Legislature(2009 - 2010)BARNES 124
04/13/2009 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB163 | |
| HB217 | |
| SJR16 | |
| HJR33 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 217 | TELECONFERENCED | |
| + | SJR 16 | TELECONFERENCED | |
| *+ | HJR 33 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 163 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 13, 2009
1:05 p.m.
MEMBERS PRESENT
Representative Craig Johnson, Co-Chair
Representative Mark Neuman, Co-Chair
Representative Bryce Edgmon
Representative Kurt Olson
Representative Paul Seaton
Representative David Guttenberg
Representative Scott Kawasaki
Representative Chris Tuck
MEMBERS ABSENT
Representative Peggy Wilson
COMMITTEE CALENDAR
HOUSE BILL NO. 163
"An Act clarifying the purpose of the Alaska Natural Gas
Development Authority; and relating to definitions of certain
terms in AS 41.41."
- MOVED CSHB 163(RES) OUT OF COMMITTEE
HOUSE BILL NO. 217
"An Act relating to the tax applicable to the production of
natural gas used in the state as fuel or feedstock in producing
a manufactured end product."
- HEARD AND HELD
CS FOR SENATE JOINT RESOLUTION NO. 16(RES)
Expressing support for responsible development of the oil and
gas resources in federal waters offshore of Alaska's coast as a
means to ensure energy independence, security for the nation,
and jobs for Alaskans; and urging the United States Congress to
provide a means for consistently sharing with all coastal
energy-producing states, on an ongoing basis, revenue generated
from oil and gas development on the outer continental shelf, to
ensure that those states develop, support, and maintain
necessary infrastructure and preserve environmental integrity.
- MOVED CSSJR 16(RES) OUT OF COMMITTEE
HOUSE JOINT RESOLUTION NO. 33
Urging immediate action by the governor, the Alaska
Congressional delegation, and state and federal agencies to
assist in the restart of oil production in Cook Inlet that was
affected by the eruption of Mt. Redoubt.
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 163
SHORT TITLE: ALASKA NATURAL GAS DEVELOPMENT AUTHORITY
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
03/02/09 (H) READ THE FIRST TIME - REFERRALS
03/02/09 (H) ENE, RES, FIN
03/28/09 (H) ENE AT 10:00 AM BARNES 124
03/28/09 (H) Heard & Held
03/28/09 (H) MINUTE(ENE)
04/09/09 (H) ENE AT 3:00 PM BARNES 124
04/09/09 (H) Moved Out of Committee
04/09/09 (H) MINUTE(ENE)
04/10/09 (H) ENE RPT 3DNP 3NR
04/10/09 (H) DNP: RAMRAS, PETERSEN, EDGMON
04/10/09 (H) NR: DAHLSTROM, JOHANSEN, TUCK
04/11/09 (H) RES AT 12:00 AM BARNES 124
04/11/09 (H) Heard & Held
04/11/09 (H) MINUTE(RES)
04/13/09 (H) RES AT 1:00 PM BARNES 124
BILL: HB 217
SHORT TITLE: TAX ON GAS FOR IN STATE MANUFACTURING
SPONSOR(s): REPRESENTATIVE(s) NEUMAN
04/06/09 (H) READ THE FIRST TIME - REFERRALS
04/06/09 (H) RES, FIN
04/13/09 (H) RES AT 1:00 PM BARNES 124
BILL: SJR 16
SHORT TITLE: OFFSHORE OIL & GAS REVENUE
SPONSOR(s): SENATOR(s) WIELECHOWSKI
03/20/09 (S) READ THE FIRST TIME - REFERRALS
03/20/09 (S) RES
03/25/09 (S) RES AT 3:30 PM BUTROVICH 205
03/25/09 (S) Heard & Held
03/25/09 (S) MINUTE(RES)
03/27/09 (S) RES AT 3:30 PM BUTROVICH 205
03/27/09 (S) Moved CSSJR 16(RES) Out of Committee
03/27/09 (S) MINUTE(RES)
03/30/09 (S) RES RPT CS 4DP 1NR NEW TITLE
03/30/09 (S) DP: MCGUIRE, WIELECHOWSKI, FRENCH,
STEVENS
03/30/09 (S) NR: HUGGINS
04/03/09 (S) TRANSMITTED TO (H)
04/03/09 (S) VERSION: CSSJR 16(RES)
04/06/09 (H) READ THE FIRST TIME - REFERRALS
04/06/09 (H) RES
04/13/09 (H) RES AT 1:00 PM BARNES 124
BILL: HJR 33
SHORT TITLE: RESTART COOK INLET PRODUCTION
SPONSOR(s): REPRESENTATIVE(s) OLSON
04/13/09 (H) READ THE FIRST TIME - REFERRALS
04/13/09 (H) RES
04/13/09 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
DONALD BULLOCK JR., Legislative Counsel
Legislative Legal and Research Services
Legislative Affairs Agency
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During the hearing on HB 163, answered
questions.
DONALD BULLOCK JR., Legislative Counsel
Legislative Legal and Research Services
Legislative Affairs Agency
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During the hearing on HB 217, answered
questions.
KEVIN BANKS, Director
Division of Oil & Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 217, answered
questions.
LENNIE DEES, Audit Master
Tax-Production Audit Group
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 217, answered
questions.
MICHELLE SYDEMAN, Staff,
Senator Bill Wielechowski
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced SJR 16 on behalf of the Senate
Resources Standing Committee, sponsor, which Senator
Wielechowski co-chairs.
JENNIFER SENETTE, Staff,
Representative Kurt Olson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced HJR 33 on behalf of
Representative Olson, sponsor.
KEVIN BANKS, Director
Division of Oil & Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HJR 33, answered
questions and suggested an amendment.
JACK WILES
Kachemak Bay Conservation Society
Homer, Alaska
POSITION STATEMENT: During the hearing on HJR 33, urged a more
thorough analysis of the Drift River Oil Terminal situation.
ROBERT ARCHIBALD
Kachemak Bay Conservation Society
Homer, Alaska
POSITION STATEMENT: During the hearing on HJR 33, urged a new
facility be designed that is not in the floodplain of a volcanic
river.
ELISE WOLF
Homer, Alaska
POSITION STATEMENT: During the hearing on HJR 33, urged the
Drift River Oil Terminal not be restarted and encouraged that a
pipeline be constructed instead.
WHITNEY LOWE
Homer, Alaska
POSITION STATEMENT: During the hearing on HJR 33, stated it
would be inappropriate to re-open the Drift River Oil Terminal
at this time.
ACTION NARRATIVE
1:05:57 PM
CO-CHAIR MARK NEUMAN called the House Resources Standing
Committee meeting to order at 1:05 p.m. Representatives Edgmon,
Olson, Seaton, Johnson, and Neuman were present at the call to
order. Representatives Guttenberg, Kawasaki, and Tuck arrived
as the meeting was in progress.
HB 163-ALASKA NATURAL GAS DEVELOPMENT AUTHORITY
1:06:23 PM
CO-CHAIR NEUMAN announced that the first order of business is
HOUSE BILL NO. 163, "An Act clarifying the purpose of the Alaska
Natural Gas Development Authority; and relating to definitions
of certain terms in AS 41.41."
CO-CHAIR JOHNSON moved that the committee adopt version 26-
GH1057\R, Bullock, 4/13/09 (Version R), as the working document.
There being no objection, Version R was before the committee.
CO-CHAIR NEUMAN referred members to the April 13, 2009, legal
explanation received from Mr. Bullock in regard to the
conceptual amendments incorporated into Version R.
1:07:15 PM
CO-CHAIR JOHNSON asked whether Representative Seaton had
reviewed the legal opinion as to the incorporation of his
amendment regarding the [Alaska] outer continental shelf (OCS)
[Conceptual Amendment 1 passed on April 11, 2009].
REPRESENTATIVE SEATON explained that his intent with the
amendment was to take input of gas into a pipeline, not build a
pipeline offshore to an OCS supply. Therefore, he continued,
the wording in Version R accomplishes the goal of the amendment.
1:08:36 PM
CO-CHAIR JOHNSON noted that Version R may not have incorporated
Representative Guttenberg's amendment [Conceptual Amendment 2
passed on April 11, 2009].
REPRESENTATIVE GUTTENBERG replied that Version R does not.
CO-CHAIR JOHNSON said he thinks Mr. Bullock has amendments that
will do what Representative Guttenberg wants to do.
REPRESENTATIVE GUTTENBERG moved Amendment 1, labeled 26-
G1057\A.2, Bullock, 4/13/09, as follows:
Page 2, line 2:
Delete "the pipeline system project"
Insert "[THE] pipeline system projects [PROJECT]"
Page 2, line 11:
Delete "markets"
Insert "a market"
Page 2, line 12, following "or":
Insert "to a market in the state and"
CO-CHAIR JOHNSON objected for purposes of discussion.
REPRESENTATIVE GUTTENBERG said his intent is to ensure that
every time a market or project is described it includes a market
in the state.
1:10:25 PM
DONALD BULLOCK JR., Legislative Counsel, Legislative Legal and
Research Services, Legislative Affairs Agency, Alaska State
Legislature, understood the intent of the amendment is to ensure
that no matter the project, it include delivery to a market in
the state. Therefore, he continued, Amendment 1 says that it be
to a market in the state or to a market in the state and to
alternative tidewater points, Cook Inlet and Prince William
Sound.
REPRESENTATIVE SEATON asked whether Amendment 1 would mean that
an export market could not be built unless there is also some
other delivery in the state.
MR. BULLOCK responded that it avoids the issue of a pipeline
that would bypass all the in-state markets by going just to
tidewater and being exported. He understood the amendment's
intent is to ensure that there is gas delivered from the project
to a market in the state; whether or not some of the other gas
is exported would not be affected.
1:12:15 PM
REPRESENTATIVE GUTTENBERG, in response to Co-Chair Neuman,
agreed [Amendment 1 was to the original version of HB 163, not
Version R]. He said he believes that in Version R the amendment
would apply to page 2, line 12, after the last "or". In further
response, he said page 2, [lines 12-13], of Version R would
therefore read:
North Slope of Alaska or other regions of the state to
market in the state or to a market in the state and to
tidewater at a point on Prince William Sound
1:13:37 PM
CO-CHAIR NEUMAN inquired whether Representative Guttenberg's
intent is to ensure that gas coming down an in-state pipeline
can only be sold to markets in the state.
REPRESENTATIVE GUTTENBERG answered no. He explained that any
gasline in the state under the Alaska Natural Gas Development
Authority (ANGDA) has to have an in-state use component. If gas
must be exported in order to make the project economical, some
component of the project's gas will also be used in-state; a
project could not be built just for export. It does not matter
what is taken off for use in-state, it could be any of the
hydrocarbons.
1:14:32 PM
CO-CHAIR NEUMAN surmised that Amendment 1 would disallow running
gas down a pipeline to Valdez for liquefaction and export.
REPRESENTATIVE GUTTENBERG responded that some component of such
a pipeline would have to be used for in-state market.
CO-CHAIR NEUMAN said he is wary of the language.
CO-CHAIR JOHNSON said his understanding of Amendment 1 is that
it would assure off-take points somewhere along the pipeline for
use of in-state gas and is therefore consistent with what was
done for the "big line". He said he thinks it is consistent
with what is needed.
1:15:48 PM
CO-CHAIR NEUMAN moved that the line numbers in Amendment 1 be
amended to conform to Version R.
REPRESENTATIVE GUTTENBERG agreed.
MR. BULLOCK clarified that to conform to Version R, Amendment 1
would need to be amended to read as follows:
Page 2, line 3:
Delete "the pipeline system project"
Insert "[THE] pipeline system projects [PROJECT]"
Page 2, line 12:
Delete "markets"
Insert "a market"
Page 2, line 12, following "or":
Insert "to a market in the state and"
There being no objection, the amendment to Amendment 1 was
passed.
1:16:49 PM
REPRESENTATIVE SEATON outlined a scenario in which gas from the
Nenana basin supplies Fairbanks prior to the building of ANGDA's
line and then no one buys gas from an off-take on this line
because it is more expensive than the Nenana gas. He asked
whether Amendment 1 would then mean that the gas could not be
exported because none is supplied for in-state use. In other
words, a gas line could not be built unless it supplies gas to
an in-state market, even if it provides access to supply.
REPRESENTATIVE GUTTENBERG replied that that reading would be
right should the market in the state for gas be satiated and
there are economics for another line, which is something he is
unsure he will see in his lifetime. However, he continued, he
wants to ensure that the project description now, going forward,
says that any project will have an in-state use component.
MR. BULLOCK pointed out that the focus of HB 163 is on a project
by the Alaska Natural Gas Development Authority and therefore
Amendment 1 would not be applicable to any other pipeline. He
said he believes the original intent of part of ANGDA was not
only to get gas produced, but also to get it to Alaskans, so
Amendment 1 follows the original intent that Alaskans would
benefit from an ANGDA project. Amendment 1 would have no effect
on a project outside of ANGDA, he pointed out.
1:19:28 PM
REPRESENTATIVE EDGMON inquired whether the wording presently in
HB 163 is sufficient to carry out the purpose of Amendment 1,
which seems to add a finer level of detail to the meaning.
MR. BULLOCK answered that he thinks Amendment 1 specifically
clarifies that whether the option is to a market in-state or to
tidewater, there is going to be a market in the state. As the
bill is currently written, it could be read as an alternative -
either to a market in the state or to tidewater.
1:20:15 PM
REPRESENTATIVE SEATON argued that this constraint means that if
Nenana comes on line and supplies gas cheaper to Fairbanks than
could be supplied from the North Slope, ANGDA could not build a
line to Valdez for export because it would not also be supplying
gas for in-state. He said he thinks the taxation structure for
exports provides a natural incentive for a supplier to first
fill up as much of the local market as possible. He feared
that, in the future, Amendment 1 could put a constraint on
ANGDA's ability to build an export gasline.
REPRESENTATIVE GUTTENBERG responded that his job as a legislator
is to ensure that ANGDA's project, at this point, has an in-
state component, and someone else can build a project that is
outside of this. Until such time as the in-state market is
satiated, he said, ANGDA's proposals should have a component for
in-state use.
1:23:29 PM
REPRESENTATIVE SEATON described a scenario in which gas is
brought to [the Nikiski liquefied natural gas (LNG) plant] for
export and Cook Inlet gas provides the supply for in-state use
in Southcentral Alaska. He asked whether it is a net amount of
gas that is being talked about or molecules of gas as regards to
how the restriction would work.
REPRESENTATIVE GUTTENBERG replied that when the development of
projects in Southcentral, Southeast, and Interior Alaska have
changed that much, there will likely be legislation brought
forward that clarifies those purposes, the markets, and Cook
Inlet exports. At that point he would consider all those
changes, but right now on ANGDA's project he wants to make sure
there is an in-state use component.
1:26:03 PM
CO-CHAIR JOHNSON said he sympathizes with Representative Seaton,
but thinks it is acceptable for someone with a project from the
North Slope to Valdez with no in-state use component to have to
come back to the legislature. Therefore, based on what he has
heard from his constituents, the mandate in Amendment 1 for in-
state supply is appropriate. For now the message must be very
loud and clear to ANGDA, the governor, and the citizens of
Alaska that the in-state use of natural gas is the top priority.
He withdrew his objection to Amendment 1.
1:27:12 PM
REPRESENTATIVE SEATON objected to Amendment 1, saying he wants
to get the intent of the amendment on record. He asked whether
it would be considered an in-state use of gas if a gasline is
brought to Southcentral Alaska that is no larger than the export
amount of gas from [the Nikiski LNG plant] and the plant could
only get its export license renewed with that additional gas
coming in, so it is a net export of that gas. Is it net, he
asked, or since it comes into the pipeline system is it mixed
gas and therefore the project could go forward, or would it have
to come back to the legislature in order to be moved forward.
MR. BULLOCK clarified that the policy aspect of this is to
determine what the basic purpose of ANGDA is and what the kind
of project is that ANGDA is developing. If the purpose is only
to get gas produced in the state to get the state royalties and
production tax, then it does not matter where the pipeline goes.
But, if the purpose of ANGDA is also to make sure that Alaskans
have the benefit of the gas resources, then identifying or
requiring a certain amount to be available to a market in the
state would be an alternative purpose of ANGDA.
1:29:21 PM
REPRESENTATIVE TUCK outlined a scenario in which there is an
existing ANGDA gasline serving both export and in-state uses,
and a supplier wants to build a line that ties into the existing
line, but that supplier's line would carry gas that is only for
export. He offered his opinion that the supplier's line would
fall outside of ANGDA's jurisdiction and would have to be done
some another way.
CO-CHAIR NEUMAN agreed that it is a question of how to mix the
molecules.
1:30:07 PM
REPRESENTATIVE SEATON said Mr. Bullock may have solved his
problem with the word available. He moved to amend line 10 of
Amendment 1 by adding the words "to be available" in front of
"to a market in the state and". Thus, he explained, even if the
economics are such that the market in the state does not wish to
buy that gas, the gas would be made available in the proposed
gasline.
CO-CHAIR NEUMAN objected to the amendment to Amendment 1.
REPRESENTATIVE GUTTENBERG said it is his hope that the gas be
more than available should ANGDA builds a gasline from anywhere.
Just saying make available does not make ANGDA responsible for
guaranteeing that part of the project is in-state use, he
argued. He said that he wants to ensure that a component of
this project is specifically for in-state use and part of
ANGDA's role is to make sure that happens.
1:32:09 PM
CO-CHAIR NEUMAN inquired whether the scenario described by
Representative Tuck, the mixing of molecules, would have any
effect on this.
MR. BULLOCK answered that the focus of ANGDA is for a project,
more so than what goes into it. If this amendment is accepted
and ANGDA's effort is toward the pipeline, then, whatever the
gas source, there will be gas from somewhere flying through an
ANGDA pipeline to a market somewhere in this state as well as
possible export.
REPRESENTATIVE SEATON argued that the project needs to make the
gas available, but it should not be vetoed if there are cheaper
alternatives for local areas and those areas do not want to buy
the gas. The amendment to Amendment 1 makes the gas available
to a market, which is the critical factor that members are
trying to get to. The state's tax rate will stimulate any owner
of gas to want to sell as much gas in-state as possible to
reduce taxes. He agreed that in-state use is definitely the
priority, but maintained that not enough due diligence has been
done for putting the onus on gas owners that the gas must be
sold in-state, possibly at less than market price, in order to
do the project. He said he thinks this amendment is a way out.
1:34:37 PM
REPRESENTATIVE TUCK said he thinks the language in the proposed
original amendment allows for both export and in-state use of
gas, which is the original intent of ANGDA. He expressed his
concern that accepting the amendment to Amendment 1 will allow
the building of pipelines for export only.
MR. BULLOCK recommended inserting "be available" before "to a
market" on line 10 of Amendment 1. Thus, it would read: "or
other regions of the state or be available to a market in the
state and".
REPRESENTATIVE SEATON said he understands Mr. Bullock's
recommendation and would consider that.
REPRESENTATIVE GUTTENBERG also understood Mr. Bullock's
recommendation.
CO-CHAIR NEUMAN removed his objection to the amendment to
Amendment 1. There being no further objection, the amendment to
Amendment 1 was passed.
There being no objection, Amendment 1, as amended, was passed.
1:36:41 PM
REPRESENTATIVE SEATON understood that Amendment 1, as amended,
was conceptual.
CO-CHAIR NEUMAN said correct.
CO-CHAIR JOHNSON removed any objections he may have had on the
table.
CO-CHAIR JOHNSON moved to report the committee substitute for HB
163, labeled 26-GH1057\R, Bullock, 4/13/09, as amended, out of
committee with individual recommendations and zero fiscal note.
There being no objection, CSHB 163(RES) was reported out of the
House Resources Standing Committee.
HB 217-TAX ON GAS FOR IN STATE MANUFACTURING
1:38:19 PM
CO-CHAIR NEUMAN announced that the next order of business is
HOUSE BILL NO. 217, "An Act relating to the tax applicable to
the production of natural gas used in the state as fuel or
feedstock in producing a manufactured end product."
The committee took an at-ease from 1:38 p.m. to 1:39 p.m.
[Due to technical difficulties the audio for the time period
from 1:39 p.m. to 1:41 p.m. is unavailable.]
1:40:20 PM
REPRESENTATIVE OLSON moved Amendment 1, labeled 26-LS0816\A.1,
Bullock, 4/13/09, as follows:
Page 1, following line 8:
Insert a new bill section to read:
"* Sec. 2. AS 43.55.900 is amended by adding a new
paragraph to read:
(25) "manufacturing process" means a
process that involves a chemical transformation of
feedstock gas or combination of feedstock gas with
other components."
CO-CHAIR NEUMAN objected for purpose of discussion.
1:41:04 PM
REPRESENTATIVE GUTTENBERG asked what AS 43.55.900 is related to.
CO-CHAIR NEUMAN said he believes it has to do with the in-state
five percent production tax on oil and gas.
DONALD BULLOCK JR., Legislative Counsel, Legislative Legal and
Research Services, Legislative Affairs Agency, Alaska State
Legislature, first pointed out that the phrase "used in the
state" in HB 217 is important because there is a tax cap under
the production tax in AS 43.55.0110, subsection (o), that caps
gas that is produced outside of Cook Inlet and used in the state
and the cap is equal to the tax cap that is on Cook Inlet gas.
He said 43.55.900 is the section of the production tax that
includes all the definitions for that chapter. He explained
that HB 217 and Amendment 1 amend the definition in paragraph
(24) and add the definition for manufacturing process in
paragraph (25).
1:42:58 PM
REPRESENTATIVE SEATON understood that under Amendment 1 the
conversion of gas to fertilizer or the petrochemical industry
producing a different product would be considered a
manufacturing process, whereas simply chilling and liquefying
the gas or simply stripping out the propane without changing it
would not be considered a manufacturing process.
CO-CHAIR NEUMAN responded that his intent with HB 217 is to
ensure there is added value. Pulling out propanes, butanes, and
ethanes from natural gas would be an added value because it
would be creating jobs and industry within the state and
therefore it would be considered manufacturing. Simply
liquefying natural gas would not be included.
1:44:19 PM
REPRESENTATIVE SEATON said he is unsure that this definition
qualifies for Representative Neuman's intent.
CO-CHAIR NEUMAN replied that HB 217 will be held so that work in
this regard can continue.
MR. BULLOCK said he reads the description of the manufacturing
process in Amendment 1 as meaning that something is coming out
that is different than what went in. If the gas is just
liquefied, it is the same thing that went in that is coming out.
If it is combined with other chemicals to produce a product, or
if is used as the substance for something like fertilizer, then
that is the manufacturing process that has changed the gas.
CO-CHAIR NEUMAN removed his objection to Amendment 1. There
being no further objection, Amendment 1 was passed.
1:45:31 PM
CO-CHAIR NEUMAN said his intent in HB 217 is to ensure more
added value processing of Alaska's natural gas. The processing
of gas to liquids in Alaska by the military would fall under the
definition of used in state and would fall under a 5 percent
production tax. This was expanded to encompass all of the state
when Alaska's Clear and Equitable Share (ACES) became law, he
continued. Under current law, in-state use only applies to the
generation of electricity or home heating, and HB 217 would
expand this to include the use of gas as fuel or feedstock in
manufacturing. Creating more added value through manufacturing
would expand the economic opportunities to the state for its
natural gas, as opposed to just exporting it. He noted that he
will hold the bill because he is unsure whether the 5 percent is
enough incentive and there may be something else that can be
added.
REPRESENTATIVE GUTTENBERG cautioned that there might be
processes of using the gas that people in Alaska are currently
unaware of because there is presently so little of this industry
in the state, and this limited knowledge could result in leaving
the state on the short end.
1:48:52 PM
REPRESENTATIVE SEATON inquired whether taxes on natural gas
liquids (NGLs) are oil taxes or gas taxes.
MR. BULLOCK said he is unsure.
KEVIN BANKS, Director, Division of Oil & Gas, Department of
Natural Resources, deferred to the Department of Revenue.
LENNIE DEES, Audit Master, Tax-Production Audit Group,
Department of Revenue, stated that, under statute, natural gas
liquids are taxed as oil.
CO-CHAIR NEUMAN held over HB 217.
1:51:13 PM
The committee took an at-ease from 1:51 p.m. to 1:52 p.m.
SJR 16-OFFSHORE OIL & GAS REVENUE
1:51:42 PM
CO-CHAIR NEUMAN announced that the next order of business is CS
FOR SENATE JOINT RESOLUTION NO. 16(RES), Expressing support for
responsible development of the oil and gas resources in federal
waters offshore of Alaska's coast as a means to ensure energy
independence, security for the nation, and jobs for Alaskans;
and urging the United States Congress to provide a means for
consistently sharing with all coastal energy-producing states,
on an ongoing basis, revenue generated from oil and gas
development on the outer continental shelf, to ensure that those
states develop, support, and maintain necessary infrastructure
and preserve environmental integrity.
1:51:53 PM
MICHELLE SYDEMAN, Staff, Senator Bill Wielechowski, Alaska State
Legislature, introduced SJR 16 on behalf of the Senate Resources
Standing Committee, sponsor, which is co-chaired by Senator
Wielechowski. She paraphrased from the following written
statement [original punctuation provided]:
SJR 16 expresses support for responsible development
of the oil and gas resources in federal waters off
Alaska coast. It also urges Congress to provide Alaska
with a fair share of federal revenue from oil and gas
leasing and development in federal waters.
Under current law, Alaska receives little revenue from
oil and gas leasing and development that occurs more
than six miles off our coast. This contrasts with how
other states, including Louisiana, Mississippi,
Alabama and Texas, are treated. Under the 2006 Gulf of
Mexico Energy Security Act, these states receive 37.5
percent of revenues from newly leased federal waters
off their coasts. This new law is expected to direct
more than $13 billion to Louisiana alone over the next
three decades.
Alaska deserves to be treated in the same way as other
states that contribute to our nation's energy
security. Like other energy-producing states, Alaska
bears the costs of infrastructure in support of
offshore development, and our coastal resources and
residents bear the impacts of offshore development.
Alaskans deserves to share in the benefits of
production, just as we do its costs.
The federal Minerals Management Service estimates that
there could be as much a 55 billion barrels of
technically recoverable oil and 280 trillion cubic
feet of technically recoverable gas off Alaska's
coast. Last year companies bid $2.6 billion for access
to tracts in the Chukchi Sea. More than 1.4 million
acres off Alaska's coast have already been leased by
the federal government. The Chukchi Sea sale could
result in the leasing of an additional 2.7 million
acres, providing ongoing support for a robust oil and
gas industry in Alaska.
As more lands off Alaska's coast are leased for
offshore oil production, we need to ensure that Alaska
gets its fair share of the benefits of that leasing
and production. It's time Congress treated all coastal
states equally and fairly. Please join me in
supporting SJR 16.
MS. SYDEMAN urged that SJR 16 be considered quickly so it can be
sent to U.S. Interior Secretary Ken Salazar while he is in
Alaska.
1:54:49 PM
CO-CHAIR NEUMAN, in regard to the term responsible development,
asked for Ms. Sydeman's definition of the word responsible
because it seems to be different for everybody.
MS. SYDEMAN related that it is a word the Senate Resources
Standing Committee adopted by recommendation of Senator Huggins.
She said she thinks it is in the eye of the beholder, and to
some extent by passing this resolution without a definition,
which probably would be difficult to develop, it is left up to
Secretary Salazar and others to interpret.
CO-CHAIR NEUMAN clarified that it is CSSJR 16(RES), labeled 26-
LS0753\S (Version S), that is before the committee.
1:55:44 PM
REPRESENTATIVE GUTTENBERG noted that at a 2006 energy summit
some U.S. Senators strongly opposed Alaska being included in the
[2006 Gulf of Mexico Energy Security Act]. He asked what the
historic perspective is from that happening.
MS. SYDEMAN responded that U.S. Senator Jeff Bingaman from New
Mexico was one of the senators expressing objections, but she
does not know the history. She related that last week U.S.
Senator Begich and U.S. Senator Landrieu from Louisiana tried
again unsuccessfully to get Alaska included in this revenue
sharing. Thus, she acknowledged, it is an uphill battle.
1:56:59 PM
CO-CHAIR NEUMAN closed public testimony after ascertaining that
no one wished to testify.
REPRESENTATIVE EDGMON moved to report CSSJR 16(RES) out of
committee with individual recommendations and zero fiscal note.
There being no objection, CSSJR 16(RES) was reported out of the
House Resources Standing Committee.
The committee took an at-ease from 1:58 p.m. to 1:59 p.m.
HJR 33-RESTART COOK INLET PRODUCTION
1:58:52 PM
CO-CHAIR NEUMAN announced that the next order of business is
HOUSE JOINT RESOLUTION NO. 33, Urging immediate action by the
governor, the Alaska Congressional delegation, and state and
federal agencies to assist in the restart of oil production in
Cook Inlet that was affected by the eruption of Mt. Redoubt.
1:59:04 PM
JENNIFER SENETTE, Staff, Representative Kurt Olson, Alaska State
Legislature, introduced HJR 33 on behalf of Representative
Olson, sponsor. She explained that HJR 33 urges the governor
and state and federal agencies to assist in the restart of oil
production in the Cook Inlet that was affected by the eruption
of Mt. Redoubt. The March 22, 2009, eruption of Mt. Redoubt
shut down the Drift River Oil Terminal, halting oil transfers to
the terminal from intermediate facilities at "Trading Bay" and
"Granite Point", as well as halting oil transfers from the
terminal to [Tesoro Alaska's Kenai refinery (Tesoro)] in
Nikiski. This is an economic issue that is important not only
to the Kenai area, but the entire state, she pointed out.
MS. SENETTE said closure of the Drift River facility is
impacting production throughout the Cook Inlet Basin because
crude that used to go to the Drift River Oil Terminal must now
be stored on platforms which have a finite storage capacity. As
the shutdown has gone on, platform storage has become in short
supply, requiring the platforms to shut their wells. If the
shutdown continues, the Tesoro refinery will be forced to find
an oil supply from somewhere else. In addition, the old age of
the Cook Inlet wells makes them very difficult to restart once
shut down. Because it is expensive and time consuming to get
these old wells re-started, their closure today affects
production tomorrow.
2:02:40 PM
MS. SENETTE noted that a further complication is the drawdown of
the Drift River storage tanks since the eruption. Transferring
millions of gallons of oil from storage requires re-ballasting
of the tanks, which has been done with sea water, she continued.
Mixing sea water with the remainder oil in the tanks creates a
corrosive material that can potentially damage the tanks. This
material must be removed before oil can be returned to the tanks
and will take months, at great expense, to do. This effect on
current and future oil production is especially a problem for a
region and state that depend so heavily on oil production, as
well as for all of the workers in this industry.
REPRESENTATIVE OLSON added that the oil being talked about could
be as much as 20-25 percent of what is going into "Tesoro" and
"Tesoro" will replace it with either Trans-Alaska Pipeline
System (TAPS) oil or Indonesian spot market oil, neither of
which is of the same quality as Cook Inlet oil and which will
impact the price.
2:06:06 PM
REPRESENTATIVE OLSON, in response to Co-Chair Neuman, explained
that the Tesoro refinery originally operated on about 100
percent Cook Inlet oil and this oil is not coming back nearly as
fast as it is needed for the plant or the state. The TAPS oil
ends up with a waste product that Tesoro ships out of state at
additional expense for asphalt and other uses.
CO-CHAIR NEUMAN understood that Cook Inlet production is now
down to 15,000-20,000 barrels a day.
2:07:08 PM
REPRESENTATIVE GUTTENBERG inquired whether something happens
structurally to the field when it is shut down.
KEVIN BANKS, Director, Division of Oil & Gas, Department of
Natural Resources, explained that sea water was pumped into two
of the Drift River Oil Terminal's active storage tanks which
contaminated the oil remaining in the tanks. Before the tanks
can be returned to service they must be drained of the sea water
and oil mixture and cleaned. The contaminated oil will require
treatment before it can be used in a refinery, but he said he is
unsure whether such treatment facilities are available in
Alaska.
MR. BANKS, in regard to the first whereas and volcanic activity,
pointed out that the first Mt. Redoubt volcanic eruption
occurred on March 22, 2009, but the Alaska Volcano Observatory
reported increasing volcanic unrest as early as September 2008.
He said the committee may therefore want to consider a revision
to this part of the resolution.
REPRESENTATIVE OLSON agreed.
2:09:40 PM
MS. SENETTE, in response to Representative Kawasaki, stated that
the Drift River facility is operated by the Cook Inlet Pipeline
Company and owned by Chevron and Pacific Energy Resources, Ltd.
REPRESENTATIVE KAWASAKI asked whether the storage tanks were
drawn down in response to the March 22, 2009, eruption or during
the period of increased activity before that.
MS. SENETTE said she believes the drawdown of the storage tanks
happened only after the first eruption on March 22.
2:10:59 PM
REPRESENTATIVE KAWASAKI, in relation to HJR 33's request for
immediate action by the governor and others, inquired what this
action would be.
REPRESENTATIVE OLSON said the resolution is asking for any kind
of expedited help that is within reason and legal, such as any
permits that will be needed. In further response, he explained
that permission will be needed to start making repairs, do the
work, draw off the salt water and oil that are mixed, inspect
the tanks and Drift River facility to certify that they can be
utilized again without any contaminations to the Cook Inlet, and
ascertain that the dikes are still able to provide containment.
CO-CHAIR NEUMAN added that, coupled with the close of [Agrium
Inc.'s Kenai Nitrogen Operations plant (Agrium)], this is a huge
issue for the Kenai Peninsula.
2:13:28 PM
REPRESENTATIVE TUCK understood the urgency and asked whether
there is any indication that the governor, congressional
delegation, U.S. Congress, and state and federal agencies are
not looking at the same urgency and will instead be hindering
this in some way.
REPRESENTATIVE OLSON said he believes the Kenai Peninsula
Borough is putting in a request. In further response, he
explained that the request is a declaration of emergency.
2:14:34 PM
REPRESENTATIVE SEATON proposed conceptual language for
discussion later: [page 2], line 19, at the end of the
sentence, add "after the current eruption cycle concludes."
This would indicate that the legislature is not trying to urge
people to go into an unsafe area, he explained. He then
inquired whether immediate action to assist in the restart of
oil production in Cook Inlet would include a pipeline from the
platforms to the Kenai Peninsula, should that be the most
advantageous way to restart those facilities.
REPRESENTATIVE OLSON responded that he does not know.
MR. BANKS said he supposes it would be possible and feasible to
build a pipeline across the inlet as there used to be one in the
past. A pipeline would mean that the oil production from the
west side would be directed toward the Tesoro refinery, he
added, which could possibly be a problem for Chevron.
2:16:26 PM
REPRESENTATIVE SEATON asked what the difference is between the
produced water that comes up with the oil in the well and the
ballast water and oil mixture in the Drift River storage tanks.
MR. BANKS replied that two storage tanks have oil and seawater
in them now for ballast, and the other tanks are empty and open
so that water could get into them if flooding occurred and they
would not float. The mixture of oil and produced water is
treated upstream of the terminal, either in production
facilities near the platforms onshore or on the platforms
themselves. Thus, the oil that is moved down the Cook Inlet
pipeline to the terminal is pipeline ready, saleable crude.
REPRESENTATIVE OLSON said he believes the old "Amoco line" was
shut down with the intention of never bringing it back online
again.
MR. BANKS interjected correct.
REPRESENTATIVE OLSON continued, saying that bringing this
pipeline back online would not be wanted.
2:18:11 PM
REPRESENTATIVE GUTTENBERG asked whether there are protocols in
place for actions that the Drift River facility must take in the
face of volcanic activity.
MR. BANKS said he is unsure what kind of plans or protocols are
in place, but he knows there are contingency plans filed with
the Department of Environmental Conservation (DEC). Following
the 1989-1990 volcanic activities, Chevron made improvements to
the facility to raise the tertiary dikes around the terminal.
REPRESENTATIVE OLSON added that there are plans in place, and
the plan that attracted the most attention was keeping the tanks
over half full in order to keep them from floating away should
there be a major leak in the dikes.
REPRESENTATIVE EDGMON recognized the seriousness of the issue
and inquired whether the sponsor plans to get HJR 33 through the
whole process now or settle for a letter that members could
sign.
REPRESENTATIVE OLSON responded that his intent is to get it
through with Representative Seaton's verbiage.
2:20:16 PM
REPRESENTATIVE KAWASAKI inquired as to which agencies were
involved in forcing the shutdown.
MR. BANKS explained that the decisions about the Drift River Oil
Terminal over the last couple weeks, including the decision to
shut it down, were made by the members of the Unified Command,
which are the U.S. Coast Guard, DEC, and the leadership from
Cook Inlet Pipeline Company. He clarified that the
aforementioned contingency plans on file with DEC are normal
course-of-business oil spill contingency plans. The U.S.
Department of Transportation has jurisdiction on the pipelines
that go into the terminal and the U.S. Coast Guard has
jurisdiction on the Christy Lee Platform and the flow lines from
the terminal out to that loading platform.
2:22:00 PM
REPRESENTATIVE KAWASAKI asked whether the Unified Command forced
the closure or suggested the closure.
MR. BANKS replied that the closure was through agreement by the
Unified Command's three bodies. As the owner of the "Cook Inlet
Pipeline terminal", Chevron agreed to those provisions.
REPRESENTATIVE OLSON noted that he, Representatives Seaton and
Chenault, and Senators Waggoner and Stevens are on the
distribution list and receive emails several times a week, and
sometimes several times a day, about what is being done.
CO-CHAIR NEUMAN requested that this information go to all
committee members. He opened public testimony on HJR 33.
2:23:47 PM
JACK WILES, Kachemak Bay Conservation Society, cautioned members
to take a more thorough analysis of the situation because it is
not as simple as it seems in HJR 33. For example, the last
eruption happened during what was considered to be a low level
of volcanic activity. Workers onsite when the volcano erupted
for 35 minutes had to be placed in a safe building and then
evacuated. He related that at a recent public hearing the
Unified Command said the top priority is health and safety and
the second priority is the environment. While he appreciated
the economic impact of oil production, he said what is not
mentioned in HJR 33 is the significant economic impact of an
environmental disaster that could occur from a spill. A
tremendous amount of sediment load has come down Drift River,
which can be seen in a recent aerial photo. The river channel
is very unpredictable, with the latest channel right next to and
threatening the facility. He agreed that shutting down the
terminal was a wise move and pointed out that it is still
precarious with 2.5 million gallons of oil in the tanks.
MR. WILES urged that HJR 33 be tabled until testimony can be
received from the Unified Command or, as an alternative, amended
on page 2, line 19, to include wording that says to examine
alternative technology to decommission the tanks and look at the
feasibility of increased storage in other locations or platforms
or to look at the existing pipeline. If the directive is to put
the tank farm back into production, the question that must be
asked is, Where is the risk assessment and who assumes that
risk?
2:27:17 PM
ROBERT ARCHIBALD, Kachemak Bay Conservation Society, said he has
worked in that Cook Inlet area since 1965 and the Drift River
Oil Terminal has been dodging the bullet since its inception 42
years ago. He commended both the Unified Command for its
improved communication with the public and the people who went
to the facility to pull down the tanks. He said there is no
capability for removing the 2.5 million gallons of oil sludge
still remaining in the tanks in the event of a catastrophic
flood and that this is unacceptable. Given that it can take up
to six months to clean out a tank, he asked whether the off-line
tanks would have to be used should the facility go back into
use. He urged that all stakeholders in the inlet be involved in
the design of a new production facility that is not located in a
floodplain of a volcanic river.
2:30:12 PM
CO-CHAIR NEUMAN inquired whether the Drift River Oil Terminal
goes through regular inspections to ensure its integrity.
MR. BANKS answered that he thinks the U.S. Department of
Transportation has a routine schedule of inspections. In
further response, he noted that routine pressure tests and
equipment inspections occurred prior to the terminal beginning
the pumping of oil to the tanker last week.
2:31:21 PM
MR. BANKS, in response to Representative Edgmon, explained that
the Petroleum Systems Integrity Office (PSIO) has been
represented in the process of the past several weeks. Different
agencies have jurisdictions over the terminal and the pipeline
feeding the terminal, he continued. Now and in the future, the
PSIO can provide a coordinated effort to ensure there are no
gaps or overlaps in how the jurisdictions work. An incident
command management process has been in place and the Unified
Command has been the decision-making authority over the terminal
during this particular incident, but it is not a permanent kind
of management structure. Should the volcano settle, decisions
about whether to mothball, remove, repair, or replace the
terminal will be made by the Cook Inlet Pipeline Company and the
permitting will be done by various agencies. Having a volcano
nearby will factor in to how those permits are awarded.
2:33:58 PM
ELISE WOLF urged the Drift River Oil Terminal not be restarted
and encouraged that a pipeline instead be constructed from
Granite Point to the east side. She argued that HJR 33 would
work to usurp the authority of the Unified Command. She said
she thinks HJR 33 is inappropriate legislation because if the
committee was qualified to be an oversight agency it would have
answers to what the contingency plans are. She proposed that
instead there be legislation requiring Chevron to pay for all of
the workers who have been laid off and any economic impacts that
might result from the items listed in the whereas clauses of the
resolution. Chevron has had 42 years to realize that a terminal
and tanks at the base of a volcano are a bad idea and a risk to
other industries in the Cook Inlet. There is no mention in HJR
33 of the economic impact of fishing and tourism and what would
happen if these industries were impacted by an oil spill, she
continued. This reeks of trying to find ways to skirt oversight
and mitigation plans, she charged.
2:38:46 PM
WHITNEY LOWE offered his belief that when deciding whether to
shut the Drift River Oil Terminal, the Unified Command
considered the significant economic impacts that would result
and determined that the workers' safety and the safety of the
environment were potential enough problems to warrant closing of
the facility. It cannot be guaranteed right now that those
potential dangers have dissipated, he argued, and it therefore
seems shortsighted and inappropriate to now determine it is time
to re-open the terminal; the potential long-term costs of such
an action must be looked at. He supported the idea of a
pipeline across the east side so the terminal could be closed
and agreed with Representative Seaton's proposed conceptual
amendment.
CO-CHAIR NEUMAN closed public testimony. He said he thinks
there are some members of the public and the legislature that
would not mind seeing the words "that was affected by the
eruption of Mt. Redoubt" taken out [from page 2, line 19] in
order to get some production of Cook Inlet going.
2:41:35 PM
REPRESENTATIVE OLSON said he would like to take HJR 33 back so
he can incorporate the amendments suggested by Representative
Seaton and Mr. Banks into a committee substitute. He pointed
out that the Drift River Oil Terminal has been in that location
for 42 years and he does not believe it has ever had a major
leak or spill.
CO-CHAIR NEUMAN asked whether there have been any safety issues
at the Drift River facility.
MR. BANKS said he does not know; he deferred to DEC.
CO-CHAIR NEUMAN requested the sponsor to ask DEC to come to the
next hearing on HJR 33 to answer this question.
2:42:51 PM
REPRESENTATIVE KAWASAKI requested that someone from Unified
Command also attend the hearing.
REPRESENTATIVE OLSON offered to get copies to members of the
most recent communications from the Unified Command.
CO-CHAIR NEUMAN held over HJR 33.
2:43:21 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:43 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 163 04.13.09 Leg Legal Memo.pdf |
HRES 4/13/2009 1:00:00 PM |
HB 163 |
| CSHB163(RES) work draft.pdf |
HRES 4/13/2009 1:00:00 PM |
HB 163 |
| HB 163 Amendment 4.13.09.pdf |
HRES 4/13/2009 1:00:00 PM |
HB 163 |
| HJR 33.pdf |
HRES 4/13/2009 1:00:00 PM |
HJR 33 |
| HB 217.pdf |
HRES 4/13/2009 1:00:00 PM |
HB 217 |
| HJR 33 packet.pdf |
HRES 4/13/2009 1:00:00 PM |
HJR 33 |
| SJR 16 packet.pdf |
HRES 4/13/2009 1:00:00 PM |
SJR 16 |