Legislature(1995 - 1996)
02/13/1996 10:11 AM House O&G
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
February 13, 1996
10:11 a.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chair
Representative Scott Ogan, Vice Chair
Representative Gary Davis
Representative Bill Williams
Representative Tom Brice
Representative Bettye Davis
Representative David Finkelstein
MEMBERS ABSENT
All members were present.
COMMITTEE CALENDAR
* HOUSE JOINT RESOLUTION NO. 54
Encouraging the lessees of Alaska's vast North Slope natural gas
reserves to reach agreement to market gas, expressing the
legislature's support for an Alaska North Slope (ANS) gas
transmission pipeline, and requesting the President of the United
States and the Governor of the State of Alaska to publicly support
and take action that will help expedite the construction of that
system.
- MOVED OUT OF COMMITTEE
* HOUSE BILL NO. 394
"An Act authorizing a program of natural gas and coal bed methane
development licensing and leasing; relating to regulation of
certain natural gas exploration facilities and coal bed methane
exploration facilities for purposes of preparation of discharge
prevention and contingency plans and compliance with financial
responsibility requirements; amending the duties of the Alaska Oil
and Gas Conservation Commission as they relate to natural gas
exploration activities and coal bed methane exploration activities;
and amending the exemption from obtaining a waste disposal permit
for disposal of waste produced from coal bed methane drilling."
- HEARD AND HELD
HOUSE BILL NO. 342
"An Act relating to water quality."
- SCHEDULED BUT NOT HEARD
(* First public hearing)
PREVIOUS ACTION
BILL: HJR 54
SHORT TITLE: FAVOR TRANS-ALASKA GAS SYSTEM & LNG SALES
SPONSOR(S): REPRESENTATIVE(S) KUBINA, GREEN, BARNES, NAVARRE,
MACKIE, GRUSSENDORF, PHILLIPS, B. DAVIS, WILLIS, SANDERS,
ROBINSON, ROKEBERG, OGAN
JRN-DATE JRN-PG ACTION
01/16/96 2453 (H) READ THE FIRST TIME - REFERRAL(S)
01/16/96 2453 (H) O&G, RESOURCES, FINANCE
02/05/96 2633 (H) COSPONSOR(S): ROBINSON
02/07/96 2666 (H) COSPONSOR(S): ROKEBERG
02/09/96 2707 (H) COSPONSOR(S): OGAN
BILL: HB 394
SHORT TITLE: GAS & COAL METHANE LICENSES & LEASES
SPONSOR(S): REPRESENTATIVE(S) OGAN,ROKEBERG
JRN-DATE JRN-PG ACTION
01/05/96 2369 (H) PREFILE RELEASED
01/08/96 2370 (H) READ THE FIRST TIME - REFERRAL(S)
01/08/96 2370 (H) O&G, RESOURCES, FINANCE
02/08/96 (H) O&G AT 10:00 AM CAPITOL 124
02/08/96 (H) MINUTE(O&G)
02/13/96 (H) O&G AT 10:00 AM CAPITOL 124
BILL: HB 342
SHORT TITLE: WATER QUALITY STANDARDS
SPONSOR(S): REPRESENTATIVE(S) ROKEBERG
JRN-DATE JRN-PG ACTION
05/09/95 2042 (H) READ THE FIRST TIME - REFERRAL(S)
05/09/95 2042 (H) O&G, RESOURCES
10/17/95 (H) O&G AT 1:00 PM ANCHORAGE LIO
10/17/95 (H) MINUTE(O&G)
02/13/96 (H) O&G AT 10:00 AM CAPITOL 124
WITNESS REGISTER
REPRESENTATIVE GENE KUBINA
Alaska State Legislature
State Capitol, Room 406
Juneau, AK 99801
Telephone: (907) 465-4859
POSITION STATEMENT: Sponsor of HJR 54
DONNA FISCHER, Business Owner
P.O. Box 395
Valdez, Alaska 99686
POSITION STATEMENT: Supported HJR 54
DAN LaSOTA, Assemblyman
Fairbanks North Star Borough Assembly
693 Manchester Loop
Fairbanks, Alaska 99712
Telephone: (907) 479-6198
POSITION STATEMENT: Testified in support of HJR 54
SARA HANNAN, Executive Director
Alaska Environmental Lobby
representing the TransAlaskan Gas Systems Environmental Review
Committee
P.O. Box 22151
Juneau, Alaska 99802
Telephone: (907) 463-3366
POSITION STATEMENT: Supported HJR 54
PAUL FUHS, Lobbyist
Southwest Alaska Pilots Association
10652 Porter Lane
Juneau, Alaska 99801
Telephone: (907) 790-3030
POSITION STATEMENT: Supported HJR 54
MANO FREY, President
AFL-CIO
2501 Commercial Drive
Anchorage, Alaska 99501
Telephone: (907) 272-4571
POSITION STATEMENT: Testified in support of HJR 54
DAVID LAPPI, Owner
LAPPI Resource, Incorporated
4900 Sportsman Drive
Anchorage, Alaska 99502
Telephone: (907) 248-7188
POSITION STATEMENT: Provided information on HB 394
JAMES HANSEN, Leasing/Evaluation
Division of Oil and Gas
Department of Natural Resources
3601 C Street, Suite 1380
Anchorage, Alaska 99503-5948
Telephone: (907) 269-8804
POSITION STATEMENT: Provided information on HB 394
MARK MEYERS, Petroleum Engineer
Division of Oil and Gas
Department of Natural Resources
3601 C Street, Suite 1380
Anchorage, Alaska 99503-5948
Telephone: (907) 269-8768
POSITION STATEMENT: Provided information on HB 394
TOM CHAPPLE, Program Manager
Industry Preparedness and Pipeline Program
Division of Spill Prevention and Response
Department of Environmental Conservation
411 West 4th Avenue, Suite 2-C
Anchorage, Alaska 99501
Telephone: (907) 271-4336
POSITION STATEMENT: Provided information on HB 394
ACTION NARRATIVE
TAPE 96-9, SIDE A
Number 000
The House Oil & Gas Special Committee was called to order by
Chairman Norman Rokeberg at 10:09 a.m. Members present at the call
to order were Representatives Rokeberg, Ogan, Williams, Brice, B.
Davis, and Finkelstein. A quorum was present. This meeting was
teleconferenced to Anchorage, Valdez, and Fairbanks.
CHAIRMAN NORMAN ROKEBERG announced that the agenda was HJR 54 and
HB 394.
HJR 54 - FAVOR TRANS-ALASKA GAS SYSTEM & LNG SALES
Number 196
REPRESENTATIVE GENE KUBINA, sponsor of HJR 54, was first to
testify. He said HJR 54 is a resolution attempting to encourage
the construction and marketing of natural gas. He stated that
there is over 30 trillion cubic feet of natural gas on the North
Slope which can benefit the state of Alaska if it is marketed. The
HJR 54 incorporates a number of "whereas" statements settings out
facts about the gas and the gas pipeline. The HJR 54 has gone
through a process of gaining consensus from the oil companies,
Yukon Pacific Corporation, and the Governor's office. He said the
first draft of HJR 54 was done last March.
REPRESENTATIVE KUBINA said the essence of HJR 54 is requesting four
specific things be done. The first requests the President of the
United States to include the Alaska gas pipeline as part of a
national trade issue. To do this, HJR 54, requests that he mention
the pipeline at appropriate times to heighten its interest and also
to direct the Presidential staff who focus on trade to make it a
priority with their negotiations in the Asian market.
REPRESENTATIVE KUBINA said the second request of HJR 54 is that it
has the legislature, on record, requesting the Governor to create
a gas pipeline and that it be a top priority in his Administration.
A letter was received this morning, from the Governor, endorsing
HJR 54 and also stating that the Governor has begun the process
stated in the resolution.
REPRESENTATIVE KUBINA said the third goal of HJR 54 is that it
indicates the strong support of the legislature in seeking markets
for our natural gas and constructing a gas pipeline. He said
lastly, HJR 54 encourages the establishment of a forum for the
various parties to come together and talk about the involved
issues. He said this was the biggest problem with the pipeline
development and, as a state, we can help facilitate that process.
REPRESENTATIVE KUBINA said he has provided the committee with a
committee substitute.
REPRESENTATIVE GARY DAVIS made a motion to address CSHJR 54,
version W, dated February 12, 1996. Hearing not objections, the
committee addressed the CSHJR 54 version of the bill.
CHAIRMAN ROKEBERG asked for clarification of line 13, on page two.
REPRESENTATIVE KUBINA said the Alaskan Municipal League (AML)
attempts, as does CSHJR 54, to avoid getting into the debate of
whether the pipeline terminal is in Valdez, Kivalina or another
location. The AML wants to get all participants involved in this
issue, including the state of Alaska, to convene and develop an
unified proposal. He added that CSHJR 54 asks the Governor to get
everyone in the same room in order to get it resolved.
CHAIRMAN ROKEBERG noted that Representative Gary Davis joined the
committee meeting at 10:12 a.m.
Number 650
CHAIRMAN ROKEBERG referred to page one, line seven, and asked if
the 26 trillion cubic feet mentioned consisted of the amount at the
Prudhoe Bay field. He mentioned that there is also gas in other
fields in the North Slope, such as Point MacIntire.
Number 697
REPRESENTATIVE KUBINA said he changed this section, at the request
of the oil companies, to specifically read the amount is in Prudhoe
Bay. He said there is 5 trillion cubic feet at Point Thomson and
in other areas.
Number 768
DONNA FISCHER, Business Owner, testified via teleconference from
Valdez. She said the gas pipeline will diversify the state in
numbers and types of businesses. She added that it will also
diversify where income to the state is derived. She said she was
a member of the Alaska Municipal League, who are strongly behind
"the resolution."
Number 845
DAN LaSOTA, Assemblyman, Fairbanks North Star Borough Assembly
was next to testify. He referred to a resolution passed by the
Fairbanks North Star Borough Assembly, number 96-009, which
unanimously supports HJR 54. He said unanimous support for any
resolution is not common, and it should be understood that it shows
a strong measure of support for this issue. He added that there
should be specific language placing the gas pipeline along the
central corridor of Alaska.
MR. LaSOTA said the reasons for placing the pipeline in the central
corridor include timing and benefits for communities along this
corridor. He said permits are already located for the central
corridor and as he understood, the project must go through under a
certain timetable. He said that Fairbanks, the North Slope Borough
and the city of Valdez income from the pipeline as well as spin-off
projects are important factors. These possible benefits include
fleet vehicles running on natural gas, homes fueled by natural gas,
and manufacturing factories develop along the central corridor
using the gas as a raw material.
MR. LaSOTA said CSHJR 54 addresses the placement of the pipeline
and the assembly is glad to see that, but would encourage stronger
language to specifically state that the pipeline would be put in
the central corridor. He said the next item he wished to address
was Alaska hire. He read from the resolution, "the Borough
believes that it is also essential that labor for any project,
especially of this scope, come from the skilled and ready work
force that already exists in the state of Alaska." He added that
it would be a shame to put through a project of this scope and not
have Alaska residents working on it. He said it is important that
an up front attempt be made for Alaska hire.
MR. LaSOTA said CSHJR 54 meet the intent and wishes of the
Fairbanks' resolution.
Number 1135
SARA HANNAN, Executive Director, Alaska Environmental Lobby,
Incorporated was next to testify. She said she was representing
the TransAlaska Gas Systems Environmental Review Committee (TAGS
ERC.) She said six years ago, Yukon Pacific Corporation, undertook
an extreme and unusual experiment in working with the environmental
community on a major development project. Yukon Pacific
Corporation's interest and intent was to evoke a dialogue that
would lead to the construction of a project that they think is
socially, economically, and environmentally sound. To produce and
equitable dialogue, Yukon Pacific Corporation invited the
environmental community to form a committee that would actively
work on the project with them. This committee, TAGS ERC, was
formed and has worked on this project for the past six years.
MS. HANNAN said TAGS ERC does not endorse this project in and of
itself, but the committee does endorse this resolution and the open
dialogue that CSHJR 54 advocates. She referred back to Yukon
Pacific Corporation and the environmental community working
together. She said Yukon Pacific Corporation has demonstrated
itself to be a good neighbor and a good model. Yukon Pacific
Corporation has not asked for regulatory reform and have show that
they are willing to comply with the federal no net loss of wetlands
policy as well as seeking to comply with state and federal
regulatory oversight of the environmental laws currently in place.
The committee believed that this resolution speaks to that and to
the future of Alaska. She added that the environmental community
of Alaska will work to see socially, economically, and
environmentally sound projects go forward.
MS. HANNAN said it is important that the southern pipeline corridor
be used. She encouraged the legislature to work with the gas
producers to get the project on line. She said to plan for the
next century means that we must look beyond this years fiscal
analysis. She said the long range vision that CSHJR 54
incorporates, leads us there.
Number 1229
REPRESENTATIVE SCOTT OGAN asked if there would be the same sort of
cooperation, between the various parties, if a new pipeline route
was chosen.
Number 1244
MS. HANNAN said the spirit of cooperation would continue, but the
environmental analysis of where the TransAlaska pipeline lays is in
place. She added that the southern corridor has the science of 20
years behind and development of that area in place. If the
pipeline project was undertook in a different region, the basic
environmental oversight, which has already taken place with the
southern route, would have to occur. So, a route change would
delay the project substantially and new environmental problems
would have to be resolved.
MS. HANNAN explained the problem with the proposed alternative
routes. She said it means going from a non-ice free port to
crossing an entire permafrost region. She said the southern
pipeline corridor traverses arctic, sub-arctic, and near arctic
habitats so not all the corridor is permafrost. She said the
southern corridor involves a longer engineering feat, but more
diversity. Having a pipeline route that is in an entire permafrost
habitat involves different environmental concerns.
MS. HANNAN said the spirit of cooperation for a gas pipeline
community would be there from the environmental community. She
added that, technically, an alternative route would be much further
behind because the southern corridor has a lot of sound science
behind it and a new route would require starting at ground zero.
Number 1323
CHAIRMAN ROKEBERG asked if the environmental community had an
opinion about a buried pipeline.
Number 1334
MS. HANNAN said this issue was not specifically addressed. She
said the TAGS ERC includes some community leaders, including
Steven's Village, and they have had an opinion about a buried line
versus a non-buried line. She said that within the review
committee there is a variety of technical expertise, but she could
not comment on this issue specifically.
Number 1361
CHAIRMAN ROKEBERG asked if the TAGS ERC took no position on buried
versus non-buried pipeline.
MS. HANNAN said, no, they did not.
Number 1376
PAUL FUHS, Lobbyist, Southwest Alaska Pilots Association, was next
to testify. He said the pilots that he represent are currently the
marine pilots who bring the tankers into Prince William Sound. He
referred to a letter, dated February 8, 1996, from the Southwest
Alaska Pilots Association. He said this letter supports HJR 54.
He said in review of CSHJR 54, "it is fine in the form that it's
in."
MR. FUHS said the marine pilots are one of the service industries,
in Alaska, related to the oil industry. The marine pilots would
benefit greatly from this project, as would other firms that work
as oil field service companies.
MR. FUHS said the southwest marine pilots have been piloting LNG
tankers into Nikiski, from the Phillips plant, for almost 20 years.
He said LNG is a safe, clean cargo. He added that the fuel for the
tanker, except for some actual fuel used in the harbor, is mainly
derived from the fumes that evaporate off the LNG.
MR. FUHS concluded by thanking the representatives who co-sponsored
CSHJR 54 and urged its support.
Number 1466
CHAIRMAN ROKEBERG asked if a western pipeline route were used,
whether marine pilots would be utilized.
Number 1487
MR. FUHS said yes, all foreign vessels and all vessels over a
certain size are required to have pilots. He said it would be a
different pilots group, the Alaska Marine Pilots in Western Alaska.
Number 1502
CHAIRMAN ROKEBERG asked if there was an opinion from the marine
pilots regarding Russian ice breakers.
Number 1520
MR. FUHS said this option had been explored for many years on the
North Sea route, and the vessels are capable but need some
modifications to bring them up to Coast Guard standards. He said
some ice strengthened Finnish ships are carrying LNG over on the
western side of the Arctic. He added that there are additional
costs associated with ice strengthened vessels, such as ice
breaking tugboats. He said his organization had not objection to
a western route, but added that it took Yukon Pacific Corporation
ten years to get permits and mentioned the timing issue that would
arise if a different route were chosen.
Number 1562
REPRESENTATIVE OGAN asked for clarification of the role of a ships
pilot versus a master of the ship.
Number 1577
MR. FUHS said the purpose of a marine pilot is that when a ship
comes into Alaska waters, there is someone aboard the ship with
experience and knowledge of those waters. This knowledge includes
hazards to navigation, current, winds, et cetera. Pilots are
licensed on their local knowledge. The master is still technically
in charge of the ship, but Alaska state laws require that a pilot
be on board. He said in the case of the Exxon Valdez, pilots
weren't required to be on board at that point in Alaska waters, but
since then, under the law, pilots are required to be on board at
that point.
Number 1610
MANO FREY, President, AFL-CIO, was next to testify. He urged the
passage of CSHJR 54. He said the AFL-CIO has been working with
Yukon Pacific Corporation for some time and have an agreement in
principle that his organization will negotiate a project labor
contract for the construction of the pipeline if Yukon Pacific
Corporation is ultimately involved in the project. He made an
analogy to Yukon Pacific Corporation and a siphon hose as to their
position of neither controlling the natural gas or the market. He
hoped the gas producers would actively work to achieve a consensus
on the timing, route and best methods to get this gas to market.
He said at some point and time, the cost of getting this LNG will
outstrip the market price of the LNG.
Number 1759
REPRESENTATIVE TOM BRICE asked if there are negotiations relating
to the maintenance and operation of the pipeline as well.
Number 1768
MR. FREY said no, the discussions have centered around the
construction of the line itself. He again stated the timing issue.
He concluded that once the pipeline is becomes a formal project,
then discussions regarding maintenance and operation of the
pipeline will occur.
Number 1807
CHAIRMAN ROKEBERG confirmed that there was a project-labor
agreement in principle with Yukon Pacific Corporation and asked if
there had been discussions with the gas producers on the same
topic.
Number 1819
MR. FREY said those discussions had not occurred, but would occur
shortly. He said the gas producers are aware that a project of
this size is clearly of interest to the AFL-CIO. At Chairman
Rokeberg's prompt, he added that the AFL-CIO has had experience
with pipeline construction.
CHAIRMAN ROKEBERG said that Wayne Lewis had not arrived to testify
and asked the committee to table CSHJR 54 temporarily in order to
address HB 394.
HB 394 - GAS & COAL METHANE LICENSES & LEASES
CHAIRMAN ROKEBERG said it was not the intention of the Chair to
move HB 394 today.
Number 1900
REPRESENTATIVE OGAN, sponsor HB 394, said this bill spurs the
development of coal bed methane gas. He said this methane gas is
a high quality gas produced from high quality coal and is similar
to North Slope gas. This gas has great potential, statewide, for
coal bed methane development, primarily in the bush areas.
Currently, the state of Alaska spends $20 million on power cost
equalization in rural Alaska. He said coal bed methane gas could
mitigate the state's expenditure for power cost equalization.
REPRESENTATIVE OGAN said transportation of diesel fuel is hazardous
and expensive. He mentioned the problem of leaking storage tanks
in the bush communities, an issue which has not been addressed.
Natural gas is a clean source of energy that could potentially
occur in many rural regions. Locally occurring coal bed methane
gas could supply fuel for the production of electricity, as well as
heat, for rural community homes. Legislation such as HB 394 could
help rural Alaska become energy independent.
REPRESENTATIVE OGAN said the development of coal bed methane gas
could stimulate the economy as it allows small, independent
companies to enter the gas market. He said HB 394, or a similar
version, makes environmental sense.
REPRESENTATIVE OGAN said HB 394 is not the final version as
discussions with the private sector and the Administration have
unveiled problems with this version and it is undergoing revision
based on those discussions. He said this is a first attempt and
would welcome discussion and suggestions to help resolve the
hurdles to the ultimate passage of HB 394.
Number 2019
DAVID LAPPI, President, LAPPI Resource, Incorporated, was next to
testify. He said LAPPI Resource is an independent oil and gas
exploratory (indiscernible due to pens near microphone). He said
his company is very interested in developing coal bed methane gas,
especially in rural Alaska. He referred to Representative Ogan's
testimony and reiterated the problems associated with diesel fuel
in the bush. He said diesel fuel is expensive and can be messy to
handle and store. He added that in certain areas, small gas
developments can happen if aimed at local markets.
MR. LAPPI said he is encouraged by the committees review of the
laws relating to oil and gas development, specifically as they
relate to coal bed methane gas development. He encouraged further
work on HB 394 and said he would be in Juneau on Thursday and
Friday to meet and assist with any questions. He referred to a
letter, sent by fax, identifying four areas that need to be
addressed in HB 394.
Number 2107
REPRESENTATIVE BRICE asked if any coal bed gas was being used in
the state.
Number 2114
MR. LAPPI said no, there is no coal bed gas production in the state
of Alaska. He said in the lower 48 states, there is a production
of one trillion cubic feet per year increasing on a yearly basis.
Most of the coal bed gas production is centered around the east
coast in the Appalachian Basin. He then cited other areas of coal
bed gas production including, the Black Warrior Basin in Alabama as
well as the San Juan Basin in Colorado and New Mexico. He
predicted that coal bed gas production will be one of the growth
areas in the natural gas industry in the lower 48 states.
MR. LAPPI said that in Alaska, with half of the United State's coal
reserve, an opportunity is available to build on successful
enterprise in the United States which would supply gas to potential
markets.
REPRESENTATIVE BRICE asked for a brief overview of the four areas
where there might be marketable gas reserves, as mentioned in the
letter. When it was clarified that the four areas were areas of HB
394 that needed adjustment, Representative Brice asked for
information regarding geographical areas and asked if this would be
the western coal reserve.
Number 2190
MR. LAPPI said yes, and added that work done by the Division of Oil
and Gas (DO&G), over the last few years, identified the Upper Cook
Inlet Basin and western North Slope as having the greatest
potential for large gas reserves. He mentioned it is unknown
whether the interior basins have quantities of coal and coal bed
methane gas.
Number 2214
REPRESENTATIVE BRICE asked for information regarding the
transportation of this gas.
Number 2225
MR. LAPPI said it could be transported through a pipeline by
liquefying or pressurizing the methane gas. He said the best
method is to drill the well close to the local market. He cited
the example of Fort Yukon, which has a vast resource of this gas
1200 feet below the streets of the town as identified by the
drilling done in the summer of 1994. He said a question remains as
to whether this gas is producible. He said this type of situation,
where both gas and a market are available, is the most desirable.
MR. LAPPI said areas, which do no have local gas reserves, could be
served by small liquification plants with a up to 50 mile pipelines
in bush conditions. It could also be served by compressed gas.
Number 2279
CHAIRMAN ROKEBERG asked for a description of the drilling project
currently being done in the Matunuska Valley and whether the
drilling rigs had blow-up prevention. He asked what other safety
materials and equipment would be used on those shallow gas rigs.
Number 2306
MR. LAPPI said the pilot project was derived from a well the DO&G
drilled in the Spring of 1994. He said the well had identified and
quantified amounts of coal bed gas. He said the state determined
that there were similar quantities of gas, as found in the lower 48
states. He said the state left it up to the private sector to
commercialize that gas resource in the Upper Matanuska Valley. He
said if this project is successful his company will attempt
projects in rural areas which are currently served by high priced
equalized fuel.
MR. LAPPI said his company uses the same type of drilling rigs and
similar types of equipment used by conventional oil and gas
companies. He said the main difference is due to the shallow areas
where the coal bed gas is located. Currently the well is at 2,100
feet, as compared to the depth of standard oil and gas wells. Due
to this factor, the equipment can be down-sized considerably. He
said obtaining this small equipment has been a problem, but one
that they are working on to reduce the cost of coal bed gas
extraction. He said large rigs with a 20,000 foot capacity can do
the job, but it is an expensive, logistical problem to get them to
the site.
MR. LAPPI said his company would use the same types of blow-out
prevention equipment used on conventional oil and gas equipment.
Number 2400
REPRESENTATIVE OGAN asked what Alaska statutes and regulations are
obstacles to extracting the coal bed gas in a cost effect manner.
He then asked Mr. Lappi to describe the permit process which
allowed his company to drill in Houston.
Number 2416
MR. LAPPI said there are three things that prevent coal bed gas
drilling in the state, they include access to the land at a
reasonable price, cost of bonding because of the three bonds or
insurance policies the state of Alaska requires, and the third is
regulatory reform.
TAPE 96-9, SIDE B
Number 000
MR. LAPPI said the Houston site had five wells drilled in the late
1950s and early 1960s searching for oil deposits. The wells vary
from a shallow well of 1,000 feet to a deeper well of 6,109 feet.
He said the wells were abandoned because there was no pipeline or
market for gas at that time. He said LAPPI Resources applied to
the Alaska Oil and Gas Conservation Commission (O&GCC) in the
summer of 1995, to establish a new gas field based on the presence
of gas which was demonstrated by the previous drill hole.
MR. LAPPI said the O&GCC then established the Houston gas field and
set up a number of rules which govern the development of the
Houston coal bed gas pool. He said this is the first time a set of
rules was established pertaining to coal bed gas development. He
said modifications in those rules will most likely be made, based
on other coal bed gas developments. He said the new rules reduce
the bonding requirements on (indiscernible due to overlapping
voices) bonds from $100,000 per well to $10,000 per well because
they are shallow wells in an acceptable area.
MR. LAPPI said another change is the (indiscernible due to
overlapping voices) requirements that the Department of
Environmental Conservation (DEC) has a bond or insurance policy for
$1 million for exploration wells drilled in the state. He said gas
production wells are not required to bond under the DEC's rules.
Therefore, a couple of bonds have been reduced because the site had
an established gas pool in a developed area.
Number 082
MR. LAPPI said the requirement of a $1 million bond, when
developing a shallow gas resource in a rural area will probably be
a disincentive.
Number 138
REPRESENTATIVE OGAN asked how many independent gas companies there
were in Alaska, similar to LAPPI Resource, Incorporated.
Number 145
MR. LAPPI said he could probably count the number on one hand and
probably have a finger or two left over. He added that it is a
fledgling industry, but added that coal bed gas could lead to the
development of a number of new companies.
Number 177
REPRESENTATIVE OGAN asked how the number of companies compared to
other parts of the country.
Number 185
MR. LAPPI said in the lower 48 states, the Department of Energy
estimated that there were about 8,000 oil and gas companies
actively doing business.
Number 195
JAMES HANSEN, Leasing/Evaluation, Division of Oil and Gas
Department of Natural Resources, was next to testify on behalf of
the Administration. He said the DO&G has been at the forefront of
efforts to encourage coal and methane developments in the state.
He referred to the well that was drilled in the Matanuska Valley
and the Governor's CIP proposal for $400,000 (indiscernible due to
paper ripping) 97. The proposal was that a three year study be
done to further define coal bed methane development in the state.
The Administration encourages any promotion of state resources. He
said coal bed methane is a resource that should be studied and
tapped for future development.
MR. HANSEN said currently all the authority that is necessary to
conduct (indiscernible due to paper rustling)...introducing a brand
new program to specifically provide exploration of coal bed
methane. This program would be one more program the DO&G would
have to deal with in addition to its current oil and gas leasing
(indiscernible due to paper shuffling.)" ...as we have to do by law
each year." He stated concern about the concept of segregating the
gas resources below 3,000 feet because it would lead to
complications with leasing and lead to extensive litigation by the
various companies wanting to extract their resources. He said
there is a problem with combining shallow gas and the coal bed
methane gas in HB 394. Cook (indiscernible due to microphone
feedback) "a lot of the gas there is produced from conventional gas
reserves probably with resource from the coals." So, it is a
problem if you take a shallow gas and treat it differently than a
deeper gas. He repeated that a study was being composed by the
Department of Geological and Geophysical Surveys to study coal bed
methane potential drilling.
Number 368
MR. HANSEN stressed studying the issue before it is tapped. He
said coal bed gas has potential in the Cook Inlet and western
(indiscernible) Alaska, but it is an unknown potential in the
interior basins. The state need to study and determine facts about
the interior basin in Alaska before we press on. Another question
needing to be resolved is who owns the coal bed methane in the
state. Is it owned by the coal people or is it owned by the oil
and gas people. In the lower 48 states, this question has been
addressed, with each state is treating it differently. There is
also a question of who would oversee the leasing program. He said
the Administration knows what needs to be done.
MR. HANSEN said if it is only a question of bonding issues, then
legislation can handle this issue. He said the addition of a new
program would answer that bonding issue.
Number 424
REPRESENTATIVE GARY DAVIS asked if the coal bed gas methane was a
subservice right of the state, and asked if there were provisions
granted to the coal companies that gave them this right.
Number 424
MR. HANSEN said the question arises when you have a coal company
extracting coal who then discover gas. At that point, does this
gas belong to the coal company or the gas company. He said this
question has been addressed by various state supreme courts with
different conclusions. He added that you can have leases for both
gas and coal in the same area.
Number 482
REPRESENTATIVE OGAN suggested that the Administrations's concerns
stem from several discussions about having a coal bed methane on a
coal type lease. Ken Boyd, the director of DO&G, said that 3,000
feet and above would be an acceptable number as there are no coal
bed gas reserves in the Cook Inlet below that number. He said
drilling above 3,000 feet would mitigate some of the environmental
concerns. He applauded the Administration's efforts to study
whether coal bed methane gas is cost effective. He suggested that
government should provide incentives to the private sector to
explore resources, rather than having the government do everything.
He concluded that HB 394 attempts to make land available, make the
leases simple, and make reasonable bonding requirements so that the
private sector is able to go out and explore these areas.
Number 567
CHAIRMAN ROKEBERG received clarification that there were coal seams
below 3,000 feet in Alaska. He then asked if DO&G broke down the
origins of coal bed methane gas and petroleum related gas in the
Cook Inlet.
Number 593
MARK MEYERS, Petroleum Engineer, Division of Oil and Gas,
Department of Natural Resources, answered Chairman Rokeberg's
question. He said all natural gas is basically the same as it is
derived from hydrocarbons formed from many sources. Lake deposits
and coal commonly produce natural gas. Rocks that were produced
from marine and marine life (indiscernible due to overlapping
voices) produce natural gas. In addition, the same source rocks
that generate oil, generate natural gas in basins such as the North
Slope. When the rock is subjected to heat and pressure, the oil is
actually destroyed, and the natural gas remains.
MR. MEYERS said, in Cook Inlet, the coal is the primary source of
natural gas. On the North Slope there are tremendous reserves of
natural gas in the fields at Prudhoe Bay, somewhere around the
figure of 44 trillion cubic feet located in depths less than 3,000
feet. Some of the gas on the North Slope is frozen and some of it
is pre-gas. He said this source is derived from the same oil
source in the fields. He said natural gas is a resource located in
the coal bed reservoir which serves as a trapping mechanism for
certain types of gas reservoirs. He said in the lower 48 states it
is common for gas to be produced along with coal in that coal bed.
MR. MEYERS said there is nothing magical about 3,000 feet. He said
that depth is a mechanical or safety issue because at an increased
depth the pressures and the chance of encountering oil are more
likely to be an issue. He said there is oil less than 3,000 feet
and cited examples where this is the case. He said every area must
be looked at geologically to determine those types of separations.
MR. MEYERS concluded that from a technical perspective, segregating
out coal bed gases is very problematic.
Number 720
CHAIRMAN ROKEBERG asked if a majority of the gas was derived from
coal in the Cook Inlet.
Number 740
MR. MEYERS said that was a debated issue, but current opinion is
that the gas in the Cook Inlet is derived from coal.
CHAIRMAN ROKEBERG asked the estimated gas amount on the North
Slope.
MR. MEYERS said the estimates in the Kuparuk and Prudhoe Bay Units,
for in-place, gas hydrates at shallow depths, to be 37 to 44
trillion cubic feet of gas. This translates into a recoverable 26
trillion cubic feet.
Number 782
CHAIRMAN ROKEBERG asked what a gas hydrate was.
MR. MEYERS said it is natural gas in a frozen state, some of it
being pre-gas and some of it remaining frozen beneath the
permafrost. He mentioned the North Slope reserves to point out
that there were other natural gas sources besides coal bed methane.
He mentioned a gas project in Barrow which will provide gas
production from a well less than 2,000 feet deep. He said they
have (indiscernible) exploring in that area for conventional gas.
In areas such as the western North Slope, there is conventional
gas, but it is not economic for the purposes of development.
However, it might be economic to develop for a local, rural supply.
MR. MEYERS said he was hesitant about supporting HB 394 because it
segregates a specific type of gas. He said if you are a small
rural community you want to produce all the gas that is available
in that well and you don't want to be limited to 3,000 feet
especially in the first well.
Number 863
CHAIRMAN ROKEBERG asked for clarification on coal bed methane and
shallow gas reservoirs.
Number 882
MR. MEYERS said he would not differentiate gas found
(indiscernible) versus gas found in more conventional sites such as
sandstone reservoirs. He said they are all sources of gas. One of
the advantages of coal bed methane is that there is less risk of
not finding coal then there is finding conventional gas resources.
He repeated that coal and coal bed gas are commonly found in the
same basin. He said the rural areas need to produce all available
gas for economic reasons. He said the 3,000 foot depth for bonding
requirements may be an issue, but from a geological standpoint
3,000 feet is not a magical depth at all. He said HB 394 would
segregate the mineral state, under leases at a certain depth, which
is not a comfortable requirement in regards to the rural community
or in areas where you have conventional oil and gas production.
Number 975
CHAIRMAN ROKEBERG asked how long it would take a private company to
enter state land and develop coal bed methane exploration under
current law.
Number 1076
MR. HANSEN said under the (indiscernible-low, muffled voice)
licensing program would be the fastest way. An (indiscernible-low,
muffled voice) "under SB 308 you would have to go through an
extensive public comment period." He estimated that the whole
process would take a year and a half to two years, from the time
the public proposes to develop and area, to the actual licensing.
He said this time frame is based on Alaskan law.
Number 1146
CHAIRMAN ROKEBERG asked what the cost, to the Department of Natural
Resources and related agencies, would be to put a best-interest
finding together for that type of license.
Number 1158
MR. HANSEN said it takes, a staff of four, six months to write a
finding. After that it takes several months to incorporate public
comment into a revised finding for a total time commitment of eight
months. In addition to that time period, the Division of Land's
needs time to do the title work. He said the cost of the proposed
program, referring to the attached fiscal note, would be $386,000
for the first year and $352,000 each year after. He said using
existing staff would create a problem scheduling existing oil and
gas lease sales. He concluded that the current cost to produce a
best-interest finding would be $100,000, more or less.
Number 1158
TOM CHAPPLE, Program Manager, Industry Preparedness and Pipeline
Program, Division of Spill Prevention and Response, Department of
Environmental Conservation (DEC), was next to testify. He said his
division, as well as the Administration, supports HB 394. He said
HB 394 could provide long term environmental benefits if gas
development and coal bed methane gas is used to generate space
heating and rural electric needs of rural areas. Replacing diesel
fuel with natural gas would (indiscernible due to paper shuffling.)
MR. CHAPPLE commented on the intention of HB 394 to avoid
unnecessary bonding requirement from the DEC. He said HB 394
accomplishes this by limiting wells to less than 3,000 feet and the
requirement that the Oil and Gas Conservation Commission (O&GCC)
certifies whether there is any likelihood of encountering oil. "We
encourage those types of provisions because we would like to see a
bill that did not require that level of bonding, if indeed the
mission of HB 394 is encourage gas development. The DEC does not
regulate gas production as long as we know that (indiscernible)
because were not concerned about the spill impact. Overall we
would like to see a way that type of objective could still be
accomplished in the bill even if some of these concerns of DNR with
the particular well depth is of concern."
Number 1322
MR. CHAPPLE said the provision of HB 394, of concern to DEC, is if
well drilling is taking place for gas and oil is encountered. The
way in which HB 394 is drafted, if this scenario happens, the
driller is allowed to extract the oil during the time period in
which they are submitting an oil spill contingency plan. He said
he assumed that this was written, so that the seasonal opportunity
would not be lost. He added that there were a number of instances
where approval for this contingency plan would not result in a
delay. He said putting oil into production would involve a
rethinking of the production plan by the exploration company as
well as the need for additional geological information.
MR. CHAPPLE said contingency plans for exploration oil wells are
completed in 60 days or less. He said contingency plans in the
North Slope can be done in as few as 30 days because they can be
amended on existing plans. He concluded that the provisions in HB
394, allowing drilling to continue, is in conflict with most of the
permit requirements (indiscernible due to overlapping voices) Title
46 of Alaska law. Most new activities must apply and obtain their
permits before the activity is undertaken, but HB 394 allows the
activity to be undertaken before the permits are acquired which
could leave some environmental protections on hold or not fully
met.
Number 1504
CHAIRMAN ROKEBERG referred to the section of HB 394 which excludes
the discharge or disposal of waste material or water from
activities associated with coal bed methane exploration drilling
and asked if the DEC had any problem with that exclusion.
Number 1547
MR. CHAPPLE said there was no problem if it is a shallow well. He
said a shallow well does not use mud that would be toxic to the
environment. There would be a concern about waste disposal for
deeper wells.
Number 1577
CHAIRMAN ROKEBERG asked if 3,000 feet defined a shallow well.
MR. CHAPPLE said he did not know specifically if 3,000 feet is the
"magic number."
Number 1607
CHAIRMAN ROKEBERG referred to a section of HB 394 which excludes
coal bed methane gas from the bonding requirements and asked if it
was acceptable to the DEC.
Number 1644
MR. CHAPPLE said they found it acceptable because of the provision
that the O&GCC to say that no oil is likely to be encountered. He
said bonding provides a financial purse in case of an oil spill
where the state needs to come in and clean up the spill.
Number 1700
CHAIRMAN ROKEBERG said a concern was expressed that no geophysical
information might be available in frontier areas.
Number 1736
MR. MEYERS said the geology of the interior basin of Alaska is
extremely complex and often in areas that are geologically
disrupted. He said there is very little well control because there
is little control over pressures. He explained that over-pressure
can occur in conditions where you have normal pressure gradients,
but for some reason certain zones have higher than normal pressures
due to the geologic history. He said in the North Slope they have
a lot of well control because of those conditions. He added that
developing wells in a new areas creates different problems. He
said you can take seismographic information and determine the
layers of the rocks and possible faults, but doing this type of
seismic data is very expensive and cost prohibitive if these types
of wells are not commercially viable. This development would be
prohibitive if the fuel was going to be used for local energy
source. He said until several wells are done in one area you will
not have sufficient data to make a determination, placing a heavy
burden on the O&GCC. He said the O&GCC would probably need to
speak to their level of documentation required in order for them to
make that determination. He said, as a geologist, he would find it
difficult if he didn't have any well control, especially in
interior basins where there is not a lot of geological information.
MR. MEYERS repeated that the 3,000 foot level is not a magical
number. He said oil and gas producers should address their
drilling programs and what mud is used where. He said a well
drilled 4,000 to 5,000 feet, under different geological conditions,
could use the same kind of mud as wells drilled at 3,000 feet.
MR. MEYERS said it is very hard in law to regulate these factors
when you are dealing with an unknown geologic quantity of reserves
and unknown geology. He said to obtain data about these unknowns
is very expensive.
CHAIRMAN ROKEBERG said testimony on HB 394 was closed for today.
He repeated that it takes over two years, if we know a resource is
in place, for any company to go to an area and produce gas. The
main purpose of HB 394 is assisting business and rural areas in
developing their natural resources to provide energy near their
communities. He said current state leasing hinders this
development.
Number 2056
REPRESENTATIVE OGAN said he wanted to associate himself with
Chairman Rokeberg's comments. He said HB 394 benefits rural
Alaskans. He would like to see the $20 million power cost
equalization mitigated as well as addressing the diesel tank
storage unit problem.
HJR 54 - FAVOR TRANS-ALASKA GAS SYSTEM & LNG SALES
Number 2112
CHAIRMAN ROKEBERG said he would like to bring back for the
committee, CSHJR 54.
Number 2140
REPRESENTATIVE OGAN made a motion to adopt CSHJR 54.
Number 2149
REPRESENTATIVE BRICE objected to the motion for purposes of
discussion. He proposed an amendment, on page three, after the
last further resolve, from line 11 to 13, to include one other
further resolve, before the copy section. "Further resolved that
the Alaska State Legislature to ensure the highest level of Alaskan
hire possible, strongly encourages the implementation of the
project-labor agreement covering the construction, operation and
maintenance of the gas transmission." He said part of CSHJR 54
speaks to the number of jobs, but includes no legislative intent to
encourage Alaskan hire. He encouraged alternatives to Alaska
statute to ensure that Alaskan companies are involved. He said we
need to encourage Alaska hire on these large projects.
Number 2329
REPRESENTATIVE OGAN objected to the amendment for purposes of
objection.
Number 2338
REPRESENTATIVE GARY DAVIS said his concern was based on the past
efforts of the legislature, to attempt to initiate local hire
legislation, have failed. He said that private enterprise should
be encouraged in a cooperative effort with the state to hire
Alaskans. He proposed an amendment on page three, line four, "we
resolve that the Governor is respectfully requested to discuss
issues and structure related to the pipeline."
TAPE 96-10, SIDE A
Number 000
REPRESENTATIVE BRICE questioned the importance of the Governor's
involvement, and said the word, "resolve," speaks specifically
towards certain procedural and administrative types of functions
versus the legislature requesting this from the owners of the
project.
Number 077
REPRESENTATIVE GARY DAVIS said he agreed with Representative Brice
and suggested local hire could be inserted on page three, line
nine, where it directs the Governor to meet with all parties to
determine how the state can help facilitate an ANS gas
transportation system. He said that local hire discussions could
be incorporated in that section. He said he preferred adding line
four to specifically address local hire policy.
Number 130
REPRESENTATIVE BRICE suggested, under line four, something along
the lines of, "that the Governor is respectfully requested to
encourage developers and the Alaskan labor forces to implement a
project-labor agreement covering the construction, operation and
maintenance of the gas transmission line."
Number 179
CHAIRMAN ROKEBERG asked Representative Kubina to take a sense of
the will of this committee and amend CSHJR 54 in the next
committee.
Number 223
REPRESENTATIVE KUBINA said he would work with Representative G.
Davis and Representative Brice to have language that they both
agree on and included it in a CSHJR 54 for the next committee.
Number 257
REPRESENTATIVE BRICE said he withdrew his amendment. He said the
issue he addressed, raises the types of concerns that this
committee should be looking at.
Number 311
REPRESENTATIVE GARY DAVIS withdrew his amendment. He suggested
some modifications in the language of the CSHJR 54, that on page
one, line seven, instead of 26,000,000,000,000 it should read 26
trillion. He also added on page two, line five, he suggested
changing the definitive wording to "would" or "could" provide.
Number 405
CHAIRMAN ROKEBERG suggested that a copy of HJR 54 be directed to
the Governor. He suggested including the fact that this would be
the largest civil project in the history of the world in CSHJR 54.
Number 520
REPRESENTATIVE BETTYE DAVIS made a motion to move CSHJR 54 out of
the committee with attached fiscal note, individual recommendations
and the proposed amendment. Hearing no objections the CSHJR 54 was
moved out of the House Special Committee on Oil and Gas.
ADJOURNMENT
There being no further business to come before the House Oil & Gas
Special Committee, Chairman Rokeberg adjourned the meeting at 11:52
a.m.
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