Legislature(2007 - 2008)FBX CARLSON CENTER
06/12/2008 10:00 AM House RULES
| Audio | Topic |
|---|---|
| Start | |
| HB3001|| SB3001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB3001 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
JOINT MEETING
HOUSE RULES STANDING COMMITTEE
SENATE SPECIAL COMMITTEE ON ENERGY
Fairbanks, Alaska
June 12, 2008
10:16 a.m.
MEMBERS PRESENT
HOUSE RULES
Representative John Coghill, Chair
Representative John Harris (AGIA Subcommittee, Chair)
Representative Anna Fairclough
Representative Craig Johnson
Representative Ralph Samuels (AGIA Subcommittee)
Representative Beth Kerttula (AGIA Subcommittee)
Representative David Guttenberg
SENATE SPECIAL COMMITTEE ON ENERGY
Senator Charlie Huggins, Chair
Senator Bert Stedman, Vice Chair
Senator Kim Elton
Senator Lyda Green
Senator Lyman Hoffman
Senator Lesil McGuire
Senator Donald Olson
Senator Gary Stevens
Senator Joe Thomas
Senator Bill Wielechowski
Senator Fred Dyson
Senator Thomas Wagoner
MEMBERS ABSENT
HOUSE RULES
All members present
SENATE SPECIAL COMMITTEE ON ENERGY
Senator Lyda Green
Senator Gary Stevens
Senator Fred Dyson
OTHER LEGISLATORS PRESENT
House
Representative Chenault
Representative Crawford
Representative Doogan
Representative Edgmon
Representative Gardner
Representative Hawker
Representative Holmes
Representative Joule
Representative Kawasaki
Representative Kelly
Representative Neuman
Representative Olson
Representative Ramras
Representative Roses
Representative Stoltze
Representative Wilson
Senate
Senator French
Senator Therriault
Senator Wilken
COMMITTEE CALENDAR
HOUSE BILL NO. 3001
"An Act approving issuance of a license by the commissioner of
revenue and the commissioner of natural resources to TransCanada
Alaska Company, LLC and Foothills Pipe Lines Ltd., jointly as
licensee, under the Alaska Gasline Inducement Act; and providing
for an effective date."
- HEARD AND HELD
SENATE BILL NO. 3001
"An Act approving issuance of a license by the commissioner of
revenue and the commissioner of natural resources to TransCanada
Alaska Company, LLC and Foothills Pipe Lines Ltd., jointly as
licensee, under the Alaska Gasline Inducement Act; and providing
for an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB3001
SHORT TITLE: APPROVING AGIA LICENSE
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
06/03/08 (H) READ THE FIRST TIME - REFERRALS
06/03/08 (H) RLS
06/03/08 (H) WRITTEN FINDINGS & DETERMINATION
06/04/08 (H) RLS AT 9:00 AM CAPITOL 120
06/04/08 (H) Heard & Held; Assigned to Subcommittee
06/04/08 (H) MINUTE(RLS)
06/04/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/04/08 (H) Heard & Held
06/04/08 (H) MINUTE(RLS)
06/05/08 (H) RLS AT 9:00 AM TERRY MILLER GYM
06/05/08 (H) Heard & Held
06/05/08 (H) MINUTE(RLS)
06/06/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/06/08 (H) Heard & Held
06/06/08 (H) MINUTE(RLS)
06/07/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/07/08 (H) Heard & Held
06/07/08 (H) MINUTE(RLS)
06/08/08 (H) RLS AT 1:00 PM TERRY MILLER GYM
06/08/08 (H) Heard & Held
06/08/08 (H) MINUTE(RLS)
06/09/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/09/08 (H) Heard & Held
06/09/08 (H) MINUTE(RLS)
06/10/08 (H) RLS AT 10:00 AM TERRY MILLER GYM
06/10/08 (H) Heard & Held
06/10/08 (H) MINUTE(RLS)
06/12/08 (H) RLS AT 10:00 AM FBX CARLSON CENTER
BILL: SB3001
SHORT TITLE: APPROVING AGIA LICENSE
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
06/03/08 (S) READ THE FIRST TIME - REFERRALS
06/03/08 (S) ENR
06/03/08 (S) REPORT ON FINDINGS AND DETERMINATION
06/04/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/04/08 (S) Heard & Held
06/04/08 (S) MINUTE(ENR)
06/05/08 (S) ENR AT 9:00 AM TERRY MILLER GYM
06/05/08 (S) Heard & Held
06/05/08 (S) MINUTE(ENR)
06/06/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/06/08 (S) Heard & Held
06/06/08 (S) MINUTE(ENR)
06/07/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/07/08 (S) Heard & Held
06/07/08 (S) MINUTE(ENR)
06/08/08 (S) ENR AT 1:00 PM TERRY MILLER GYM
06/08/08 (S) Heard & Held
06/08/08 (S) MINUTE(ENR)
06/09/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/09/08 (S) Heard & Held
06/09/08 (S) MINUTE(ENR)
06/10/08 (S) ENR AT 10:00 AM TERRY MILLER GYM
06/10/08 (S) Heard & Held
06/10/08 (S) MINUTE(ENR)
06/12/08 (S) ENR AT 10:00 AM FBX Carlson Center
WITNESS REGISTER
BILL WALKER, Attorney
Walker & Levesque
Valdez, Alaska; General Council/Project Manager
Alaska Gasline Port Authority (AGPA)
Fairbanks, Alaska
POSITION STATEMENT: Presented a PowerPoint report and answered
questions on behalf of the Alaska Gasline Port Authority (AGPA).
CRAIG RICHARDS, Attorney
Walker & Levesque
Valdez, Alaska
POSITION STATEMENT: Participated in the presentation and
answered questions on behalf of the Alaska Gasline Port
Authority (AGPA).
HAROLD HEINZE, Chief Executive Officer
Alaska Natural Gas Development Authority (ANGDA)
Anchorage, Alaska
POSITION STATEMENT: Presented a PowerPoint report and answered
questions on behalf of the Alaska Natural Gas Development
Authority (ANGDA).
GENE DUBAY, Senior Vice-President, Chief Operating Officer
Continental Energy Systems
Houston, Texas
POSITION STATEMENT: Presented a PowerPoint report and answered
questions representing the parent company of ENSTAR Natural Gas
Company (ENSTAR).
CURTIS THAYER, Director
Corporate & External Affairs
ENSTAR Natural Gas Company (ENSTAR)
Anchorage, Alaska
POSITION STATEMENT: Participated in the presentation and
answered questions on behalf of ENSTAR.
ANDREW WHITE, Manager
Business Development & Revenue Forecasting
ENSTAR Natural Gas Company (ENSTAR)
Anchorage, Alaska
POSITION STATEMENT: Participated in the presentation and
answered questions on behalf of ENSTAR.
ACTION NARRATIVE
CHAIR JOHN COGHILL called the joint meeting of the House Rules
Standing Committee and the Senate Special Committee on Energy to
order at 10:16:39 AM. He announced that Senator Huggins would
chair the meeting and turned the gavel over to him.
SENATOR HUGGINS expressed his belief that the delivery of
natural gas in-state, as early as possible, was of the highest
importance. He then discussed the agendas and schedules for the
upcoming hearings.
HB 3001-APPROVING AGIA LICENSE
SB 3001-APPROVING AGIA LICENSE
CHAIR HUGGINS announced that the only order of business would be
HOUSE BILL NO. 3001, "An Act approving issuance of a license by
the commissioner of revenue and the commissioner of natural
resources to TransCanada Alaska Company, LLC and Foothills Pipe
Lines Ltd., jointly as licensee, under the Alaska Gasline
Inducement Act; and providing for an effective date" and SENATE
BILL NO. 3001, "An Act approving issuance of a license by the
commissioner of revenue and the commissioner of natural
resources to TransCanada Alaska Company, LLC and Foothills Pipe
Lines Ltd., jointly as licensee, under the Alaska Gasline
Inducement Act; and providing for an effective date.
10:20:24 AM
BILL WALKER, Attorney, Walker and Levesque; General
Council/Project Manager, Alaska Gasline Port Authority (AGPA),
thanked the committees for the opportunity to respond to the
previous testimony on gas pipeline proposals. He said that he
appreciated the time to speak about his concerns and share his
experience of the last10years.
10:22:12 AM
MR. WALKER explained that there have been many previous
processes regarding Alaska's "stranded gas" and several study
groups [on] and attempts to build a gas pipeline. The Alaska
Gasline Port Authority (AGPA) was created by a voter initiative
with the mandate to cause a gas pipeline to be built. He opined
that this is a unique period of time given the high energy
prices that are causing a disparity between high costs to
individuals, and high income to the state coffers. Mr. Walker
began the PowerPoint presentation with a slide titled "The All-
Alaska Project." He informed the committees that AGPA's all-
Alaska gas pipeline project consists of a 48 inch pipeline from
Prudhoe Bay to Delta Junction and a 42 inch pipeline continuing
to Valdez. The project utilizes a high pressure dense phase
pipeline with gas conditioning at the North Slope that removes
impurities and compresses and chills gas to pipeline
specifications. The pipeline is larger initially because,
ultimately, there will be a spur line into Canada; however, the
all-Alaska line serves as the "trunk" line. In addition, AGPA
has entered into a memorandum of understanding (MOU) with the
Alaska Natural Gas Development Authority (ANGDA), in order to
provide spur lines to the Interior at Glennallen, and at Delta
Junction for the spur line to Canada. This project is
indentified as an LNG project, as the gas would be liquefied at
Valdez for shipment to world markets. He further explained that
the project is flexible and has adjusted to changes in the
market and to the availability of gas from Prudhoe Bay, although
its purpose has remained quite consistent. The AGPA Board of
Directors is made up of nine representatives, three members each
from the City of Valdez, the Fairbanks North Star Borough, and
the North Slope Borough. Mr. Walker listed the proposed markets
for AGPA's gas; Alaska, Japan, Korea, Taiwan, the West Coast,
and Hawaii. Of course the foremost, and most important, market
is Alaska's communities. In fact, AGPA has always negotiated
contracts with provisions for the export of gas only after the
satisfaction of in-state needs. Moreover, contracts with a
rigid cut-off point on the amount of gas available for Alaska
have not been acceptable to AGPA.
10:30:59 AM
MR. WALKER explained the reason that the above mentioned
contracts are not acceptable is because many communities in
Alaska do not have any access to natural gas, thus, AGPA can not
predict how much gas would be consumed in-state, and does not
want to draw a line in a contract and predetermine the amount of
gas needed for Alaska. Therefore, AGPA will export only what is
not needed within the state, and this statement, although not
well received, was ultimately accepted in the contracts. Mr.
Walker turned to the Asian market for LNG and explained that
Alaska has been supplying LNG to the Asian market since October
of 1969; in fact, that export license was recently renewed to
2011. Discussing the West Coast market, Mr. Walker informed the
committees that AGPA is currently a participant in the expansion
of the Sempra Energy Costa Azul LNG terminal in Baja, Mexico,
located about 30 minutes south of San Diego, which is the only
sanctioned-built LNG terminal operating on the West Coast.
Sanctioning gas for the start-up came from Qatar, and was the
longest shipment by the largest LNG tanker in the world. Mr.
Walker stated that AGPA was pleased to also participate in
Sempra Energy's open season. In addition, AGPA has been
contacted by five or six companies attempting to build LNG
receiving terminals on the West Coast. He clarified that AGPA
is not basing its financial models on the West Coast market;
however, the West Coast will present opportunities, as terminals
become available.
10:33:18 AM
MR. WALKER stated that the Office of Hawaiian Affairs contacted
AGPA approximately one year ago regarding the conversion of its
power generation from coal-fired to natural gas. He related
that officials from Hawaii are very interested in establishing a
relationship with AGPA and expressed their preference for a 40
year contract for LNG from Alaska, over the importation of coal
from Australia. Mr. Walker then presented a PowerPoint slide
that illustrated the world markets, including the Asian and West
Coast markets, that are available for Alaska's LNG. He pointed
out the consideration of these markets makes good economic
sense, even though some of the markets require the installation
of gas terminals on the West Coast.
10:20:16 AM
MR. WALKER turned to the subject of export licenses and the
challenges associated with them. Previously, AGPA entered into
an agreement with the Yukon Pacific Corporation (YPC) to acquire
YPC's rights and permits and, prior to that, a team of attorneys
and engineers studied the YPC data collected during 20 years and
$100 million worth of work on the all-Alaska pipeline. As part
of that work, YPC acquired a 25 year export license for the
export of 14 million tons of gas per year from Valdez to Japan,
Korea, and Taiwan. He acknowledged that, prior to
implementation, the license needs additional review with the U.
S. Department of Energy (DOE). Nevertheless, he recalled the
recent favorable decision on the extension of the renewal of the
1967 Kenai LNG export license and pointed out two of the
successful arguments of that case: the presumption of exports
and "allowing the market to work." The all-Alaska concept is
not a 4.5 billion cubic feet (bcf) or 6 bcf per day project,
with all of the product going to a foreign country. Although
the administration has described the project as "a four and a
half bcf project, going into China" in fact, the AGPA has never
proposed going into China. However, the project has proposed
taking some of the gas, when it becomes available, to the
premium export markets. Again, he pointed out that arguments
used to grant license renewals include the access to U. S.
ports, and the availability of gas. Mr. Walker said that AGPA
is encouraged by these arguments, and opined that the project,
with the support of the state, will not be denied the
opportunity to have a portion of its commodity go into a foreign
country, similar to timber and fish exports. He referred to the
U. S. Department of Energy, Office of Fossil Energy
Authorization for Export of Natural Gas (Order 350), that
authorized YPC to export gas to Japan, Korea, and Taiwan, and
opined that the order would be retained.
10:40:01 AM
MR. WALKER further noted that Order 350 has no expiration date,
and the time period of 25 years begins when the first shipment
of gas takes place. Every project has its issues and
challenges, he said, and this is certainly one that can be
successfully addressed.
SENATOR WAGONER informed the committees that when he met with
DOE in Washington, D. C., in March, officials held similar views
about the export license; however, they cautioned about two
areas of concern. Firstly, there must be a substantial rework
of the environmental impact statement. Secondly, Mr. Bob
Corbin, Natural Gas Regulatory Activities Manager, expressed
doubt that Congress will ever allow Alaska to export its gas.
Senator Wagoner asked Mr. Walker to address these issues.
10:42:02 AM
MR. WALKER recognized the potential for Congress to be involved
in this issue. However, there is not precedence that a state is
precluded free trade of its natural resources. Furthermore, he
suggested that there would be support from the Alaska
Congressional delegation and opined that a project that is good
for Alaska would not be taken away by Congress. Nevertheless,
it is true that the environmental impact statement and other
permits need to be updated. He concluded that the real issue is
that Alaska has the option of exporting its resources to premium
markets.
10:43:22 AM
REPRESENTATIVE DOOGAN observed that the project proposes to
move 4.5 billion cubic feet per day. He asked Mr. Walker to
describe the scale of the project and to explain the scope of
the Kenai [license] renewal.
10:44:09 AM
MR. WALKER clarified that the AGPA project "Is a 2.7 bcf
project, it's not 4.5." He further said, "Two point seven is
three trains, at five million tons per train. So, it's a
fifteen million ton project, this is a fourteen million ton
export license." The license for the Kenai plant is a much
smaller project, in fact, the all-Alaska pipeline project is
about ten times larger. He then pointed out that there are some
in the industry who believe that the LNG project is the enabler
for a later highway project; that would be a key point of
argument in the event of a Congressional challenge to the
exportation of Alaska's gas. Further on that point, Mr. Walker
referred to Congressional interference with exploration in the
Arctic National Wildlife Refuge (ANWR) and opined that
additional interference with the export of gas would lead to a
challenge by the state defending Alaska's right to develop its
resources for the maximum benefit of Alaskans.
10:46:17 AM
SENATOR FRENCH re-stated that the two point seven bcf per day
project equals fifteen million tons annually. He asked for
confirmation that the Kenai renewal was for a total of between
ninety-five and ninety-eight bcf, over a period of two years.
[Chair Huggins indicated that the verification of those numbers
would be forthcoming.]
10:47:14 AM
REPRESENTATIVE KAWASAKI referred to the Alaska Natural Gas
Pipeline Act of 2004 (ANGPA) and noted that under the $20
billion loan guarantee, there is a stipulation that most of gas
must be provided for American markets. He asked Mr. Walker to
address this issue.
10:47:44 AM
MR. WALKER answered, "When the energy bill first came out, we
were not in it." The provisions for LNG were added about six
months later with the assistance of Senator Ted Stevens, Senator
Lisa Murkowski, and former Governor Wally Hickel. The language
of the bill is sufficiently restrictive that if AGPA accepts the
terms of the federal loan guarantees, it can not ship gas to a
foreign market. Therefore, AGPA's model reflects the
acquisition of favorable financing through the Japan Bank for
International Cooperation (JBIC).
MR. WALKER acknowledged that obtaining the export license is,
without question, AGPA's biggest issue. However, he said that
the issue is "winnable" with the support of the state and its
residents, and the support of Alaska's delegation. The attempt
to obtain the [renewal] will happen after "all the pieces for
the project, and we really need the support of the state and our
delegation." He stressed that the issue will be resolved within
the state and the federal government. Moreover, the license
currently held by AGPA is one of only two issued in the U. S.
for the export of LNG; possibly due to the recognition of
Alaska's proximity to other markets.
MR. WALKER turned to the subject of Btu content and expressed
his surprise at the amount of time given to this issue during
the hearings. He recalled earlier testimony that "If you take
the liquids out of, in Alaska for value-added, then the gas
would be too lean and couldn't go ... into the Asian market."
On the other hand, three days later, there was testimony that
AGPA's gas is too "hot" to go into the West Coast market. In
fact, AGPA's gas can go into the Asian market "hot or lean" and
into the West Coast market at pipeline grade. He opined that
this challenge was raised as a "deal-killer for gas of Alaska"
and said that he is glad for the opportunity to respond at this
time.
10:52:40 AM
CRAIG RICHARDS, Attorney, Walker & Levesque, reiterated that
AGPA has been in regular contact with potential Japanese and
Asian buyers for years and the Btu content has never been an
issue. He expressed his belief that this argument was "created
as an excuse of why LNG can't create more value-added jobs than
a Canadian project." He remarked:
In 2005, the Canadian premier of Alberta called
Alaska's liquids 'Canada's pound of flesh' that they
were going to extract out of the project. Basically,
Alaska's liquids were going to be used to support the
value-added industry already existing in Alberta and
weren't going to be taken off in Alaska. So, I think
what you have here is sort of an excuse to get around
the fact that an LNG allows for a lot more liquids
extraction in Alaska than a Canadian pipeline would.
MR. RICHARDS noted that an applicant could assume a "lean case"
or a "wet case" for the purposes of the AGIA application models.
The AGPA was conservative in its application and assumed the
"wet case" of gas which is a heating content of 1,084 Btu per
standard cubic feet (scf) as required by the AGIA request for
application (RFA). Mr. Richards clarified that the values are
an estimate because the exact numbers of gas contents are held
confidential by the owners of the reserves. He continued to
explain that an argument has been advanced that there is a
structural impediment in Asia to prevent the receipt of gas
below a certain energy content. On that point, AGPA's AGIA
application does not propose sending super lean shipments to
Asia, even though the heating content of the gas is not a
problem. The application does provide for stripping out two-
thirds of the propanes and butanes at the terminal at Valdez,
which would produce about 23,000 barrels per day of LPG for
export. This amount, which is about 30 times Alaska's current
LPG consumption, would create a big pool of propanes and butanes
available for in-state use. Nevertheless, the base case model
indicates that there will be relatively "wet" gas, with a
heating content of about 1060, available for shipment to Asia.
Although that is the base case for AGPA's AGIA application, it
is not the best case because the ethanes are included in the
exported gas, and, ideally, the ethanes will stay in Alaska and
provide value-added jobs for Alaskans. If, in fact, AGPA was
sending super lean gas to Asia in its model, although it is not,
there still is not a problem. According to Asian sources, the
fact of wet gas going to Asia is not a capacity requirement, but
a factor of circumstance, price, and market conditions.
Historically, shippers did not extract liquids from the gas
because the Asian markets were willing to pay a premium price
for the liquids. However, with rising oil prices, the market
has shifted and now LNG suppliers are stripping out the
propanes, butanes, and ethanes, prior to shipping the gas. Mr.
Richards provided a PowerPoint slide illustrating LNG imports
into Asia with examples of gas composition, such as very lean
gas from Kenai that has heating value levels of 1010 Btu/scf to
1020 Btu/scf.
10:56:45 AM
REPRESENTATIVE SAMUELS recalled the past interest in having a
take-off at the Yukon River for the distribution of propane to
Western Alaska. He asked whether Mr. Richards had "run the
economics of taking it in Valdez and having to ship it around."
MR. WALKER offered that expert testimony on the subject of
extraction would come from Mr. Harold Heinz, Chief Executive
Officer, Alaska Natural Gas Development Authority (ANGDA).
REPRESENTATIVE NEUMAN observed that if all of Alaska converted
its energy needs to the use of propane, total use would be about
10,000 barrels per day. He asked for confirmation that there
would be a large capacity of propane still available for export,
including butane and ethane.
10:58:41 AM
MR. WALKER agreed, and added that if all of the propanes were
extracted in Alaska, the Btu content of the remaining gas would
still be within an acceptable range for shipping to the Asian
market.
REPRESENTATIVE KELLY stated that any of the projects proposed
are dependent on producer gas; furthermore, previous testimony
indicates that the producers are not interested in pumping up
the Pacific Rim LNG market from Alaska because they have other
opportunities to feed into that market. He asked whether the
producers will be cooperative with AGPA on the issue of
supplying gas for a project that would not transport gas to the
U. S. market through Canada, but to the Pacific Rim.
11:00:32 AM
MR. WALKER emphasized that AGPA has received no indication
leading it to believe that producers have no interest in
shipping gas through a LNG project into the Asian market. He
said that he did not support the conclusion that because two of
the three biggest producers are interested in Denali - The
Alaska Gas Pipeline [(Denali project)], they would not be
interested in shipping to an LNG project. He opined that
business decisions are based on opportunities to receive the
highest wellhead value for a company's gas.
11:01:42 AM
The committees took an at-ease from 11:01 a.m. to 11:17 a.m.,
due to technical difficulties.
11:17:32 AM
MR. WALKER continued to address the question raised by
Representative Kelly. He pointed out, currently, producers are
taking LNG into the Asian market due to the significant premiums
that are being paid. In addition, AGPA has researched the
Japanese market and has determined that it is the fastest
growing market and the need for additional LNG is very
significant. In fact, the growth pattern is such that the
volume of LNG out of Alaska will be at a premium and will
interest producers.
CHAIR HUGGINS announced that Senator French was correct in that
the LNG plant at Kenai is licensed for exports of 98 bcf over a
two year period. Mathematically, this volume equals .13 bcf per
day, or about 1 million tons per year.
11:19:38 AM
SENATOR WIELECHOWSKI spoke of the disagreement over the amount
of time necessary to get the LNG project online. For example,
he heard the administration testify that an LNG project would
come online in 2022. However, AGPA testified that its project
would be online in about seven years. He asked Mr. Walker for a
brief clarification.
MR. WALKER related that the YPC's permits and environmental
impact statements need to be updated, and the time saved by
purchasing these documents falls in the range of between two to
four years. Alaska Gasline Port Authority's partner, Bechtel
Corporation, estimated a project time of six years, using the
permits on hand. However, for the purpose of the AGIA
application, AGPA assumed there would be no time savings
advantage from the existing permits, and estimated a project
time of ten years.
11:21:40 AM
REPRESENTATIVE DOOGAN referred to the PowerPoint slide titled
"LNG imports into Asia: examples of gas composition." He
pointed out that the administration said that the line between
lean gas and wet gas is [drawn at the Btu/scf level of] 1080,
which includes [gas from] Kenai and Egypt. Further, the volume
of Kenai gas is small. He asked for the volumes of Egyptian
gas. [According to the witness, this information will be
revealed on the following PowerPoint slide.] Representative
Doogan then asked whether there is a price differential between
dry gas and wet gas in the Asian market.
MR. RICHARDS clarified that at today's market price, the premium
is essentially the same whether the propane is extracted or not.
11:23:13 AM
REPRESENTATIVE DOOGAN recalled previous testimony that one gets
a lot more money for a bcf of gas in Asia than in the U. S. On
that point, wet gas is usually shipped to Asia and dry gas to
the U. S. He asked whether the gap between the values would
close if the price of dry gas shipped to Asia was compared to
the price of dry gas shipped to the U. S.
11:23:56 AM
MR. RICHARDS said that the gap would grow larger because more
money is made if the gas is shipped to Asia after the liquids
are extracted.
11:24:12 AM
REPRESENTATIVE DOOGAN re-stated his question. He said, "If just
for the gas, [do] you get paid less for dry gas than wet gas in
Asia?"
MR. RICHARDS said yes, because it has a slightly lower heating
content. In further response to Representative Doogan, he said
that he would provide quantified information on the difference
in value.
SENATOR ELTON asked Mr. Walker to address the ocean
transportation component of the project and its effect on the
timing of the project.
11:25:19 AM
MR. WALKER informed the committees that AGPA has entered into an
agreement with BGT Co. LDT, and eight ships will be available to
transport shipments to the U. S. after they are reflagged.
According to Senator Stevens' office, the reflagging of U. S.
built tankers is not a significant problem. For overseas
shipping, AGPA has entered into an agreement with MOL Mitsui O.
S. K. Lines. Mr. Walker concluded that working with those two
companies will assure ample ships are dedicated to this project.
11:26:27 AM
MR. RICHARDS returned to the subject of the heating content of
gas shipped into the Asian market. In the example of the LNG
base case, after the extraction of propane and butane in Alaska,
the remaining 23,000 barrels per day available for export will
hold a heating content of about 1060 Btu per standard cubic foot
(scf). This heating content is roughly on par with gas from
Qatar, Abu Dabi, and Nigeria. Moreover, if the ethanes are
pulled out to develop a value added industry in Alaska, the
result is a leaner gas with a heating content equal to that of
Egypt, Trinidad, and Kenai; however, the lower heating content
is still not a problem. Mr. Richards returned to the PowerPoint
slide titled "LNG imports into Asia: examples of gas
composition" that illustrated the market share of utilities in
Japan, and the heating content of those gases. The slide
indicated that ninety-five percent of Japanese utilities are
capable of receiving the base case gas with a heating content of
1060 Btu/scf.
11:28:07 AM
SENATOR WIELECHOWSKI asked whether Japanese utilities typically
receive lean gas. He also requested an estimate on the
percentage of loss due to the lower price paid for super lean
gas.
MR. WALKER said that AGPA did not have a specific number for the
percentage of loss; however, he pointed out that if liquids are
removed from the gas it is because there is a good commercial
reason to sell them elsewhere. Furthermore, if the liquids are
removed in Alaska, lower revenues from Japan are balanced by the
creation of value-added jobs and industries in Alaska.
CHAIR HUGGINS clarified that the question was on the market
price of lean gas. [The witness agreed to provide the market
information.]
11:29:27 AM
SENATOR WIELECHOWSKI recalled testimony that emphasized how high
the market price needed to be for a successful LNG project.
11:30:01 AM
MR. RICHARDS opined that the decision as to whether to extract
liquids at the point of production is based on the pricing
environment. The financial model provided by AGPA stripped out
two-thirds of the propanes and butanes, because that was the
most profitable scenario. The next PowerPoint slide illustrated
that 100 percent of Korean utilities are capable of receiving
super lean gas.
11:30:37 AM
REPRESENTATIVE DOOGAN expressed his understanding that, in order
to utilize lean gas, which is gas with a heating content below
1080 Btu/scf, gas liquids must be put back in the gas until the
heating content is increased to 1080 Btu/scf. He asked whether
Mr. Richards agreed with his statement.
MR. RICHARDS said:
My understanding is that it is on a case-by-case
basis, sometimes they bring back in liquids, sometimes
they don't need to. But, again, you go there and you
do that when it is more economic to re-blend in the
liquids as opposed to shipping it; ... a function of
market price.
11:31:41 AM
REPRESENTATIVE DOOGAN remarked:
My concern would be, if we're shipping a bunch of dry
gas, and they have to blend it with liquids, they've
got to get the liquids somewhere, otherwise they don't
want our gas. So I think, if that's the way that
system works, it's not clear to me, sitting here, that
you can actually sell from Alaska, on the volumes that
we're talking about, dry gas. Strip out those
liquids, and ship dry gas to them, and sell it.
11:32:10 AM
MR. RICHARDS re-stated that AGPA will provide the requested
numbers. He relayed that a Japanese buyer assured them that
this does not present a problem.
MR. WALKER clarified that the project proposed by AGPA is a 2.7
bcf [per day] project. The "straw" project that was presented
by the administration is a 4.5 [bcf per day] project and both
the administration and AGPA agree that it is too large in volume
for the market. He observed that, unfortunately, the
administration's base case analysis is based on a 4.5 bcf per
day project. Mr. Walker pointed out that AGPA's research
supported a 2.7 bcf per day project, based on the market
acceptance and that 2.7 bcf per day is a better fit with the
capacity at Prudhoe Bay and with off-take provisions from the
Alaska Oil and Gas Conservation Commission (AOGCC).
11:34:07 AM
REPRESENTATIVE CHENAULT asked, "Back to the 2.7 bcf a day, the
AOGCC, ... is that the number that you believe AOGCC thinks the
Prudhoe Bay take-off is?"
11:34:37 AM
MR. WALKER confirmed that currently, that is the AOGCC "rule 9"
number. He opined that subject to receiving a request for
increase from an applicant, AOGCC can increase the limit. The
current limit was established in the late 1970s or early 1980s.
He clarified that the number is really 2.0, because 0.7 is used
as in-field gas. Mr. Walker was unsure by how much the off-take
would be increased; however, it was ruled last summer that off-
take over 2.7 would require an oil mitigation plan to address
the drop in the throughput of oil. He stressed that the AGPA
project does not require an oil mitigation plan.
REPRESENTATIVE CHENAULT acknowledged that the AOGCC will be
available to answer questions during the hearings in Anchorage.
He observed that AGPA will "burn gas for compression and you're
also going to burn gas for ... the [gas treatment plant]." He
concluded that these two factors will weigh heavily on any size
pipeline that is built.
11:36:10 AM
SENATOR HOFFMAN recalled previous testimony that a 4.5 [bcf per
day] project would bring to the state $66 billion over 25 years.
He asked what a 2.7 [bcf per day] project would bring to the
state.
11:36:39 AM
MR. WALKER estimated that the number would be in the $30 billion
range, or $29 billion. He acknowledged that the revenue would
be less; however, in addition to looking at the wellhead, AGPA
is looking at the benefits of in-state use. Although he did not
offer a dollar amount value, he anticipated a healthy return to
the state for its non-renewable resource. In fact, the revenue
for the same amount of gas will be earned over many more years.
11:37:41 AM
SENATOR HOFFMAN opined that, for comparison purposes, it is
critical to define the numbers for the legislature's decision-
making [process].
CHAIR HUGGINS also asked representatives from the administration
for numbers from the administration's analysis.
11:38:24 AM
MR. WALKER presented the PowerPoint slide titled "Liquefaction
Cost." He expressed his concern about the process the
administration used to obtain numbers for its model. In order
to fully evaluate what the administration did, it is necessary
to look at their model and AGPA would like its advisor to review
the state's model; however, the model and input have not been
made available. Mr. Walker opined that the administration may
not have taken AGPA's application and model into consideration.
The administration may have mined data from projects in
different parts of the world and of different sizes, and then
escalated costs to match the size of the project in Valdez.
Adjustments were also made for the costs of construction in
Alaska. He noted his disappointment that data specific to
AGPA's cost analysis for the costs of liquefaction was not used.
Publically available data causes problems due to the fact that
the information may not be specific to LNG and may have other
pipeline costs included. In fact, by using this method of
evaluation, the administration may have missed the biggest
benefit of liquefaction in Alaska: cold temperatures. The gas
comes in already at 2,200 pounds per square inch (psi) in a
high pressure dense base pipeline. The result of not taking this
factor in consideration may have been that the project was
charged twice because other projects have to pay to get to this
point. Bechtel Corporation anticipates that this advantage will
contribute to a 40 percent more efficient project. A plant in
Trinidad, for example, may not be comparable to the unique
operations in Alaska.
11:41:4 AM
MR. WALKER stated that AGPA established a partnership with
Bechtel Corporation because they are the leader in LNG plants.
Bechtel's first plant was in Kenai and since then it has built
LNG plants around the world with the best technology. Data on
AGPA's project, including the liquefaction plant, is complied in
Houston, Texas. Bechtel spent approximately $8 million dollars,
between 2000 and 2005, on putting the application together and
updating information; the company has spent an additional $2
million to complete the AGIA application. Approximately 50
engineers have worked to develop a cost estimate specific to
Valdez, Alaska, and Mr. Walker opined that gathering data in
this manner is a superior process and has resulted in a better
estimate for the Alaska project. He recalled in 2006, Econ One
compared the "Y-line" and, at that time, determined that if LNG
precedes the highway project by three years, the all-Alaska
project will have a return superior to the highway line. He
remarked:
And so we were surprised to see that in the netback
comparison now, ... the LNG was pushed to two years
after a highway line when we're sitting with the
benefit of $100 million of work by Yukon Pacific over
a period of 20 years. We ... didn't see the net
present value of it going earlier. So, we did lose in
that net present value analysis but we were two years
behind, which I certainly expect, if you're going
later you're going to lose net present value (NPV)
analysis. ... According to our model, our work, our
application, we're about $1.00 per NCF [net cash
flow] wellhead superior to a highway project. ... We
think if the same analysis was done now, it would be
even more robust. ... Again, we would like to ... have
access to all of the data that was used to analyze our
application ... so we can better understand the
netback analysis.
11:44:45 AM
REPRESENTATIVE COGHILL asked for a further explanation regarding
the estimate of $7 billion for construction of the 2.7 bcf
liquefaction plant at Valdez. He pointed out that the estimate
is exclusive of ownership and financing costs. Representative
Coghill opined that previous estimates included these costs.
11:45:37 AM
MR. WALKER confirmed that those costs are excluded. He
explained that AGPA wants to better understand the
administration's data so that the comparisons are more "apples
to apples."
11:46:04 AM
REPRESENTATIVE COGHILL observed that all of the previous
discussion with regard to the price per NCF had to do with, not
only the volume flow, but the cost of transport and the
treatment plant. He encouraged witnesses to provide a figure
that includes the treatment plant, the pipe, the transport, the
liquefaction, and the tariff for each. In fact, financing is a
big part of that. Representative Coghill stressed the
importance of models that bring continuity to the discussion.
MR. RICHARDS explained that the reason the owner's and financing
costs were not included was because the data put the owner's and
financing costs in "one bundle." He said that he did not have
sufficient information to break out the total finance and
owner's cost to attribute to liquefaction. However, this
information will be provided in the netback analysis.
11:47:19 AM
REPRESENTATIVE NEUMAN recalled that a previous all-Alaska
pipeline plan included building a 48 inch line, with a smaller
line down to Valdez, resulting in a Y-line. Considering
Alaska's priority to get natural gas to Alaskans, and that
developers can work in unison, he asked whether there is a way
to work on a line that brings that larger line into Canada and,
at the same time, build a spur line to Valdez.
MR. WALKER replied, "We believe so." He added that because this
project is controlled within the state and this country, AGPA
has the ability to bring gas to tidewater significantly faster
than through the Canadian project.
REPRESENTATIVE NEUMAN commented that the question remains
whether that can be done concurrently, without the lines
becoming competing pipelines.
11:49:32 AM
REPRESENTATIVE SAMUELS noted that the netbacks will drive the
direction of the project. In the past, there have been lower
volumes and higher costs; however, now the market has boomed,
which overwhelms the lack of volume and higher cost.
11:50:18 AM
MR. WALKER agreed.
REPRESENTATIVE SAMUELS recalled previous testimony predicting
that the market in Asia, and particularly in Japan, will drop
and return the market to the scenario of lower volume and higher
cost. He asked for Mr. Walker's analysis of how flexible, or
how firm, the differential in the market price will be, knowing
that there will be higher cost and lower volume.
11:50:59 AM
MR. WALKER said that AGPA agrees with "gas strategies" analysis
of the future market. In addition, AGPA's analysis showed a
relationship with the price of oil of about 80 percent. He
opined that an advantage of LNG is that there are multiple
markets and premiums for natural gas even if prices come down.
Obviously, LNG is sold on long-term contracts, but those
contracts also provide diversion rights so that cargoes can be
taken to a higher market.
11:52:37 AM
REPRESENTATIVE SAMUELS remarked:
If you have a line going through Canada, whether you
agree with AGIA ... the minute you have that line
built as you get incremental gas, it will always
behoove the producer of that gas to put it into main
line. And you would never accumulate enough to get a
Y-line, and that was my thought. ... Do you agree with
that? ... Since you'd already have a pipe going from
Prudhoe to Delta, is that distance from Delta to
Valdez short enough to make a smaller amount pay to
actually get the line built with that tariff?
11:53:46 AM
MR. WALKER agreed with Representative Samuels' concern. He
opined that AGPA is aware of the situation; however, that is not
the driving force to get the LNG in first.
11:54:45 AM
REPRESENTATIVE DOOGAN referred to testimony from the
administration's consultants that indicated that one of the
disadvantages of shipping to Asian markets is that long-term
contracts would have to be signed. He asked for an explanation
of long-term contracts and "market optionality."
11:55:36 AM
MR. WALKER replied that long-term contracts have a floor price
and a ceiling price. He gave an example of the diversion of
cargo from Trinidad to Tokyo. All of the costs were shared,
within the fixed price range, and with the security of a long-
term contract.
11:56:45 AM
REPRESENTATIVE DOOGAN asked whether the contracts are an
industry standard contract or are unusual.
11:57:02 AM
MR. WALKER responded that each contract can be somewhat unique,
but a 40 year history of on-time deliveries from Alaska will
carry a premium when compared to contracts from other locations.
11:57:33 AM
REPRESENTATIVE DOOGAN asked how a utility in Tokyo can afford to
allow its gas to be diverted to another market.
MR. WALKER assured Representative Doogan that the contract would
be fulfilled by replacement gas from another location.
11:58:18 AM
SENATOR THERRIAULT referred to previous testimony from Econ One
about the AGPA project time advantage and the resulting increase
in net present value given to the project. Now, the committees
have heard a lot of technical advice that indicated that AGPA's
project probably would not be able to deliver that much earlier.
He questioned whether AGPA has the technical ability to put the
project into production earlier.
11:59:26 AM
MR. WALKER said that he did not know why the technical team did
not take into consideration permits that are already held by
AGPA. He re-stated his disappointment that $100 million was
spent on obtaining YPC's permits, and those permits were not
recognized by the technical team. He expressed his hope that
the model will answer that question.
12:00:15 PM
CHAIR HUGGINS announced that the hearing would [recess] until
1:30 p.m.
CHAIR HUGGINS called the meeting back to order at 1:23:06 PM.
1:39:47 PM
MR. WALKER continued his presentation and pointed out some
positives that should be considered with the AGPA project, such
as that it is 100 percent within the Trans-Alaska Pipeline
System (TAPS) corridor from Prudhoe Bay to Valdez.
Additionally, he noted that the AGPA project is in a designated
federal and state conditional right-of-way (ROW). He elaborated
that the TAPS corridor has been referred to as the most studied
piece of earth on the earth, having submitted to three
environmental impact statements (EIS), two from Alyeska Pipeline
Service Company (Alyeska), and one from YPC. He noted that an
in-state line avoids foreign issues, since all the issues can be
resolved in Alaska and the United States. He opined that AGPA
is very pleased with what YPC has done, with probably five
different companies performing due diligence on the work and
none has come back and said the permits are without value.
Instead, all reported the permits are valuable and that they
have been updated, renewed in a timely manner, and have not
expired, he stated. Some reviewers have said the environmental
data is almost more important than the license itself. He
pointed out that some of the permits took seven to eight years
to obtain and that the process to update is much simpler and
easier than initiating a new permit. He offered his belief that
it saves years, although just how many years is one of those
issues that no one is going to know for sure. He noted there
are 12 permits in all that were submitted in its initial
application and in prior submittals to the legislature. He
referred to the acceptability of gas and of Alaska's gas in the
Asian market. He opined that consultants can take different
positions on the same issue. He said that what gives him
confidence is about a month ago, he met with Tokyo Gas and Tokyo
Electric representatives and discussed this project with them.
He noted that most of the discussion related to their
satisfaction with 40 years of shipments of on-time deliveries
from Alaska. He elaborated that these companies are getting
th
ready for a big celebration of the 40 year of that contract.
He opined that stability of supply will continue to be a very
high priority to them. He pointed out that at no point did the
executives discuss the level of Btus and heat content, or wet
gas versus dry gas. Mr. Walker maintained that the on-time
deliveries spanning 40 years "seemed to be most on their mind in
our discussions."
1:43:40 PM
CRAIG RICHARDS, Attorney, Walker & Levesque, referring to the
slide labeled, "Canadian Delay - Bennet Jones Report", offered
to briefly review concerns and issues. He stated that the
Canadian Northern Pipeline Act (NPA) was passed in the 1970s as
part of the "push" during that time period to grant what might
be considered an exclusive license to Foothills Pipe Lines Ltd.
(Foothills), now TransCanada, to arrange for the Alaska pipeline
to go through Canada. He related that the NPA created an agency
to oversee all the rights of way and permitting for TransCanada.
However, much like the environmental laws in the U. S. during
the 1970s, 1980s, and 1990s, environmental laws in Canada
matured resulting in regulatory structures layered on top of the
NPA. It's unclear in Canada whether or not the exclusive
regulatory authority of the NPA controls, or whether
[TransCanada] will also need to comply with all the regulatory
requirements from the additional laws that have passed since
that time, he stated. He opined that the single most important
information in the AGIA findings is the Bennet Jones report,
which is an 80-page report that essentially discusses all of the
issues of Canadian land rights and land acquisitions for
TransCanada. He elaborated that the report discusses not only
TransCanada's project, but also highlights issues an
independent, third party project, such as the Denali project,
would face. He referred to the next slide labeled, "Canadian
Delay" and stated that when TransCanada came forward with its
application it estimated 2017 as the date in which it could
bring the first gas to market, and it allowed five and one-half
years for regulatory compliance in Canada. He noted that the
Bennet Jones report indicated that five and one-half years is
simply the best that could happen, which he opined is not
likely. He offered that a more likely timeframe is seven to
eight years, which he surmised is why the administration
probably pushed TransCanada from 2017 to 2020. He stated that
the AGPA application came in with about the same 2017 time
period, ignoring the advantages of the YPC's licenses. He
opined that the AGPA believes the time period could actually be
one or two years earlier. However, he noted that AGPA
conservatively is using the 2017 time frame. However, he opined
that AGPA immediately has a two to three year advantage over
TransCanada's project since the administration moved
TransCanada's start date forward two to three years based on the
Bennet Jones report. He opined that the main issue in Canada is
that TransCanada does not have a legal right-of-way (ROW). He
explained that the route is not clearly identified, which means
that TransCanada, according to Bennet Jones, will need to go
through a lengthy ROW project similar to the Mackenzie Valley
Gas Project. The second source of delay that the TransCanada
project suffers from is the risk of [negotiations with the]
First Nations which is more difficult to quantify, he opined.
He explained that approximately 40 aboriginal First Nation
groups within the British Columbia, Yukon, and Alberta areas
were identified by TransCanada in its application, which it must
independently consult.
1:47:48 PM
MR. RICHARDS continued by stating, "This is what really put the
halter on the Mackenzie Valley Project. In 2005, Mackenzie
Valley basically stopped all implementation and design
activities and turned the project solely into a regulatory
compliance mode." He opined that Mackenzie Valley needs to
resolve the First Nations issues and get through the regulatory
process before it can resume. He surmised that "essentially it
came down to money." He noted that the Bennet Jones report
highlights that legal challenges to TransCanada by First Nations
for a failure to consult, or alternatively, consulting without
arriving at an acceptable outcome, could result in legal
challenges. He speculated that litigation to resolve the First
Nations issues might take from three to ten years to resolve.
1:50:30 PM
MR. RICHARDS, in response to Representative Guttenberg, answered
that he did not know whether the relationships that were
developed in the Mackenzie Valley process could be transferred
to TransCanada.
CHAIR HUGGINS suggested that the committees would have an
opportunity to hear testimony from TransCanada and the
administration, which could address that matter directly.
1:51:16 PM
SENATOR WAGONER opined that his information is different than
Mr. Richards'. He inquired as to whether he could confirm that
the administration is using the completion date of 2020 based on
the Bennet Jones report.
MR. RICHARDS said he thought the administration is basing the
completion date on the Bennet Jones report.
CHAIR HUGGINS interjected that the administration could clarify
that matter when its representatives testify before the
committees.
1:52:22 PM
REPRESENTATIVE WILSON inquired as to whether the Bennet Jones
report differentiates between timelines for a Canadian group
versus a group outside of Canada.
MR. RICHARDS recalled that the Bennet Jones report estimated
that the NPA single window provision would give TransCanada a
one-year advantage over a third party project.
1:53:12 PM
MR. RICHARDS related that one of the four major delays is NPA
exclusivity. He explained that a third party is allowed to
build just outside the regulatory framework. Thus, a third
party could build "outside of the Northern Pipeline Act and any
exclusivity that TransCanada has there." Thus, this is "teeing
up as a big challenge and a big fight" since the Denali project
must argue that it is not exclusive of TransCanada, and
TransCanada will have to "defend its turf" to assert it is the
only one that can move forward with the Alaska Highway route.
He opined that the final source of delay is the repeated public
statements by producers that the "Mackenzie Valley has to go
first." He referred to a quote from a representative of
ConocoPhillips Alaska, Inc., that Mackenzie Valley's project
must go before Alaska's project. He further opined that the
reason for that is that as Alberta matures and its basin begins
to decline, the plan, from the producers' standpoint, is to
bring Mackenzie Valley on line to offset the gas no longer
available from Alberta, in order to capture the difference in
market growth. Once Mackenzie Valley matures, Alaska gas could
come in and offset reductions for that field, he predicted.
CHAIR HUGGINS offered that the committees will seek to hear the
perspective from the Denali project members on that issue.
1:55:43 PM
MR. RICHARDS referred to his next slide labeled, "Canadian
Delay". He explained that this is a hypothetical model for the
timing profile that attempts to fit a reasonable risk
distribution for the timing elements of the project based on the
Bennet Jones report. He explained that the slide is based on
the estimated timeframe of five and one-half years to resolve
all land issues for TransCanada's application. He pointed out
that the more likely seven to eight year time period is
represented on the graph at "P 50" and the ten year period
represents the timeframe that exclusivity runs out under the
AGIA license. He related that this graph represents an
artificial distribution curve around the three dates to
highlight the "tail distribution." He opined that one must
recognize that some probability exists that the right-of-way
(ROW), Mackenzie Valley, and First Nations issues previously
identified may take from 10 to 15 years, or beyond, to resolve.
He highlighted that until the process begins and the producers
react with respect to exclusivity provisions, it isn't possible
to accurately assess the risk distribution, or how long the
process will actually take.
1:57:21 PM
REPRESENTATIVE NEUMAN asked Mr. Richards to comment on using a
hypothetical assumption of demand for gas at 2018.
MR. RICHARDS responded that the graph outlines the number of
years it would take to get permitting in Canada "once you get
the ball rolling." He related his understanding that the five
and one-half years [for permitting] corresponds with
TransCanada's 2017 date. He further commented that the most
aggressive [permitting] scenario that Bennet Jones predicts is
2017, which is represented on the graph at the point the line
begins to sharply rise up [between years five and six]. He
opined that the Bennet Jones report outlines the issues very
thoroughly and he encouraged members to read the report.
1:58:42 PM
REPRESENTATIVE WILSON asked whether gas that comes online before
the Mackenzie Valley gas would be used, should any project be
completed ahead of schedule.
MR. RICHARDS answered that he thought that would be a good
question to ask the Denali project representatives.
1:59:28 PM
MR. WALKER referred to the next slide labeled, "Risk" and
offered AGPA's view on the risk about LNG versus pipeline. He
noted that AGPA was advised by its consultant contractor Bechtel
Corporation, with respect to the all-Alaska project, that higher
risk exists for the pipeline than for liquefaction. He
explained that liquefaction is well developed, that the
technology that would be used was developed in other projects
around the world, and that the risk factors associated with
liquefaction would be of a lesser percentage than the risk with
the pipeline portion of the project. He offered that discussion
has transpired in the past10days with respect to the commercial
pieces associated with the LNG project. He recognized that the
gas pipeline, the gas inlet, liquefaction, shipping, and re-gas,
are all pieces that would need to be negotiated. He pointed out
that this is not the first liquefaction project, as the Nikiski
LNG plant came first. He opined that AGPA is not concerned
about the commercial negotiation between willing participants
and that AGPA's consultants have advised them that success will
require a number of contracts to come into place but that
doesn't represent a particular downside or a threat to the
project.
2:01:20 PM
REPRESENTATIVE COGHILL inquired as to whether AGPA could provide
modeling for the proposed project and for costs of the
components of liquefaction, shipping, and gas conditioning with
timelines in present dollars.
MR. WALKER answered that its AGIA application contains a
complete working model with every piece of the project model.
While he acknowledged that the model itself is confidential, he
offered that AGPA could provide a summary of the modeling. He
further answered that AGPA has been continuing to work on the
liquefaction piece of this project and that he believes it will
be accomplished. He opined that AGPA believes, with respect to
the pipeline and gas conditioning, that TransCanada is the best
option per the qualifications and experience in a northern
climate. He noted that AGPA has previously reviewed different
companies on the pipeline component, and that it has undergone
memorandums of understanding (MOU) with some companies, AGPA
"would be absolutely thrilled to work with TransCanada." He
further noted that if one project is ready to go sooner and it's
the all-Alaska route, that "we would like to do that, our first
choice; we would do it in some way under AGIA with TransCanada."
2:05:55 PM
REPRESENTATIVE FAIRCLOUGH related her understanding that AGPA is
attempting to convince the committees that LNG is good for
Alaska. However, before the legislature is a licensing
application for TransCanada, she stated. Therefore, she said
she would like to know from AGPA how its [application] complies
or does not comply with AGIA. She pointed out that the
committees are not considering an in-state route, but is
currently only considering TransCanada as the licensee to
operate a pipeline through Canada. She noted that AGPA has
raised some questions, specifically that the legislature should
challenge [TransCanada] on its methodology for a cost-modeling
scenario. She recalled slides that showed variables for costs
in constructing an LNG plant, but did not provide any specifics
on a timeline and provided a wide range of costs with the top
figure at $40 billion. Secondly, she further inquired as to
whether AGPA wants the legislature to consider AGPA's proposal,
and if so, why is its proposal better than TransCanada's
proposal. She noted that with the modeling on the net present
value (NPV), she questioned whether the administration has
modeled it correctly if AGPA was the first project moving
forward versus the second following the major pipeline.
Thirdly, she further inquired as to what the administration has
not considered, from AGPA's perspective, in the administration's
analysis of advancing TransCanada before the legislature.
Finally, she inquired as to what the legislature should be
cautious about since she scanned the presentation and did not
see those issues raised. She said she hoped that instead of
continuing with an in-state conversation over the next month
that AGPA could formulate and model some of these issues.
Representative Fairclough reiterated that " ... I'm considering
a yes or no vote on TransCanada and questions that I need to ask
to make that evaluation."
MR. WALKER answered that TransCanada's application provided for
an open season for an LNG project in Valdez. He stated that
AGPA is not asking the legislature to choose its project over
another project. However, he opined that the AGPA project will
be ready to go first. He expressed concern about waiting for
another project before the all-Alaska line can proceed. He
noted that AGPA is pleased the pipeline company would bring the
gasline to the inlet of the [proposed] liquefaction facility in
Valdez, which he offered is "pretty clear in the application."
He reiterated that AGPA is not trying to compete, but that it
would like to keep all the options open. He continued:
And all we're saying is that if the all-Alaska line
can work within AGIA - we're not trying to come and
ask them, we've been through whole process - we're
looking at an applicant, a good applicant, a good
application, that is referencing, make a specific
reference to being able to, and would be willing to
bring a line to build the all-Alaska line.
2:10:20 PM
REPRESENTATIVE FAIRCLOUGH, as a follow-up question, inquired as
to the source of the gas. She related her understanding that
AGPA considers the source from Prudhoe Bay. She said:
We've asked specifically whether the Alaska Oil and
Gas [Conservation] Commission (AOGCC) is going to
advance a letter for more withdrawal because, at least
those of us who served [on the House] Resource[s]
[Committee] heard from Cathy Foerster saying that that
number would be reduced, not increased.
MR. WALKER responded that the gas would come from the same
source that it would for a Canadian project. He pointed out
that if the [projected] amount is going to be reduced, that the
AGPA is the smaller project and does not have to wait for
additional discoveries or gas to be proved. He highlighted that
if AGPA is within the limits of the offtake of AOGCC, given that
the project is ready to proceed, AGPA hopes it would be allowed
to go first with the all-Alaska line while other explorers are
queuing up to provide additional reserves. He expressed concern
for delays to resolve issues associated with a project in
Canada. He highlighted and quoted TransCanada in its
application as stating, "We think it's a wonderful thing, a
wonderful opportunity." He further highlighted that TransCanada
said it will hold an open season for the all-Alaska line.
2:11:46 PM
REPRESENTATIVE FAIRCLOUGH said:
Respectfully, I haven't been convinced that we have
enough gas to do the full pipeline let alone some kind
of a "Y-line" that would go down to Valdez, so I guess
that is where you need to lobby me from.
Representative Samuels specifically spoke to and asked
questions in Juneau on the fiscal economies of being
able - for a producer to commit - to move off the main
line once the main line went in so if your proposal
from my perspective right now is not successful as
being the winner in-state, to bring the gas right to
you, it will be years and years, if ever, that we can
provide the "Y" coming off of it or go to LNG if we go
through TransCanada. The 4.5 route, won't be able to
take 2.7 off of it.
2:12:39 PM
CHAIR HUGGINS offered to get further clarification from AOGCC.
He stated that the committees anxiously await that projection
since it has a major bearing on the matter.
2:12:56 PM
MR. WALKER continued. He maintained that AGPA is not trying to
stop another project. He stated that if a project is ready to
proceed, that is within the limits of AOGCC offtake and is good
for Alaska, that project should not be delayed and we "should
get gas moving as quickly as possible." He offered to present
AGPA's economic model as it did two years ago during a three day
presentation in Juneau. He explained that AGPA did not tailor
its presentation to include its economic model, which was
created by a Washington D.C. company that prepared the cost
analyses on a number of LNG projects around the world. He
reiterated his support for AGPA's economic model.
MR. WALKER noted that AGPA examines its project's risks and he
said he feels that it does control the risks associated with
AGPA's project, which he said he thought was important to note.
In response to Representative Doogan, Mr. Walker answered that
he is referring to permitting risks.
2:14:36 PM
REPRESENTATIVE DOOGAN inquired as to whether the Federal Energy
Regulatory Commission (FERC) will be involved in permitting the
AGPA's project.
MR. WALKER responded that the board met with FERC in Valdez and
reached a decision that AGPA would go through the FERC process
due to concern that delay that would be caused in trying to
avoid the FERC review. He highlighted that the benefit of
submitting to the FERC process is that AGPA would have the
market "optionality" of going to Hawaii, the West Coast, and the
Asian market. He opined that if AGPA did not submit to the FERC
process, that it would be limited to just the Asian market.
Thus, he noted, AGPA's preference is to submit to a FERC
process.
2:15:50 PM
REPRESENTATIVE DOOGAN clarified and surmised that all pipeline
groups must go through FERC review.
MR. WALKER answered that Representative Doogan is correct.
2:16:03 PM
REPRESENTATIVE THOMAS noted that "timing is everything" and
related his understanding that the potential exists for
TransCanada to build a line to Valdez. He noted that he agrees
with Mr. Walker, if the state is limited in the gas resource,
that AGPA is a smaller offtake, which potentially "gets the gas
moving." However, he also pointed out that "we have this
looming situation of supply and energy for the U.S." He
inquired if Canadian production drops off whether AGPA has
examined the potential of West Coast receiving stations,
particularly "due to the lack of the Alaska line being
economical with 4.5 bcf going down [the pipeline] because it's
limited from Prudhoe." He further inquired as to whether Mr.
Walker foresees that the receiving stations on the West Coast
"picking up that slack" to at least put gas into the West Coast.
He noted that California has a big market that might lose its
supply going through Canada.
MR. WALKER answered that many have reviewed this, in fact, AGPA
has a relationship with Sempra Energy and is bidding on a
capacity of their existing terminal. He explained that AGPA has
had numerous meetings with those that hold a permit for a port
facility in Kitimat, British Columbia. He speculated that some
companies in Oregon and Washington believe they will get a
permit as well. However, AGPA has a relationship with "the one
that does have the only receiving terminal and one that has the
permit to build one," he said. He stated that if the situation
and circumstance required it, that shipment could be diverted to
those locations. He offered that AGPA is aware of the issues of
the Jones Act and have located tankers that would be Jones Act
compliant. He opined that AGPA could accommodate that scenario.
He further opined that a benefit of LNG is that one can divert
from one location to another as long as one is covering the
market obligations.
2:19:37 PM
SENATOR WAGONER inquired as to why representatives from BG Gas,
Bechtel Corporation, Sempra Energy, and others are not present
at this hearing if these companies plan to be an integral part
of the project.
MR. WALKER answered that representatives from the Bechtel
Corporation have appeared in Juneau to provide cost analyses and
cost estimates in the past. However, he noted that Bechtel
Corporation has concluded its role in terms of the application
process. He offered to prepare an analysis of their cost
estimates. He related that AGPA's relationship with Sempra
Energy was terminated due to the lack of the availability of
gas. He opined "that's really what this comes down to, is gas
going to become available?" He highlighted that AGPA has an
ongoing relationship with Sempra Energy in terms of the terminal
in Costa Azul. He noted that AGPA has had a number of companies
it has worked with for a period of time. However, no one has
departed due to the economics of the project, he explained.
Instead, the reasons for their departure are for other issues
such as gas acquisition, he related. He opined that this is an
unusual structure, that TransCanada is in the same situation of
"trying to put together a project without gas is pretty
challenging." However, LNG is an economic option. He explained
that AGPA's purpose is to make sure that people are aware that
the all-Alaska line has the economics and the structural
advantages to go first, and not necessarily wait an undetermined
period of time for another project to happen first. He offered
that AGPA believes that "getting gas to Alaskans now is
critical."
2:23:08 PM
SENATOR HOFFMAN posed a scenario in which the legislature
desires more than one competitive applicant and votes the
license down. He inquired as to what the modifications to AGIA
would be required in terms of the all-Alaska project.
MR. WALKER answered, "That is a tough question because a lot is
riding on this issue." He stated that AGPA has not examined
AGIA from the standpoint of how to amend it to help the all-
Alaska project. He opined that AGPA has viewed the project in
terms of how it can work within the provisions of AGIA.
2:24:28 PM
SENATOR THERRIAULT related his understanding that the
administration has received some criticism for the modeling that
it prepared for an LNG project because of the size. He offered
that a model exists that can be sized to different throughputs.
Senator Therriault expressed interest in obtaining models for
the LNG and asked what capacity should be requested, such as
1.5, 1.8, or some other capacity.
MR. WALKER answered that he would suggest that the
administration model be based on 2.7, but that they may have
already run that model, and if so, he offered that AGPA would
like to have access to the model.
2:25:16 PM
SENATOR THERRIAULT recalled that Mr. Walker noted that the
models and cells have been shown. However, he also recalled
that Mr. Walker also mentioned confidentiality of the models.
He inquired as to whether the AGPA's model is available or has
been available to the administration or to TransCanada to review
and examine the mathematics of the model.
MR. WALKER answered that the entire model was made available to
the administration.
2:25:52 PM
SENATOR THERRIAULT asked, "If TransCanada has committed to an
open season for LNG, is there a way to just let the market sort
this out?", He opined that if AGPA put together all of the
pieces for an LNG project and has a source of gas and the end
market, AGPA could participate during the open season, bid on
the capacity for the line to tidewater, and if all those "pieces
fall into place then you're the winner." He surmised that if
the pieces "fall into place in conjunction, at the same time,
with the overland, then fine." However, he related his
understanding that TransCanada made a commitment that if LNG is
"the only thing that shows up" that TransCanada will follow
through with developing the LNG project.
MR. WALKER answered, "We're almost there as far as the way you
describe it." He offered that AGPA looks forward to putting
together the pieces necessary to meet TransCanada's open season.
However, he maintained that AGPA does not want to wait for a
Canadian line to go before it can participate. He further
maintained that once it is ready to proceed and has the shipping
commitment, that AGPA will want to be able to participate.
2:27:29 PM
MR. WALKER referred to his last slide, labeled, "Way Forward
Options." He opined that many of the risks can be shifted and
shared among the value chain. "This is one that can't be, we
don't think." He expressed that he's observed what has happened
to the cost of energy in the past 12 to 24 months and cautioned
that if nothing happens, that it represents a huge risk for the
state. He highlighted that he compiled a book of 162 articles,
including ribbon cutting ceremonies, studies, and incentives
between 1987 and 2004, that provides a snapshot of AGPA's
process. He noted the lengthy process was troubling since AGPA
expected a project would "start the vehicle and off we go. And
it didn't." He related that AGPA wants to make certain that
this process is successful and that it thinks it has the
solutions to move forward within AGIA. He reiterated that AGPA
is not trying to disrupt the process or proceed ahead of anyone,
but is just trying to bring gas to Alaska. He opined that if a
project does not bring gas to Alaska, there won't be anyone left
to benefit from it. He urged legislators to proceed with a
project that is "right-sized" right now and not to wait for
someone else with a bigger project. He offered that a lot of
work has been expended, with failed efforts going back to the
late 1980s. He stated that AGIA is a good process. He recalled
that Commissioner Irwin said, "We need one good applicant." He
opined that "we have a great applicant." He cautioned
legislators to not let the process prevent a project from moving
forward.
2:31:44 PM
SENATOR WIELECHOWSKI offered his appreciation for the efforts
that AGPA has made to work to supply gas to Alaska. He inquired
as to whether a vote to approve TransCanada's license would
effectively preclude any other gasline because realistically
Alaska does not have sufficient gas offtake for other projects.
MR. WALKER answered that it could, but he did not necessarily
think it would. He offered that AGPA is working with the
administration. He said that he hopes that a way exists for the
state to move forward with TransCanada and minimize risks. He
opined that if AGPA can reach that understanding, that he would
recommend to the board to give unconditional support for the
AGIA process. However, if approving TransCanada's license is
going to delay the process, he opined that he did not think that
the board could agree to the project.
2:33:57 PM
REPRESENTATIVE WILSON inquired as to the "decision tree" to
decide whether or not the AGPA project would be included or
excluded. She related her belief that many Alaskans look to
AGPA to push, challenge, and ask the critical questions. She
asked Mr. Walker to advise the legislature with respect to a
decision tree prior to a vote on the TransCanada license.
MR. WALKER explained AGPA's decision tree such that AGPA desires
to work with the administration and TransCanada and will report
back to the legislature its efforts. He pointed out his good
working relationship with both entities.
2:37:14 PM
REPRESENTATIVE KAWASAKI, with respect to a "Y-line" concept and
whether the AGIA application would preclude the AGPA line,
related that TransCanada, in its AGIA application, expressed a
willingness to examine a third party LNG terminal if sufficient
interest is expressed by shippers in an initial open season.
Secondly, he inquired as to whether Mr. Walker could comment on
the possibility of a TransCanada LNG terminal at Valdez and also
on TransCanada's assumption of an increase in the initial
project to 6.5 Bcf if 4.5 Bcf were committed to Valdez.
MR. WALKER recalled TransCanada's application and expressed
concern that it would constitute a problem if a 6.5 Bcf
commitment was required at an open season. He opined that
Representative Fairclough was correct, that there will not be
6.5 Bcf at an open season. He said:
What we are saying is if there's two, two and one-
half, or three [Bcf], that there's not enough for a
Canadian line, but enough for an all-Alaska line;
that's what we want, we would like to have them build
a pipeline to the terminal at that point. If we
participated and had the pieces of the consortium of
liquefaction, and all those pieces; I guess that's
what we're trying to sort out.
2:39:35 PM
MR. WALKER referred to the slide labeled, "Which Project Goes
First." He said he believes that the administration thinks that
the TransCanada line will go first. He related that AGPA
disagrees and maintains that the all-Alaska line will go first.
He opined that the market will decide and should decide which
goes first.
MR. WALKER referred to the slide labeled, "Way Forward Options."
He said he believes that if AGIA is not successful, that the
state should become very involved in the process as the pipeline
owner. He related that he spent last summer in Houston, Texas,
and that companies there felt the most productive model for a
gasline is for the state to step forward as the owner. He said,
"When the host government - their terms not mine - steps forward
with an open season, you nominate." He opined that if this were
a gold mine that needed a road, the state would build the road.
He related that Alaska is unique. He offered his belief that if
the AGIA process fails, that the most successful model is for
the state, which has the financial resources and the equity to
build the pipeline. He opined that it is not the obligation of
the producers under the leases to build the pipeline. He said,
"If a pipeline is available through an open season process, we
believe there is a strong obligation for them to ship." He
offered his belief that the best scenario is for the state to
become a majority owner in a pipeline project and "get gas
moving in Alaska."
2:44:14 PM
The committees took an at-ease from 2:44 p.m. to 2:50 p.m.
2:50:43 PM
CHAIR HUGGINS announced that the next order of business would be
to hear a presentation by Harold Heinze, the Chief Executive
Officer from the Alaska Natural Gas Development Authority
(ANGDA).
HAROLD HEINZE, Chief Executive Officer, Alaska Natural Gas
Development Authority (ANGDA), introduced Tony Izzo, who is
under contract with the ANGDA for one year to assist with gas
issues related to electric utilities. He offered that ANGDA, a
public corporation of the state, is comprised of seven board
members, who just held a board meeting yesterday in Anchorage in
order to apprise members on the gasline issues before the
legislature.
2:51:43 PM
MR. HEINZE advised that ANGDA was created through a voter
initiative and was established by statute AS 41.41. The
organization has a broad grant of power and authority over
natural gas and "getting it to market" in a manner that benefits
Alaskans. Since 2003, ANGDA has been working towards that goal.
He noted that he will appear before the body again in Anchorage
to present more detail. He further noted his presentation is
focused on several issues of importance to Fairbanks including
propane and natural gas. He continued:
ANGDA believes the best decision that you as a
legislature can make, is to promptly approve the AGIA
license granted to [TransCanada]. We believe that
will result in a circumstance where we have at least
two pipelines competing to build a big pipe through
and out of Alaska. And we believe, that in the long
run, all the other issues that we can see related to
in-state gas can be most successfully resolved in a
commercial sense by dealing with both of those
pipelines through negotiation and moving forward.
2:53:59 PM
MR. HEINZE referred to the first slide which is a map of Alaska.
He pointed out a series of lines that are intended to convey
ANGDA's long term point of view that the issue of natural gas
from the North Slope is not an issue of one pipeline. He said,
"It is an issue of many lines feeding in, feeding off, lots of
destinations, lots of entry points." He opined that one vital
consideration for Alaska is to think of the North Slope resource
as a source of fuel. He surmised that when the pipeline is
carrying about 4.5 billion cubic feet (Bcf) of gas, it will
provide an excess of 50,000 barrels a day of propane. He said,
"If we can think of everything we could ever think of in Alaska
to do with propane, we might need 10,000 barrels a day, and the
number might be closer to 5,000 [barrels] per day."
MR. HEINZE referred to the next slide labeled, "Connecting
Alaskans To Their Natural Gas" and stated that yellow on the
chart shows the estimated transportation of propone to Alaskans,
who are not on a pipeline, but may be on a road system, a river
system, or along the coast. He explained that as the pipeline
would extend from the North Slope through the Brooks Range to
the Yukon River, which is a likely avenue of commerce to move
propane. Once the gas reaches the tide water it can be shipped
along the coast to points such as Juneau, Ketchikan, and
Kotzebue, he stated. He surmised that access to propane can
offset residential energy costs. He opined that propane may be
a good alternative fuel for rural Alaskans. He further opined
that the reason to highlight this at this juncture is to
illustrate that Alaskans don't have to wait for a pipeline to
bring propane to those communities. He pointed out that those
legislators who have examined the North Slope are aware in
handling 8.5 Bcf/d on the North Slope, that an abundance of
propane will be available. He noted that propane is used in the
gas conditioning process as a refrigerant. He stated that if a
wholesale facility on the North Slope was established, that some
entrepreneurs might "find a way to very economically haul it
down into this area and make it available." He surmised that
alternative fuel might be very attractive, such that currently
some companies have concluded gas contracts with Fairbanks
Natural Gas, along with plans to build a liquefaction plant and
bring gas to the Fairbanks area. He further surmised that "the
economics have to be there to make propane work in a very
similar sort of way." He highlighted that propane does not
require "quite the level of sophistication to handle and move."
2:58:07 PM
SENATOR WIELECHOWSKI inquired as to whether Mr. Heinze could
provide a cost estimate to heat a home with propane in areas
such as Fairbanks or Bethel.
MR. HEINZE responded that ANGDA is currently working with the
City of Tanana on a demonstration project to determine how to
use propane in their community. He opined that a community may
decide the best use is to use propane to provide cogeneration in
the schools. He admitted that he did not know if propane is the
best fuel to heat a home in Fairbanks. However, he pointed out
that it may be the best thing to cook with or for power
generation. He explained that the basis for economics on a
British Thermal Unit (BTU) basis is that propane is like gas.
He stated that in examining the value of gas in the North Slope
compared to oil that the value is significantly lower, perhaps a
50 percent discount. He opined that if the propane can be
transported reasonably and efficiently, "you can capture a large
amount of that discount." Thus, the opportunity exists for a
significant reduction in the total energy cost in terms of that
alternative.
2:59:42 PM
REPRESENTATIVE SAMUELS stated that he would ask the same
question that he asked of Mr. Walker [the representative from
AGPA]. He inquired as to whether it would be better to build
one plant at the Yukon, in Fairbanks, or in Valdez, and pay the
distribution costs, or to build a plant in each location.
MR. HEINZE responded that propane is very easy to separate out
of the natural gas stream. He explained that a small side
stream off the pipeline would offer the ability to "sieve the
molecules out, in that sense, by just simply cooling the gas."
He elaborated that it is a liquid and that it is not hard to get
in that form. He said, "Every compressor station along the
pipeline; there will be propane available there because it's one
of the first steps in conditioning the fuel to the turbine is to
basically drop out hydrocarbon liquids." He surmised that the
plants are fairly inexpensive. He highlighted that ANGDA will
be working on a business plan and a technical plan to install a
facility at Prudhoe Bay with the intent of creating a wholesale
propane point. He continued:
That plant may come from West Texas. We may be able
to find a plant that is used to straddle a pipeline
right now and would be very usable for this purpose.
It is a fairly common practice to do what I'm
describing in terms of propane.
3:01:43 PM
MR. HEINZE referred to slide three, labeled, "2006 Study
Conclusions" and stated that the potential exists for a lot of
petrochemicals since with a natural gas stream of an estimated
4.5 Bcf/d, over 50,000 barrels a day of propane and
approximately 200,000 barrels of ethane, coupled with methane,
are also produced. He referred to a study ANGDA provided
members, prepared by the noted consulting firm, Science
Applications International Corporation (SAIC), under contract by
the U.S. Department of Energy. He explained that the study
detailed Alaska's gas supply and demand and focused on
residential and commercial, use as well as the potential value-
added type of industries that might be achievable in Alaska. He
noted that the conclusion is shown on the graph in slide three.
He further explained that the height of each of the bars
represents the highest price that an entity could pay for gas
and still make a reasonable decision. He highlighted that in
the case of commercial residential, at the price shown, one is
better off to use gas than, for example, to burn fuel oil. He
noted that those industries that fall below the "market price
bar" are industries that could not afford to remain in business.
MR. HEINZE referred to slide four, labeled, "2008 Updated Study"
and stated that ANGDA hired the same team to rerun the results
using current oil prices. He pointed out that the results show
a dramatic change. He continued:
Nobody is going to build a petrochemical plant in
Alaska based on that portrayal, but what it should
make clear to you is the assessment of whether there
is a potential for the use of ethane, methane,
propane, butane, in Alaska in a value-added sense, or
even methane in a value-added sense, you should be
willing to think about the fact, that in a high priced
world, a high oil priced world, it's very attractive.
And the other part of that graph you might notice is
that all of a sudden the things that are commercially
attractive now are adding up to a number of over a
billion cubic feet per day.
3:05:27 PM
MR. HEINZE noted that ANGDA's consultant will be in Anchorage to
answer questions in more detail.
MR. HEINZE then remarked:
The important thing to realize is that this represents
an opportunity measured in many billions of dollars of
investment in tax base for a local community. It
represents thousands of jobs and it represents
billions of dollars of annual income so the stakes
here, in terms of making sure we preserve these
opportunities for the future, is key.
MR. HEINZE recalled Representative Neuman's questions about
"value-added" and stated that one of the big concerns expressed
was to ensure the state does not lose control of the natural gas
liquids (NGL). He stressed that retaining NGL is important
"even if it is not for another 10 years or 20 years." He
continued:
Basically, the answer to that is, it's going to be
done through the commercial arrangements and the best
way to make those commercial arrangements is for the
state through an entity, some sort of commercial
entity, it may not be us, but some sort of commercial
entity to participate in the design and building of
the pipeline to assure that we preserve the processing
rights in the state.
MR. HEINZE offered that then the state would need to purchase
the "molecules" from "people who have the gas." He highlighted
that ANGDA intends over the next six months to a year, to use
its funding to study in-state issues to "flesh out" the
potential for these industries and locations. Although this
study was performed for Cook Inlet, he surmised that [a]
petrochemical [industry] might very well work for Fairbanks due
to the proximity of the pipeline and the Alaska Railroad to
transport the resulting product to the Port of Anchorage for
further shipment. He acknowledged that the legislature engaged
a consultant to examine the potential gas-to-liquids conversion
on the North Slope.
3:08:39 PM
REPRESENTATIVE GARDNER related her understanding that ANGDA
supports the TransCanada proposal under AGIA and urges the
legislature to endorse it, and that the state should retain
processing rights to the NGLs. She inquired as to whether Mr.
Heinze could speak to how the current proposal before the
legislature helps the state to retain processing rights or if it
interferes with that effort.
3:09:18 PM
MR. HEINZE responded, "The encouragement to grant the AGIA
license is in the belief that the best commercial terms are
going to be struck if there are two pipelines both trying to
move North Slope gas off." Mr. Heinze stressed that ANGDA is
"very comfortable working with both of the sponsor groups." He
opined that some advantage exists in having two groups
competing. He highlighted his belief that it is normal for
pipelines to allow themselves to "straddle." He posed a
scenario in which a company builds a plant, perhaps in Delta
Junction, in which a side stream is "pulled off the pipeline,
certain molecules are removed; the rest are put back in." He
suggested that the state would only need to ensure the tariffs
and other specifications of the pipeline allowed that to happen.
He further opined that if the state can get one of the pipelines
to agree, that the other one would agree, too. He said, "It is
our intention, once the license is granted to engage both these
pipelines as closely as we can, and try to find commercial terms
on the volumes of in-state gas." He noted that ANGDA has been
working with the utilities to prepare for a "soon" open season.
He said, "And that's the key when you have to strike, in terms
of all these relationships. If at the open season you are
prepared to make long term commitments for volumes, you can do
it and the deal will work out."
3:11:09 PM
SENATOR HOFFMAN recalled discussing utilizing propane in rural
Alaska. He offered that the Institute of Social and Economic
Research (ISER) has just completed a study that examined the
high cost of diesel to provide heating oil in rural areas and
showed that the largest cost is for transportation costs. He
expressed interest in analysis of the market price in rural
Alaska as compared to the use of LNG. He recalled Mr. Heinz's
comments on propane's use in cooking and said, "I know that can
be done." However, the problem in rural Alaska is obtaining
reliable, consistent low-cost energy. He recalled Mr. Heinz's
comments on connecting all of Alaska to natural gas and opined
that goal is achievable. However, the transportation costs
remain a problem, he related. He opined that rural Alaska will
face the same transportation costs for natural gas as it
currently does for propane and diesel. He pointed out another
problem to consider in using propane in rural Alaska for heating
homes is storage capacity in many of the villages. He
speculated that it would be cost prohibitive to build the
infrastructure necessary for storage capacity. He related that
the fuel plant in Bethel was just expanded for over $10 million
dollars. He inquired as to whether Mr. Heinz would comment on
propane as a viable source for heating homes in rural Alaska.
MR. HEINZE recalled ANGDA performed its own study, not
dissimilar to the ISER recently completed. He offered that
ANGDA found that each community was different. He opined that
in some communities "you are not going to have an impact."
However, he noted that in some smaller communities, the
potential existed to change the paradigm with respect to energy
and energy costs. He further opined that could happen with the
introduction of an efficient propane transportation storage
system. He related that a system might be as simple as a big
tank fitted inside a frame that is moved just like a container,
and is rotated when it becomes empty. He related that ANGDA
believes that the issue will be successfully addressed by
entrepreneurs. He said, "If there is a plentiful supply of
propane, at a reasonable price, we believe that people will find
a way to move it and move it very efficiently." He related his
own experience with a cabin in Talkeetna and three vendors
compete to provide his propane needs. He opined it may take a
generation to accomplish the goal of connecting Alaskans to
their natural gas, the "yellow lines" [depicted on the map in
slide two].
3:16:01 PM
MR. HEINZE, in response to a question by Senator Elton,
responded that when he spoke of two competing pipeline projects,
he was referring to the competition between the Denali project
and TransCanada.
SENATOR ELTON observed that the demand for gas in Alberta may
force the state to ship "the liquids" outside Alaska.
MR. HEINZE agreed. He predicted that gas prices will be cheaper
in Fairbanks than in Anchorage once the large pipeline is
flowing, and prices may even be lower than propane costs in
Juneau. He opined that the location for NGL plants is a
commercial decision. He offered that if sufficient quantities
of ethane, propane, butane, in addition to the methane exist,
that there comes a point when the pressure in that system in
Alberta will drop to 1,000 pounds. At that point, the propane
certainly has to come out of the pipeline, he surmised. "You
have to get to a lower BTU value gas and you have to be able to
operate faithfully at that lower pressure," he said. He
acknowledged that there are people who want to use the ethane,
for instance, in petrochemicals. He noted that those people may
want to bid, but it doesn't mean that they can't compete with
those prices. He referred to the chart on slide four and said:
What is interesting on the chart is that the bars
extend so far above some perception of price. Now,
again, I'm not arguing whether any specific price on
there is right, but, that's not marginal. There's a
lot of room to work with on that chart and that's the
part that we find very encouraging, is that,
certainly, if Alaska, at some point was faced with a
decision [to pay] a few cents more in Alberta versus
having an industry that was thousands of jobs and
billions of dollars on the tax rolls, I think we could
probably get to the right answer on that one. But,
again, we don't have to make that decision now and
we're not going to know what that decision is, till
people like the DOW Chemicals of the world ... show up
here to build a plant. Because, remember, the idea
here is we're not exporting the raw material. We're
building the plant here in Alaska and creating the
jobs and adding to the tax base. And under those
kinds of circumstances, I think the calculation of
value is not going to be that difficult.
3:20:53 PM
SENATOR WAGONER related his understanding that ANGDA was
supposed to provide an all-Alaska pipeline project as well as
LNG. He pointed out that Mr. Heinze is now talking about a spur
line off a pipeline, using propane to energize rural Alaska, and
to use ethane in other petrochemical industries. He inquired as
to the reason that ANGDA has veered from its original purpose.
MR. HEINZE answered that ANGDA was given a "first year task"
under the ballot initiative to determine the feasibility of an
LNG project, which it did, although it took 18 months instead of
a year complete. He noted ANGDA published a report that
basically concluded that LNG was economic, competitive, and
feasible. That's usually at least three measures of whether you
ought to think about doing something or not, he opined. He
explained that ANGDA also concluded that a project of the
magnitude of 2.0 Bcf/d was a bigger project than the
organization could tackle. Thus, ANGDA reviewed some smaller
projects, some of which are still viable, such as a spur through
Glennallen. He further opined that that type of project leaves
open the possibility in the future of a short extension down to
Valdez, which is in the best interest of the Alaskan consumers.
He explained that in reviewing the analysis of a spur, which he
said he'd later discuss, that ANGDA continued the spur to
Beluga, across from the Kenai LNG plant. He opined that if gas
is plentiful in Cook Inlet, it is possible the commercial owners
of that plant would decide to expand. He explained that under
the statute, the acquisition of natural gas from the North Slope
and its delivery to tidewater for shipment to market by the
authority is an essential government function of the state. He
related the law supports the ANGDA mission as being of great
importance to the state. He highlighted that ANGDA's plan on
LNG recognizes the fact that the AGPA has been "carrying the
ball" on LNG and has worked with numerous companies and sense
their interest in building an LNG plant in Valdez or Kenai. He
related that ANGDA has discussed with ConocoPhillips and
Marathon Oil Corporation about the potential of expanding that
plan. "I hope when we have an open season; I hope somebody
shows up from that side of the world, but if they don't show up
we'll just go on and do the best we can," he said.
3:23:11 PM
SENATOR WIELECHOWSKI expressed his surprise to hear a "ringing
endorsement" for the legislature to support TransCanada. He
asked for the reasons for ANGDA's support for TransCanada given
the length of time to obtain in-state gas from the TransCanada
proposal, which he related is when the full line is completed in
12 to 15 years or longer, and given the treble damages, which
prevents the state from supporting more than a 500 million cubic
feet (mmcf) line per day.
MR. HEINZE related discussions ANGDA had at its board meeting
about the treble damage issue. He said, "That is the assurance
that is in the AGIA law that, when the state grants a license,
it really intends to be a good partner and it is not going to
'support any competing projects.'" He related that raises
concern since ANGDA is funded by the legislature.
3:24:53 PM
MR. HEINZE explained that ANGDA filed an AGIA application for
in-state portion. Additionally, ANGDA filed a proposal that
would tack onto the TransCanada proposal, and "we also filed one
that turned out to be the port authority's proposal." He said
he thought that the TransCanada and Denali projects both
recognize the proposed ANGDA spur line project enhances their
big project by creating additional markets and creating
circumstances that are very favorable for the construction of
their project. He said he believes that once the license is
granted, TransCanada would stipulate that ANGDA is not in
competition with their project. He said, "That's my approach,
my thinking if you will, to handling that is to do that on a
commercial letter of understanding basis between the parties."
SENATOR WIELECHOWSKI inquired as to whether ANGDA would not be
in competition [with TransCanada] if it stays under 500 mmcf or
did Mr. Heinze think that the ANGDA project would go higher than
that.
MR. HEINZE answered:
I don't believe I'm in competition. I believe I'm
enhancing their project if I use up their expansion
capacity in the State of Alaska. If instead of a 4.5
Bcf/d project from Prudhoe Bay to Canada, they end up
with a 6.0 Bcf/d project to Delta Junction, and 4.5 on
into Canada, their project is better. They make more
money; we all pay lower rates. I think it's a win,
win, win. ... All I'm arguing is that, in a
commercial sense, I believe that people act in their
own self-interest and every way I have looked at the
issue it is in their self-interest to work with us in
that regard.
MR. HEINZE continued. He opined that the spur line can be built
as a "free built" and that it could be built in Delta Junction.
He further opined that the only reason the project cannot be
built immediately is that it depends on if, and when, the "big
project" will be built. He said, "As a number of bankers have
observed to me at times, there is no gas in Delta Junction and
that's absolutely right." However, once people believe there
will be gas in Delta Junction, then it is "not illogical" to
build a small pipeline from Anchorage to Glennallen and north to
Delta Junction, he noted. He opined that it is possible to gain
advantages by starting first.
MR. HEINZE said:
If ANGDA is able to bring to the table a pretty strong
marketplace in the Cook Inlet area then I think it's
entirely appropriate to take TransCanada up on their
offer of equity ownership even if people make the
shipping commitments. And again, our objective is to
try to position things so that our local utilities are
making the shipping commitments and as such, I think
we ought to play the 'be involved card' and if for no
other reason than to try to influence some of the
design and other issues so that the northern part of
the pipeline is built first and we accelerate.
MR. HEINZE continued. Additionally, with respect to timing,
once the project is moving forward, enhancements and
improvements can always be made, he noted. He offered that
providing propane in Fairbanks may not be a long-term solution,
but it could be a good bridge.
3:30:20 PM
SENATOR MCGUIRE related her understanding that the law voters
passed that created ANGDA was done so to essentially provide
Alaskans with natural gas. However, AGIA establishes a
statutory framework such that once the license is issued to
TransCanada, the state is prohibited from offering assistance to
competing projects above 500 mmcf. She pointed out that nothing
has been reduced to writing specifically for the 500 mmcf. She
related a scenario in which the legislature approves the
license, and a company approaches Mr. Heinze to provide gas to
Alaskans, but the project exceeds 700 mmcf. Given the legal
tension, she asked what Mr. Heinze thought ANGDA's obligation
and legal commitment would be as the "gas ombudsman." Further,
could such a project be denied by ANGDA.
MR. HEINZE opined that as long as the proposed project enhances
"the big pipe," which is basically the same proposal from
TransCanada and the Denali project, it is valuable "to talk to
both of them." He further opined that ANGDA cannot influence
discussions or what ultimately "they commercially work out."
However, he pointed out that ANGDA has the ability to "talk to
both of them." He said: "Let's just imagine a conversation,
just to lay it on the table, where {TransCanada] says, 'You
know, we'll just forget about this compete thing if you'll just
deal with us exclusively.'" He offered that in a commercial
sense, he would answer, "I'm willing to consider that. Here are
some things I need to have though; it's just a negotiation." He
opined that the legislature performed well with AGIA, and has
offered TransCanada reasonable assurances, but at this moment,
"This is coming down to trying to make a commercial deal work."
He further opined that while the legislature has an important
role, "politics isn't going to get a pipeline built." He said
he thought that the legislature has the opportunity to enhance
the framework of this decision, but that it is "not your
decision whether to build this project or not. The commercial
world is going to do that." He urged the legislature to try to
get to that point as quickly as possible and "find the right
combination of things that works for Alaska in this whole deal."
3:35:01 PM
SENATOR MCGUIRE stated that she did not disagree that it is a
commercial decision. However, she pointed out that the tension
exists since ANGDA is a public advocate in addition to being in
a position to also consider the commercial aspects. She noted
that ANGDA has a public obligation and "we as policy makers have
taken that same mode." She offered that she "hopes everyone
will come together." She stated that she did not want to "stand
in the way," but also does not want to "look back two years from
now" and realize that the legislature, and ANGDA, is in a
position where they have debilitated their ability to "deal with
the commercial world and get something done."
MR. HEINZE related that he recognizes the tension and the
difficulties in the decision making. The legislature has the
opportunity to grant or not grant the AGIA license to
TransCanada. He said that ANGDA and its board believes the
right decision is "thumbs up." He acknowledged a great deal
will need to be worked through over time, but he reiterated his
belief that it is still the best decision at this time. He
stated that ANGDA and its board will do everything it can in
that context. He opined that it will take considerable trust to
make it work. He said, "I have no reason to believe, based on
my conversations with [TransCanada], that we can't find a way to
work forward together." He noted that he is equally comfortable
discussing things with ConocoPhillips and BP and the Denali
project. He expressed a willingness to work with a third
company that indicates its desire to sell gas.
3:37:50 PM
SENATOR STEDMAN referred to a previous slide that projected gas
to Alaskans. He surmised that the map indicated that Fairbanks
would have access to gas and Anchorage would either have a line
or would have access to more gas from Cook Inlet. He said,
"When we are looking at Western Alaska or coastal Alaska, we're
looking at a little different animal." He inquired as to
whether ANGDA has reviewed the reasons that a prior project
undertaken about10years ago was abandoned. He explained the
project would have "gasified" Southeast with, he recalled,
compressed natural gas from British Columbia. He further
expressed interest in shipping costs and inquired as to whether
Mr. Heinze could discuss the value of the gas. He also recalled
Senator Hoffman's comments on fuel costs in rural Alaska as
contingent on transportation.
MR. HEINZE agreed that any pipeline would come through
Fairbanks, which is great for Fairbanks. He opined that it is
not a given that gas will be brought into Cook Inlet; due to the
size of the market, it may not happen. He highlighted that once
gas and NGLs are at tidewater, all kinds of flexibility exists,
such as compressed natural gas or LNG. He also pointed out that
propane air mixtures are used throughout the United States. He
cautioned that the decisions don't have to be made today, but
that it is important to move gas to tidewater in order to serve
Southeast Alaska. He opined that ANGDA's mission "isn't to
force these things beyond commerciality. We try to be very
sensitive to the fact that these projects have to make economic
sense and I believe that is what you have charged us to do."
3:41:27 PM
SENATOR STEDMAN inquired as to whether Mr. Heinze reviewed why
that venture failed.
MR. HEINZE answered that ANGDA studied marine distribution of
propane about three years ago and concluded some "marginal type
things." He offered that the legislature has provided funding
to provide answers based on current prices. He predicted that
it will be very favorable to consider alternate energy sources
with the price of oil ranging from $120 to $150 [per barrel] and
continuing to rise.
3:42:26 PM
REPRESENTATIVE HAWKER related that he has been listening to the
discussion and said he felt somewhat unsettled. He stated that
the vital, critical, core function that ANGDA is statutorily
charged with is the creation of in-state value; "getting gas to
Alaska for Alaskan use both in residential consumption,
individual, and value-added processing." He pointed out that
the legislature appropriated ANGDA substantial funding to pursue
and develop the body of knowledge and a greater understanding of
ANGDA's ability to deliver in-state value-added utilization of
Alaska's natural gas resources.
REPRESENTATIVE HAWKER said that he agreed with Mr. Heinze until
he heard that ANGDA is definitively endorsing a project that if
it moves forward would contractually obligate all of Alaska's
gas, with the exception of up to 0.5 bcf/d, out of state and
"down the Canadian line." He related that he heard some
thorough answers from the administration that said they gave a
lot of thought to that 0.5 bcf/d and they believe that will take
care of Alaska's needs forever, into perpetuity. However, he
reiterated his concern with ANGDA's vision in that it is willing
to commit Alaska's gas into perpetuity without the assurance
that the state can know what its gas needs will be in the next
10 years or in 50 years. He said:
You said the answer is, don't worry about them,
they'll just say, "We'll just drop this quote 'compete
thing'; we're not going to worry about it." Given
that TransCanada needs this gas so badly in their
system, and it is a contractual obligation ... we have
established, I guess, I'm very confused with that
answer. If you could somehow convince me that number
one, they would be able to and willing to just, and
I'm quoting you, you said, "just forget about this
compete thing," and secondly, how does that square
with their need to replace their declining ...
throughput in Canada so they absolutely have to have
this gas to maintain the lower tariff levels expected
by their Canadian customers?
3:46:37 PM
MR. HEINZE responded that the AGIA law says, "If before the
commencement of commercial operation" so the whole treble
damages things goes away once the operation starts. He offered
that the day after operations start, that the state is free to
"invent 17 competing projects under the law." He inquired as to
whom in this case is triggering this provision. He opined that
if the legislature grants the license to TransCanada that the
only one who really has the right to come forward is TransCanada
and if they have stipulated as to the conditions to promise to
"keep the flag in their back pocket," that seems reasonable in
terms of trying to work the way forward on this. He further
opined that having the TransCanada and the Denali projects both
moving forward places the state in a strong position in terms of
its in-state needs. He related that all the analysis ANGDA has
ever performed concludes that "for Alaska to be serviced by a
big pipe, then putting the gas into a small pipe is the best
circumstance for the Alaskan consumer." He noted that it is
important that the "big pipe happen" because that is the state's
best chance for long-term low cost to consumers. He said, "I'm
not asking you to endorse the project. I'm simply asking you to
grant a license and allow the process to move forward." He
maintained his belief that once the license is granted, the
process is a commercial process that depends on the market. He
opined that the idea of competing pipelines is not unusual and
that terms and inducements are often offered that are reasonable
in a business sense.
3:49:35 PM
REPRESENTATIVE DOOGAN, with respect to supplying gas to
Fairbanks, pointed out that price and availability are equally
important. He posed a scenario in which North Slope gas cost
twice as much as diesel in Fairbanks; in that situation it would
not help Fairbanks' energy crisis even though the pipeline might
be in close proximity. He inquired as to whether Mr. Heinze
could discuss the reasons that North Slope gas is likely to
"stop at commercially reasonable terms in Fairbanks or
Anchorage, or anyplace else in the State of Alaska, rather than
shooting down whatever big pipeline it ... starts out on to
whatever market the rest of that gas goes to."
MR. HEINZE described a situation in which Alaska could purchase
gas from a big company with North Slope gas, who is interested
in shipping it to Alberta and other points, but also is
interested in providing gas to Fairbanks. He said, using a
hypothetical $5 tariff to go from the North Slope to Alberta,
that whatever the price is in Alberta, deducting $5 provides the
value at the wellhead in Prudhoe Bay of gas delivered to
Alberta. He related that if Fairbanks offers one cent more than
the number at the wellhead, but the cost to ship that gas to
Fairbanks is $2. Thus, gas in Fairbanks would cost $3 less than
in Alberta, he offered. Furthermore, he observed that the
legislature can pass a gas tax provision to reduce the severance
tax on gas used in Alaska by Alaskans. On the other hand, he
cautioned that a smaller project, that is not linked to the
outside market, may mean that consumers in Fairbanks would pay
the competitive alternative price and are locked into it. He
said, "And that's one of the things you are trying to break by
bringing a big pipeline down through the spine of the state, is
to break that paradigm."
CHAIR HUGGINS offered that Mr. Heinz brings a lot of experience,
passion, and drive to the hearings. He said, "Many of us in
this room have confidence in what you say and what you have
done, and more important, what you are going to do in the
future."
3:54:47 PM
REPRESENTATIVE KELLY related his understanding that the right
timing for a gas pipeline seems to be now. He inquired as to
what Mr. Walker, representing APGA, "needs" from the
legislature.
MR. HEINZE reminded members that gas was plentiful in the Cook
Inlet for a long time, but that in the past five years concern
about supply availability has risen. Thus the North Slope gas
is important. Secondly, price provides strong motives for "the
in-state part." He said that his view of LNG is that it offers
a long term opportunity "to help pay the bill." He opined that
LNG is a logical thing to pursue, but that he cannot advise
whether it would be better pursued in Valdez or Kenai, or the
names of the companies involved. However, he urged legislators
to allow companies come here so that they can decide if they are
willing to put the effort forward. He opined that in his
discussions, he has always noted that it is the company's
responsibility to make the business proposal. He said, "The
economy, the commercial aspect here is not what I say, or what
Mr. Walker says, frankly. It's what those entities say, those
commercial entities." He highlighted that the legislature has
been respectful thus far, but should continue to let the
companies know they have a forum but they must make the offer.
3:58:24 PM
REPRESENTATIVE KELLY referred to TransCanada's concession in
making the commitment to the Y-line approach, and asked whether
AGPA's proposal is better off, or if AGPA is better off alone.
MR. HEINZE said he believes that TransCanada has attempted to
reach as far as they could in terms of commercial promises, that
the terms [offered] are reasonably good, and their willingness
to entertain the Y-line notion indicates that a commercial
transaction exists that "works for everybody." He stressed that
the timeliness is key. He said:
I would be derelict if I didn't mention that ANGDA,
your public corporation, is in the field right now
doing wetlands determination on 370 miles of pipeline.
Thank you. We've got more "boots on the ground" right
now than anybody's pipeline in the state. And that's
what it is going to take, is that kind of
aggressiveness, and that's why we want to move beyond
frankly, the legalities and the politics, and let's
get to it and let's just get building something. And
that's where I'm at.
4:00:25 PM
CHAIR HUGGINS announced that the final order of business was to
take up the ENSTAR Natural Gas Company presentation.
4:01:54 PM
GENE DUBAY, Senior Vice-President, Chief Operating Officer,
Continental Energy Systems, introduced Curtis Thayer, Director,
Corporate & External Affairs, ENSTAR Natural Gas Company
(ENSTAR), and Andrew White, Manager, Business Development &
Revenue Forecasting, ENSTAR. He informed the committee that the
team would select slides from the PowerPoint report in order to
be brief.
CURTIS THAYER, Director, Corporate & External Affairs, ENSTAR,
explained that ENSTAR was established in 1961, is based in
Anchorage, Alaska, and serves approximately 345,600 Alaskan
customers through 128,000 meters from Ninilchik to the Big Lake
area, with 3,100 miles of distribution and transmission lines.
4:05:09 PM
MR. THAYER further explained that ENSTAR has a direct financial
impact on Alaska's economy at over $300 million, and employs 174
fulltime workers and 230 workers during the summer season. He
noted that ENSTAR is the number one in size of Alaska's
utilities and has 450 miles of transmission lines and 2,700
miles of distribution lines in Alaska. He noted that its sister
company, Alaska Pipeline Company, has expertise in engineering
and construction with 45 years of experience in Alaska. He
offered that ENSTAR has constructed and is operating 450 miles
of transmission lines, including a 20 inch line across the Cook
Inlet called the Beluga Line, and 2,700 miles of distribution
lines in Alaska, which represents 75 percent of all gas
transmission pipelines in Alaska and 100 percent of the
distribution mains in Southcentral Alaska. He explained that
its expertise is in compression plant engineering and
construction, pipeline engineering, environmental/permitting,
and construction management.
4:07:25 PM
MR. THAYER referred to a slide labeled, "Southcentral Gas
Distribution, that illustrated transmission lines owned and
operated by ENSTAR, and the natural gas systems owned by
producers. ENSTAR transmission lines circle the inlet by 270
degrees. On the west side of the inlet, the Beluga Line comes
around Knik, Wasilla, and Palmer into Anchorage. From the
Soldotna and Kenai area, there are two lines that cross the Knik
Arm and come into Anchorage. There is also a small line going
to Girdwood and Whittier. He noted that ENSTAR owns and
operates the Kenai Kachemak Bay pipeline for Marathon Oil
Corporation and ChevronTexaco Corporation that runs from
Ninilchik to Clam Gulch up into the Kenai Peninsula. The slide
also illustrates gathering lines and the gas fields in Cook
Inlet. Mr. Thayer offered to meet individually with legislators
to discuss the current supply contracts or price structure on
the contracts.
4:08:36 PM
ANDREW WHITE, Manager, Business Development & Revenue
Forecasting, ENSTAR, referred to slide 14, labeled, "Historic &
Projected Natural Gas Production" for the Cook Inlet and pointed
out the precipitous falloff from 2010 to 2030. He informed the
committees that the projection of this falloff has led ENSTAR to
seek gas contracts with ConocoPhillips Alaska, Inc. and Marathon
Oil Corporation through 2013. In addition, ENSTAR is looking
into the Foothills Unit for a natural gas pipeline from the
Foothills to Southcentral Alaska with a spur connecting to
Fairbanks, he related.
MR. WHITE referred to slide 15 labeled, "Foothills Unit Area
Map" that shows the location of the Gubik Field, which is the
location of the potential gas supply for the Foothills Pipe
Lines Ltd. pipeline or the ENSTAR Line to Southcentral Alaska.
MR. WHITE referred to slide 16, labeled, "ENSTAR Line" and
stated that the slide portrays what the ENSTAR line would look
like and noted that it is independent of other pipelines. The
ENSTAR Line would be 690 miles in length, pass through
Fairbanks, and has the potential to carry additional gas if
discoveries of natural gas materialize in the Yukon Flats or the
Nenana Basin.
4:10:36 PM
CHAIR HUGGINS inquired as to whether Mr. White was referring to
the pipeline commonly referred to as the "bullet line."
MR. DUBAY answered that ENSTAR refers to this line as the ENSTAR
Line.
4:10:48 PM
MR. WHITE referred to slide 17 labeled, "Pipeline Route & Cost"
and offered that the costs have been broken out into two main
costs, with the costs from Cook Inlet to Fairbanks for
approximately 320 miles along the Parks Highway route estimated
at $970 million, and from Fairbanks to the Foothills route for
approximately 370 miles along the Dalton Highway route estimated
at $2.3 billion. He opined that the difference in cost is due
to the higher level of complexity for installing pipe, and the
logistics of transporting construction materials. He noted the
total estimated cost of the project is set at $3.3 billion with
a projected project timeline of five to six years.
4:11:51 PM
REPRESENTATIVE SAMUELS asked how many additional miles would be
involved if ENSTAR needed to go to Prudhoe Bay in the event that
the Foothills Unit did not work out and it was commercially
feasible to obtain the gas at Prudhoe Bay.
MR. WHITE estimated 90 miles from [the Foothills Unit] to
Prudhoe Bay. However, he noted that ENSTAR has not estimated
the cost structure for that change.
REPRESENTATIVE GUTTENBERG observed that the route approaches the
southern end of his district crossing into the Denali National
Park and Preserve area (Denali Park). He inquired as to whether
ENSTAR has approached the U. S. Department of Interior, National
Park Service (NPS), or if it is possible to avoid Denali Park.
MR. DUBAY confirmed that ENSTAR has approached the NPS.
However, he said he believed it was possible to avoid the
national park, although it may increase the cost incrementally.
4:13:04 PM
REPRESENTATIVE GUTTENBERG expressed his concern that the route
crosses scenarios such as mountainous terrain and significant
obstacles.
MR. DUBAY agreed, but offered that the initial review indicates
that avoiding Denali Park would cost a $50 million increment,
which is included in this cost estimate.
4:13:50 PM
SENATOR THERRIAULT noted that Anadarko Petroleum Corporation
(Anadarko) is drilling in Gubik and inquired as to what quantity
of gas would make the ENSTAR project workable.
MR. DUBAY expressed his belief that it would be ideal to have
3.5 trillion cubic feet (tcf). He opined that ENSTAR would
ultimately base its decisions on probabilities, but that "at the
end of the day" it would be good "to have 3.5 tcf of gas at the
other end of the line."
4:14:57 PM
SENATOR THERRIAULT inquired as to whether Anadarko has given any
indication when information would be released.
MR. DUBAY responded that ENSTAR will hold a discussion in July
with Anadarko with regard to its drilling results for the past
winter. He offered his belief that another drilling program
would occur this coming winter. He offered that ENSTAR does not
anticipate that in July 2008, Anadarko will have information
that proves [the existence of] 3.5 tcf of gas.
4:15:23 PM
SENATOR THERRIAULT referred to slide 17, to the cost estimates,
and inquired as to what level of certainty ENSTAR has with the
estimated $3.3 billion and if the cost projections were based on
all steel pipe, or if composite pipe would be used.
MR. DUBAY answered that the costs are based on all steel pipe.
He offered that he anticipates that the cost estimates will be
better defined over the next eight months. Currently, he noted,
ENSTAR is working on further developing the route, the costs,
the permitting requirements, and environmental requirements
associated with the project.
4:16:09 PM
REPRESENTATIVE FAIRCLOUGH inquired as to whether ENSTAR is in
support of AGIA, in competition [with AGIA], or whether this
project complements AGIA.
MR. DUBAY responded that ENSTAR is not competing with AGIA. He
further said:
We believe that this project fits within the terms of
AGIA process. We're looking at a project of half a
bcf a day. We're not looking for a state subsidy.
So, we think the project is stand alone. We've talked
to Conoco and BP with regard to the Denali project
because it is logical that this project, the pipeline,
will be close to a larger pipe. And that we want our
engineering not to conflict with the engineering on
another pipe. So, they've agreed to share data. As
we mention, one of the pinch points, ... if the
pipelines are both coming through this room and we
figure this is the best corner for our pipe, we don't
want to find out a year down the road that Conoco, BP,
or TransCanada, also think that's the best corner.
Perhaps, we should work that out before we start to
lay pipe so our conversations with both groups to
date, have, I think that both groups would say that
this is not a competing project and is a complementary
project.
MR. DUBAY, in response to a question by Representative
Fairclough, answered that what he is providing is informational.
4:17:41 PM
REPRESENTATIVE ROSES recalled that Mr. Dubay indicated that the
pipe design would allow for expansion. He inquired as to
whether the 0.5 bcf includes the maximum expansion capability or
if it is the initial anticipated volume with the capability of
later expansion.
MR. WHITE offered that he would be able to discuss the "numbers"
for multiple fields including Cook Inlet, the Foothills, the
Yukon Flats, and Nenana. He said that he did not think either
the Yukon Flats or Nenana are contemplated as being source
points for the larger pipeline to the Lower 48 due to cost.
4:19:01 PM
REPRESENTATIVE ROSES stated that he is awaiting clarification
from the administration and TransCanada as to their definition
of the 0.5 bcf. He said he wasn't sure if it meant the original
volume or its capability for expansion.
4:19:40 PM
MR. WHITE referred to slide 18, labeled, "Advantages of the
ENSTAR Line. He explained that ENSTAR hopes to bring gas to
market by 2014, assuming that the Foothills exploration is
successful. He opined that is five to six years ahead of any
other project for a domestic supply of natural gas. He said:
In this situation, we believe that Alaska controls its
own destiny for source of gas and competitive gas to
the various markets - Fairbanks, Anchorage, and
Southcentral. It provides us a little bit more
certainty as the utility owner of gas supplied to our
markets with, of course, Cook Inlet being a declining
production rate; this provides us another secure
supply of gas. We don't believe that this is a
mutually exclusive project with a pipeline to the
Lower 48. It's very complementary in terms of
sourcing gas out of areas that are not contemplated in
AGIA. And as stated earlier, we think both
[TransCanada] and Denali group have indicated they
think we're okay when we are under 500 [mmcf]. One of
the important things one of the things we've got going
is that we think this will revive the Agrium plant in
Southcentral. Right now, we all know it's mothballed
and with competitive gas prices, and of course that
will be determined over time, there is a possibility,
by time we get this up and running, that they will be
able to bring the plant back online. And, you know,
of course that will bring jobs back to Southcentral
along with continuation of an LNG plant of some type,
either the existing one owned by Marathon and
ConocoPhillips maintaining its current status of
export, or some other producer doing a similar thing.
4:22:20 PM
CHAIR HUGGINS asked Mr. White to project ENSTAR's open season
based on its timeline.
MR. DUBAY responded that if ENSTAR obtained the information from
the producers, that perhaps one year from today.
MR. WHITE explained that natural gas is a "feed stock" for
petrochemical industries, such as plastics. He opined with the
amount of volume ENSTAR expects to "put into the line" there is
the possibility of small operations on an industrial scale in
the state, such as specialty-type plastics. He offered that one
of the things ENSTAR and Anadarko identified is that since it's
an in-state supply of gas, the gas is subject to lower tax
burdens. He highlighted that this would be a great
encouragement to the project and to the producer on the
Foothills.
4:23:47 PM
SENATOR WIELECHOWSKI related his understanding that the Gubik
Field contains dry gas. He inquired as to whether ENSTAR has
some knowledge that liquids could be pulled off of this gas.
MR. WHITE responded that natural gas or methane is actually a
feed stock in plastics, "it is used there, not only the heavier
gas liquids but also methane."
4:24:19 PM
SENATOR WIELECHOWSKI related his understanding that this project
would result in lower prices for Fairbanks. He inquired as to
what price Anchorage can expect to pay if the gas is currently
at $6.87 per mmcf.
MR. WHITE answered that ENSTAR envisions something similar to an
indices-based cost of gas.
MR. DUBAY interjected that almost all gas contracts are index
related. Therefore, whether the gas originates in the larger
line or this line, he anticipated that ENSTAR would have an
index based contract. He noted that ENSTAR has not negotiated
the contract yet, but anticipates that it would begin as soon as
ENSTAR's current contracts, that are before the Regulatory
Commission of Alaska (RCA), are dealt with.
4:25:24 PM
SENATOR WIELECHOWSKI inquired as to whether he referred to a
West Coast index or the Henry Hub, which is currently around
$12.
MR. DUBAY responded, "I think, frankly, the index will be less
than that. My opinion is the index is going to come down and it
may be the index minus the tariff, something of that nature. ...
I would expect an index-based contract."
4:25:53 PM
SENATOR WIELECHOWSKI inquired as to whether Mr. Dubay would
predict that Anchorage can not expect lower cost gas than what
it is paying now.
MR. DUBAY replied:
It depends on where the index goes. I would believe
that we will end up with an index-based contract and
the gas price will follow the index. You know, we may
have an opportunity to bring, to get some discount.
Historically, what you see is that everything is being
priced now in an index unless you have a really, what
we call a flat profile. If you are taking the same
gas on a daily basis, every day, you can get a
slightly better price than a company like ourselves,
who takes ten times more per day in the wintertime
than we do in the summertime because there's more
infrastructure is required to deliver the gas under
those scenarios. Just like buying a plane ticket, if
you want to go to New York City once at Christmas,
it's going cost you more than if you go every week for
fifty weeks and you can avoid two weeks. You can buy
those tickets ahead of time. So our profile ... will
still be an index-based cost with maybe some discount,
or some premium depending on the profile.
4:27:19 PM
SENATOR WIELECHOWSKI recalled Mr. Heinz said that "A big pipe is
our best chance for low-cost gas." He asked whether Mr. Dubay
agreed with that statement.
MR. DUBAY answered that he did not think the size of the pipe
will have an impact on the gas. He said he thought gas prices
will be based on an index-based price whether "it's a 48 inch
pipe or a 20 inch pipe."
4:27:50 PM
SENATOR FRENCH inquired as to how North Slope gas sold in the
Anchorage basin could "ever beat Cook Inlet gas given the
obvious differences in transportation costs," despite the index.
He clarified by asking whether Cook Inlet gas would be cheaper
so long as it continues to be available.
MR. DUBAY responded that it would not necessarily be cheaper.
He offered that from his own experience living in Texas, with a
great deal of gas sources in Houston, Houston still pays an
index-based price. He highlighted except for some
transportation costs, that consumers pay an index-based price in
New York City and in Houston, with the difference in
transportation costs.
SENATOR FRENCH related his understanding that the transportation
costs will be in addition to the cost of the gas. He opined
that the consumer won't be aware of the separate cost. He
inquired as to whether the transportation cost added to the
index to transport North Slope gas to Cook Inlet means that the
consumer in Anchorage will pay more for the North Slope gas.
MR. DUBAY replied:
Not necessarily, no sir, because we are not assuming
that the transportation cost to Anchorage will be
higher than the transportation cost to the Lower 48.
So, your tariff to Anchorage and off our line won't be
higher than the tariff to Chicago.
4:30:08 PM
REPRESENTATIVE SAMUELS related his understanding that once gas
is actually sold in the Lower 48, that the state will have
difficulty differentiating [lower] tax rates for residents for
U. S. constitutional reasons. He asked, "When you said you'd
done your math under the current the tax regime, how much of
your math have you done on that?"
MR. WHITE responded that ENSTAR has not performed the complete
analysis. He related the assumption that ENSTAR will be a local
in-state line as opposed to any gas transported to the Lower 48.
REPRESENTATIVE SAMUELS related a scenario such that ENSTAR did
not have a large scale commercial user of North Slope gas, but
only had a residential and power generation market in Fairbanks
and Southcentral. He asked whether residential and power
generation users alone would make a bullet line profitable in
this case.
MR. DUBAY answered that it probably would not be profitable for
the bullet line to supply residential customers only.
REPRESENTATIVE SAMUELS inquired as to the amount of a state
tariff subsidy that would be necessary to make a bullet line
profitable in order to provide limitless gas to Fairbanks and
all of Southcentral residents.
MR. DUBAY explained that is not something ENSTAR has reviewed.
He pointed out that based on the testimony during the hearings,
gas prices are high and will stay high due to industrial demand
for the gas. He then remarked:
Is there anybody in the room who would believe that if
we had the half of bcf going into the Anchorage
community today, that we wouldn't have a functioning
LNG operation, and we wouldn't have an Agrium plant
that's producing? ... There's a hundred percent
certainty that both those industrial users would be
online. When we look ... forward we say, what is the
likelihood that's going to happen? We've got some
time to spend with the engineering and ... some time
to spend with producers. But even though we may not
see a robust price in the twelve dollar range a year
from now, certainly I don't, we don't see anything on
the horizon that would indicate energy prices are
going to fall dramatically, that commodity prices, I'm
talking about commodity food prices, are going to
fall. The fertilizer market looks very robust,
prospectively. The offshore LNG market looks very
robust, prospectively. We're approaching this project
with quite a bit of certainty that when it comes time
for the industrial users to sign up for capacity on
this line, that we're going to get commitments from
the industrial users and that they are going to take
capacity in the line.
4:34:22 PM
REPRESENTATIVE SAMUELS posed a scenario in which the Foothills
does not produce commercial level finds, that ENSTAR must use
Prudhoe Bay gas at 0.5 bcf, and must finance the line without
Point Thomson gas. He inquired as to how soon would it be
before the impacts of ENSTAR's line, which is a short term line
to produce energy for this community, "essentially puts a crimp
in the style of TransCanada and the major line" because there
isn't enough gas to go to 0.5 bcf. Thus, he inquired, has
ENSTAR considered if it must use Prudhoe Bay gas and not the
Gubik gas.
MR. DUBAY responded by saying:
Our decision point today is still centered around
getting commitments from producers, or probabilities,
high probabilities from producers that that gas is
there in Gubik. ... We haven't approached the
producers today about trying to access the North Slope
gas. So we're building our project around the
Anadarko and Conoco gas in the Gubik area.
MR. DUBAY, in further response to Representative Samuels,
responded that he is not certain when ENSTAR will have an answer
on when it could move forward. He said that ENSTAR is scheduled
to meet with producers by July, and that another drilling season
is planned for next year. Thus, he predicted that by next year
at this time, ENSTAR should have enough information from
producers to indicate "the high probabilities of the reserves
that we need to anchor this project."
4:36:17 PM
SENATOR WAGONER recalled Mr. Thayer previously mentioned that he
was going to have discussions with Agrium, Inc. in Calgary. He
inquired as to whether those discussions have occurred and if
ENSTAR obtained a letter of commitment.
MR. DUBAY answered that he has held discussions and is still
working on letter of intent. He stated that he sent Agrium a
draft, and has not yet heard back, but anticipates it is
forthcoming.
4:37:20 PM
REPRESENTATIVE DOOGAN inquired as to whether the $3.3 billion
cost estimate for the pipeline includes any gas treatment
facility (GTP).
MR. DUBAY clarified that it includes a treatment facility, but
not a liquids extraction plant.
MR. DUBAY, in response to Representative Doogan, agreed that it
did include a GTP that will condition the gas to allow for the
gas to be piped.
MR. WHITE referred to slide 19, labeled, "Cost to Consumer", and
noted this slide illustrates the cost differential between types
of fuels in Southcentral Alaska. Switching to fuel oil, would
cost $423 million per year in addition to the current costs, and
switching to propane would add an additional $831 million
annually, he explained. He pointed out that in terms of an in-
state pipeline, huge economies exist in terms of the value to
the consumer by proceeding with this type of pipeline.
MR. WHITE referred to slide 20, labeled, "Comparative Fuels in
Fairbanks" and pointed out that with current prices for fuel
oil, which is the dominant fuel used in Fairbanks, consumers
could realize $150 million in residential cost savings. He
noted that ENSTAR believes the annual value is considerable.
4:39:49 PM
SENATOR STEDMAN asked Mr. White to expand on the electricity
costs and the energy source used to generate electricity.
MR. WHITE responded that ENSTAR profiled a standard home,
reviewed the "therms" that the house would consume in terms of
space heating and water heating, and converted that total value
into the number of watts that a house would need. The total
watts were then multiplied by the total cost per kilowatt hour
for electricity.
SENATOR STEDMAN inquired as to whether the fuel oil projection
is based on the home being heated by a boiler and that
additionally, the electricity projection is based on use of a
diesel-powered generator.
MR. WHITE answered that the electricity calculation assumes the
house would be heated using baseboard heat.
SENATOR HOFFMAN inquired as to the unit costs for natural gas
for fuel oil and for propane.
MR. WHITE responded that the per unit cost used was $8.57 per
mmcf for natural gas, $4.25 per gallon for fuel oil, $4.57 per
gallon for propane, and that the tariff rate used was 13 cents
for electricity. He said that he guessed at the exact rate
today, but advised members that the tariff rate used to produce
the graph was pulled from the Internet.
MR. WHITE, in response to Senator Stedman's concern that the
figures for fuel oil and electric generation did not seem
correct, offered to provide the analysis for members.
MR. WHITE referred to slide 21, labeled, "Accessible In-State
Market" and stated that having an accessible in-state market is
one of ENSTAR's primary considerations. He noted that ENSTAR's
potential markets include: LNG exports, Agrium Inc.,
Southcentral electric companies, and Fairbanks Natural Gas, LLC.
He further noted that military bases such as Elmendorf Air Force
Base, Eielson Air Force Base, Fort Richardson, and Fort
Wainwright could be served. He highlighted that ENSTAR has held
conversations with Flint Hills Resources [Alaska], which is very
interested in running their plant off of natural gas rather than
oil, and the Golden Valley Electric Association (GVEA) in
Fairbanks.
MR. WHITE offered that the demand rate over the next two slides
amounts to about 500 mmcf, but when that is split between Cook
Inlet natural gas and Foothills, ENSTAR falls under 500 mmcf per
day for the annual loads per customer.
4:45:32 PM
REPRESENTATIVE CHENAULT inquired as to whether Mr. White is
referring to half of the production from Cook Inlet and half
from Gubik Fields.
MR. WHITE answered that the assumption would be about 80 percent
production from Gubik Fields and about 20 percent production
from Cook Inlet. In further response to Representative
Chenault, Mr. White clarified that total numbers are listed for
annual loads.
4:46:28 PM
SENATOR WIELECHOWSKI inquired as to the tariff that ENSTAR is
looking at and what discussions ENSTAR has had with the
utilities along the Railbelt.
MR. DUBAY responded that the tariff rate would be in the $2.00
to $2.50 range, which he said he thought was based on a return
of the equity portion of about twelve percent and is what ENSTAR
is currently authorized in its rates. He further explained that
ENSTAR has not yet talked to utilities in the Railbelt. He
offered that ENSTAR understands their needs are based on
contracts that are filed. However, he noted that they have not
held discussions.
4:47:32 PM
MR. WHITE related that ENSTAR has held discussions with Golden
Valley Electric Association (GVEA), in terms of what the value
difference would be for conversion. He offered that the new
plant that GVEA brought online last year is set up to convert to
natural gas, and was designed that way. However, he noted that
the older plant is not designed for conversion. He noted that
by 2018, GVEA will need to make a re-capitalization decision on
the older plant. He related his understanding that GVEA
envisions that if the spread between fuel oil and natural gas is
at the same point it currently is, that GVEA would rebuild with
a natural gas unit.
4:48:39 PM
SENATOR HOFFMAN pointed out that slides 22 and 23 list Scenario
A. He inquired as to whether members could get copies of any
other scenarios.
MR. WHITE stated that ENSTAR did have a second scenario which
removed Agrium Inc. from the assumption. He offered to supply
members with the requested data.
4:49:39 PM
MR. DUBAY referred to slide 25, labeled, "Assumptions" and
related that the project is based on the assumption that ENSTAR
would obtain utility grade gas out of the production area. He
stated that the project would use a 20 inch diameter pipe, with
an operating pressure of 2,500 pounds per square inch (psi) and
with the ability to spike hydrocarbons or add volumes. He posed
a scenario in which production is proved up in the Nenana Basin
and offered that if ENSTAR had commitments on 0.5 bcf/d, that
ENSTAR would like the ability to add compression to add in
production in the instance that production south of Fairbanks
occurred. He noted that ENSTAR assumes that through the
regulatory process it would have open access pipe. Thus, if
other production occurred ENSTAR would have some obligation to
accommodate that other production, he explained.
MR. DUBAY referred to slide 26, labeled, "Project Development
Plan Overview." He explained that ENSTAR has entered into what
it refers to as phase one of the project with the intention of
spending capital dollars to better define the alignment, perform
design work, perform some field work, and define cost estimates.
He reiterated that ENSTAR is working with Conoco and BP to share
information. He noted that Conoco agreed last week to share
aerial information. He said, "We estimate this phase of the
project should cost us $5 to $6 million and we hope that we're
going to be completed in the spring 2009."
MR. DUBAY referred to slide 27, labeled, "Where Are We Today."
He gave an overview of the work being done. Mr. Dubay explained
that ENSTAR has contracted with engineering, environmental, and
construction companies to assist with the project. The field
work began June 10, 2008, and additional meetings are scheduled
with Anadarko in July as well as discussions with Conoco about
their production. Our chief engineer is performing aerial
photography today, he noted. He highlighted that preliminary
permitting and ROW use meetings are underway with governmental
entities, that ENSTAR is developing a geographic information
system (GIS) database and alignment sheets and, if TransCanada
is approved, that ENSTAR will work with TransCanada to
coordinate engineering.
4:52:42 PM
MR. DUBAY referred to slide 28, labeled, "Development Plan
Priorities." He stated that ENSTAR's priorities are to continue
regulatory permit acquisition, prepare economic and financial
models, conduct public outreach, understand constituent needs,
and submit ROW application. He advised that ENSTAR has set a
date of June 2009, to try to reach a management decision to move
forward on this project.
4:53:40 PM
SENATOR HOFFMAN inquired as to how the decision date of June
2009, relates to the completion timeframe of five to six years.
MR. DUBAY answered that the five to six years commenced this
year. He referred to slide 29, labeled, "ENSTAR Pipeline
Development Team" and noted that ENSTAR has engaged Michael
Baker, Jr. Inc., Arctic Slope Regional Corporation (ASRC) Energy
Services, and Aerometric, Inc. to work with them on this
project.
4:54:54 PM
SENATOR THOMAS referred to a prior slide not in the packet and
inquired as to whether the LNG indicated was new LNG or was
carrying forward the current export [rate of the existing LNG
plant].
MR. WHITE answered that in talking to ConocoPhillips, if [gas]
was [at] the right price, Conoco would envision continuing the
operation of that facility.
SENATOR THOMAS referred back to slide 14, and noted that
production drops off in 2014. He inquired as to who would drop
out of the scenario.
MR. WHITE responded that in this scenario, ENSTAR is
anticipating approximately 49 bcf per year of export, which
would total 134 mmcf per day of gas.
CURTIS THAYER, Director, Corporate & External Affairs, ENSTAR,
interjected and pointed out that Senator Thomas was looking at
an Alaska Department of Natural Resources (DNR) slide from 2006
that demonstrates the "cliff" in Southcentral Alaska. He
continued:
That is one of the reasons why we decided that we
can't afford to wait for a line to come through,
whether it is a large line, like we've talked here for
30 years, a line coming down. And here's a chance
where we think we can get a line down, a 20 inch from
the Foothills down to bring it into this market. One
thing is, is reserves are always being found, matter
of fact, ConocoPhillips and Marathon are drilling new
wells in Cook Inlet. And so there is the assumption
that the cliff will move out. But, clearly with
Agrium going away, that cliff definitely exists,
because they cannot meet the deliverability of Cook
Inlet, "they" being the producers in the fields.
In response to Chair Huggins, Mr. Thayer noted that the figures
are preliminary figures.
4:57:28 PM
MR. DUBAY interjected that these historical usages are for the
industrial users. He said:
Again, if we had the gas today and those plants were
up, this is what we believe they would produce based
on what they've historically produced. The utility
loads that we forecast are based off of what we know,
but what the utilities have filed is what they need
for gas in these time periods. So the utility loads
ramp up, but the industrial loads are based on what
they have historically used.
4:57:59 PM
REPRESENTATIVE EDGMON referred to slide 4, to the breakout of
the consumer base. He inquired as to whether future mining
needs have been considered as part of the long term strategic
plan.
MR. DUBAY responded that ENSTAR did not consider mining needs.
He explained that ENSTAR is basing its product on the current
demand on the system and demand that the utilities will need
based on their contracts "falling off." He stated that ENSTAR
has not developed any additional load for mines or industrial
use that hasn't existed or that doesn't exist today.
4:59:42 PM
REPRESENTATIVE EDGMON observed that the potential is available
to accommodate the demands, if everything goes as planned.
MR. DUBAY agreed. He acklnowledgedthat the estimates are
conservative; gas is still found in Cook Inlet, and Nenana gas
is not included in the projections. He opined that as the line
gets constructed, more gas will come online, perhaps from
Fairbanks or the Gubik field area.
5:00:29 PM
CHAIR HUGGINS inquired as to whether there were questions for
Mr. Dubay or ENSTAR and there were none.
CHAIR HUGGINS stressed his commitment to try to provide gas to
Alaskans as soon as possible.
[HB 3001 and SB 3001 were held over.]
ADJOURNMENT
There being no further business before the committees, the joint
House Rules Standing Committee and Senate Special Committee on
Energy meeting was adjourned at 5:04:59 PM.
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