Legislature(2013 - 2014)BUTROVICH 205
02/05/2013 07:30 AM Senate SENATE SPECIAL COMM ON IN-STATE ENERGY
| Audio | Topic |
|---|---|
| Start | |
| Overview: Alaska's Stand Alone Pipeline (asap) for Alaska Gasline Development Corporation | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE SPECIAL COMMITTEE ON IN-STATE ENERGY
February 5, 2013
7:31 a.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator John Coghill, Co-Chair
Senator Peter Micciche
Senator Dennis Egan
Senator Bill Wielechowski
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Cathy Giessel
COMMITTEE CALENDAR
OVERVIEW: ALASKA'S STAND ALONE PIPELINE (ASAP) FOR ALASKA
GASLINE DEVELOPMENT CORPORATION
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
FRANK RICHARDS, Manager
Pipeline Engineering
Alaska Gasline Development Corporation
Anchorage, Alaska
POSITION STATEMENT: Presented an overview on Alaska's Stand
Alone Pipeline.
DANIEL FAUSKE, President - via teleconference
Alaska Gasline Development Corporation
Anchorage, Alaska
POSITION STATEMENT: Offered to answer questions on Alaska's
Stand Alone Pipeline.
DARYL KLEPPIN, Commercial Manager
Alaska Gasline Development Corporation
Anchorage, Alaska
POSITION STATEMENT: Presented an overview on Alaska's Stand
Alone Pipeline.
ACTION NARRATIVE
7:31:07 AM
CO-CHAIR CLICK BISHOP called the Senate Special Committee on In-
State Energy meeting to order at 7:31 a.m. Present at the call
to order were Senators Micciche, Egan, Wielechowski, Co-Chair
Coghill, and Co-Chair Bishop. He welcomed Senator Giessel to the
meeting.
^Overview: Alaska's Stand Alone Pipeline (ASAP) for Alaska
Gasline Development Corporation
Overview: Alaska's Stand Alone Pipeline (ASAP) for Alaska
Gasline Development Corporation
7:31:55 AM
CO-CHAIR BISHOP welcomed the Alaska Gasline Development
Corporation (AGDC) to provide an overview of Alaska's Stand
Alone Pipeline (ASAP) Project.
7:32:26 AM
FRANK RICHARDS, Manager, Pipeline Engineering, Alaska Gasline
Development Corporation, introduced himself and offered Daniel
Fauske the opportunity to provide a brief introduction.
7:32:44 AM
DANIEL FAUSKE, President, Alaska Gasline Development
Corporation, (via teleconference) offered to answer questions
and stated that ASAP's Optimized Plan has garnered a lot of
attention and answered a lot of questions.
MR. RICHARDS said House Bill 369 [2010] mandated that the Alaska
Housing Finance Corporation (AHFC) facilitate the design for an
in-state pipeline. He explained that AHFC created AGDC as a
subsidiary to take over project planning and execution for the
ASAP Project. He said the ASAP Project addressed the legislative
mandate to provide for in-state [energy] needs at the lowest
possible cost and at the earliest possible time. He explained
that the in-state area encompassed users within Interior Alaska
and the Cook Inlet Basin. He noted the Governor's recent
statements in the State of the State Address that would help
move the ASAP Project forward to get energy to Alaskans.
MR. RICHARDS said AGDC acquired 604 miles of state right-of-way
from the State Pipeline Coordinator's Office with inclusion for
the Fairbanks Lateral [pipeline]. He explained that AGDC
completed a Final Environmental Impact Statement (FEIS) in
November 2012 and was awaiting an FEIS Record of Decision from
the [U.S. Department of the Interior]-Bureau of Land Management
(BLM). He said BLM's possible action would allow for an
additional 100 miles of federal right-of-way granting to the
ASAP Project, giving AGDC a total of 704 miles out of 770 miles
of pipeline. He stated that the ASAP Project's land mileage
acquisition had less than 10 percent left to acquire from
private and native corporation lands.
He said AGDC "optimized" the ASAP Project Plan from the original
scope by changing the in-stream natural gas composition from
"enriched" to "lean." He explained that the Natural Gas Liquids
(NGL) would be pulled out and noted that the primary plan was to
use the NGL as a benefit to lower the cost. He said NGL was not
as cost beneficial as they were when the ASAP Project was
initiated.
He said pipeline engineering was advancing and AGDC was working
with Fluor-Worley as a facilities designer for the ASAP
Project's gas treatment plant and pressure station.
He explained that AGDC was working with the legislature for
enabling legislation that was required to move the ASAP Project
forward in order to meet legislative timelines.
He said AGDC was planning an aggressive Summer Field Program to
acquire the necessary geotechnical-hydrologic information for
permitting and project advancement.
SENATOR WIELECHOWSKI asked what the plan was for the NGL.
MR. RICHARDS answered that NGL would remain on the North Slope
for the producer's use. He said he assumed that NGL would be re-
injected to enhance oil recovery.
SENATOR WIELECHOWSKI asked if NGL belonged to the state or the
oil companies. He inquired how NGL would be paid and credited
for during the process.
7:37:38 AM
DARYL KLEPPIN, Commercial Manager, Alaska Gasline Development
Corporation, answered that the current plan was for the AGDC
treatment plant to take gas straight from the North Slope's
Central Gas Facility and not take the NGL stream. He explained
that the [oil] producers and the state's royalty share owned the
LNG stream.
SENATOR MICCICHE asked about the possibility of trucking NGL if
interest was shown.
MR. KLEPPIN answered that the NGL would remain on the North
Slope, but noted that NGL could be available for other users.
CO-CHAIR BISHOP asked what native corporations would be involved
in the [right-of-way] negotiations.
MR. RICHARDS replied that he did not know.
CO-CHAIR BISHOP asked that the native corporations' names be
provided to him.
MR. RICHARDS answered yes.
SENATOR WIELECHOWSKI asked what the gas cost would be from the
North Slope supplier and what the current price was.
MR. RICHARDS answered that the ASAP price model was for $2.00
per million British thermal units (MMBtu) to be paid to the
North Slope supplier.
MR. KLEPPIN responded that AGDC was a pipeline owner and not a
shipper. He said the cost of gas would be determined by the
purchasers and shippers. He said for modeling purposes, AGDC
assumed the supply price would be $2.00/MMBtu with a
distribution charge of $2.00/MMBtu. He noted that current
pricing for the state's royalty gas on the North Slope was
$3.50/MMBtu to $4.00/MMBtu.
SENATOR WIELECHOWSKI asked what would make AGDC believe that gas
could be purchased for $2.00/MMBtu when the current price was
$3.50/MMBtu to $4.00/MMBtu.
MR. KLEPPIN responded that AGDC would not be the gas purchasers.
He said the shipper would be responsible for acquiring and
shipping their gas. He noted that historically, large volumes
had been purchased at somewhat of a discount, but that was to be
determined in the future.
7:41:39 AM
SENATOR MICCICHE asked if the tariff would be "postage stamp" or
varied by the off-take point.
MR. KLEPPIN responded that AGDC's tariff model was distance-
sensitive and not a "postage stamp."
SENATOR MICCICHE asked if AGDC knew what the tariff was.
MR. KLEPPIN replied that the forthcoming presentation would
address Senator Micciche's question for the Fairbanks and Big
Lake tariffs.
MR. RICHARDS explained that the ASAP Project's change to "lean
gas" allowed for plan modifications to eliminate expensive
processing facilities, change the gas pressure, and change the
pipe's diameter. He noted that the original plan called for a
pipe with a 24 inch diameter and 2500 Pound-force per Square
Inch (PSI) for shipping enriched gas. He said AGDC's Optimized
Plan would be for a pipe with a 36 inch diameter pipe and 1480
PSI. He noted that the Fairbanks Lateral [pipeline] would be a
12 inch diameter pipe. He summarized that the costly facilities
were removed and the project's overall cost was reduced. He
explained that the tariffs to Fairbanks and Anchorage would be
positively impacted.
7:44:09 AM
CO-CHAIR BISHOP addressed the pipeline's maximum working
pressure and asked if the 36 inch pipe was a "500 wall pipe."
MR. RICHARDS answered correct.
CO-CHAIR BISHOP asked if gas volume going forward would be at
[500 million cubic feet per day (MMcf/d)].
MR. RICHARDS answered correct. He explained that the ASAP
Project's design concept was in compliance with the Alaska
Gasline Inducement Act (AGIA). He stated that the AGIA statute
required that any state sponsored in-state gas pipeline only be
designed up to 500 MMcf/d.
SENATOR WIELECHOWSKI asked why the ASAP Project went from a 24
inch [diameter] pipe to a 36 inch [diameter] pipe with the
Optimized Plan. He inquired if the larger [diameter] pipe was
more expensive.
MR. RICHARDS answered that the ASAP Project's reduced
compression requirements allowed for an increase in pipe size
and a lower cost steel. He said AGDC was looking at the mandate
to reduce the gas delivery's overall cost.
SENATOR WIELECHOWSKI asked to clarify that the compression
reduction allowed for a larger pipe and lowered the project's
cost.
MR. RICHARDS answered that there was always a tradeoff between
compression and pipe diameter. He explained that the ASAP
Project was able to reduce the need for compressor stations to
one head-station without an additional intermediate-station. He
said the single head-station would be able to flow the 500
MMcf/d from Prudhoe Bay to Cook Inlet.
CO-CHAIR BISHOP explained that the bigger diameter pipe's wall
thickness saved weight and [used less steel]. He said he was
curious to see the welding procedure and anticipated an easier
process with the 36 inch pipe rather with dealing with the
"exotic" steels in the 24 inch [diameter] pipe.
MR. RICHARDS stated that the larger diameter pipe would use more
weld-metal, but the construction process would be easier.
CO-CHAIR BISHOP explained that the larger diameter pipe would
involve capping and filling a half inch [thick] pipe rather than
capping and filling a smaller diameter pipe with a one inch
[thick] pipe.
7:47:54 AM
SENATOR WIELECHOWSKI asked if the pipeline would be able to
handle increased compression and what the maximum capacity
throughput was.
MR. RICHARDS responded that AGDC was limited in its design to
500 MMcf/d. He stated that conceptually there would be more flow
if compression was added. He explained that the Legislative
Affairs Agency and Attorney General's Office were looking at
whether or not AGDC could actually calculate a higher daily flow
rate. He stated that AGDC did not want to place itself in
jeopardy with the AGIA statute.
SENATOR WIELECHOWSKI asked if it was theoretically possible to
increase the pipeline's compression to 1 billion cubic feet per
day (Bcf/d) or 1.5 Bcf/d.
MR. RICHARDS answered yes. He noted that Senator Wielechowski
was probably looking for the project's ultimate flow and he
reiterated that AGDC did not want to place itself in jeopardy
[with the AGIA statute].
MR. FAUSKE explained that AGDC was designing the ASAP Project to
a certain dimension that stayed within the [AGIA] parameters. He
noted that the same question was asked at the [Joint In-State]
Gas Caucus and AGDC stated that the ASAP Project's pipeline
could carry up to 1.6 Bcf/d. He explained that answering Senator
Wielechowski's hypothetical question did not violate anything
and his response would assist the committee in understanding the
ASAP Project's potential.
7:50:22 AM
SENATOR MICCICHE noted that many pipeline projects were designed
at a lower pressure and the economics allowed systems to be
expanded for much higher capacity so there was nothing unusual
about the ASAP Project's design.
MR. RICHARDS said the "Optimize Project Plan" was released in
late 2012 and the positive aspects were as follows:
· The reduction in the number of facilities means
that it has less of a significant footprint on
the environmental impacts.
· Less risk in the project due to the grade of the
pipe and the pertinences that we will have.
· Less costly connections to any Alaskans or
Alaskan industry along the line that would like
to be able to tap in to the pipe.
· It would not be required to have a straddle plant
to push gas into Fairbanks.
· The risk involving design, construction, and
finance have been reduced significantly because
we are using industry standard.
· The tariff has been lowered.
· The overall construction cost was still estimated
to be $7.7 billion in 2012 dollars, plus or minus
30 percent, based upon the current level of
engineering. This relates to approximately $7.5
billion that we had identified in 2011, but when
you factor in the cost of inflation on that
project, it was almost an equal amount at $7.7
billion for either of the projects. We are using
2.5 percent inflation factor which equates to
almost $200 million per year in additional costs
for every year the project is not advanced.
· Not in competition with AGIA, so that is where we
are continuing to stay within the constructs of
the law.
SENATOR MICCICHE said the priority for the ASAP Project was to
supply natural gas to Alaskans with hopefully some leftover for
export. He stated that NGL was important to Alaskans and could
be processed should their value increase. He asked if NGL could
be introduced into the same pipeline.
MR. RICHARDS answered that it would be dependent on the NGL's
phase. He said if it was necessary to keep the NGL in the
gaseous phase, it would require a higher strength pipe. He noted
that the original concept called for a 2500 PSI pipe to be able
to keep NGL in the dense phase to transport. He said the 1480
PSI pipe was designed for the "lean gas" without NGL.
7:53:26 AM
MR. RICHARDS said AGDC's approach to the project was called the
"Stage Gate Approach" and its execution was explained as
follows:
· Front-End Loading (FEL) approach where there are
specific stage gates.
· The 2011 Project Plan was the end of what is
known as FEL-1 and at that point we were to enter
FEL-2.
· FEL-2 was going to be the alternate selection
stage and the advancement of the preliminary
engineering.
· We have been waiting for the action on the
legislature to be able to give us enabling
legislation as well as funding to advance the
project to the next stage gate, which would be
the open season and then ultimately project
sanction at the end of FEL-3.
· After FEL-3 comes the execution or construction
phase of the project.
CO-CHAIR BISHOP asked when AGDC would obtain and provide more
detailed design and project information.
MR. RICHARDS answered that if AGDC was granted the necessary
funding, AGDC would advance the project's pipeline facility
engineering and regulatory actions. He said AGDC had done most
of the conceptual pipeline engineering work with money received
in the 2013 fiscal year (FY13) capital budget. He noted that the
gas treatment design would be in excess of $100 million and AGDC
was meeting with Fluor-Worley to advance the facilities design.
He said FY14 legislative funding would allow AGDC to advance the
facilities and pipeline engineering to get to an open season
with sufficient information for shippers and producers.
7:55:42 AM
MR. RICHARDS addressed the "ASAP Project Schedules" as follows:
· The schedule was legislatively mandated by House
Bill 369 in 2010.
· The schedule called for project construction in
2014 and gas with project startup by 2015 or
2016.
· The ASAP Optimized Project Schedule was currently
in FEL-2.
· Enabling legislation and sufficient funding would
allow AGDC to advance the engineering and
regulatory work to get the ASAP Project to an
open season in late 2014 and early 2015.
· Final or bridge engineering would lead to project
sanction at the end of 2015.
· The Execution Phase in 2016 would initiate orders
for pipe and conditioning facility modules.
· Construction would commence in 2017 with first
gas in 2019 or 2020.
He addressed the "ASAP Project Milestones" as follows:
· An open season [late 2014] would ascertain
shippers' and producers' confidence levels with
tariff models that AGDC presented via cost
estimates from facilities and pipeline design.
· The open season would identify the willingness
for shippers and producers to commit their money
to be able to ship gas down the pipeline.
· The next phase would lead to project sanction for
the "go" or "no-go" decision to advance the
project and seek the necessary funding.
· The ASAP Project's go-ahead would lead to long-
lead item procurement, construction, and gas
transmission in 2019 and 2020.
CO-CHAIR BISHOP commented that the explosion of shale gas in the
Lower 48 allowed steel manufacturing to comeback and noted that
steel prices had dropped by 40 percent. He stated that lower
cost steel was a good thing for Alaska and the state was seeing
the benefits of natural gas.
MR. RICHARDS revealed that Nucor Corporation had moved steel
plants overseas and was now building new U.S. plants due to the
access of cheaper natural gas. He said the end result would be
U.S. steel manufacturing at a lower cost.
MR. RICHARDS reviewed the "Tariff Assumptions Comparisons" as
follows:
· Black & Veatch originally provided services for
tariff modeling and AGDC was now able to perform
their own tariff modeling comparisons.
· The tariff levelized term was changed from 20
years to 30 years.
· AGDC advanced the project so the cost estimates
were updated and changes resulted in the
contingencies for the major components.
· The pipeline engineering contingency changed from
5 percent to 10 percent to allow for sufficient
room in the estimate to provide better numbers as
the project advance.
· The debt/equity split and the return on equity
were changed.
· The year delay from 2011 to 2012 and a 2.5
percent inflation rate were factored in.
7:59:54 AM
SENATOR WIELECHOWSKI asked what the ownership model was for the
ASAP Project.
MR. RICHARDS answered that the initial concept from House Bill
369 was to advance the ASAP Project to a point where it could be
handed off to a private entity. He said when reviewing the
benefits of partial or full state ownership, project costs could
be lowered via the backing of the state's bond rating. He said
the sponsors of [last session's] House Bill 9 and the [current
session's] HB 4 were looking to provide the ownership model
decision to AGDC. He said AGDC needed to work with partners to
see what the benefit would be for the state and consumers
regarding the best ownership model going forward.
SENATOR WIELECHOWSKI asked what rate of return would be expected
if the state assumed ownership for the life of the project.
MR. FAUSKE commented that the ASAP Project would be issued on a
revenue bond standpoint and the rating would be based on the
project's credit. He said the state's high credit rating had an
impact on the rating agencies' economic view of Alaska. He
asserted that the APAP Project would not be fully funded by and
or backed by state credit. He stated that the established credit
rating would be based on precedent agreements, long term fixed
contracts and bonds that were sold. He noted that agreements,
contracts, and bonds would have to be in place before an
investor would come forward to invest in the ASAP Project.
He said the rate of return over the past several years had been
kept at 12 percent. He explained that the rate of return was
based upon industry averages on projects throughout the United
States. He said AGDC lowered the rate of return by 1 percent to
an 11 percent return on equity.
He explained the debt/equity ratio and noted that the advantage
was having more debt into the project because debt could be sold
cheaper than paying someone 11 percent for ownership. He said
the end result would drive down the tariff price to a more
equitable rate.
He said ownership model analysis would occur during the ASAP
Project's open season. He pointed out that AGDC had not
considered the concept of the state operating ASAP, but noted
that the state could be an owner. He addressed inquiries on the
possibility of Alaskans having an opportunity to invest in ASAP
within a mutual fund concept.
He summarized that the 2.5 percent inflation rate used by AGDC
for the ASAP Project was derived from the Philadelphia Reserve,
a known entity with data that could be defended. He stressed
that the inflation rate added $200 million per year in cost to
the ASAP Project and Alaskans would realize a $1 billion cost in
cash if the project's cash flows were discounted out over 30
years due to delay. He explained that time was always of the
essence when the decision was made to move multi-billion dollar
projects forward. He reiterated that the ASAP Project was not a
credit based on the issuance of debt by the state of Alaska.
8:05:33 AM
MR. KLEPPIN stated that AGDC's "New Tariff Model" was as
follows:
· 75 percent debt to 25 percent equity. The rate of
return on the 25 percent equity portion was 11
percent versus AGDC's 2011 original project plan
of 12 percent, so it was down slightly.
· The cost of the debt was assumed to be the same,
5.7 percent, which was what AGDC assumed in 2011.
The current markets would suggest that you could
get a number lower than that, but AGDC did not
change it and it was left at 5.7 percent.
SENATOR WIELECHOWSKI inquired if the plan was to go to the
Regulatory Commission of Alaska (RCA) and ask that the ASAP
Project be allowed to have a slight profit, be cost neutral,
pass everything on to consumers, or pass savings on to the
consumer.
MR. KLEPPIN clarified that the Senator's question was whether or
not people would make money on the ASAP Project. He noted that
HB 4 would authorize AGDC to determine the project's ownership
model. He explained that outside of a possible state ownership
share, investors would realize an 11 percent Return on Equity
(ROE) plus the cost of their debt, AGDC assumed 5.7 percent. He
said within the projected ROE were returns for the bondholder
and the people who provided the equity.
8:07:51 AM
MR. RICHARDS addressed the "Tariff Comparison Chart" between the
"Original 2011 Project Plan" and the "Optimized Project Plan" as
follows:
· The levelized term for Fairbanks was now
$4.25/MMBtu to $6.00/MMBtu as opposed to
$6.45/MMBtu. This reflects the elimination of the
straddle plant and the other upstream facilities.
· For Big Lake or the Cook Inlet Basis, the rates
were from $5.00/MMBtu to $7.25/MMBtu as opposed
to the $5.63/MMBtu. We are providing a range just
to identify the level of the project engineering
we feel that we want to be able to indicate the
low end and the high end.
· Cost driver impact for capital costs: increase or
decrease means a $0.50/MMBtu to $0.80/MMBtu
tariff reduction or increase to the users in
Fairbanks and Cook Inlet.
· Cost driver impact on Alaska's contribution:
reducing the project cost would reduce the tariff
by almost $0.45/MMBtu.
· Cost driver impact on ROE: each percentage change
would increase or decrease the tariff by
$0.20/MMBtu.
· Cost driver for the useful life of the bond:
shifting from a 20 year to a 30 year bond could
reduce the cost of the tariff by $0.75/MMBtu.
· Cost of one year delay to the project schedule
was $0.20/MMBtu. Over the life of the project,
that would equate to almost $1 billion extra that
Alaskan consumers and business would have to pay.
· The tariff is the cost to cover the construction
of the pipeline project as well as the
operations.
8:09:57 AM
SENATOR WIELECHOWSKI asked to verify that the gas cost was not
included.
MR. RICHARDS answered correct. He said the cost of the gas was
not included.
SENATOR WIELECHOWSKI calculated that Anchorage was currently
paying $7.00/MMBtu to $7.50/MMBtu for natural gas. He asked what
Anchorage would be paying for ASAP gas.
MR. RICHARDS replied that the Optimized Plan for Anchorage would
be $9.00/MMBtu to $11.25/MMBtu. He noted that the Anchorage rate
included $2.00/MMBtu for purchasing gas from the North Slope and
$2.00/MMBtu for distribution costs. He noted that the
distribution costs were commensurate to what Northstar Gas was
charging for their Anchorage distribution costs. He pointed out
that Northstar Gas' website had shown their 2013 first quarter
overall-cost at the burner tip was $9.30/MMBtu, a rate that fell
within the Optimized Plan's range.
SENATOR WIELECHOWSKI asked if AGDC was assuming full capacity
for ASAP and what would the outcome be if the flow was 250
MMcf/d.
MR. RICHARDS answered that rates were based on ASAP at full
flow.
MR. KLEPPIN stated that the tariffs calculated were for a 500
MMcf/d flow. He said he did not have data on a 250 MMcf/d
scenario. He explained that tariffs would essentially double if
costs remained the same and billable volume units went down by
half.
8:12:36 AM
SENATOR WIELECHOWSKI asked what the total gas usage was for
Fairbanks, Anchorage, and South Central.
MR. FAUSKE replied that total usage was based on Fairbanks being
maxed out at 60 MMcf/d with an additional 180 MMcf/d. He
explained that 240 MMcf/d to 250 MMcf/d would be available for
the Railbelt down to the Kenai and the Northstar Gas system.
He said AGDC held an "expression of interest" meeting over a
year ago where confidential non-binding proposals were solicited
and the responses would maximize ASAP at 500 MMcf/d. He said
ASAP's open season would determine the full usage of the
pipeline.
He stated that AGDC had always operated under House Bill 369's
mandate to provide gas to Alaskans at the lowest possible cost.
He emphasized that AGDC's guiding principle was always to beat
the price of imported LNG or the ASAP Project would be a "fool's
errand." He explained that AGDC's stage gate approach allowed
the ASAP Project to be shut down if the numbers and deals
collapsed. He stated that the decision to do the project would
require that ASAP be advanced to the next level in order to
receive hard data on what people were willing to do and pay.
8:15:31 AM
MR. RICHARDS continued to address ASAP Costs as follows:
· The cost to Alaskans has been up to $400 million
to advance the project through an open season and
a project sanction date in late 2015.
· AGDC was appropriated $72 million over the last
several years to advance and retain the project
assets that AGDC acquired; EIS and engineering
aspects.
· AGDC thinks it can provide a long term natural
gas supply for Alaskans by the end of this
decade.
· The cost is $7.7 billion, based on AGDC's current
estimate level. A 36 inch pipe flowing 500 MMcf/d
is a mega-project. AGDC could achieve it, but it
would take the work by the legislature and
administration to be able to advance the project
forward.
· The cost to consumers in Anchorage would range
from $9.00/MMBtu to $11.25/MMBtu and Fairbanks
from $8.25/MMBtu to $10.00/MMBtu. That was a very
good cost of energy within the Interior where the
current cost to those on the LNG distribution
system was approximately $23.00/MMBtu.
8:17:10 AM
CO-CHAIR BISHOP commented that the numbers were very attractive
and he knew that people watching the meeting at home were saying
the same thing.
SENATOR MICCICHE stated that considering the base price of Cook
Inlet gas was currently at $10.00/MMBtu, he would love to get
$7.00/MMBtu gas at his house, but that simply does not happen.
He said ASAP was currently competitive with Cook Inlet's base
price and noted Cook Inlet's usage ranged from 2 [MMcf/d] to 550
[MMcf/d]. He explained that 550 [MMcf/d] would be peak usage on
a very cold winter day. He declared that the Cook Inlet was not
producing enough gas to meet usage and the $10/MMBtu base price
was increasing as the gap continued to grow. He stated that he
was interested in seeing the ASAP Project progress to understand
if the burner tip numbers were correct.
He remarked that Alaska had been waiting two generations for a
natural gas pipeline from the North Slope. He noted that a
natural gas pipeline was based purely on export and now there
was Cook Inlet supply challenges with the Interior starving for
energy. He asked if the producers did not move forward on a
project, how would the schedule be pushed, what was the decision
point from the other project with producers, and how would time
be shaved off for the delivery of a completed project.
8:18:44 AM
MR. RICHARDS answered that there was always the impetus to try
and quickly advance a major project, but that led to major cost
overruns in the past. He explained that the stage gate process
allowed AGDC to advance the ASAP Project if there was sufficient
reason to advance the project. He recounted AGDC's mantra that
ASAP gas had to cost the consumer less than LNG imports.
He explained that the ASAP Project had advanced with the funding
that was made available to AGDC. He stated that from the
original project plan, the concept was to enter into the FEL-2
Phase with a full funding scenario and to advance the
engineering. He noted that it would be very difficult to have an
engineering company design on small funding increments. He
stated that AGDC would need in excess of $100 million to advance
the project's engineering. He stated that funding would be the
key to advance the project and allow AGDC to engage the
engineers. He said AGDC would proceed on a rapid, but diligent
basis to avoid errors.
CO-CHAIR BISHOP commented that engineering firms had LNG and
pipeline projects throughout the world. He pointed out that
Alaska was not the only one in the queue and time was of the
essence, but the ASAP Project would have to continue to be
thoroughly reviewed.
8:21:38 AM
MR. RICHARDS answered correct. He said many engineering
companies were working on other major projects due to the
explosion of shale gas and oil in the Lower 48.
He said AGDC's engineering selection would require a company to
have artic and large processing experience. He noted that AGDC
was working with a joint venture between Fluor and
WorleyParsins, world class engineering companies that had done
work on the Trans-Alaska Pipeline System (TAPS) and the North
Slope. He noted that Fluor and WorleyParsins would be available
to AGDC to advance the project. He explained that the ASAP
Project was initiated via FY13 funding. He said $21 million was
to be spread out across pipeline and facilities engineering. He
explained that AGDC would be looking to go to the next detail
design as the money becomes available.
SENATOR WIELECHOWSKI recounted a statement that Northstar Gas'
current pricing was quoted at $10.00/MMBtu. He noted that the
Northstar Gas website listed their current price at $7.25/MMBtu,
$7.36/MMBtu with the Gas Cost Adjustment (GCA) charge.
MR. RICHARDS answered that he had a bar chart that showed the
"all in cost."
SENATOR WIELECHOWSKI replied that according to Northstar Gas'
website, AGDC was not showing the right number.
MR. RICHARDS apologized that he did not bring the ["all in
cost"] chart with him and he would find it.
CO-CHAIR BISHOP asked that Mr. Richards provide the information
to the committee.
SENATOR MICCICHE said the ASAP Project was personally
interesting to him. He said normally a project was based on
market and business principals. He noted that if ASAP had a
"commercial gap" after its open season and no better options
existed, legislators may have to decide whether or not to fund
the gap for the greater good of Alaskans that need energy. He
stated that a caveat would require ASAP Project decisions be
made with a very critical eye to make sure mistakes were not
made.
8:25:39 AM
MR. FAUSKE replied that he received numerous ASAP inquiries for
the state to step up and AGDC was not at liberty to do that
because the law did not allow it. He said the ASAP Project was
always intended to service Alaskan's with gas and it would be a
wonderful moment if a commercial outlay could be attained at the
other end.
He reiterated that ASAP was worth pursuing if the imported price
for LNG could be beat and AGDC believed they had done that. He
noted that for every $1 billion the state contributed in
capital, the tariff would drop $0.45/MMBtu.
He addressed the possibility of a 48 inch [diameter] pipeline
and noted that the added cost would be $2.2 billion to $2.8
billion from Prudhoe to Fairbanks. He said the state could not
bear the expense of a 48 inch [diameter] line.
He pointed out that the state would have to spend $400 million
to get ASAP to open season. He explained that a company would
not spend that kind of capital just to determine if Alaska was
worthy of a project. He said the $400 million was a cost that
the state would have to bear and it would not be regained
through the tariff. He reiterated that the more money the state
put into the project, the more the tariff would drop.
He stated that Prudhoe Bay was one of the largest gas reserves
in the world with the ability to provide gas for the next 100
years. He explained that a huge strike in Cook Inlet would
change the equation, but that was currently not the case.
He explained that designing a project for Alaska's low
population was a problem and noted the debate would be different
if gas was being supplied to Los Angeles or Seattle.
8:30:31 AM
MR. RICHARDS continued to address "Funding Required to Advance."
He said full funding allocation would allow AGDC to advance the
following:
· Engineering for both pipeline and facilities.
· Conduct permitting activities and agency
involvement to meet the requirements for both
state and federal permits.
· Engineering field investigations to be able to
identify how we would need to alter our designs
based on what we find in the field.
He explained that partial ASAP Project funding would limit pipeline
engineering, facilities engineering, and field investigation.
MR. RICHARDS addressed "ASAP Requires Enabling Legislation" as
follows:
· AGDC had identified that one of the impediments
was the inability to have confidential
discussions or receive confidential information.
AGDC is somewhat behind the curve in regards to
advancing the project with meaningful discussions
with shippers, other pipeline projects that may
have or are receiving state funds and doing
similar work. AGDC does not want to spend its
money unnecessarily and if there was work that
could be shared between the projects, AGDC would
love to be able to do that. However, the projects
were unwilling to without AGDC's ability to hold
that information confidential.
· Contract carrier status was needed to enter into
long term contracts. The ability for utilities to
know if they commit to purchasing gas, they were
going to be delivered that gas. If another
entrant comes into the pipeline, they would not
see a reduction in what they were intended to
have delivered to them.
· Authority to determine an ownership model that
would allow the state of Alaska to benefit, not
only from providing energy to Alaskans, but also
providing to Alaskans at the lowest possible
cost.
· Legislation was advancing with HB 4.
8:32:53 AM
SENATOR GIESSEL asked why AGDC chose the contract versus common
carrier. She noted that AGDC originally asked to create a common
carrier pipeline.
MR. KLEPPIN responded that most gas pipelines were historically
contract carriers. He said the Alaska Pipeline Project (APP) and
the Denali Pipeline were designed as contract carriers. He
explained that gas was treated differently than oil because the
underlining value of the gas was equivalent to the cost of
transporting it and that was different than oil. He said the
users for the service were different and noted that utilities
required long term supply guarantee contracts. He explained that
contract carriage grew out of the need for guaranteed supply and
that was consistent with other gas pipelines.
He said the issue AGDC had with contract carriage was that
available space was contracted and tariffs were paid whether gas
was supplied or not. He noted that gas pipelines were referred
to as "take or pay." He said oil pipelines were different and if
contracted oil was not transported, all pipeline customers would
be prorated for lost volume on a pro rata share. He explained
that utilities were dependent upon supply and could not function
with a common carrier.
8:35:19 AM
MR. FAUSKE addressed the ASAP Project's financing model in
reference to contract carriage. He explained that the $7.5
billion ASAP Project would require long term contracts to be in
place for investors to know that the cash flows being generated
would support or have the ability to support the debt service on
the revenue bonds that would be issued.
He explained that AGDC designed the ASAP Project to have the
ability to expand beyond 500 MMcf/d. He said there was confusion
regarding the number of explorers that would be looking to get
involved in a 500 MMcf/d [project] and noted AGDC's difficulty
in holding a successful open season for a $3.5 to $4 billion
pipeline. He addressed financing and the problem to show how the
ASAP Project would be paid for over a 10 to 20 year time period.
He explained that the ASAP Project could be expanded by adding
compression, "looping," and other mechanisms to enhance the ASPA
Project and increase the volume.
CO-CHAIR BISHOP thanked AGDC for their informative presentation.
8:37:28 AM
There being no further business to come before the Senate
Special Committee on In-State Energy, Co-Chair Bishop adjourned
the meeting at 8:37 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| ASAP feb 5.pptx |
SISE 2/5/2013 7:30:00 AM |
Energy ASAP |