02/04/2009 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HCR2|| HCR3|| HCR4|| HCR5 | |
| HCR3 | |
| HCR2 | |
| HCR4 | |
| HCR5 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | HCR 2 | TELECONFERENCED | |
| + | HCR 3 | TELECONFERENCED | |
| + | HCR 4 | TELECONFERENCED | |
| + | HCR 5 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 4, 2009
1:06 p.m.
MEMBERS PRESENT
Representative Craig Johnson, Co-Chair
Representative Mark Neuman, Co-Chair
Representative Kurt Olson
Representative Peggy Wilson
Representative David Guttenberg
Representative Scott Kawasaki
Representative Chris Tuck
MEMBERS ABSENT
Representative Bryce Edgmon
Representative Paul Seaton
COMMITTEE CALENDAR
HOUSE CONCURRENT RESOLUTION NO. 2
Requesting the governor to provide energy security for all
Alaskans by pursuing development of a natural gas bullet
pipeline from the North Slope to the Cook Inlet region; and
requesting the governor to identify and negotiate with one or
more persons capable of producing natural gas from the Gubik
area, and other areas on the North Slope if necessary, in
sufficient quantities to support a bullet pipeline project.
- MOVED CSHCR 2(RES) OUT OF COMMITTEE
HOUSE CONCURRENT RESOLUTION NO. 3
Requesting the governor to provide energy security for all
Alaskans by taking and encouraging all action that would support
a natural gas bullet pipeline from the North Slope to the Cook
Inlet region, including initiating any necessary negotiations to
reopen the Agrium plant in Kenai.
- MOVED HCR 3 OUT OF COMMITTEE
HOUSE CONCURRENT RESOLUTION NO. 4
Requesting the governor to provide energy security for
Alaskans by taking and encouraging all action to support
development of a natural gas bullet pipeline from the North
Slope to the Cook Inlet region including advocating an
increase in the amount of natural gas that may be exported
under authority granted by the United States Department of
Energy.
- MOVED HCR 4 OUT OF COMMITTEE
HOUSE CONCURRENT RESOLUTION NO. 5
Requesting the governor to provide energy security for all
Alaskans by working on significant elements and components
to support the timely construction of a natural gas bullet
pipeline from the North Slope to the Cook Inlet region and
to take necessary action to assist and facilitate the
process for a private entity to make a final investment
decision to commit to the pipeline before November 1, 2010.
- MOVED HCR 5 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HCR 2
SHORT TITLE: IN-STATE GAS PIPELINE
SPONSOR(s): REPRESENTATIVE(s) RAMRAS
01/21/09 (H) READ THE FIRST TIME - REFERRALS
01/21/09 (H) ENE, RES
02/03/09 (H) ENE AT 3:00 PM BARNES 124
02/03/09 (H) Moved Out of Committee
02/03/09 (H) MINUTE(ENE)
02/04/09 (H) RES AT 1:00 PM BARNES 124
BILL: HCR 3
SHORT TITLE: IN-STATE GAS PIPELINE
SPONSOR(s): REPRESENTATIVE(s) RAMRAS
01/21/09 (H) READ THE FIRST TIME - REFERRALS
01/21/09 (H) ENE, RES
02/03/09 (H) ENE AT 3:00 PM BARNES 124
02/03/09 (H) Moved Out of Committee
02/03/09 (H) MINUTE(ENE)
02/04/09 (H) RES AT 1:00 PM BARNES 124
BILL: HCR 4
SHORT TITLE: IN-STATE GAS PIPELINE
SPONSOR(s): REPRESENTATIVE(s) RAMRAS
01/21/09 (H) READ THE FIRST TIME - REFERRALS
01/21/09 (H) ENE, RES
02/03/09 (H) ENE AT 3:00 PM BARNES 124
02/03/09 (H) Moved Out of Committee
02/03/09 (H) MINUTE(ENE)
02/04/09 (H) RES AT 1:00 PM BARNES 124
BILL: HCR 5
SHORT TITLE: IN-STATE GAS PIPELINE
SPONSOR(s): REPRESENTATIVE(s) RAMRAS
01/21/09 (H) READ THE FIRST TIME - REFERRALS
01/21/09 (H) ENE, RES
02/03/09 (H) ENE AT 3:00 PM BARNES 124
02/03/09 (H) Moved Out of Committee
02/03/09 (H) MINUTE(ENE)
02/04/09 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
REPRESENTATIVE JAY RAMRAS
Alaska State Legislature
Fairbanks, Alaska
POSITION STATEMENT: As sponsor of HCR 2, presented information
regarding the resolution.
ELIZABETH GRAY, Assistant Manager
Matanuska-Susitna Borough
Palmer, Alaska
POSITION STATEMENT: During hearing on HCR 2, and in regard to
HCR 2, HCR 3, HCR 4, and HCR 5, supported construction of a
natural gas line to help meet the immediate gas needs of
Southcentral and Interior Alaska.
TOM LAKOSH
Anchorage, Alaska
POSITION STATEMENT: During hearing on HCR 2, opposed HCR 2, HCR
3, HCR 4, and HCR 5.
CURTIS THAYER, Director
Corporate & External Affairs,
ENSTAR Natural Gas Company
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the hearing on
HCR 2.
REPRESENTATIVE JAY RAMRAS
Alaska State Legislature
Fairbanks, Alaska
POSITION STATEMENT: As sponsor of HCR 3, presented information
regarding the resolution.
LISA PARKER, Manager
U.S. Government Relations
Agrium Inc.
Kenai, Alaska
POSITION STATEMENT: During hearing on HCR 3, supported HCR 2,
HCR 3, HCR 4, and HCR 5.
REPRESENTATIVE JAY RAMRAS
Alaska State Legislature
Fairbanks, Alaska
POSITION STATEMENT: As sponsor of HCR 4, presented information
regarding the resolution.
TOM LAKOSH
Anchorage, Alaska
POSITION STATEMENT: During hearing on HCR 4, urged that HCR 4
be adjusted to get the gas in-state immediately and not wait for
either the pipeline or its incurred costs.
REPRESENTATIVE JAY RAMRAS
Alaska State Legislature
Fairbanks, Alaska
POSITION STATEMENT: As sponsor of HCR 5, presented information
regarding the resolution.
ACTION NARRATIVE
1:06:03 PM
CO-CHAIR CRAIG JOHNSON called the House Resources Standing
Committee meeting to order at 1:06 p.m. Representatives Neuman,
Johnson, Wilson, Olson, Guttenberg, Kawasaki, and Tuck were
present at the call to order.
HCR 2-IN-STATE GAS PIPELINE
HCR 3-IN-STATE GAS PIPELINE
HCR 4-IN-STATE GAS PIPELINE
HCR 5-IN-STATE GAS PIPELINE
1:07:32 PM
[The committee heard an overview of and testimony on HCR 2, HCR
3, HCR 4, and HCR 5.]
CO-CHAIR JOHNSON announced that the first order of business
would be HOUSE CONCURRENT RESOLUTION NO. 2, Requesting the
governor to provide energy security for all Alaskans by pursuing
development of a natural gas bullet pipeline from the North
Slope to the Cook Inlet region; and requesting the governor to
identify and negotiate with one or more persons capable of
producing natural gas from the Gubik area, and other areas on
the North Slope if necessary, in sufficient quantities to
support a bullet pipeline project.
1:07:45 PM
REPRESENTATIVE JAY RAMRAS, Alaska State Legislature, sponsor of
HCR 2, first noted that in Fairbanks the price of home heating
oil reached nearly $5 [per gallon] in recent times and the cost
of natural gas is the nation's highest at $22.91 per thousand
cubic feet (Mcf). Fairbanks residents therefore have a vested
interest in seeing an in-state "bullet line" completed as
quickly as possible, he said, and HCR 2, HCR 3, HCR 4, and HCR 5
incrementally approach such a gas line.
REPRESENTATIVE RAMRAS explained that HCR 2 addresses the supply
of natural gas, a critical component to any in-state gas line.
An in-state gas line would need to supply nearly 500 million
cubic feet per day (Mmcf/day) or 180 billion cubic feet per year
(Bcf/year) or 3.6 trillion cubic feet (Tcf) over a 20-year
pipeline lifespan. The Gubik gas field presently has proven
reserves of about 600 Bcf and Anadarko Petroleum Corporation
("Anadarko") is currently drilling a third exploratory well. He
said HCR 2 asks the governor to help secure a contingent supply
of commercial gas from other areas on the North Slope should the
Gubik field not have enough gas for the full 20 years.
1:11:12 PM
REPRESENTATIVE KAWASAKI asked whether the term "bullet line" is
defined in the resolution.
REPRESENTATIVE RAMRAS responded he does not think there is a
legal definition, but the synonym would be an in-state gas line.
He said he is referring to ENSTAR Natural Gas Company
("ENSTAR"), the only company presently interested in building a
private sector pipe from where the gas is in the Gubik area to
where the people are that need it.
CO-CHAIR JOHNSON interjected that unlike a statutory document,
definitions are probably not consistent with a resolution.
Therefore, the definition is what the sponsor or the reader
wants it to be.
1:12:33 PM
CO-CHAIR NEUMAN asked how the administration would go about
meeting the resolution's request on page 2, line 20, to identify
entities capable of producing natural gas from the Gubik and
other areas on the North Slope.
REPRESENTATIVE RAMRAS replied that for the purposes of an in-
state bullet line, not for a petrochemical industry, there is a
supply of inferior wet gas only 60 miles farther north [of
Gubik] owned by ConocoPhillips Alaska, Inc. ("Conoco"). The
tariff would need to incorporate the cost of building 60 more
miles of pipe through rough terrain and constructing a gas
treatment plant, but nevertheless the gas is there. Having the
state as a guarantor of a contingent supply of proven gas
reserves would assist ENSTAR in marketing the financing of the
pipeline. He related that ENSTAR previously stated before the
Senate Resources Standing Committee that it has $1 billion to
put down and $3 billion of financing to put together, and does
not require anything from the state except to get out of the
way. The unique quality of Gubik gas, he added, is that it is
dry like Cook Inlet gas and does not require any sort of
treatment before use.
1:15:56 PM
REPRESENTATIVE KAWASAKI expressed his concern that the language
"all action necessary" on page 2, line 18, might cede the
legislature's authority and taxing ability. In addition, he
said he is not in favor of having the governor negotiate this,
as directed on page 2, [lines 23-24], unless it comes back to
the legislature for finalization.
REPRESENTATIVE RAMRAS answered, "Okay."
1:17:04 PM
REPRESENTATIVE OLSON understood there is already a certain
amount of capacity for natural gas liquids (NGLs) in Cook Inlet.
He offered his belief that the liquefied natural gas (LNG) plant
in Nikiski sells its gas on a British Thermal Unit (BTU) basis
rather than on a volume basis and the non-gas liquids act to
increase the BTUs.
REPRESENTATIVE RAMRAS said he thinks Representative Olson is
correct. He related that Cook Inlet is currently showing signs
of being a depleted field and will be much more so in five years
when the bullet line is complete. The question is how much gas
will be there and Representative Olson's issue is very relevant
in that context.
1:18:44 PM
REPRESENTATIVE OLSON added that it is probably a moot point
because he does not think there is an export license that runs
out that far.
REPRESENTATIVE RAMRAS responded that the point is made and this
is addressed in HCR 4.
1:19:00 PM
CO-CHAIR NEUMAN, in regard to Representative Kawasaki's
concerns, said he thinks the governor and the administration are
in the position to solicit requests because this is likely the
first place that entities go when they come to the state with
their needs.
CO-CHAIR JOHNSON offered his belief that the governor and the
administration are the ones that negotiate those contracts and
then bring them to the legislature for approval. He said he
therefore does not think the legislature is ceding any power.
1:20:05 PM
REPRESENTATIVE WILSON understood that HCR 2 deals with a bullet
line for use of the gas in-state only.
REPRESENTATIVE RAMRAS answered correct, HCR 2 simply addresses
the supply component for an in-state bullet line only. The
assumption for tariff purposes is that the line will have a
capacity of 180 Bcf/year over a minimum of 20 years for a total
of 3.6 Tcf of gas, he reiterated. Potential financiers of such
a project will want to know how much gas the project owner has
and whether there is enough gas, as well as the pipeline's cost,
who the customers will be, and how robust the target marketplace
is. The anticipation is that this in-state bullet line would
start on the North Slope. The farther south it starts, the
shorter the pipeline. The farther north it starts, the more
rugged the terrain and the more expensive the pipeline. The
ideal gas source would be the Nenana Basin because of its
proximity to Fairbanks and Southcentral Alaska, he continued.
However, prevailing wisdom suggests that rather than large pools
of gas, Nenana has puddles of gas that may total as much as
there is in Cook Inlet. The thought, therefore, is that the
area with proven reserves of 600 Bcf in a currently capped well
is more likely to yield the commercial volumes necessary for
such a pipeline.
1:23:23 PM
REPRESENTATIVE GUTTENBERG understood that the industry's
definition of proven reserves is when the resource is actually
being extracted. The number for proven reserves is always lower
than the amount that is suspected. He referred to page 2, line
18, "all action necessary", and asked how far would this go.
For example, could it be to such an extent that it goes over 500
Mmcf and supplants the contract with TransCanada?
REPRESENTATIVE RAMRAS replied that proven reserves is a legal
term that allows a company to book reserves onto its balance
sheet. There are other gradations such as known reserves. He
agreed that estimated amounts are often a great deal more. In
regard to page 2, lines 18 and 19, Representative Ramras said he
hopes this legislature will have the courage to cancel the
Alaska Gasline Inducement Act (AGIA) contract because he
believes that it is fundamentally flawed. Under current law,
the state has ceded to TransCanada any project that is larger
than 500 Mmcf/day. Thus, "all action necessary" is meant to be
within the state's current framework of statutes, he said, so
the bullet line would be 500 Mmcf/day or less.
1:27:49 PM
REPRESENTATIVE RAMRAS, at Co-Chair Johnson's request, presented
an overview of all four of his in-state gas line resolutions.
He said HCR 2 addresses gas supply while HCR 3 and HCR 4 address
demand. Annual demand for residential and light commercial
throughout the Interior and Southcentral totals about 60
Bcf/year, or one-third the capacity of the in-state pipeline.
Therefore, HCR 3 addresses industrial use - restart of the
Agrium plant on the Kenai Peninsula - which would be 60 Bcf/year
and would make the pipe two-thirds full. A supply of
inexpensive gas for Agrium would re-capture the 250 jobs that
were formerly provided by the urea plant. Under HCR 4 the
governor is urged to pursue a dialog with the U.S. Department of
Energy regarding expansion of the gas export license by 60
Bcf/year. Lastly, HCR 5 addresses the release of wood bison by
asking the governor to assist in getting government out of the
way so that a private entity can make a final investment
decision by year-end 2010.
CO-CHAIR JOHNSON requested that any questions related to demand
be held until HCR 3 and 4 are taken up. He opened public
testimony on HCR 2. For the convenience of witnesses, he
allowed for testimony to include discussion of HCR 3, HCR 4, and
HCR 5.
1:34:00 PM
ELIZABETH GRAY, Assistant Manager, Matanuska-Susitna Borough,
testified that the Matanuska-Susitna Borough supports the
construction of a natural gas line to help meet the immediate
gas needs of Southcentral and Interior Alaska and to provide
energy security for the state. Cook Inlet gas supplies are
dwindling and existing supplies are increasingly difficult to
reach, she said, but the demand for gas in Alaska is growing.
By 2012 there will be an estimated shortfall in the local
natural gas supply of 11 Bcf. If the state runs out of gas
supplies in the next few years, 52 percent of the state's
population will be affected. She said the proposed bullet line
would: meet near-term gas needs, create new economic
activities, and facilitate natural resource extraction and
value-added processing.
MS. GRAY pointed out that the proposed rail extension from the
Alaska Railroad mainline to Port MacKenzie would help lower the
cost of building the bullet line by approximately $100 million.
She related that according to an October 2008 study by the
Institute of Social and Economic Research (ISER), the additional
resource extraction investment that would be facilitated by this
rail extension would generate 500-1,000 direct full-time jobs.
According to this same study, the rail extension project itself
would provide a statewide benefit and an estimated 3,200-3,400
construction jobs. She said the Matanuska-Susitna Borough
wholeheartedly supports the immediate construction of a rail
extension as well as a natural gas line to further diversify
Alaska's economy.
1:37:05 PM
MS. GRAY, in response to Representative Wilson, said the 52
percent figure is projected from the number of people currently
using gas.
REPRESENTATIVE WILSON understood Ms. Gray to be saying that 52
percent of the state's population is using gas now.
MS. GRAY responded, "Yes."
1:38:05 PM
MS. GRAY, in response to Representative Tuck, clarified that it
would be a future rail to Point MacKenzie.
CO-CHAIR JOHNSON, in response to another question from
Representative Tuck, understood Ms. Gray to have said that
building a rail line would reduce the cost of constructing the
line by bringing in the pipe, not that the rail line would
reduce the cost of delivery of the gas.
MS. GRAY agreed that Co-Chair Johnson's answer is correct.
1:39:26 PM
REPRESENTATIVE GUTTENBERG asked if the bullet line would come
into the Matanuska-Susitna Borough in a convenient place if it
were to come down the Richardson Highway into Glennallen and
then across as proposed, rather than coming down the Parks
Highway.
CO-CHAIR JOHNSON explained that there would be "a line on both
ends that would join prior to it coming to even Anchorage -
there is one up in Palmer and one north of Palmer."
REPRESENTATIVE GUTTENBERG surmised those proposals would come
down the Glenn Highway.
CO-CHAIR JOHNSON responded that they will get to Southcentral in
roughly the same area - one is up by Palmer and the other is up
by Sutton.
REPRESENTATIVE OLSON said the other route is about 80 or 90
miles longer.
CO-CHAIR JOHNSON added, "You don't have to go all the way to the
same point, there [are] ... other entry points into the ...
supplies."
REPRESENTATIVE GUTTENBERG recognized that economic forces would
figure this out, but said he wants to ensure that everything is
taken care of.
1:41:05 PM
TOM LAKOSH testified that he vehemently opposes all four
resolutions [HCR 2, HCR 3, HCR 4, and HCR 5]. He urged the
committee to instead pass a bill or resolution that would
qualify Agrium for in-state need in accordance with the terms of
the export lease. This would give Southcentral Alaska 40
percent more gas and the ability to carry itself over. Then in
10 years, if Southcentral still needed gas a line would only
need to be built from Fairbanks to Anchorage because the
TransCanada or Denali line would go to Fairbanks by that time.
The northern 350 miles of the bullet line will become obsolete
within three to six years of completion because it would be
cheaper in tariffs to buy the gas from the mainline rather than
the bullet line, he maintained.
MR. LAKOSH said the bullet line is premature prior to
consideration of the Railbelt energy plan that is being
developed by the Alaska Energy Authority (AEA). The state is
weatherizing, conserving, and switching to renewables, so the
need for natural gas and this bullet line will shrink, not grow.
Cancellation of the export license would provide a quick way for
getting gas to Agrium and would cause "Marathon and Chevron" to
look for gas to keep their gas line going. The export license
does not encourage exploration, he argued, but closing the
export license and the export plant would do so by encouraging
exploration and production in Cook Inlet.
1:45:02 PM
MR. LAKOSH said the state will also lose money from North Slope
gas that would otherwise have gone to full production tax had it
been shipped down the main line. He said he is cognizant of
Fairbanks's problems, but that these can be addressed by: the
wood pellet plant that is currently being built, the Healy coal
project that is coming back on line, a return to service of the
Eielson Air Force Base waste-to-power plant, and development of
geothermal, biomass, and coal gasification. For the $4 billion
cost of the bullet line, ENSTAR could instead invest in a
gigawatt of renewable energy sources at $3,000 per kilowatt
installed and use the remaining $1 billion to build the
transmission line. It is insane to pay for the pipeline, then
pay for the additional gas generators on top of the $4 billion,
and then pay for the gas on top of that, Mr. Lakosh opined. He
urged the committee to take testimony from AEA on the Railbelt
plan before going ahead with these resolutions.
1:49:22 PM
REPRESENTATIVE GUTTENBERG inquired whether anyone from the
administration will be responding to what the resolutions are
asking.
CO-CHAIR JOHNSON said no one from the administration is present
at today's hearing, but the administration did receive notice.
CO-CHAIR JOHNSON closed public testimony on HCR 2.
1:50:37 PM
CO-CHAIR NEUMAN asked what the price of gas will be when the
bullet line is complete as compared to now.
CURTIS THAYER, Director, Corporate & External Affairs, ENSTAR
Natural Gas Company, answered that all of ENSTAR's current gas
contracts are based on various indices. ENSTAR's largest
contract is indexed on a trailing average of Henry Hub prices, a
market indicator that is trading at the $5 range today. He said
ENSTAR feels the tariff must be around $2.50 to make this line
economically viable, understanding there would be distance-
sensitive rates. For example, Fairbanks would pay less of the
tariff because the pipeline distance to that city is less than
to Southcentral. At today's rate of $5.05 plus the $2.50, a
customer could be paying $7.55/Mcf. Currently, customers in
Cook Inlet pay $10.46/Mcf and Fairbanks pays over $23/Mcf. So,
depending on the market, it would be basically market price with
the tariff. "We can't predict out what 2015 is, but the common
denominator in the Lower 48 in determining gas prices is the
Henry Hub or New York Mercantile exchange rate," he said.
1:52:24 PM
CO-CHAIR NEUMAN understood the cost of delivery, or tariff,
would be about $2.50 and that this number is derived by taking
the cost of building the pipeline divided by the number of
customers.
MR. THAYER explained that $2.50 is what ENSTAR feels is needed
to be economically viable. In its assumptions, ENSTAR assumed:
Fairbanks would be using more natural gas than it is today,
Flint Hills Resources, LP, and the military bases would be
customers, and there would be Southcentral residential
customers. He related that ENSTAR currently serves over half of
the state's overall population in just home heating. Power
generation produced from Cook Inlet by the utility companies
serves about two-thirds of the state's needs from Fairbanks to
Homer and Seward. An industrial anchor is necessary to make
this line viable, he said, and that would be an Agrium or an LNG
plant, both of which Southcentral currently has but which are
not currently being utilized to their full potential.
1:53:39 PM
CO-CHAIR NEUMAN remarked that it is inspiring to hear the costs
could actually be lowered.
MR. THAYER replied he is saying that that is the price today.
He explained that ENSTAR's gas supply contracts must be approved
by the Regulatory Commission of Alaska (RCA). An Agrium or an
LNG plant or "a Flint Hills" would negotiate independently with
the producer for the cost of the gas and that does not go
through the RCA, only the utilities go through the RCA.
However, the tariff would be about the same for everybody.
CO-CHAIR NEUMAN commented that the 480 Mmcf currently being used
in the Cook Inlet area is all the more reason for the
administration to find opportunities, whether it is increased
LNG, Agrium, or added-value processing of Alaska's natural gas.
1:54:42 PM
REPRESENTATIVE WILSON, in relation to the aforementioned
customer price of [$7.55], inquired what the lowest and highest
prices have been over the last five years and whether any of
those prices have been either too low or too high.
MR. THAYER clarified that the tariff is the cost to build the
line, which ENSTAR anticipates to be $2.50, and the actual price
will be market conditions. Using the Henry Hub index, he
continued, prices have spiked as high as $15 and declined below
$4 during the past seven years. When a large gas line was
considered in 2001, the price of gas in the Lower 48 was below
$4/Mcf and was one of the reasons for scrapping the project.
For the past three years the price has been hovering in the $5-
$7 range. However, it would be what the market prices are in
2015. Right now, Cook Inlet has the lowest delivered-to-your-
home gas price in the country.
1:56:35 PM
REPRESENTATIVE WILSON understood the future price could either
be lower than today or higher than current prices in Fairbanks,
depending upon the market price at that time.
MR. THAYER answered, "Correct, the market price is what you
would buy it for or negotiate for at the time." An ENSTAR study
conducted last year showed that if Southcentral Alaska's
consumers switched to fuel oil, the next lowest price, the cost
of just the commodity itself would be "a $500 million hit to the
local economy." So, in eight years a bullet line would pay for
itself just for Southcentral cost. Although switching is not
really an alternative in the Cook Inlet area, ENSTAR figures
that natural gas piped from the North Slope can lower the cost
in Fairbanks by more than half.
1:57:44 PM
REPRESENTATIVE WILSON asked what the figures would be for
electricity.
MR. THAYER said he does not know, but utilities are paying a
market price for natural gas to generate 90 percent of the
Railbelt's electrical power. Given the conversion of gas to
electricity that would then be used to heat a home, he said he
believes the cost would be about $350 as compared to $154 for
natural gas.
1:58:28 PM
MR. THAYER, in response to Representative Guttenberg, said the
Department of Revenue tracks Henry Hub prices and last summer
the department made a 10-year prediction.
REPRESENTATIVE GUTTENBERG inquired whether HCR 2, HCR 3, HCR 4,
or HCR 5 would help ENSTAR in regard to providing certainty that
the state supports the bullet line project.
MR. THAYER replied they clearly do as far as a sense of the
legislature. He said the governor plans to introduce a bill
that would provide clarity on regulation and how the pipeline
would be treated. There needs to be some clarity because last
year ENSTAR spent $5 million on this project and expects to
spend up to $60 million by next year.
2:00:47 PM
REPRESENTATIVE KAWASAKI, in reference to the issue of small
diameter pipelines having high tariff rates due to low volume,
asked how ENSTAR will be able to use the Henry Hub index and get
a low enough rate for consumers in Anchorage or Fairbanks.
MR. THAYER responded that the Henry Hub is just a common index
that is used. He said ENSTAR does not know whether that will be
the negotiating point for gas contracts because it has not yet
come to any type of commercial terms with a producer. ENSTAR's
base case is a 20-inch pipeline, but it could be a 24-inch
pipeline. ENSTAR anticipates that the pipeline would serve all
of Southcentral, Fairbanks, and the Railbelt for many years. It
is correct that the more gas that can be put through a pipeline,
the lower the tariff. If the gas supply is there, and there are
users at the other end, compression can be used to increase the
volume. The reason the pipeline is 500 Mmcf/day is to make it
AGIA compliant.
2:02:23 PM
REPRESENTATIVE KAWASAKI expressed his concern that the language
in HCR 2 on page 2, lines 17-25, could result in ENSTAR coming
back to the legislature for concessions should the bullet line
be uncommercial
MR. THAYER answered that ENSTAR is not asking for any financial
concessions from the state; it is a private enterprise project.
REPRESENTATIVE KAWASAKI submitted that at some point in time,
ENSTAR and the producers will have to come back to the state for
tax terms.
MR. THAYER replied that under Alaska's Clear and Equitable Share
(ACES) the statewide tax rate is 5 percent. This tax rate has
spurred new exploration, he maintained, and is one of the
reasons for the exploration that is now occurring in Gubik,
Doyon, and possibly the Yukon Flats. He said ENSTAR's concern
is with government regulation and permitting, and ENSTAR is
hoping the state will establish a framework that makes this a
priority so the regulatory and permitting issues can be resolved
in a very timely fashion.
2:04:15 PM
REPRESENTATIVE TUCK asked for Mr. Thayer's opinion in regard to
Mr. Lakosh's testimony about stopping the export of Cook Inlet
gas.
MR. THAYER responded that if the LNG plant had not been in
operation and diverting gas to Anchorage and Southcentral Alaska
during this winter's most recent cold snap, there would probably
have been a loss of part of the system as well as electrical
generation. The LNG plant is vital not only to anchor a bullet
line, but to stay in production, he explained. The LNG plant
flows and uses gas 24 hours a day, 7 days a week, 365 days a
year. But a utility like ENSTAR swings as much as 10 times from
one day to another, such as when the weather goes from 20 below
one week to 50 degrees above the next. An electrical company
has a similar ratio, but not as great. Because the Cook Inlet
fields are so old they could fill up with sand and water and be
lost if they are not drawn on constantly. So, the LNG plant
plays a very important part in helping with ENSTAR's swing ratio
and ENSTAR believes that shutting down the plant will hurt the
supplies and reserves in Cook Inlet.
2:06:14 PM
REPRESENTATIVE TUCK inquired whether ENSTAR would have
sufficient gas to meet the retail, commercial, and Agrium needs
from the Cook Inlet region if there was no export contract.
MR. THAYER reiterated that with utilities there needs to be a
base load 24 hours a day 7 days a week in order to swing when
extra gas is needed. Twenty years ago in Cook Inlet the gas
just free-flowed into the system, he said, but that is not the
case today so shutting down the plant would hurt that. There
are three companies looking for gas today - "Marathon" and
"Conoco" for the plant and the utilities. If the market were to
shrink from say, 200 Bcf to 50 or 60 Bcf just for the utilities,
there would not be as much investment and exploration for new
gas in Cook Inlet, which is a concern of ENSTAR.
2:07:25 PM
REPRESENTATIVE TUCK asked whether ENSTAR has any concern that
exports could take priority and cause a shortage of gas for
Alaskans.
MR. THAYER answered, "No, because the priority would be for the
utilities; the industrial customers could be interrupted through
commercial arrangements so the gas is diverted to local needs
along the Railbelt." The industrial load is needed on the
bullet line to keep that tariff as low as possible. "The
residential and commercial needs alone cannot support the
building of a $4 billion pipeline, but with an industrial load
it does," he said.
2:08:39 PM
REPRESENTATIVE TUCK expressed his concern that export could take
control of the volume necessary for the line. He urged that the
gas be prioritized first for Alaska's needs and that export be
done as needed to maximize the line. He inquired whether Mr.
Thayer believes HCR 2 would protect ENSTAR in this regard.
MR. THAYER replied, "We do, and Conoco and Marathon have been
great partners." Whenever Southcentral Alaska needed diversion
from the LNG plant they did it, even without a contract in this
regard. He said he believes this type of commercial term could
be written into the contract for gas delivery into Southcentral.
2:09:40 PM
REPRESENTATIVE OLSON pointed out that the LNG export facility
has been around for approximately 40 years and terms in the
plant's export license require that demands by local utilities
take precedence over shipments to Japan. Up until about three
years ago, "Conoco" and "Marathon" never missed or shorted a
delivery to Japan. But in the past six to eight months, he said
he believes several loads to Japan were shorted to provide gas
to ENSTAR.
MR. THAYER answered, "Correct."
REPRESENTATIVE OLSON added that this is the only facility in the
U.S. with an exemption to the Jones Act which prevents the
export of gas overseas.
2:11:21 PM
REPRESENTATIVE WILSON moved to adopt Conceptual Amendment 1 as
follows:
Page 2, line 18, after "for":
Delete "all"
Page 2, line 18, after "taking":
Delete "all"
Page 2, line 18, before "necessary":
Delete "action"
Insert "actions"
Thus, Page 2, line 18, would read:
provide energy security for Alaskans by taking actions
necessary to promote the
CO-CHAIR JOHNSON objected for discussion purposes.
2:12:30 PM
REPRESENTATIVE WILSON said she feels the amendment is important
because this action will not affect "all" Alaskans. For
example, the bullet line will not affect residents of Southeast
Alaska. In addition, taking "all" action is too encompassing
and could result in someone coming back in this regard.
CO-CHAIR NEUMAN disagreed. He said he thinks it does add
security for all Alaskans because eventually the state's various
power grids will be working together so this will benefit
everyone.
REPRESENTATIVE WILSON agreed that everything will eventually be
connected. However, this particular resolution does not do
that, therefore it does not take care of all Alaskans.
2:15:44 PM
REPRESENTATIVE RAMRAS said the governor has demonstrated a
growing contempt for the legislative branch and whether the word
"all" is included will not matter significantly insofar as the
power of the resolution. He said he would be open to deleting
"all" before the word Alaskans in an effort to respond to
Representative Wilson, and to keeping "all action necessary" in
response to Co-Chair Neuman.
CO-CHAIR NEUMAN said he thinks "taking all action necessary" is
a critical part of HCR 2. He offered an amendment to Conceptual
Amendment 1 that would retain deletion of the first "all", keep
the second "all", and retain adding an "s" to the word "action".
Therefore, Conceptual Amendment 1, as amended, would read:
provide energy security for Alaskans by taking all
actions necessary to promote the
CO-CHAIR JOHNSON objected for discussion purposes.
2:18:01 PM
REPRESENTATIVE GUTTENBERG supported the original Conceptual
Amendment 1. If the governor was to listen to the legislature
at some point, she could take this to the extreme, he cautioned.
REPRESENTATIVE TUCK supported the original Conceptual Amendment
1. Some of the actions need to be discretionary, he said.
CO-CHAIR JOHNSON removed his objection to the amendment of
Conceptual Amendment 1.
REPRESENTATIVE TUCK objected to the amendment to Conceptual
Amendment 1.
A roll call vote was taken. Representatives Olson, Neuman, and
Johnson voted in favor of the amendment to Conceptual Amendment
1. Representatives Guttenberg, Kawasaki, Tuck, and Wilson voted
against it. Therefore, the amendment to Conceptual Amendment 1
failed by a vote of 3-4.
The committee took an at-ease from 2:22 p.m. to 2:23 p.m.
2:23:43 PM
A roll call vote was taken on Conceptual Amendment 1.
Representatives Guttenberg, Kawasaki, Tuck, and Wilson voted in
favor of Conceptual Amendment 1. Representatives Olson, Neuman,
and Johnson voted against it. Therefore, Conceptual Amendment 1
passed by a vote of 4-3.
2:24:49 PM
REPRESENTATIVE TUCK moved Conceptual Amendment 2 as follows:
Page 2, line 18, after "Alaskans":
Insert "first"
Page 2, line 24, after "support":
Insert "the energy needs of Alaskans and"
Therefore, page 2, line 18, and page 2, line 24, would read
respectively:
provide energy security for Alaskans first by taking
actions necessary to promote the
for a commitment of natural gas production on
commercially reasonable terms to support the energy
needs of Alaskans and the
CO-CHAIR JOHNSON objected for purposes of discussion and asked
whether Representative Ramras, as the sponsor, had any concerns
with Conceptual Amendment 2.
2:26:20 PM
REPRESENTATIVE RAMRAS replied that this is just a resolution and
he would be more fearful of wordsmithing if it were a statute.
CO-CHAIR JOHNSON agreed with Representative Ramras.
CO-CHAIR NEUMAN said he is concerned with wordsmithing because
the language was carefully thought out the way it is written.
CO-CHAIR JOHNSON withdrew his objection to Conceptual Amendment
2.
There being no further objection, Conceptual Amendment 2 passed.
2:28:25 PM
CO-CHAIR NEUMAN moved to report HCR 2, as amended, out of
committee with any individual recommendations and accompanying
fiscal notes. There being no objection, CSHCR 2(RES) was
reported out of the House Resources Standing Committee. [HCR 2
was re-heard later in the meeting.]
HCR 3-IN-STATE GAS PIPELINE
[Testimony was heard regarding HCR 2, HCR 3, HCR 4, and HCR 5.]
2:28:49 PM
CO-CHAIR JOHNSON announced that the next order of business would
be HOUSE CONCURRENT RESOLUTION NO. 3, Requesting the governor to
provide energy security for all Alaskans by taking and
encouraging all action that would support a natural gas bullet
pipeline from the North Slope to the Cook Inlet region,
including initiating any necessary negotiations to reopen the
Agrium plant in Kenai.
REPRESENTATIVE JAY RAMRAS, Alaska State Legislature, sponsor of
HCR 3, drew attention to page 1, lines 12-15, and noted that the
AGIA gas line from the North Slope, or a similar alternative
project, would not deliver gas until after 2016, "if ever". He
stated his concern over whether there will ever be a large
diameter pipe given the market changes since passage of AGIA.
Restarting Agrium is essential to the economic viability of an
in-state gas pipeline, he opined.
2:30:04 PM
LISA PARKER, Manager, U.S. Government Relations, Agrium Inc.,
offered Agrium Inc.'s support of HCR 2, HCR 3, HCR 4, and HCR 5.
She said the resolutions are important to provide economic
stability to Alaska as well as to provide jobs for Alaskans. In
September 2007, after nearly 40 years of operation in Alaska,
Agrium had to shut down its Kenai facility due to a lack of
natural gas in Cook Inlet. At its peak this facility put over
$350 million annually into the Alaskan economy, the majority of
which was spent in Southcentral Alaska. Agrium supports a
bullet line and is engaged in discussions with the various
organizations and companies interested in pursuing the line, she
said. A bullet line, along with the various negotiated terms
and conditions, would put a billion dollar industrial facility
back into operation in Alaska. Bringing back the fertilizer
plant would restore 250 jobs, provide economic stability to the
state, and provide jobs and income to the various businesses and
support industries that have been impacted by Agrium's shutdown.
The re-started facility would support and supply fertilizer
product to Alaska's agricultural industry, the state of Alaska,
and the international airports in Anchorage and Fairbanks.
MS. PARKER, in response to Representative Olson, stated that at
its peak Agrium employed approximately 330 people, plus
contractors. In further response to Representative Olson, she
explained that Agrium cut back to 250 employees in mid-2004 and
then scaled back again to 150 employees in early 2006 because
only 50 percent of the plant was in operation.
2:33:10 PM
CO-CHAIR JOHNSON closed public testimony on HCR 3. In an effort
to be fair, he pointed out that HCR 3 contains the same language
as HCR 2.
CO-CHAIR NEUMAN moved to report HCR 3 out of committee with
individual recommendations and any accompanying fiscal notes.
2:34:08 PM
REPRESENTATIVE GUTTENBERG objected. He moved Conceptual
Amendment 1 as follows:
Page 2, line 31, after "for":
Delete "all"
Page 2, line 31, after "encouraging":
Delete "all"
Page 2, line 31, before "necessary":
Delete "action"
Insert "actions"
Therefore, page 2, line 31, of HCR 3 would read as follows:
provide energy security for Alaskans by taking and
encouraging actions necessary to
CO-CHAIR NEUMAN objected to Conceptual Amendment 1.
REPRESENTATIVE GUTTENBERG argued that this is the same amendment
with the same intent as was offered by Representative Wilson for
HCR 2 and passed. If it was valid for HCR 2, it should also be
valid for HCR 3, HCR 4, and HCR 5.
CO-CHAIR JOHNSON agreed it would be valid to those members who
had supported that amendment.
2:35:35 PM
REPRESENTATIVE RAMRAS, speaking in regard to Representative
Wilson's original concern, pointed out that the cost of
fertilizer in Alaska will be going up 400 percent which will
affect all Alaskans unless they do not eat produce grown in the
state, do not have a lawn, or do not like flowers. He said he
likes HCR 3 as it is and that it is just a resolution.
CO-CHAIR NEUMAN maintained his objection.
REPRESENTATIVE GUTTENBERG said the rest of line 31 [which
continues onto page 3] refers to a bullet line and goes on to
expand upon Agrium, but it has the same relationship between all
Alaskans and a bullet line. If the resolution was only about
Agrium, then the wording would be different.
CO-CHAIR JOHNSON commented that the point is taken.
CO-CHAIR NEUMAN maintained his objection.
2:38:01 PM
REPRESENTATIVE KAWASAKI pointed out that the title on page 1
includes the same language being amended on page 2. He offered
a friendly amendment that would add the following to Conceptual
Amendment 1:
Page 1, line 1, after "for":
Delete "all"
Page 1, line 2, after "encouraging":
Delete "all"
CO-CHAIR JOHNSON pointed out that in terms of consistency the
title of HCR 2 was not amended.
CO-CHAIR NEUMAN objected to the amendment to Conceptual
Amendment 1.
A roll call vote was taken. Representatives Kawasaki, Tuck, and
Guttenberg voted in favor of the amendment to Conceptual
Amendment 1. Representatives Wilson, Olson, Neuman, and Johnson
voted against it. Therefore, the amendment to Conceptual
Amendment 1 failed by a vote of 3-4.
2:40:01 PM
REPRESENTATIVE NEUMAN maintained his objection to Conceptual
Amendment 1.
REPRESENTATIVE TUCK supported HCR 3 as a whole as well as
Conceptual Amendment 1. The amendment is about supplying energy
security to Alaskans, not providing food supply, he said.
A roll call vote was taken. Representatives Tuck, Guttenberg,
and Kawasaki voted in favor of Conceptual Amendment 1.
Representatives Wilson, Olson, Neuman, and Johnson voted against
it. Therefore, Conceptual Amendment 1 failed by a vote of 3-4.
CO-CHAIR NEUMAN again moved to report HCR 3 out of committee
with individual recommendations and any accompanying fiscal
notes. There being no objection, HCR 3 was reported out of the
House Resources Standing Committee.
HCR 2-IN-STATE GAS PIPELINE
2:42:12 PM
CO-CHAIR JOHNSON returned the committee's attention to HOUSE
CONCURRENT RESOLUTION NO. 2, Requesting the governor to provide
energy security for all Alaskans by pursuing development of a
natural gas bullet pipeline from the North Slope to the Cook
Inlet region; and requesting the governor to identify and
negotiate with one or more persons capable of producing natural
gas from the Gubik area, and other areas on the North Slope if
necessary, in sufficient quantities to support a bullet pipeline
project.
REPRESENTATIVE WILSON moved that the committee return its
attention to CSHCR 2(RES) in order for the committee to consider
rescinding its action in the adoption of Conceptual Amendment 1.
REPRESENTATIVES GUTTENBERG and KAWASAKI objected.
2:42:56 PM
REPRESENTATIVE WILSON said Representative Ramras has convinced
her that HCR 2 does include everybody in Alaska and therefore
the word "all" should be included.
[Although not formally stated, the objections of Representatives
Guttenberg and Kawasaki were treated as withdrawn.]
REPRESENTATIVE WILSON moved to rescind the committee's action in
reporting CSHCR 2(RES) out of the House Resources Standing
Committee. There being no objection, CSHCR 2(RES) was before
the committee.
2:44:05 PM
REPRESENTATIVE WILSON moved to rescind the committee's action in
adopting Conceptual Amendment 1. There being no objection, it
was so ordered.
REPRESENTATIVE TUCK, in response to Co-Chair Johnson, said he
does not wish to rescind Conceptual Amendment 2.
CO-CHAIR NEUMAN moved to report HCR 2, as amended [by Conceptual
Amendment 2 only], out of committee with any individual
recommendations and accompanying fiscal notes. There being no
objection, CSHCR 2(RES) was reported from the House Resources
Standing Committee.
HCR 4-IN-STATE GAS PIPELINE
2:46:00 PM
CO-CHAIR JOHNSON announced that the next order of business would
be HOUSE CONCURRENT RESOLUTION NO. 4, Requesting the governor to
provide energy security for Alaskans by taking and encouraging
all action to support development of a natural gas bullet
pipeline from the North Slope to the Cook Inlet region including
advocating an increase in the amount of natural gas that may be
exported under authority granted by the United States Department
of Energy.
REPRESENTATIVE JAY RAMRAS, Alaska State Legislature, sponsor of
HCR 4, said the resolution asks the governor of Alaska to open
up a dialogue with the U.S. Department of Energy to expand the
state's export license in order to increase the volume of
natural gas travelling down an in-state bullet line. In 1996
the maximum amount of gas moved by the "Conoco LNG plant" was 75
Bcf [per year] and the volume of export was 230 Mmcf/day, he
related. The current authorized amount is 50 Bcf/year at 137
Mmcf/day. Due to deliverability and depletion of the Cook Inlet
gas field, the LNG plant is running at less than full capacity
because some gas is being diverted to heat Southcentral homes
and businesses, and this is the reason for trying to open up
another field for an in-state bullet line. He reminded members
that 500 Mmcf/day of gas is 180 Bcf/year, so the bullet line
would provide 60 Bcf/year for light commercial and residential
use along the Railbelt, 60 Bcf for the Agrium facility, and up
to 60 Bcf/year for export, notwithstanding concrete plants in
the Matanuska-Susitna Valley or gas-to-liquid opportunities for
synthetic fuel for the U.S. Air Force or the International Tower
Hill gold mining prospects near Livengood. It is important to
open up this dialogue years in advance to create an adequate
amount of demand, he maintained, because there is not that much
present use of gas inside the state.
2:48:41 PM
REPRESENTATIVE GUTTENBERG asked whether there have been any
exploratory discussions with the U.S. Department of Energy
regarding expansion of the export license.
REPRESENTATIVE RAMRAS replied that he has met three times with
commissioners of the Federal Energy Regulatory Commission (FERC)
and that the FERC chairman was present at all three of those
meetings. He said it is important to recognize that
nonconventional sources of natural gas, mainly shale, are
displacing conventional gas supplies. Moreover, by the year
2010, new LNG import terminals in the U.S. will have opened and
expanded capacity from 6 Bcf/day to 20 Bcf/day. Presently, he
continued, there is such a glut of natural gas in the U.S. that
one newly opened terminal has only received one shipment of LNG
since it opened about a year ago. It is important to initiate a
dialog with the U.S. Department of Energy five years before
there is a bullet line and eighteen months before there is a
final investment decision from the private sector entity
interested in opening this bullet line in order to get a sense
of whether expanding the demand is viable. If the tariff is $6
when the pipeline is one-third full, $4 at two-thirds full, and
$2 when it is completely full, then it is in the best interest
of all Railbelt users to have the bullet line filled with as
much volume as possible. Representative Ramras understood the
working number for the tariff for a full pipeline to be
$2.50/Mcf. Fairbanks Natural Gas estimates it would cost $4/Mcf
for them to haul gas from the North Slope, he related, so a
$2.50 tariff is an attractive number.
2:52:05 PM
CO-CHAIR JOHNSON opened public testimony on HCR 4.
TOM LAKOSH testified that being able to fill the pipeline is
critical to maintaining the in-state line's projected low tariff
cost. Switching to renewables will reduce the load on the
pipeline, so it may become wholly uneconomic, he maintained.
The Agrium plant could fulfill the role of an industrial
customer, he argued, and the committee should choose between 350
employees running the Agrium plant or the smaller number of
employees that would be needed to run an LNG export terminal.
This can be addressed immediately without spending $4 billion
and waiting four years for a pipeline to be built. He urged
members to adjust the resolution to get the gas in-state
immediately and not wait for either the pipeline or its incurred
costs.
CO-CHAIR JOHNSON closed public testimony on HCR 4.
CO-CHAIR NEUMAN moved to report HCR 4 out of committee with any
individual recommendations or attached fiscal notes. There
being no objection, HCR 4 was reported from the House Resources
Standing Committee.
HCR 5-IN-STATE GAS PIPELINE
2:55:03 PM
CO-CHAIR JOHNSON announced that the final order of business
would be HOUSE CONCURRENT RESOLUTION NO. 5, Requesting the
governor to provide energy security for all Alaskans by working
on significant elements and components to support the timely
construction of a natural gas bullet pipeline from the North
Slope to the Cook Inlet region and to take necessary action to
assist and facilitate the process for a private entity to make a
final investment decision to commit to the pipeline before
November 1, 2010.
REPRESENTATIVE JAY RAMRAS, Alaska State Legislature, sponsor of
HCR 5, explained that the resolution encourages state government
to cooperate on regulatory issues to thereby assist a private
sector entity in being able to reach its final investment
decisions. He related that in testimony before the Senate
Resources Standing Committee, an ENSTAR representative testified
that the company has $1 billion in cash and $3 billion in
financing, and is not asking anything from the State of Alaska
other than to get out of the way. He said HCR 5 addresses the
issue of one hand of state government fighting another hand of
state government.
2:56:05 PM
CO-CHAIR JOHNSON opened public testimony on HCR 5. There being
no one wishing to testify, he closed public testimony.
CO-CHAIR NEUMAN moved to report HCR 5 out of committee with any
individual recommendations or attached fiscal notes. There
being no objection, HCR 5 was reported out of the House
Resources Standing Committee.
2:57:10 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:57 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HCR 2 Resolution.pdf |
HRES 2/4/2009 1:00:00 PM |
|
| HCR 3 Resolution.pdf |
HRES 2/4/2009 1:00:00 PM |
|
| HCR 4 Resolution.pdf |
HRES 2/4/2009 1:00:00 PM |
|
| HCR 5 Resolution.pdf |
HRES 2/4/2009 1:00:00 PM |
|
| Sponsor Stmt HCR 2.pdf |
HRES 2/4/2009 1:00:00 PM |
|
| Sponsor Stmt HCR 3.pdf |
HRES 2/4/2009 1:00:00 PM |
|
| Sponsor Stmt HCR 4.pdf |
HRES 2/4/2009 1:00:00 PM |
|
| Sponsor Stmt HCR 5.pdf |
HRES 2/4/2009 1:00:00 PM |