Legislature(2007 - 2008)BARNES 124
04/17/2007 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB177 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 177 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 17, 2007
1:05 p.m.
MEMBERS PRESENT
Representative Carl Gatto, Co-Chair
Representative Craig Johnson, Co-Chair
Representative Vic Kohring
Representative Paul Seaton
Representative Peggy Wilson
Representative Bryce Edgmon
Representative David Guttenberg
Representative Scott Kawasaki
MEMBERS ABSENT
Representative Bob Roses
OTHER LEGISLATORS PRESENT
Representative Anna Fairclough
COMMITTEE CALENDAR
HOUSE BILL NO. 177
"An Act relating to the Alaska Gasline Inducement Act;
establishing the Alaska Gasline Inducement Act matching
contribution fund; providing for an Alaska Gasline Inducement
Act coordinator; making conforming amendments; and providing for
an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 177
SHORT TITLE: NATURAL GAS PIPELINE PROJECT
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
03/05/07 (H) READ THE FIRST TIME - REFERRALS
03/05/07 (H) O&G, RES, FIN
03/06/07 (H) O&G AT 3:00 PM BARNES 124
03/06/07 (H) -- MEETING CANCELED --
03/08/07 (H) O&G AT 3:00 PM BARNES 124
03/08/07 (H) -- MEETING CANCELED --
03/13/07 (H) O&G AT 3:30 PM HOUSE FINANCE 519
03/13/07 (H) Heard & Held
03/13/07 (H) MINUTE(O&G)
03/15/07 (H) O&G AT 3:00 PM BARNES 124
03/15/07 (H) Heard & Held
03/15/07 (H) MINUTE(O&G)
03/19/07 (H) O&G AT 8:30 AM CAPITOL 106
03/19/07 (H) Heard & Held
03/19/07 (H) MINUTE(O&G)
03/20/07 (H) O&G AT 3:00 PM BARNES 124
03/20/07 (H) Heard & Held
03/20/07 (H) MINUTE(O&G)
03/21/07 (H) O&G AT 5:30 PM SENATE FINANCE 532
03/21/07 (H) Heard & Held
03/21/07 (H) MINUTE(O&G)
03/22/07 (H) O&G AT 3:00 PM BARNES 124
03/22/07 (H) Heard & Held
03/22/07 (H) MINUTE(O&G)
03/23/07 (H) O&G AT 8:30 AM CAPITOL 106
03/23/07 (H) Heard & Held
03/23/07 (H) MINUTE(O&G)
03/24/07 (H) O&G AT 1:00 PM SENATE FINANCE 532
03/24/07 (H) -- Public Testimony --
03/26/07 (H) O&G AT 8:30 AM CAPITOL 106
03/26/07 (H) Heard & Held
03/26/07 (H) MINUTE(O&G)
03/27/07 (H) O&G AT 3:00 PM BARNES 124
03/28/07 (H) O&G AT 7:30 AM CAPITOL 106
03/28/07 (H) Heard & Held
03/28/07 (H) MINUTE(O&G)
03/28/07 (H) O&G AT 8:30 AM CAPITOL 106
03/28/07 (H) Heard & Held
03/28/07 (H) MINUTE(O&G)
03/29/07 (H) O&G AT 3:00 PM BARNES 124
03/29/07 (H) Heard & Held
03/29/07 (H) MINUTE(O&G)
03/30/07 (H) O&G AT 8:30 AM CAPITOL 106
03/30/07 (H) Heard & Held
03/30/07 (H) MINUTE(O&G)
03/31/07 (H) O&G AT 1:00 PM BARNES 124
03/31/07 (H) -- MEETING CANCELED --
04/02/07 (H) O&G AT 8:30 AM CAPITOL 106
04/02/07 (H) Heard & Held
04/02/07 (H) MINUTE(O&G)
04/03/07 (H) O&G AT 3:00 PM BARNES 124
04/03/07 (H) Moved CSHB 177(O&G) Out of Committee
04/03/07 (H) MINUTE(O&G)
04/04/07 (H) O&G RPT CS(O&G) NT 3DP 2NR 2AM
04/04/07 (H) DP: RAMRAS, DOOGAN, OLSON
04/04/07 (H) NR: SAMUELS, KAWASAKI
04/04/07 (H) AM: DAHLSTROM, KOHRING
04/04/07 (H) O&G AT 8:30 AM CAPITOL 106
04/04/07 (H) -- MEETING CANCELED --
04/05/07 (H) O&G AT 3:00 PM BARNES 124
04/05/07 (H) -- MEETING CANCELED --
04/10/07 (H) RES AT 1:00 PM BARNES 124
04/10/07 (H) Heard & Held
04/10/07 (H) MINUTE(RES)
04/11/07 (H) RES AT 1:00 PM BARNES 124
04/11/07 (H) Heard & Held
04/11/07 (H) MINUTE(RES)
04/12/07 (H) RES AT 1:00 PM BARNES 124
04/12/07 (H) Heard & Held
04/12/07 (H) MINUTE(RES)
04/13/07 (H) RES AT 1:00 PM BARNES 124
04/13/07 (H) Heard & Held
04/13/07 (H) MINUTE(RES)
04/14/07 (H) RES AT 1:00 PM BARNES 124
04/14/07 (H) Heard & Held
04/14/07 (H) MINUTE(RES)
04/16/07 (H) RES AT 1:00 PM BARNES 124
04/16/07 (H) Heard & Held
04/16/07 (H) MINUTE(RES)
04/17/07 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
DAVID KEANE, Vice President of Policy and Corporate Affairs
BG North America, Caribbean and Global LNG
BG Group
Houston, Texas
POSITION STATEMENT: During hearing on HB 177, described BG
Group's activities as an integrated gas major, testified in
general support of HB 177, and suggested modifications.
CATHERINE FOERSTER, Commissioner
Alaska Oil and Gas Conservation Commission (AOGCC)
Anchorage, Alaska
POSITION STATEMENT: During hearing on HB 177, explained the
process and procedures of the AOGCC regarding the determination
of allowable gas off-take and answered questions.
ACTION NARRATIVE
CO-CHAIR CARL GATTO called the House Resources Standing
Committee meeting to order at 1:05:40 PM. Representatives
Gatto, Johnson, Kawasaki, Kohring, Wilson, Seaton, Guttenberg,
and Edgmon were present at the call to order. Also present was
Representative Fairclough.
HB 177-NATURAL GAS PIPELINE PROJECT
1:05:57 PM
CO-CHAIR GATTO announced that the first order of business would
be HOUSE BILL NO. 177, "An Act relating to the Alaska Gasline
Inducement Act; establishing the Alaska Gasline Inducement Act
matching contribution fund; providing for an Alaska Gasline
Inducement Act coordinator; making conforming amendments; and
providing for an effective date." [Before the committee was
CSHB 177(O&G).]
1:06:17 PM
DAVID KEANE, Vice President of Policy and Corporate Affairs, BG
North America, Caribbean and Global LNG, BG Group (BG),
explained that BG was formed through a series of "de-mergers"
which established BG as "basically the exploration and
production arm" of what used to be British Gas. He referred to
slide 3 of a PowerPoint presentation and explained that BP is an
integrated gas major, which means it is involved in the
exploration, production, transportation, and sale of natural gas
and other hydrocarbons worldwide. He relayed that BG is more
interested in exploring for gas than for oil.
1:12:01 PM
CO-CHAIR GATTO asked whether BG processes oil or whether it
sells its oil to another party.
MR. KEANE replied that BG sells oil to third-parties and has no
refining capabilities. He explained that exploration and
production activities bring BG to Alaska. BG is the largest
supplier of liquefied natural gas to the United States, and
supplied 49.8 percent of imports to the U.S. in 2006, he said.
The company is a "top 20 UK company" that is traded on both the
London and the New York stock exchange and has a current market
capitalization of around $45 billion. The company is active in
approximately 25 countries and has approximately 6,000
employees.
1:13:58 PM
MR. KEANE explained that BG's business strategy is pictorially
represented by slide 4. As an integrated gas major, BG explores
for natural gas and finds ways to connect that gas to markets.
He explained that future plans for Alaska include exploration in
the Foothills area of the North Slope. He explained that gas
resources worldwide are becoming harder to find and tend to be
in areas without natural markets; therefore it is more
convenient to liquefy the gas for shipment to areas with large
and liquid markets. BG focuses on markets in North America,
Europe, India, and South America and is involved in the off-
shore production of natural gas in the United Kingdom, he said.
He explained that the company's LNG activities are worldwide,
referring to the map on slide 7.
1:17:12 PM
CO-CHAIR GATTO asked whether BG is considering converting
Alaska's gas to LNG, or whether it is considering a pipeline
project only.
MR. KEANE replied that at present BG is open to both
suggestions. Currently the company is interested in making sure
that there is a pipeline, he explained. He characterized the
LNG option as "interesting" and opined that BG is not opposed to
considering it.
1:17:57 PM
MR. KEANE reviewed his company's LNG portfolio and told the
committee that its capacity at Lake Charles and Elba Island in
the Southeastern U.S. have expanded in recent years despite
hurricanes which caused some loss of production. He explained
that up until recently, gas has tended to stay within its region
of production. The global gas trade is now evolving so that gas
is shipped more globally. He opined that this trend may require
Alaska's gas to compete with other suppliers to sell its gas.
He offered that this growing competition makes it important to
continue to move forward and focus on getting a pipeline built
from Alaska.
1:22:04 PM
REPRESENTATIVE GUTTENBERG asked for more detail as to the
industry trends from local markets to a more global gas
industry, referring to slides 8 and 9.
MR. KEANE explained that recently the global gas market "was
very isolated" and that gas produced in North America tended to
stay in the region. However, the way gas is sold worldwide is
"changing quite dramatically" due in part to BG's activities, he
opined. He explained that BG was involved in around 25 to 30
percent of spot sales of gas to the Far East from production in
Trinidad and Egypt. He offered that demand for gas in the Lower
48 is increasing at 1 to 2 percent annually, while production is
relatively flat. He set forth his belief that at some point in
time, the demand for gas is going to have to be met from
somewhere. He said that due to BG's interest in Alaska, it
would like to see a method of getting gas from the Foothills
area of the North Slope to the Lower 48.
MR. KEANE reviewed information which shows BG as the largest LNG
importer to the U.S. from 2003 to 2006. He said BG believes in
managing and controlling its own ships and currently owns six
vessels and controls 14 others through charters. He explained
that they have orders in for additional ships.
1:25:21 PM
REPRESENTATIVE GUTTENBERG asked about the location of LNG
receiving terminals in the U.S. He asked whether the receiving
points on the U.S. West Coast are operating below capacity and
how gas gets to the receiving points in the Midwestern U.S.
MR. KEANE explained that the arrows on slide 9 of the PowerPoint
do not represent terminals, rather the arrows are to show
general supply coming from the other markets to the U.S. market.
CO-CHAIR GATTO asked if BG has ever had to re-flag a tanker
initially flagged in the United States, and if so, how easy or
difficult that procedure is.
MR. KEANE stated BG has not had to try and re-flag a tanker, and
he does not know if that procedure is difficult. He did say
that the BG's new ships would be "state of the art",
environmentally sound, and fuel efficient.
1:27:45 PM
CO-CHAIR GATTO asked what happens if there is a fire or a other
serious incident whereby a pressure tanker bursts and releases
its contents at an enormous rate. He asked about this situation
at the dock or at sea.
MR. KEANE responded that LNG is not transported or stored under
high pressure, but under perhaps two pounds of pressure for
venting purposes. The reason the gas is liquid is because it
has been super-cooled to around -250° Fahrenheit. He said that
in the past 40 or so years of LNG marine transportation, there
has never been a serious accident where a major loss of cargo
has occurred. He told members that LNG is not as volatile as
other carbon products that are imported to the United States.
[Co-Chair Gatto turned the gavel over to Co-Chair Johnson.]
1:30:02 PM
MR. KEANE explained that BG will be exploring 2.1 million acres
in the Foothills area of the North Slope with Anadarko Petroleum
Corporation and Petro-Canada. On the eastern North Slope, BG
has explored with partners and drilled its first well in the
area this past winter. BG hopes to drill an exploratory well in
the Foothills area sometime next year.
MR. KEANE emphasized that BG is extremely interested in the
pipeline and is investing in Alaska. He set forth that BG is a
leading player throughout the natural gas value chain. He said
that BG supports AGIA as the right way to move the project
forward. He opined that "it will result ultimately in a
pipeline." He expressed concern over past negotiations which
excluded participation of new entrants. He opined that the
eventual contract needs to provide a level playing field for all
participants. He relayed that whatever the result, it is
critical for BG to have reasonable certainty that it will be
able to secure access or capacity on the pipeline. He
encouraged the state to enter into the discussions with
independent pipeline companies.
1:33:15 PM
REPRESENTATIVE SEATON asked if BG has a strategy for reducing
carbon dioxide emissions in pipeline operation so as to save on
expenses for "cap and trade" purchase of CO
2.
MR. KEANE stated that he could not answer the question, but
could provide further information to the committee.
REPRESENTATIVE SEATON noted that environmental standards and
efficiencies are an area of concern for shipping and pipeline
operation issues, therefore information in this area would be
appreciated. He asked for comments on specific areas of AGIA
that BG may see as problematic.
MR. KEANE opined that AGIA is a good vehicle for getting
everyone to the table to discuss key issues. He said his
understanding is that the bill's purpose as set forth in AS
43.90.010 is to get a gas pipeline developed. He opined that
there is an understandable tendency "to be dragged into the
weeds" with details of each party's individual desires. He
offered his belief that all the details are unimportant "unless
we have a pipeline" and encouraged the committee to focus on
"getting the vehicle together" that allows the state to receive
applications so that it can issue a license.
1:36:47 PM
MR. KEANE said that BG would like a longer period of fiscal
certainty than 10 years, but commented that "it is not going to
mean anything if we don't have a pipeline." He explained that
it may take at least three years to determine if some of BG's
leased land in Alaska contains commercially significant
quantities of gas. He opined that although BG may not be in the
position to "try and secure capacity during the initial open
season," as long as BG is diligently exploring for gas it should
not be penalized in terms of fiscal certainty with regard to
"tax rates and the like." He characterized this issue as "one
of our biggest concerns with regards to the bill right now." He
reiterated that "everybody that is actively involved" should be
on a level playing field.
1:38:46 PM
MR. KEANE said that BG supports rolled-in rates and that the
Federal Energy Regulatory Commission (FERC) may be involved in
setting the rates. Once the licensee is determined, everyone
involved in the process will have the opportunity to weigh in on
the most appropriate rate design, he predicted. Therefore he
emphasized that it is important not to get bogged down in the
intricacies of rate design at this point and lose focus of the
main goal of getting a licensee in place to move the pipeline
project forward.
1:39:49 PM
MR. KEANE went on to say that the only other issue BG has with
AGIA is 60 day period for review of applications [AS 43.90.160].
If the state gets more than one application, it may be
physically impossible to review them as they will be lengthy and
detailed documents, he suggested.
1:40:35 PM
CO-CHAIR JOHNSON asked for clarification regarding BG's position
on rolled-in rates.
MR. KEANE replied that BG supports rolled-in rates and that FERC
will help determine what the actual rates should be. He stated
he thinks having it in the bill is extremely helpful.
CO-CHAIR JOHNSON returned the gavel to Co-Chair Gatto.
1:41:16 PM
CO-CHAIR GATTO asked whether flaring of gas is typical,
referring to a picture of an Egyptian LNG port on slide 10.
MR. KEANE replied no, and said he assumes the picture is showing
the result of "a plant upset." He explained that typically one
would not be flaring gas unless there was a reason.
CO-CHAIR GATTO sought assurance that the flaring shown on slide
10 was not a continual operation, but a way to handle over-
pressure or some other issue.
MR. KEANE replied that it is likely due to some sort of an upset
in the plant whereby the operators have to "flare it."
1:42:19 PM
CO-CHAIR JOHNSON asked about a recent ruling of the California
Coastal Commission denying a license to an LNG plant and whether
BG sees this as problematic.
MR. KEANE replied that he cannot speak about the particular
project itself, although he opined that the aforementioned
project "looked like the perfect project." However, he said BG
believes it is difficult to develop LNG facilities on the West
Coast of the U.S.
CO-CHAIR JOHNSON asked for further explanation of the
difficulties of developing LNG plants.
MR. KEANE responded that the opposition on the East and West
Coasts of the U.S. is not so much on the regulatory side, but is
mostly due to a tremendous amount of public opposition to LNG
plants. He offered that this opposition is despite the safe
operation of LNG plants in urban areas worldwide. He opined
that public opposition is the biggest hurdle to overcome for LNG
plant development in the U.S.
1:45:10 PM
REPRESENTATIVE GATTO opined that Los Angeles must be a huge
consumer of gas and asked where that area gets its gas.
MR. KEANE explained that most of the gas used in Los Angeles
comes from the Southwestern United States.
CO-CHAIR GATTO asked if there was a plan to import LNG to the
Los Angeles area.
MR. KEANE replied that the last plan he saw from the California
Energy Commission does include LNG imports, although he noted
"he is not an expert" on California energy policy. In response
to a further question, he noted he could only guess at the
amount of power that could be generated by windmills, but opined
"they cannot build" enough windmills and solar energy sources to
supply the energy needs of California. He characterized
California as an "enormous consumer" of energy, but a "limited
producer" of energy.
CO-CHAIR GATTO asked whether California is planning to produce
its own electricity.
MR. KEANE replied that California has power plants and has
recently constructed some gas-fired plants.
1:48:52 PM
CO-CHAIR GATTO asked whether BG retires its old LNG tankers as
new ones come on line.
MR. KEANE replied that as its new tankers are complete in 2009
or 2010, it will retire some of its current long-term charters.
CO-CHAIR GATTO asked what happens to a retired ship.
MR. KEANE replied that usually there is a market "for somebody
to purchase it." In response to a further question, he
explained that there are no U.S. flagged LNG carriers at
present. There are some older tankers that were built in the
U.S. some 20 years ago, and newer ships are from other
countries. He said he can obtain information for the committee
on the life expectancy of tankers.
1:50:45 PM
REPRESENTATIVE WILSON inquired as to how BG would be affected if
the issue of rolled-in rates was changed, especially if the
change occurred during the time BG was engaged in exploration
activities in Alaska.
MR. KEANE replied that clearly such a change would add more
uncertainty to its business. He noted that decisions on where
to invest are based on an evaluation of all factors, including
rates. He indicated that it would be helpful for an explorer to
have some certainty regarding its transport rates. He said "if
you get tagged with the incremental rates" it may "simply make
it uneconomic."
CO-CHAIR GATTO characterized AGIA as setting forth a level
playing field for all participants, and asked for further
explanation of any BG concerns with AGIA.
1:52:36 PM
MR. KEANE stated that BG absolutely believes that AGIA does
provide a level playing field for all involved. He stated that
it appears there will be many opportunities for comment before
the appropriate regulatory agencies regarding pipeline rates
once the licensee is selected. He noted the need to build the
pipeline in a prudent cost-efficient manner so as to help assure
reasonable rates and offered his belief that the "big
independent pipeline companies" are "best placed" to do that.
1:54:34 PM
CO-CHAIR GATTO offered that a pipeline is also the state's goal
and that the provision regarding rolled-in rates [AS
43.90.130(7)] was drafted to allow independent explorers to add
to the pipeline's capacity. He asked about the effect on
explorers if the rates had to shift to incremental rates once
the pipeline was filled to capacity.
MR. KEANE responded to question by stating that BG currently has
several leases in the Foothills area of the North Slope and has
a strong interest in seeing development of a pipeline that will
provide access to capacity on a fair and reasonable basis for
independent explorers.
1:56:14 PM
REPRESENTATIVE GUTTENBERG stated his understanding that BG Group
is not looking to build the pipeline, but wants reasonable
access to the pipeline. He asked for clarification of BG's
request that "the contract must provide reasonable certainty
that when we discover gas, we will have access to pipeline
capacity." He asked whether BG means "reasonable certainty" as
to pipeline access or as to another area.
MR. KEANE opined that prior negotiations did not result in a
requirement to expand the pipeline; although there were some
discussions about requiring a certain quantity of gas before
evaluating pipeline expansion opportunities. He offered that BG
"thinks if it is economic to expand, then it is economic to
expand." He said that "open access" gas pipelines in the Lower
48 give everybody with gas access to capacity. He said BG
"wants to make sure we have the same type of access for the
Alaska gasline." Access to pipeline capacity is important for
explorers throughout the life of the pipeline so that they know
they will have somewhere to market their gas, he indicated.
CO-CHAIR GATTO asked about the stock market capitalization of BG
and how it may compare to other pipeline companies.
MR. KEANE explained that BG's "market cap" is approximately $45
billion U.S., although the company is primarily traded on the
London exchange. He explained that BG "prefers to have other
people" build the pipelines.
1:59:23 PM
REPRESENTATIVE SEATON asked whether BG is comfortable with the
terms [AS 43.90.130(6)] regarding the requirement that an
applicant commit to expanding the project in commercially
reasonable terms and in reasonable engineering increments. He
asked whether those terms give enough guidance as to be
acceptable.
MR. KEANE replied yes.
REPRESENTATIVE SEATON asked if BG sees fiscal certainty as a
component of building the pipeline or of going to open season.
MR. KEANE replied that he sees it as a component of going to
open season.
REPRESENTATIVE GUTTENBERG noted that prior negotiations were
based on a producer-owned pipeline. He asked whether it is
unique in the gas market to have a similar situation.
2:00:47 PM
MR. KEANE responded that he does not think "it is unreasonable"
because in the gas exploration industry there are many areas in
the world where there is no expertise. He said that there is
expertise in this situation as there are companies with pipeline
construction experience. He offered his belief that these
companies can construct a pipeline on a cost-effective basis.
He would prefer that the builder of the pipeline be motivated to
increase revenues by increasing "through-put," rather than being
built by a party who is motivated to increase revenues by
decreasing "through-put." He indicated that it gives him "more
comfort" to know that an independent, third-party pipeline
company whose business is transporting natural gas to markets
will build the pipeline. He responded to a question by stating
that BG encourages the state to enter into discussions with
independent pipeline companies regarding the construction of a
pipeline.
2:02:38 PM
MR. KEANE summarized that BG encourages the Alaska State
Legislature "to get to a point where we actually have the
vehicle in place that would allow for the development of a
pipeline." He observed that in the past few years the "fast
track method" became the slow track. He said BG is very
encouraged by this process and that it will result in a gas
pipeline.
[Co-Chair Gatto turned the gavel over to Co-Chair Johnson.]
2:04:03 PM
CO-CHAIR JOHNSON asked about the possibility that BG Group will
be in a position to offer gas at the initial open season,
assuming a three-year time frame from issuance of a license to
open season.
2:04:15 PM
MR. KEANE replied that would be difficult. He mentioned that BG
will be drilling exploratory gas wells in the winter of 2008 and
depending on the results, more drilling may occur in 2009 and
2010. AGIA requires that the successful licensee hold an
initial open season within three years after issuance of the
license, which he opined is a good idea as one does not want to
delay too long. He said that companies that do not participate
in the initial open season are not eligible for the 10-year
fixed tax rate in AGIA and suggested that the state consider
amending this provision. He offered that explorers who are
diligently exploring for more gas should not be penalized
because they are not able to "make that specific window" of the
initial open season.
2:06:13 PM
REPRESENTATIVE GUTTENBERG asked where BG would ship its gas.
MR. KEANE clarified that today's discussion was not about "an
LNG project." He noted that currently there are no LNG
terminals on the West Coast of the U.S., therefore it is likely
that the market would be in the Far East - Japan, Korea, and
Taiwan. He said that currently "you cannot go through the
Panama Canal," a restriction he believes is based on ship size.
REPRESENTATIVE WILSON asked if there are there other independent
pipeline companies besides Mid-America and Trans-Canada that
might be interested in the Alaska project.
MR. KEANE said he cannot speak as to what other pipeline
companies may be interested in this project.
The committee took an at-ease from 2:09:32 to 2:16:31.
2:17:04 PM
CO-CHAIR JOHNSON asked about the process the Alaska Oil and Gas
Conservation Commission (AOGCC) uses to evaluate the volume of
gas that can be removed from a field.
2:17:08 PM
CATHERINE FOERSTER, Commissioner, Alaska Oil and Gas
Conservation Commission (AOGCC), explained that typically an
operator comes to AOGCC and requests a "gas allowable off-take"
for an oil field. She indicated that this procedure would apply
to a field in Prudhoe Bay. Before this can be done for Point
Thomson, a determination must be made as to whether it should be
operated as an oil field or a gas field. She indicated that
Point Thomson does not meet the criteria of a gas field under
Alaska law and regulations, rather it meets the "producing
parameters" of an oil field. Therefore, the operator will have
to request permission to operate Point Thomson as a gas field.
She reminded the committee that the mission of AOGCC is to
prevent waste of hydrocarbons. She explained that removal of
gas from a field prior to recovery of all the liquids "does put
those liquids at risk of being lost." She explained that AOGCC
has the authority to call its own hearing to determine an
allowable gas off-take if the operator does not request one so
that AOGCC can be assured that there will be no waste of
hydrocarbons.
2:19:30 PM
MS. FOERSTER explained that AOGCC considers three variables when
determining what an operator will be allowed to do in Prudhoe
Bay: timing and rate of off-take, and details of plans to
remove as much oil as possible prior to gas production. The
operator must demonstrate that greater ultimate hydrocarbon
recovery will result from their proposal. The AOGCC staff
evaluates the technical data submitted by the operator to
evaluate the accuracy of the operator's predictions.
CO-CHAIR JOHNSON noted that currently AOGCC authorizes a 2.7
billion cubic feet (Bcf) off-take of gas at Prudhoe Bay, which
is not enough "to really do a pipeline." He asked whether AOGCC
uses its own data or operator-provided data to make its
determinations.
2:21:00 PM
MS. FOERSTER explained that two years ago AOGCC called a meeting
to consider the amount of gas off-take authorized from Prudhoe
Bay. The conclusion of that meeting was that "the 2.7 [Bcf] was
probably not the right number" and needed to be re-evaluated.
As a result, AOGCC entered into an agreement with BP Exploration
(Alaska) Inc. (BP), and its partners to do a collaborative study
that combined the technical expertise of the AOGCC staff and
BP's more advanced and complete data. The AOGCC started that
study in January 2006 and completed it last year, she said. In
February 2007, AOGCC presented a technical report that is
available on its web site. She said that the technical
evaluation is complete. The next step is for BP and its
partners to request that AOGCC amend the allowable off-take
amount, she explained. At that point, there will be a public
hearing and more information will become available, she
indicated. She concluded "we are pretty far along" on the
Prudhoe Bay analysis, and opined that AOGCC has engaged in this
process so as to be ready for any hearing regarding allowable
gas off-take at Prudhoe Bay.
MS. FOERSTER said that AOGCC has "tried to do the same thing at
Point Thomson," but has faced more obstacles for this area. She
reiterated that AOGCC "is adequately prepared to address the
Prudhoe Bay gas off-take allowable," assuming it is not delayed
by years, in which case AOGCC will have to update its data.
However, she said she is "very uncomfortable that we are not
where we need to be on Point Thomson."
2:24:21 PM
CO-CHAIR JOHNSON asked for further definition of a reasonable
amount of time in which to hold a hearing on Prudhoe Bay off-
take issues.
MS. FOERSTER responded that if the hearing is held a year to
eighteen months from now, AOGCC would likely still have
sufficient information to feel comfortable with the data. If
the hearing is five years from now, "it's not fine" due to
changes in data based on field operations.
2:25:10 PM
CO-CHAIR JOHNSON asked how long it may take to issue an opinion
on a new field, such as Point Thomson.
MS. FOERSTER said that AOGCC has an agreement with operators for
a study at Point Thomson similar to the one done at Prudhoe Bay.
The study started around the time the Department of Natural
Resources (DNR) found the operators in default of their lease
terms, so there was only one meeting that gave AOGCC "a little
tiny bit of the data" needed. She said that ExxonMobil
Corporation (Exxon) has indicated it will not proceed with AOGCC
until legal issues regarding the leases are resolved. Had there
not been obstacles, she opined that it might have taken six
months for AOGCC to complete its technical analysis and be ready
to consider an operator proposal. She said that AOGCC cannot
make a ruling without sufficient data, and without it, will be
"completely at the mercy" of the operator's decision as to how
much data it wants to provide. She said that in a reservoir
like Point Thomson if the gas is not "cycled" [re-injected] on a
continuing basis, the result is a waste of hydrocarbons in
violation of the mandates of AOGCC's mission. She opined that
the volume of liquid hydrocarbons at risk in Point Thomson is
comparable to "an Alpine field." She emphasized that there are
"hundreds of millions" of barrels of liquid hydrocarbons at risk
"if we don't do it right at Point Thomson." She expanded on
this point by opining it would not be appropriate to allow the
Point Thomson operator to "do whatever" it wants so as to "get a
gas pipeline going" if that approach puts "hundreds of millions
of barrels" of liquid hydrocarbons at risk.
2:29:03 PM
CO-CHAIR JOHNSON asked about the timelines in AGIA - If the
licensee has 36 months from the date of license issuance to
prepare for open season, is it reasonable to expect that the
producers will have enough information to receive a ruling from
AOGCC regarding the amount of gas available for off-take at
Prudhoe Bay in time for open season?
MS. FOERSTER replied that a 36 month timeline is not a problem
for Prudhoe Bay due to the amount of work already done. However
for Point Thomson, AOGCC needs data and information to start the
evaluation process.
2:29:43 PM
CO-CHAIR JOHNSON asked for further specificity regarding Point
Thomson - could a ruling regarding allowable off-take be made in
36 months.
MS. FOERSTER replied "you'll have to ask Exxon" whether it is
going to provide data. She said that without any data, the
answer is no [that AOGCC could make a decision in time for open
season.]
CO-CHAIR JOHNSON asked if 36 months is a reasonable time period
if data is available.
MS. FOERSTER replied that 36 months for a study is "pretty darn
comfortable," and that a study could be completed in a year's
time if necessary.
2:30:31 PM
REPRESENTATIVE GUTTENBERG asked what type of data is required
and whether it is confidential under the current lease terms.
MS. FOERSTER responded that this data will be confidential once
provided, but becomes public during the hearing process. The
data necessary is "reservoir description" data which shows that
the planned development will not waste hydrocarbons. This
includes: reservoir description, geophysical data, seismic
data, reservoir modeling, and other information.
2:31:58 PM
REPRESENTATIVE GUTTENBERG asked if individual fields within
Prudhoe Bay are similar in nature.
MS. FOERSTER replied that question is difficult to answer.
However, she pointed out that Point Thomson is significantly
different from Prudhoe Bay. She explained that a determination
to take gas from one field has "nothing to do with whether or
not it is okay to take gas out of another field."
REPRESENTATIVE GUTTENBERG summed up Point Thomson as a "whole
other project."
MS. FOERSTER agreed and stated that Point Thomson requires a
separate analysis. She said that the questions to be considered
for gas off-take for Prudhoe Bay are : when, how much, and what
the operator plans to do in the meantime to recover as much oil
as possible. However, the issue at Point Thomson is "can you
get better ultimate recovery by cycling or by not cycling?" If
the operator proposes not to cycle, it must explain how it is
going to remove liquid hydrocarbons, she explained.
2:34:14 PM
REPRESENTATIVE GUTTENBERG asked what happens if Point Thomson is
declared a gas field instead of an oil field.
MS. FOERSTER replied that if Point Thomson is designated as a
gas field, the operator "would not have to get an allowable" and
could produce as much gas as it wanted. If it is declared an
oil field, the operator must demonstrate that its operations
will not put the liquid hydrocarbons at risk.
2:34:58 PM
REPRESENTATIVE SEATON referred to the Prudhoe Gas Sale Reservoir
Study by the AOGCC dated February 28, 2007. He asked for
further information about some language in that report that
indicates there is not sufficient information to allow a gas
off-take amount over 2.7 Bcf. He expressed some uncertainty as
to whether AOGCC would allow a higher gas off-take amount if BP
requested it in light of the language in the report.
2:36:14 PM
MS. FOERSTER offered her belief that the report recognized that
there is still a lot of uncertainty regarding an appropriate
off-take amount. However, to "give them an off take", the AOGCC
must know the operator's plans with regard to oil recovery. She
said that the determination involves many variables. The key
variables to consider are when the gas off-take will start, what
the operator will be doing until that time, and how much gas can
be safely removed without compromising recovery of liquids. The
determination of the off-take amount will vary based on the
operator's plans, she explained. For example, an off-take start
date for tomorrow would likely not be allowed, while a start
date twenty years from now would allow an operator to "do
whatever" it wants.
REPRESENTATIVE SEATON asked if an operator would be allowed to
off-take 2 Bcf a day of gas for an earlier start [at Prudhoe
Bay.]
2:37:37 PM
MS. FOERSTER answered that if the operator was planning to sell
the gas tomorrow, the AOGCC would "call a hearing" to consider
whether the "rate should be zero or whether 2 [Bcf] was okay."
She said the only reason AOGCC has "not taken the gas allowable
off-take rate away is because there is nothing there are going
to be able to do without it." She said she is "not sure 2 [Bcf]
would be okay today", and reminded the committee that the off-
take amount was determined 30 years ago, prior to the existence
of any production data on Prudhoe Bay. She said that if someone
wanted to sell gas from Prudhoe Bay today, she "would be really
uncomfortable with it," as "every puff of gas" currently
produced is being re-injected into the field to keep the
pressure up or for enhanced oil recovery (EOR) in Prudhoe Bay or
other fields.
2:39:03 PM
REPRESENTATIVE SEATON clarified his understanding that the
amount of gas available for the pipeline will not be determined
until the lease holders put in a request with AOGCC for a new
gas off-take amount.
2:40:07 PM
MS. FOERSTER agreed that until there is an application for "gas
take allowable" everything is on hold. She said that for
Prudhoe Bay, AOGCC is ready to review an application in which
the operator sets forth their depletion plan and start time.
She offered that AOGCC will work with the operator to develop an
allowable off-take that will insure the greater ultimate
recovery of Prudhoe Bay hydrocarbons. She opined that Exxon
could continue to work with AOGCC on Point Thomson regardless of
the legal issues regarding the leases. She predicted that if
Exxon cooperated, AOGCC could be ready for a hearing on Point
Thomson in a year. She said that there is plenty of time before
open season to resolve these issues.
2:42:11 PM
MS. FOERSTER suggested that these procedures can cause
frustration and that AOGCC can appear to be a stumbling block
for development. However, she reminded the committee that AOGCC
is charged with working to insure that state constitutional
directives regarding resource management are met and that as
much of Alaska's oil and gas reserves as possible are recovered.
She characterized the oil as the "bird in hand" while the gas is
"the bird in the bush," and the challenge is to protect the oil
resources while working to develop gas resources.
2:43:50 PM
CO-CHAIR JOHNSON asked whether there is any more information on
an appropriate gas off-take amount for Prudhoe Bay based on the
now 30 years of production history for that field.
MS. FOERSTER explained that she cannot predict the appropriate
gas off-take amount absent information regarding how much oil is
left in the ground and when gas production will start. She
emphasized that "there is not a number," and that there will be
more information available when there is a public hearing on
this issue.
[HB 177 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:45:43
PM.
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