Legislature(2023 - 2024)BARNES 124
03/29/2023 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB125 | |
| HB95 | |
| Presentation(s): Alaska Gasline Development Corporation Update | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 125 | TELECONFERENCED | |
| + | HB 95 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 29, 2023
1:02 p.m.
MEMBERS PRESENT
Representative Tom McKay, Chair
Representative George Rauscher, Vice Chair
Representative Josiah Patkotak
Representative Kevin McCabe
Representative Stanley Wright
Representative Donna Mears
Representative Maxine Dibert
MEMBERS ABSENT
Representative Dan Saddler
Representative Jennie Armstrong
COMMITTEE CALENDAR
HOUSE BILL NO. HB 125
"An Act relating to trapping cabins on state land; and relating
to trapping cabin permit fees."
- HEARD & HELD
HOUSE BILL NO. 95
"An Act relating to designation of state water as outstanding
national resource water; and providing for an effective date."
- HEARD & HELD
PRESENTATION(S): ALASKA GASLINE DEVELOPMENT CORPORATION UPDATE
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 125
SHORT TITLE: TRAPPING CABINS ON STATE LAND
SPONSOR(s): RESOURCES
03/20/23 (H) READ THE FIRST TIME - REFERRALS
03/20/23 (H) RES, FIN
03/27/23 (H) RES AT 1:00 PM BARNES 124
03/27/23 (H) Heard & Held
03/27/23 (H) MINUTE(RES)
03/29/23 (H) RES AT 1:00 PM BARNES 124
BILL: HB 95
SHORT TITLE: NATL. RES. WATER NOMINATION/DESIGNATION
SPONSOR(s): RAUSCHER
03/06/23 (H) READ THE FIRST TIME - REFERRALS
03/06/23 (H) FSH, RES
03/23/23 (H) FSH AT 10:00 AM GRUENBERG 120
03/23/23 (H) Heard & Held
03/23/23 (H) MINUTE(FSH)
03/28/23 (H) FSH AT 10:00 AM GRUENBERG 120
03/28/23 (H) Moved HB 95 Out of Committee
03/28/23 (H) MINUTE(FSH)
03/29/23 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
RANDY ZARNKE, President
Alaska Trappers Association
Fairbanks, Alaska
POSITION STATEMENT: Gave invited testimony during the hearing
on HB 125.
AL BARRETTE, representing self
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 125.
RYAN MCKEE, Staff
Representative George Rauscher
Alaska State Legislature
POSITION STATEMENT: On behalf of Representative Rauscher, prime
sponsor, co-presented a PowerPoint presentation, titled "HB 95:
National Resource Water Nomination/Designation" and gave a
sectional analysis of HB 95.
RANDY BATES, Director
Division of Water
Department of Environmental Conservation
Juneau, Alaska
POSITION STATEMENT: Gave invited testimony during the hearing
on HB 95.
FRANK RICHARDS, President
Alaska Gasline Development Corporation
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation, titled
"Alaska LNG Project Update."
ACTION NARRATIVE
1:02:35 PM
CHAIR TOM MCKAY called the House Resources Standing Committee
meeting to order at 1:02 p.m. Representatives Wright, Rauscher,
Mears, Dibert, and McCabe were present at the call to order.
Representative Patkotak arrived as the meeting was in progress.
HB 125-TRAPPING CABINS ON STATE LAND
1:03:35 PM
CHAIR MCKAY announced that the first order of business would be
HOUSE BILL NO. 125 "An Act relating to trapping cabins on state
land; and relating to trapping cabin permit fees."
1:05:14 PM
RANDY ZARNKE, President, Alaska Trappers Association (ATA),
provided invited testimony. He said he was speaking on behalf
of the 1,100 members of the association, and he urged the
committee to support HB 125. He explained that the Department
of Natural Resources (DNR) has had a system for granting permits
for trapping cabins since the 1980s. He expressed the opinion
that it has worked well for many years; however, recently fellow
trappers have expressed concerns that the original legislation
would not authorize DNR to renew permits. He explained that not
all trappers need cabins, but those who trap in large remote
areas do. He quoted an ATA member who said, "It's just one
small warm place in a big cold space." He advised that even a
cabin as small as 100 square feet can ensure survival. He
offered to answer any questions about trapper activities and
lifestyles.
1:07:26 PM
CHAIR MCKAY opened public testimony.
1:07:45 PM
AL BARRETTE, representing himself, described the five-year
process and the numerous meetings with DNR concerning HB 125.
He explained that the proposed legislation would clean up the
statutes so permits [for cabins] can be reissued and
reauthorized. With urban sprawl and increased recreation, he
said, trapping is being pushed farther into the bush where
shelter and safety will be needed. He expressed support for the
bill and asked the committee for its support.
CHAIR MCKAY, after ascertaining there was no one else who wished
to testify, closed public testimony.
CHAIR MCKAY announced that HB 125 was held over.
1:09:46 PM
HB 95-NATL. RES. WATER NOMINATION/DESIGNATION
1:09:53 PM
CHAIR MCKAY announced that the next order of business would be
HOUSE BILL NO. 95, "An Act relating to designation of state
water as outstanding national resource water; and providing for
an effective date."
1:10:23 PM
REPRESENTATIVE RAUSCHER, as the prime sponsor, introduced HB 95
and provided the history of the Clean Water Act. He directed
attention to the PowerPoint presentation, titled "HB 95:
National Resource Water Nomination/Designation" [hard copy
included in the committee packet]. He explained that this
matter has been presented to the legislature in the past, and
the purpose of the bill is to give the legislature the authority
to designate a water body as Tier III, as seen on slide 2. He
stated that Tier III waters are also known as the Outstanding
National Resource Waters (ONWR). He showed slide 3, titled
"Clean Water Act" and said the Act mandates that by 1983 the
states implement water quality standards. These standards
include designation and classifications, water quality criteria,
and anti-degradation policies.
REPRESENTATIVE RAUSCHER moved to slide 4, which showed a graphic
representation of the three tiers. He described Tier I waters
as those which are polluted and do not meet state standards and
accept additional pollution discharges. Tier II waters meet
water quality standards but can also accept some pollution
discharges. He described Tier III waters as "the best of the
best," or ONWR.
REPRESENTATIVE RAUSCHER continued to slide 5, titled "40 Code of
Federal Regulations 131.12(A)(3)," which read as follows
[original punctuation provided]:
"Where high quality waters constitute an outstanding
national resource, such as waters of the national and
state parks and wildlife refuges and waters of
exceptional recreational or ecological significance,
that water quality shall be maintained and protected."
REPRESENTATIVE RAUSCHER explained that the U.S. Congress has
empowered every state to protect its most outstanding water
bodies with the highest levels of protection. He argued that
the water quality must be maintained, and no new pollution
discharges should be allowed. He reiterated that the U.S.
Congress has said that some lakes and rivers are so unique and
so important they should not be dumping grounds for mining and
other types of waste.
1:14:35 PM
The committee took a brief at-ease.
1:14:38 PM
REPRESENTATIVE RAUSCHER continued the presentation on HB 95,
moving to slide 6, which addressed the Department of
Environmental Conservation (DEC), and the nomination process
steps for Tier III. He stated that nominations are sent to
legislators who would introduce legislation. He pointed out
that the nomination would usually go to the legislator whose
district contains the proposed Tier III body of water. Once the
bill is introduced, it would go through the thorough legislative
bill process, and if passed, it would be written into law and
the body of water would be designated as Tier III.
Randy Bates, Director, Division of Water, Alaska Department of
Environmental Conservation, explained that providing for a Tier
III designation would bring certainty to the process and would
codify in statute a consistent practice on how lands and waters
across the state are designated for conservation. This would be
by legislative approval rather than by a director, commissioner,
or judicial action; therefore, it would not be a political
process. He emphasized that each body of water under
consideration would go through the complete legislative process.
Nominations for Tier III waters would be brought to the
district's legislator and travel through the legislative process
just like any other bill. When the bill passes, the body of
water is designated as Tier III.
REPRESENTATIVE RAUSCHER moved to slide 7, which showed a map of
Alaska with the names and locations of five bodies of water
nominated for Tier III status. He explained that these have not
yet received Tier III designation; however, they are in line.
He suggested that if the system being considered in this bill is
incorporated, it would speed up the process.
1:18:07 PM
RYAN MCKEE, Staff, Representative George Rauscher, Alaska State
Legislature, on behalf of Representative Rauscher, prime
sponsor, presented slide 8, titled "Alaska Constitution, Article
8, Section 2" which read as follows [original punctuation
provided]:
"The Legislature shall provide for the utilization,
development, and conservation of all-natural resources
belonging to the state, including land and waters, for
the maximum benefit of its people."
MR. MCKEE moved to slide 9, titled "Alaska Constitution, Article
8, Section 13," which read as follows [original punctuation
provided]:
"All surface and subsurface waters reserved to the
people for common use, except mineral and medicinal
waters, are subject to appropriation. Priority of
appropriation shall give prior right. Except for
public water supply, an appropriation of water shall
be limited to stated purposes and subject to
preferences among beneficial uses, concurrent or
otherwise, as prescribed by law, and to the general
reservation of fish and wildlife."
MR. MCKEE concluded the presentation by pointing out that
the proposed legislation would codify DEC's concurrent Tier
III policy, expediting the nomination of current bodies of
water.
1:19:22 PM
MR. MCKEE presented the sectional analysis [hard copy included
in the committee packet], which read as follows [original
punctuation provided]:
Section 1: Amends AS 46.03 by adding a new section
that:
Establishes AS 46.03.085(a). Through statute, the
legislature may designate water of the state as an
outstanding national resource water.
Establishes AS 46.03.085(b). Unless the body of water
has been designated as an outstanding national
resource water can it be managed like so.
Section 2: Applies for an immediate effective date.
MR. MCKEE called attention to the zero fiscal note.
1:20:17 PM
MR. MCKEE, in response to a question from Chair McKay, stated
that there are currently no Tier III waters in the state.
CHAIR MCKAY noted the five rivers which are the potential
candidates for Tier III status. He expressed the assumption
that these rivers are on state land; however, he questioned the
effects if any of the rivers flowed on Native or federal lands
also.
REPRESENTATIVE RAUSCHER deferred the question to DEC.
1:21:53 PM
REPRESENTATIVE DIBERT, referring to slide 7, questioned the
application process.
REPRESENTATIVE RAUSCHER responded that any group or person can
nominate a body of water and begin the process by contacting a
local state legislator. Significant information must be
provided to answer any questions the legislator may have. He
expressed the belief that it is a duty for a legislator to
follow through with such legislation.
1:24:14 PM
MR. BATES stated that DEC supports HB 95 in its current form.
He explained that ONWR are commonly referred to as Tier III
waters. They are defined as exceptional recreational or
ecologically significant waters which shall be maintained and
protected from degradation. A Tier III designation bestows the
highest level of water quality protection under the federal
Clean Water Act and restricts activities on the waters and
adjacent land. The restricted activities include road building,
seafood processing, recreational activities that require certain
types of permits, wastewater and stormwater discharge systems,
landfills, quarries, and other types of activities which would
result in degradation of the waters. He stated that in 2018
Alaska created a process to designate Tier III waters, as
required by the Clean Water Act, and, since this time, no new
discharges have been allowed to Tier III waters. He added that
this has long-term implications for both adjacent and upstream
areas.
1:28:27 PM
MR. BATES stated that DEC supports this bill which formalizes
the designation of Tier III waterways by statute. Outlining the
three reasons for DEC's support, he read from a prepared
statement, which read as follows:
1. The legislative process provides a full and public
process, engaging all the interested and affected
parties that might have an interest in this particular
designation including communities, residents, users of
the area, developers and conservationists. And as
well, those agencies that may share responsibility for
managing those areas and waters.
2. The legislative process allows for a full
discussion of the consequences, restrictions, and
impacts other of activities and potential activities
by the designation for the future and foreseeable
activities.
3. He commented that this was critically important.
The legislative body in the process is the proper
forum to establish land and water use designations.
DEC is pleased to return that power to the legislature
in this instance.
1:29:22 PM
MR. BATES maintained that providing for a Tier III designation,
as structured in HB 95, would bring certainty to the process and
codify a consistent practice on how lands and waters across the
state would be designated for conservation by legislative
approval, rather than by a director, a commissioner, or judicial
action. To answer a previous question, he explained that there
are no Tier III designated waters in Alaska, but there are five
pending applications, with the first in 2012 and the most recent
in 2017. He stated that DEC had responded to these proposals by
suggesting the proponents contact their legislators to seek
support. He offered to share copies of the five proposals with
the committee. He described the proposals as ranging from a
single-page letter to a 50-page document, which included the
nominating group's research and water quality measurements.
1:31:23 PM
CHAIR MCKAY asked why the 2012 application for the designation
of a Tier III body of water has not been addressed 11 years
later. He questioned whether DEC had not processed the
designation.
MR. BATES explained that the 2012 nomination is for the Koktuli
River, which is one of the headwaters for Bristol Bay. He
stated that the list of petitioners is extensive. He stated
that DEC had most recently responded to the application in 2019,
reaffirming the policy that Tier III designations are the
purview of the legislature. He reiterated to the committee that
it is not appropriate for a commissioner or a department to make
these designations. He stated that the department supports the
proposed legislation because it moves the power and authority to
the legislature. He expressed the opinion that the legislature
is the proper body for dealing with this matter.
1:33:19 PM
REPRESENTATIVE MCCABE mentioned that HB 95 had previously been
heard in the House Special Committee on Fisheries where an
amendment was offered to give authority to both DEC and the
legislature. Opposing the amendment, he expressed the belief
that this would politicize the process. He requested DEC's
position on the designations and asked whether this should be
the responsibility of the legislature.
1:34:46 PM
MR. BATES expressed agreement with Representative McCabe. He
explained DEC's position, which is this is a land use
designation, which exceeds the authority of DEC because state
appropriations should exist in the legislature. Referring to
the previous hearing, he said that there had been suggestions to
include DEC in addition to the legislature. He described the
challenges and how this would counter DEC's policies for
consistency and predictability. He expressed the opinion that
this could also politicize the process by creating a system
where advocates for Tier III water bodies could go to the
department's commissioner or director if they could not get a
bill through the legislature. He argued that, if it is in the
hands of a commissioner or a director, it may violate the
separation of powers. In addition, this would more likely be
subject to judicial review, leaving the courts with the final
Tier III designation. This could potentially leave out the
perspective of the legislature, the client, or the department.
1:36:26 PM
REPRESENTATIVE MCCABE speculated that if the bill were to
include DEC as an alternate path to these designations, the
legislature and DEC may be at odds. If this is the case, it
would become necessary to bring in the judicial branch. He
reiterated his belief that the process belongs with the
legislature, and the process needs to be in place so these old
applications can be addressed.
1:37:05 PM
CHAIR MCKAY asked for the explanation concerning water bodies
which cross jurisdictions, such as Native, federal, and state
boundaries. He questioned whether the river would maintain its
Tier III status if, for example, it crossed from state to
federal lands.
1:37:52 PM
MR. BATES responded that there are questions concerning
ownership of bodies of water. He surmised that the state
clearly asserts that rivers and navigable waters are under the
state's authority and purview; therefore, this would be a legal
issue. He explained that if a portion or entirety of a water
body is designated as Tier III, it is going to be managed
according to the federal and the state rules as a Tier III water
body. He explained that if there is a state or federal
wastewater discharge permit or water quality permit, these
permits would be implicated in the Tier III water body. He
continued that proposed activities in or close to a Tier III
water body would not be allowed to change, degrade, or lower the
quality of water, regardless of land ownership.
1:39:54 PM
CHAIR MCKAY, using the Yakutat Forelands as an example, he
suggested that most Alaska legislators have not been there, so
the legislators from this district would need to provide the
thorough justification for the Tier III designation. He
questioned whether this is part of the rationale behind the
bill.
MR. BATES expressed agreement with Chair McKay. He said that
the Tier III designation needs information, relying on good
science and compelling arguments, regarding why the body of
water is special. He reminded the committee that they were
talking about water bodies which are the "best of the best." He
added that, nationally, Alaska's Tier II waters and the
protections offered are second to none, as Alaska has a very
comprehensive and rigorous regulatory program which includes all
DEC sister agencies in the management of Tier II waters.
1:41:53 PM
REPRESENTATIVE DIBERT, concerning the Chandler River Tier III
nomination, pointed out the 50-page report from the nominees.
She questioned whether legislators could ask DEC or other
agencies to help understand the science in the reports.
CHAIR MCKAY responded that most of the legislators are not wild
land or river experts, so expert background is important for
learning about these water bodies. He questioned whether a Tier
III designation could be taken away by future legislation. He
offered a scenario in which the Chandlar River is designated a
Tier III waterway, then what if the largest deposit of lithium
ever found was on the banks of this river. He questioned what
would happen then.
MR. BATES stated that the Chandlar River was nominated by the
Venetie Village Council in 2016 and responded that when a Tier
III designation goes into effect, DEC would need to know the
specifics to manage it appropriately. If it is geothermal water
or has exceptional clarity, appropriate management would have
different costs. He referred to a letter concerning costs
written in April 2022, when this was being considered by the
legislature. Addressing the issue of de-designating an area, he
explained that currently the Environmental Protection Agency
(EPA) has confirmed there is no rule prohibiting such an action.
1:47:27 PM
REPRESENTATIVE DIBERT questioned the number of other states
which use their legislatures to designate waters.
MR. BATES, responding, expressed uncertainty. He added that he
would follow up with this information to the committee.
REPRESENTATIVE RAUSCHER went into detail about why he sponsored
the proposed legislation. He reminded the committee that it
deals with very complex matters, such as fiscal situations, gas
and oil leases and taxes, and future fiscal policy. He argued
that waterway issues are not beyond the capabilities of the
legislators. He explained the process he would use if a
proponent for a Tier III waterway approached him with a
nomination. He said he would take time during the interim,
reading and studying the documentation to better understand the
reasoning and science. He would communicate this with other
legislators. The issue may seem daunting; however, he expressed
the opinion that the legislature has worked on many important
things, and if the legislature is tasked with an issue, there
will be due diligence. He argued that the five nominations have
not been dealt with for many years, and he expressed the desire
to see this changed.
1:51:37 PM
REPRESENTATIVE MEARS expressed her concerns about the
legislature's ability to deal with such matters without a formal
background. She stated that the standards, science, and
timelines were not conducive to the legislative process, and
there should be a recommendation process by experts. She
pointed to the financial burden on the applicants who gather the
information. She expressed concern that the process would be
deliberate.
1:54:38 PM
MR. BATES voiced DEC's objective to avoid court involvement with
Tier III designations. He expressed the opinion that DEC's
involvement should be part of the process which has the least
potential for ending up in a courtroom. He expressed the
opinion that if one of these designations is challenged in
court, not only will it delay the designation for years, but it
will also put the decision in the hands of the court which does
not have the background to make such decisions.
1:56:23 PM
CHAIR MCKAY announced that HB 95 was held over.
^PRESENTATION(S): Alaska Gasline Development Corporation Update
PRESENTATION(S): Alaska Gasline Development Corporation Update
1:56:48 PM
CHAIR MCKAY announced the final order of business would be an
update on the Alaska Gasline Development Corporation.
1:57:09 PM
FRANK RICHARDS, President, Alaska Gasline Development
Corporation (AGDC), presented a PowerPoint presentation titled
"Alaska LNG Project Update" [hard copy included in the committee
packet]. He explained the presentation would provide an update
of the liquified natural gas (LNG) project, or Alaska LNG
Project ("LNG project"), and AGDC's activities in moving the
project to execution. He began on slide 2, which gave an
overview of AGDC. He stated that AGDC is an independent, public
corporation owned by the state, and it was created by the
legislature with the mission to maximize the benefit of the vast
North Slope natural gas resources by developing the
infrastructure necessary to move the gas to local and
international markets. He stated that the AGDC is the current
owner and developer of the LNG project; however, the project is
transitioning to private ownership under qualified developers.
MR. RICHARDS explained that AGDC was formed by the Alaska
legislature in 2014. He went through the points on the slide,
stating that AGDC currently owns Alaskan LNG 100 percent,
transitioned by the former partners at the end of 2017. He
stated that the former partners were Exxon Mobile, BP, and
Conoco Phillips.
MR. RICHARDS advanced to slide 3, addressing how the Alaska LNG
Project has changed over the past 20 years. He stated that the
project is competitive, will benefit the state, is
environmentally friendly, will transition to the private sector,
and has all major permits and authorizations.
MR. RICHARDS informed the committee that Alaska LNG has become a
more cost-competitive project because of resources granted by
the legislature. The design of the LNG project has been
optimized, as well as its commercial structure. Led by the
Federal Energy Regulatory Commission, the project has been moved
through the environmental process, as authorizations were
received in 2017. He stated that the LNG project will
transition to private sector leadership, and this will move the
project through construction and operation, leading to revenue
resources for the state.
MR. RICHARDS moved to slide 4, which highlighted the natural gas
pipeline on a map of Alaska. He stated that the North Slope gas
supply is 40 trillion cubic feet (Tcf) of natural gas stranded
in Prudhoe Bay and Point Thomson, which equals to over 10 years'
worth of Japan's total consumption. He stated that the Arctic
Carbon Capture Plant is in Prudhoe Bay adjacent to existing gas
plants, and it removes carbon dioxide (CO2) from a raw gas
stream for permanent sequestration. He stated that the natural
gas pipeline would run 807 miles from Prudhoe Bay to Nikiski,
following the Trans-Alaska Pipeline System and highway system,
and it would provide gas to Alaskans, while the Alaska LNG
facility would convert natural gas to LNG for export to Asia.
He stated that the LNG project was founded on the North Slope
natural gas resources, located in Prudhoe Bay and Point
Thompson. He suggested that the gas supply is ready to
commercialize but needs an economically viable project to move
it forward.
2:01:36 PM
MR. RICHARDS said the gas contains some impurities such as
carbon dioxide and hydrogen sulfide, which would be removed
using the Arctic Carbon Capture Plant. After the carbon capture
procedure, its form would be LNG. He explained that the carbon
sequestration of impurities was part of the original design, so
it has added value under federal tax credits enacted last year,
equating to almost $600 million a year.
2:03:08 PM
REPRESENTATIVE MCCABE expressed the understanding if CO2 is
returned directly back into the well, it would mean repeating
this step, and this is one of the reasons for creating the Artic
Carbon Capture Plant at the North Slope. He asked whether the
CO2 would be released into the atmosphere, if there was no
carbon sequestration.
MR. RICHARDS responded that other producers release CO2, and it
is not recycled. He emphasized that releasing CO2 was never the
design or intention of the LNG project. The captured CO2 will
be reinjected into the formation in a hydrologically distinct
area.
REPRESENTATIVE MCCABE asked whether the tax credits would be the
final step in making the 43-billion-dollar LNG project
economically viable.
MR. RICHARDS responded that it would be very helpful in making
the project competitive.
2:06:30 PM
REPRESENTATIVE RAUSCHER questioned who profits from the tax
credit from sequestering the CO2.
MR. RICHARDS said LNG, the natural gas assets, and the
impurities are owned by the lease holder. When the LNG project
is sold, the gas treatment plant and the CO2 are owned by the
plant owner who will also be able to claim the tax credit.
2:08:01 PM
MR. RICHARDS, in response to a question from Representative
Wright, stated that the estimated total cost of the LNG project
is 43.8 billion dollars.
REPRESENTATIVE WRIGHT questioned the cost overrun.
2:08:53 PM
REPRESENTATIVE MEARS questioned the capital and annual operating
costs for the carbon capture plant.
MR. RICHARDS responded that the 43.8 billion includes potential
cost overruns which equate to approximately 20 percent of the
cost. In response to a series of questions, he stated that
there is a cost estimate for the three components of the carbon
capture plant: the carbon capture plant, the pipeline, and the
LNG liquefaction facility. He stated that these numbers are
currently not available at this time, but he would follow up to
the committee with them. Concerning whether the operating cost
is based on these three separate functions, he responded that he
would explain this further in the presentation.
2:10:09 PM
CHAIR MCKAY stated the carbon capture bill, HB 50, which
previously passed out of committee, could be critically
important as the LNG project continues. He explained that
during oil production, gas and CO2 have been injected into the
oil wells to provide pressure for the continued production of
oil, because oil had been the most valuable resource. He
explained that, in time, an oil field reaches a point called
"blowdown." At this point oil production is no longer feasible,
and gas becomes more valuable, and it is converted to a gas
field, making the carbon capture project much more important.
2:12:22 PM
MR. RICHARDS pointed out that the state wants to maximize oil
and gas production. He stated that, recognizing the eventual
depletion of oil in 2014 and to begin the migration from oil to
gas production, ADGD authorized 3.6 billion cubic feet a day of
gas off-take. He stated that the LNG project will be taking 3.3
billion cubic feet a day, making the carbon injection wells
important from the outset. He offered that the committee's work
on HB 50 is very helpful to the project because it would shift
the regulation of the Class VI oil wells from the EPA to the
state.
MR. RICHARDS continued to discuss slide 4. He described the
807-mile pipeline route, pointing out the off-takes for an
Alaska LNG plant, which would make the gas available for
Alaskans. He stated that the terminus of the pipeline is at a
liquefaction plant located in Cook Inlet. Proceeding to slide
5, he explained the economics of the project. By comparing the
price of oil with gas, he projected that Alaska LNG's cost of
supply would be below the market price. He stated that the
numbers on the slide were verified by Wood Mackenzie. He added
that counting for recent construction inflation, tax credits,
and financial return expectations, the estimates remain largely
unchanged. Discussing the cost estimates, he explained that the
purpose of the analysis was to find out how the costs of the LNG
Project compared with other markets, and it was concluded that
the $6.55 cost of supply would be competitive on the world
market, primarily in Asia, so investments will be profitable.
2:16:47 PM
MR. RICHARDS, in response to a question from Representative
Wright, explained that Wood Mackenzie is a natural resources
consulting firm specializing in analysis of the world cost of
competitiveness trends of oil and gas. In response to a follow-
up question, he stated that the most recent report was done in
2022.
MR. RICHARDS, moving to slide 6, pointed out that the LNG
project would reduce greenhouse gas (GHG) emissions by more than
77 million tons of CO2 per year. He expressed the opinion that
Alaska LNG would have one of the greatest GHG benefits of any
project in the world. He noted the graph comparing LNG to GHG
impacts, which showed that Alaska LNG will have the same GHG
impacts as eliminating 19 coal power plants or constructing
16,000 wind turbines. He moved to slide 7, which outlined
Alaska's energy security. He noted that Cook Inlet gas supply
is uncertain, and with the utilities evaluating potential for
LNG import, the LNG Project would be the best option to replace
Cook Inlet gas because it is secure. He concluded that Alaska
LNG would ensure priority natural gas supply for Alaskans. He
reinforced the insecurity of Cook Inlet natural gas supplies by
showing a headline from the Anchorage Daily News on slide 7. He
reiterated that the project's development would ensure Alaskans
will have long term supplies of natural gas.
2:20:13 PM
MR. RICHARDS continued to slide 8 and said that Alaska LNG is
designed to provide system capacity to ship natural gas to
Alaskans. He stated that the 500 million cubic feet per day of
pipeline is in excess of the LNG plant's current needs, as now
the demand is about 220 million cubic feet per day. This is
prioritized for Alaskans and allows for long-term Alaska natural
gas demand growth.
2:21:06 PM
CHAIR MCKAY asked if Alaskans get "first call" and questioned
whether local and state uses could be denied at a future date.
2:22:03 PM
MR. RICHARDS, in response, continued with slide 9 and discussed
the utility supply agreements. He said that AGDC offered
agreements to utilities to ensure that the Alaskan utilities
would receive preferential terms for gas supplies from Alaska
LNG, and this would supply residential, commercial, and small
industrial customers. He stated that these agreements will also
bind future investors and developers in the state's LNG market.
Other terms include that the price will be no higher than that
paid by the LNG facility for the natural gas; in the event of an
interruption, Alaska utilities will be prioritized over LNG
exports; growth up to 500 MMcfd would be ensured; and there will
be the ability to adjust take-or-pay commitments in response to
changes in demand or new renewable sources of energy. He stated
that the agreements were offered so the utility companies would
have priority and could guard against cost escalation.
2:23:33 PM
CHAIR MCKAY questioned whether the agreements would stay in
place when AGDC moves Alaska LNG to the private sector.
MR. RICHARDS responded that this is the reasoning behind the
agreements. He moved to slide 10, which addressed the lower
cost of energy for the state. He estimated the Alaska LNG in-
state price to be between $4.00 and $5.00 per one million
British thermal unit. He expressed the opinion that
Southcentral households can expect to save up to $1,000 in
heating and electric costs per year, while Interior households
could save much more.
MR. RICHARDS moved to slide 11 and explained that rural
communities will be able to apply for funds to use for energy
needs. He stated that, per AS 37.05.610, the purpose is to
provide a source of funds for appropriation to develop the
infrastructure to deliver energy to areas of the state which do
not have direct access to the Alaska LNG pipeline. He stated
that, after payment into the Alaska Permanent Fund, the Alaska
Affordable Energy Fund will receive an annual deposit of 20
percent of state royalty revenues. He moved to slide 12, which
showed a world map with proposed trade routes. He pointed out
that the war in Ukraine has disrupted the European natural gas
supply, so other supplies have been diverted to keep the heat
and power on in Europe, and this dynamic has increased the need
for the U.S. supply from Alaska to meet the long-term energy
security needs of Asia. He added there is also a great push by
Asian countries to shift toward net-zero targets, because LNG is
being used as a bridge tool to move away from coal and oil
products.
2:27:24 PM
MR. RICHARDS moved to slide 13, pointing out the market impact
on Alaska LNG because of the record high LNG prices. He stated
that this puts upward pressure on long-term contract prices,
highlighting the need for new LNG capacity, as buyers are now
seeking long-term contracts. In regard to national security, he
stated that Europe had been buying Russian gas, so U.S. LNG is
being diverted to Europe, while Asian buyers are seeking LNG.
He stated that Europe has also recognized natural gas as
transition fuel and green energy. He acknowledged that Europe
is switching back to coal due to lack of gas investment and
availability. He drew attention to slide 13, which also points
to elements which create opportunity, such as LNG investors and
developers' increased interest, strategic importance for the
U.S. and Asian allies, and overall increased interest and
urgency to move projects forward. He added that since Alaska
already has trade ties with Asia, it can easily look to the
Asian markets for LNG investments.
2:28:38 PM
MR. RICHARDS moved to slide 14, which showed changes over time
from producer-led development to steps which involved the state,
and then to the future which will be developer led. In example,
he stated that Exxon and BP led the LNG project in 2013 through
2016, which was followed by a state-led period from 2017 through
2022. As of 2023, he said, the LNG project is moving to over 75
percent private sector-led development, which is advancing
projects.
MR. RICHARDS moved to a description of the investment process on
slide 15. He stated that AGDC has entered into an engagement
letter with Goldman Sachs to provide advisory services for
Alaska LNG development capital, and AGDC is targeting $150
million development capital to get the final investment decision
(FID). He stated that investors will receive a majority
interest in 8-Star Alaska, LLC and Alaska LNG. He stated that
AGDC is already working with large private equity and
infrastructure funds, with Goldman Sachs leading the update of
investment materials and providing guidance on base economic
model.
2:30:42 PM
MR. RICHARDS, in response to Chair McKay, stated that the
engagement letter with Goldman Sachs took place in 2018 to 2022.
He moved to slide 16, which addressed equity offers for
investors. He stated that AGDC is raising development capital
for Alaska LNG to reach FID. He listed qualities which make
Alaska LNG an attractive investment, including the best
economics of any North America project, fully permitted,
beneficial equity terms and local support. He stated that
Alaska and former partners have invested over a billion dollars
to date, and now AGDC is seeking investments from the private
sector to move the LNG project forward. As seen on slide 17, he
said that AGDC is pursuing multiple strategies to raise
development capital; however, only a limited number of
developers exist, each with competing opportunities.
2:34:13 PM
MR. RICHARDS continued to slide 18, which addressed LNG sales
agreements. He stated that there are active negotiations with
multiple LNG buyers, including traditional Asian utility buyers,
LNG traders, and oil and gas companies. Originally, AGDC was
offering a fixed price structure, but investors wanted oil
indexed or natural gas indexed or a combination of those. He
stated that negotiations are fairly advanced with ongoing price
discussions, and all buyers are credit worthy, large-scale
market participants. He added that some buyers are considering
an "equity offtake," which involves the buyer investing in the
project at FID in exchange for LNG supplied at cost, usually in
the 3-million-ton range. He stated that to date negotiations
under consideration equal approximately 125 percent of the LNG
project. He notes that all conversations with buyers are under
confidentiality agreements.
MR. RICHARDS pointed out that slide 19 lists the state revenue
sources, which include royalties and production tax from the
commercialization of natural gas and of the unlocked Point
Thomson condensate. These revenues also include state corporate
income tax, Property Tax, the return on state equity investment,
and the return on additional equity investment in Alaska LNG.
He stated that AGDC is collaborating with the Department of
Revenue to quantify state revenue from Alaska LNG.
2:37:05 PM
REPRESENTATIVE PATKOTAK asked for clarification regarding the
state taking equity versus dollars.
MR. RICHARDS explained that the economic model takes into
consideration the possibility of Alaska participating as an
equity owner, so a 25 percent stake is reserved for Alaska.
REPRESENTATIVE PATKOTAK questioned the tradeoff for the state if
it becomes an equity owner.
MR. RICHARDS replied that the tax revenue streams would remain
in place. He explained that if the state has an equity stake,
it will have equity returns as well.
2:38:30 PM
CHAIR MCKAY gave an example of an equity return on an investment
of 5 billion dollars on top of the other tax revenues.
MR. RICHARDS discussed the creation of the 8-Star Alaska, LLC
subsidiary, as this contains the assets. He stated that AGDC
looks to divest up to 75 percent of these funds to private
equity companies, and under 8-Star Alaska, there will be three
LLCs: the gas treatment plant, the pipeline, and the gas
liquefaction plant. He explained that the state could elect to
have ownership of one, two, three, or none of these.
2:40:06 PM
REPRESENTATIVE PATKOTAK asked whether a municipality, for
example, could elect to forego property tax revenues in exchange
for becoming an equity partner.
MR. RICHARDS replied that one of AGDC's primary missions is to
create opportunities for Alaskan governments and individuals to
invest in the LNG project.
2:41:04 PM
REPRESENTATIVE MEARS questioned the tax for the LNG royalties
for Cook Inlet.
MR RICHARDS responded that the numbers are only from the North
Slope. In response to a follow-up question, he stated that
there is a tax structure in place now in the North Slope.
2:42:50 PM
REPRESENTATIVE WRIGHT questioned the control Alaskans have on
the selling price of gas.
MR. RICHARDS replied that it is a commercial negotiation. He
continued to slide 20, which pointed out the jobs created by the
LNG project for Alaskans. He moved to slide 21, which addressed
federal support for the LNG project. He stated that the Alaska
delegation has worked with the administration in Washington D.C.
to include provisions allowing for the eligibility for $29
billion in federal loan guarantees for the LNG project. He
explained that has been on the books since 2004, under the
Alaska Natural Gas Pipeline Act. He pointed out that, with the
loan guarantees backed by the federal government, interest rates
for debt financing will be 1 to 2 points lower; however, the
project is waiting for the final determination of the U.S.
Department of Energy Supplemental Environmental Impact
Statement. He added that Senator Lisa Murkowski has also worked
on the appropriation of 4 million dollars for the front-end
engineering and design for AGDC.
2:47:16 PM
MR. RICHARDS, in response to Representative Mears, explained
that the state is still eligible for tax credits. He stated
that the Asian markets are interested in clean energy, as well
as carbon sequestration in Alaska.
MR. RICHARDS moved to slide 22, addressing the hydrogen
opportunity in the state. He pointed out that hydrogen and
ammonia are clean energy sources, and there is infrastructure
funding available for investment in Alaska, as well as interest
from key Asian markets. He advised that Cook Inlet has the best
carbon sequestration potential on the Pacific Coast of North
America.
2:49:30 PM
CHAIR MCKAY expressed the understanding that Alaska would ship
hydrogen and ammonia to Japan and South Korea, and the CO2 would
be sent back for disposal in the depleted reservoirs.
MR. RICHARDS moved to slide 23 and stated that the LNG project
already has the permits and approvals from the Federal Energy
Regulatory Commission's Environmental Impact Statement and
Order. These are the major federal permits and authorizations
needed, and this includes the land rights-of-way, a cultural
resources management plan, an ACC plant air permit, and a
liquefaction facility air permit. He pointed out slide 24 and
slide 25, which display the pertinent contact information, and
slide 26, which provided a list of acronyms.
2:51:25 PM
REPRESENTATIVE RAUSCHER asked about the land rights-of-way and
how much of this is private land.
MR. RICHARDS explained it is a combination of governmental
lands, such as municipalities and boroughs, native corporation
lands, and some private lands.
2:52:10 PM
CHAIR MCKAY inquired about a timeline for the LNG project from
FID to the first flow of gas.
MR RICHARDS outlined an approximate schedule starting with
meeting the $150 million goal, at which point the front-end
engineering design would be completed, and this is a 12-to-14-
month timeframe. A few months after this, there will be FID
regarding whether to invest the $44 billion necessary for
construction. Once the construction begins, it will be around a
six-year process, which includes ordering all the components.
He stated that there is the possibility of advancing the
pipeline stage by using Point Thompson gas which has a lower CO2
content. He said if feed started in the fall and FID is in
2025, then there is the potential for actual LNG in 2030 to
2031.
CHAIR MCKAY asked whether the gas pipelines need to be buried.
MR. RICHARDS responded that the 42-inch diameter pipeline would
be buried except for earthquake crossings.
CHAIR MCKAY questioned how LNG pipelines work so the permafrost
would not melt.
MR. RICHARDS explained how the natural gas pipeline differs from
the oil pipeline. He explained the chillers at compressor
stations which would keep the gas cooled to the right
temperature.
2:55:09 PM
CHAIR MCKAY conjectured that building the infrastructure would
mean opening other further gas exploration and production.
MR. RICHARDS expressed agreement. He said the LNG project is
focused on Prudhoe Bay and Point Thompson only, but the
potential for natural gas is tremendous with possibly trillions
of cubic feet of gas on the North Slope.
2:56:09 PM
REPRESENTATIVE PATKOTAK emphasized the longevity of projects on
the North Slope. He said the opportunities extend beyond our
lifetimes.
CHAIR MCKAY said Alaska is in competition with other "players"
which would like to sell LNG to Japan and South Korea. He
expressed the belief that the LNG project will bring benefits to
every Alaskan for a very long time. He mentioned the potential
competition by Canada on the McKenzie Delta.
MR. RICHARDS expressed agreement.
2:58:51 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:58 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AGDC 3.29.23 HRes Presentation.pdf |
HRES 3/29/2023 1:00:00 PM |
|
| HB 95 - Sectional Analysis.pdf |
HFSH 3/23/2023 10:00:00 AM HRES 3/29/2023 1:00:00 PM |
HB 95 |
| HB 95 - Sponsor Statement.pdf |
HFSH 3/23/2023 10:00:00 AM HRES 3/29/2023 1:00:00 PM |
HB 95 |
| HB 95 Supporting Document Presentation .pdf |
HRES 3/29/2023 1:00:00 PM |
HB 95 |
| HB 125 Public Testimony (through 3.28.23).pdf |
HRES 3/29/2023 1:00:00 PM |
HB 125 |
| Alaska-LNG_ESG-2023.pdf |
HRES 3/29/2023 1:00:00 PM |
|
| HB 95 Draanjik River ONRW Nomination.pdf |
HRES 3/29/2023 1:00:00 PM |
HB 95 |
| HB 95 Chilkat ONRW.pdf |
HRES 3/29/2023 1:00:00 PM |
HB 95 |
| HB 95 Chandlar River Tier 3 nomination.pdf |
HRES 3/29/2023 1:00:00 PM |
HB 95 |
| HB 95 Yakutat Forelands_Nomination.pdf |
HRES 3/29/2023 1:00:00 PM |
HB 95 |
| HB 95 Koktuli ONRW Nomination.pdf |
HRES 3/29/2023 1:00:00 PM |
HB 95 |