                                                                                           
                                                                                                                                
CHAIRMAN WHITAKER asked  if it was necessary to  include the costs                                                              
of ships  within the  project estimate.   Mr. Lowenfels  responded                                                              
that the ships had  to be included in order to  have an "apples to                                                              
apples"  cost comparison  with other  projects  around the  world.                                                              
The ships may or may not be a part of the ultimate project.                                                                     
                                                                                                                                
MR.  LOWENFELS, in  response to  a request  by Chairman  Whitaker,                                                              
described the nature  of the companies, saying Kellogg  is a major                                                              
construction company in the area  of LNG facilities and Wilbros is                                                              
a large engineering company, formerly  a part of Williams Company.                                                              
                                                                                                                                
REPRESENTATIVE  KEMPLEN  asked  why,  considering  that  there  is                                                              
already  a large  gas conditioning  facility on  the North  Slope,                                                              
would they include such a facility in their cost estimate.                                                                      
                                                                                                                                
MR.  LOWENFELS responded  that  the nature  of  the facilities  is                                                              
different.   The facility currently  on the North  Slope separates                                                              
the gas  from the oil  and puts it  back into the  ground, whereas                                                              
the conditioning facility  in the cost estimate would  be one that                                                              
takes the  gas and "cleans it  up" to provide almost  pure methane                                                              
to send down the pipeline.                                                                                                      
                                                                                                                                
MR. LOWENFELS  turned to  permitting and  explained the  documents                                                              
included  in  the  packet  he  had  presented  to  the  committee,                                                              
describing the time  spent in obtaining the permits.   He said the                                                              
state has  jurisdiction over  about 23  percent of the  permitting                                                              
and the federal  government has 77 percent.  He  proceeded to show                                                              
the breakdown  between  permitting agencies  which are within  the                                                              
Joint Pipeline  Office (JPO), and those  that are outside  it.  He                                                              
also mentioned that there are documents  to show which permits are                                                              
required only  for an LNG  project, and described  the backgrounds                                                              
of the respective  persons who worked on obtaining  those permits.                                                              
Mr. Lowenfels commented on a chart  in the packets that showed the                                                              
amount of  time spent  in obtaining  the 8  major permits  for the                                                              
projects, and  explained why he feels  that it would  be extremely                                                              
difficult  if  not  impossible  to   obtain  such  permits  for  a                                                              
different  project.   He  pointed  to  language in  the  documents                                                              
provided  to committee  members,  which  states  that, "all  other                                                              
routes are hereby rejected."                                                                                                    
                                                                                                                                
MR. LOWENFELS  said they  are continuing to  work on  the wetlands                                                              
permit,  and  that  a  project of  this  type  requires  some  860                                                              
individual  permits, but the  12 permits  listed in the  documents                                                              
are the ones "that really make the project."                                                                                    
                                                                                                                                
REPRESENTATIVE  HARRIS asked what  it would  take to overturn  the                                                              
environmental impact statement or permit a different route.                                                                     
                                                                                                                                
MR. LOWENFELS said he did not think  it would not be possible, but                                                              
that the  process would  be to apply  for a  federal right  of way                                                              
permit.    He  explained  that one  would  have  to  convince  the                                                              
agencies that they  had made a mistake in permitting  the route to                                                              
Valdez.   While he  does not believe  it is  possible to  permit a                                                              
different route  for the pipeline,  he does believe that  it would                                                              
be  possible  to get  additional  permits  for  a spur  line  from                                                              
Glenallen to Wasilla.                                                                                                           
                                                                                                                                
MR.   LOWENFELS,   in   response   to   further   questions   from                                                              
Representative Harris, stated that  his company (YPC) would object                                                              
and fight efforts to permit another  route for a gas pipeline, and                                                              
that could delay a pipeline project by up to nine years.                                                                        
                                                                                                                                
REPRESENTATIVE  GREEN  asked about  the  expiration  dates of  the                                                              
permits, to  which Mr. Lowenfels  replied that any of  the permits                                                              
could expire  well after  the time  when such  a project  could be                                                              
built.   He also stated  that their project  could be  sized large                                                              
enough to  perhaps provide export  quantities of gas to  the Kenai                                                              
area through a spur line.                                                                                                       
                                                                                                                                
MR. LOWENFELS,  in a lengthy  exchange with Representative  Green,                                                              
discussed YPC's position regarding  a relationship with a pipeline                                                              
to the Lower 48,  and estimated the size of the  market for LNG in                                                              
Asia.                                                                                                                           
                                                                                                                                
MR. LEWIS stated that in his analysis,  between the years 2005 and                                                              
2010, there will be a 40 million metric ton shortfall in LNG.                                                                   
                                                                                                                                
MR. LEWIS,  in response to  a question by Representative  Kemplen,                                                              
clarified  that the  cost estimate  is not an  economic model  and                                                              
does not include taxes.                                                                                                         
                                                                                                                                
MR.  LOWENFELS commented  on YPC's  relationship  with the  Alaska                                                              
Gasline  Port  Authority,  saying   that  they  continue  to  have                                                            
conversations  and YPC  hopes its  permits and  expertise will  be                                                              
used on the  Port Authority's project.   He explained why  YPC had                                                              
left the  Alaska North Slope  Gas Sponsor  Group, and said  if the                                                            
Sponsor Group  decided to  use the Valdez  route for  its project,                                                              
YPC would  be happy and  eager to sit  down and discuss  with them                                                              
how they could work together on it.                                                                                             
                                                                                                                                
MR.  LOWENFELS,  in  response  to  a  question  by  Representative                                                              
Kemplen, stated that if a project  using the Valdez route were not                                                              
viable, some of  the YPC permits could be used  for another route,                                                              
but only  where the new  route followed  the one that  was already                                                              
permitted.   He also  discussed the  potential  impact on the  YPC                                                              
project of  the resolution  of the BPAmoco/ARCO  buy out,  and the                                                              
role Phillips Petroleum  may play in it because  Phillips does not                                                              
have competing  projects around the  world as does  BPAmoco holds.                                                              
Also, Phillips has  been delivering to the two  largest LNG buyers                                                              
in the  world and  has a  very solid  relationship with  the Asian                                                              
market.                                                                                                                         
                                                                                                                                
MR. LOWENFELS,  in discussion with Representative  Kemplen, stated                                                              
that  there  is  the possibility  of  a  public/private  ownership                                                              
scenario  with regard to  an LNG  project or  one that includes  a                                                              
pipeline to the Lower 48.  He also  said he thinks the price would                                                              
need to  be $3  per cubic  feet in  order to  make such a  project                                                              
viable.                                                                                                                         
                                                                                                                                
REPRESENTATIVE HARRIS  asked Chairman Whitaker about  the validity                                                              
of the  permits as presented  to the  committee by Mr.  Lowenfels.                                                              
Chairman Whitaker said he would continue to seek affirmation.                                                                   
                                                                                                                                
ADJOURNMENT                                                                                                                     
                                                                                                                                
CHAIRMAN WHITAKER adjourned the meeting at an unspecified time.                                                                 
                                                                                                                                
NOTE:                                                                                                                           
                                                                                                                                
The meeting was recorded and handwritten  log notes were taken.  A                                                              
copy of the tape  and log notes may be obtained  by contacting the                                                              
House Records Office at Room 229,  Terry Miller Legislative Office                                                              
Building, 129 Sixth Street, Juneau,  Alaska 99801-1182, (907) 465-                                                              
2214, and after  adjournment of the second session  of the Twenty-                                                              
first  Alaska  State Legislature,  in  the  Legislative  Reference                                                              
Library.                                                                                                                        

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