Legislature(2013 - 2014)SENATE FINANCE 532

02/25/2014 05:00 PM FINANCE

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05:06:30 PM Start
05:07:36 PM SB138
05:07:43 PM Presentation: the Business Case Before the Legislature
06:06:43 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Presentation: The Business Case Before the
Tony Palmer, TransCanada
Bill McMahon, ExxonMobil
David Van Tuyl, BP Exploration Alaska
Pat Flood, Conoco Phillips
Dan Fauske, President, Alaska Gasline Development
                 SENATE FINANCE COMMITTEE                                                                                       
                     February 25, 2014                                                                                          
                         5:06 p.m.                                                                                              
5:06:30 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Kelly called the Senate Finance Committee meeting                                                                      
to order at 5:06 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Kevin Meyer, Co-Chair                                                                                                   
Senator Anna Fairclough, Vice-Chair                                                                                             
Senator Click Bishop                                                                                                            
Senator Mike Dunleavy                                                                                                           
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Bill  McMahon, Senior  Commercial Advisor,  ExxonMobil; Dave                                                                    
Van  Tuyl,  Regional  Manager, BP  Exploration  Alaska;  Pat                                                                    
Flood,    Supervisor,   North    Slope   Gas    Development,                                                                    
ConocoPhillips;   Dan  Fauske,   President  Alaska   Gasline                                                                    
Development   Corporation;   Tony  Palmer,   Vice-President,                                                                    
TransCanada Alaska Interests.                                                                                                   
SB 138    GAS PIPELINE; AGDC; OIL & GAS PROD. TAX                                                                               
          SB 138 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
          [Note: The  meeting was  recessed until  9:00 a.m.                                                                    
          on  February 26,  2014 and  SB 138  was HEARD  and                                                                    
          HELD  in committee  for  further consideration  at                                                                    
          that  time.  See  February 26,  2014  minutes  for                                                                    
PRESENTATION: THE BUSINESS CASE BEFORE THE LEGISLATURE                                                                          
     [Note:  The  presentation  continued and  concluded  on                                                                    
     February 26,  2014. See February  26, 2014  minutes for                                                                    
SENATE BILL NO. 138                                                                                                           
     "An Act relating to the  purposes of the Alaska Gasline                                                                    
     Development Corporation to advance  to develop a large-                                                                    
     diameter  natural   gas  pipeline   project,  including                                                                    
     treatment  and  liquefaction  facilities;  establishing                                                                    
     the large-diameter  natural gas pipeline  project fund;                                                                    
     creating  a  subsidiary  related  to  a  large-diameter                                                                    
     natural gas  pipeline project, including  treatment and                                                                    
     liquefaction facilities;  relating to the  authority of                                                                    
     the  commissioner  of  natural resources  to  negotiate                                                                    
     contracts related to North  Slope natural gas projects,                                                                    
     to enter into confidentiality  agreements in support of                                                                    
     contract negotiations  and implementation, and  to take                                                                    
     custody  of  gas  delivered  to   the  state  under  an                                                                    
     election  to pay  the  oil and  gas  production tax  in                                                                    
     kind; relating  to the sale,  exchange, or  disposal of                                                                    
     gas delivered  to the  state under  an election  to pay                                                                    
     the oil  and gas  production tax  in kind;  relating to                                                                    
     the  duties of  the commissioner  of revenue  to direct                                                                    
     the   disposition  of   revenues   received  from   gas                                                                    
     delivered to the state in  kind and to consult with the                                                                    
     commissioner of  natural resources  on the  custody and                                                                    
     disposition  of gas  delivered to  the  state in  kind;                                                                    
     relating  to  the  authority  of  the  commissioner  of                                                                    
     natural resources to  propose modifications to existing                                                                    
     state oil  and gas  leases; making  certain information                                                                    
     provided  to the  Department of  Natural Resources  and                                                                    
     the Department  of Revenue exempt from  inspection as a                                                                    
     public record;  making certain tax  information related                                                                    
     to an  election to pay  the oil and gas  production tax                                                                    
     in  kind exempt  from  tax confidentiality  provisions;                                                                    
     relating  to   establishing  under  the  oil   and  gas                                                                    
     production tax  a gross  tax rate  for gas  after 2021;                                                                    
     making  the  alternate  minimum  tax  on  oil  and  gas                                                                    
     produced north of 68 degrees  North latitude after 2021                                                                    
     apply only  to oil;  relating to  apportionment factors                                                                    
     of  the  Alaska  Net  Income  Tax  Act;  authorizing  a                                                                    
     producer's election  to pay the oil  and gas production                                                                    
     tax  in  kind  for  certain gas  and  relating  to  the                                                                    
     authorization;   relating    to   monthly   installment                                                                    
     payments of  the oil and  gas production  tax; relating                                                                    
     to  interest payments  on monthly  installment payments                                                                    
     of  the  oil  and   gas  production  tax;  relating  to                                                                    
     settlements  between producers  and royalty  owners for                                                                    
     oil  and   gas  production  tax;  relating   to  annual                                                                    
     statements  by  producers  and explorers;  relating  to                                                                    
     annual  production   tax  values;  relating   to  lease                                                                    
     expenditures;  amending the  definition of  gross value                                                                    
     at the  'point of production'  for gas for  purposes of                                                                    
     the  oil and  gas  production  tax; adding  definitions                                                                    
     related to  natural gas  terms; clarifying  that credit                                                                    
     may not  be taken against  the in-kind levy of  the oil                                                                    
     and  gas production  tax for  gas for  purposes of  the                                                                    
     exploration incentive  credit, the oil or  gas producer                                                                    
     education credit,  and the film production  tax credit;                                                                    
     making  conforming  amendments;  and providing  for  an                                                                    
     effective date."                                                                                                           
5:07:36 PM                                                                                                                    
^PRESENTATION: THE BUSINESS CASE BEFORE THE LEGISLATURE                                                                       
5:07:43 PM                                                                                                                    
BILL   MCMAHON,  SENIOR   COMMERCIAL  ADVISOR,   EXXONMOBIL,                                                                    
announced  some  history  of liquid  natural  gas  (LNG)  as                                                                    
produced by ExxonMobil.                                                                                                         
Co-Chair  Kelly announced  that  the testifiers  represented                                                                    
the signatories of the AK LNG agreement.                                                                                        
Mr.  McMahon continued  to  discuss the  history  of LNG  in                                                                    
ExxonMobil.  In the  early  1990s  there were  conversations                                                                    
regarding an LNG  project in the Far East.  He stressed that                                                                    
the cost  of transporting the LNG  to the Far East  was high                                                                    
compared to its competitors, so  they moved onto a different                                                                    
effort. In the late 1990s,  ExxonMobil was involved in a gas                                                                    
to liquids project, where the  North Slope natural gas would                                                                    
be put in  a chemical process with the hopes  of moving down                                                                    
the Trans-Alaska Pipeline System  (TAPS). That project would                                                                    
be very  expensive, and  the value of  natural gas  began to                                                                    
rise by  the end of  that decade,  which closed some  of the                                                                    
spread  between  liquids  and  natural  gas.  By  2000,  the                                                                    
attention  turned  to  building  a pipeline  to  Alberta  to                                                                    
access  the  North  American markets.  In  2009,  ExxonMobil                                                                    
partnered  with  TransCanada  to form  the  Alaska  Pipeline                                                                    
Project  (APP), to  build a  pipeline to  Alberta under  the                                                                    
Alaska Gasline  Inducement Act  (AGIA) framework.  He stated                                                                    
that changes in the North  American market made that project                                                                    
impractical,   as  its   competitors   were  successful   at                                                                    
exploiting  unconventional  gas.  He  stated  that  Governor                                                                    
Parnell invited the three producers  and TransCanada to come                                                                    
together to  consider an  LNG project to  the Far  East, and                                                                    
ExxonMobil  willingly participated  in  that discussion.  He                                                                    
stated that  there was  good progress with  AK LNG,  and had                                                                    
reached  a  consensus  on  selecting  a  concept.  They  had                                                                    
selected a preferred location for  the LNG plant in Nikiski,                                                                    
and had advanced fieldwork.                                                                                                     
5:11:48 PM                                                                                                                    
Mr. McMahon stated that he had  worked for six months on the                                                                    
Heads of  Agreement (HOA) (copy  on file). The HOA  laid out                                                                    
the  principles  and the  roadmap  under  which all  of  the                                                                    
parties  represented  believed  that the  project  could  be                                                                    
successful.  He  stressed  that  SB 138  was  based  on  the                                                                    
accomplishments  of the  HOA. He  announced that  ExxonMobil                                                                    
supports  SB  138.  ExxonMobil  was  committed  to  pursuing                                                                    
commercialization  of AK  LNG, and  were committed  to be  a                                                                    
part of  the AK  LNG project.  He stated  that SB  138 would                                                                    
allow  the  three   producers,  Alaska  Gasline  Development                                                                    
Corporation  (AGDC), and  TransCanada  to  work together  to                                                                    
progress the  project; and to  develop a fiscal  and project                                                                    
framework that  was essential for  advancing the  project to                                                                    
completion.  He  announced  that  SB  138  authorized  three                                                                    
things that  were critical  to the  success of  the project:                                                                    
participation, percentage, and project.  He felt that SB 138                                                                    
would  authorize the  state to  participate in  the project,                                                                    
which  would increase  the alignment  of the  actors in  the                                                                    
project   to  improve   success.  He   explained  that   the                                                                    
legislation would  outline the  Alaska's percentage  take on                                                                    
the natural  gas, which  would be in  royalty gas  and gross                                                                    
production tax. He believed that  the legislation provided a                                                                    
robust  process that  would  allow  development for  project                                                                    
enabling   contracts.  If   consensus  were   made  on   the                                                                    
contracts, they  would be presented  to the  legislature for                                                                    
approval. If SB 138 were  enacted, ExxonMobil was staged for                                                                    
the Preliminary Frontend Engineering  and Design (Pre FEED).                                                                    
He  explained  that   Pre  FEED  was  a   phase  of  project                                                                    
development  that would  take the  project from  the concept                                                                    
and move  it forward. The  concept that was agreed  upon was                                                                    
to build a gas treatment plant  on the North Slope to remove                                                                    
impurities  from the  gas; to  build a  pipeline across  the                                                                    
state  to Nikiski;  and build  an  LNG plant  in Nikiski  to                                                                    
liquefy gaseous natural  gas. In Pre FEED  the concept would                                                                    
be  considered while  conducting additional  engineering and                                                                    
design  to  have  the  information  necessary  to  file  for                                                                    
permits to construct  the project. He stressed  that the Pre                                                                    
FEED was  essential, because the environmental  impacts must                                                                    
be  studied  in  order  to complete  the  necessary  federal                                                                    
permit applications. He shared  some various examples of Pre                                                                    
FEED work.                                                                                                                      
5:17:42 PM                                                                                                                    
Senator Dunleavy understood that  profitability was based on                                                                    
the spread between the oil price  and gas. He wondered why a                                                                    
gas  to liquids  (GTL)  plant  was not  built  on the  North                                                                    
Slope,  and  the  existing  pipeline was  not  used  in  the                                                                    
proposal. Mr.  McMahon responded that a  GTL plant necessary                                                                    
to  convert the  gas would  be massive  and be  a logistical                                                                    
challenge to build on the  North Slope. He stressed that the                                                                    
process  for converting  gas to  liquid consumed  about one-                                                                    
third  of  the gas.  The  resulting  product was  very  high                                                                    
quality, and  could be used to  sulfur-free diesel, blending                                                                    
stocks for motor oil, and  other products. Furthermore, TAPS                                                                    
must be  modified to  keep the gas  separate from  the crude                                                                    
oil. He stated that ExxonMobil  had reassessed gas to liquid                                                                    
in 2011, and  they felt that an LNG was  a superior value to                                                                    
the gas.                                                                                                                        
5:20:31 PM                                                                                                                    
DAVE  VAN TUYL,  REGIONAL  MANAGER,  BP EXPLORATION  ALASKA,                                                                    
read from a prepared statement:                                                                                                 
     I've  been  working in  Alaska  for  BP for  almost  30                                                                    
     years.  For  more  than  half that  time  I  have  been                                                                    
     working  to get  Alaska's  gas to  market,  first in  a                                                                    
     previous LNG effort in the  late '90's, then as part of                                                                    
     the Alaska  Gas Producers  Pipeline Team  in 2000-2002,                                                                    
     next with  the Stranded Gas  Act effort and  AGIA, then                                                                    
     as a member  of the Management Committee  of the Denali                                                                    
     pipeline effort,  and now today  in my current  role on                                                                    
     the Fiscal  Team who worked  on the Heads  of Agreement                                                                    
     and the Management Committee of  the Alaska LNG project                                                                    
     Working with all the parties here.                                                                                         
     Executing  the HOA  was an  important step  for BP.  My                                                                    
     boss,  Janet Weiss,  President of  BP  Alaska was  very                                                                    
     pleased to be able to sign  it because of what this HOA                                                                    
     means - an  aligned way forward to get  Alaska's gas to                                                                    
     Importantly,  there   are  signatures  for   six  other                                                                    
     parties on the HOA along  with Janet's, one for each of                                                                    
     the entities represented here on  the panel, along with                                                                    
     the commissioners of DNR and DOR.                                                                                          
     We are all  aligned on the roadmap outlined  on the HOA                                                                    
     which provides  the way forward for  the legislature to                                                                    
     consider and enact enabling  legislation to advance the                                                                    
     Alaska  LNG  Project.  And that's  one  of  the  things                                                                    
     that's really pretty exciting.                                                                                             
     As  you know,  these parties  in front  of you  haven't                                                                    
     always  been aligned.  BP was  involved from  2000-2006                                                                    
     working  with  the  other  major  producers  to  get  a                                                                    
     pipeline  built. TransCanada  pursued their  own effort                                                                    
     independently. Some  of you will remember  that in 2007                                                                    
     and 2008  BP testified  robustly about AGIA.  We wanted                                                                    
     to  involved with  building the  gas pipeline,  but had                                                                    
     some  real concerns  with AGIA.  After the  license was                                                                    
     awarded   to   TransCanada,    we   still   wanted   to                                                                    
     commercialize  our North  Slope  gas,  so we  partnered                                                                    
     with  ConocoPhillips on  the  Denali  project in  2008.                                                                    
     When  the Denali  open season  in late  2010 failed  to                                                                    
     garner enough  interest to warrant continuing  with the                                                                    
     project, we  shut it  down the  following year.  But we                                                                    
     didn't stop  looking for  ways to  commercialize Alaska                                                                    
     Following the  Point Thomson settlement,  we internally                                                                    
     came to  the conclusion that  the best way  forward was                                                                    
     to combine efforts with all  the relevant parties, just                                                                    
     as the Governor had suggested in late 2011.                                                                                
     We   agreed  that   it  was   time  to   stop  fighting                                                                    
     yesterday's battle. It  was time to find a  way to work                                                                    
     together on a new project.                                                                                                 
     That's what the HOA represents  to BP. That's why we're                                                                    
     excited about it.                                                                                                          
     BP  believes  the  HOA   is  critical  to  successfully                                                                    
     advancing the Alaska LNG project.                                                                                          
     Therefore,  the key  question for  examining SB  138 is                                                                    
     simple. "Is SB 138 faithful to the HOA?"                                                                                   
     For BP  the answer is  "YES." Sb 138 moves  all parties                                                                    
     forward, together, as envisioned in the HOA.                                                                               
          SB 138 enables  unprecedented commercial alignment                                                                    
          among   the  parties   by   providing  for   State                                                                    
          participation thru AGDC,  and authorizes the State                                                                    
          to negotiate contracts.                                                                                               
          The bill  establishes a percentage for  tax as gas                                                                    
          that,  when added  to the  State's royalty-in-kind                                                                    
          share  puts   the  State  at  the   table  with  a                                                                    
          participation  of 20-25  percent as  referenced in                                                                    
          the HOA.                                                                                                              
          Finally,  the   bill  lays   out  a   process  for                                                                    
          negotiations  to   occur,  providing  transparency                                                                    
          through  access   by  the  Legislature   which  BP                                                                    
          believes is the winning way.                                                                                          
     While we're generally pleased with  SB 138, there are a                                                                    
     couple of  areas of  particular interest  to BP  in the                                                                    
     way  the bill  has been  drafted, areas  that might  be                                                                    
     improved a bit.                                                                                                            
     One area of interest is  ensuring that the newly formed                                                                    
     subsidiary  of  AGDC  is established  in  an  efficient                                                                    
     manner. BP has  formed subsidiaries in the  past and we                                                                    
     know  about the  due diligence  required by  tax, legal                                                                    
     and finance professionals. It's  effort well spent, but                                                                    
     we  also   want  to  ensure   the  new   subsidiary  is                                                                    
     established in  a timely manner  so pre-FEED  can start                                                                    
     ramping one the bill  is enacted. This included clearly                                                                    
     defining authorities and  empowering the new subsidiary                                                                    
     to efficiently carry out its  role, as well as allowing                                                                    
     for  appropriate  sharing  of  staff  between  the  new                                                                    
     subsidiary and  the AGDC parent. Looking  at successful                                                                    
     LNG projects  around the world confirms  the importance                                                                    
     of   having   a    well-resourced,   independent   host                                                                    
     government  commercial entity  - and  AGDC can  provide                                                                    
5:29:53 PM                                                                                                                    
PAT   FLOOD,  SUPERVISOR,   NORTH  SLOPE   GAS  DEVELOPMENT,                                                                    
CONOCOPHILLIPS,  stated that  his entire  career in  the oil                                                                    
and  gas industry  was devoted  to  economic development  of                                                                    
Alaska's oil  and gas resources.  He had been a  resident of                                                                    
Alaska for over thirty years.  He testified in support of SB                                                                    
138.  ConocoPhilips believed  that  there  were several  key                                                                    
areas  that  must  be  addressed in  order  to  advance  the                                                                    
project, and  were outlined  in the HOA:  1) the  state must                                                                    
decide  to participate  in the  project; 2)  the legislature                                                                    
must define  a production share  that would be taken  as gas                                                                    
molecules,  which, along  with  the  existing state  royalty                                                                    
also taken  as gas molecules  defines the state  overall gas                                                                    
share; and  3) the legislature must  give the administration                                                                    
the  tools to  work through  the arrangements  and contracts                                                                    
required  to move  the project  ahead with  the consultation                                                                    
and ultimate ratification by  the legislature. He recognized                                                                    
that  state  participation  and  the  state's  share  was  a                                                                    
significant policy decision,  and ConocoPhilips welcomed the                                                                    
legislative input as a necessary  step to continue advancing                                                                    
the project.                                                                                                                    
5:32:22 PM                                                                                                                    
Mr. Flood  shared some history  as to how  ConocoPhilips had                                                                    
embarked   to   their   current  situation.   One   of   the                                                                    
ConocoPhilips heritage companies  pioneered the LNG business                                                                    
in Cook Inlet  and to Asia, both in terms  of the technology                                                                    
in  the   markets  during  the   1960s.  He   stressed  that                                                                    
ConocoPhilips  had  been involved  in  the  LNG business  in                                                                    
Alaska  since  the  1960s.  He stated  that  at  that  time,                                                                    
ConocoPhilips  and  other ConocoPhilips  heritage  companies                                                                    
were beginning steps to develop  the North Slope. He pointed                                                                    
out  that, since  the beginning  of production  from Prudhoe                                                                    
Bay, the producers had looked  at options to bring the North                                                                    
Slope to  market including LNG, pipelines  to North America,                                                                    
and GTL. During the consideration  of the Denali Project, it                                                                    
was determined  that the supply  situation in  those markets                                                                    
no  longer  supported  the project.  The  international  LNG                                                                    
market  had remained  stronger than  the North  American gas                                                                    
market,  so at  the  urging of  the  governor, the  industry                                                                    
partners  and the  state  were working  to  taking the  next                                                                    
steps to  the large scale  LNG project. This would  build on                                                                    
more  than $500  million of  work since  2000 in  efforts to                                                                    
commercialize   Alaska  North   Slope  (ANS).   The  working                                                                    
relationship  between  the  ConocoPhilips,  BP,  ExxonMobil,                                                                    
TransCanada, the state,  and AGDC was historic,  in that the                                                                    
parties were  more aligned than  ever in history.  With that                                                                    
alignment,  the HOA  provided  the road  map  to moving  the                                                                    
project  forward.  One of  the  key  steps  in the  HOA  was                                                                    
enabling  legislation that  addressed the  three key  points                                                                    
previously  mentioned. He  stated  that  SB 138  effectively                                                                    
addressed the three key areas of  the HOA, and was the first                                                                    
step in following  the HOA road map. In order  for the state                                                                    
to  effectively  participate in  the  project,  it needed  a                                                                    
vehicle to  represent and manage  the state's  interest, and                                                                    
the bill  gave AGDC  that role  in participation.  He stated                                                                    
that ConocoPhilips  supported the  provision that  gave AGDC                                                                    
management authority. He  stated that the bill  gave the DNR                                                                    
commissioner   flexibility  with   respect  to   negotiating                                                                    
royalty in oil and gas leases,  to provide gas that could be                                                                    
committed  to a  North Slope  gas project  as well  as other                                                                    
required agreements.  The commissioners of both  DNR and DOR                                                                    
must   confidentially   negotiate   the  details   of   many                                                                    
agreements  that would  not compromise  commercial positions                                                                    
of   either  the   state  or   the   private  parties.   The                                                                    
commissioners  must have  that  authority in  order for  the                                                                    
state to  effectively participate  in the project.  The bill                                                                    
also dealt with the tax statutes  in Title 43, which set the                                                                    
production tax  at 10.5  percent, with  the ability  for the                                                                    
state to  take its  tax as  gas molecules.  Effectively, the                                                                    
tax  rate  combined  with the  existing  royalty  percentage                                                                    
would set  the state's  gas share  for participation  in the                                                                    
project. He  stated that ConocoPhilips supported  the bill's                                                                    
provisions,  because   they  allowed   for  a   fixed  gross                                                                    
production tax  payable in gas.  The 10.5 percent  rate that                                                                    
the administration proposed yielded  a combined royalty plus                                                                    
production in the range of 20  to 25 percent that was agreed                                                                    
in the HOA.                                                                                                                     
5:38:44 PM                                                                                                                    
DAN   FAUSKE,    PRESIDENT   ALASKA    GASLINE   DEVELOPMENT                                                                    
CORPORATION, (AGDC)  expressed pleasure in working  with the                                                                    
other participants  in the  HOA. He  stressed that  AGDC was                                                                    
very  limited in  the bill,  but remarked  that most  of the                                                                    
language was statutory. He stressed  that AGDC was compelled                                                                    
to deliver LNG to Alaskans at an affordable rate.                                                                               
5:43:43 PM                                                                                                                    
TONY PALMER,  VICE-PRESIDENT, TRANSCANADA  ALASKA INTERESTS,                                                                    
testified in  support of  SB 138. He  stated that  there had                                                                    
been  40 years  of  effort by  TransCanada to  commercialize                                                                    
Alaskan LNG. He  stressed that it was  very significant that                                                                    
there were companies  that were convinced that  LNG could be                                                                    
commercialized. He  remarked that any project  at this scale                                                                    
needed permission  and customers. He stated  that there were                                                                    
companies that had the marketing  skills and experience that                                                                    
were able to bring LNG to market.                                                                                               
5:48:11 PM                                                                                                                    
Mr. Palmer remarked that there  was no guaranty for success,                                                                    
but  felt  that  once  the components  were  in  place,  the                                                                    
project  had a  high quality  initiative to  succeed in  the                                                                    
Senator  Dunleavy surmised  that once  the Pre-FEED  element                                                                    
was  complete and  the project  was deemed  profitable, they                                                                    
would  proceed with  the project.  Mr. Van  Tuyl agreed.  He                                                                    
stated  that  the  mega-projects  were  typically  conducted                                                                    
through a phased-gate decision making project.                                                                                  
Senator Dunleavy  wondered what  would occur  if one  of the                                                                    
partners decided at  a certain point to not  continue in the                                                                    
project. He  assumed that the  millions of  state investment                                                                    
would  not  be recovered.  Mr.  Van  Tuyl replied  that  the                                                                    
determination  would rely  on the  facts that  exist at  the                                                                    
time.  He  remarked that  the  other  parties were  free  to                                                                    
advance the project.                                                                                                            
Senator  Dunleavy wondered  if  there  were "off-ramps"  for                                                                    
each of  the industry  partners. Mr.  Van Tuyl  responded in                                                                    
the affirmative.                                                                                                                
5:52:05 PM                                                                                                                    
Senator Dunleavy queried the nature  of AGDC's role, because                                                                    
he felt that  AGDC was already perusing an  instate gas line                                                                    
concept. Mr.  Fauske replied that  the role  was beneficial,                                                                    
because  the  work aligned  with  future  work of  AGDC.  He                                                                    
understood that the concept would  seem confusing. He stated                                                                    
that the sharing of data,  alignment, and environmental work                                                                    
coincided with  other projects. He  stressed that  the focus                                                                    
was on not  duplicating work or wasting  money. He announced                                                                    
that the  standalone cost  would be $7.5  to $8  billion. He                                                                    
stated  that  the  proposed project  would  be  the  largest                                                                    
project  in   the  world.  He  felt   comfortable  with  the                                                                    
partnership, and  was confident that the  project would move                                                                    
forward. He stated that AGDC  would keep with the mandate of                                                                    
HB  4, as  directed by  the  legislature, to  supply gas  to                                                                    
Alaskans  and help  facilitate the  development of  a larger                                                                    
diameter  pipe. He  stated that  it was  most probable  that                                                                    
AGDC's  smaller  pipe  plan   ideas  would  merge  into  the                                                                    
development of  a larger  pipe project.  He stressed  that a                                                                    
larger line,  with a huge commercial  application by selling                                                                    
a product from  Alaska overseas was an  ideal situation. The                                                                    
smaller line was always intended,  and would be commercially                                                                    
appealing.  Most people  agreed that  a larger  pipeline was                                                                    
better  than  a small  line.  He  pointed  out that  it  was                                                                    
important  for  AGDC to  continue  with  their smaller  line                                                                    
plans,  but it  could merge  with  a larger  project in  the                                                                    
Senator Bishop  wondered if  the focus  was for  Alaskans to                                                                    
receive the most inexpensive gas.  Mr. Fauske replied in the                                                                    
Vice-Chair Fairclough  remarked that the  administration had                                                                    
proposed  that Alaska  could take  its  gas in  value or  in                                                                    
kind. She  wondered if the intent  was to only take  the gas                                                                    
in molecules.  She pointed out  that the HOA outlined  in AS                                                                    
38.05.182(a) provided  that royalties  on oil and  gas shall                                                                    
be taken  in kind,  unless the commissioner  determines that                                                                    
taking in money would be in  the best interest of the state.                                                                    
Mr. Flood  responded that  the HOA  outlined that  the state                                                                    
participation was an integral part  of the project. In order                                                                    
to facilitate  the state participation and  cause the equity                                                                    
and gas share to align, the  state would take its royalty in                                                                    
kind,  and  tax as  gas  was  an  important element  of  the                                                                    
5:59:28 PM                                                                                                                    
Vice-Chair Fairclough  surmised that the taking  the royalty                                                                    
in  kind,  which  could  be   fixed  at  different  numbers,                                                                    
depending on the lease. She wondered  if the tax would be in                                                                    
value, or was  it yet to be determined.  Mr. Flood responded                                                                    
that the tax would also be in molecules.                                                                                        
Vice-Chair Fairclough recommended  that future models should                                                                    
be   tax  in   molecules.   She  relayed   that  there   was                                                                    
conversation  regarding  the  pressurization  in  the  pipe,                                                                    
which was  not yet determined.  She stated that  they looked                                                                    
at  the  five  off-takes   for  Alaskan's  energy  security.                                                                    
Depending  on the  pressure in  the pipe,  there would  be a                                                                    
cost for straddle plans. She  queried the cost of taking the                                                                    
pipe offline.  Mr. Van  Tuyl replied  that a  straddle plant                                                                    
was a  complex kit, designed to  take a range of  liquids to                                                                    
convert into  other substances. He  understood that  the gas                                                                    
offtakes for  moving gas in-state  would be  a substantially                                                                    
simpler process  for conditioning downstream of  the offtake                                                                    
point to  make it  suitable for a  burner-tip specification.                                                                    
He remarked  that there could be  some conditioning, because                                                                    
the heat  content may  be slightly  higher than  the typical                                                                    
burner  tip  spec.  He stressed  that  the  facilities  were                                                                    
fairly routine items.                                                                                                           
6:02:20 PM                                                                                                                    
Vice-Chair Fairclough stressed that  her topic was a current                                                                    
discussion  point. She  asked two  more  questions that  she                                                                    
would hear  responses at  a later date:  1) she  wondered at                                                                    
what  point an  export  permit  will allow  or  hold up  the                                                                    
project; and 2) she  noted that Congress established dollars                                                                    
that  financed a  pipeline, so  she  wondered the  interplay                                                                    
between  access  of  the  federal   funds,  and  whether  it                                                                    
advantages or disadvantages the project.                                                                                        
Co-Chair  Meyer suggested  that  the  testifiers return  for                                                                    
additional questions.                                                                                                           
6:06:43 PM                                                                                                                    
RECESSED UNTIL 9:00 A.M. FEBRUARY 26, 2014                                                                                      
SB  138  was  HEARD  and   HELD  in  committee  for  further                                                                    
     [Note:  The meeting  was recessed  until  9:00 a.m.  on                                                                    
     February  26, 2014  and SB  138 was  HEARD and  HELD in                                                                    
     committee for  further consideration at that  time. See                                                                    
     February 26, 2014 minutes for  detail.]  You could also                                                                    
     include a note after  the presentation title as follows                                                                    
     [Note:  The  presentation  continued and  concluded  on                                                                    
     February 26,  2014. See February  26, 2014  minutes for                                                                    

Document Name Date/Time Subjects
SB138 HOA.pdf SFIN 2/25/2014 5:00:00 PM
SB 138
SB138 MOU.PDF SFIN 2/25/2014 5:00:00 PM
SB 138