Legislature(2017 - 2018)Anch LIO Lg Conf Rm

12/04/2017 06:00 PM RESOURCES

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as
Download Video part 1. <- Right click and save file as

Audio Topic
06:07:21 PM Start
06:08:04 PM Presentation: Aklng Project Update by the Alaska Gasline Development Corporation
08:48:17 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: AK LNG Project Update by Keith TELECONFERENCED
Meyer, President, AK Gasline Development Corp.
-- Testimony <Invitation Only> --
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                       Anchorage, Alaska                                                                                        
                        December 4, 2017                                                                                        
                           6:06 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Andy Josephson, Co-Chair                                                                                         
Representative Geran Tarr, Co-Chair                                                                                             
Representative Harriet Drummond                                                                                                 
Representative Justin Parish (via teleconference)                                                                               
Representative Chris Birch (via teleconference)                                                                                 
Representative DeLena Johnson                                                                                                   
Representative George Rauscher (via teleconference)                                                                             
Representative David Talerico (via teleconference)                                                                              
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Dean Westlake, Vice Chair                                                                                        
Representative Mike Chenault (alternate)                                                                                        
Representative Chris Tuck (alternate)                                                                                           
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Tammie Wilson (via teleconference)                                                                               
Representative Lance Pruitt                                                                                                     
Representative David Guttenberg (via teleconference)                                                                            
Representative Paul Seaton (via teleconference)                                                                                 
Representative Charisse Millett                                                                                                 
Representative Dan Ortiz (via teleconference)                                                                                   
Representative Cathy Tilton (via teleconference)                                                                                
Representative Dan Saddler                                                                                                      
Representative Ivy Spohnholz                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION:  AK LNG PROJECT UPDATE                                                                                            
                                                                                                                                
      - HEARD                                                                                                                   
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
KEITH MEYER, President                                                                                                          
Alaska Gasline Development Corporation                                                                                          
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION   STATEMENT:     Provided   a  PowerPoint   presentation                                                             
entitled, "Alaska LNG," dated 12/4/17.                                                                                          
                                                                                                                                
FRANK RICHARDS, PE, Senior Vice President                                                                                       
Alaska Gasline Development Corporation                                                                                          
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered  questions and discussed regulatory                                                             
issues during  a PowerPoint presentation entitled,  "Alaska LNG,"                                                               
dated 12/4/17.                                                                                                                  
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
6:07:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GERAN   TARR  called   the  House   Resources  Standing                                                             
Committee meeting  to order at  6:06 p.m.   Representatives Tarr,                                                               
Drummond,  Josephson,   Johnson,  Parish   (via  teleconference),                                                               
Rauscher  (via  teleconference), Talerico  (via  teleconference),                                                               
and  Birch  (via teleconference)  were  present  at the  call  to                                                               
order.   Also  present were  Representatives Pruitt,  Wilson (via                                                               
teleconference),  Guttenberg  (via teleconference),  Seaton  (via                                                               
teleconference),  and  Millett.     Representatives  Tilton  (via                                                               
teleconference), Ortiz (via  teleconference), and Saddler arrived                                                               
as the meeting was in progress.                                                                                                 
                                                                                                                                
^PRESENTATION:    AKLNG  Project  Update by  the  Alaska  Gasline                                                               
Development Corporation                                                                                                         
   PRESENTATION:  AKLNG Project Update by the Alaska Gasline                                                                
                    Development Corporation                                                                                 
                                                                                                                                
6:08:04 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR announced that the  only order of business would be                                                               
a  continuation  of the  joint  meeting  of the  House  Resources                                                               
Standing Committee  and the  Senate Resources  Standing Committee                                                               
held  on 10/16/17.   Since  then, a  joint development  agreement                                                               
between  the  Alaska   Gasline  Development  Corporation  (AGDC),                                                               
[Sinopec, China  Investment Corporation,  and Bank of  China] was                                                               
signed 11/9/17, and there have  been additional letters of intent                                                               
and further  announcements in  this regard.   The  committee will                                                               
hear the remainder of the  earlier presentation from officials at                                                               
AGDC,  and  a  briefing  on  recent  events.    She  advised  the                                                               
presentation and monthly updates on  the project are available to                                                               
members of the public at the AGDC web site:  https://agdc.us.                                                                   
                                                                                                                                
6:10:35 PM                                                                                                                    
                                                                                                                                
KEITH  MEYER, President,  Alaska Gasline  Development Corporation                                                               
(AGDC),   Department   of    Commerce,   Community   &   Economic                                                               
Development,   provided  a   PowerPoint  presentation   entitled,                                                               
"Alaska  LNG,"  dated  12/14/17.     Slide  1  was  an  array  of                                                               
photographs related  to the  signing ceremony  of the  AGDC joint                                                               
agreement during a  U.S. Department of Commerce  trade mission in                                                               
China  on  11/9/17.   Mr.  Meyer  said  the  signing was  a  very                                                               
significant event that required a  year of preparation, and which                                                               
has  created momentum  [for the  project]  in both  the U.S.  and                                                               
China.  One  of the objectives of the Trump  Administration is to                                                               
increase   the  positive   trade   flow  to   the  Asia   region,                                                               
particularly  with China.   Slide  3  listed an  overview of  the                                                               
presentation  and  AGDC's  mission:    Maximize  the  benefit  of                                                               
Alaska's  vast  North Slope  natural  gas  resources through  the                                                               
development  of infrastructure  necessary  to move  the gas  into                                                               
local and  international markets.   He  said AGDC  "take[s] [its]                                                               
mission  to  heart"  and  seeks  to  balance  the  objectives  of                                                               
customer, finance, and netback to the state for its natural gas.                                                                
                                                                                                                                
6:15:40 PM                                                                                                                    
                                                                                                                                
MR.  MEYER  continued to  slide  4  that illustrated  Alaska  LNG                                                               
Capital Structure,  which he  said is  a 75  percent debt  and 25                                                               
percent equity  structure that is  reasonably typical for  a U.S.                                                               
liquefied  natural  gas  (LNG) pipeline  project;  however,  this                                                               
structure is not as typical for  an "oil and gas major [company]"                                                               
funded project, which  would be closer to 50 percent  debt and 50                                                               
percent equity.   He explained an infrastructure project  - for a                                                               
utility, for  example - has  a higher debt component  because the                                                               
project   has  greater   stability  and   longer-term  contracts.                                                               
Therefore,  for  a $43  billion  project,  this means  about  $32                                                               
billion in debt and $11 billion in  equity.  Also on slide 4, the                                                               
total debt is  split into major components:   gas treatment plant                                                               
(GTP) facility; gas pipeline; LNG  facility; $6.4 billion owner's                                                               
cost,  which  is cost  of  the  management  of the  project;  $10                                                               
billion in  contingency, which is 30  percent of the base  of $33                                                               
billion.   He said  the cost  of $43  billion, which  was derived                                                               
from $600 million  spent to date by the producers  and the state,                                                               
is a number that is "probably  comfortable on the high side," and                                                               
potentially   could  be   a  little   less.     In  response   to                                                               
Representative  Pruitt, Mr.  Meyer  said the  source  of the  $11                                                               
billion  in equity  would be  addressed  in detail  later in  the                                                               
presentation.                                                                                                                   
                                                                                                                                
6:19:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE Pruitt asked whether it  was expected that the $10                                                               
billion contingency would be spent on cost overruns.                                                                            
                                                                                                                                
MR. MEYER  affirmed it  is most likely  the contingency  would be                                                               
spent  on unforeseen  cost overruns;  the $10  billion amount  is                                                               
high compared to other projects with a 25 percent contingency.                                                                  
                                                                                                                                
REPRESENTATIVE PRUITT surmised "it  definitely should be expected                                                               
that we'll spend a fair portion of that contingency."                                                                           
                                                                                                                                
MR.  MEYER agreed.   He  opined that  good management  could save                                                               
some [money] in  contingency and some owner's  cost; however, the                                                               
economics are based on the full amounts.                                                                                        
                                                                                                                                
REPRESENTATIVE BIRCH  observed Alaska LNG is  a "massive project"                                                               
that is  competing with projects in  the Gulf of Mexico  that can                                                               
reach production with a $2 billion  or $3 billion investment.  He                                                               
asked  how the  project would  compete and  acquire contracts  to                                                               
secure equity.                                                                                                                  
                                                                                                                                
MR.  MEYER responded  the project  is very  competitive with  the                                                               
Gulf.   In fact, the  LNG plant is "about  par with a  Gulf Coast                                                               
facility at roughly, around, [$1,000]  per ton."  He acknowledged                                                               
the Gulf Coast has some  advantages such as construction labor on                                                               
site.   Also, the Gulf Coast  has a pipeline to  tidewater, so to                                                               
make the Alaska  LNG pipeline economical, the  project must carry                                                               
sufficient volumes to bring the per  unit overall cost down.  Two                                                               
significant  advantages for  Alaska LNG  are a  one-third shorter                                                               
distance for  shipping compared to  the Gulf Coast, and  a proven                                                               
conventional stranded  resource that  can be  priced attractively                                                               
and safely,  as opposed  to Henry Hub  [natural gas  spot] prices                                                               
that have a  history of volatility.  Further,  Alaska LNG natural                                                               
gas avoids  the Panama  Canal which can  be a  restriction point.                                                               
Thus, Alaska LNG can compete  quite well with Gulf Coast projects                                                               
on a  unit cost basis,  provided there are sufficient  volumes to                                                               
justify  "the overall  bill."   Mr. Meyer  acknowledged the  Gulf                                                               
Coast "probably offers our sharpest competition."                                                                               
                                                                                                                                
6:24:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH agreed  and stated the Lower 48  is awash in                                                               
gas  -  LNG  is  becoming   fungible  [and  available  from  many                                                               
sources],  whether  exported  to   the  Pacific  Rim  or  Europe;                                                               
however, he said  the investment side is his  largest concern and                                                               
questioned  whether  [China   Petroleum  &  Chemical  Corporation                                                               
(Sinopec)]  is a  viable  investor, or  if  China has  sufficient                                                               
demand  for  the  "massive  quantities of  gas  that  this  would                                                               
propose to put on the market ...."                                                                                              
                                                                                                                                
REPRESENTATIVE  SADDLER  recalled   previous  iterations  of  the                                                               
project  forecast a  cost range  of between  $40 billion  and $60                                                               
billion, which is  almost the same as a cost  of $43 billion plus                                                               
a $10 contingency  for known overruns.  He asked  for the average                                                               
cost of unanticipated overruns in similar projects.                                                                             
                                                                                                                                
MR. MEYER  clarified the  previous cost range  of $45  billion to                                                               
$65 billion was  developed two years ago before  $600 million was                                                               
spent on  engineering to refine  the cost; he opined  the present                                                               
cost  is  "a  pretty  comfortable  number.    It  does  not  have                                                               
completely unforeseen events ...."   Prior to obtaining financing                                                               
and making a final investment  decision (FID), AGDC will identify                                                               
events that are  insurable and those that are not.   [AGDC] feels                                                               
$43 billion is a good number.                                                                                                   
                                                                                                                                
6:28:14 PM                                                                                                                    
                                                                                                                                
FRANK  RICHARDS,  PE,  Senior Vice  President,  AGDC,  added  the                                                               
numbers [shown  on slide 4]  were developed by AGDC  partners and                                                               
its  former   partners  BP,  ConocoPhillips  Alaska,   Inc.,  and                                                               
ExxonMobil Corporation.  The contingency  in this level of detail                                                               
is  completed in  the  preliminary  front-end engineering  design                                                               
(pre-FEED)  effort, following  the industry  practice established                                                               
by the American Association of  Cost Engineering of approximately                                                               
plus 35  to minus 25  percent contingency:   Alaska LNG has  a 30                                                               
percent  contingency.    After significant  research  related  to                                                               
vendors and scheduling, and factoring  in the cost by components,                                                               
AGDC  used  a   Monte  Carlo  analysis  to   determine  the  base                                                               
contingency.                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SADDLER   expressed   his   understanding   AGDC                                                               
engineered the project down to a  cost of $33 billion and added a                                                               
$10 billion contingency to that.                                                                                                
                                                                                                                                
MR. RICHARDS said the total  cost includes owner's cost to manage                                                               
the  construction and  design  aspects of  the  project, and  the                                                               
contingency, so, yes, it is a segment of the overall cost.                                                                      
                                                                                                                                
REPRESENTATIVE SADDLER  restated his  question about  whether the                                                               
amount of average unanticipated overruns is known.                                                                              
                                                                                                                                
MR.  RICHARDS pointed  out one  of the  major potential  risks is                                                               
regulatory permitting,  which can  add years  and dollars  to the                                                               
project.  [AGDC]  has undertaken  -  in  its application  to  the                                                               
Federal Energy  Regulatory Commission  (FERC) for its  [section 3                                                               
of the  Natural Gas Act] authorization  - a step to  help de-risk                                                               
that  in  the  regulatory  component  through  the  environmental                                                               
impact statement (EIS) work, this year or next.                                                                                 
                                                                                                                                
CO-CHAIR JOSEPHSON  returned attention to  Representative Birch's                                                               
suggestion that with  a $2 billion to $3  billion investment, the                                                               
market could be  satisfied by Gulf Coast  natural gas production.                                                               
If so, [the  signing of the aforementioned  agreement on 11/9/17]                                                               
would  not have  occurred.   He asked  Mr. Meyer  to clarify  his                                                               
response to Representative Birch.                                                                                               
                                                                                                                                
MR.  MEYER explained  LNG costs  about $1,000  per ton,  so a  $2                                                               
billion  investment on  the  Gulf  Coast is  [equal  to] about  2                                                               
million tons,  which is about  one-tenth the size of  Alaska LNG;                                                               
by no  means would that satisfy  the market in Asia.   Alaska LNG                                                               
is not the  largest facility in the U.S., in  fact, facilities on                                                               
the Gulf Coast are larger and  smaller.  A $2 billion facility is                                                               
the size of the existing  [ConocoPhillips Alaska, Inc., Kenai LNG                                                               
plant in Nikiski,  Alaska] built in 1969.  He  said the demand in                                                               
Asia is far  greater than this project and will  easily need over                                                               
five plants  equal to  the size  of Alaska  LNG; perhaps  ten new                                                               
facilities will  be needed between  now and 2030,  depending upon                                                               
the impact of fuel-switching [from coal to LNG].                                                                                
                                                                                                                                
6:33:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOSEPHSON affirmed  Mr. Meyer's  testimony is  that the                                                               
demand curve [for natural gas in China] is valid.                                                                               
                                                                                                                                
MR.  MEYER  said yes,  the  demand  is  there.   China  currently                                                               
consumes one-half of the world's  coal; shifting a small fraction                                                               
of its demand  from coal to natural gas is  a significant number.                                                               
China is number  three in the world in terms  of LNG consumption,                                                               
behind Japan  and Korea, and  is the fastest-growing  market; the                                                               
Asian  region market  is  also  growing.   He  advised the  Asian                                                               
market could  easily absorb production from  Alaska LNG; however,                                                               
Alaska  LNG must  compete  with  other U.S.  states,  as well  as                                                               
Australia  and Papua  New  Guinea.   He  was  unsure whether  the                                                               
market could  absorb all of  the proposed projects; in  the U.S.,                                                               
all  of the  proposed projects  would produce  nearly 40  billion                                                               
cubic feet per day, all competing for the same market.                                                                          
                                                                                                                                
CO-CHAIR JOSEPHSON  returned to  an earlier comment  that natural                                                               
gas is so  plentiful and available, it is fungible.   He recalled                                                               
when  Senate   Bill  138  [passed   in  the  28th   Alaska  State                                                               
Legislature] in  2014, there was also  a lot of gas  in the world                                                               
market.   Although there is  now concern about the  project price                                                               
of  $43  billion,  when  the project  was  transferred  from  the                                                               
original Alaska  LNG team led  by [former Senior  Project Manager                                                               
Steve  Butt], the  cost was  $43  billion, and  in that  respect,                                                               
"there is no real surprise that's here ...."                                                                                    
                                                                                                                                
MR. MEYER  said correct.   He continued,  noting natural  gas has                                                               
become the hydrocarbon molecule of choice.                                                                                      
                                                                                                                                
[Due  to technical  difficulties,  the remainder  of Mr.  Meyer's                                                               
response is indecipherable.]                                                                                                    
                                                                                                                                
REPRESENTATIVE GUTTENBERG urged for the  presenter to return to a                                                               
description of the project.                                                                                                     
                                                                                                                                
REPRESENTATIVE  JOHNSON expressed  her  hope to  hear during  the                                                               
presentation  that   the  aforementioned  agreement  in   no  way                                                               
intentionally, or  by commitment, obligates the  Alaska Permanent                                                               
Fund as  collateral or security  against the  proposed investment                                                               
in the project.                                                                                                                 
                                                                                                                                
6:38:45 PM                                                                                                                    
                                                                                                                                
MR.  MEYER  stressed  [use  of   the  Alaska  Permanent  Fund  as                                                               
security] is not  part of the plan and has  not been discussed in                                                               
any way.  He returned attention to  a map on slide 3 and provided                                                               
the following description of the project:   The GTP is located at                                                               
the  north  end  of  the  pipeline  and  is  designed  for  three                                                               
production  trains.   From there  an  800-mile-long, 42-inch  gas                                                               
pipeline with 8 compressor stations  runs to a 20-million-ton per                                                               
year LNG facility, also designed with  three trains.  It is still                                                               
an option to  design the plants using one train,  and then adding                                                               
additional trains in phases; however,  at this time the system is                                                               
designed for a  GTP in the north  and a pipeline to  an LNG plant                                                               
in  the south.   The  pipeline is  bigger than  the LNG  plant in                                                               
order to transport about 500  million cubic feet per day [MMCF/D]                                                               
for instate  markets, which  is over  twice the  existing instate                                                               
consumption.     Mr.   Meyer  then   presented  slide   5,  which                                                               
illustrated three  drivers:   customers, financing,  and resource                                                               
owner.   On  the customer  side, AGDC  can't set  the price  in a                                                               
competitive market;  similarly, the  project must be  financed in                                                               
debt and equity markets, and be  able to cover the cost of system                                                               
operations.    In addition  to  these  costs,  there must  be  an                                                               
acceptable netback to the state.                                                                                                
                                                                                                                                
REPRESENTATIVE PRUITT  asked who is  referred to as  the resource                                                               
owner for the project.                                                                                                          
                                                                                                                                
MR. MEYER  responded that technically  the state is  the resource                                                               
owner.   Once the pipeline  is in  place, the producers  have the                                                               
ability to pull the reserves out  of the ground to monetize them,                                                               
so AGDC  will have a gas  supply contract with the  producers; he                                                               
opined  the first  entity  to  satisfy is  the  State of  Alaska.                                                               
Slide 6 focused  on LNG market price.  Mr.  Meyer said Alaska LNG                                                               
is competing in the Asia Pacific  LNG market only, the project is                                                               
not competitive  in Europe due  to the shipping distance,  nor in                                                               
the  American market,  or in  Africa.   The Asian  market is  the                                                               
focus for  Alaska LNG,  and competition for  the Asian  market is                                                               
from  the Lower  48 and  international gas  suppliers.   Lower 48                                                               
suppliers trade gas  on the Henry Hub index, based  on a pipeline                                                               
hub point  in Louisiana  where the  New York  Mercantile Exchange                                                               
sells  futures  contracts, thus  many  Gulf  Coast contracts  are                                                               
based on a  Henry Hub plus price for natural  gas.  Recently, the                                                               
price has  been around  $3-$3.25.   In order  to compete  in Asia                                                               
[Gulf  Coast suppliers  add] the  costs of  shipping through  the                                                               
Panama Canal,  liquefaction, fuel,  and gas supply,  which totals                                                               
around the Henry  Hub price plus $5.  On  the international side,                                                               
most LNG  is linked  to an  oil price  index, which  is currently                                                               
around 12-14  percent of the  price of oil.   For example,  at 12                                                               
percent,  LNG is  $12 at  an oil  price of  $120 per  barrel, and                                                               
currently at  an oil  price of  $63, the price  of LNG  is $7.56.                                                               
Using about  $8 as  the market  price in Asia,  he said,  "and so                                                               
we've got  to get  to the  beach in  Asia, at  8 bucks  a million                                                               
[British thermal units]  BTU[s]."  In response  to Co-Chair Tarr,                                                               
he clarified  Alaska LNG must show  it can compete with  the U.S.                                                               
Gulf Coast and Australia at an $8 landed [in] Asia price.                                                                       
                                                                                                                                
6:45:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH  noted the real competition  is from natural                                                               
gas shipping out  of the Alberta Canada, hub,  which is typically                                                               
priced about  $1 less  than Henry  Hub.  He  said $2  Canadian is                                                               
about $1.60  U.S. and that  is a  more realistic and  certainly a                                                               
lower number than Henry Hub.                                                                                                    
                                                                                                                                
6:46:12 PM                                                                                                                    
                                                                                                                                
MR.  MEYER said  no, adding  that Canadian  projects have  fallen                                                               
away  because they  have a  virgin [pipeline]  corridor over  the                                                               
mountains and  do not have  an existing corridor as  does Alaska.                                                               
Further, Canadian projects have  significant First Nations issues                                                               
unsettled by  an agreement  similar to  the Alaska  Native Claims                                                               
Settlement Act (ANCSA).   He said he has no  fear about competing                                                               
with Canadian projects.                                                                                                         
                                                                                                                                
MR.  MEYER  continued to  further  pricing  information shown  on                                                               
slide  7.   The  project  needs about  $0.80  shipping cost  from                                                               
Alaska to  Asia, and  he restated Alaska  is about  one-third the                                                               
shipping distance  to China from  the Gulf  Coast:  at  $8, minus                                                               
$.80, the  LNG must  reach Nikiski  at a  cost of  $7.20 [MMBtu].                                                               
Mr. Meyer  said slide  8 turns attention  to financing.   Because                                                               
the project  plans for  $32 billion  in debt  and $11  billion in                                                               
equity, financing  is big piece  of the project.   Further, about                                                               
$1.4  billion  is  estimated   for  system  operations  including                                                               
operations and maintenance  (O&M), and payments in  lieu of taxes                                                               
(PILT) to communities.   After dividing the  costs by throughput,                                                               
"which is  just shy of one  trillion cubic feet [TCF]  per year,"                                                               
the project  needs O&M  costs of  no more  than $1.45  per MMBtu.                                                               
Further, financing the  $3.5 billion debt service  payment for 20                                                               
years, at  5 percent, including  5 years of  capitalized interest                                                               
during  construction,  [cost  $3.60].     The  equity  return  to                                                               
investors is  about $1.1  billion per year,  thus with  O&M, debt                                                               
cost, and the  equity cost of about $1.15, the  total cost of the                                                               
Alaska LNG system is about $6.20.                                                                                               
                                                                                                                                
6:50:06 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TARR  observed  PILT  paid  to  communities  along  the                                                               
corridor  would  help  defray   the  cost  of  infrastructure  to                                                               
accommodate  the  construction of  the  pipeline,  and O&M  money                                                               
would also stay in the state to pay workers.                                                                                    
                                                                                                                                
MR.  MEYER agreed  that no  matter  who owns  the project,  $1.45                                                               
billion [MMBtu] stays  in the state for the life  of the project,                                                               
estimated  to be  from  50 to  100 years.    Payments for  Alaska                                                               
labor,  contractors, and  to local  communities  would come  from                                                               
overseas.  In response to  Representative Guttenberg, he said the                                                               
payments for  debt and equity  begin after construction  and [the                                                               
project  is] in  service.   Typically, LNG  facilities are  given                                                               
about  one  year  of  operating  "cushion"  before  debt  service                                                               
payments have to be made, although interest will accrue.                                                                        
                                                                                                                                
REPRESENTATIVE  SADDLER  asked  whether the  interests  in  China                                                               
would demand participation - in  proportion to their equity share                                                               
- in terms of contracting, jobs, and procurement.                                                                               
                                                                                                                                
MR. MEYER said, "No, it does not come with that requirement."                                                                   
                                                                                                                                
REPRESENTATIVE BIRCH asked if there  is an expectation that there                                                               
would not be a change in oil and  gas tax policy over the life of                                                               
the project.   He recalled  over the  last few years  [Alaska has                                                               
had] a changing tax structure  and questioned whether there is an                                                               
expectation  by   the  Chinese  government  of   a  "fixed"  [tax                                                               
structure].                                                                                                                     
                                                                                                                                
MR. MEYER  responded that the  issue of taxes and  related topics                                                               
has not been finalized with the  Chinese and will be addressed in                                                               
2018.                                                                                                                           
                                                                                                                                
REPRESENTATIVE BIRCH  questioned whether PILT would  be the total                                                               
of the  taxes paid by the  project.  He opined  the Chinese style                                                               
of government  dictates taxing structure and  policy, however, in                                                               
the U.S., and especially in Alaska, these issues are more fluid.                                                                
                                                                                                                                
MR.  MEYER said  AGDC  has  maintained that  PILT  would be  $450                                                               
million  for  the life  of  the  project  and  would be  paid  to                                                               
communities as part of doing business.                                                                                          
                                                                                                                                
CO-CHAIR TARR pointed out PILT  was incorporated into Senate Bill                                                               
138 to  resolve some  of the issues  related to  the Trans-Alaska                                                               
Pipeline System (TAPS).                                                                                                         
                                                                                                                                
6:56:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PRUITT,  returning attention to the  discussion of                                                               
tax structure, suggested  that a producer with  expectations of a                                                               
stable  tax structure  would include  in gas  supply contracts  a                                                               
provision to pass  on any [increased costs] due to  changes by an                                                               
unstable  state government,  thereby affecting  the proposed  gas                                                               
price expected by  [China].  He asked whether  AGDC has discussed                                                               
what can  be delivered  in terms  of tax  stability, and  the tax                                                               
structure in Alaska.                                                                                                            
                                                                                                                                
MR.  MEYER said  AGDC has  not  had specific  discussions on  the                                                               
future tax structure in Alaska;  AGDC has characterized Alaska as                                                               
a stable  regime.  Prior to  funding and the finalization  of the                                                               
commercial  contract, the  issue will  be addressed  on "the  gas                                                               
supply side  and the  buy side."   To date, AGDC  has not  had to                                                               
"paper this solution;"  he pointed out every  regime must address                                                               
the  issue  as  to  who  takes  the  burden  of  shifting  taxes.                                                               
Although Gulf  Coast projects typically pass  tax changes through                                                               
to the  customer, this  project in Alaska  is unique  because the                                                               
state is developing the project.                                                                                                
                                                                                                                                
REPRESENTATIVE  PRUITT asked  for  clarification  on whether  the                                                               
[$11 billion] equity is resource or non-resource equity.                                                                        
                                                                                                                                
MR. MEYER explained equity in  the project is a dollar commitment                                                               
from investors such as third-parties,  the state, bonds issued by                                                               
AGDC, investment  by Alaska regional corporations,  investment by                                                               
municipalities, or a combination of sources.                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  restated his question related  to whether                                                               
there is  a current agreement  that would require the  project to                                                               
give  Chinese  interests  75  percent of  the  contract  work  in                                                               
proportion  to  their equity.    As  an  agreement has  not  been                                                               
finalized, he  asked for  a commitment  from AGDC  to legislators                                                               
that a  future final  agreement would  not allow  China to  get a                                                               
significant  percentage  of the  contracting  and  labor work  in                                                               
Alaska.                                                                                                                         
                                                                                                                                
MR. MEYER  restated AGDC  has not  finalized discussions  on this                                                               
topic, and he pointed out it  would be impracticable for China to                                                               
have  a   majority  involvement  in  construction.     The  labor                                                               
requirement  for construction  will  severely  stress Alaska,  so                                                               
outside  labor will  be  needed.   He  said  he expected  Alaskan                                                               
contractors  will have  a degree  of  priority, and  he does  not                                                               
expect   Chinese  companies   would  provide   labor  under   any                                                               
circumstances.  The project will  be built by Alaska contractors,                                                               
and Alaska  labor, as was  TAPS, although many workers  came from                                                               
out  of state.   Mr.  Meyer stressed  there is  not an  entity in                                                               
Alaska  that  has   the  systems  and  competency   to  manage  a                                                               
megaproject,  thus   some  expertise  will  have   to  come  from                                                               
elsewhere and AGDC  is in contact with large  entities - domestic                                                               
and foreign.  He remarked:                                                                                                      
                                                                                                                                
     To be  clear there  is not  an Alaskan  contractor that                                                                    
     can handle a $43  billion construction project, and so,                                                                    
     so,  we look  for  those large  companies.  ... I  just                                                                    
     don't want to, to be  disrespectable to our, to Chinese                                                                    
     companies  that  also  have   a  very  high  degree  of                                                                    
     competency, that also build  pipelines. ... Sinopec has                                                                    
     built  a pipeline  longer than  ours  with an  altitude                                                                    
     peak higher than ours and  a gas treatment plant larger                                                                    
     than ours.                                                                                                                 
                                                                                                                                
MR. MEYER,  in further response  to Representative  Saddler, said                                                               
he  expects  the project  will  be  subject  to a  project  labor                                                               
agreement.  He  returned to the presentation,  restating the cost                                                               
to the  Asia market is $8,  less $0.80 shipping, and  so is $7.20                                                               
delivered to  Nikiski; less the  costs of O&M, debt  service, and                                                               
equity return, leaves $1 per MMBtu  - about $1 billion per year -                                                               
to  the gas  suppliers, of  which  the state  garners 25  percent                                                               
[slide  9].   Slide  10  illustrated  the  balance of  the  three                                                               
drivers:   the market  gets a  cost of  $8 for  delivered natural                                                               
gas; financiers  receive a modest  equity return;  operations are                                                               
paid; PILT  is paid; and the  netback is $1 at  the gas treatment                                                               
plant.                                                                                                                          
                                                                                                                                
REPRESENTATIVE JOHNSON asked whether $1  for gas is acceptable to                                                               
the gas suppliers.                                                                                                              
                                                                                                                                
7:06:02 PM                                                                                                                    
                                                                                                                                
MR. MEYER further explained the  [netback of $1] "comes from sort                                                               
of what's  leftover."  [AGDC]  cannot change the market  price of                                                               
LNG, and the  costs to operate the system and  PILT must be paid.                                                               
He characterized the financing and  cost of equity is "reasonable                                                               
debt financing," and  $1 [netback] is what is leftover.   About 8                                                               
BCF of gas  is produced in Prudhoe Bay.   The project needs about                                                               
3 BCF, and about 400-600 MCF/D  is burned by pushing the gas back                                                               
in the ground, so the cost of  not pushing gas back in the ground                                                               
is negative.   He  advised getting  $1 billion per  year -  for a                                                               
resource  that  today  is  lost -  is  reasonable;  although  the                                                               
netback is  not as  high as  Henry Hub, [the  gas priced  by] the                                                               
Henry Hub index is  not on the North Slope.   Mr. Meyer said AGDC                                                               
feels  this  is  a  reasonable  return for  a  resource  that  is                                                               
otherwise stranded  and would be burned  up by pushing it  in the                                                               
ground.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  JOHNSON expressed  her  desire to  hear from  the                                                               
producers regarding  the netback,  and whether the  netback could                                                               
be higher  for gas delivered  to other parts  of the world.   She                                                               
requested further information from  the producers in this regard.                                                               
Returning attention to PILT, she asked  if the state is the owner                                                               
of the pipeline, is it accurate to call the tax PILT.                                                                           
                                                                                                                                
MR. MEYER advised  PILT was part of the arrangement  in place and                                                               
therefore is  unquestioned; a provision to  pay some compensation                                                               
to all  of the affected  Alaska communities has always  been part                                                               
of the project.                                                                                                                 
                                                                                                                                
REPRESENTATIVE JOHNSON  inquired as to the  possibility that AGDC                                                               
-  or  a  portion  thereof   -  could  be  purchased  by  Chinese                                                               
investors.                                                                                                                      
                                                                                                                                
7:10:05 PM                                                                                                                    
                                                                                                                                
MR. MEYER  said the reason for  PILT is not in  anticipation of a                                                               
change in the ownership of the  pipeline.  He was not 100 percent                                                               
sure  whether PILT  has  to be  paid, but  the  economics of  the                                                               
project have  always included [the  cost of] PILT paid  either in                                                               
cash,   gas,  or   another  form.     In   further  response   to                                                               
Representative Johnson,  he said  he does  anticipate third-party                                                               
investors  in the  project,  not  at "the  AGDC  level," but  the                                                               
project  will  be  held  in   a  project-company  structure,  and                                                               
investors would  invest in  the project as  opposed to  having an                                                               
investor in  the role of AGDC.   He said he  envisions AGDC would                                                               
remain 100 percent  state-owned.  Mr. Meyer  further explained an                                                               
owner in  the project-company would  own an asset.   For example,                                                               
there would be  one project-company for each of  the main assets:                                                               
an  LNG project-company;  a pipeline  project-company; and  a gas                                                               
treating plant  project-company; each conceivably  with different                                                               
owners.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  PRUITT  expressed  concern that  the  $1  netback                                                               
seems uncertain.  He asked for  the cost of producing natural gas                                                               
from Point Thomson;  in fact, if the netback is  the catalyst for                                                               
the  project,  the model  should  be  built  around the  cost  of                                                               
supplying the gas.                                                                                                              
                                                                                                                                
MR. MEYER advised at Prudhoe Bay,  it is arguably a negative cost                                                               
because [producing] the  oil keeps the cost of  producing the gas                                                               
significantly  less   than  one   dollar.    He   cautioned  that                                                               
"everybody  wants more  ... the  equity  guy, the  PILT guy,  the                                                               
operations guy, everybody."   He opined the $1  netback is easily                                                               
justified  at Prudhoe  Bay but  acknowledged Point  Thomson maybe                                                               
needs a  higher price.   However, the  netback formula  is common                                                               
worldwide and  is "what  all the producers  deal with,"  with the                                                               
exception of the  Lower 48, because of its mature  market and the                                                               
accepted index of  Henry Hub, and a similar  exception in Canada.                                                               
He restated that  all producers deal with  netback throughout the                                                               
world,  as  this  is  the   standard  process,  particularly  for                                                               
stranded gas.  Mr. Meyer  posited stranded gas in Australia would                                                               
garner higher prices because it  has a domestic market that would                                                               
provide competition for  LNG; however, in Alaska,  for a stranded                                                               
gas resource,  the netback  has to reasonably  cover the  cost of                                                               
the gas.  Internationally, because the  price of gas is linked to                                                               
an  unknown price  for oil,  the  sellers "live  with this,  this                                                               
fluctuating  price."    He  opined  netback is  a  sound  way  to                                                               
determine a  market price, and removes  the volatility associated                                                               
with  netback by  fixing the  price,  and by  inflation-proofing.                                                               
Although  some producers  prefer the  volatility associated  with                                                               
oil markets, the  netback could be indexed, and as  the $8 market                                                               
price increased, the $1 netback  would increase.  These terms are                                                               
part of the producer discussion.                                                                                                
                                                                                                                                
REPRESENTATIVE  PRUITT  noted  the  state must  get  the  highest                                                               
benefit from its resources, but  Mr. Meyer earlier stated putting                                                               
gas  back  in the  ground  is  essentially  burning  gas.   If  a                                                               
producer is going  to make $0.75 for gas,  the producer's concern                                                               
is whether to  get the higher benefit from the  production of oil                                                               
in Prudhoe  Bay - and the  state is getting revenue  from tax and                                                               
royalty in  taxes on the production  of oil - whether  the better                                                               
value  is  $1  netback  from  gas  or  reinjecting  the  gas  and                                                               
producing higher-value oil.                                                                                                     
                                                                                                                                
7:19:29 PM                                                                                                                    
                                                                                                                                
MR. MEYER said  the answer can be demonstrated by  the Alaska Oil                                                               
and  Gas Conservation  Commission's (AOGCC's)  decision to  allow                                                               
gas to  be taken  off, because in  order to  maximize recoverable                                                               
hydrocarbons, it  is necessary  to pull  the gas  off by  2023 or                                                               
2024.   Eventually, it  doesn't pay to  continue to  pressure the                                                               
field.  [AOGCC]  said removing 3.6 BCF/D of gas  from the Prudhoe                                                               
Bay reservoir  will have no  detrimental impact, and that  is the                                                               
reason the Alaska  LNG facility is sized at about  3.3 BCF/D.  He                                                               
said there has  been sufficient analysis on  the reservoir, which                                                               
is now a  large gas reservoir with oil, instead  of the other way                                                               
around.  When the  oil is gone, and the gas is  all that is left,                                                               
the gas must  pay for all the associated facilities  for gas, but                                                               
not the entire  Prudhoe Bay complex, so he  acknowledged that the                                                               
price of gas cannot go below  the cost to operate the system when                                                               
the oil is gone.                                                                                                                
                                                                                                                                
REPRESENTATIVE  PRUITT  asked  whether AGDC  has  presented  [the                                                               
economics of the project] to producers.                                                                                         
                                                                                                                                
MR. MEYER remarked:                                                                                                             
                                                                                                                                
     We  have   had  conversations,  they  have   seen  this                                                                    
     presentation.   Everybody wants more, no  one said it's                                                                    
     not accepted.   I  think it's  very acceptable,  but at                                                                    
     the same  time, I  know everybody  wants more.  ... But                                                                    
     none  of the  producers have  said 'This  doesn't work,                                                                    
     that this is higher than  our, or lower than our cost.'                                                                    
     It's not."                                                                                                                 
                                                                                                                                
MR. MEYER opined  $1 billion per year upstream,  when compared to                                                               
nothing, looks  good.  On  slide 11,  he pointed out  the project                                                               
provides benefits to the state in  the amount of $1.75 billion to                                                               
$2  billion, and  $750 million  to $1  billion to  the producers,                                                               
regardless if the state is an  owner or not.  He turned attention                                                               
to slide 12, noting  that there is at least 500  MCF/d in the gas                                                               
pipeline reserved for  instate use, which is more  than twice the                                                               
instate  consumption  of 60  trillion  Btu  [TBtu] in  2016,  and                                                               
restated the  pipeline is sized  larger than the LNG  facility in                                                               
order to transport additional gas for instate use.                                                                              
                                                                                                                                
7:25:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH inquired as to  the price of gas for instate                                                               
use.                                                                                                                            
                                                                                                                                
MR.   MEYER  estimated   between   $5-$6   delivered  to   Alaska                                                               
communities through at  least five interconnects.   This price is                                                               
assuming all parties  are reasonable, and the cost of  the gas is                                                               
about $1.                                                                                                                       
                                                                                                                                
REPRESENTATIVE JOSEPHSON  observed the economics proposed  in the                                                               
presentation reflect  a low-price  environment, and slides  9 and                                                               
11  illustrate the  amount of  the state's  royalty interest;  as                                                               
interest debt  is retired,  the state's  netback would  grow, and                                                               
the state would also profit from  selling 500 MBtus of gas on the                                                               
market.   He pointed  out although slide  11 indicates  the state                                                               
would  reap  $250 million  per  year  from its  investment,  "the                                                               
scenarios could prove much rosier than that, in total."                                                                         
                                                                                                                                
MR. MEYER  agreed and clarified  on the financial side  the total                                                               
[benefit] is about $5 billion, but  about $3.5 billion of that is                                                               
debt service.   Once  the state  is 100  percent owner,  it would                                                               
earn  $1.1 billion  for about  20 years,  increasing to  about $5                                                               
billion for  the remainder of  the life  of the pipeline,  if the                                                               
tariffs remain  unchanged.  An  asset returning about  $5 billion                                                               
per year could be sold or  monetized, if desired.  The project is                                                               
the gas  equivalent of TAPS,  however, unlike crude  oil, natural                                                               
gas can  be used right  out of the  pipeline and thus  Alaska LNG                                                               
will grow lateral  branches to Fairbanks, to mines,  and to other                                                               
communities.                                                                                                                    
                                                                                                                                
MR. MEYER continued to slide 14  and said AGDC created a megadeal                                                               
to build a megaproject by  taking advantage of Alaska's status as                                                               
a sovereign government, and utilizing  a government to government                                                               
approach in  Asia, where there  are large  state-owned utilities,                                                               
with the  exception of  Japan.   [AGDC] approached  Japan, Korea,                                                               
and  China  with the  structure  illustrated  on  slide 15.    He                                                               
explained this approach:                                                                                                        
                                                                                                                                
     ... in  the form  of a  loan we will  give you  back in                                                                    
     repayment - to one of  your buying companies - capacity                                                                    
     in our system.  That  entity can actually make the debt                                                                    
     service  payments  to  you  directly,  which  mitigates                                                                    
     credit  risk, and  also, we  don't  care what  currency                                                                    
     they  pay you  with, [and  that] can  minimize exchange                                                                    
     rate risks.   So, we become somewhat  insulated for the                                                                    
     debt - you  give us a bunch of dollars,  we'll give you                                                                    
     a bunch  of capacity.   That  works for  large, credit-                                                                    
     worthy  entities that  are holding  big dollars,  so it                                                                    
     only really  works in three  countries:   Japan, Korea,                                                                    
     China.                                                                                                                     
                                                                                                                                
MR. MEYER  further explained  Alaska LNG will  have to  raise and                                                               
provide  the  equity funds  of  $11  billion.   He  recalled  the                                                               
structure on slide 15 resembles  the original structure, however,                                                               
the original  producer-partners took 75 percent  ownership of the                                                               
project and  with structure  now proposed  the state  retains 100                                                               
percent of ownership  and will find a customer for  75 percent of                                                               
the capacity.                                                                                                                   
                                                                                                                                
7:32:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER posited whether  the state, as 100 percent                                                               
owner, will  have to make  up any deficit in  the value of  gas -                                                               
and guarantee  China financiers their  expected rate of  return -                                                               
if  the price  of  gas  drops after  the  pipeline  is built  and                                                               
commitments are made.                                                                                                           
                                                                                                                                
7:33:01 PM                                                                                                                    
                                                                                                                                
MR. MEYER said  no.  He returned  to slide 15 and  pointed out in                                                               
addition  to  capacity  in  the  system, the  buyers  pay  for  a                                                               
proportional share of O&M and the  gas supply, whether a fixed or                                                               
indexed  price.   Although buyers  have  an interest  in an  oil-                                                               
linked gas price, from AGDC's point  of view, the price is a flow                                                               
through, giving [the  buyer] system capacity in  exchange for the                                                               
debt.   He  restated no,  the  state would  not have  to make  up                                                               
anything in a changing price environment.                                                                                       
                                                                                                                                
REPRESENTATIVE  JOHNSON returned  to slide  14 and  asked whether                                                               
"Chinese"  could  be substituted  for  "in-country,"  and if  so,                                                               
whether Chinese companies are nationalized companies.                                                                           
                                                                                                                                
MR. MEYER responded  yes.  In further  response to Representative                                                               
Johnson, he  clarified the project  company referred to  on slide                                                               
14 is a  marketing entity of the project company,  which would be                                                               
a marketing entity  that currently would be 100  percent owned by                                                               
AGDC,  although  there  may  be  third-party  investors  in  that                                                               
company.   The owner  of the  25 percent -  that could  sell into                                                               
potentially higher-valued, shorter-term  regional markets - might                                                               
not  underpin long-term  debt.   What it's  really for  is to  do                                                               
other, more  traditional deals with  countries such as  Japan and                                                               
Vietnam.                                                                                                                        
                                                                                                                                
7:36:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON  concluded  that  would  be  the  partial                                                               
ownership  investment,  not  AGDC,  and expressed  her  hope  the                                                               
presentation would at some point  ensure that another large-scale                                                               
company would  not be in competition  for the gas, and  the focus                                                               
would be on maximizing the resource for Alaskans.                                                                               
                                                                                                                                
MR. MEYER  stated a  good a  part of AGDC's  mission is  that the                                                               
whole system is being built  largely to provide gas for Alaskans;                                                               
however,  Alaska does  not have  sufficient demand  to anchor  an                                                               
800-mile  pipeline  from  the  North  Slope.    He  stressed  the                                                               
difference  between  Alaska LNG  and  Canadian  projects is  that                                                               
Canadian LNG  projects need a  pipeline, but Canada  doesn't want                                                               
to build a pipeline.  Alaska LNG  is a gas pipeline that needs an                                                               
LNG project  - and everybody wants  the gas pipeline.   Mr. Meyer                                                               
assured the committee Alaskans will  have gas from the Alaska LNG                                                               
project;  he  added  that  pipelines   can  be  expanded  through                                                               
compression and through  looping, as has happened  to every major                                                               
pipeline in the Lower 48 as the market grew.                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON restated  her desire for a  clear sense of                                                               
the  financing structure  that  is integral  to  the project  and                                                               
stressed the  importance of the  project's value to the  state in                                                               
jobs,  management,  and  gas supply;  although  Sinopec  has  the                                                               
capability to build  the pipeline "we might  not necessarily want                                                               
them to."                                                                                                                       
                                                                                                                                
MR. MEYER  pointed out the  benefit to Alaska's economy  would be                                                               
not  just during  construction, but  may last  50-100 years,  and                                                               
that  the use  of natural  gas would  improve the  environment in                                                               
Alaska and in China.                                                                                                            
                                                                                                                                
REPRESENTATIVE  PRUITT asked  how  [AGDC] will  hold 100  percent                                                               
ownership,  yet   still  have   third-party  investors   [in  the                                                               
project].                                                                                                                       
                                                                                                                                
MR. MEYER  explained AGDC now  has 100 percent ownership,  but at                                                               
the  point it  accepts  third-party  investors, their  investment                                                               
will be in  exchange for ownership.  Further,  he restated Senate                                                               
Bill  138 requires  Alaska LNG  to have  a structure  that allows                                                               
Alaskans, regional corporations, and municipalities to invest.                                                                  
                                                                                                                                
7:43:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PRUITT questioned how  AGDC will maintain its tax-                                                               
exempt status.  He added that  his earlier question was not about                                                               
Alaskans acquiring ownership but, as  shown on slide 14, "partial                                                               
ownership  investment  by  foreign  entity ...."    If  China  is                                                               
investing in the project, the  U.S. government would not consider                                                               
maintaining the project's tax-exempt status.                                                                                    
                                                                                                                                
MR.  MEYER clarified  AGDC has  tax-exempt status  that could  be                                                               
extended  to  a   wholly-owned  subsidiary;  however,  tax-exempt                                                               
status cannot  be extended to  a third party  that is not  a U.S.                                                               
tax-exempt entity, thus  the ownership held by AGCD  will be tax-                                                               
exempt,  and  AGDC can  issue  tax-exempt  bonds, however,  other                                                               
parties on the  distribution side of the project  company will be                                                               
taxable.  He  acknowledged this is a  more challenging "economic"                                                               
for tax-paying investors, such as hedge funds.                                                                                  
                                                                                                                                
MR. MEYER continued to the following slides:                                                                                    
                                                                                                                                
   · slide 16 illustrated China represents the primary demand                                                                   
     for energy                                                                                                                 
   · slide 17 illustrated the Asian LNG demand and its                                                                          
     contracted supply of LNG, and that Alaska LNG is not a big                                                                 
     project in the worldwide view                                                                                              
   · slide 18 illustrated:  China is moving to cleaner fuels                                                                    
     including [gas], renewables, and clean coal; China's                                                                       
     historical demand for natural gas; in China the number of                                                                  
     LNG import-receiving terminals grew from 1 to 19 in 10                                                                     
     years                                                                                                                      
                                                                                                                                
MR.  MEYER described  China's interest  in the  joint development                                                               
agreement  and said  China wants  15 million  tons of  capacity -                                                               
which is three-quarters of the  total capacity of 20 million tons                                                               
-  in exchange  for debt.  By the terms  of the joint development                                                               
agreement,  China would  pay for  O&M  and gas  separately.   The                                                               
agreement  involves three  parties:   Sinopec, the  third largest                                                               
company  in the  world by  revenue;  Bank of  China, the  fourth-                                                               
largest bank in the world;  China Investment Corporation, China's                                                               
sovereign  fund  worth $813  billion,  the  third-largest in  the                                                               
world; all of  which are owned by the Chinese  government.  Thus,                                                               
the agreement  has a  buyer, a lender,  and a  potential investor                                                               
all in  one.   By the target  date of May  [2018], AGDC  seeks to                                                               
further define  the roles, the  distribution of the  gas, whether                                                               
the banks  will issue  a nonrecourse  debt instrument,  and other                                                               
terms.   By  the  end of  2018,  executing definitive  agreements                                                               
would allow  for a final  investment decision (FID) in  2019, and                                                               
to start  construction and be in  service by 2024 or  2025 [slide                                                               
19].                                                                                                                            
                                                                                                                                
7:49:29 PM                                                                                                                    
                                                                                                                                
MR. MEYER said slides 20-22  provide more information on Sinopec,                                                               
Bank of China, and China Investment  Corporation.  Slide 23 was a                                                               
diagram that  showed how AGDC  benefits from a  single in-country                                                               
buyer that  distributes the  product within China.   In  terms of                                                               
price, he explained  the Chinese consumers will pay  for the cost                                                               
of debt  and for  the capacity, and  this provides  "tension, and                                                               
you know, some balance there as  well, but from our point of view                                                               
we get one buyer  for the 75, who takes care  of the debt portion                                                               
...  the 25  percent  we want  to sell  to  regional markets,  so                                                               
you'll notice we followed up  ... and we signed with PetroVietnam                                                               
Gas,  which   is  Vietnam's  state-owned  company."     He  noted                                                               
PetroVietnam  Gas is  state-owned but  does not  have the  credit                                                               
capacity  of   China,  and  this   is  a   "completely  different                                                               
transaction."  Also  soon to be announced, is  a transaction with                                                               
Tokyo Gas  Co.; he  added Japan can  provide funding  through the                                                               
Bank of International Cooperation (JBIC),  which has a mission to                                                               
lend money  into resource projects  if the resource  products are                                                               
distributed to Japan.                                                                                                           
                                                                                                                                
REPRESENTATIVE JOHNSON,  speaking on behalf of  her constituents,                                                               
expressed  their  concerns  about  China as  a  trading  partner,                                                               
adding   that   Sinopec    was   previously   disqualified   from                                                               
participation  in the  TransCanada [gas  pipeline] project,  [due                                                               
to] "human  rights violations, and  so on."   She inquired  as to                                                               
what has  changed, so that  China can  now be a  trading partner,                                                               
from the views of the Trump Administration and Mr. Meyer.                                                                       
                                                                                                                                
MR. MEYER said he has been  impressed with the progress China has                                                               
made.   He recalled  Sinopec has long  been interested  in [doing                                                               
business in]  Alaska; however, his understanding  is that Sinopec                                                               
pulled  out  of Alaska  because  its  bid was  never  considered.                                                               
Sinopec is China's  number-one rated credit entity  and has about                                                               
700,000 employees.   [AGDC] has been impressed with  Sinopec as a                                                               
company, and Mr.  Meyer said China has made  reforms and progress                                                               
in factors such  as air quality.  Mr. Meyer  pointed out China is                                                               
Alaska's number-one  trading partner in  seafood.  For  the U.S.,                                                               
China is  a trading problem,  and currently holds  $1.24 trillion                                                               
in  U.S.  Treasury  bills  and  is  a  big  trade  partner.    He                                                               
acknowledged  China   did  have  human  rights   abuses,  but  is                                                               
"Alaska's  number-one trade  future,  and [will  be] the  largest                                                               
resource-buyer on the planet ... for  the rest of our lives."  He                                                               
returned  attention to  slide  18 and  noted  China's demand  for                                                               
resources  that Alaska  could  provide.   He  opined  China is  a                                                               
valuable, viable,  credible, and  quality partner,  and cautioned                                                               
against prejudice,  urging the committee  to look to  the future,                                                               
encouraged by the Trump Administration's interest in China.                                                                     
                                                                                                                                
7:57:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PRUITT stated  his  concern is  that China  would                                                               
have  such a  large stake  in the  project that  Alaska would  no                                                               
longer  be  its partner,  but  would  be  a vassal,  and  thereby                                                               
treated as a colony.  He  asked how Alaska could partner with the                                                               
Chinese and  avoid a role  where Alaska is  subservient; further,                                                               
he  noted it  is  indicated that  through  the joint  development                                                               
agreement  [there is  75  percent debt]  and  asked whether  that                                                               
percentage  is scalable.   For  example,  can others  who may  be                                                               
interested, such as  PetroVietnam Gas and Japan, play  a role and                                                               
diversify  [investment]  beyond  the  major  stake  held  by  the                                                               
Chinese.   He  questioned whether  the proposed  Chinese partners                                                               
are amenable to diversification.                                                                                                
                                                                                                                                
7:58:55 PM                                                                                                                    
                                                                                                                                
MR.  MEYER said  there is  no  scenario envisioned  in which  the                                                               
Chinese would own  a majority interest in the project.   In terms                                                               
of whether  the project is  scalable, he  said yes, in  two ways:                                                               
other entities - such as Japan  or Korea - could participate, and                                                               
the  facility is  also  scalable,  and could  be  limited to  two                                                               
trains  with the  third  train added  in the  future.   In  fact,                                                               
Alaska  LNG with  two trains  and an  800-mile, 42-inch  pipeline                                                               
would only require  3 compression stations instead of  8; he said                                                               
the unit  economics are "a little  bit worse ... but  they're not                                                               
so bad that  it breaks the balance."  He  advised Gulf brownfield                                                               
projects  are those  that have  been built  in phases,  and said,                                                               
"It's the pipeline  that's tough, once you get  that pipeline in,                                                               
the rest of this is easy."                                                                                                      
                                                                                                                                
REPRESENTATIVE   PRUITT  surmised   the   remaining  25   percent                                                               
represents the Alaska  share that would be sold on  the market by                                                               
Alaska.                                                                                                                         
                                                                                                                                
MR.  MEYER  answered  yes,  AGDC  would  sell  that  capacity  to                                                               
regional  and  private entities  -  that  could also  be  Chinese                                                               
private entities  - and other  parties; however, it is  more work                                                               
to sell  to buyers without credit  depth.  He stressed  AGDC does                                                               
not  have a  "balance sheet"  and  so must  look for  nonrecourse                                                               
debt,  which leads  AGDC to  focus on  selling to  large, credit-                                                               
worthy entities.                                                                                                                
                                                                                                                                
REPRESENTATIVE SADDLER related the  U.S. government has described                                                               
China  as  an  authoritarian  regime, China  has  denied  Western                                                               
forces  access   to  Southeast  Asia   oceans  in   restraint  of                                                               
international free  trade, is  the patron  state of  North Korea,                                                               
executes prisoners,  has a policy  of forced abortion,  and other                                                               
practices.  He quoted [Nikita  Khrushchev, First Secretary of the                                                               
Communist Party of  the Soviet Union 1953-1964],  "The West would                                                               
sell communist  Russia the rope to  hang us with."   Further, the                                                               
U.S.  sold raw  materials  to business  partners  in Japan  until                                                               
Japan attacked  Pearl Harbor  [Hawai'i, on  12/7/41].   He opined                                                               
China  has  a long-term  goal  of  political  gain and  seeks  to                                                               
control  the supply  of minerals,  coal,  gas, and  oil, and  has                                                               
control of  access to the  Panama Canal.   Representative Saddler                                                               
cautioned the  State of  Alaska and its  governor are  playing an                                                               
economic and political game to get  a gas pipeline "at almost any                                                               
cost."  He said he wished  Alaska would propose an agreement with                                                               
South  Korea,  Japan,  India,  or Vietnam  as  opposed  to  doing                                                               
business  with China.    He questioned  whether  there are  moral                                                               
considerations,   or    considerations   related    to   Alaska's                                                               
contribution to global stability, for those who deal with China.                                                                
                                                                                                                                
8:04:27 PM                                                                                                                    
                                                                                                                                
MR. MEYER said  no to both questions.  China  is Alaska's largest                                                               
customer  today and  Alaska's largest  trade partner.   In  fact,                                                               
Alaska  has welcomed  China's business  in seafood  and minerals,                                                               
and  [Alaska   LNG]  is  an   extension  of  an   existing  trade                                                               
relationship.   He said trade with  China did not bother  him and                                                               
pointed  out   the  trade  mission   had  the  full   support  of                                                               
Washington, D.C.   Mr. Meyer  advised the Chinese  contacted U.S.                                                               
Senator Lisa Murkowski for assurance  in this regard.  Turning to                                                               
Alaska's participation  in the global  economy, he  opined stable                                                               
energy prices  lead to regional  stability, and  providing stable                                                               
energy prices to countries brings  stability to regions; the U.S.                                                               
recognizes  using   energy  trade  as  a   geopolitical  tool  to                                                               
establish  a relationship  with a  country and  thereby create  a                                                               
dependency.   Furthermore, the Trump Administration  seeks global                                                               
energy  dominance.    He  said   trade  would  bolster  the  U.S.                                                               
geopolitical position through the use of energy as a trade tool.                                                              
                                                                                                                                
MR. MEYER continued  to slide 24 and said the  Alaska LNG Project                                                               
Structure is  an entity that  would hold assets  through separate                                                               
entities,  including,  but  not  shown  on  the  slide,  separate                                                               
entities  for LNG,  gas represented  by commercial  contracts for                                                               
repayment  through  commercial  banks,  export  credit  agencies,                                                               
project bonds, and other debt lenders.   Turning to the source of                                                               
the $11 billion  equity, he said the desired  structure gives the                                                               
state the  option to  invest, but  it is not  required to  do so,                                                               
meaning there  would be funding  from outside from  third parties                                                               
such as financial investors, trading  houses, or sovereign wealth                                                               
funds.  He  said if funding does not come  from third parties, it                                                               
must come  from the state or  other Alaska entities.   Also shown                                                               
on slide 24 was the requirement  in Senate Bill 138 that Alaskans                                                               
can invest  in the project.   Further, AGDC could issue  bonds or                                                               
get funding from the state, as determined in the future.                                                                        
                                                                                                                                
8:10:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked  whether  phase construction  would                                                               
affect the financing structure or the agreement with China.                                                                     
                                                                                                                                
MR.  MEYER said  no.   The structure  would be  the same  with 25                                                               
percent  equity and  75 percent  debt; dropping  one train  for a                                                               
later  phase lowers  the cost  to about  $33 billion.   Regarding                                                               
phase construction's  effect on  the China agreement,  he stated,                                                               
"we could talk them into less [gas]."                                                                                           
                                                                                                                                
REPRESENTATIVE  BIRCH expressed  his deep  concern that  possible                                                               
risks will mean "Alaskans are going  to end up holding the bag on                                                               
this."    He assumed  China  has  a  clear understanding  of  the                                                               
project and  cautioned that  Alaska's gas on  the North  Slope is                                                               
not competitive.   He observed the Chinese  government has access                                                               
to  gas  from Russia,  where  a  major  new pipeline  will  begin                                                               
shipping in  2019, and another  is being negotiated.   During the                                                               
discussion  of  equity  financing  options,  there  has  been  no                                                               
mention  of  Sinopec  executing an  earnest  money  agreement  or                                                               
sharing  in  the  cost  of ongoing  operations.    With  Alaska's                                                               
current  budget,  further  investment  in  the  project  requires                                                               
comforting words about shared costs  and risks of exposure on the                                                               
part of Alaska's perceived partners in the project.                                                                             
                                                                                                                                
MR.  MEYER  advised  cost-sharing  is typical  with  a  potential                                                               
partner,  but not  with a  customer.   In  terms of  the risk  of                                                               
overrun, he  said getting the risk  out of the project  will be a                                                               
focus in 2018,  and who bears the risk, "and  it most likely will                                                               
not be AGDC in a big way."                                                                                                      
                                                                                                                                
REPRESENTATIVE  BIRCH  further  observed  AGDC  is  dealing  with                                                               
astute,  major  multi-national   government-owned  concerns  with                                                               
tremendous resources, "... and I'm  worried about us getting out-                                                               
gunned."   For the first time,  Alaska does not have  a major oil                                                               
company  and producers  participating; for  four decades  the oil                                                               
industry,  as  lease owners,  has  borne  all  the costs  of  gas                                                               
projects,  pipeline  investigations,  and  other  costs,  and  he                                                               
recalled oil [development] costs were  borne by the producers who                                                               
held the  obligation and challenge  to develop a  viable project.                                                               
Because shale gas entered the  energy market 10 years ago, Alaska                                                               
has a stranded  asset, and he questioned whether Alaska  LNG is a                                                               
viable project; in  fact, the $1 netback could  be "squeezed down                                                               
to zero or  negative."  Representative Birch said he  did not see                                                               
substance  in the  joint development  agreement and  restated his                                                               
concern about the project moving forward.                                                                                       
                                                                                                                                
8:16:21 PM                                                                                                                    
                                                                                                                                
MR. MEYER agreed  there are big entities involved,  but Alaska is                                                               
also bringing  big legal  and financial  firms, and  expertise in                                                               
the  industry, to  the negotiations.   The  Chinese entities  are                                                               
very  capable and  relatively new  to LNG.   He  pointed out  the                                                               
producers  are  major  successful   companies  that  have  higher                                                               
priorities  and said,  "I don't  think we  can, we  can have  the                                                               
producers in  there and have  a project, we've done  rather well,                                                               
you know, since  stepping into this in 2017."   He opined AGDC is                                                               
not  out-gunned  and  restated  AGDC  will  have  law  firms  and                                                               
investment bankers involved in the  project to "paper this deal."                                                               
In addition,  lenders have  to be satisfied,  and the  state will                                                               
have to be satisfied.  The  challenge for AGDC is to put together                                                               
contracts,  an investment  perspective,  and a  portfolio of  the                                                               
project  that  is  acceptable  to the  state  and  to  customers,                                                               
lenders,  equity  investors,  and   gas  suppliers.    Mr.  Meyer                                                               
described  some of  work  that  must be  completed  in 2018,  and                                                               
challenges for AGDC to address.   He advised making more progress                                                               
will assuage doubt.                                                                                                             
                                                                                                                                
CO-CHAIR TARR  directed attention to regulatory  issues beginning                                                               
on slide 31.                                                                                                                    
                                                                                                                                
8:20:15 PM                                                                                                                    
                                                                                                                                
MR. RICHARDS  informed the committee  to reduce  regulatory risk,                                                               
AGDC  entered  into  an  application   with  the  Federal  Energy                                                               
Regulatory  Commission  (FERC)  on 4/17/17;  the  application  is                                                               
required by  FERC to  license an  LNG terminal.   The  project is                                                               
deemed an integrated project -  from FERC's perspective - because                                                               
it  incorporates an  LNG  plant  and a  pipeline,  so the  entire                                                               
project  is  included  in  one   application.    The  application                                                               
represented 60,000  pages of  environmental and  engineering work                                                               
submitted  to meet  FERC's minimum  requirements for  the Natural                                                               
Gas  Act Section  3 application.   The  application is  currently                                                               
under review by FERC and  AGDC's third party contractor, and AGDC                                                               
is  responding to  about 200  questions that  remain from  FERC's                                                               
original 801 environmental  data requests.  [AGDC's]  goal is for                                                               
FERC  to  be  in  a  position to  publish  the  schedule  of  the                                                               
environmental impact statements (EISs), issue  a final EIS at the                                                               
end  of the  year,  and  issue a  record  of  decision the  first                                                               
quarter  of  2019  [slide  31].   Mr.  Richards  said  the  Trump                                                               
Administration, in  advance of the aforementioned  trade mission,                                                               
recommended   AGDC    apply   for   Fixing    America's   Surface                                                               
Transportation Act  (FAST-41) authorization in which  the federal                                                               
government puts  major infrastructure  projects on  a "dashboard"                                                               
and requires that federal agencies  respond and provide timelines                                                               
for federal  permits, and  to report  to Congress  if there  is a                                                               
change  or  delay.    The  project  was  accepted,  and  FERC  is                                                               
responsible  for  obtaining   timelines  from  federal  agencies;                                                               
however,  state  permitting  agencies  are not  included  on  the                                                               
dashboard at this time [slide 32].                                                                                              
                                                                                                                                
MR.  RICHARDS  advised  the project  has  support  from  Alaska's                                                               
congressional  delegation  in  the  form  of  provisions  in  the                                                               
National Park  Service Organic Act  to allow a  high-pressure gas                                                               
pipeline  to  enter a  national  park,  revisions to  the  Alaska                                                               
Natural Gas  Pipeline Act (2004),  and briefings to  ensure those                                                               
who have  been nominated to  serve on related agencies  are aware                                                               
of the  Alaska LNG project and  its challenges.  The  White House                                                               
has  provided  an  executive order  defining  the  response  from                                                               
federal agencies for permitting  authorizations and to reduce the                                                               
duplication  of work  [slide 33].  Finally, slide  34 illustrated                                                               
the  regulatory timeline  envisioned for  the next  year:   April                                                               
2017,  initial FERC  filing; August  2017, FAST  approval; August                                                               
2017,   executive  order;   November   2017,  joint   development                                                               
agreement;  December  2017,  EIS schedule  (requested);  December                                                               
2018, final  EIS (requested); February  2019, record  of decision                                                               
(requested) [slide 34].                                                                                                         
                                                                                                                                
CO-CHAIR TARR said  slide 35 reflects AGDC's  budget and forecast                                                               
budget projections that will be discussed in a future meeting.                                                                  
                                                                                                                                
8:26:57 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOSEPHSON  related  [U.S.]  two-way  trade  with  China                                                               
totals  $576  billion, and  said  he  assumed the  project  would                                                               
increase the  trade number  but decrease the  trade deficit.   He                                                               
opined the U.S. has an  enduring trade relationship with China in                                                               
place and  commended the presenters for  their work.  He  said he                                                               
feels the  efforts for  the project have  had some  real success,                                                               
and [the Walker  Administration] cares about the  project and has                                                               
worked very hard on the project.                                                                                                
                                                                                                                                
REPRESENTATIVE PRUITT recalled  several previous presentations on                                                               
the project  and its schedule  and asked what happened  to front-                                                               
end engineering and design (FEED).                                                                                              
                                                                                                                                
MR. RICHARDS  explained the money  identified on slide 35  is the                                                               
money spent last year [on  major activities] since the initiation                                                               
of  the project  by  AGDC, and  totals about  $28  million.   The                                                               
amount identified as  Class 3 Work (Prepare for FID)  is what has                                                               
been previously referred  to as the work efforts  that AGDC would                                                               
undertake to take the project through  FEED, and to progress to a                                                               
lump sum  turnkey (LSTK) cost  estimate that would  guarantee the                                                               
price on  a project  component that  would be  used in  the final                                                               
investment decision (FID).  He  said AGDC is not discounting FEED                                                               
but is going to define the steps to progress to that stage.                                                                     
                                                                                                                                
REPRESENTATIVE  PRUITT   pointed  out  [slide  34]   indicated  a                                                               
decision in  February 2019,  but some of  the engineering  may be                                                               
done by  AGDC or  by the  Chinese, and  suggested the  project is                                                               
skipping a  step that the  legislature has been told  is critical                                                               
prior  to FID.    If  the Chinese  design  some  features of  the                                                               
project, he questioned how AGDC  will have sufficient engineering                                                               
and time  to reach a  final decision between December  [2018] and                                                               
February [2019].                                                                                                                
                                                                                                                                
MR. MEYER acknowledged previous presentations included a stage-                                                                 
gate process  that had a  pre-FEED bid, FEED, and  a construction                                                               
bid, which  is how  major oil companies  proceed.   However, many                                                               
pipelines   and  Lower   48  projects   are  different,   instead                                                               
approaching  a contractor  with the  expertise for  construction,                                                               
and paying the contractor to  complete an LSTK bid which includes                                                               
FEED.   For example, for the  LNG plant, Chiyoda Corporation  - a                                                               
very large  and experienced Japanese  company - has done  most of                                                               
the work,  and AGDC  asked Chiyoda  for an  LSTK [bid].   Chiyoda                                                               
doesn't have  to complete FEED to  offer a bid.   He acknowledged                                                               
major oil companies  maintain that FEED will result  in a cheaper                                                               
construction bid;  however, if a  project skips  the construction                                                               
bid and seeks  an LSTK quote from a contractor,  then the project                                                               
has a contractor  with the competency to build, and  FEED is part                                                               
of the construction  bid.  Although the cost may  be higher, this                                                               
process saves years, and several  Gulf Coast projects have gotten                                                               
into service  using "more  of a pipeline  approach" to  a company                                                               
that knows how to build an LNG plant.                                                                                           
                                                                                                                                
8:33:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PRUITT restated  every presentation  has included                                                               
the stage-gate approach.   He stressed this is  huge change; LSTK                                                               
may work for an LNG plant, but not for an 800-mile pipeline.                                                                    
                                                                                                                                
MR.  MEYER agreed  and said,  "the  pipeline is  the place  where                                                               
we've  got some  risk  and we  may  have to  do  some FEED  ...."                                                               
However, the  GTP on  the North  Slope and the  LNG plant  are no                                                               
problem.  He remarked:                                                                                                          
                                                                                                                                
     In terms of not hearing  about the FEED step, that was,                                                                    
     you  know, in  the last,  last year  and a  half -  two                                                                    
     years  ...  since   we  got  here,  that,   that  is  a                                                                    
     traditional process for a pipeline  - in the Lower 48 -                                                                    
     project.  FEED gets done,  no question about it, but it                                                                    
     doesn't have  to be a  whole separate step.   We've got                                                                    
     to go  to a  contractor that  can do  FEED as  part, as                                                                    
     well, as  the construction  of the  facility.   But you                                                                    
     are absolutely  right, the pipeline is  the piece where                                                                    
     I think we're going to have  to spend our, our focus on                                                                    
     engineering work.   You've got the  [Alaska Stand Alone                                                                    
     Pipeline (ASAP)] project ...  AGDC did the ASAP project                                                                    
     and  it   had  FEED   ...  we've   done  FEED   for  an                                                                    
     uncompressed,  36-inch  pipeline  ... [with  the]  same                                                                    
     exact  centerline, right,  there's  no, no  difference.                                                                    
     The only difference  is ... 6 inches  of diameter which                                                                    
     is really not  a different trench size.  ... They won't                                                                    
     be identical  necessarily, but  they'll be  very close,                                                                    
     ... but we've  already got quite a bit of  work done on                                                                    
     the pipeline that would qualify as FEED.                                                                                   
                                                                                                                                
MR.  MEYER said  he recognizes  the  pipeline is  where AGDC  has                                                               
construction risk.                                                                                                              
                                                                                                                                
REPRESENTATIVE TALERICO  referred to  the schedule and  asked for                                                               
the appropriate  time to  "bring the leaseholders  in."   He said                                                               
that previous  projects have failed  because the state  failed to                                                               
recognize  those who  own the  leases, and  the leaseholders  are                                                               
needed  to  help  the  state negotiate,  talk  with  buyers,  and                                                               
provide a level of expertise to facilitate a successful project.                                                                
                                                                                                                                
8:37:23 PM                                                                                                                    
                                                                                                                                
MR.  MEYER said  now is  the time  to more  seriously engage  the                                                               
leaseholders.  AGDC's  initial focus was on the  marketing and on                                                               
financing, but will now engage  in discussions on the gas supply.                                                               
However, the major oil companies  will not be involved in project                                                               
ownership because  the project does  not garner a rate  of return                                                               
that  "clears their  internal  hurdle  rate."   Alaska  LNG is  a                                                               
pipeline project  and there are  no major oil  companies involved                                                               
in gas  pipeline projects  in the U.S.,  because the  returns are                                                               
too  low.   He  said  oil  companies  will  not be  an  ownership                                                               
component;  in  terms  of  negotiations  -  as  negotiations  are                                                               
sensitive  -   some  of  the   oil  companies  are   involved  in                                                               
negotiations with the  same customers, but not on  the Alaska LNG                                                               
project.  Mr.  Meyer explained that oil companies  focus on their                                                               
shareholder return;  he cautioned against inviting  oil companies                                                               
to take  the negotiations  because AGDC is  the only  one looking                                                               
out for Alaska's  best interest.  The other  entities are looking                                                               
out for their interests, and AGDC is fighting for Alaska.                                                                       
                                                                                                                                
REPRESENTATIVE  SADDLER,  noting  these discussions  are  serious                                                               
business, pointed out that Alaska  LNG has financiers, customers,                                                               
and constructors, but not suppliers;  those who own the leases to                                                               
produce and  sell the gas are  not at the table.   Although there                                                               
was a reference in the structure  of how the producers may affect                                                               
the commitment  of gas, he related  there is an official  who has                                                               
held  up  the Prudhoe  Bay  plan  of  development progress  on  a                                                               
pipeline.    If the  hurdle  rate  is  not  high enough  for  the                                                               
construction of  a pipeline,  what happens if  the $1  netback is                                                               
insufficient for the suppliers' internal  rate of return?  Is the                                                               
duty to produce - that is  implicit in leases - the argument that                                                               
will induce producers to supply gas to the pipeline?                                                                            
                                                                                                                                
MR.  MEYER said  [the question  of the  duty to  produce] is  not                                                               
within  the  purview of  AGDC  but  is  a Department  of  Natural                                                               
Resources  issue.   [AGDC's] focus  is to  keep the  cost of  the                                                               
system  as low  as possible.   He  said AGDC  will buy  gas at  a                                                               
reasonable price  that will bring a  profit of $1 billion  to the                                                               
producers.   However, if gas can  be sold at a  better price, the                                                               
producers should take it - as long  as it is "an Alaska deal ....                                                               
[not]  in  a different  country."    Further,  the gas  could  be                                                               
purchased at Nikiski for $7.20 and  resold.  AGDC will engage gas                                                               
suppliers,  but first  it had  to  finish its  work on  marketing                                                               
issues.   He  opined producers  acting  in the  best interest  in                                                               
Alaska  will accept  this  price; the  companies  have to  behave                                                               
rationally and responsibly for their  shareholders, and also must                                                               
meet  the  obligations  and  expectations of  the  state  as  the                                                               
resource  owner.    Mr.  Meyer   reminded  the  committee  Alaska                                                               
licenses the extraction rights to  producers, so they can extract                                                               
and  commercialize,  but  not  to  hold  it  in  the  ground  and                                                               
commercialize  another  project  because  there  is  no  penalty,                                                               
unlike  in  other  parts  of  the world  where  if  there  is  no                                                               
production within  5 years,  the right  to produce  is lost.   He                                                               
agreed that  producers are  a big  part of  the project,  and the                                                               
project will have a reasonable solution.                                                                                        
                                                                                                                                
REPRESENTATIVE  BIRCH recalled  ASAP was  a $10  billion pipeline                                                               
and questioned the  total project cost of Alaska LNG.   In regard                                                               
to nonrecourse  debt, he asked  if nonrecourse debt meant  in the                                                               
case of  default to its  creditors -  for example, the  Chinese -                                                               
the  creditors  take   over  the  assets  of   the  pipeline  and                                                               
facilities, and  the state  would not  owe a  deficiency payment.                                                               
He asked  for clarification of  nonrecourse debt and  the state's                                                               
liability.                                                                                                                      
                                                                                                                                
8:45:18 PM                                                                                                                    
                                                                                                                                
MR.  MEYER answered  nonrecourse  debt means  nonrecourse to  the                                                               
state, so the  state is not providing a guarantee  of the debt or                                                               
of  repayment.   He  said  the  proposed  structure is  that  the                                                               
payment  is in  the  form  of capacity  to  an affiliated  buying                                                               
entity.  Thus, the only payment back  to the state is O&M and the                                                               
gas  supply.   He clarified  nonrecourse project  debt means  the                                                               
lenders have to  look to the sanctity of the  project entity, and                                                               
not to a guarantee from a parent [company] or beyond.                                                                           
                                                                                                                                
REPRESENTATIVE BIRCH  inquired as to  whether the debtor  ends up                                                               
owning the pipeline.                                                                                                            
                                                                                                                                
MR. MEYER  said no,  the debt  is secured  by capacity  that AGDC                                                               
provides to the buyer, and the buyer pays the bank.                                                                             
                                                                                                                                
CO-CHAIR TARR  announced at upcoming meetings  the committee will                                                               
discuss further  netback price, ownership interest,  PILT, impact                                                               
aid, FEED, and the previous stage-gate timeline.                                                                                
                                                                                                                                
8:48:17 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 8:48 p.m.                                                                 

Document Name Date/Time Subjects
AGDC House Resources Presentation 12.4.17.pdf HRES 12/4/2017 6:00:00 PM
AK LNG