Legislature(2017 - 2018)BARNES 124

01/23/2017 01:00 PM RESOURCES

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01:07:41 PM Start
01:08:27 PM Overview(s): Update on the Alaska Lng Project
02:59:20 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Update: Alaska LNG Project TELECONFERENCED
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                        January 23, 2017                                                                                        
                           1:07 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Andy Josephson, Co-Chair                                                                                         
Representative Geran Tarr, Co-Chair                                                                                             
Representative Dean Westlake, Vice Chair                                                                                        
Representative Harriet Drummond                                                                                                 
Representative Justin Parish                                                                                                    
Representative Chris Birch                                                                                                      
Representative DeLena Johnson                                                                                                   
Representative George Rauscher                                                                                                  
Representative David Talerico                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Chris Tuck (alternate)                                                                                           
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Mike Chenault                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
OVERVIEW:  UPDATE ON THE ALASKA LNG PROJECT                                                                                     
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
BILL MCMAHON, Senior Commercial Advisor                                                                                         
ExxonMobil Corporation                                                                                                          
Houston, Texas                                                                                                                  
POSITION STATEMENT:  On behalf  of the participants of the Alaska                                                             
LNG Project (AKLNG)  related to progress on AKLNG,  and on behalf                                                               
of ExxonMobil  related to  its perspective  on a  state liquefied                                                               
natural  gas  (LNG)  project, provided  testimony  prior  to  the                                                               
Alaska  Gasline  Development  Corporation update  on  AKLNG,  and                                                               
answered questions.                                                                                                             
                                                                                                                                
DAMIEN BILBAO, Vice President                                                                                                   
Commercial Ventures                                                                                                             
BP                                                                                                                              
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Provided  testimony  prior  to the  Alaska                                                             
Gasline  Development   Corporation  update  on  the   Alaska  LNG                                                               
Project, and answered questions.                                                                                                
                                                                                                                                
DARREN MEZNARICH, Manager for Alaska North Slope Gas                                                                            
ConocoPhillips Alaska, Inc.                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:    Provided   testimony  during  the  Alaska                                                             
Gasline  Development   Corporation  update  on  the   Alaska  LNG                                                               
Project, and answered questions.                                                                                                
                                                                                                                                
FRANK RICHARDS, P.E.                                                                                                            
Senior Vice-President for Program Management                                                                                    
Alaska Gasline Development Corporation                                                                                          
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION   STATEMENT:     Provided   a  PowerPoint   presentation                                                             
entitled,  "Alaska Moving  Forward:   Alaska LNG  Project Update"                                                               
dated 1/23/17, and answered questions.                                                                                          
                                                                                                                                
KEITH MEYER, President                                                                                                          
Alaska Gasline Development Corporation                                                                                          
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Provided opening remarks  during the Alaska                                                             
Gasline  Development   Corporation  update  on  the   Alaska  LNG                                                               
Project.                                                                                                                        
                                                                                                                                
LIEZA WILCOX, Vice President                                                                                                    
Commercial and Economics                                                                                                        
Alaska Gasline Development Corporation                                                                                          
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Participated  in the PowerPoint presentation                                                             
entitled, "Alaska  Moving Forward:   Alaska LNG  Project Update,"                                                               
dated 1/23/17, and answered questions.                                                                                          
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:07:41 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GERAN   TARR  called   the  House   Resources  Standing                                                             
Committee meeting  to order at  1:07 p.m.   Representatives Tarr,                                                               
Birch,  Drummond,  Parish,   Rauscher,  Talerico,  Westlake,  and                                                               
Josephson  were present  at the  call to  order.   Representative                                                               
Johnson arrived  as the  meeting was in  progress.   Also present                                                               
was Representative Chenault.                                                                                                    
                                                                                                                                
1:08:27 PM                                                                                                                    
                                                                                                                                
CO-CHAIR   TARR  reviewed   materials   related  to   legislative                                                               
briefings such as  the update of the Alaska  LNG Project (AKLNG).                                                               
She urged  the committee  to review sections  of Senate  Bill 138                                                               
[passed in  the 28th  Alaska State  Legislature] specific  to the                                                               
responsibilities  of the  Alaska Gasline  Development Corporation                                                               
(AGDC), and  direction to the  Alaska Industrial  Development and                                                               
Export Authority  (AIDEA) and the Alaska  Energy Authority (AEA),                                                               
Department   of  Commerce,   Community  &   Economic  Development                                                               
(DCCED).                                                                                                                        
                                                                                                                                
^OVERVIEW(S):  UPDATE ON THE ALASKA LNG PROJECT                                                                                 
         OVERVIEW(S):  UPDATE ON THE ALASKA LNG PROJECT                                                                     
                                                                                                                              
1:12:17 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR announced that the  only order of business would be                                                               
a  continuation of  the  overview of  the  Department of  Natural                                                               
Resources,  including  an  update   on  the  Alaska  LNG  Project                                                               
(AKLNG).                                                                                                                        
                                                                                                                                
1:12:57 PM                                                                                                                    
                                                                                                                                
BILL MCMAHON, Senior  Commercial Advisor, ExxonMobil Corporation,                                                               
paraphrased  from  the   following  written  testimony  [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Co-Chair Tarr,  Co-Chair Josephson  and members  of the                                                                    
     House Resources  Committee, for the record,  my name is                                                                    
     Bill McMahon. - I am  a Sr. Commercial Advisor and have                                                                    
     34 years of experience  with ExxonMobil and have worked                                                                    
     on  commercializing Alaska  natural gas  since 1992.  •                                                                    
     Thank you for the  opportunity to address the committee                                                                    
     this  afternoon.  My testimony  will  be  given in  two                                                                    
     parts: -  The first part  will be on behalf  the Alaska                                                                    
     LNG  Project (AKLNG)  participants -  AGDC, ExxonMobil,                                                                    
     BP  and ConocoPhillips.  The four  parties have  worked                                                                    
     hard to complete the  technical and regulatory handover                                                                    
     and the commercial  transition of AKLNG to  a State LNG                                                                    
     project run  by AGDC.  I will  be sharing  our progress                                                                    
     since  September. -  The second  part  will be  sharing                                                                    
     ExxonMobil's  perspectives   on  a  State   Alaska  LNG                                                                    
     project  and how  our company  is  supporting the  AGDC                                                                    
     effort.  - Following  my testimony,  Damian Bilbao  and                                                                    
     Darren Meznarich will be  sharing BP and ConocoPhillips                                                                    
     perspectives,  respectively.  -   As  always,  we  look                                                                    
     forward to answering your questions. •                                                                                     
                                                                                                                                
     Following  the Administration's  decision  to pursue  a                                                                    
     State LNG project, ExxonMobil, as  Lead Party under the                                                                    
     Pre-FEED  JVA (Joint  Venture Agreement),  completed an                                                                    
     extensive handover  process with AGDC for  all the Pre-                                                                    
     FEED  JVA  work   products,  including  the  underlying                                                                    
     technical  data.   In  addition,   on  behalf   of  the                                                                    
     applicants in the FERC  pre-filing, ExxonMobil also met                                                                    
     with  regulators   and  AGDC  to  discuss   the  coming                                                                    
     changes.  On  January  4th, the  FERC  was  advised  by                                                                    
     letter  that  ExxonMobil,  BP and  ConocoPhillips  have                                                                    
     withdrawn  from the  Pre-File Docket,  leaving AGDC  as                                                                    
     the sole applicant. •                                                                                                      
                                                                                                                                
     During testimony  on August 25,  the key  components of                                                                    
     the   technical  and   regulatory   handover  and   the                                                                    
     commercial transition were shared.  Today, I would like                                                                    
     to  list the  achievements since  that time:  - All  77                                                                    
     Pre-FEED  deliverables  agreed  under the  AKLNG  Joint                                                                    
     Venture   Agreement   are   finished  and   have   been                                                                    
     distributed    to    AGDC,     ExxonMobil,    BP    and                                                                    
     ConocoPhillips. - The final  two draft Resource Reports                                                                    
     (11 and 13)  were submitted by the  applicants to FERC,                                                                    
     completing  the  draft  Resource  Reports  required  to                                                                    
     advance the EIS pre-file process.  - FERC and the other                                                                    
     coordinating   agencies   have  provided   over   2,700                                                                    
     comments  on  the  twelve Resource  Reports  that  were                                                                    
     submitted. - The AKLNG project  team provided a summary                                                                    
     of all  of the comments  and questions to  all parties,                                                                    
     including  AGDC.  The   AKLNG  project  team  completed                                                                    
     dozens  of project  technical  and regulatory  handover                                                                    
     sessions  with  AGDC,  including  weekly  sessions  and                                                                    
     extended  workshops. -  These handover  sessions, which                                                                    
     were  completed  prior  to year-end  2016,  provided  a                                                                    
     smooth  and efficient  handover of  activities to  AGDC                                                                    
     for  a State  LNG project.  AGDC is  now positioned  to                                                                    
     take on  the full responsibility for  the technical and                                                                    
     regulatory aspects  of its  project. -  Agreements were                                                                    
     executed prior  to year-end as  part of  the commercial                                                                    
     transition  from AKLNG  to a  State LNG  project. These                                                                    
     agreements provide  for the use of  historical and Pre-                                                                    
     FEED  data  and information  by  all  the Pre-FEED  JVA                                                                    
     parties  for   any  project,  including  a   State  LNG                                                                    
     project. •                                                                                                                 
                                                                                                                                
     Work  continues  on  agreements  for  AGDC  to  acquire                                                                    
     ownership  of  an  LLC  held   by  ExxonMobil,  BP  and                                                                    
     ConocoPhillips  affiliates and  provide interim  access                                                                    
     to some  of its  assets. The LLC  owns land  in Nikiski                                                                    
     and DOE LNG export authorizations.                                                                                         
                                                                                                                                
     Before  I move  on to  my ExxonMobil  comments, I  will                                                                    
     pause  and see  if there  are any  questions about  the                                                                    
     AKLNG accomplishments in 2016.                                                                                             
                                                                                                                                
     Changing   hats,   I   will  now   share   ExxonMobil's                                                                    
     perspectives on a State Alaska  LNG project and how our                                                                    
     company is supporting the AGDC effort. •                                                                                   
                                                                                                                                
     As   you  know,   one  of   the  motivations   for  the                                                                    
     Administration to assume control  of the project was to                                                                    
     assess  the  potential  advantages  that  may  only  be                                                                    
     available to a State project. •                                                                                            
                                                                                                                                
     These  potential   advantages,  as  expressed   by  the                                                                    
     Administration,  include reducing  the  cost of  supply                                                                    
     through a  tax-exempt project  structure and  using low                                                                    
     cost funds  from third party investors  willing to take                                                                    
     a  utility   rate  of  return  on   a  governmentbacked                                                                    
     project. •                                                                                                                 
                                                                                                                                
     Both of  these opportunities  could potentially  make a                                                                    
     significant reduction in the  cost of supply for Alaska                                                                    
     LNG,  as  highlighted  in   the  Wood  MacKenzie  study                                                                    
     commissioned  by  AGDC,  ExxonMobil   and  BP,  and  as                                                                    
     presented to this committee by  David Barrowman of Wood                                                                    
     Mac  on  August 24,  2016.  Cost  of  supply is  a  key                                                                    
     measure of competitiveness in the global LNG market. •                                                                     
                                                                                                                                
     In addition to opportunities  to reduce cost of supply,                                                                    
     a State  backed LNG project  also has the  potential to                                                                    
     reduce   regulatory   risks   through   government   to                                                                    
     government cooperation. •                                                                                                  
                                                                                                                                
     ExxonMobil wants  a project to  succeed and  is willing                                                                    
     to  pursue  all  commercially  viable  alternatives  to                                                                    
     develop Alaska resources on mutually-agreed terms. •                                                                       
                                                                                                                                
     While  AGDC is  now responsible  for advancing  a State                                                                    
     LNG project,  ExxonMobil will still  have a  major role                                                                    
     in the  development of Alaska North  Slope natural gas.                                                                    
     First, through continued  investment to develop Prudhoe                                                                    
     Bay  and  Point  Thomson  and, second,  by  making  gas                                                                    
     available for sale for the project. •                                                                                      
                                                                                                                                
     To  date,  the  Producers  have  invested  billions  of                                                                    
     dollars   at  Prudhoe   Bay   and   Point  Thomson   to                                                                    
     successfully   develop    these   fields.   Investments                                                                    
     continue  at  these  fields   to  support  the  ongoing                                                                    
     operations. •                                                                                                              
                                                                                                                                
     ExxonMobil will  continue to make its  gas available to                                                                    
     any  project   under  bilateral,   mutually-agreed  and                                                                    
     commercially-reasonable terms. -  In 2015 when Governor                                                                    
     Walker sought  assurances from each producer  about gas                                                                    
     availability,  ExxonMobil   immediately  established  a                                                                    
     negotiating team, executed  a confidentiality agreement                                                                    
     with  the Administration  and  had several  preliminary                                                                    
     meetings. - With completion of  the handover to a State                                                                    
     LNG project,  ExxonMobil remains ready to  re-engage on                                                                    
     negotiations for  gas sales and purchase  agreements. -                                                                    
     These  commercial  and fiscal  terms  will  need to  be                                                                    
     predictable  and   durable  so  all  of   the  parties'                                                                    
     involved,  including potential  buyers and  financiers,                                                                    
     understand   the  underlying   framework,  particularly                                                                    
     given  the magnitude  of the  required investments  and                                                                    
     commitments, which are measured over decades •                                                                             
                                                                                                                                
     In closing, ExxonMobil  wants to help make  a State LNG                                                                    
     project   successful.  -   We  are   pleased  to   have                                                                    
     participated in  the successful handover from  AKLNG to                                                                    
     a  State project.  - ExxonMobil  is  committed to  work                                                                    
     towards  completion of  the required  transactions with                                                                    
     AGDC on  the Alaska  LNG Project LLC  (ALPL). -  We are                                                                    
     ready to re-start  bi-lateral discussions on purchasing                                                                    
     ExxonMobil gas from PBU and  PTU for a State project. -                                                                    
     Lastly, ExxonMobil  looks forward to the  progress of a                                                                    
     State LNG project. If AGDC  can adequately achieve cost                                                                    
     reductions,   secure   regulatory  approvals,   advance                                                                    
     through  the  project  gates   to  a  final  investment                                                                    
     decision  (FID)  and  complete  project  execution  and                                                                    
     construction, everyone will benefit. •                                                                                     
                                                                                                                                
     Before I turn  the microphone over to  Damian Bilbao of                                                                    
     BP, I would  be happy to answer any  questions that you                                                                    
     may have                                                                                                                   
                                                                                                                                
1:22:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH  asked whether AKLNG  is a project  in which                                                               
Mr. McMahon would  commit to invest one-half of  his net personal                                                               
wealth.                                                                                                                         
                                                                                                                                
MR. MCMAHON responded that ExxonMobil  uses a stage-gate approach                                                               
to  megaprojects because  large  sums of  money  are required  to                                                               
advance a project.   For example, [pre-front  end engineering and                                                               
design (pre-FEED)] cost the four  participants over $500 million.                                                               
In  order to  advance large  projects with  confidence, one  must                                                               
proceed  through a  disciplined state-gate  process and  as risks                                                               
are reduced, more capital can be exposed.                                                                                       
                                                                                                                                
DAMIEN   BILBAO,  Vice   President,   Commercial  Ventures,   BP,                                                               
paraphrased  from  the   following  written  testimony  [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Co-Chair Tarr,  Co-Chair Josephson  and members  of the                                                                    
     House Resources  Committee, for the record,  my name is                                                                    
     Damian Bilbao.  I am the  Vice President  of Commercial                                                                    
     Ventures  for BP  here in  Alaska. I  first arrived  in                                                                    
     Alaska to  work for ARCO  Alaska as an intern  and fell                                                                    
     in love with this State. My  family and I have lived in                                                                    
     Alaska  for  almost  10 years  with  interruptions  for                                                                    
     overseas  assignments. I  would  like  to first  follow                                                                    
     Bill's remarks  by recognizing the  great work  done by                                                                    
     the Joint  Project Team under  ExxonMobil's leadership.                                                                    
     Steve  Butt and  the team  delivered exactly  what they                                                                    
     were asked to do when  the Pre-FEED JVA was signed, and                                                                    
     then some.  They did that work  safely, professionally,                                                                    
     on  schedule   and  on  budget.  BP   thanks  them.  My                                                                    
     responsibilities  within  BP  include Alaska  LNG,  our                                                                    
     North Slope fields operated by  other companies and our                                                                    
     interest in the Trans-Alaska  Pipeline. I would like to                                                                    
     pause and  recognize that along  with the R1  2 Prudhoe                                                                    
     Bay field,  TAPS is celebrating  a 40  year anniversary                                                                    
     in 2017. I would also  like to recognize that this past                                                                    
     December  18th Alaska  celebrated the  45th anniversary                                                                    
     of the  signing of the Alaska  Native Claims Settlement                                                                    
     Act. Without  the tremendous  support and  license from                                                                    
     Alaska's  native communities,  the State  would have  a                                                                    
     much different history. I would  ask that as we discuss                                                                    
     Alaska LNG today  we remember that this  State only has                                                                    
     the luxury of discussing  an Alaska LNG project because                                                                    
     of  cooperation shown  in establishing  ANCSA. Ensuring                                                                    
     another 40  years of economic security  for Alaska will                                                                    
     require collaboration to find  common ground. It is for                                                                    
     this reason,  the future economic health  of Alaska and                                                                    
     BP's  participation   in  that  opportunity,   that  BP                                                                    
     continues to support  an Alaska LNG project  led by the                                                                    
     State  of  Alaska.  BP's  support  derives  from  three                                                                    
     important  beliefs:  1)  The  resource  opportunity  in                                                                    
     Alaska is  strong, the  talent is deep  and there  is a                                                                    
     history of coming together to  fix big problems. 2) The                                                                    
     demand for LNG will continue  to grow in Northeast Asia                                                                    
     beyond 2025,  and much  of that  growth will  come from                                                                    
     players like China.  3) Alaska LNG can  compete for the                                                                    
     growing  demand, as  was shown  in  the Wood  Mackenzie                                                                    
     report  presented  before  the  legislature  in  August                                                                    
     2016;  however  certain   non-technical  solutions  are                                                                    
     required for  that to  be achieved. R1  3 The  State is                                                                    
     positioned  to lead  this  commercial  effort in  three                                                                    
     focus areas: 1) The  competitiveness of a tolling model                                                                    
     where  gas   owners  pay  a  utility-like   company  to                                                                    
     transport their gas to the  Cook Inlet, liquefy the gas                                                                    
     and  load  it on  to  ships.  2) Preserve  the  federal                                                                    
     regulatory  schedule, because  failure to  do so  could                                                                    
     add years to the schedule  and impact the reputation of                                                                    
     the project, and  3) Identify options to  fund both the                                                                    
     next phase  of the  project, Front End  Engineering and                                                                    
     Design  or  FEED,  as  well  as  the  most  financially                                                                    
     demanding phase, construction,  which would occur after                                                                    
     a Final Investment Decision, or FID. ·                                                                                     
                                                                                                                                
     BP  does not  believe  these three  areas will  require                                                                    
     contracting with  large companies to begin  the process                                                                    
     of purchasing  pipe or steel,  but rather  will require                                                                    
     deep analysis  by subject matter experts  familiar with                                                                    
     commercial aspects  of the LNG business.  Now, while BP                                                                    
     supports a  State led  project, we  believe it  is also                                                                    
     important for BP to do more  than sit back and wait for                                                                    
     AGDC to answer these  three questions. BP must actively                                                                    
     support AGDC. I am very  pleased to share with you that                                                                    
     AGDC and  BP have  signed a Cooperation  Agreement that                                                                    
     will bring  together our efforts  and resources  on the                                                                    
     three focus  areas that I outlined  above: 1) assessing                                                                    
     a tolling model, 2)  preserving regulatory progress and                                                                    
     3) identifying financing options  for the path forward.                                                                    
     BP  is  committing people  and  funding  to this  joint                                                                    
     effort  although it  will be  an effort  led by  a much                                                                    
     smaller group  of people R1  4 than completed  the Pre-                                                                    
     FEED deliverables  which Bill McMahon  just summarized.                                                                    
     BP  appreciates AGDC's  commitment to  working together                                                                    
     and we  look forward  to updating the  legislature over                                                                    
     the course of  the year. This is an  important year for                                                                    
     BP in  Alaska and  we look  forward to  celebrating the                                                                    
     anniversary  of   Prudhoe  Bay  and  TAPS   first  40th                                                                    
     anniversary. While BP has worked  with our co-owners to                                                                    
     produce  over 12  billion barrels  of oil  from Prudhoe                                                                    
     Bay,  there  are still  billions  more  in Prudhoe  and                                                                    
     across  the  North  Slope.   As  the  Governor's  Chief                                                                    
     Advisor on Oil  and Gas, John Hendrix,  said during his                                                                    
     recent speech at  Meet Alaska on January  13th, we must                                                                    
     all pursue  our future as  "One Alaska". BP  agrees. It                                                                    
     is only as  One Alaska that the State  will continue to                                                                    
     solve big  problems. BP looks forward  to continuing to                                                                    
     work   with  this   legislature,  the   administration,                                                                    
     Alaska's  native  corporations,   our  contractors  and                                                                    
     upstream  co-venturers  in  support  of  a  One  Alaska                                                                    
     future. Thank you.                                                                                                         
                                                                                                                                
1:30:25 PM                                                                                                                    
                                                                                                                                
DARREN   MEZNARICH,  Manager   for   Alaska   North  Slope   Gas,                                                               
ConocoPhillips   Alaska,   Inc.,   expressed   the   support   of                                                               
ConocoPhillips Alaska, Inc.  for the state's effort  to advance a                                                               
liquefied natural gas  (LNG) project.  A  state-led project would                                                               
have  attributes that  enhance the  competitiveness of  an Alaska                                                               
North Slope  (ANS) gas project,  and that  can lower its  cost of                                                               
supply.   For example, AGDC  can structure for federal  and state                                                               
tax  efficiencies, including  seeking federal  tax-exempt status.                                                               
Also, AGDC  can advance low-cost financing  and investor options.                                                               
The aforementioned key elements can  be foundational to a project                                                               
and  important to  LNG buyers,  project  lenders, and  investors.                                                               
ConocoPhillips Alaska, Inc. intends to  make its gas available to                                                               
a state-led  project on mutually-agreed,  commercially reasonable                                                               
terms.   ConocoPhillips  Alaska,  Inc. will  continue to  support                                                               
AGDC and is working to make its gas available.                                                                                  
                                                                                                                                
REPRESENTATIVE BIRCH  asked for  an estimate  on the  tariff cost                                                               
per [thousand cubic  feet of natural gas (Mcf)]  to transport LNG                                                               
from its source at the North Slope to Southcentral.                                                                             
                                                                                                                                
MR. BILBAO  responded that  there have been  no joint  efforts to                                                               
define a  tariff under an AGDC-led  project.  He referred  to his                                                               
previous comments related  to the structure and  financing of the                                                               
project and work that remains to be done.                                                                                       
                                                                                                                                
MR.  MEZNARICH added  that  the Wood  Mackenzie  study of  August                                                               
2016, includes aspirational targets for cost reduction.                                                                         
                                                                                                                                
CO-CHAIR  TARR  asked for  closing  comments  from the  preceding                                                               
witnesses.                                                                                                                      
                                                                                                                                
MR. MEZNARICH informed the  committee ConocoPhillips Alaska, Inc.                                                               
has entered  into a  memorandum of  understanding (MOU)  with the                                                               
state and  seeks to help move  the project forward with  AGDC. In                                                               
further  response   to  Co-Chair  Tarr,  he   explained  the  MOU                                                               
potentially  forms  a joint  venture  for  LNG marketing  and  to                                                               
resolve the gas supply issue.                                                                                                   
                                                                                                                                
MR. BILBAO said  BP's next step is to confer  with AGDC to expand                                                               
on its cooperation  agreement, and he offered  to provide further                                                               
information   on  the   cooperation  agreement.        ExxonMobil                                                               
Corporation has  led the technical phase,  ConocoPhillips Alaska,                                                               
Inc.  is  proceeding  with  marketing, and  BP  can  support  the                                                               
project's next step.                                                                                                            
                                                                                                                                
MR. MCMAHON  said ExxonMobil Corporation  is keen - now  that the                                                               
handover and transition are complete  - to restart discussions on                                                               
ExxonMobil Corporation gas  that would be made  available for the                                                               
project.                                                                                                                        
                                                                                                                                
1:36:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAUSCHER asked Mr.  Bilbao whether he said [AKLNG]                                                               
could compete for the LNG market in Asia.                                                                                       
                                                                                                                                
MR.  BILBAO clarified  that he  said BP  expects that  LNG demand                                                               
will continue to  grow, and there will be  unmet demand beginning                                                               
in  2025.   The  growth of  demand from  Northeast  Asia will  be                                                               
greatest in China.                                                                                                              
                                                                                                                                
                                                                                                                                
REPRESENTATIVE RAUSCHER  questioned whether  there is a  "time of                                                               
no return" for [marketing ANS LNG].                                                                                             
                                                                                                                                
MR. BILBAO  said the right next  step is to ensure  a competitive                                                               
project;  however,  as  the August  report  from  Wood  Mackenzie                                                               
indicated, the  project today does not  compete - not due  to oil                                                               
or gas  prices -  but because  the cost to  deliver [ANS]  gas to                                                               
Asia  is not  competitive with  emerging sources  of LNG  such as                                                               
sources from  the U.S.  Gulf Coast.   Commercial structure  and a                                                               
financing plan  have an impact on  lowering the cost of  ANS LNG,                                                               
and after that  is accomplished, investors can  make the decision                                                               
to advance and market the project.                                                                                              
                                                                                                                                
REPRESENTATIVE  PARISH asked  whether  there is  another plan  to                                                               
bring BP LNG to market in the event AKLNG fails.                                                                                
                                                                                                                                
MR.  BILBAO noted  that Alaska  gas is  BP's largest  undeveloped                                                               
resource  opportunity, thus  BP seeks  a successful  gas project.                                                               
Although  a major  effort  has been  made  by BP,  ConocoPhillips                                                               
Alaska,  Inc.,  and  ExxonMobil  Corporation  to  understand  the                                                               
viability  of  an Alaska  LNG  project,  there remain  unanswered                                                               
questions.  However,  if it is confirmed that the  project is not                                                               
viable, BP will consider alternatives.                                                                                          
                                                                                                                                
1:41:37 PM                                                                                                                    
                                                                                                                                
FRANK   RICHARDS,  P.E.,   Senior   Vice-President  for   Program                                                               
Management,  Alaska Gasline  Development Corporation,  Department                                                               
of Commerce, Community & Economic Development, introduced staff.                                                                
                                                                                                                                
1:42:07 PM                                                                                                                    
                                                                                                                                
KEITH MEYER,  President, Alaska Gasline  Development Corporation,                                                               
Department of  Commerce, Community  & Economic  Development, said                                                               
he  appreciated  the  previous  comments  made  by  each  of  the                                                               
producer parties, and noted AGDC  enjoys a good and collaborative                                                               
working relationship with each.                                                                                                 
                                                                                                                                
MR.  RICHARDS  introduced  a  PowerPoint  presentation  entitled,                                                               
"Alaska  Moving  Forward:    Alaska  LNG  Project  Update"    and                                                               
informed   the  committee   that   today's   hearing  is   AGDC's                                                               
opportunity  to provide  the  report to  the  legislature on  the                                                               
update of the Alaska LNG Project  as required by Senate Bill 138.                                                               
He began  with a history of  AGDC and its obligations.   In 2009,                                                               
there were  concerns Southcentral  would not have  enough natural                                                               
gas to  meet its requirements  for power generation  and heating,                                                               
thus  the  legislature began  discussing  the  development of  an                                                               
instate  natural  gas  pipeline.   Related  proposed  legislation                                                               
culminated in  House Bill  369 [passed in  the 26th  Alaska State                                                               
Legislature], which created a four-party  entity comprised of the                                                               
Alaska Housing  Finance Corporation,  Department of  Revenue, the                                                               
Department  of Transportation  &  Public  Facilities, the  Alaska                                                               
Railroad,   Department   of   Commerce,  Community   &   Economic                                                               
Development, and  the [Alaska  Natural Gas  Development Authority                                                               
(ANGDA), created  by voter initiative  Measure 3,  passed 11/5/02                                                               
and terminated by  House Bill 4, passed in the  28th Alaska State                                                               
Legislature], tasked  to determine if it  was economically viable                                                               
to develop  an instate gas pipeline.   In 2011, the  Alaska Stand                                                               
Alone Pipeline (ASAP) plan was  presented to the legislature.  In                                                               
2013,  House  Bill  4  created   AGDC  as  an  independent  state                                                               
corporation,  granted  it powers  to  act  as a  corporation  and                                                               
advance  a  project,  and  funded   it  with  approximately  $355                                                               
million.  Thus the ASAP  project advanced through pre-FEED, front                                                               
end engineering and  design (FEED), a class 3  cost estimate, and                                                               
a project execution plan.  In  2014, Senate Bill 138 gave further                                                               
authorities to AGDC  to act as the state's  representative in the                                                               
LNG plant portion  of the AKLNG export project.   In 2015, during                                                               
the buyout of TransCanada -  representing the gas treatment plant                                                               
and pipeline portion  of AKLNG - AGDC was given  the authority to                                                               
act as the state's representative for its 25 percent interest.                                                                  
                                                                                                                                
1:48:36 PM                                                                                                                    
                                                                                                                                
MR.  RICHARDS  continued,  noting   there  was  a  joint  venture                                                               
agreement executed  and pre-FEED  work initiated for  AKLNG, also                                                               
in  2014.   Now  in 2017,  at the  termination  of the  agreement                                                               
between the  producer partners and  AGDC, the  responsibility for                                                               
AKLNG  now falls  to AGDC.   Mr.  Richards acknowledged  that the                                                               
responsibility  to advance  AKLNG  is a  tremendous burden  taken                                                               
very  seriously by  AGDC (slide  3).   He informed  the committee                                                               
AGDC has a  seven-member board of directors who  are Alaskans and                                                               
who want  to advance  the project  for Alaskans.   He  gave short                                                               
background information on board members (slide 4).                                                                              
                                                                                                                                
MR.  RICHARDS  restated  that  update  reports  are  due  to  the                                                               
legislature every four months and  this is the first opportunity,                                                               
after the  "handoff" from the  AKLNG project management  team, to                                                               
present how the project is now  to advance.  He stressed that the                                                               
project  management team's  work  and the  transition were  well-                                                               
executed.   Briefly,  AKLNG  is an  integrated  project with  the                                                               
following  components:   Point  Thomson  pipeline; gas  treatment                                                               
plant  at Prudhoe  Bay;  mainline pipeline  from  Prudhoe Bay  to                                                               
Southcentral;  LNG plant  at Cook  Inlet.   Natural  gas will  be                                                               
sourced from  the Point  Thomson Unit (PTU)  and the  Prudhoe Bay                                                               
Unit (PBU), treated  on the North Slope by a  gas treatment plant                                                               
(GTP) at  mile post zero  (MP 0) of  the pipeline.   The pipeline                                                               
will  proceed   from  MP  0   to  Nikiski,  supported   by  eight                                                               
compression   stations,  delivering   natural  gas   to  an   LNG                                                               
production facility  designed to  produce 20 million  metric tons                                                               
per annum (MMTPA) of product (slide 6).                                                                                         
                                                                                                                                
1:53:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PARISH asked for the  approximate cost for each of                                                               
the three elements of the project.                                                                                              
                                                                                                                                
MR. RICHARDS said  the cost of the LNG  facility is approximately                                                               
50  percent   of  the  project,   approximately  25   percent  is                                                               
represented  by the  pipeline, and  approximately  25 percent  is                                                               
represented by  GTP on the North  Slope.  In further  response to                                                               
Representative Parish,  he said  the original  range of  the cost                                                               
estimate  was $45  billion to  $65 billion,  and the  most recent                                                               
estimate is below "that low-end cost range."                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH observed tariffs  are important and the cost                                                               
of producing energy  in Alaska is very high.   He held a question                                                               
on  an  estimate  of  the  range of  tariffs  for  later  in  the                                                               
presentation.                                                                                                                   
                                                                                                                                
MR. RICHARDS  returned to the  status of the project,  and stated                                                               
that the  joint venture  agreement (JVA)  initiated in  2014, and                                                               
terminated in 2016, represented  approximately $500 million worth                                                               
of engineering, analyses, and  information gathered to understand                                                               
the  construction  of  the  project   in  Alaska.    All  of  the                                                               
abovementioned  work and  the 77  project deliverables  have been                                                               
provided   to  AGDC,   BP,  ConocoPhillips   Alaska,  Inc.,   and                                                               
ExxonMobil Corporation.  At the  end of 2016, transition meetings                                                               
were held  to facilitate the  transfer of a tremendous  amount of                                                               
data  and  work  product.    The  project  management  team  held                                                               
meetings   in  Alaska   and  Houston   that  led   to  a   better                                                               
understanding  of   the  material  related  to   engineering  and                                                               
environmental  licensing, which  was needed  as AGDC  assumes the                                                               
filing with the Federal Energy  Regulatory Commission (FERC). The                                                               
resource  reports  represented   approximately  33,000  pages  of                                                               
documents submitted to agencies.                                                                                                
                                                                                                                                
CO-CHAIR TARR surmised  a lesson learned from  the transition out                                                               
of the Alaska  Gasline Inducement Act (AGIA) [passed  in the 25th                                                               
Alaska State Legislature] was who would  own the data.  She asked                                                               
whether there is related direction under Senate Bill 138.                                                                       
                                                                                                                                
1:59:13 PM                                                                                                                    
                                                                                                                                
LIEZA  WILCOX, Vice  President, Commercial  and Economics,  AGDC,                                                               
asked for clarification.                                                                                                        
                                                                                                                                
CO-CHAIR  TARR  stated  her  intent   is  for  the  committee  to                                                               
understand a  significant factor to  advancing the project  is to                                                               
have  all of  the previously  gleaned information  available even                                                               
though the leadership structure of the project has changed.                                                                     
                                                                                                                                
MS. WILCOX agreed, and added  that the legislation did not enable                                                               
the transfer of  pre-FEED data that was part of  the pre-FEED JVA                                                               
agreement; however,  the ability to  use the data to  advance the                                                               
project and  make regulatory filings  was part of  the transition                                                               
agreement that was negotiated.                                                                                                  
                                                                                                                                
MR. RICHARDS  added that AGDC has  also received all of  the data                                                               
through the AGIA agreement with  TransCanada, thus AGDC holds all                                                               
of  the work  done with  TransCanada and  ExxonMobil Corporation,                                                               
all  of the  work  done on  ASAP,  and all  of  the work  product                                                               
developed on AKLNG,  which is a very large  library of electronic                                                               
data.   He  continued with  the status  of the  project, relating                                                               
that the  $500 million investment  was toward the  design premise                                                               
of  a three-train  GTP  on  the North  Slope,  feeding a  42-inch                                                               
diameter pipeline, and leading to  a three-train LNG plant (slide                                                               
7).   One of AGDC's  priorities in  2017 is to  reduce regulatory                                                               
risk.  He  explained that FERC has the  responsibility to license                                                               
LNG plants,  thus AGDC  will file  a FERC  Natural Gas  Act (NGA)                                                               
Section  3 application  to  acquire the  right  to construct  and                                                               
operate an LNG plant.  Another  priority is to reduce the overall                                                               
cost of supply  to the project through financing  and by reducing                                                               
the cost of  the environmental regulatory regime.   Also, efforts                                                               
will  be  focused  on  reducing  the  cost  of  the  project  and                                                               
representing an economically-viable project  to buyers.  Further,                                                               
AGDC  will "live  within our  means"  to the  point of  acquiring                                                               
project  financing to  advance the  project and  engage customers                                                               
(slide 8).                                                                                                                      
                                                                                                                                
2:03:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  asked whether approval from  FERC applies                                                               
if AGDC reduces the scale of the project.                                                                                       
                                                                                                                                
MR. RICHARDS said yes.   The environmental impact statement (EIS)                                                               
presented to  FERC will  be for the  impacts to  wetlands, flora,                                                               
fauna,  and  air  quality  for   the  largest  possible  project.                                                               
Continuing  to  FERC's responsibility  under  NGA  to permit  LNG                                                               
plants and  terminals, he  said FERC  must ensure  LNG facilities                                                               
are safe  and reliable; therefore,  FERC follows  a comprehensive                                                               
and well-established siting process.   After an applicant has met                                                               
FERC guidelines  for submittals, it  proceeds to the  EIS process                                                               
prescribed  by  the National  Environmental  Policy  Act of  1969                                                               
(NEPA).  Further,  FERC is the lead federal agency  to prepare an                                                               
EIS for  AKLNG and along  with other  agencies, such as  the U.S.                                                               
Army Corps of Engineers, will  complete a thorough EIS (slide 9).                                                               
The  first of  three  areas  of the  regulatory  process is  pre-                                                               
filing, wherein the project gets  authorization to begin resource                                                               
reports, dialogue,  and public  comments.   The primary  focus is                                                               
developing resource  reports which  describe the project  and its                                                               
impacts and mitigation  to the environment.   After acceptance by                                                               
FERC, the  project enters  the second  area of  the environmental                                                               
process  during which  a third  party  contractor -  paid by  the                                                               
project  - drafts  an  EIS.   This process  is  underway, with  a                                                               
timeframe of 18 months for the draft  EIS.  The third area is the                                                               
final EIS,  which is  issued six  months later  (slide 10).   Mr.                                                               
Richards said 13 resource reports  are required, but 12 have been                                                               
submitted, because  there is no [polychlorinated  biphenyl (PCB)]                                                               
contamination on the project.                                                                                                   
                                                                                                                                
2:10:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH  asked what  is included in  resource report                                                               
number "10. Alternatives".                                                                                                      
                                                                                                                                
MR. RICHARDS responded that for  any EIS, the proponent must look                                                               
at  alternatives  for  routing,   including  not  completing  the                                                               
project.    For example,  AKLNG  must  look at  alternatives  for                                                               
routing  into  Valdez,  or  through   Denali  National  Park  and                                                               
Preserve, in addition to the preferred route to Nikiski.                                                                        
                                                                                                                                
REPRESENTATIVE BIRCH  inquired as to whether  the Mackenzie River                                                               
[Canada] route remains one of the alternatives.                                                                                 
                                                                                                                                
MR.  RICHARDS  expressed  his belief  that  the  Mackenzie  River                                                               
option is prohibited  by statute.  However, there  are many other                                                               
options such  as an offshore  source for natural gas,  or various                                                               
locations  for the  LNG plant.    The alternatives  are wide  and                                                               
varied so  that FERC can  answer possible legal challenges.   The                                                               
resource  reports  represent  33,000   pages  of  description  on                                                               
environmental  factors,  engineering,  and   to  the  safety  and                                                               
reliability of the project, especially  in reports numbered "11."                                                               
and "13." (slide 11).  In  response to the resource reports, AGDC                                                               
has received  2,943 comments  categorized as  editorial comments,                                                               
pre-FEED comments,  and FEED comments, which  are being processed                                                               
by AGDC and its pertinent contractors  (slide 12).  Over the next                                                               
six months AGDC will continue  to adjudicate resource reports and                                                               
will  file  its NGA  Section  3  application, complete  with  the                                                               
required nine exhibits ranging from  articles of incorporation to                                                               
safety  and reliability  statements.   The  target  date for  the                                                               
application to FERC is 6/30/17 (slide 13).                                                                                      
                                                                                                                                
2:16:57 PM                                                                                                                    
                                                                                                                                
MR. RICHARDS  turned to project execution,  observing that AGDC's                                                               
mandate  from  the  legislature  is  to be  a  lean,  small,  and                                                               
competent organization that relies  on contractors to augment its                                                               
staff.  Therefore, to address the  needs of a large project, AGDC                                                               
will  develop  a project  management  team  which will  bring  in                                                               
additional  resources as  needed to  work with  FERC and  for the                                                               
management of commercial contracts  to advance the project (slide                                                               
14).    Finally,  the  project  management  approach  will  be  a                                                               
strategic partnership  with a lead  contractor in support  of its                                                               
FERC  application,  to  review design,  reduce  cost,  and  avoid                                                               
delays.   There  will be  a worldwide  search for  contractors to                                                               
provide expertise,  which will also demonstrate  to financial and                                                               
commercial markets that  AKLNG has the resources  necessary.  Mr.                                                               
Richards advised  that AGDC is not  requesting additional funding                                                               
in the next fiscal year (slide 15).                                                                                             
                                                                                                                                
REPRESENTATIVE JOHNSON,  referring to a worldwide  search for the                                                               
"right" lead contractor,  inquired as to the  potential impact of                                                               
the project on local businesses and instate contractors.                                                                        
                                                                                                                                
MR. RICHARDS acknowledged  AGDC needs a lead  contractor with the                                                               
expertise to act  as a project and program  manager, augment AGDC                                                               
staff, and develop  the GTP, the pipeline, and  the LNG facility.                                                               
Wherever  possible,  AGDC is  mandated  to  utilize Alaskans  and                                                               
Alaska resources  "where economically  feasible and viable."   He                                                               
said Alaska contractors have the  knowledge and expertise to work                                                               
in the  Arctic.   In fact,  [board member  Department of  Labor &                                                               
Workforce Development]  Commissioner Drygas has stated  that AGDC                                                               
must  ensure  Alaskans are  trained  and  ready  to work  on  the                                                               
project.  The  lead contractor will need to  provide expertise in                                                               
lump-sum, turn-key contracts.                                                                                                   
                                                                                                                                
REPRESENTATIVE  BIRCH asked  for  an estimate  of the  unexpended                                                               
balance of uncommitted funds within AGDC.                                                                                       
                                                                                                                                
MR. RICHARDS responded  that AGDC was authorized  with two funds:                                                               
the Instate  Natural Gas Pipeline Fund  and the AKLNG fund.   The                                                               
balance of those  two funds is approximately  $104 million, which                                                               
will be used to  accomplish regulatory, financial, and commercial                                                               
work.    Further,  AGDC  is  developing a  budget  that  will  be                                                               
presented to  its board of  directors for calendar year  2017 and                                                               
fiscal year 2018 (FY 18).   He advised that authorization will be                                                               
required to expend funds for  the operating portion of the budget                                                               
consisting  of personal  services, contractual  services, lights,                                                               
rent, and travel.                                                                                                               
                                                                                                                                
2:24:48 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOSEPHSON  has heard concerns  about the  segregation of                                                               
funds and  whether funds meant  for House  Bill 4 are  being used                                                               
for [Senate] Bill 138.                                                                                                          
                                                                                                                                
MR. RICHARDS  answered that there  was clear language  in related                                                               
statutes  that identified  the funds  and their  purpose, and  to                                                               
which AGDC  has complied.  Funds  used toward ASAP came  from the                                                               
instate  pipeline fund  solely.   He  pointed out  that AGDC  has                                                               
accounting  systems and  is audited  annually.   Senate Bill  138                                                               
established the LNG natural gas  pipeline fund which was used for                                                               
cash calls  to pay for  the state's 25 percent  representation in                                                               
the project;  funds from both  sources are used  toward operating                                                               
costs such as  salaries, travel, lights, and rent.   Mr. Richards                                                               
acknowledged  concern about  how funds  will be  used and  stated                                                               
that  AGDC has  a "clear  line of  demarcation between  those two                                                               
fund sources."                                                                                                                  
                                                                                                                                
CO-CHAIR JOSEPHSON  questioned whether the $104  million predates                                                               
the current administration and remained  available to AGDC from a                                                               
prior appropriation, or from appropriations  made in FY 16 and FY                                                               
17.                                                                                                                             
                                                                                                                                
MR. RICHARDS  further explained the Instate  Natural Gas Pipeline                                                               
Fund was  capitalized with $355  million for a  pipeline project,                                                               
of  which  $135  million was  spent  on  ASAP.    In FY  15,  the                                                               
legislature  appropriated  $167  million for  the  Department  of                                                               
Education  and  Early  Development,  the  Department  of  Natural                                                               
Resources, and  the Department of  Law.   Some of the  AKLNG fund                                                               
was appropriated in  FY 15, when funds were directed  to AGDC for                                                               
the   buyout  of   TransCanada,  and   for  calendar   year  2016                                                               
expenditures for AKLNG.                                                                                                         
                                                                                                                                
CO-CHAIR  JOSEPHSON redirected  attention to  slide 14  and asked                                                               
how  decisions are  made about  what employees  would be  "housed                                                               
within your  agency and ... which  exactly would be part  of some                                                               
new lead contractor."                                                                                                           
                                                                                                                                
2:29:07 PM                                                                                                                    
                                                                                                                                
MR. RICHARDS stated AGDC has  22 employees who are augmented with                                                               
Alaska contractors, thus  its project management team  is made up                                                               
of  experts with  processing, engineering,  geologic, and  design                                                               
experience.  The  sought lead contractor will  integrate with the                                                               
AGDC project  management team -  the goal  is to have  an owner's                                                               
representative team  - and  AGDC is not  "turning over  the keys"                                                               
but will  retain oversight responsibility.   The  lead contractor                                                               
will bring in project controls  staff, contracting expertise, and                                                               
environmental and  regulatory expertise.   He said, "It's  a team                                                               
approach, but again, ownership responsibilities stay with AGDC."                                                                
                                                                                                                                
REPRESENTATIVE  RAUSCHER surmised  an  operator,  not the  state,                                                               
will operate the project after its completion.                                                                                  
                                                                                                                                
MR. RICHARDS  confirmed that AGDC  will bring on  "the expertise"                                                               
to  operate the  system.   At  the  time of  ASAP,  there was  an                                                               
operations plan to advance the  project into an operations phase.                                                               
For AKLNG, an  operations plan has not yet  been fully developed;                                                               
AGDC, as  a very small  entity, must bring on  required expertise                                                               
through contracts for operations.                                                                                               
                                                                                                                                
REPRESENTATIVE WESTLAKE  said he was encouraged  by the foregoing                                                               
discussion.   He asked  for the  source of  the funds,  which his                                                               
constituency will want to know.                                                                                                 
                                                                                                                                
MS.  WILCOX said,  "The question  of short-term  versus long-term                                                               
benefits for  Alaska, of course,  is in all  of our minds  at the                                                               
moment."    She  opined  AGDC's  view  is  that  the  project  is                                                               
extremely  important  for  the long-term  fiscal  health  of  the                                                               
state, and  AGDC seeks  to propose a  project that  carries those                                                               
benefits.                                                                                                                       
                                                                                                                                
CO-CHAIR TARR  directed the committee's attention  to Senate Bill                                                               
138, Section  18, AS [31.25.110],  creating the  Alaska Liquefied                                                               
Natural  Gas  Project  Fund, and  [AS  31.25.100],  creating  the                                                               
Instate Natural Gas  Pipeline Fund.  Other  relevant sections are                                                               
Section 21, defining the Alaska  LNG Project as including Prudhoe                                                               
Bay  and Point  Thomson,  and Section  33,  defining North  Slope                                                               
natural gas projects.                                                                                                           
                                                                                                                                
2:35:41 PM                                                                                                                    
                                                                                                                                
MR. RICHARDS returned to the  presentation, noting that the value                                                               
of  the project  to  Alaska  is to  monetize  a proven  resource.                                                               
Currently, the  gas is cycled  daily to help with  oil production                                                               
and  because there  is no  way  to get  the  gas to  market.   In                                                               
addition,  the legislature  directed  AGDC to  develop an  access                                                               
point so that Alaskans can  utilize the gas.  Additional benefits                                                               
of the  project are  tens of thousands  of jobs  for construction                                                               
and  maintenance of  the project,  and increased  exploration and                                                               
development on  the North Slope and  in other parts of  the state                                                               
(slide 16).  Finally, Alaska's  strategic advantages are:  a time                                                               
of  seven to  nine  days to  Asia; a  proven  supplier and  known                                                               
resource; a proven and known sovereign (slide 17).                                                                              
                                                                                                                                
MS.  WILCOX  gave  a  short  personal history.    She  began  her                                                               
commercial update  by advising  the committee  that at  this time                                                               
there  is  a  global  surplus  of  LNG.   The  LNG  market  is  a                                                               
relatively  young   market  and  has  experienced   a  period  of                                                               
tremendous growth.  Many projects  that have come online recently                                                               
are "chasing demand," as demonstrated  by a growing prevalence of                                                               
spot markets, and  demand growth has slowed as  new projects were                                                               
completed, leading to a slump in  the market.  Spot market prices                                                               
for  LNG delivered  to  Japan  have been  around  $6 per  million                                                               
British thermal units (Btus) and have  risen to about $7, but the                                                               
short-term  surplus is  prevalent.   However, experts  agree that                                                               
the demand  for LNG will continue  to grow, although the  rate of                                                               
growth is uncertain.                                                                                                            
                                                                                                                                
REPRESENTATIVE BIRCH asked for an explanation of slide 19.                                                                      
                                                                                                                                
MS. WILCOX explained  the bottom on the graph is  a timeline, and                                                               
the left axis reflects millions  of metric tons per annum (MMTPA)                                                               
which represents  the capacity  of LNG.   The slide  is entitled,                                                               
"Global  LNG  Balance," but  the  graph  is entitled  "Asian  LNG                                                               
Supply/Demand Balance."   Overall global demand  is approximately                                                               
300 to 350  MMTPA.  In further response  to Representative Birch,                                                               
she  confirmed  that  the aforementioned  graph  illustrates  the                                                               
supply and  demand of  LNG that  has been  produced, transported,                                                               
and marketed to Asia by tanker.                                                                                                 
                                                                                                                                
2:43:25 PM                                                                                                                    
                                                                                                                                
MS. WILCOX pointed  out that the forgoing  graph illustrates that                                                               
supply will  be consumed by the  growth in demand.   The drop [in                                                               
demand] indicated  in the years  2021-2022, is the time  at which                                                               
long-term  contracts  lapse,  and  the  "window  in  the  market"                                                               
becomes evident.  She said, "And  at the moment there are quite a                                                               
few  projects  shopping  that  window  ...  and  the  buyers  are                                                               
approached by many  ... sophisticated parties," (slide  19).  She                                                               
then  provided  a  graph  of global  demand  projected  for  2025                                                               
illustrating:    an increase  in  the  number of  countries  that                                                               
import LNG; an increase in  demand from China is projected; Japan                                                               
remains the largest  consumer of LNG.  She  acknowledged there is                                                               
debate about  the projected growth  rate and whether  demand will                                                               
be diverted to nuclear power (slide 20).                                                                                        
                                                                                                                                
REPRESENTATIVE  PARISH  asked  whether the  foregoing  projection                                                               
aligned with that of Wood Mackenzie [consultancy group].                                                                        
                                                                                                                                
MS. WILCOX said the projection  is not a Wood Mackenzie forecast,                                                               
but was received  from AGDC's marketing team.  She  turned to the                                                               
topic  of tariffs  and stated  that tariffs  generally relate  to                                                               
pipelines in a similar manner as  a toll.  She directed attention                                                               
to  a graph  previously provided  by Wood  Mackenzie (slide  21),                                                               
noting that to  evaluate projects, Wood Mackenzie  seeks to bring                                                               
each project's components to a  common denominator:  a discounted                                                               
breakeven  price  over the  life  of  the  project.     Thus  the                                                               
"current project"  illustrated on  the [slide 21]  graph is  a 12                                                               
percent  overall  return  on  capital,  and  what  would  be  its                                                               
breakeven price  in today's  dollars.   The range  represented by                                                               
the dotted lines is the capital  investment of $45 billion to $65                                                               
billion,  which   placed  the   project  "at   the  far   end  of                                                               
competitiveness for ... their presentation."   Ms. Wilcox pointed                                                               
out that the  common numbers between the  three projects compared                                                               
are the  project cost  estimate of between  $45 and  $65 billion,                                                               
the  volumes, and  the upstream  development  costs and  returns.                                                               
However, what brings the variability  is the cost of capital that                                                               
is  carried  by the  project,  thus  AGDC  seeks to  structure  a                                                               
project  that has  promises from  its  customers to  pay for  the                                                               
capacity  they   reserve,  because  that  will   allow  for  less                                                               
expensive financing, and encourage  investors and banks that will                                                               
offer lower interest on loans.  She remarked:                                                                                   
                                                                                                                                
     The engineering work that has  been done on the project                                                                    
     has  a  lot   of  influence  on  the   tolls,  but  the                                                                    
     commercial  and  financing considerations  have  almost                                                                    
     just as much influence on  them, and that is what we're                                                                    
     working on now.                                                                                                            
                                                                                                                                
2:49:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH asked for the  correlation between MMBTU and                                                               
a thousand cubic  feet of natural gas (Mcf); for  example, gas on                                                               
the West Coast at $2 per Mcf would equate to [$2 MMBTU].                                                                        
                                                                                                                                
MS.  WILCOX agreed.   She  next presented  AGDC's objectives  and                                                               
elaborated on the following two:                                                                                                
                                                                                                                                
   · operate as a public corporation responsible to its board                                                                   
     and operate in an environment with private parties in a                                                                    
     transparent manner                                                                                                         
  · structure for third-party finance is the work ongoing this                                                                  
     year with BP and other producers and the outside market, in                                                                
     order to secure low-cost financing                                                                                         
                                                                                                                                
REPRESENTATIVE JOHNSON has  heard one way to  getting a reduction                                                               
in long-term contracts is to have  a stable price for gas that is                                                               
not tied to the  price of oil.  She asked  for AGDC's position in                                                               
this regard and for further information.                                                                                        
                                                                                                                                
MS. WILCOX returned attention to slide  21, and said AGDC has not                                                               
done a study, but traditionally LNG  has been marketed as tied to                                                               
oil price; for example, a measure  for pricing LNG is called "the                                                               
slope" which  is basically  12 percent  to 14  percent of  an oil                                                               
price index.   Recently, the  price of LNG  has been tied  to the                                                               
Henry  Hub  [index  price  for   natural  gas].    Other  pricing                                                               
structures  have  been  tied  to "a  synthetic  toll"  wherein  a                                                               
portion is tied to  an upstream index and a portion  is tied to a                                                               
toll.   For AKLNG,  a very large  part of the  cost of  supply is                                                               
midstream; however, if AKLNG can  lower the cost of midstream, it                                                               
can   also  offer   a  stable   source  with   a  fully-developed                                                               
infrastructure in place.                                                                                                        
                                                                                                                                
REPRESENTATIVE  BIRCH questioned  whether  the project  precludes                                                               
the  ability of  municipalities, or  the state,  to tax  property                                                               
along the route of the pipeline.                                                                                                
                                                                                                                                
MS.  WILCOX explained  the "no  tax" option  is for  illustrative                                                               
purposes to  show that  even if  taxes are  zero, the  project is                                                               
still challenged to meet the current market price.                                                                              
                                                                                                                                
REPRESENTATIVE  PARISH surmised  the upstream  price is  based on                                                               
reasonable,  commercially agreed-upon  terms  purchased from  the                                                               
three large producers.                                                                                                          
                                                                                                                                
MS. WILCOX said the upstream bar on  the graph is not a price but                                                               
an assumption  by Wood Mackenzie  on what a reasonable  return on                                                               
the upstream would be.                                                                                                          
                                                                                                                                
REPRESENTATIVE PARISH asked  whether the state is now  bound by a                                                               
contract, and if not, when a "formula" would be negotiated.                                                                     
                                                                                                                                
MS. WILCOX  said AGDC  does not have  any current  contracts with                                                               
"the upstream."  If the state  advances to the position of buying                                                               
gas from  the upstream,  it "would need  to land  those contracts                                                               
far in advance of being tens of billions of dollars in."                                                                        
                                                                                                                                
2:59:20 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Resources Standing Committee meeting was adjourned at 2:59 p.m.                                                                 

Document Name Date/Time Subjects
012317_ House Resc. AGDC presentation.pdf HRES 1/23/2017 1:00:00 PM
AK LNG UPDATE
FINAL_AK-Joint-News-Release-AK-LNG-Transition-123016.pdf HRES 1/23/2017 1:00:00 PM
AK LNG UPDATE
KEY SECTIONS OF SB 138.pdf HRES 1/23/2017 1:00:00 PM
SB 138
2017 BP and AGDC Cooperation Agreement.pdf HRES 1/23/2017 1:00:00 PM
AK LNG Update
BP Legislative Testimony_Jan 2017_final.pdf HRES 1/23/2017 1:00:00 PM
AK LNG Update
HRES Testimony 01-23-2017 -- Bill McMahon ExxonMobil.pdf HRES 1/23/2017 1:00:00 PM
AK LNG Update