Legislature(2001 - 2002)
02/08/2001 10:07 AM House O&G
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
February 8, 2001
10:07 a.m.
MEMBERS PRESENT
Representative Scott Ogan, Chair
Representative Hugh Fate, Vice Chair
Representative Fred Dyson
Representative Mike Chenault
Representative Gretchen Guess
Representative Reggie Joule
MEMBERS ABSENT
Representative Vic Kohring
OTHER LEGISLATORS PRESENT
Representative Joe Green
Representative Jeannette James
Representative Lesil McGuire
COMMITTEE CALENDAR
OVERVIEW: ALASKA GAS PIPELINE PROJECT - BP, PHILLIPS, EXXON
PREVIOUS ACTION
No previous action to record
WITNESS REGISTER
JOE MARUSHACK, Vice President
Arctic North Slope Gas Commercialization
Phillips Alaska, Inc.
(No address provided)
POSITION STATEMENT: Gave an overview of the Alaska Gas Pipeline
Project, concentrating on the resource background and the
market, and answered questions.
KEN KONRAD, Senior Vice President and Business Unit Leader
BP Exploration (Alaska) Inc.
(No address provided)
POSITION STATEMENT: Gave an overview of the Alaska Gas Pipeline
Project, concentrating on the ongoing work effort, and answered
questions.
ROBBIE SCHILHAB, Alaska Gas Development Manager
ExxonMobil
(No address provided)
POSITION STATEMENT: Gave an overview of the Alaska Gas Pipeline
Project, concentrating on the details regarding permit
applications, deliverables, and plans, and answered questions.
ACTION NARRATIVE
TAPE 01-12, SIDE A
Number 0001
CHAIR SCOTT OGAN called the House Special Committee on Oil and
Gas meeting to order at 10:07 a.m. Members present at the call
to order were Representatives Ogan, Fate, Dyson, Chenault,
Guess, and Joule. Chair Ogan also noted the presence of
Representatives Green, James, and McGuire.
OVERVIEW: ALASKA GAS PIPELINE PROJECT - BP, PHILLIPS, EXXON
[Contains discussion of HB 83 (Tape 01-12, Side B)]
Number 0034
CHAIR OGAN announced that the committee would hear an overview
of the Alaska Gas Pipeline Project. He invited the following
presenters to the witness table: Joe Marushack of Phillips
Alaska, Inc.; Ken Konrad of BP Exploration (Alaska) Inc.; and
Robbie Schilhab of ExxonMobil.
Number 0214
JOE MARUSHACK, Vice President, Arctic North Slope Gas
Commercialization, Phillips Alaska, Inc., informed members that
he, Mr. Konrad, and Mr. Schilhab represent the Management
Committee of the North American Natural Gas Pipeline Group. He
paraphrased and elaborated on written testimony as follows:
We're very enthusiastic about our pipeline project,
and we appreciate the opportunity to appear before you
today. Each of us will participate in this
presentation.
At the outset, let us say that we fully understand and
share the strong interest Alaskans and others have in
ANS [Alaska North Slope] gas commercialization. An
economically viable project would encourage new
investment, exploring, and developing North Slope gas.
It would provide construction and long-term employment
opportunities. It would add state royalty and tax
revenues over the long run, and create potential for
increased access to gas in Alaska. From a producer
aspect, an economic project will provide the value
that our shareholders expect from us. We are highly
motivated to progress an Alaskan gas project.
Recognizing your interest, the project team plans to
provide periodic updates to you on the project status
[as] various milestones are reached. The team also
plans to engage in ongoing dialogue with appropriate
government agencies and other parties.
We believe the evaluation and route-selection process
cannot be done in isolation. We want to move a
project along most efficiently, and to do so, it must
be an inclusive process that provides opportunities
for interested parties to participate. This is an
Alaskan project, and it's also a project of
internationally enormous scale. To be successful, it
will require full cooperation of Alaska and its
residents, the U.S. federal government, the Canadian
federal government, affected provinces, territories,
First Nations, and many other interested stakeholders.
At the same time, those participating in the dialogue
must be open and realistic. There are many groups
with many different viewpoints. To be successful, we
must listen and respect these viewpoints. And we must
not lose sight of our objective, that objective being
a commercially viable gas pipeline that can deliver
natural gas from the North Slope to the Lower 48 at
costs competitive with other supplies in the U.S. and
Canada.
As a joint producer group, we do not have full
feasibility cost estimates at this time that address
all the technical, permitting, [and] logistics issues
of the two pipeline routes, but we are working
diligently towards developing that data, and we've
committed an outstanding team to this effort.
We have to consider the costs and [benefits] of both
major pipeline routes before selecting one. And,
indeed, no prudent investor would commit to a project
without first having a firm understanding of the pros,
cons, and facts regarding alternatives. Indeed, it is
our obligation - and for permitting purposes, a
requirement - to evaluate the alternate options with
governments, communities, regulators, and our
shareholders. We recognize that Alaskans are
concerned about the route-selection process, and so
are the Canadians. With the huge investment required,
we have committed to establishing a factual, unbiased
basis for the evaluation.
MR. MARUSHACK directed attention to page 2 of the handout [in
committee packets], noting that he would address the resource
background and the market; Mr. Konrad would provide an update
regarding the ongoing work effort; and Mr. Schilhab would
provide details regarding the permit applications, deliverables,
and plans. He expressed hope that the overview would provide a
clear understanding of the group's plans, the opportunities they
see, and the challenges they are working to overcome.
Number 0590
MR. MARUSHACK referred to page 3. He informed listeners that on
December 6, 2000, the three major Alaska North Slope producers -
BP, ExxonMobil, and Phillips - announced a joint work program to
evaluate progress on an Alaskan gas pipeline project. That
project would ultimately involve a large-diameter [pipeline
system] to deliver gas from the North Slope to Canada and the
Lower 48.
MR. MARUSHACK noted that the three producers will share the
costs and leadership of the project equally. The initial work
program is expected to cost at least $75 million. Staffing
levels are anticipated to total 90 full-time-equivalent
personnel from the three companies, as well as significant
contractor support. The work effort will be primarily managed
and staffed in Anchorage, with other work locations in the U.S.
and Canada as necessary. By combining the talents of the three
producers, Mr. Marushack said they have created a team that
brings together "the best of our best."
MR. MARUSHACK reported that the work team has initiated the
first steps in "progressing" a project. The program activities
over the next year include conceptual design of the world's
largest carbon dioxide treatment plant, and conceptual designs
for a large-diameter pipeline with high-efficiency compressors
and an NGL [natural gas liquids] recovery system. He noted that
details would be discussed later in order to provide a better
understanding of the magnitude of the work effort and the
facilities being evaluated.
MR. MARUSHACK told listeners that other program activities
include project costing, environmental field surveys, permitting
requirements and plans, design of a commercial structure, and
the overall viability of the project. The focus of the work
will be on route evaluation and selection, leading to filings
with the U.S. and Canadian regulatory agencies - the Federal
Energy Regulatory Commission (FERC) in the U.S., and the
National Energy Board (NEB) in Canada. The group's target
objective is to file FERC, NEB, and other appropriate
applications in late 2001. Mr. Marushack stated:
This is a very aggressive target. Through the
creation of this "all star" team, and by combining the
prior work the three companies have done, we are
attempting to streamline what is normally a much more
time-consuming process, especially when you consider a
project of this magnitude. Once the work planning
process is finalized, we'll understand the timing
better.
Of course, the filings are contingent on developing a
commercially viable project that can earn competitive
rates of returns with delivery of gas to the U.S.
lower-48 states. The latter is especially important
since there are potential competing sources of gas
that could also supply to these markets.
A competitive project also means that no cost overruns
can be tolerated, especially in a gas project of this
magnitude, and we'll utilize our company and contract
resources to realistically understand all of the costs
and risks.
MR. MARUSHACK addressed page 4 of the handout, the first of
three graphics that cover North Slope gas resources and the gas
market outlook. He noted that it shows the North Slope gas
resources and their locations. Developed fields are depicted in
green and include, from west to east, Alpine, Kuparuk, Milne
Point, Prudhoe Bay, Endicott, and Badami. Major discoveries not
yet developed are in yellow and include Northstar, Liberty, and
Point Thomson.
MR. MARUSHACK reported that the known North Slope natural gas
resource totals about 35 Tcf (trillion cubic feet). The total
potential gas resource on the North Slope has been estimated -
over the years, from various sources - to be up to 100 Tcf. He
said industry's ability to realize the full potential resource
will, in large part, depend on an efficient transportation
system that yields attractive netbacks and hence the incentive
to explore and develop new prospects.
MR. MARUSHACK pointed out that there is potentially enough gas
on the North Slope for projects other than a gas pipeline to
Canada and the Lower 48 if market conditions are supportive. He
noted that the pie-shaped chart on page 4 shows the relative ANS
gas ownership interests for the 35 Tcf of known resource.
Through the state's royalty share, he said, it is obvious the
state has an important position in the resource.
MR. MARUSHACK referred to page 5 of the handout. He told
listeners that gas historically has played a significant role in
improving Prudhoe Bay's oil recovery. In the 1970s, an
estimated 9.6 billion barrels was originally forecast to be
recoverable from Prudhoe Bay. As of today, however, about 10
[billion] barrels has been recovered, with another 3 billion
remaining to be produced. This improved recovery is achieved
through the help of the world's largest gas processing system.
The gas has been, and continues to be, a very valuable resource.
MR. MARUSHACK explained that the image on page 5 shows the
reservoir gas being routed through the central gas facility
(CGF), where natural gas liquids are extracted, then blended
with crude, which is transported down TAPS [Trans-Alaska
Pipeline System]. The current NGL production rate of about
50,000 barrels a day goes into TAPS, with the sale of another
25,000 barrels a day to the neighboring Kuparuk oil field for
use in its miscible gas enhanced oil recovery project. He noted
that miscible injectant is also manufactured at the CGF for use
in enhancing oil recovery from the water-filled areas within
Prudhoe Bay.
MR. MARUSHACK concluded with page 5, explaining that the
remaining dry gas is compressed and reinjected into the Prudhoe
gas cap. This reinjection process enhances oil recovery by
maintaining reservoir pressure, and it helps vaporize residual
oil that is then cycled back and re-produced. The gas resource
at Prudhoe will continue to be used to improve oil recovery
"until we are able to export gas from the Slope by whatever
means," he said.
MR. MARUSHACK turned attention to page 6. He stated:
We often get asked why we think the time is now for a
more appropriate gas pipeline project from the North
Slope to [the] Lower 48. The lower-48 gas market is
the largest market in the world, with the best
infrastructure system and the ability to move gas from
a single hub to many market sectors. It is a
sophisticated market that has evolved over time. It's
a market where gas can be sold long-term or short-
term, priced at spot or fixed. It can float with the
general market or [be] locked in using caps and
collars.
Number 1101
REPRESENTATIVE DYSON requested clarification about the term
"caps and collars" in particular.
MR. MARUSHACK explained that it is a method of reducing risk.
Deals regarding gas can perhaps be negotiated either in the
market or by making a market. For example, someone may offer to
pay a minimum floor price and a maximum floor price, which would
"float with spot in between there." He added, "If the price
goes above that, whoever you've done this deal with gets to keep
that; if it goes below that, they are providing that value back
to you."
Number 1192
MR. MARUSHACK returned to his presentation:
It's a growing market due to the historic abundance of
energy and the environmentally friendly aspects of the
source. The U.S. Energy Information Agency projected
a continuing increase in demand in natural gas through
the year 2020. Natural gas demand for the commercial,
residential, and industrial sectors increase at a
steady and modest rate, as you can see from the
graphics.
Demand for power generation, however, is projected to
increase from about 11 Bcf [billion cubic feet] a day
to over 30 Bcf a day between year 2000 and year 2020.
Power generation is driving expected growth in the
demand, accounting for 64 percent of the total
expected demand growth during this 20-year period.
Overall, the use of natural gas in the Lower 48 is
forecast to grow from about 56 Bcf a day ... to about
86 Bcf a day by year 2020.
Our current view is that 3-5 Bcf a day of North Slope
gas could be supplied from Alaska to the Lower 48. We
should also point out that there are many supply
sources that will [be] competing to meet the projected
demand growth. And, in fact, we need multiple new
sources to keep supply and demand in relative
equilibrium in a market that we want to see grow.
Those that are most economical will succeed.
Our gas will [be] competing against Mackenzie delta,
eastern Canadian gas, deepwater Gulf gas, coal bed
methane, tight sands, and LNG [liquefied natural gas]
sources. But we know that existing conventional gas
resources cannot keep pace with demand, and we want
Alaska's gas to be one of those sources. By
"conventional," I mean gas that is normally drilled as
we think of, just through normal means, not using any
advanced technology, not in any unconventional areas.
MR. MARUSHACK informed members that he would turn the
presentation over to Mr. Konrad for a look at the project team's
recent early efforts.
Number 1326
KEN KONRAD, Senior Vice President and Business Unit Leader, BP
Exploration (Alaska) Inc., began by calling attention to page 7
of the handout, which outlines the organizational structure for
the project team. He reported that the three-member Management
Committee will lead the day-to-day operation of the project
team. There are seven groups consisting of engineering,
commercial, environmental, regulatory, legal, and external
affairs specialists.
MR. KONRAD noted that the chart on page 7 shows several key
leadership positions within the team: team members shown in red
are from Phillips; those in green, from BP; and those in blue,
from ExxonMobil. Company staff is drawn about equally from all
three producers. This allows the project team to access top-
quality people from each organization and will ensure full
alignment among the three companies as the work program
proceeds. Mr. Konrad said there is a major effort currently to
fill the remaining organizational slots. About 50 team members
are in place today. He commented, "We're looking to ramp up ...
those folks over the next couple of months."
MR. KONRAD turned attention to page 8 and the group's key
objectives. First, the group wants to create a project that can
succeed, "an economically viable project that is sufficiently
robust to attract the billions and billions of dollars of
investment that will be required to get gas to market." He
pointed out that North American gas prices have spiked during
the past year to $5-$10/Mcf, up from historic levels of around
$2/Mcf. The duration of the current price spike is impossible
to predict, he pointed out, but the laws of supply and demand
still exist. An Alaskan gas project needs to look past short-
term volatility to the fundamental long-term supply trends and
the cost of those competing supplies; he suggested the long-term
supply trends would be over 10, 20, 30, or 40 years.
MR. KONRAD reported that a variety of industry studies reveal
there is still an enormous gas resource in the U.S. Some of
this gas can be economically developed at $2/Mcf, which has been
the average price for gas over the past decade. Much of this
gas requires higher prices or technological advances to be
economic. He emphasized the need to establish Alaskan gas as a
competitive source of supply against these alternative sources.
Mr. Konrad stated:
Clearly, we believe Alaska gas can be made
competitive. Otherwise, we wouldn't be investing our
dollars and our people in this effort. But we do need
to be realistic - Alaska is still a long [way] from
the market, and our cost challenges are very, very
real.
Of course, the real prize for Alaska is not to simply
make the known resource base of 35 trillion cubic feet
competitive. The larger prize for Alaska is creating
a highly efficient and expandable transportation
system that yields a high field netback, providing an
incentive for investors to explore for and develop new
gas fields, incentives to move past 35 trillion cubic
feet towards 100 trillion cubic feet and beyond,
incentive to create a second industry on the North
Slope - an exploration and development industry
centered on gas - and the associated long-term jobs
and long-term revenues.
MR. KONRAD continued with page 8, explaining that the second
objective is to establish sufficient engineering, commercial,
and environmental definitions to support permit applications by
year-end of 2001. This is by no means a simple undertaking
because it is an aggressive time target; however, it remains the
team's goal. He noted that some specific application
requirements would be covered later.
MR. KONRAD reported that the third objective, assuming success
with the first two, is to prepare for the next phase of
activity. Project applications are not an end, he pointed out,
but a beginning. A further ramp-up in activity - including
advancing engineering design, working through the permitting
process itself, and preparing detailed project execution plans -
needs to be planned for.
MR. KONRAD turned attention to page 9, informing members that he
would speak to the overall scope of the study in four parts.
First, nearly all of the gas on the North Slope has a carbon
dioxide content above required sales-gas specifications; thus it
needs to be treated before the gas can be sold to end consumers.
Gas treatment facilities on the North Slope would condition the
gas for sale by removing carbon dioxide from the gas stream,
compressing the gas, and cooling the gas before it entered the
pipeline. He pointed out that these gas treatment facilities
would be the largest such facilities ever built, anywhere.
MR. KONRAD addressed the second area of study, a pipeline from
the North Slope into northern Alberta, Canada. Two major routes
will be engineered and evaluated: a northern route, which runs
offshore of northern Alaska to the Mackenzie delta and then up
the Mackenzie valley to northern Alberta; and a southern route,
which broadly parallels TAPS to Fairbanks and then follows the
Alaska Highway into northern Alberta. Mr. Konrad noted that the
specific, detailed routing along these two major routes, as well
as the termination point in northern Alberta, will be part of
the work program.
MR. KONRAD explained that the third area of study will look at
pipelines from northern Alberta to end markets in the U.S.
Pipeline infrastructure in Alberta has grown over the years, and
currently there is some excess capacity in the system; however,
many expect that capacity to be fully utilized by the time
Alaska gas is ready to come "on stream," as other sources of
supply come on over the next several years. In any event,
volumes from an Alaska project will be sufficiently large that
some significant expansion of capacity will be required out of
Alberta. Mr. Konrad said the joint team will engineer and
evaluate new-built pipeline or pipelines from northern Alberta
into U.S. markets. At the same time, they will meet with
existing pipeline operators to determine whether there are cost-
effective expansion opportunities on existing systems.
MR. KONRAD pointed out that in aggregate these two pipeline
segments - Alaska to Alberta, and Alberta to the market -
represent a pipeline system that is four to five times the
length of TAPS. He emphasized the enormity of this undertaking.
MR. KONRAD addressed the fourth area of study. Gas delivered to
market will need to meet specifications relating to the heating
value of the gas. North Slope gas contains various amounts of
ethane, propane, and other gas components commonly called NGLs
or natural gas liquids, some of which may need to be removed
from North Slope gas in order to meet end-sale specifications.
Furthermore, there may be an opportunity to export additional
gas liquids to enhance overall project economics.
MR. KONRAD concluded the discussion of page 9 by stating, "We'll
be looking at various options for placing NGL facilities along
the export system; the location and nature of these facilities
will be determined in the study." He noted that he had just
provided a broad overview of some of the major facilities that
would be associated with a gas pipeline system from the North
Slope to Canada and the Lower 48.
MR. KONRAD turned attention to page 10, "Conceptual Pipeline
System Components." He reported that the pipeline being
considered will utilize the latest technology and be designed to
the highest standards. Many things have changed since the major
pipeline studies of the 1970s. By leveraging today's
technology, a system can be designed from the bottom up that is
more cost-effective and yet meets the highest environmental
standards, consumes less fuel, and has lower emissions.
Pipeline diameter, throughput rates, operating pressure,
compressor station design and location, construction methods,
and the pipeline termination point all will be re-addressed.
MR. KONRAD offered some general attributes, noting that the work
program would determine a specific design. First, the pipeline
will be buried along its length, with the temperature carefully
controlled so as not to disrupt the permafrost. Unlike TAPS,
therefore, the pipeline will be almost invisible once it is
installed. The pipeline would be plus or minus 40 inches in
diameter, and would operate at a pressure of perhaps 2,500 psi
[pounds/square inch] or more. It would utilize advanced high-
strength steel; even so, the steel requirements for this system
will be enormous - hundreds of millions of tons. He mentioned
that it will be four to five times the length of TAPS, with a
pipe-wall thickness of around one inch.
MR. KONRAD told members this efficient pipeline design would
require fewer compressor stations, and with today's automation
and communication systems, these stations can be built as "not
normally manned" facilities. While highly efficient, the total
installed horsepower necessary to move gas from Alaska to end
markets will still be many, many times the total installed
horsepower on TAPS.
MR. KONRAD reported that between compressor stations, there
would be block-valve stations as necessary to ensure safe and
efficient operability and maintenance. Intermediate "pigging"
facilities would enable monitoring of the pipeline with a system
of "smart pigs" to ensure long-term safe operations. Mr. Konrad
explained that "smart pigs" are devices sent through the
pipeline that monitor the pipeline's condition, while it is in
operation, without having to look at it with human eyes.
MR. KONRAD turned attention to page 11, "Joint Team Current
Status." He specified that there are 50 team members to date,
and 90 or so positions are expected to be filled by April 2001.
The support of contractors is also needed, and a number of
requests for proposals have been issued for various work
packages, including front-end engineering design; "costing" for
the various scopes of work he described earlier; land and
environmental surveys; and legal support, both in the U.S. and
Canada. He noted that Mr. Schilhab would address those later.
MR. KONRAD reported that a key current activity is developing in
greater detail all the work scopes and objectives for each
component of this massive study. He stated:
This will allow us to identify all the critical past
issues which we need to address in order to meet our
aggressive time targets. We're in the process of
finalizing our near-term work schedule, and are
already initiating specific plans for early field
surveys, some of which are seasonal in nature and thus
are very time-sensitive.
MR. KONRAD turned the presentation over to Mr. Schilhab.
Number 2048
ROBBIE SCHILHAB, Alaska Gas Development Manager, ExxonMobil,
offered details regarding the work scope. He began with a look
at the FERC application for a certificate of public convenience
and necessity, highlighted on pages 12 and 13 of the handout.
Noting that the FERC application is "voluminous in detail," he
informed members that there is a comparable set of requirements
for applications filed with Canada's NEB.
MR. SCHILHAB listed some required information in the FERC
application: a description of the legal entity - the owner
company - applying for the certificate; descriptions and
locations of the pipeline, associated plants, compressor
stations, and other facilities; flow diagrams; information on
construction and operations management practices; data on the
natural gas supply and demand; estimates of facility costs; the
method of financing the project; anticipated revenues and
expenses; a model and methodology for calculating tariffs; and
an analysis of alternative projects that have been considered,
which is another reason for the team's efforts in looking at
various pipeline options.
MR. SCHILHAB reported that FERC imposes a number of other
environmental requirements, shown on page 13 of the handout. He
said the application must include a mile-by-mile description of
water resources; fish, wildlife, and vegetation; geology; soils;
and air quality and noise along the pipeline route. Given the
length of the pipeline segments to be evaluated, this
requirement potentially means 5,800 different descriptions.
Other required reports include socioeconomic impacts of the
project; cultural resources that may be impacted; land use,
recreation, and esthetics in affected areas; alternatives
considered; and project reliability and safety. Thus it will
require a massive undertaking to gather, evaluate, and report
the information required by FERC. "That's why we're assembling
a blue-ribbon group of company and contractor experts to do this
work," Mr. Schilhab remarked.
MR. SCHILHAB turned attention to pages 14 and 15 of the handout,
noting that these two charts summarize the work program
deliverables expected from the various work teams. The result
will be used to determine the economic viability of a pipeline
project; if warranted, an evaluation of the gas pipeline routes
will follow, as will the FERC and NEB filings just discussed.
MR. SCHILHAB first addressed the technical teams responsible for
the design basis and scope for pipeline systems to bring the
Alaska North Slope gas to market, including plant and pipeline
components for an integrated project, cost estimates, and both a
plan and schedules for project implementation. He noted that
the technical group will also be responsible for providing some
of the information required for application for the regulatory
permits just discussed.
MR. SCHILHAB explained that the environmental and regulatory
team is responsible for environmental field studies for the
northern and southern routes; development of plans for filing
permit applications; and the completion of applications to be
filed with FERC, NEB, and other agencies.
MR. SCHILHAB reported that the deliverables from the commercial
team include a plan to move gas from Alberta, Canada, to the
Lower 48; a model and methodology for determining pipeline
tariffs; a plan for financing the project; the structure and
ownership of the project; and studies to determine the
socioeconomic impacts of the project. The group will also
provide the commercial elements needed to complete the FERC and
NEB applications.
MR. SCHILHAB told members the external affairs team will lead
the community consultation group; help to coordinate U.S. and
Canadian external affairs activities; facilitate discussions
with government agencies and officials and other interested
parties; and provide communications support. This group will
have a major role in arranging periodic status updates for
[legislators], as the Management Committee is doing that day.
MR. SCHILHAB turned attention to page 16, "Major Scopes of Work
(RFPs)," noting that the work scope covers great breadth and
depth, from the North Slope to Canada and the lower-48 markets,
and that a number of qualified contractors will assist.
Requests for proposals (RFPs) were issued on January 17 covering
ten distinct contract areas, including front-end engineering
design for the gas treatment plant; the two pipeline segments
mentioned earlier from the natural gas liquids (NGL) plant;
environmental and land surveys in Alaska, the Lower 48, and
Canada; and the regulatory permitting requirements. He said
local Alaska firms were well represented in the bid process. In
addition, legal firms in the U.S. and Canada are being selected
through a separate process.
MR. SCHILHAB reported that on January 25, a pre-bid conference
was held to brief potential contractors on the initial work
being planned and criteria to be used in awarding the contracts.
Team members have also begun interviewing contractors who will
be submitting bids, to assess their qualifications.
MR. SCHILHAB noted that the timing of contract awards will vary,
based on the size and complexity of the individual packages and
the ability to conclude contract negotiations. [The team] is
currently reviewing bid submissions, and anticipates that
successful bidders will begin work before the end of the first
quarter of this year.
MR. SCHILHAB said each group is currently planning its work
program. This includes identifying its deliverable produce,
when the work needs to be done, and what information will be
needed to support the other groups. The various teams are also
identifying critical issues that will affect their work and that
of the entire project, and options for addressing these. All of
this information will then be integrated into a detailed work
schedule and will help guide the team's efforts toward
contractor support during the months ahead.
MR. SCHILHAB addressed the final chart, page 17, "Near Term
Plan," which read: "Continue to build team; Finalize work
scope; Define work schedule; Execute contracts." He noted that
by April, contract people are expected to number about 90, with
additional support provided by the firms awarded the various
contracts. There will be additional efforts to determine in
greater detail the work scope and end products for each group
and for the overall project team. [The group] doesn't currently
have definitive milestones for completion of the many project
components. As mentioned earlier, this is a critical element
which the project team will be working on in the near term. He
reported that the team expects to execute most, if not all, of
the initial contracts over the next two months, although the
exact timing will vary, based on the size and complexity of the
individual packages.
MR. SCHILHAB summarized some key points made that day. First,
the three major North Slope producers have agreed to a work
program to evaluate and progress a North American natural gas
pipeline project that could ultimately culminate in the
construction of a large-diameter pipeline system to deliver gas
from Alaska's North Slope to Canada and the Lower 48. They are
fully engaged in this effort now.
MR. SCHILHAB said second, an Alaska natural gas project can
deliver cost-competitive natural gas to consumers and play an
important role in meeting the nation's energy needs, while
providing substantial economic benefits to Alaska's leaseholders
and others. Third, no option should be precluded at this point.
It is important that all parties understand the costs and
benefits associated with the various options. Much of the
information to be generated and analyzed is also needed to
complete applications for FERC and NEB permits. On behalf of
the team, he urged the legislature to allow this critical work
to be completed and not preclude any development options. It is
in the best interests of the state and everyone else to have a
full understanding of how to best proceed, he told members.
MR. SCHILHAB said finally, given the strong interest in this
project, the project team plans to provide periodic updates [to
the legislature] as various milestones are reached, and to
engage in an ongoing, meaningful dialogue with government
agencies and other interested parties.
Number 2566
CHAIR OGAN invited committee members to ask questions.
REPRESENTATIVE FATE noted that the team had referred to a study
of a transportation system from Alberta, Canada, to the Lower
48. He expressed his understanding that gas is going through
the "prebuild," which is near capacity now, which was part of
the Alaska Natural Gas Transportation System (ANGTS) formed in
the mid-to-late 1970s. He inquired whether the plan is to add
capacity to the "prebuild" or to put a new pipeline from
Caroline, Alberta, to the Lower 48. He said there is an
anticipation of a volume of 1.5 billion [cubic feet] just from
the Mackenzie delta, let alone from Prudhoe Bay in Alaska.
MR. KONRAD agreed the existing prebuilt segments are at or near
capacity. With Alaska volumes coming to Alberta, there will
need to be more capacity built to get the gas to market. The
team would look at all options, including building a new
pipeline into those markets. That creates an opportunity, he
noted, because the same technology and cost advances made on the
pipeline - described earlier - may offer an opportunity to
transport gas from Alberta at a cost lower than what was
possible under the old technology. "Nevertheless, we will be
talking to all the pipeline operators in Alberta around what
expansion options they have ... on their system, and see if
there's ... cost-efficient expansion opportunities with them,"
he added.
MR. KONRAD emphasized that although the team would look at all
options, part of the work study would be to design new pipeline
into the North American market. If there are other, more cost-
effective ways to do it - which would benefit the interests of
the state, in the form of royalties, and the producers - "we
will do that," he said, adding that it is about finding the best
solution.
Number 2703
REPRESENTATIVE FATE followed up by asking whether those
endeavors will come under the ANGTS plan, as was the prebuilt
section, or will be independent of that plan and the Alaska
Natural Gas Transportation Act [of 1976] (ANGTA) also.
MR. KONRAD answered that the studies will be independent; how
the team actually goes forward with regard to permitting will be
part of the work program. The technical work needs to be done,
and it will underlie whatever applications go in to the
regulators.
Number 2740
CHAIR OGAN recognized the presence of former Representative Mark
Hanley.
REPRESENTATIVE JAMES inquired about the group's focus, saying it
appears the focus now is simply on taking North Slope gas to the
Lower 48 via pipeline, without including review of any LNG
potential in Alaska.
MR. MARUSHACK responded that the group before the committee
today has been put together to look at a pipeline option only,
looking at both routes. However, each company separately has
looked at GTL or LNG. Furthermore, BP, Phillips, Marubeni
Corporation, and Foothills Pipe Lines are part of what is called
the LNG sponsor group, put in place about two years ago to
evaluate the opportunity for LNG; that sponsor group - which has
spent $12 million, has done a lot of good studies, and has a lot
of good data - is in phase 2 now, looking into the feasibility
of piggybacking off a potential southern route for an LNG
system; however, the sponsor group doesn't have an economic
project "because they've got the burden of an 800-mile pipeline
in front of them, so they're seeing if there's any synergies
that will allow that to happen."
Number 2839
REPRESENTATIVE JAMES said the group's plans seems to be "taking
on the cost and effectiveness and procedure" of the entire
project, yet other people are proposing the ownership and
management of a pipeline. Although that isn't necessarily
mutually exclusive, it appears [the group] is trying to
determine the actual cost and the best route to get there, and
that if sometime during the process it seems to be better to
have someone else do it, that would be an option. She asked
whether that is correct.
MR. KONRAD replied in the affirmative.
REPRESENTATIVE JAMES, noting that the proposed pipeline would be
underground, surmised that there would be a provision for access
to the pipe, and that the group would have identified where that
access would be required. She noted that some new access point
may be needed, however, and asked how difficult that would be.
MR. KONRAD answered that it wouldn't be terribly difficult.
Number 2947
REPRESENTATIVE DYSON noted that Alaskans have a pretty good idea
of the permafrost distribution, for example. He asked whether
that is true for the Canadians as well.
MR. KONRAD said yes.
MR. SCHILHAB added that the Canadians have built several
pipelines in the area, in the Northwest Territories. He stated
the belief that some of that information ...
TAPE 01-12, SIDE B
... could be used, such as the new technology.
AN UNIDENTIFIED SPEAKER added that for both routes, there are
areas of "permafrost-permafrost" and areas of intermittent
permafrost. As Ms. Schilhab said, there is already an oil
pipeline, the Norman Wells (ph) Pipeline, which runs two-thirds
of the way down the Mackenzie River valley. He stated the
belief that [the group] believes it has a pretty good handle on
the permafrost areas within Alaska. The study will be going
into increasing detail, but the group believes it to be well
within the realm of its current capability. "It's all about
keeping the temperature of the line close to the temperature in
the ground," he explained. "And we're pretty confident we can
do that."
Number 2927
REPRESENTATIVE DYSON asked what part the provinces, as opposed
to the Canadian federal government, play in the permitting
process.
MR. MARUSHACK answered that they play a very important part, and
need to be involved in the process. It is very much like the
situation in Alaska. They have stakeholders and stakeholders'
interests, and both the Northwest Territories and the Yukon
Territory want the pipeline to come through their areas. "We
are going to have permitting processes in place with them," he
said. "We are going to have to have discussions with them.
It's very important."
REPRESENTATIVE DYSON asked whether, in the Canadian system, the
federal or the provincial [agencies] have the final say on
permits.
MR. MARUSHACK answered that lots of individual agencies will
have a say in the process, and he isn't sure whether any one has
absolute veto power. He added:
We will have to go to Ottawa. We'll have to work with
the federal government, with the NEB. We will also
have to work with the provinces and the First Nations.
So I'm not sure I can give you an absolute answer. I
think everyone is going to have a part in the
permitting process.
REPRESENTATIVE DYSON said his sense is that in Canada the
federal government is far more preeminent than the provinces,
especially the western ones, in this regard. He suggested the
federal government would be a major hurdle in Canada.
MR. MARUSHACK agreed that clearly permits would be needed from
the NEB, which is a federal [Canadian] agency. But the group
will also have to get permits from, and work with, people all
along the routes.
CHAIR OGAN announced that listening on teleconference were Greg
Kamaramie, Director of Oil and Gas Business Development, Yukon
Territory; and Scott Ken, Member, Yukon Territory Legislature.
He suggested that perhaps they could respond to Representative
Dyson regarding his questions.
Number 2760
REPRESENTATIVE GREEN said it is no question that most Alaskans,
including the governor, favor the highway route. It is also
obvious that there are benefits which directly affect the people
by bifurcating [the pipeline] into three different modules; that
would fairly well be excluded by a single northern route. He
acknowledged, however, that economics will drive the direction.
He noted that there is a proposal for 48-inch pipe approximately
an inch thick, and that gas is compressible; he asked whether
that limit is driven by extraction, the market, or technology.
He also asked whether the excessive pressure that would be
required would be a problem "downstream" if the pipeline tied
into other [existing] pipelines.
Number 2694
MR. SCHILHAB answered that first, it is approximately a 48-inch
pipeline. [The group] hasn't finalized a design or selection of
the pipeline size. Over the near term, the group will be
working with the reservoir engineering group to understand what
the range is for the gas "off-take" that the group should be
looking at. "We've already done a lot of work in that area," he
added. He said that if it is a 48-inch pipeline, for example,
the expandability of a pipeline for the future allows a pretty
good range, almost a 50 percent expansion capability. As for
Representative Green's questions regarding size and volume, he
emphasized that [the group] hasn't selected the optimum off-
take, although members have a sense of about what that is, for a
starting point going into the conceptual design.
Number 2624
REPRESENTATIVE GREEN referred to the Alaska Gasline Port
Authority, which had addressed the committee previously, talking
about "upfront ownership" and whether the state might want to be
involved. He asked whether this will be like the oil pipeline,
a common carrier owned by many owners, or will be exclusively
owned by "the three owners" and be an "upfront, different type
of pipeline" whereby only limited entities would have access to
subsequent development or exploration.
MR. KONRAD answered that certainly "the pipeline system that we
envision" will be a regulated pipeline. He added that the
regulators typically regulate tolls and accessibility. As for
ownership, [the group] is trying to design the best project:
the lowest-cost and most efficient one, "because it matches
between the market and the field." He noted that Mr. Schilhab
had alluded to the fact that ownership and structure of the
project will be part of the work activity through this year.
If, indeed, [the group] finds that other pipeline companies or
other investors can add value to the project or are interested
in helping to finance it, Mr. Konrad said, "that will be an
active part of our work program." He added that it is by no
means a foregone conclusion that the three producers would be
the only owners of the line.
MR. KONRAD cited the recent "Alliance pipeline" as a possible
example. Initially, producers got together to design a project
that was right for them - efficient, low-cost, and with the
right rate capacity, for example. Once that was in place, the
producers shifted out of the project, over time; now, there are
no producers in that pipeline project, the biggest gas project
in North America in recent history. He emphasized that there
are many options that [the group] will be looking at.
Number 2488
REPRESENTATIVE GREEN asked how far-reaching "regulated" is.
MR. KONRAD responded that there will be an open season, and then
"folks will have the opportunity to nominate to that pipeline."
Gas pipelines are normally "contract carriage," but that will be
part of the discussions with regulators in terms of the
specifics. Gas pipelines are typically slightly different from
oil pipelines, he noted.
Number 2455
REPRESENTATIVE GREEN asked what would happen for [a producer]
with a future discovery, and whether that would require building
a second [gas] pipeline, for example. He expressed concern
about exclusion.
MR. KONRAD answered that expanding the capacity of the pipeline
is good because it will lower the unit costs for everyone
shipping through the line, just as with TAPS. There is a strong
incentive, as Mr. Schilhab had said, to build a system that is
expandable in terms of capacity; he indicated it is the group's
vision that the project will create enough incentive for people
to explore, which would benefit everyone.
REPRESENTATIVE GREEN asked whether the answer is, then, that
[the proposed gas pipeline] would be accessible by everybody.
MR. KONRAD responded, "Through the regulatory process. ...
Through the FERC and through the National Energy Board."
REPRESENTATIVE GREEN asked whether nothing will prevent that
[access] other than some regulatory process. He said normally
the [legislature] is concerned about the ability for future
discoveries to [have access to the pipeline]. He asked whether
he was hearing correctly that it isn't going to be a problem.
MR. KONRAD answered that it will be just like every other
regulated gas pipeline in North America and will have similar
...
Number 2360
REPRESENTATIVE GREEN interjected to note that Mr. Konrad had
said most gas pipelines are "upfront ownership" and are not
necessarily common carriers. He asked whether this will be like
that, or will be - as he himself hopes - expandable, because it
is compressible gas, so more [gas] can be carried if a field is
discovered ten years from now; it would be regulated, yes, but
without gas being excluded because it wasn't [discovered] ten
years earlier.
MR. SCHILHAB explained that when he was talking about
expandability, it [involved] going through the regulatory
process. As Mr. Konrad mentioned, on a regulated pipeline like
this, "the first thing you do is you go out ... for an open
season, to find out ... who is interested, and then sign that
up, and then design the pipeline based ... on the need at the
time." That pipeline would be designed with future
expandability in mind, Mr. Schilhab said, either through adding
compression or doing other things down the road. If there is a
fortunate situation in which gas is flowing and new discoveries
are made, development will take awhile; those individuals will
find a way to get their gas to market. He said:
That's the beauty of actually having a conduit from
the North Slope into the marketplace. You go through
a process of expanding, through a regulatory process,
if you need to expand it; or if you have gas declining
that's already going through that pipeline, there may
be room in that pipeline by the time development comes
on.
Number 2258
REPRESENTATIVE GREEN said he had big concerns about the answers
he was receiving, but wouldn't pursue it further.
CHAIR OGAN, referring to the open season and likening it to
hunting, asked: Once the season is closed, if people weren't
there for the season and didn't get the tag, but came up with a
project "in their sights," would they be considered poachers?
If a company identifies a market and is willing to build a spur
[line] to tidewater to export LNG to the Pacific Rim, for
example, when does the season close? Can there be an extended
season if there is a lot of "quarry" out there?
Number 2198
MR. MARUSHACK offered an example. If there is 4 Bcf [proposed
to be] coming down the line, the pipeline can be designed for
that. If there is a good discovery later, access [into the
pipeline] will be desired. There would be a nomination process
in which [the producer] would say, "We have this huge discovery;
we would like to have a Bcf ... of capacity in this pipeline."
He noted that expandability capability sometimes means
compression must be added - or "looping," if there is a huge
discovery - or else the tariffs may have to be adjusted. That
is why [the group] cannot respond with absolutes. All these
things are possible, and are opportunities through the
nomination process, in the regulatory process. In response to a
question by Representative Green as to whether that includes the
future, he answered affirmatively.
Number 2120
CHAIR OGAN said he himself was not talking about discovery, but
about somebody who might not have gas, and yet has the market
and wants to invest in a pipeline and "tap on to what you've got
there." He asked whether the season would be closed for such a
person. He noted that HB 83 embodies the principle of needing
to build the capacity into the pipeline to start with, for
future uses. He asked: "When do they have a season?"
MR. KONRAD replied that if there is a better market for the gas,
producers will obviously be motivated to tap it.
CHAIR OGAN suggested there are economies of scale, however, once
there is a pipeline going a certain distance. He asked whether
[the group] believes it is appropriate for the state to mandate
that there be enough volume prebuilt into the line - "to a 'Y'
concept or a 'hub' concept" - for future uses. He surmised that
the law could be written as desired, and the regulations then
made to match it, but said he would like a commitment from "you
folks" of willingness to sell the gas to somebody who is willing
to invest in something that [the group] perhaps isn't interested
in. He mentioned the history of oil development, saying smaller
companies come in and do things that the big companies might not
see as economic or in their interest. More motivated small
companies might take risks that larger entities wouldn't, and
sometimes do pretty well with it.
MR. KONRAD responded that if there is an economic opportunity,
then it will happen. Markets create opportunities and
investments. "What we're saying is physically the line itself
will be able to be expanded," he added. "And if there's a more
attractive economic opportunity, that opportunity will be sought
out."
Number 2006
CHAIR OGAN asked to what capacity it can be expanded.
MR. KONRAD answered, "We haven't designed the line yet. As [Mr.
Schilhab] said, something like 50 percent would be conventional,
which, if it was a 4-Bcf-a-day pipeline, that would be enormous
by most any standard."
CHAIR OGAN commented that Foothills [Pipe Lines Ltd.] had
testified that 4 "and change" Bcf is about as big as can be done
with today's technology. With a 4-Bcf line to the Lower 48,
Chair Ogan said, he didn't see how there would be extra
capacity.
MR. KONRAD replied, "I think we certainly have built some of the
largest pipeline systems around this planet, and we feel that we
can design a system that is capable of more than 4 billion cubic
feet a day."
REPRESENTATIVE FATE recalled hearing from [the group's]
presentation before the Senate Resources Standing Committee that
"you could go from 4 to 6 Bcf."
MR. KONRAD responded that that would be a 50 percent increase
over 4 [Bcf].
Number 1943
REPRESENTATIVE DYSON pointed out that "looping" means using
short sections of parallel pipe. He said with 6 Bcf, it is
getting close to the "yield point" of the pipe. He asked
whether that is the limiting factor.
MR. KONRAD answered:
The limiting factor becomes how much compression you
need to put in. And ultimately, if you're burning all
your fuel to compress the gas, at some point in time
that becomes ... subeconomic. But a 50 percent
increase, like [Mr. Schilhab] indicated, would be
easy. If you needed more than that, then a pipeline's
economic again. A 2-billion-cubic-feet-a-day
pipeline's an enormous pipeline, and that's economic.
Or if you want to go from 4 to 8 [Bcf], ... that would
be an economic undertaking as well.
REPRESENTATIVE DYSON asked whether the limit, then, is the fuel
for the compression, not the yield strength of the pipe.
MR. KONRAD answered:
You don't want to build compression stations every
three miles. ... It's the cost of the compression, and
then the associated fuel use ... normally, at some
point, becomes the limiting factor. And that's when
you get into looping lines and expanding that way.
Number 1876
REPRESENTATIVE JAMES said she was hearing from testimony that
although [the group] is doing this work, it doesn't necessarily
preclude that there might be "a separate owner of the gas line
and operation of the gas line" when it gets to that point. She
cited Foothills [Pipe Lines Ltd.] as an example. Referring to
Representative Green's question, she asked: What is the danger,
when we get to the end, that you decide that you're going to own
the pipeline yourselves? Do we have any protection from that?
And at what stage should [the state] be worried about that?
MR. MARUSHACK answered that the reason there are three companies
coming together is they are trying to evaluate whether there is
a "baseline economic project." The companies want to sell gas.
He stated:
Now, once we have that, we're going to be looking at
other companies - anybody who can bring value into the
process, lower our costs, ... maybe Foothills, maybe
Williams. Lots of companies are out there that would
like in to the process. We're talking to all of them
... because some people may be able to bring value and
lower the cost and raise the wellhead [price]. ... We
don't have a time, at this point in time, when we're
actually going to go out and solicit other people
coming into this process. That's part of ... the
work. But people who can bring value into this thing
and lower our cost, ... we like that.
Number 1706
REPRESENTATIVE JAMES said she appreciated that comment. She
asked, however, whether return on investment [isn't also a
factor]. She suggested it would be to [the group's] advantage
to get other investors besides [the three companies], "so you
can do what you do best, and that's find gas and sell it."
Number 1670
MR. MARUSHACK replied affirmatively, saying it is the same as
for financing: "After you know you have a good project, you
look at financing so you're not putting all your equity in that,
so you can drill additional wells."
CHAIR OGAN asked whether Mr. Marushack was speaking for the
group or for Phillips with regard to that last question.
MR. MARUSHACK answered that he was talking generally about how
these things happen.
Number 1656
MR. KONRAD added:
The producers have the same interest as the State of
Alaska in this particular instance. We want the most
efficient, lowest-cost system that will maximum the
state's royalty and severance tax. Pipeline companies
in isolation sometimes may have slightly different
motivations. But we should be quite clear that we are
very aligned with the state at this stage in the
project, and I would think the state should be quite
pleased that it's the producers taking on the lead on
this ... to make sure that we do build as ...
efficient [a] system as possible.
REPRESENTATIVE JAMES commented that so far [the legislators]
have that faith.
Number 1609
REPRESENTATIVE DYSON said he believes Alaskans have an
additional interest besides the royalties, which is the utility
of being able to use natural gas, particularly in the Interior.
He recognized that it may not be a concurrent interest of the
producers. There may be more profit in it for [the producers]
to ship the gas to the Midwest, for example, than to provide it
to the middle parts of Alaska. He added:
If we pressure you, through whatever processes, to
make gas available ... in the Interior of Alaska or up
and down the Yukon or Southeast or wherever, clearly
we have a responsibility to assist you in the
additional costs or add incentives, so that you don't
pay a penalty for serving a public interest that may
not be your profit-driven company interest. But
there's the one point that our interests may diverge,
and clearly we are trying to represent the people of
Alaska [who] have an interest to see that ... at least
that gets considered in the equation. And I suspect
we'll do that somewhat clumsily, but we want to do it
in a say it's not a "deal killer" and [doesn't
inhibit] the process of getting the ... project going
forward and being very economic.
MR. KONRAD responded:
We, as a group, have heard loud and clear Alaska's
desire for access to gas. And as we look at both
routes, we're looking at ways we can achieve that, ...
be it a northern route or be it a southern route. So,
I think we have taken the issue onboard. I can't say
we have every answer. But it's quite definitely going
to be part of our work program to be able to address
those things ... with Alaska and with other
communities in Canada.
Number 1472
REPRESENTATIVE FATE pointed out that the [written] presentation
talks about a prize and creating a highly efficient and
expandable transportation system, and talks about the things
required, such as engineering and environmental assessment, to
support a permit application process. He stated his
understanding that there is already a system in place - ANGTS -
that designates not only the route; he indicated the federal
Alaska Natural Gas Transportation Act [of 1976] (ANGTA) involved
international treaties and addresses FERC certification and
permitting on what is basically the TAPS route.
REPRESENTATIVE FATE asked whether the northern route has the
same degree of permitting, or whether [the group] would have to
start from scratch there. Noting that the three companies may
not have the permits [for the southern route], he said somebody
does, and suggested the group would be in negotiations or
discussions with those people. He asked whether it wouldn't be
much more costly, therefore, to even anticipate starting from
zero on the northern route.
Number 1352
MR. KONRAD answered:
In terms of engineering, we are redesigning the entire
system. So all the work we're doing this year, in
terms of designing a new system for either route,
would need to be part of that application. So whether
it's done under ... the existing ANGTA process or if
it's done under the natural gas Act, all the data and
engineering and environmental work we're doing would
need to be ... part of that.
Once we design the best system we can and design the
optimal project, then we'll be looking at the best
process to do that, and see whether it's best to
modify the historic agreements or ... take another
path. [All] we want is the best project, and then, as
we go through the year, we'll determine the best
process.
Number 1295
MR. SCHILHAB added:
I think you're correct in what you have stated. ...
There were permits back in 1977 that were approved,
and those exist today. ... Also, ... there wasn't a
pipeline built back then because it wasn't economic.
What we're about, really, is to determine if now
things have changed enough ... to have an economic
project. So we are looking and we're exploring the
prize that you mentioned in the words there at the
beginning: ... Where is ... an economic project? How
is the best way we can find the lowest-cost, most
efficient project, so that we can have a pipeline
project ....
Once we get in and do the engineering that [Mr.
Konrad's] talking about, then we'll look at what's ...
the right permitting process. It may be that there is
a very streamlined process that's already in place
that we can utilize, but we have to utilize that if
that's an economic project. ... Our first order of
business is to determine if we have an economic
project. As we're going through that, we're looking
at several options to ... determine which one is the
most economic.
Number 1203
REPRESENTATIVE JOULE inquired about support by the Northwest
Territories and the Yukon Territory and whether that support is
from the governments and includes all of the First Nations
people.
MR. MARUSHACK replied:
First of all, the information we have generally - and
perhaps the provinces are better to speak on this -
... is that the southern route is generally favored by
the Yukon Territory; the northern route is generally
favored by the Northwest Territories. And [in] the
Northwest Territories ... is an organization ... that
is actively promoting and wants to be involved in the
process to bring that pipeline down through ... the
north, through the First Nations; ... it would go
across their land. We would have to negotiate across
First Nations land, so they would be very much
involved in the process, as would happen [with] First
Nations in the Yukon area, also, on the [southern
route].
Number 1110
REPRESENTATIVE JOULE asked whether any of the First Nations
groups oppose having the pipeline go over the northern route.
MR. MARUSHACK answered, "I personally do not know that there
are." He asked whether others of the group knew.
MR. KONRAD, in answer to Representative Joule's question, said:
Not to my knowledge. The First Nations have all said
... in the Northwest Territories that they are quite
interested in the project. The First Nations along
the southern route are perhaps at this point in time,
because they have land claims issues that haven't been
fully settled, ... are a little bit more ambivalent or
sitting back, waiting, whereas the northern are very
proactive.
MR. SCHILHAB added:
We have made some high-level contacts in the Northwest
Territories and Yukon Territory. We have not yet gone
out and sat down with ... all the aboriginal groups,
the First Nation groups, to understand their needs and
their desires. ... We talked about the external
affairs group, the groups that we've got; that's part
of the work scope ... that we'll be doing soon, is
making those contacts [to determine] their needs and
their desires.
REPRESENTATIVE DYSON suggested perhaps the people listening in
from the Yukon Territory might have something to say about it.
CHAIR OGAN mentioned that they could be scheduled for a hearing
in order to bring those issues up.
Number 0973
CHAIR OGAN offered a handout containing sections of the state
constitution, with Article VIII, Sections 1 and 2, highlighted
on the first page; he read those sections. He said it is not
the responsibility of the executive branch to manage the
resources, but rather to carry out the policy set by the
legislature. He pointed out that the organizational chart
presented at the Senate hearing hadn't included the legislature.
He expressed hope that the legislature would be considered part
of the organization for these deliberations.
CHAIR OGAN referred to Mr. Konrad's comment that the producers
have the same interest as the state. He said he didn't want to
minimize the fiduciary responsibility to a company's
stockholders, which is a completely appropriate relationship,
but said the legislature has a fiduciary responsibility to the
"stockholders" as well. He suggested the common denominator is
the desire to commercial the gas.
CHAIR OGAN mentioned a question the previous day about whether
any internal conflicts may prevent or inhibit development of the
gas. Mr. Marushack had answered that to his satisfaction,
saying Phillips doesn't have any because Phillips has been in
the LNG business for a long time. However, Chair Ogan said, he
hadn't heard anything from either Mr. Konrad or Mr. Schilhab
that satisfied that question for him. He said to Mr. Konrad:
Sir John Brown recently announced an additional
capital commitment to the Irian Jaya project ...,
approximately $2 billion. What's BP's rationale in
supporting a capital expenditure to commercial natural
gas reserves in a foreign country, rather than ANS
gas?
Number 0738
MR. KONRAD answered, "We're commercializing oil and gas all over
the world. That project ... is in no conflict at all with what
... we're talking to you here today about."
CHAIR OGAN said he differs with the statement that the producers
and the state have the same interest. He said a number of
people in the state have an interest in looking at other
markets. He noted that LNG is being shipped to the East Coast
now.
MR. KONRAD said there are four [facilities] built - one is
operating and the other three are in various stages of being
mothballed or coming online.
CHAIR OGAN said it the East Coast isn't having the same energy
crisis as that on the West Coast. He suggested the state might
have an interest in piggybacking an LNG project on to this
pipeline coming south. He said there is a conflict in his mind.
MR. KONRAD replied that if LNG adds to the value and gives a
higher wellhead price on the North Slope, "we're going to be
1000 percent behind it." He explained:
Good projects get funded in BP, and ... if you find a
good project in BP that's not getting funded, you
could talk to John Brown and he'll probably fire the
guy that's responsible for that, because we're a big
company, we're growing, and we've said quite clearly
our aspiration is growth. At this point in time,
we're funding ... aggressively, and good projects get
funded, period.
Number 0583
CHAIR OGAN stated his understanding that the Alaska [Gasline
Port] Authority (AGPA) had offered in writing to purchase ANS
natural gas from BP, but that [BP] hadn't accepted that offer or
made counteroffers. He asked Mr. Konrad about it.
MR. KONRAD replied that the AGPA didn't make formal offers, but
had put forward "some notional thoughts which are, in our mind,
no way, shape, or form nearly competitive with the project we're
talking to you about today." He added, "They're still maturing
their project, just as ... we're still maturing our efforts
around LNG through the gas sponsor group. So we're certainly
leaving no rock unturned; we're looking at all the options."
CHAIR OGAN asked whether Indonesian law penalizes or jeopardizes
a concessionaire for delays in bringing natural gas reserves
into production.
MR. KONRAD answered that he isn't familiar with the specifics
regarding Indonesian law, although he is familiar with a number
of projects that "folks are trying to progress there."
CHAIR OGAN asked that Mr. Konrad get back with him regarding
that, indicating he'd have further questions. He then asked
whether BP is looking at a GTL project on the Kenai Peninsula.
MR. KONRAD answered yes, specifying that BP is building a
demonstrating in Nikiski "to demonstrate what we think is a
breakthrough in terms of gas-to-liquids technology." He added:
My business is responsible for ... constructing that
plant and making it ... work, to demonstrate the
technology; and parallel with that, ... as we're also
looking at LNG, ... we're looking at the possibility
of a commercial-scale operation on the North Slope
that currently does not appear to be competitive with
the project we're talking to you about today. And
we're also supporting ... BP's global activity around
gas-to-liquids. We're kind of a center of expertise
around gas-to-liquids, and we're supporting our other
businesses around the world for them looking at
commercial-scale opportunities as well. So ... rather
than exporting natural resources, we're actually
exporting brainpower from Alaska, which is [an]
interesting twist.
Number 0333
CHAIR OGAN referred to previous committee meetings, noting
discussion about Cook Inlet gas supplies, with estimates ranging
from 7 to 9 years, from various people, or up to 12 years, from
the DNR [Department of Natural Resources]. He said it is on
record that 98 percent of the gas found in Cook Inlet was during
the 1960s. Chair Ogan explained that he is looking at BP's
rationale for a GTL plant in the Kenai area, given the limited
known gas supplies. He surmised BP would keep its plant going
once it is operating, since it would cost $100 million.
MR. KONRAD answered that the GTL unit in Nikiski is a
demonstration unit, not a commercial unit. It will consume
about 3 million cubic feet a day, a relatively small volume, for
"X" number of years. He added:
We don't see that ... as a permanent operation; it's
there to demonstrate the technology and to further
refine the technology, and then apply that technology
for an actual commercial plant either on the North
Slope or anywhere else around the world where we have
... major stranded gas assets.
CHAIR OGAN asked whether there is a gas balancing agreement
among the major players on the North Slope.
MR. KONRAD answered:
We don't at this point in time. Gas balancing
agreements are quite conventional in basically every
gas field ... in the U.S. or in North America. Once
we have a project kind of scoped out and we know
exactly what the attributes of that project [are],
then all the owners in the major units on the North
Slope will be putting those agreements in place,
[when] we understanding the scope.
I would say that in terms of minor gas sales, there
[have] been minor gas sales out of all the fields,
including Prudhoe Bay, over time, and we've been able
to do that ... in a quite straightforward fashion.
For instance, right now ... BP is taking gas from
Prudhoe Bay to use in the Northstar enhanced oil
recovery project, to allow higher recoveries at
Northstar.
So those will be put in place once we ... have a real
project that's defined and we understand what ...
specific needs for those agreements will be necessary.
Number 0068
CHAIR OGAN asked whether the lack of a gas balancing agreement
gives one producer veto power over the other two.
MR. KONRAD answered:
Well, we're all here together today. ... Gas balancing
agreements are quite routine, and once we have a
project that we're agreed on, I think we'll have a gas
balancing agreement in place. That's standard
industry practice.
MR. KONRAD, in reply to Chair Ogan's reiteration of the
question, stated, "No. As I said earlier, there [are]
individual producers taking gas out of Prudhoe Bay today, BP
being one of them."
TAPE 01-13, SIDE A
Number 0001
CHAIR OGAN posed a scenario in which two producers want to use
the southern route [and one wants the northern route], but there
is no gas balancing agreement. He asked whether that allows de
facto veto power through refusing to sign the agreement, which
he understood to be necessary in order to have a project.
MR. SCHILHAB replied:
It would be good business to have a gas balancing
agreement once we had a major gas sale coming off the
North Slope. And as [Mr. Konrad] mentioned, we all
have gas sales right now to Deadhorse or various small
gas sales that are going on today, ... and we don't
have a gas balance agreement but we maintain a
balance. ... And at some point in time ... we would
balance that.
Now, I'm not able to answer your question
specifically, because I don't know from the Prudhoe
Bay operating agreement or the unit agreement whether
... not having a gas balancing agreement ... would
enable one to block a major gas sale over the other.
MR. SCHILHAB added that once [the group] sees a project that
would be viable, a gas balancing agreement is just one more of
the thousand tasks to do, as part of the work scope.
Number 0197
CHAIR OGAN stated:
Let's talk hypothetically. Your board of directors is
... adamant about developing Mackenzie gas; these guys
see things a little bit differently. I mean, you have
to have an agreement to be able to pipe the gas down
the pipeline and have this project. ... I'm not really
hearing an answer. It seems to me that if you don't
have an agreement, then ... it gives one of you a
hammer over the other two, ... whoever's interests
those are. And although I appreciate you're all
working together on this and that the companies all
come together, ... there are conflicting interests,
even within your group. ... You've got gas at
Mackenzie; they don't.
MR. SCHILHAB replied that he doesn't see that as any kind of
conflict "within what we're doing." He added, "What we're about
is to look, to see how we can get a project that's economic to
get North Slope gas to the marketplace." In response to a
further suggestion by Chair Ogan that there is a conflict on
route selection, Mr. Schilhab said:
Well, no. ... If we have a stand-alone project off of
Prudhoe Bay, then that would be a project that would
stand on its own merit. Mackenzie valley is looking
at a ... comparable gas pipeline project, but that's
going to stand on its own merit. ...
If we get into a [situation] where we, together, find
that we have an economic project or a project that's
viable, then I think it's only good business and it
makes good sense and we're going to be required ... by
you and others to look at the synergies, to see if
there's any improvement that we can do ... to enhance
that project.
Number 0364
CHAIR OGAN responded that by lack of a direct answer to his
question, he would assume, until shown otherwise, that lack of a
gas balancing agreement basically gives one of the producers
veto power over the others.
MR. SCHILHAB apologized, saying he is sure it is probably
addressed by the gas balancing agreement, but he is not up to
speed on that aspect.
Number 0415
REPRESENTATIVE McGUIRE referred to mention that the group is in
the process of selecting qualified contractors. She asked what
percentage of those selected thus far in the ten distinct areas
are Alaskan companies,
AN UNIDENTIFIED SPEAKER answered that they hadn't selected any
companies yet. He offered to provide more information the next
time [the group] was before the committee. He added, "Clearly,
the Alaskan companies have responded to our bids."
Number 0497
CHAIR OGAN said ExxonMobil has made substantial capital
commitments in LNG projects in Yemen, Qatar, Natuna, and
Sakhalin; he surmised that the company would target the Asian
market there. He requested the company's rationale in
supporting these expenditures to commercialize gas reserves in
foreign countries, rather than commercializing LNG in Alaska.
MR. SCHILHAB responded that individual projects are based on
their own merit, looking at how to get that gas to the
marketplace in an economic manner. The rationale for developing
any project is that if there is an economic project, a company
will fund it and take it forward; if the company can get
permits, it will do the project. Noting that his own
responsibility is to develop Alaska gas, he commented, "We do it
through GTL, LNG, gas pipelines. ... We've gone as far as to
look at putting in blimps, putting it in submarines, going
around the west side; ... I think we've explained a lot of those
things to you in the past."
Number 0680
CHAIR OGAN asked all three presenters whether [Governor Knowles]
or his designees had consulted or collaborated with any of them
prior to making his own announcement about his preference for
the [Alaska Highway] route.
MR. SCHILHAB answered, "The governor and some of his staff did
visit with our company, and ... came by and talked and let us
know what his opinion [is], and we gave him our opinions."
MR. MARUSHACK said, "We have conversations with the governor
fairly often about this and other subjects."
MR. KONRAD said, "Same with BP."
Number 0759
CHAIR OGAN thanked the presenters. Noting that he had a list of
questions that he would provide in the next day or two, he
requested that the presenters answer those in writing and then
come back before the committee, possibly on February 22.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Oil and Gas meeting was adjourned at 11:52
a.m.
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