02/26/2024 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB223 | |
| Presentation(s): Alaska Gasline Project Update | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 223 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 26, 2024
1:11 p.m.
MEMBERS PRESENT
Representative Tom McKay, Chair
Representative George Rauscher, Vice Chair
Representative Thomas Baker
Representative Kevin McCabe
Representative Stanley Wright
Representative Jennie Armstrong
Representative Donna Mears
Representative Maxine Dibert
MEMBERS ABSENT
Representative Dan Saddler
OTHER MEMBERS PRESENT
Representative Jesse Sumner
COMMITTEE CALENDAR
HOUSE BILL NO. 223
"An Act relating to the production tax and royalty rates on
certain gas; and providing for an effective date."
- HEARD & HELD
PRESENTATION(S): Alaska Gasline Project Update
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 223
SHORT TITLE: TAX & ROYALTY FOR CERTAIN GAS
SPONSOR(s): REPRESENTATIVE(s) RAUSCHER
01/16/24 (H) PREFILE RELEASED 1/8/24
01/16/24 (H) READ THE FIRST TIME - REFERRALS
01/16/24 (H) RES, FIN
01/31/24 (H) RES AT 1:00 PM BARNES 124
01/31/24 (H) Heard & Held
01/31/24 (H) MINUTE(RES)
02/07/24 (H) RES AT 1:00 PM BARNES 124
02/07/24 (H) <Bill Hearing Rescheduled to 02/09/24>
02/09/24 (H) RES AT 1:00 PM BARNES 124
02/09/24 (H) Heard & Held
02/09/24 (H) MINUTE(RES)
02/19/24 (H) RES AT 1:00 PM BARNES 124
02/19/24 (H) -- MEETING CANCELED --
02/21/24 (H) RES AT 1:00 PM BARNES 124
02/21/24 (H) -- MEETING CANCELED --
02/23/24 (H) RES AT 1:00 PM BARNES 124
02/23/24 (H) Heard & Held
02/23/24 (H) MINUTE(RES)
02/26/24 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
FRANK RICHARDS, President
Alaska Gasline Development Corporation
Anchorage, Alaska
POSITION STATEMENT: Presented during the Alaska Gasline Project
Update.
NICK SYZMONIAK, Venture Development Manager
Alaska Gasline Development Corporation
Anchorage, Alaska
POSITION STATEMENT: Presented during the Alaska Gasline Project
Update.
ACTION NARRATIVE
1:11:04 PM
CHAIR MCKAY called the House Resources Standing Committee
meeting to order at 1:11 p.m. Representatives Rauscher, Baker,
McCabe, Wright, Armstrong, Mears, Dibert and McKay were present
at the call to order. Representative Wright arrived while the
meeting was in progress.
HB 223-TAX & ROYALTY FOR CERTAIN GAS
1:11:43 PM
CHAIR MCKAY announced that the first order of business would be
HOUSE BILL NO. 223, "An Act relating to the production tax and
royalty rates on certain gas; and providing for an effective
date." [Before the committee, adopted as a working document on
2/23/24, was the proposed committee substitute (CS) for HB 223,
Version 33-LS0886\S, Nauman, 2/10/24 ("Version S").]
1:12:26 PM
CHAIR MCKAY opened public testimony on HB 223. After
ascertaining that no one wished to testify, he closed public
testimony on HB 223 and announced that the bill would be held
over.
1:12:52 PM
The committee took a brief at-ease.
^PRESENTATION(S): Alaska Gasline Project Update
PRESENTATION(S): Alaska Gasline Project Update
1:13:12 PM
CHAIR MCKAY announced that the final order of business would be
the Alaska Gasline Project Update presentation.
1:13:27 PM
FRANK RICHARDS, President, Alaska Gasline Development
Corporation (AGDC), provided a PowerPoint presentation, titled
"Alaska Gasline Project Development Corp" [hard copy included in
the committee packet]. He explained that Alaska Gasline
Development Corporation (AGDC) is a public corporation owned by
the State of Alaska, which was created by the state legislature
in 2013 to expedite, finance, and build natural gas
infrastructure. The legislature provided AGDC with the purpose
of developing natural gas pipelines and transportation
mechanisms to provide natural gas to Alaskans, develop a
liquified natural gas (LNG) project, and develop resources to
the maximum benefit of Alaskans. The $44 billion Alaska LNG
project is founded on 40 trillion cubic feet of natural gas on
the North Slope, which represents 400-500 years of resources for
Alaskans if the resources were utilized solely in state. Due to
a lack of transportation infrastructure, the gas is currently
not available for market. The Arctic Carbon Capture plan is
located adjacent to existing gas plants, which will remove and
sequester CO2 from raw gas stream and condition gas to LNG
specifications. The natural gas pipeline plan is 800 miles from
Prudhoe Bay to Nikiski, which follows existing oil pipeline and
highway system. The plan includes gas delivery to Alaska
communities and the LNG plant.
1:17:59 PM
MR. RICHARDS, in response to committee questions, explained that
concept selection work was done by ExxonMobil Corporation to
determine where the LNG plant should be built. He alluded to a
discussion that had taken place regarding LNG port selection
with the Matanuska-Susitna borough. The site selection had been
completed before AGDC was involved in the project. The project
has been designed and permitted for the Nikiski site. The Kenai
LNG facility, owned by Marathon, produces 1.1 million tons per
year. LNG facilities around the state could be reused and
revitalized depending on economic factors.
1:27:00 PM
NICK SYZMONIAK, Venture Development Manager, Alaska Gasline
Development Corporation, in response to committee questions
answered that the construction of the carbon capture plant would
benefit from HB 50 by better defining the regulatory process for
well permits to sequester the CO2. Some CO2 could be utilized
for enhanced oil recovery.
CHAIR MCKAY explained that primacy was assigned for class 6 CO2
disposal wells to the Alaska Oil and Gas Conservation Commission
(AOGCC).
MR. RICHARDS said that Alaska LNG's cost of supply is well below
market prices and provided a breakdown of costs on slide 4. In
response to Chair McKay, said that tax credits for carbon were a
bipartisan effort.
1:32:45 PM
MR. SYZMOINIAK, in response to Representative McCabe, responded
that the entire project assumes 70 percent debt financed with 30
percent equity financing with a 10 percent rate of return on the
equity. The debt financing is on an 18-year term with about a 5
percent interest rate.
1:33:32 PM
MR. RICHARDS, in response to Chair Mckay, answered that due to
anti-trust considerations, AGDC cannot go to the producers
collectively for a price. There are bilateral negotiations for
each producer to determine the price of gas, which makes it
difficult to move the project along. There have been varying
levels of participation from the producers to share prices.
1:37:50 PM
MR. RICHARDS continued his presentation on slide five and
discussed the permitting process with the Federal Energy
Regulatory Commission (FERC) and showed a list of 36 permits for
the Alaska LNG project. He mentioned that President Biden has
recently curtailed the Department of Energy (DOE) from
authorizing any additional export authorities until sufficient
analysis is done. This has not impacted the project, which is
fully funded, permitted, and ready to proceed. Land rights-of-
way (ROW) make up about 93 percent of the project area. In
response to Representative McKay, said that other projects
around the continent are permitted, but on hold as they await
FERC and DOE authorizations. In response to Representative
McCabe, he said that the authorizations were granted to AGDC in
2020 and the application occurred in 2017.
1:41:04 PM
MR. RICHARDS explained the lifecycle analysis and said that the
use of Alaska LNG in Asia for power consumption compared to coal
fired power consumption in Asia results in a significant
reduction in CO2 emissions. Alaska can reduce greenhouse gas
emissions by more than 77 million tons of CO2 per year. Alaska
LNG can have one of the greatest greenhouse gas benefits of any
project in the world. He discussed energy security, and that
Cook Inlet gas supply is uncertain, and utilities are evaluating
potential alternative natural gas supplies. AGDC has been
working with the Alaska utilities on delivery options. Alaska
LNG Phase 1 is a potential long-term energy supply for Alaskans.
He discussed the development of a pipeline, and that
construction can move quickly under a phased approach. Phase 2
would involve continuing forward with LNG export.
1:45:21 PM
MR. RICHARDS, in response to committee questions, said that LNG
import would be between $12-15 per million British thermal units
(Btu). This represents the target price for AGDC to meet or
beat to be an economic project and noted that the price has
volatility issues.
1:49:20 PM
MR. RICHARDS, in response to committee questions, provided a
pipeline construction timeline and stated the goal to have
front-end engineering and design (FEED) funding by July 1, 2024.
Commercial and project development agreements would take place
with a final decision on construction funding (FID) and
utilities' commitment to purchase gas is not needed until 2025.
There's a 4-year construction window and the first gas supply is
estimated for July 2029. He described pipeline-quality gas
needs. Permits have been granted for a well-designed process
and significant alterations would require reopening permit
applications and would add additional time and risk. He
explained that the project follows along the same right-of-way
the Alaska LNG project utilized. FEED analysis will update
design specifications of the pipeline, cost, and schedule. He
assured the committee that right-of-way leases are up to date
and paid to the federal government through the Bureau of Land
Management and the National Park Service. The state of Alaska
conditional lease does not require lease payments.
MR. RICHARDS described the 42-inch pipeline from the North Slope
to Southcentral Alaska, which was designed and permitted under
the Alaska LNG project. AGDC is working with a credible North
American pipeline company to lead the final design (FEED),
construct, and operate the pipeline. There are multiple North
Slope fields that could supply gas. Contracts with end users
are needed for the project to move forward including with Alaska
utilities to commit to source their long-term gas needs. A
Nutrien plant for ammonia and urea in Nikiski will be restarted
to meet demand needs in Asia for fertilizer.
2:00:23 PM
MR. RICHARDS, in response to Chair McKay, clarified that a
contract with only one producer is needed for in-state needs.
NICK SYZMONIAK responded that options with producers are being
explored to "shop for the best price."
2:02:17 PM
MR. RICHARDS showed a map on slide 11 of the LNG pipeline. He
pointed out the Fairbanks lateral pipeline which would provide
natural gas to Fairbanks. He responded to Representative Baker
and said that this pipeline is meant to provide gas for Alaskans
and create Alaska resource development. Offtakes have been
designed for communities and mining districts that need a source
of gas. In response to Representative Mears, he said that the
pipeline follows the Dalton Highway, then moves over to the
Minto flats ridge which is new territory and will not impact the
critical habitat. After that, it parallels the Parks Highway and
the railroad and existing infrastructure. In fact, the railroad
is essential to executing the project. From there the pipeline
parallels the Susitna River until Tyonek where it will intertie
with the Beluga pipeline system. There pipeline was designed to
meet Enstar Natural Gas' existing facilities without any
improvements.
2:07:13 PM
MR. RICHARDS continued the presentation and described the
regulatory risk and first gas timeframes for different diameters
of pipelines. He mentioned that it is overbuilt for instate
needs, but the regulatory process is already complete, and the
pipeline will be utilized to a greater extent after phase 1.
The pipeline will cost $10.7 billion. The FEED needs to be
completed prior to construction, will cost up to $50 million,
and take 12 months to complete. He reiterated that the target
FID construction start date is in 2025 with first gas in 2029.
The legislature appropriated $2.5 million to AGDC for front end
engineering and design as a portion of a match from the federal
$4 million appropriation.
2:14:50 PM
MR. RICHARDS, in response to committee questions, explained the
cost estimate classes. He affirmed that 42-inch pipe is
available from North American manufacturers, which in the past
was imported from abroad. The pipeline thickness ranges from
6/10ths of an inch to 1- and 1/4-inch thickness. The Pipeline
Hazardous Materials Safety Administration (PHMSA) is a federal
organization that provides for safety oversite of oil and gas
pipelines. PHMSA seeks to prevent oil and gas pipelines from
being collocated due to the explosion and environmental risks.
Design efforts follow the PHMSA regulations. Collocating
compressor stations and pumps stations would be a potential
safety issue. Reusing existing facilities would require a
design change and reopening the regulatory process. He said
that the regulation requires 500 feet of distance between the
pipelines.
2:22:31 PM
MR. SYZMONIAK explained that the target for the phase 1
economics was to ensure that gas could be delivered to
Southcentral utilities at a lower price than the expected price
of imported LNG. Factors include the volume of permitted gas,
cost of gas purchased, and tolls to the pipeline company to
scope the rate of returns over time. The base price is expected
to be around $12, which is significantly lower than imported
LNG. The more gas moved, the lower the cost of utilities will
be. Revenue from Nutrien will go towards directly reduced costs
for instate customers. When the LNG plant comes online, extra
volume will move through which could further reduce the in-state
price to $4-5.
2:25:37 PM
MR. RICHARDS said that AGDC is working with utilities to advance
the phase 1 option for long term energy security. Utility
support is needed now, but they will not need to commit to
volumes until FID in 2025. Nutrien is performing the work
necessary to restart, which includes permit renewals, plant
engineering, financial modeling. North Slope gas must be made
available at a low cost to underpin phase 1 and unlock future
LNG exports. In response to Representative McCabe, he stated
that the major pipeline company cannot be named. AGDC is
working internally to ensure that Alaska LNG is a viable
opportunity to proceed with.
2:30:04 PM
MR. RICHARDS, in response to Chair McKay, said that Enstar
Natural Gas Company sees a long-term investment in pipelines
from the North Slope as a benefit to its customers. He
highlighted the key benefits to the phased approach including,
long-term energy security, reduce price volatility from
importing LNG, economic lift in Nikiski with the restart of the
Nutrien plan, help to resolve air quality issues in Fairbanks,
and drive in-state costs down to just $4 over time.
MR. RICHARDS, in response to committee questions, said the
Nutrien plan restart discussions are current and a significant
amount of work has been accomplished since 2018. Nutrien is
interested in carbon capture from production. He discussed the
ability to sign project labor agreements. Major pipeline
constructors use project labor agreements. The cost of skilled
labor is high and has been factored in. He said, AGDC is
reserving the right for up to 25 percent ownership by the State
of Alaska including citizens, municipalities, boroughs, and
Alaska corporations.
MR. RICHARDS, in response to Representative Mears, said the
legislature tasked AGDC with the responsibility of delivering
gas to the interior.
2:40:06 PM
MR. RICHARDS described the Alaska LNG investment strategy. AGDC
continues to engage potential developers and investors to fund
FEED and commercial and legal contracts to move to FID. He
noted the primary challenge of building a coalition of investors
that combined have the capital and capability to move the entire
project forward. He said AGDC continues to work with Goldman
Sachs to identify qualified investors and secure capital.
Mr. RICHARDS said that due to confidentiality, AGDC cannot
comment on specifics. Multiple investors have evaluated
investment with some passing, and several are still interested
and engaged in Alaska LNG. Pre-building the pipeline under the
proposed phase 1 project greatly benefits the overall Alaska LNG
capital raise.
2:45:30 PM
MR. RICHARDS explained that AGDC's strategy has been to seek
lead investors before pursuing a binding LNG sales agreement.
Investors would prefer to negotiate their own terms for LNG
sales. Securing North Slope gas sales agreements remains a
critical path item for both the phase 1 pipeline and the full
Alaska LNG project. Recent federal actions have supported the
Alaska LNG project. He exemplified U.S. Senator Sullivan as a
champion of the Alaska LNG project. He mentioned the federal
loan guarantees of $31 million
MR. RICHARDS mentioned that Ambassador Emanuel from Tokyo has
been a tireless advocate for Alaska LNG and sees the strategic
value of a Pacific Coast project meeting the needs of Asian
allies. He said the project is at a net-positive in terms of
greenhouse gas emissions. He noted the tax credits and the
engaged and supportive congressional delegations.
2:49:23 PM
MR. RICHARDS said the Department of Revenue (DOR) performed an
analysis on expected State of Alaska Revenue from the entire
Alaska LNG project and referred to a graph on slide 24. He said
commercializing resources through the sale of LNG would have a
benefit to Alaska.
MR. RICHARDS explained in response to committee questions that
oil production is limited by gas handling. He did not have a
timeframe estimate to determine the impact of gas sales on oil
production. He admitted that there are risks to building and an
oversized pipeline. Economic modelling is based on the flow of
gas into the industrial users and utilities. Additional volume
of gas would correlate to lower prices for Alaskans.
2:55:29 PM
MR. RICHARDS stated that the Alaska LNG project creates almost
12,000 direct jobs at the peak of construction including 1,000
long-term operations jobs and significant indirect jobs during
construction and operations.
MR. RICHARDS explained the opportunity for hydrogen/ammonia as
opportunities for clean energy sources. He also mentioned the
carbon capture sequestration opportunities to "future-proof" the
project.
2:57:02 PM
MR. RICHARDS, in response to committee questions, explained that
the current discussions with existing investors will advance
phase 1 to fruition. There is an ongoing discussion concerning
the Biden Administration's Executive Order that halted the
Department of Energy authorizations, which has created more
interest in the project by investors. The project is scoped
through permitting efforts. He explained that current
circumstances resemble the circumstances from a decade ago
because of uncertainty. Decisions from investors need to meet
investment and economic criteria for the project to continue
moving forward. He stated that he understands the frustrations
stated but emphasized that the resource can be delivered at a
reasonable cost through an economically viable project. He said
that he hoped LNG would create more economic opportunities in
the state.
CHAIR MCKAY thanked the presenters and provided closing remarks.
3:03:49 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at [3:04]
p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 02.26.2024_AGDC House Resources Committee_Final.pdf |
HRES 2/26/2024 1:00:00 PM |