Legislature(2013 - 2014)BUTROVICH 205
02/12/2013 07:30 AM Senate SENATE SPECIAL COMM ON IN-STATE ENERGY
| Audio | Topic |
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| Start | |
| Overview: Alaska Gas-line Port Authority's Presentation on the Alaska Liquid Natural Gas Project | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE SPECIAL COMMITTEE ON IN-STATE ENERGY
February 12, 2013
7:30 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 Charlie Huggins
Representative Mike Chenault
COMMITTEE CALENDAR
OVERVIEW: ALASKA GAS-LINE PORT AUTHORITY'S PRESENTATION ON THE
ALASKA LIQUID NATURAL GAS PROJECT
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
BILL WALKER, General Counsel
Alaska Gasline Port Authority
Anchorage, Alaska
POSITION STATEMENT: Presented an overview of the Alaska Gasline
Port Authority and the Alaska Liquid Natural Gas Project.
CRAIG RICHARDS, General Counsel
Alaska Gasline Port Authority
Anchorage, Alaska
POSITION STATEMENT: Presented an overview of the Alaska Gasline
Port Authority and the Alaska Liquid Natural Gas Project.
ACTION NARRATIVE
7:30:34 AM
CO-CHAIR CLICK BISHOP called the Senate Special Committee on In-
State Energy meeting to order at 7:30 a.m. Present at the call
to order were Senators Micciche, Wielechowski, Co-Chair Coghill
and Co-Chair Bishop.
^OVERVIEW: Alaska Gas-line Port Authority's Presentation on the
Alaska Liquid Natural Gas Project
OVERVIEW: Alaska Gas-line Port Authority's Presentation on the
Alaska Liquid Natural Gas Project
7:31:10 AM
CO-CHAIR BISHOP welcomed the Alaska Gasline Port Authority
(AGPA) to the meeting and asked that they proceed with their
presentation.
7:31:16 AM
SENATOR EGAN joined the committee meeting.
7:31:25 AM
BILL WALKER, General Counsel, Alaska Gasline Port Authority,
said he would address the Alaska Liquid Natural Gas Project
(ALNGP).
7:32:00 AM
CO-CHAIR BISHOP recognized that Senator Huggins and
Representative Chenault were in attendance.
MR. WALKER said AGPA was formed in 1999 and one of its first
tasks was to take a trip to Asia in 2002 with Bechtel
Corporation (BC). He noted that relationships take many years to
establish in the Asian market.
He said ALNGP was the same project considered for many years and
the same project that voters mandated in Proposition 2. He
explained that the ALNGP would follow the Trans-Alaska Pipeline
System (TAPS) right-of-way with a spur-line from Glennallen to
South Central.
He noted that a lot of questions had come up as to why AGPA
selected the TAPS/Glennallen route. He explained that the route
matched up with AGPA's entities, but the route was also selected
by: TAPS, El Paso Corporation, Yukon Pacific Corporation (YPC),
and many companies chose the route as the most permitable. He
said a highly selected and permitted route was required for a
big dollar project.
MR. WALKER addressed the permits previously obtained for the
gasline to Valdez. He said he would not review each permit
obtained by YPC for the proposed gas pipeline route. He
explained that another route was possible, but the TAPS route
was permitted. He said rather than trying to reinvent something,
AGPA continued to follow the route that received the federal
environmental impact statement (EIS), federal right-of-way,
Alaska right-of-way, and export license. He explained that
permitting TAPS had taken 12 years and cost $100 million when
the company was created by Governor Egan and Governor Hickel. He
noted that AGPA was told by BC, Williams Companies, and BG Group
that it was not the permits, but the data that was collected. He
pointed out that he did not believe any of the permits were
current today, but the fact that the permits were obtained gave
an indication that they would likely be obtained again.
7:34:24 AM
SENATOR MICCICHE addressed the previous permits obtained by YPC
and asked what the acronyms TAGS and MT meant.
MR. WALKER replied that "TAGS" was the acronym for Trans-Alaska
Gas System and "MT" was the acronym for Marine Terminal.
CO-CHAIR COGHILL asked for clarification that permits previously
obtained for TAGS were not currently valid.
MR. WALKER answered correct. He said the process had stopped to
be advanced. He explained that the data was available, but the
actual permits had expired.
He addressed the location for the proposed LNG liquefaction
plant in Valdez. He said a Houston, Texas based company was
hired for LNG siting and Alyeska Marine Terminal's dormant West
Tank Farm was selected as an appropriate location. He noted that
the idea for the site came from the Joint Pipeline Office. He
said BC estimated that $2 billion to $3 billion would be saved
on construction costs at the former West Tank Farm location
versus a "green field" location.
7:36:13 AM
He said YPC considered Anderson Bay as a potential "green field"
location, approximately five miles from the Alyeska Marine
Terminal in Valdez. He said the Anderson Bay site was permitted
by the Federal Energy Regulation Commission (FERC) for a
terminal siting permit and the Department of Energy (DOE) for an
export license. He explained that the permits obtained for
Anderson Bay were currently not valid.
CO-CHAIR COGHILL asked if permits were obtained for Anderson Bay
in anticipation for an LNG export terminal.
MR. WALKER answered correct.
CO-CHAIR COGHILL asked if Anderson Bay was permitted prior to
the Exxon Valdez spill.
MR. WALKER replied that it was about at the time of the Exxon
Valdez spill.
CO-CHAIR COGHILL stated that he was trying to get a time frame
in his mind because the EIS probably would be significantly
different. He asked if Anderson Bay would be a "green field"
operation.
MR. WALKER answered yes because there was nothing there in the
way of development.
He said he met with Norway's LNG producers and they noted that
cargo shipments had to transverse through two canals and deal
with possible Somali pirates before reaching the Asian market.
He noted that Alaska's LNG had a straight shot to the Asian
markets in addition to boasting the longest recorded history of
on-time LNG shipments out of Nikiski since October 1969.
7:38:21 AM
He said AGPA hired Wood Mackenzie Research and Consulting (WM)
as an outside source to analyze the LNG project. He stated that
AGPA asked WM to do an analysis and find out if Alaska LNG was
competitive, the costs, and the potential for the State to make
money. He noted that WM was asked not to use previous data
generated by BC and AGPA. He added that WM was asked to use the
highest numbers when data showed multiple figures. He said WM's
[2011] "Alaskan LNG Exports Competitiveness Study" showed that
Alaska had done well. He explained the findings as follows:
In comparing us to other projects, we did well, we had
a delivered price of $8.50 [per million British
thermal units ($US/MMBtu)] into Japan. Other projects
such as Kitimat in British Columbia, was $11.76/MMBtu,
so our numbers came out fine.
He provided work-up data on how WM calculated the $8.50/MMBtu
delivered LNG price to Japan. He said WM's LNG estimate provided
a positive story on Alaska LNG.
MR. WALKER explained that WM's first three work-up calculations
were derived from TransCanada's 2010 open season as follows:
· $0.26/MMBtu for [wellhead] processing.
· $2.22/MMBtu for processing and shrinkage.
· $1.70/MMBtu for transport.
He stated that liquefaction [$4.00/MMBtu] was the highest cost
in the world; WM did not cut any slack on liquefaction. He said
AGPA believed that liquefaction could be reduced by $1.00 to
$1.50, but AGPA was fine with WM's analysis for an $8.50/MMBtu
delivered LNG price to Japan.
7:40:57 AM
He said WM's projection for ALNGP revenue to the State was in
the range of $220 billion to $419 billion over a 30 year period.
He noted that natural gas was the "stepchild" to oil, but AGPA
posed the question on the ability to make money from natural
gas. He stated that under WM's model, the natural gas revenues
to the State would exceed projected oil revenues by about year
three and continued to climb after that for production at 2.7
Bcf/d (billion cubic feet per day).
CO-CHAIR COGHILL asked to confirm that the assumption was for
100 percent State ownership.
MR. WALKER replied that WM's model was based upon private sector
ownership.
CO-CHAIR COGHILL responded that WM's ownership model was similar
to the plan with TransCanada.
MR. WALKER answered yes.
SENATOR MICCICHE asked what commodity price WM was using for
their model; Henry Hub [Natural Gas Futures] versus Alaska LNG.
MR. WALKER answered that the market price WM used was the price
in Asia, $14.00/MMBtu.
SENATOR MICCICHE asked what WM used as the commodity [wellhead]
price.
MR. WALKER answered that he believed WM used $2.00/MMBtu as the
wellhead price.
SENATOR MICCICHE asked if Henry Hub [Natural Gas Futures] was
used at the time of WM's 2011 comparisons with the Lower 48.
MR. WALKER answered that WM did a Lower 48 comparison, but he
would have to look at WM's model to see the exact number used
from Henry Hub [Natural Gas Futures]. He noted that he assumed
that a $3.00/MMBtu range was used as the market price. He said
the significant difference AGPA had with the shale gas was that
Alaska's shipping costs would be $0.59/MMBtu versus the Gulf
Coast $3.00/MMBtu range via the Panama Canal. He noted that when
the Panama Canal was ultimately widened, the cost would be
similar to the cost of sending a ship around South America's
[Cape] Horn. He stated that Alaska's shipping advantage would
remain after the Panama Canal was widened.
7:43:31 AM
He stated that there had been a lot of questions if there was an
Asian market. He remarked that the assertion that AGPA had
relegated itself to "opposite the editorial page" and
presentations was not correct. He said AGPA had spent a lot of
time in the market last year. He reiterated that the markets
were based upon relationships and noted Jeff Lowenfels [former
CEO for YPO] had brought market folks year after year to Juneau.
He explained the molecular makeup of the "Post Treatment Gas
Compositions Estimate." He said the Asian market liked the high
British thermal units (Btu) content and the liquids in Alaska's
gas. He stated that a combination of high Btu content, cold
climate, and proximity to the Asian market were all advantages.
He said over the past year and a half, AGPA had entered into
various agreements with different companies. He noted that Asian
market letters of interest, confidentiality agreements,
memorandum of agreements in the Asian markets stated an interest
in Alaska LNG. He said the largest electric utility in South
Korea, Korea East West Power Co., stated an interest in Alaska
LNG.
7:45:27 AM
CO-CHAIR COGHILL stated that he appreciated information on South
Korean interest and noted that he thought South Korea would be
the market for LNG. He asked what the next step was after the
letters of interest.
MR. WALKER answered that the next step was typically a project
development agreement in addition to an open season. He noted
that AGPA had an opportunity to join in an open season and the
next step would be to find out if there was a way of getting gas
from Prudhoe Bay to the market. He explained that most projects
around the world start at the market and work backwards. He
stated that Alaska had gas and interest from the market.
CO-CHAIR COGHILL replied that he agreed. He noted that the
Alaska Gasline Inducement Act (AGIA) pipeline never got beyond
an open season and the Alaska Stand Alone Pipeline (ASAP) was
heading towards an open season. He asked if AGPA had gone beyond
the letter of interest.
MR. WALKER answered that AGPA had on some.
7:47:27 AM
He brought attention to additional Asian interest from GS
Energy, a large energy distribution company from South Korea;
POSCO, South Korea's largest steel manufacturer; KOGAS from
South Korea [world's largest LNG importer]; PTTI International,
based in Thailand; and PT PNG LNG Indonesia. He noted that
everyone received the solicitation of interest for the September
14 open season from Prudhoe Bay to South Central Alaska and AGPA
was pleased that every company participated.
He explained that AGPA submitted a nomination on September 14
for the open season that was held under AGIA. He stated that
AGPA made their nomination public because AGPA felt that it
suffered from "not knowing what was going on." He said he could
not show each company's exact nomination, but the total was 2.80
[billion cubic feet per day] (Bcf/d). He noted that AGPA's
target was 2.70 Bcf/d with 0.25 Bcf/d for in-state use, and the
total was 3.05 Bcf/d.
He explained that AGPA only knew what they nominated and did not
know what else was nominated at the open season because it was
not made public. He noted that not all companies nominated a
volume, so the total volume was likely significantly higher than
2.8 Bcf/d.
CO-CHAIR COGHILL stated that he knew some of the companies had
invested in other LNG projects. He asked if the companies
involved in the open season that cash or financing was available
to would "drive the show."
MR. WALKER answered that every company was involved in worldwide
projects and none would put emphasis in one particular project.
He said interest was in buying at the wellhead and as far
upstream as possible.
CO-CHAIR COGHILL asked to clarify that AGPA had an "organizer
role" to get gas from the supplier, selling it to the marketer,
and managing the pipeline.
MR. WALKER answered that AGPA mission was to build or cause the
ALNGP to be built. He said the key has been acquiring the gas to
address the interest in buying at the wellhead. He pointed out
that British Petroleum (BP) stated during the AGIA hearings that
they would be happy to sell at the wellhead; he noted that the
leases required the producers to do that. He said the LNG buyers
want to be involved with liquefaction and pipeline ownership
positions. He explained that an off-taker being involved in
upstream equity roles was the worldwide model for LNG projects.
SENATOR MICCICHE stated that he wanted to make sure that the
panel understood that there was a big difference between non-
binding solicitation and an open season. He stated that the
proof was when companies were willing to sign-on to 20 or 30
year commitments.
7:52:25 AM
MR. WALKER answered correct. He explained that every project
started with letters of interest or intent, a statement which
showed a party had interest. He noted that letters of interest
or intent could not be taken to a bank, but further negotiations
would continue. He said AGPA went into deep negotiations with
Mitsubishi Corporation and they have invested money into the
pipeline effort.
He said after the September 14, 2012 open season, an article
revealed that Resource Energy, Inc., a Japanese consortium,
nominated 2.7 Bcf/d in addition to the previously nominated 3.05
Bcf/d. He said the total gas nomination from the open season was
5.5 Bcf/d. He explained that according to BC's calculations on
the 48 inch pipeline's average daily throughput at maximum
pressure was 5.9 Bcf/d.
He said with WM's half-volume projections versus the interest
shown in the open season, there was a significant Asian market
for Alaska's gas.
He addressed Alaska's competition for Asian markets as follows:
· Qatar;
· Papua New Guinea, was adding more [treatment] trains;
· Australia, had more export LNG projects going on than
anyone and would probably surpass Qatar;
· Golden Pass (U.S. Gulf Coast).
MR. WALKER stated that projects were being built all over the
world. He said one question that he frequently received from the
market place was why Alaska continued to place itself at the
back of the queue and was not aggressive or in a hurry. He said
the message he received was that Alaska needs to hurry and be
aggressive. He noted that the competition was not studying or
thinking about LNG; they were welding steel, laying pipelines
and building tankers.
7:55:12 AM
He addressed the potential benefits to Alaskans from a state-
owned gasline/LNG project. He referenced a consultant study on
energy cost savings for Bethel and Fairbanks: Fairbanks would
save 80 percent and Bethel would save 25 to 65 percent. He noted
that the study assumed small LNG barges would be used out of
Valdez to service Bethel and Alaska coastal cities.
CO-CHAIR COGHILL noted that LNG shipping to Bethel would involve
building a holding facility. He asked if storage costs were
considered in the economic analysis.
MR. WALKER responded that the study's results indicated that
there would be savings.
CO-CHAIR COGHILL stated that there was talk about building a
pipeline from Southcentral to the Donlin Gold Mine and he
surmised that the mine would want to consider it.
MR. WALKER answered correct.
SENATOR EGAN asked if any studies were done on LNG shipments
that would benefit the 70,000 plus Panhandle/Southeast
residents.
MR. WALKER replied that AGPA did look at Southeast and the
benefits would be via revenues to the State.
SENATOR EGAN asked if Southeast would get energy from LNG.
MR. WALKER said Southeast could receive energy and noted that
gas would have to be cheaper than hydro-power. He explained that
AGPA met with [Alaska Ship & Drydock] in Ketchikan regarding
other countries that use small barges to transport LNG. He said
LNG barges could be used in Southeast, as long as it was more
economic than hydroelectric. He noted that [Alaska Ship &
Drydock] liked the idea of building the barges and small vessels
in Ketchikan.
7:57:55 AM
CRAIG RICHARDS, General Counsel, Alaska Gasline Port Authority,
said he would address the large [diameter] pipeline
bottlenecking and the advantages of a large [diameter] pipeline
from the North Slope (NS) to Valdez/South Central versus a
bullet-line.
MR. RICHARDS explained that ALNGP had all of the major
components for a project as follows:
· Gas availability, 30 to 35 trillion cubic feet of proven
reserves.
· Asian market demand, the most recent solicitation of
interest was double ALNGP's full capacity.
· Alaska LNG economics were the best in the world, according
to WM.
· No appearance of significant regulatory hurdles, the Lower
48's change in natural gas supplies would improve the
chances for ALNGP to obtain an export license.
He addressed why a large project has not moved forward as
follows:
· Fiscal certainty, NS producers do not want to move forward
until they get fiscal terms arranged in an acceptable
manner.
· NS producers do not want to build a project themselves or
sell gas until their demands were met.
8:00:28 AM
He cited a quotation from Steve Coll, author of "Private
Empire," a book on ExxonMobil. He said Lee Raymond, CEO of
ExxonMobil in the mid 90's, was referenced in the book as
follows:
Exxon had opportunities to exploit oil and natural gas
in Alaska, but held back from some expensive deals
because [CEO Lee] Raymond had learned after the Valdez
[oil spill] that the political risks posed by Alaska's
frontier-minded political culture and populist
governors were comparable to those of West Africa.
MR. RICHARDS said Mr. Raymond was indicating that ExxonMobile
was nervous about investing in Alaska and the likelihood of the
Alaska government changing the fiscal terms on ALNGP. He noted
that ExxonMobil did not want to invest in Point Thomson or a
natural gas pipeline until they get the fiscal structure they
want.
He paraphrased testimony made before the Alaska House Resources
Committee in April 2007 by Marty Massey, ExxonMobil U.S. Joint
Interest Manager as follows:
Exxon was willing to accept geologic risk, they were
willing to accept commodity price risk, they were
willing to accept cost overrun risk, but what they
were not willing to risk before they invest in Alaska
or before they sell at the wellhead, is fiscal
certainty risk; they are not willing to risk the state
of Alaska changing terms on them in the future if a
deal is reached.
He said that ExxonMobil's position was confirmed in a letter the
Governor received from the producer's three CEO's in March 2012.
He noted that the statement to the Governor was consistent with
what had been heard since the mid-90s; the producers want fiscal
certainty before moving forward with the project.
He said in October, a project update letter was presented on the
Alaska Pipeline Project as follows:
A healthy, long-term oil business, underpinned by a
competitive fiscal framework and LNG project fiscal
terms that also address AGIA issues, is required to
monetize NS natural gas resources.
He said the Alaska Pipeline Project letter was ConocoPhillips,
BP, and ExxonMobil telling the state of Alaska that fiscal
certainty and AGIA changes were required before moving forward
with a project.
8:02:41 AM
He stated that fiscal certainty was required for the NS
producers to get onboard with the project. He said fiscal
certainty for the producers was as follows:
· Tax and royalty concessions on oil and gas. One
of the hallmarks of the requirements in the past
before the move forward with the pipeline project
is that they not only want structure on gas taxes
that they like, they want structure on oil taxes
that they like.
· State relationship redefined as contractual in
terms locked in for the life of the project, they
want it so that Alaska cannot get in and sort of
turn the knobs after the project was under
construction to change to fiscal deal.
MR. RICHARDS explained that the producers want to redefine
Alaska's relationship as both a project partner that owns
Prudhoe Bay and as sovereign government. He noted that the
current relationship provided Alaska with both contractual
rights as an owner and sovereign rights of a government. He
explained that the producers want to realign away from
sovereignty towards a purely contractual arrangement through
fiscal certainty. He said the [contractual arrangement] was the
approach that the "Big Three" [producers], especially
ExxonMobil, take around the world. He said when producers view a
sovereign government as unstable; they try to put a contract in
place with decision making parameters and international
arbitration review. He said the contracts removed sovereignty
from local decision making and puts a deal in place that the
producers feel they can move forward with.
8:04:33 AM
He addressed what fiscal certainty looked like for the NS
producers with the 2006 Stranded Gas Development Act (SGDA) in
order to allow a pipeline project to go forward were as follows:
· No regulatory jurisdictions by the Regulatory Commission of
Alaska (RCA).
· Contract trumps state sovereignty.
· Alaska would be forced to take NS royalty taxes in-kind.
· Oil and gas taxes reduced and taxed.
· No meaningful development for Point Thomson until it was
commercially favorable.
· Alaska courts would have no jurisdiction on disputes.
· Keep as much confidential as possible.
· General force majeure clause.
MR. RICHARDS noted that SGDA contract articles were embedded
into the [2012] Point Thomson Settlement Agreement (PTSA)
without addressing tax issues. He predicted that the
administration would likely come forward within the next six to
twelve months with a fiscal deal similar to Governor Murkowski's
[2006] contract or a series of individual bills that addressed
specific issues.
He addressed the "Simple Alaska NS Lessee Decision Tree" to move
a gas pipeline forward as follows:
· Fiscal Certainty: before the lessees commence significant
technical work, they want fiscal certainty.
· Technical Work: Front End Engineering and Design (FEED)
work.
· Alaska NS Lessee Commercial Decision: after cost estimates
and some commercial negotiation arrangements.
· Financial Close.
He said the Decision Tree was based upon sequential gates and NS
producers would not commence with FEED until fiscal certainty
was addressed.
8:07:19 AM
He said the point of AGIA was to get around the problem of not
starting a pipeline project by bringing in a "white knight," a
company that would effectively start doing the technical work
and advancing a project without resolving fiscal certainty. He
explained that the architects of AGIA had been through the SGDA
process and recognized that fiscal certainty was a problem in
achieving the terms that worked for the State.
He said AGIA ultimately did not work and failed as it was
intended, which was a means to get around the producer control
and demand for fiscal certainty.
He said AGIA failed for the following reasons:
· TransCanada geared the gas pipeline as a highway project
through Canada and Valdez LNG was mentioned to "cover the
bases."
· TransCanada was brought in as the "white knight" and after
the AGIA license was awarded, TransCanada announced that
nothing would forward until ExxonMobil was happy with it.
· Shale gas changed how AGIA was going to work.
· Moved technical work above fiscal certainty without
addressing the need for fiscal certainty.
MR. RICHARDS explained that AGIA was a "permit and they will
come" approach and YPC attempted the same tactic without success
in the late 80's/early 90's. He said the NS producers have the
gas and until such time as they were willing to come to the
table with gas or the State exercises another option, having
permits in place and doing the technical work does not really
solve the problem with moving a gas pipeline forward.
8:10:40 AM
He said the State had two options to move a pipeline project
forward:
· Enter into a deal with the North Slope producers.
· Take control of the gas pipeline project and align with the
market without the producers.
He explained that the NS producers would likely come forward
with a fiscal package similar to what was in the 2006 SGDA
contract and fiscal certainty was not acceptable to the State.
He noted that the current environment was less favorable to
provide fiscal certainty. He said in 2007, oil prices were at
$50/barrel, since then oil prices have doubled and Alaska's
Clear and Equitable Shares (ACES) oil tax was enacted with the
State's take going from $3.7 billion in 2006 to about $8
billion. He noted that fiscal certainty proposals that requested
oil tax reductions would exceed the value of gas pipeline
development to the State's treasury for a long time. He said the
State needs to begin the technical work without the producers
until producers were willing to commit to a project without
demanding fiscal certainty. He said the Alaska Stand Alone
Pipeline (ASAP) Project has been doing right by not allowing
fiscal certainty to bottleneck technical development.
He said as the legislature looks at the fiscal certainty
discussion that was going to occur in the next year, the
question was whether Alaska was going to provide fiscal
certainty on terms that were acceptable to the producers and was
it in Alaska's interest to do so.
He addressed Alaska's alternative and how to advance a project
with the North Slope producers. He said with Alaska's
requirement for gas to be sold at the wellhead, the State should
bring in other international companies with the same kind of
balance sheets to take on the project development role that BP
and ExxonMobil would take if they got a fiscal certainty deal.
8:14:23 AM
SENATOR MICCICHE asked about the subject of fiscal certainty and
noted articles that compared the 2006 SGDA contract with the
2012 PTSA. He asked "constitutionally" if it was fair to say
that the articles that were similar to the 2012 PTSA would be
relatively easy to settle constitutionally and the articles from
the 2006 SGDA Contract, with the exception of two articles,
would be more difficult to settle.
MR. RICHARDS answered yes. He said from a purely constitutional
perspective, taking out the politics or whether it was a good
deal, Senator Micciche was accurate. He explained that the point
Senator Micciche was astutely making was that the contractual
rights the State had in terms of its royalty and various NS
contractual arrangements were things the State had the power to
cut a long term deal on.
He noted that Articles 14-21 [2006 SGDA Contract] represented
changing a tax structure, which the legislature could do, but
locked-in tax change for some period of time or the life of the
project. He explained that the rub on fiscal certainty was that
the State constitution explicitly prohibited contracting away
the power to tax and lock-in taxes that could not be changed in
the future.
SENATOR MICCICHE addressed AGPA's discovery phase and asked if
AGPA was able to identify an effective way to deliver fiscal
certainty.
8:16:11 AM
MR. RICHARDS replied that he thought it could not be done. He
said if the NS producers demanded fiscal certainty and the State
could not give it to them, alternatives had to be considered.
CO-CHAIR BISHOP asked if one alternative would be the State
acting as an "interest working partner."
MR. WALKER answered yes, that was one option. He said after
meeting with producers, especially with ExxonMobil, the problem
was trying to get someone to do something that may not be in
their best interest, but was absolutely in Alaska's best
interest. He stated that Alaska should not be a minority partner
and explained that the world model was for governments to have
predominant roles in infrastructure development. He noted that
Qatar had a 70 percent interest and the leaseholders had 30
percent. He said a predominant role allowed a government to
determine what market it goes to and when. He remarked about
Alaska's population of 650,000 people compared to Seoul, Korea
with 11 million people. He said Alaska needs a bigger market by
taking control of the opportunity.
MR. WALKER noted that at meetings in Japan and Korea, no end-
users had ever been approached by Alaska's leaseholders. He
explained that the State was fortunate to have the producers
that were in Alaska, but they were successful companies that had
projects all over the world. He said Alaska did not have
projects throughout the world. He warned of sitting back and
trying to incentivize with fiscal certainty on the pipeline was
like trying to incentivize a freight transportation company to
build a highway system. He stated that APGA had been a long
supporter of Alaska stepping up and being involved as the owner.
He said the president of Sempra Energy [Japan] was adamant about
Alaska taking an ownership position. He noted that the State
would ultimately pay for it one way or another. He agreed with
Senator Micciche that it was uncertain if the State could ever
get to fiscal certainty. He noted that WM's projected revenue of
$220 billion to $400 billion was based upon half-capacity volume
of 2.7 Bcf/d. He said an open season would double WM's volume
projections at 5.5 Bcf/d. He stated that the State was sitting
back, waiting for more announcements, waiting for somebody else
to step up and do what was best for Alaska. He said AGPA urged
Alaska's legislature to take notice.
He said he was surprised that Alaska was not having hearings
about AGIA. He noted that $500 million was put on the table and
no results had been seen from the [AGIA's] 2010 open season. He
said the only reason why the legislature saw AGPA's recent open
season was because AGPA nominated, went to the market, bought
it, and showed it to the legislature. He noted that an article
in the Anchorage Daily News indicated that 2.7 Bcf/d was
nominated. He asked what more had to be done to show. He noted
that AGPA brought a contingency from the Mitsubishi Corporation
to Juneau one week after the Fukushima earthquake. He said the
Mitsubishi Corporation met with the Senate leadership and the
Department of Natural Resources' (DNR) commissioner. He noted
that afterwards, Mitsubishi Corp. went to British Columbia and
invested $1 billion with Shell Canada in an LNG project and
invested another $1 billion on the Gulf Coast. He said the
Mitsubishi Corporation was ready to do business and Alaska
seemed to be sitting back, living from announcement to
announcement while the world literally passed the State by. He
explained that announcements were one thing, but putting a
project together that was market-based and had the economics was
not a "build it and they will come" approach, the markets could
be tied up well in advance. He said AGPA could walk the streets
of Seoul and Tokyo and sign up customers for 5.5 Bcf/d, the
state of Alaska could be doing that. He said AGPA was pleased
that the administration, Governor, and the DNR commissioner were
making trips to Japan and that was a very good start. He
emphasized that the State had to move more aggressively.
8:21:20 AM
CO-CHAIR BISHOP asked if AGPA was surprised by the number that
the majors put out for the pipeline's total construction costs.
He inquired if the projected construction costs were in line
with WM's modeling numbers.
MR. WALKER answered that the constructions costs were in line
with WM's modeling numbers. He explained that the Asian market
asked if Alaska could compete with a $65 billion gas pipeline
project. He noted that Australia's Gorgon LNG Project was way
over $50 billion, a project that was not done and was half the
size of ALNGP. He explained that the ALNGP project cost was
actually in the $45 billion to $65 billion range. He noted that
Alaska's climate made ALNGP 40 percent more efficient than
Australia's Gorgon LNG Project because the ambient temperature
was approximately 110 degrees in Australia and 40 degrees in
Valdez.
SENATOR WIELECHOWSKI asked how Alaska could break through the
bottleneck. He said the State had been through the 2006 SGDA
contract and there were certain things that constitutionally
could not be agreed to. He stated that he did not think the
people of Alaska were willing to give up state sovereignty even
if it was possible.
MR. RICHARDS replied that Senator Bishop brought up a great
question on whether the State should take an ownership role at a
high level. He explained that the State could as a project
developer without necessarily taking on an equity state. He said
as a project developer, the State would:
· Identify the market.
· Contact the market.
· Negotiate gas purchase contracts.
· Take purchase contracts to the NS producers.
He explained that NS producers did not have the legal right to
withhold gas production if they had a chance to make money. He
said NS producers could not hold the "spicket" closed in order
to gain leverage on other contractual terms and the act would be
in direct violation of their leases. He disclosed that the NS
producers were not going out and seeking the market or advancing
the project because they wanted fiscal certainty. He said the
State needs to be in the project developer role, working with
the Asian buyers on a liquefaction plant, identifying the
market, and negotiating gas purchase agreements. He noted that
at any point, NS producers could come onboard without demanding
fiscal certainty, but Alaska could not sit around waiting for
the NS producers to ask for something that could not be given to
them.
8:25:02 AM
SENATOR MICCICHE noted the struggles that occurred before the
TAPS line was built, the numbers were always somewhat daunting,
but the visionaries that built TAPS created Alaska's current
economy. He stated that it was difficult to move folks beyond
ALNGP's large scale, but the key was its market that was
unlikely to diminish significantly. He explained that Alaska
would enjoy various commodity prices through the years, but when
funding something over 30-plus years, the project would
literally deliver a number-two industry to Alaska that the State
currently did not have. He asked if it continued to be difficult
to move a large diameter line project forward, would AGPA
support a smaller diameter line that was less economical, but
delivered energy to Alaskans at a fair price.
MR. WALKER answered that AGPA would not go into much detail on
the Alaska Gasline Development Corporation (AGDC) today,
partially because of lack of time. He noted that Canada was in a
similar situation during the early 50's with their gas in
Alberta and their people in Toronto. He said Canada did for
three years what Alaska has been doing for 30 to 40 years
regarding building a gas pipeline. He explained that the
Canadian Parliament put an end to the arguing about the routes,
hired the contractors, and built the pipeline themselves. He
noted that the Canadian government owned their pipeline for one
day and sold the project to TransCanada; that was how
TransCanada got started.
He said it was his hope that if the producers do not come
through with something and ask for fiscal certainty, which
Alaska cannot give under its constitution, Alaska's default plan
should not be "failed opportunity/failed project." He said the
[AGDC] plan does not put a single dime in the State's coffers.
He said the [AGDC] plan might be good for some reasons, but he
advised not to step away from [ALNGP] just because some
companies have said it was not in their best interest. He said
his concern was accepting failure because Alaska was not willing
to step up and do what was right. He recounted a notable meeting
in October 1973 when Governor Egan called the producers to
Juneau and announced that Alaska was going to build and own
TAPS. He said the Governor and the State stood up and announced
what it was going to do rather than sit back and wait for the
producers to continue arguing about fiscal certainty.
MR. WALKER stated that the best option was the large volume,
market based pipeline. He said Alaska had a "world class"
opportunity from the NS and should match that with a world
marketplace opportunity. He affirmed that the marketplace was
very interested in Alaska, but they were also confused by
Alaska. He noted that he was told that the marketplace knew how
to do business in Africa, but did not know how to do business in
Alaska. He summarized that Alaska needs to change its
marketplace perception and the committee had an opportunity to
change that.
8:29:29 AM
SENATOR WIELECHOWSKI asked to address when people talk about
Alaska's competitiveness versus the Lower 48 with its influx of
cheap shale gas. He asked if AGPA believed that Alaska could be
competitive with the Lower 48. He noted that the Governor laid
out a series of parameters and guidelines the he wanted oil
companies to follow. He inquired where Alaska was in terms of
what the Governor had laid out to the oil companies.
MR. WALKER answered that Alaska does compete with shale gas. He
explained that shale gas was untested and Alaska had 40 years of
experience shipping LNG out of Nikiski. He said Alaska beats the
Lower 48 due to lower shipping costs and lower cost to put gas
into the pipeline at $0.26/MMBtu. He noted that the Lower 48's
gas was significantly different to get into its pipeline and
facility. He stated that the Lower 48 does not have conventional
gas and the marketplace preferred Alaska's associated-gas.
He addressed the plan the Governor laid out and noted that
Alaska had done everything but step up and do the project
itself. He asserted his concern if the ALNGP proposal still
relied on somebody else to do what was best for the State and
emphasized that only Alaska could do what was best for Alaska.
He stated that Alaska should learn the lessons of TAPS that it
was appropriate for the State to step up. He said Alaska did not
have two nickels to rub together in 1973, but certainly does
now. He remarked that the State should step up, advance ALNGP,
and not wait for more fiscal certainty discussion when Alaska
cannot and should not change its constitution.
8:32:17 AM
CO-CHAIR BISHOP thanked Mr. Walker and Mr. Richards for their
presentation.
8:33:03 AM
There being no further business to come before the Senate In-
State Energy Committee, Co-Chair Bishop adjourned the meeting at
8:33 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2013-02-10 Alaska LNG Juneau - February 12 2013 - FINAL.pptm |
SISE 2/12/2013 7:30:00 AM |
Port Authorty |