Legislature(2005 - 2006)CAPITOL 124

02/15/2005 05:00 PM House OIL & GAS


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05:10:33 PM Start
05:11:17 PM SJR5
05:52:02 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SJR 5 REAUTHORIZE METHANE HYDRATE RESEARCH ACT TELECONFERENCED
Moved HCS SJR 5(O&G) Out of Committee
Bills Previously Heard/Scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                                                                           
                       February 15, 2005                                                                                        
                           5:10 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Vic Kohring, Chair                                                                                               
Representative Ralph Samuels, Vice Chair                                                                                        
Representative Nancy Dahlstrom                                                                                                  
Representative Norman Rokeberg                                                                                                  
Representative Berta Gardner                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Lesil McGuire                                                                                                    
Representative Beth Kerttula                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE JOINT RESOLUTION NO. 5                                                                                                   
Urging the United States Congress to reauthorize the Methane                                                                    
Hydrate Research and Development Act.                                                                                           
                                                                                                                                
     - MOVED HCS SJR 5(O&G) OUT OF COMMITTEE                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record.                                                                                                   
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
JOE BALASH, Staff                                                                                                               
to Senator Gene Therriault                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Presented SJR 5 on behalf of Senator                                                                        
Therriault, bill sponsor.                                                                                                       
                                                                                                                                
MARK MYERS, Director                                                                                                            
Division of Oil and Gas                                                                                                         
Alaska Department of Natural Resources                                                                                          
POSITION STATEMENT: Testified in support HB 71 and answered                                                                     
questions regarding gas hydrate research.                                                                                       
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR VIC KOHRING  called the House Special Committee  on Oil and                                                             
Gas meeting to  order at 5:10:33 PM.   Representatives Dahlstrom,                                                             
Gardner, Kohring, Rokeberg, and Samuels  were present at the call                                                               
to order.                                                                                                                       
                                                                                                                                
SJR 5 - REAUTHORIZE METHANE HYDRATE RESEARCH ACT                                                                              
                                                                                                                                
5:11:17 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING announced that the  only order of business would be                                                               
SENATE  JOINT  RESOLUTION  NO.   5,  "Urging  the  United  States                                                               
Congress  to   reauthorize  the  Methane  Hydrate   Research  and                                                               
Development Act."                                                                                                               
                                                                                                                                
JOE  BALASH,  Staff  to Senator  Gene  Therriault,  Alaska  State                                                               
Legislature, testified  on behalf of Senator  Therriault, sponsor                                                               
of  SJR 5.    He explained  that the  resolution  urges the  U.S.                                                               
Congress  to   reauthorize  the  Methane  Hydrate   Research  and                                                               
Development  Act  for  another  five years,  and  also  asks  for                                                               
appropriations of $70  million over that time period.   He stated                                                               
that the  potential additional  reserves present  in the  form of                                                               
gas  hydrates is  important to  the [gas]  pipeline project.   He                                                               
said, "The  sizing of the pipe,  access pointes into the  pipe as                                                               
well  as out  of the  pipe, financing  costs, and  ultimately the                                                               
tariffs could all be positively  impacted by the determination of                                                               
the commercial  viability of additional  reserves in the  form of                                                               
these gas hydrates up on the [North Slope]."                                                                                    
                                                                                                                                
5:12:32 PM                                                                                                                    
                                                                                                                                
MR. BALASH presented a simple description of gas hydrates:                                                                      
                                                                                                                                
     Methane  that's  captured in  an  ice  lattice that  is                                                                    
     present  in cold  areas, or  areas ...  that are  under                                                                    
     tremendous  pressure.   And once  freed  from that  ice                                                                    
     lattice,  [the molecules]  expand  to  180 times  their                                                                    
     size, in  their crystallized form. ...  The industry is                                                                    
     well  aware of  the  presence of  the  hydrates on  the                                                                    
     slope; we know  they exist.  Whether or not  we can put                                                                    
     them into  commercial production  or not is  what needs                                                                    
     to  be researched;  that's  what  the original  Methane                                                                    
     Hydrate  Research Development  Act  of  2000 sought  to                                                                    
     find.    There's  a  lot  of  work  that's  been  done,                                                                    
     particularly  in  the  lab,   in  computer  models  and                                                                    
     simulations that are now ready  to be taken to the next                                                                    
     step: field-testing and hopefully a pilot project.                                                                         
                                                                                                                                
5:13:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DAHLSTROM asked if  [methane hydrate] is the thing                                                               
that she has heard referred to as the "popsicle".                                                                               
                                                                                                                                
MR. BALASH  had not heard  of this term.   He clarified  that his                                                               
understanding is  that in the  North Slope reservoirs,  the crude                                                               
oil is at the  bottom, and above that is the gas  cap.  Above the                                                               
gas cap is where the hydrates  exist, close to the permafrost, he                                                               
explained.   He  said  that  when companies  drill  on the  North                                                               
Slope,  they have  encountered hydrates  and  have developed  the                                                               
techniques of  putting in  casings right away  to make  sure that                                                               
they don't experience any technical hazards such as blowouts.                                                                   
                                                                                                                                
5:15:32 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING asked if this resolution  is the first one that the                                                               
State of  Alaska has sent to  Congress to urge them  to authorize                                                               
something  of this  nature.   He  asked, "Did  we not  do one  in                                                               
2000?"                                                                                                                          
                                                                                                                                
MR. BALASH answered that he is not familiar with one.                                                                           
                                                                                                                                
5:16:12 PM                                                                                                                    
                                                                                                                                
CHAIR  KOHRING commented  that research  was  conducted for  five                                                               
years as  a result  of the  original authorization  in 2000.   He                                                               
asked what the research results were.                                                                                           
                                                                                                                                
MR. BALASH pointed out that in  the committee packet, there was a                                                               
letter  from  Tim  Collett, U.S.  Geological  Survey,  to  Bonnie                                                               
Robson,  Consultant to  Legislative Budget  and Audit  Committee.                                                               
The letter  provided an update  on the gas hydrate  research that                                                               
had been  conducted on the North  Slope and in the  Arctic areas.                                                               
He  said,  "They've  developed some  techniques  for  looking  at                                                               
seismic data  to come up with  estimates on how much  gas hydrate                                                               
is  present in  ...  both  the onshore  portion  as  well as  the                                                               
offshore portion  of the North  Slope and the area  around there.                                                               
And they've done  a little bit to try and  define the locations a                                                               
little bit better."                                                                                                             
                                                                                                                                
MR.  BALASH, in  response to  Chair Kohring,  responded that  the                                                               
original authorization  was substantially less than  $70 million;                                                               
he  guessed that  it was  $50 million.   He  said that  a lot  of                                                               
modeling has  been done on ways  to release the methane  from the                                                               
hydrate form to  the gaseous state.  He commented  that there are                                                               
"hundreds if not  tens of thousands of tcf  [trillion cubic feet]                                                               
of this gas hydrate present on the  slope, but how much of it can                                                               
be  recovered [is]  obviously  an open  question  at this  point.                                                               
They can't  prove that any of  it is, but they  suspect that very                                                               
much of it is [recoverable]."                                                                                                   
                                                                                                                                
5:20:07 PM                                                                                                                    
                                                                                                                                
MR.  BALASH stated  that there  is an  estimated 590  tcf of  gas                                                               
hydrates onshore in  the Arctic Slope region.   In comparison, he                                                               
remarked  that the  proposed gas  pipeline  project is  dependent                                                               
upon 35 tcf of known reserves  on the North Slope, in the Prudhoe                                                               
Bay and Point  Thompson units.  Within the stability  zone of the                                                               
Beaufort  Sea and  the Chukchi  Sea, he  commented, the  offshore                                                               
reserves  are estimated  at  32,000  tcf.   He  said, "We're  not                                                               
talking   about  a   pipeline   anymore;   we're  talking   about                                                               
pipelines."                                                                                                                     
                                                                                                                                
CHAIR  KOHRING  noted  that Representative  Samuels  traveled  to                                                               
Congress  recently to  testify before  the  U.S. Senate's  Energy                                                               
Committee, asking that this act be reauthorized.                                                                                
                                                                                                                                
5:21:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SAMUELS stated:                                                                                                  
                                                                                                                                
     There's interest  not just from Alaska,  but because of                                                                    
     the formation  of the  hydrates, there's  also interest                                                                    
     in the Gulf  of Mexico.  One of the  prime sponsors was                                                                    
     Senator  Daniel Akaka  from  Hawaii, actually,  because                                                                    
     there's thinking  that there might be  potential there.                                                                    
     And  I believe  ... most  of the  work that  [has] been                                                                    
     done  until  now  has  been  mostly  academic  and  ...                                                                    
     modeling, and from  here on out, you would  like to get                                                                    
     into the  field and  see what we  can actually  do. ...                                                                    
     When  we  went  to  Washington [D.C.]  to  try  to  get                                                                    
     support for this research ...,  the point wasn't to get                                                                    
     money to  be spent within  the state, like  we normally                                                                    
     get  for things.   We  just wanted  the research  to be                                                                    
     done because we  know how many hydrates we've  got.  It                                                                    
     just so happens that we  probably also have the easiest                                                                    
     place  to do  the research,  so it's  a bit  of a  side                                                                    
     benefit.   Because of the  massive amounts  of [methane                                                                    
     hydrates]  we have  up there,  I  think it's  obviously                                                                    
     important for  the state, but  it's also  important for                                                                    
     the country.                                                                                                               
                                                                                                                                
5:23:45 PM                                                                                                                    
                                                                                                                                
MARK MYERS, Director, Division of  Oil and Gas, Alaska Department                                                               
of  Natural  Resources  (DNR),  in  response  to  Chair  Kohring,                                                               
replied  that  he  thinks the  legislature  should  support  this                                                               
resolution.  He said:                                                                                                           
                                                                                                                                
     What's important here is to  ... put it in perspective,                                                                    
     to go  back and  look at  the original  methane hydrate                                                                    
     act of  2000.  It  was a five-year  authorization [for]                                                                    
     ... $45.7 million.   And the primary goal  there was to                                                                    
     understand the hydrates and ...  get the hydrates up to                                                                    
     the  point that  we  would  understand their  potential                                                                    
     commerciality,  but  it  basically fell  short  of  the                                                                    
     operational  testing of  the hydrates.   The  money was                                                                    
     spent  not only  in Alaska  but [also]  in other  areas                                                                    
     like  the Gulf  of Mexico.   In  Alaska there  were two                                                                    
     major  efforts  undergone,  ... sponsored  through  DOE                                                                    
     [Department   of   Energy],   and   they   were   joint                                                                    
     industry/government type proposals.   One had [Anadarko                                                                    
     Petroleum Corporation]  and {Maurer  Technology, Inc.];                                                                    
     ...  they  drilled south  of  Kuparuk,  off the  arctic                                                                    
     platform.  So  it not only drilled for  hydrates but it                                                                    
     also tested out the technology of the arctic platform.                                                                     
                                                                                                                                
5:24:41 PM                                                                                                                    
                                                                                                                                
MR. MYERS continued:                                                                                                            
                                                                                                                                
     The  second  proposal  was  primarily  [BP  Exploration                                                                    
     (Alaska) Inc.]  with Arctic  Slope Energy  Services ...                                                                    
     with the  USGS [U.S.  Geological Survey] also  ..., and                                                                    
     they looked at  the hydrate potential where  we knew it                                                                    
     existed in the Milne Point  field area.  And there they                                                                    
     actually very  carefully modeled the hydrates  based on                                                                    
     the 3-D seismic that was  available to them through BP,                                                                    
     particularly shallow parts of the  survey.  So they had                                                                    
     high quality seismic  data in which they  could map out                                                                    
     the actual  physical locations of  the hydrates.   That                                                                    
     was  combined with  well penetrations  so you  actually                                                                    
     had penetrations  through the hydrates to  quantify the                                                                    
     ... seismic attributes.  And  what they found using the                                                                    
     3-D  seismic wasn't  a surprise  to  folks in  industry                                                                    
     because we've  had to map  hydrates for years  to worry                                                                    
     about them as  a geohazard as you  drilled through them                                                                    
     [so] that  you didn't  have an uncontrolled  release of                                                                    
     the gas.  So one of the  things you had to prove to the                                                                    
     Oil and  Gas Conservation Commission [was]  that ... if                                                                    
     they  were likely  to be  present  ... what  mitigation                                                                    
     measures  you   would  take.    And   as  [Mr.  Balash]                                                                    
     mentioned,  you  generally  case  off  the  wells,  the                                                                    
     hydrate zones, the active gas  zones to prevent the gas                                                                    
     from flowing  into the well  bore when  you're drilling                                                                    
     for a  deeper oil  horizon.   So we  have lots  of well                                                                    
     penetrations  in the  Milne  Point  field, Prudhoe  Bay                                                                    
     field, [and]  Kuparuk field, where  we knew  there [was                                                                    
     a] presence  of hydrates.   The 3-D seismic  allowed us                                                                    
     to  calibrate  the  actual  physical  location  of  the                                                                    
     hydrates  by  not  only just  locating  the  structural                                                                    
     elements  [and]  controlling  their  distribution,  but                                                                    
     also actually mapping out  the particular attributes of                                                                    
     the  hydrates.   As  important  is  the free  gas  that                                                                    
     exists underneath the hydrates.                                                                                            
                                                                                                                                
5:26:07 PM                                                                                                                    
                                                                                                                                
MR. MYERS continued:                                                                                                            
                                                                                                                                
     The DOE money  in Alaska was spent  on detailed mapping                                                                    
     of  the   hydrates  [using]  3-D  seismic,   a  lot  of                                                                    
     sophisticated modeling  of that.   And then  using well                                                                    
     data  to  recalibrate and  look  at  the reservoir  the                                                                    
     hydrates existed in.  Then  they went to the next step,                                                                    
     and  that was  detailed  reservoir  simulations.   They                                                                    
     took very  complex computer  models, inputted  all this                                                                    
     data, and looked  at what a typical test  rate would be                                                                    
     from  the  hydrates.   And  particularly  in the  areas                                                                    
     where they had  the ... free gas  underneath the frozen                                                                    
     hydrate, ...  they got very  positive results  from the                                                                    
     modeling: up  to 50  million cubic  feet [mcf]  per day                                                                    
     out of  wells, sustained  rates ...  above five  to ten                                                                    
     million a day out of a  single well.  And high recovery                                                                    
     rates:  60 percent  of the  hydrates  in an  individual                                                                    
     fault block recovered.  So  the modeling suggested very                                                                    
     economic rates  of flow and  huge volumes  of recovery.                                                                    
     ... The  modeling showed about 100  trillion cubic feet                                                                    
     of  hydrate  in  place  just  underneath  our  existing                                                                    
     infrastructure alone,  [and] ...  potentially up  to 60                                                                    
     trillion  cubic feet  of  additional  gas reserves,  in                                                                    
     addition to the 24 tcf  in the conventional Prudhoe Bay                                                                    
     reservoir, could  be present and could  be commercially                                                                    
     produced.  Now that  was incredibly encouraging because                                                                    
     that means  we have a  30 plus  year of gas  supply for                                                                    
     the  pipeline, assuming  it's commercial.   And  that's                                                                    
     sort of where the studies ended in Alaska.                                                                                 
                                                                                                                                
5:27:45 PM                                                                                                                    
                                                                                                                                
MR. MYERS continued:                                                                                                            
                                                                                                                                
     Additional  work  was  also done  in  the  area  around                                                                    
     Barrow,  where  we have  the  Walakpa  gas fields,  and                                                                    
     [there are]  indications that hydrates exist  there, so                                                                    
     hydrates also are probably used  now, and probably will                                                                    
     be in the future a  source of local gas for communities                                                                    
     like Barrow.   So we had a real interest  in some study                                                                    
     done by BLM  [Bureau of Land Management]  and others in                                                                    
     the area  of the Walakpa  gas field there  near Barrow.                                                                    
     ... A combination of those  two places is sort of where                                                                    
     the  research  in  Alaska  ended  here  in  year  five.                                                                    
     Additional work  was done in  the Gulf of  Mexico [and]                                                                    
     USGS did  work in  the Mackenzie delta.  ... We  got to                                                                    
     the tantalizing  opinion by the experts  ... that we're                                                                    
     looking at  something that  could be  highly commercial                                                                    
     and  significant  in  all aspects  with  respect  to  a                                                                    
     commercial gas line.  But  we never actually tested it.                                                                    
     So  we have  the geologists  and the  geophysicists and                                                                    
     the  computer modeling  saying it  should work,  but we                                                                    
     never got  the holes drilled  and the actual  long term                                                                    
     production testing.   So the "prove it"  stage is where                                                                    
     we're at  now, and  that's actually the  more expensive                                                                    
     stage  when  you  think  about   [it].  ...  Doing  the                                                                    
     analysis is  one thing;  physically drilling  the wells                                                                    
     and long term  testing the wells is  the more expensive                                                                    
     part of  it. ... This  next five years was  designed at                                                                    
     $70 million over  the five-year period [to  be for] ...                                                                    
     hard-core testing.   [We're] assuming an  operator from                                                                    
     the fields like  BP or someone else  ... would actually                                                                    
     drill the wells  and actually do the  testing, and then                                                                    
     would  be paid  for  it out  of the  grant  to get  the                                                                    
     research results.  And then  there would be government-                                                                    
     supported  work, University  of Alaska-supported  work,                                                                    
     and some DNR-supported work along  that same line.  But                                                                    
     the goal again is this  long term, hard-core testing to                                                                    
     verify the models, which again  is critical to actually                                                                    
     prove  that  the  models  are   right  and  that  these                                                                    
     reserves could be commercialized  ... in the time frame                                                                    
     that we would hope they could  be to add value to a gas                                                                    
     line project.                                                                                                              
                                                                                                                                
5:29:36 PM                                                                                                                    
                                                                                                                                
MR. MYERS continued:                                                                                                            
                                                                                                                                
     We looked  at ... multiple  types of tests.   The first                                                                    
     test is a  relatively simple test where ...  you have a                                                                    
     free gas  [lake] underneath the  hydrates and  you just                                                                    
     produce the free gas, lowering  the pressure.  Hydrates                                                                    
     form  under  certain pressure/temperature  regimes;  as                                                                    
     you increase temperature or  lower pressure, either one                                                                    
     will bring the hydrates out  of solution.  So the first                                                                    
     type of testing would  be an actual depressurizing [of]                                                                    
     the  hydrates  using  conventional or  horizontal  well                                                                    
     technology,  pretty ...  common technology  used today.                                                                    
     And then we  would have a long-term test to  see if you                                                                    
     could sustain the  rates that the model  suggests.  The                                                                    
     next would  be tests where  you didn't have a  free gas                                                                    
     [lake],  where  you'd  have  to  use  a  different  ...                                                                    
     mechanism to get the hydrates out.                                                                                         
                                                                                                                                
MR. MYERS continued:                                                                                                            
                                                                                                                                
     There are  two other mechanisms  proposed.  One  is you                                                                    
     actually   heat  the   reservoir.     By  heating   the                                                                    
     reservoir,      again      you've      changed      the                                                                    
     pressure/temperature regime [and]  hydrates come out of                                                                    
     solution.   And that  happens naturally when  you drill                                                                    
     an oil  well through the  zone.  [The drilling  bit] is                                                                    
     hot  on the  surrounding permafrost  and sediment,  and                                                                    
     what  happens   then  is  some  of   the  hydrates  get                                                                    
     released.   And  that's why  again you  put the  casing                                                                    
     around to  cool the  zone and  prevent it  from flowing                                                                    
     into the well  bore. ... You could  circulate glycol or                                                                    
     some other  mechanism.  Thermal methods  for recovering                                                                    
     hydrates  need to  be tested  [and] demonstrated  [for]                                                                    
     long-term  commercial  viability.    The  third  method                                                                    
     that's been  suggested is  a chemical  replacement. ...                                                                    
     Carbon  dioxide [CO2]  could  in  fact replace  methane                                                                    
     molecules one for  one in the crystalline  lattice.  So                                                                    
     you've got a lot with the  gas line and major gas sale.                                                                    
     You've  got a  lot  of  CO2 at  Prudhoe  Bay; about  12                                                                    
     percent of  the gas is  CO2.   You could take  that CO2                                                                    
     and sequester  it in  the hydrate  matrix and  pull out                                                                    
     methane.   Now  in a  lab that  works fairly  well, but                                                                    
     again we haven't actually tested  in the well bore.  So                                                                    
     the $70 million  over the long term would  be [used] to                                                                    
     do all  three types  of long  term testing,  ... [which                                                                    
     is]   more  expensive   than  just   doing  theoretical                                                                    
     modeling or geophysical modeling.                                                                                          
                                                                                                                                
5:31:33 PM                                                                                                                    
                                                                                                                                
MR. MYERS continued:                                                                                                            
                                                                                                                                
     Additional  work  would  be done  in  areas  like  NPRA                                                                    
     [National  Petroleum  Reserve,  Alaska],  where  Native                                                                    
     communities ... or village  communities could be served                                                                    
     by this  as a local energy  source.  And in  the longer                                                                    
     aspect,  maybe some  commerciality  [would develop]  in                                                                    
     NPRA or other  areas where we know  hydrates exist. ...                                                                    
     The  numbers onshore  on the  hydrates  that have  been                                                                    
     mapped to date ... are over  500 tcf.  So [it's a] huge                                                                    
     potential  resource that  could  ultimately deliver  to                                                                    
     the United States  a lot more energy than  we have even                                                                    
     in all  of our conventional  reserves combined.  ... So                                                                    
     $70  million  to demonstrate  and  prove  that the  gas                                                                    
     hydrates are viable  in Alaska is huge  leverage to the                                                                    
     country in terms of our gas  supply.  And that's why we                                                                    
     think  it's  appropriate  again  that  the  Senate  and                                                                    
     Congress fund this proposal.                                                                                               
                                                                                                                                
5:32:30 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING asked how the  estimated gas potential on the North                                                               
Slope relates to the current consumption in the U.S.                                                                            
                                                                                                                                
MR. MYERS replied that [by the  time the gas pipeline is proposed                                                               
to  be in  operation]  the  U.S. consumption  is  expected to  be                                                               
between 70-85  tcf/year.  Currently  he said that it's  around 60                                                               
tcf/year.                                                                                                                       
                                                                                                                                
5:33:58 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING commented  that the oil and gas  industry stands to                                                               
benefit from this  and wondered why the industry  doesn't pay for                                                               
this.   He  remarked  that he  would like  to  see more  industry                                                               
involvement and  have them pay  for part  of this since  they are                                                               
going to benefit from this as well.                                                                                             
                                                                                                                                
MR. BALASH replied:                                                                                                             
                                                                                                                                
     I'm not sure ... whether  or not BP is contributing any                                                                    
     cash to  the research  project but they  certainly have                                                                    
     made  their information  available.    I think  they've                                                                    
     been   involved  in   their  3-D   seismic  technology,                                                                    
     allowing their resources  and assets to be  used in the                                                                    
     research.   ...   Generally   speaking,   ...   private                                                                    
     industry,  private capital  isn't necessarily  going to                                                                    
     go out and invest the  dollars that we're talking about                                                                    
     in this kind  of research until there's  an actual need                                                                    
     for it.  There's already  35 trillion cubic feet of gas                                                                    
     on  the North  Slope in  conventionally known  reserves                                                                    
     that they're  trying to get  to market.  There's  not a                                                                    
     market  incentive  for them  to  go  and validate  this                                                                    
     academic [data].                                                                                                           
                                                                                                                                
CHAIR KOHRING remarked,  "Maybe in the future we  could sell them                                                               
the data  too.  When they're  ready to take the  issue seriously,                                                               
we have the  data we invested $120 million in;  maybe we can sell                                                               
them some of that and recoup some of our investment."                                                                           
                                                                                                                                
5:35:42 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING asked Mr. Myers to explain the difference between                                                                 
the gas hydrates in Alaska and those in the Gulf of Mexico.                                                                     
                                                                                                                                
MR. MYERS responded:                                                                                                            
                                                                                                                                
     There's a  couple of  differences.   First of  all ours                                                                    
     are  onshore. ...  The  hydrates  form the  crystalline                                                                    
     lattice    under    a   certain    pressure/temperature                                                                    
     relationship,  and if  you have  a higher  temperature,                                                                    
     then it requires greater  pressure.  Lower temperature,                                                                    
     less pressure.  So  it's the combination of temperature                                                                    
     and  pressure  that  work  together.    So  in  Alaska,                                                                    
     because  of   our  cold  temperatures,   that  pressure                                                                    
     gradient occurs at very shallow  depths, and in fact it                                                                    
     occurs onshore in  the permafrost.  And  it occurs that                                                                    
     way in Russia  and in the Mackenzie delta  as well, for                                                                    
     example.   So  in  the  Gulf of  Mexico  ... there  are                                                                    
     hydrates  but they're  usually in  deep  water, so  the                                                                    
     economics of production  will never be as  good as they                                                                    
     are in Alaska.  The  second component is [that] ... the                                                                    
     hydrates  we  have in  the  Prudhoe  Bay area  ...  are                                                                    
     thermogenic gas,  which means  they are created  in the                                                                    
     same temperature  and pressure  that generally  oil is,                                                                    
     and  they're  driven  off  conventional  source  rocks.                                                                    
     Other types  of methane  are typically  biogenic, which                                                                    
     means they're  created by organisms that  are basically                                                                    
     digesting  material  and  they  produce  methane  as  a                                                                    
     byproduct.   So  microorganisms  will actually  produce                                                                    
     methane at  the nearest  sediment/water interface.   So                                                                    
     here  we  have  conventional gas  that's  migrating  up                                                                    
     [depth]; it's  being produced at  deeper depths  in the                                                                    
     same structures  that are basically generating  oil and                                                                    
     gas  for the  conventional oil  and gas  fields in  the                                                                    
     Prudhoe area.   And that  gas is physically  up [depth]                                                                    
     and   it   finds   these  fault   blocks   where   it's                                                                    
     structurally  trapped.   So it's  not diffuse;  it's in                                                                    
     very  thick  formations,  and it's  in  a  conventional                                                                    
     fault   block.     And   underneath  the   conventional                                                                    
     hydrates,  where  the  right temperature  and  pressure                                                                    
     exist,  is a  zone  of higher  pressure  where the  gas                                                                    
     actually exists in  slightly warmer temperatures, where                                                                    
     the exact  gas exists as in  the gaseous state.   So we                                                                    
     have this hydrate underlain by  free gas.  And at least                                                                    
     in  the  modeling,  those  are going  to  be  the  most                                                                    
     economic hydrates  because again you don't  have to use                                                                    
     exotic  technology;  you  don't  have  to  heat  it  or                                                                    
     chemically replace.  You  can simply [depressurize] the                                                                    
     hydrates,  which pressurizes  the free  gas underneath,                                                                    
     using very  standard technology, and then  the hydrates                                                                    
     will naturally come  out of solution.   Along with that                                                                    
     the  gas will  come up  by itself  and the  water won't                                                                    
     come out with it.   So you produce basically water-free                                                                    
     methane  into an  already-producing gas  zone.   So the                                                                    
     commerciality of that  is going to be  much better than                                                                    
     using the exotic technologies,  and the rates suggested                                                                    
     by the modeling are much higher.                                                                                           
                                                                                                                                
5:38:31 PM                                                                                                                    
                                                                                                                                
MR. MYERS continued:                                                                                                            
                                                                                                                                
     So we've  got a combination  then of onshore  [gas that                                                                    
     is] underneath  existing infrastructure.  When  we have                                                                    
     a gasline,  we'll have  a market for  that gas.   We'll                                                                    
     have  pipelines connecting  it up,  and  again we  have                                                                    
     this  thermogenic gas  ... that  can be  produced [via]                                                                    
     ...  conventional technology.    That gives  us a  huge                                                                    
     commercial leg up in areas  like the deep water Gulf of                                                                    
     Mexico,  where you'd  be producing  off  in very  deep-                                                                    
     water platforms.   Can it be done  commercially at some                                                                    
     point?  Sure, but the  costs of those development wells                                                                    
     is going  to be  extremely high.   We're  talking about                                                                    
     really post  hole wells ...  that will be 3000  feet at                                                                    
     depth,  or  shallower.    So  again  we  have  economic                                                                    
     advantages  ...  of  having infrastructure,  and  we're                                                                    
     onshore.  All  that, I think, leads to  Alaska [as well                                                                    
     as  places like  Siberia]  as being  the leading  areas                                                                    
     where you'll see this hydrate developed first.                                                                             
                                                                                                                                
5:39:18 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING asked  if there is a potential for  gas hydrates in                                                               
Cook Inlet, and if so,  perhaps the resolution should be modified                                                               
to encourage Congress to explore in Cook Inlet as well.                                                                         
                                                                                                                                
MR.  MYERS  reiterated  that  the   hydrates  exist  due  to  the                                                               
combination of  the temperature and  pressure.  There  are warmer                                                               
temperatures in  Cook Inlet, he  stated, and  he is not  aware of                                                               
any naturally occurring hydrates in  that area.  He remarked that                                                               
there  is a  lot of  conventional  biogenic gas  and very  little                                                               
thermogenic  gas [in  Cook  Inlet].   He  commented that  perhaps                                                               
there  are some  hydrates in  the Aleutian  Trench, but  that's a                                                               
long way from  the Cook Inlet infrastructure.  He  stated that on                                                               
the North Slope there is a  hydrate stability zone that goes down                                                               
into  the  North  Slope  foothills   and  far  offshore,  but  it                                                               
generally doesn't occur south of the Brooks Range.                                                                              
                                                                                                                                
5:41:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SAMUELS  asked  if [the  researchers]  could  use                                                               
current well sites to do some  of the research since this project                                                               
is for research purposes.                                                                                                       
                                                                                                                                
MR.  MYERS answered  that  there are  advantages  to this,  since                                                               
there are many old, closed  off wells that penetrated the hydrate                                                               
zone.  He said:                                                                                                                 
                                                                                                                                
     There's lots of  ability to use the  existing wells and                                                                    
     infrastructures,  and the  gravel  pads, for  instance,                                                                    
     are   all   laid.  ...   The   use   of  the   existing                                                                    
     infrastructure dramatically decreases  the cost and the                                                                    
     efforts, and  would allow long  term testing  and could                                                                    
     certainly  be  done  in  wells  that  ...  are  already                                                                    
     existing and are no longer  useful in the deeper depths                                                                    
     by  just  simply plugging  them  back.   And  logically                                                                    
     we'll see  some of that  work when  we get a  major gas                                                                    
     sale anyway;  there'll be modification of  oil wells to                                                                    
     gas wells....  The companies  will have  to be  able to                                                                    
     use the  gas at the  time of long-term testing  in some                                                                    
     way in the field.   So there are win-wins, particularly                                                                    
     if they're short,  as in some of the  fields like Milne                                                                    
     Point,  generally  short  of natural  gas  to  use  for                                                                    
     running in  operations. ... In  the long  term, testing                                                                    
     the gas  could actually  be used constructively  in the                                                                    
     field to  run power plants  or to  ... use as  fuel gas                                                                    
     for compressors....                                                                                                        
                                                                                                                                
5:43:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SAMUELS commented:                                                                                               
                                                                                                                                
     Other than  the potential of the  [methane] ... melting                                                                    
     into  the free  gas  as you  release  the pressure,  if                                                                    
     there is no  gas cap, there's still obviously  a lot of                                                                    
     hydrates.   That  technology would  be  pretty far  off                                                                    
     into the future. ... Even  with the research you're not                                                                    
     talking  about  the development  of  that  in the  next                                                                    
     couple of  years, but with  the cap, and  releasing the                                                                    
     pressure, you  could possibly  do some  of that  in the                                                                    
     short term.  Would that be a true statement?                                                                               
                                                                                                                                
5:43:52 PM                                                                                                                    
                                                                                                                                
MR. MYERS answered affirmatively and stated:                                                                                    
                                                                                                                                
     Using  conventional technology,  proving  out the  long                                                                    
     term  testing and  then by  lowering  the pressure,  if                                                                    
     you're  actually  getting  a  significant  contribution                                                                    
     from the  hydrates -  that would  be testable,  and you                                                                    
     can  monitor   that  pretty  accurately.     The  other                                                                    
     techniques definitely  involve putting a lot  of energy                                                                    
     into  the well  or using  chemical substitution,  [and]                                                                    
     ought to  be tested,  but logically, from  a commercial                                                                    
     standpoint, we're looking at  a North Slope gasline for                                                                    
     example, and you're trying to  monetize that gas in the                                                                    
     long  term.   You're  going  to  take, basically,  your                                                                    
     Prudhoe  Bay gas  and  some of  the  solution gas  from                                                                    
     other fields like  Milne Point ... and  you're going to                                                                    
     start producing  that gas off  first.  And then  as you                                                                    
     have  additional space  in the  line,  you're going  to                                                                    
     backfill  it, and  you're going  to  backfill it  first                                                                    
     with the most commercial, high  rate gas and then go to                                                                    
     ... the other  gas later.  At least  the modeling would                                                                    
     suggest ... [that]  the high rate's going  to come from                                                                    
     the combination of  free gas and hydrates.   So I think                                                                    
     it's incremental.   You certainly  want to test  it and                                                                    
     develop  the  technology,  because there's  a  valuable                                                                    
     resource there,  but ... the  high present  value would                                                                    
     be in that first technique.   And so we would recommend                                                                    
     the  proposed funding  would start  out  very early  on                                                                    
     with that initial test of  the pressure and then follow                                                                    
     on  with  testing the  later  technologies  in the  off                                                                    
     years, the years three, four, and five.                                                                                    
                                                                                                                                
5:45:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG asked:                                                                                                  
                                                                                                                                
     What would be the status  of a lease-hold interest that                                                                    
     would  be under  production  now that  may contain  the                                                                    
     methane hydrates,  if it would  be shut in  for pre-gas                                                                    
     or  oil  production now,  and  it  still contains  some                                                                    
     potential uses  in hydrate  development in  the future?                                                                    
     What would  be the  status of the  lease and  how would                                                                    
     that be handled by your department?                                                                                        
                                                                                                                                
MR. MYERS  replied that  as long  as the  lease is  producing and                                                               
reasonable attempts have  been made to produce  all the resource,                                                               
there's just no  conflict and the lease is held  by production of                                                               
the unit and  the unit work commitments.  He  said that DNR takes                                                               
a rational  approach on this:  if a  company is producing  oil or                                                               
conventional gas and there's no  capacity to sell that additional                                                               
hydrate resource, the  company will keep the lease.   He remarked                                                               
that  he didn't  think there  was  any jeopardy  to the  existing                                                               
leaseholder.                                                                                                                    
                                                                                                                                
5:46:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG clarified:                                                                                              
                                                                                                                                
     I'm concerned  about the situation where  we could have                                                                    
     ... a  conventional petroleum well  being shut  in, and                                                                    
     then  getting  in  the situation  you  described  where                                                                    
     there would  be a lack  of capacity  in a gas  line and                                                                    
     then  there's  even  the   technology  to  produce  the                                                                    
     hydrates, then you'd have gas  in place.  What would be                                                                    
     the  legal status  of the  lease then  if you  couldn't                                                                    
     produce it?                                                                                                                
                                                                                                                                
MR. MYERS responded:                                                                                                            
                                                                                                                                
     It   would  be   determined   by  the   unit  plan   of                                                                    
     development. ...  And there are two  other caveats; one                                                                    
     is physical  and economic waste.   And  obviously we're                                                                    
     going  to  want to  maximize  the  production from  the                                                                    
     lease  in the  most efficient  way, both  from physical                                                                    
     and  economic  parameters.  ...  If  the  hydrates  are                                                                    
     waiting  in line  for capacity  in the  line, it's  not                                                                    
     going  to jeopardize  anyone's lease.  ... There  are a                                                                    
     lot of  old gas fields that  are being held for  a long                                                                    
     period  of time  because of  that issue.   I  think the                                                                    
     operator has to do a  diligent plan of development, but                                                                    
     it's an  orderly plan  of development,  so ...  I can't                                                                    
     imagine it  jeopardizing any leaseholders.   Now if the                                                                    
     leaseholder has the opportunity  to monetize it, and it                                                                    
     is [demonstrably]  commercial, and there is  market for                                                                    
     it,  and pipeline  capacity for  it  ... DNR  typically                                                                    
     will challenge that plan of development.                                                                                   
                                                                                                                                
5:48:42 PM                                                                                                                    
                                                                                                                                
CHAIR KOHRING,  in response to Representative  Rokeberg, remarked                                                               
that perhaps the  topic [of the obligations of the  lessee to the                                                               
lessor]  could  be  addressed  in  the  House  Resource  Standing                                                               
Committee.                                                                                                                      
                                                                                                                                
MR. BALASH pointed  out that there was a change  that the sponsor                                                               
wanted the  committee to  entertain.   He turned  the committee's                                                               
attention to  page 3,  line 1,  and explained,  "At the  time the                                                               
resolution was  introduced, and even  when it passed  the Senate,                                                               
Samuel Bodman  had not  yet been confirmed  by the  United States                                                               
Senate.   He  has  now, and  has  been  sworn in.    So the  word                                                               
'designee' can be removed."                                                                                                     
                                                                                                                                
5:50:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DAHLSTROM  [made a  motion]  to  amend SJR  5  by                                                               
deleting  "designee"  from  page  3,  line 1.    There  being  no                                                               
objection, it was so amended.                                                                                                   
                                                                                                                                
REPRESENTATIVE SAMUELS  moved to report  SJR 5, as  amended, from                                                               
the   committee   with   individual   recommendations   and   the                                                               
accompanying zero  fiscal note.   There  being no  objection, HCS                                                               
SJR 5(O&G) was  reported from the House Special  Committee on Oil                                                               
and Gas.                                                                                                                        
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Special  Committee  on  Oil  and Gas  meeting  was  adjourned  at                                                               
5:52:02 PM.                                                                                                                   
                                                                                                                                

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