Legislature(2001 - 2002)

07/18/2001 09:06 AM NGP

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
            JOINT COMMITTEE ON NATURAL GAS PIPELINES                                                                          
                        Anchorage, Alaska                                                                                       
                          July 18, 2001                                                                                         
                            9:06 a.m.                                                                                           
                                                                                                                                
SENATE MEMBERS PRESENT                                                                                                        
                                                                                                                                
Senator John Torgerson, Chair                                                                                                   
Senator Rick Halford                                                                                                            
Senator Pete Kelly                                                                                                              
Senator Donald Olson, alternate                                                                                                 
                                                                                                                                
SENATE MEMBERS ABSENT                                                                                                         
                                                                                                                                
Senator Johnny Ellis                                                                                                            
                                                                                                                                
HOUSE MEMBERS PRESENT                                                                                                         
                                                                                                                                
Representative Joe Green, Vice-Chair                                                                                            
Representative Brian Porter                                                                                                     
Representative Scott Ogan                                                                                                       
Representative John Davies                                                                                                      
Representative Hugh Fate, alternate                                                                                             
                                                                                                                                
HOUSE MEMBERS ABSENT                                                                                                          
                                                                                                                              
Representative Mike Chenault, alternate                                                                                         
Representative Reggie Joule, alternate                                                                                          
                                                                                                                              
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATIONS BY GAS LINE GROUPS                                                                                                
                                                                                                                                
Alaska Gas Producers Pipeline Team                                                                                              
Yukon Pacific Corporation                                                                                                       
Foothills Pipe Lines                                                                                                            
Alaska North Slope LNG Sponsor Group                                                                                            
Alaska Gasline Port Authority                                                                                                   
Kenai Peninsula Borough                                                                                                         
Williams Energy Services                                                                                                        
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Mr. Joseph Marushack                                                                                                            
Vice President                                                                                                                  
ANS Gas Commercialization                                                                                                       
Phillips Alaska, Inc.                                                                                                           
P.O. Box 100360                                                                                                                 
Anchorage AK 99510                                                                                                              
                                                                                                                                
Mr. Ken Konrad                                                                                                                  
Senior Vice President                                                                                                           
Business Unit Leader - Alaska Gas                                                                                               
BP Exploration Alaska Inc.                                                                                                      
119 Second Street, #B                                                                                                           
Juneau AK 99801                                                                                                                 
                                                                                                                                
Mr. Jeff Lowenfels                                                                                                              
President and Chief Executive Officer (CEO)                                                                                     
Yukon Pacific Corporation                                                                                                       
1049 West Fifth Avenue                                                                                                          
Anchorage AK 99501-1930                                                                                                         
                                                                                                                                
Mr. Wayne Lewis                                                                                                                 
Executive Vice President                                                                                                        
Yukon Pacific Corporation                                                                                                       
1049 West Fifth Avenue                                                                                                          
Anchorage AK 99501-1930                                                                                                         
                                                                                                                                
Mr. John R. Ellwood                                                                                                             
Vice President                                                                                                                  
Engineering and Operations                                                                                                      
Foothills Pipe Lines Ltd.                                                                                                       
3100 707 Eighth Avenue S.W.                                                                                                     
Calgary, Alberta T2P 3W8                                                                                                        
Canada                                                                                                                          
                                                                                                                                
Mr. Steve Alleman                                                                                                               
Commercial Manager                                                                                                              
Alaska North Slope LNG Project                                                                                                  
Phillips Petroleum Company                                                                                                      
P.O. Box 100360                                                                                                                 
Anchorage AK 99510                                                                                                              
                                                                                                                                
Mr. Charles E. Cole                                                                                                             
Vice Chairman                                                                                                                   
Alaska Gasline Port Authority                                                                                                   
406 Cushman Street                                                                                                              
Fairbanks AK 99701                                                                                                              
                                                                                                                                
Mr. Rigdon Boykin                                                                                                               
Senior Partner                                                                                                                  
O'Melveny & Myers, LLP                                                                                                          
(on behalf of the Alaska Gasline Port Authority)                                                                                
151 East 53rd Street                                                                                                            
New York NY                                                                                                                     
                                                                                                                                
Mr. Dale Bagley                                                                                                                 
Mayor                                                                                                                           
Kenai Peninsula Borough                                                                                                         
144 North Binkley Street                                                                                                        
Soldotna AK  99669                                                                                                              
                                                                                                                                
Mr. Jeff Cook                                                                                                                   
Vice President, External Affairs                                                                                                
Williams Energy Services                                                                                                        
2800 Post Oak Blvd.                                                                                                             
Houston TX 77056                                                                                                                
                                                                                                                                
Mr. Cavan Carlton                                                                                                               
Williams Energy Services                                                                                                        
2800 Post Oak Blvd.                                                                                                             
Houston TX 77056                                                                                                                
                                                                                                                                
Senator Robin Taylor                                                                                                            
Alaska State Legislature                                                                                                        
Capitol Building, Room 30                                                                                                       
Juneau Alaska 99801                                                                                                             
                                                                                                                                
Ms. Ronda Thompson                                                                                                              
International Trade Office                                                                                                      
Alaska State Legislature                                                                                                        
716 West 4th Avenue, Suite 660                                                                                                  
Anchorage AK  99501-2133                                                                                                        
                                                                                                                                
Mr. Scott Heyworth                                                                                                              
Director                                                                                                                        
Our Gas, Our Future                                                                                                             
P.O. Box 100531                                                                                                                 
Anchorage AK 99501                                                                                                              
                                                                                                                                
Mr. Jerry McCutcheon                                                                                                            
PO Box 101838                                                                                                                   
Anchorage AK  99510                                                                                                             
                                                                                                                                
Ms. Theresa Obermeyer                                                                                                           
3000 Dartmouth                                                                                                                  
Anchorage AK 99508                                                                                                              
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 01-5, SIDE A                                                                                                             
9:06 a.m.                                                                                                                       
                                                                                                                                
CHAIRMAN JOHN TORGERSON called the  Joint Committee on Natural Gas                                                            
Pipelines meeting  to order at 9:06  a.m.  Members  present during                                                              
the  meeting  were  Senators  Torgerson,  Kelly,  and  Olson,  and                                                              
Representatives   Green,   Porter,    Ogan,   Davies,   and   Fate                                                              
(alternate).                                                                                                                    
                                                                                                                                
PRESENTATIONS BY GAS LINE GROUPS                                                                                              
                                                                                                                                
Alaska Gas Producers Pipeline Team                                                                                            
                                                                                                                              
9:07 a.m.                                                                                                                       
                                                                                                                                
MR. JOSEPH MARUSHACK, Vice President, ANS [Alaska North Slope]                                                                  
Gas Commercialization, Phillips Alaska, Inc., came forward,                                                                     
noting that  with him  was Ken Konrad  of BP Exploration  (Alaska)                                                              
Inc.   He  informed members  that  along with  Robbie Schilhab  of                                                              
ExxonMobil Production Company, who  was not present that day, they                                                              
comprise  the Management  Committee  of the  Alaska Gas  Producers                                                              
Pipeline  Team.   [In packets  was  a handout  titled "Overview  &                                                              
Status"  dated  July  18, 2001,  which  accompanied  a  PowerPoint                                                              
presentation.]                                                                                                                  
                                                                                                                                
MR.  MARUSHACK  informed listeners  that  there  hadn't been  much                                                              
change in the  team's overall objectives [since  the presentations                                                              
before the  House Special  Committee on Oil  and Gas].   The first                                                              
two months were  spent developing a team, now about  100 strong in                                                              
[Alaska]; Calgary, Alberta; and the  Lower 48.  The team is trying                                                              
to  determine  the  major  problems,   and  first  has  worked  on                                                              
technical   aspects.       Clearly,   costs    and   environmental                                                              
considerations are important,  as is timing.  The  team is working                                                              
on permitting  issues, and is believed  to be on-track  in putting                                                              
together route-related  information in  order to make  a decision.                                                              
Mr. Marushack  said he  is increasingly  spending time  addressing                                                              
political and government-related issues, among others.                                                                          
                                                                                                                                
MR. MARUSHACK  explained that  the original goal  was to  have the                                                              
permitting defined  by the end of  the year; although it  has been                                                              
pushed back some, he believes the  timetable is still within three                                                              
months of that.   He noted that the team will  spend more than the                                                              
$75  million projected  this year  because of  the complexity  and                                                              
other factors.                                                                                                                  
                                                                                                                                
MR. MARUSHACK  addressed a slide  called "Overall  Project Scope."                                                              
The gas  treatment facility [at Prudhoe  Bay] will be  the largest                                                              
in the world;  Natchiq Parsons is the lead contractor.   The focus                                                              
has been on what technology will  be most appropriate to use.  The                                                              
facility, the largest of its kind  in the world, will require more                                                              
than 100,000  tons of steel and a  huge amount of work  in Alaska;                                                              
that is where most of the long-term jobs will come from.                                                                        
                                                                                                                                
MR. MARUSHACK  continued, addressing  "Alaska to Alberta  Pipeline                                                              
System  (A-B)."     He  noted that  Fluor  Veco -  the  contractor                                                              
headquartered  in Houston,  Texas  -  is working  in  a number  of                                                              
locations.    The  big issues  are  pressure;  diameter;  volumes;                                                              
expandability; and logistics, including  procurement, a key timing                                                              
item.   He emphasized  the need  to find  materials and  build new                                                              
equipment to do this, which will require significant effort.                                                                    
                                                                                                                                
MR. MARUSHACK continued  with the same slide,  addressing "Alberta                                                              
to  Market Pipeline  System  (B-C)."   He  indicated  the team  is                                                              
working with The  AlasCan Group, of which Natchiq is  a part.  The                                                              
issues are  a little  different:  there  are routing  decisions to                                                              
make on "A-B,"  but on "B-C" the decision is  whether new pipeline                                                              
is  needed and  whether there  can be  expansion.   He stated  the                                                              
belief that it will require some  new pipeline, but said expansion                                                              
is  part of  it.   The technical  aspects of  "B-C" therefore  are                                                              
probably not as difficult as for "A-B."                                                                                         
                                                                                                                                
MR. MARUSHACK  turned attention briefly  to the "NGL  [natural gas                                                              
liquid]  Extraction Facility"  section of  the slide, noting  that                                                              
Fluor  Veco is assisting  the  team with  that as  well.  He  then                                                              
turned  the presentation  over to  Mr.  Konrad to  talk about  the                                                              
technical aspects.                                                                                                              
                                                                                                                                
9:10 a.m.                                                                                                                       
                                                                                                                                
MR.  KEN  KONRAD,  Senior Vice  President,  Business  Unit  Leader                                                              
Alaska  Gas, BP  Exploration (Alaska)  Inc.,  emphasized that  the                                                              
team is looking  in a "macro sense"  at whether it can  develop an                                                              
economic  project,   and  within  that,  determining   the  route-                                                              
selection criteria.   He noted that previously  the team addressed                                                              
the  "seven lenses"  of  evaluation [economics,  environment,  gas                                                              
access,  jobs,   revenues,  safety,   and  timing]   required  for                                                              
regulatory applications.   He said  this is also important  to the                                                              
governments and stakeholders with  which the team has consulted to                                                              
date.                                                                                                                           
                                                                                                                                
MR. KONRAD  first addressed  economics, noting  that the  scale of                                                              
investment will  be $15 billion to  $20 billion to get  the gas to                                                              
market.   A major project  like this  brings not only  high costs,                                                              
but also a number of risks.  It is  clear after six months of work                                                              
that  there  will  be economic  challenges,  and  it  isn't  clear                                                              
whether  it will  be  an  economic project.    At this  point,  it                                                              
appears  the  northern route  has  some  cost advantage  over  the                                                              
southern route, and the team is trying to quantify that.                                                                        
                                                                                                                                
MR. KONRAD touched on environmental  impacts.  He expressed a high                                                              
degree of  confidence, based  on the work  to date, that  whatever                                                              
route is selected,  the project can be done in  an environmentally                                                              
sound manner  and will  meet all  environmental regulations.   The                                                              
southern route  follows an existing  corridor, and only  about 200                                                              
miles are undisturbed; the northern  route is shorter, but crosses                                                              
300-400 miles  of undisturbed  corridor, principally  the Beaufort                                                              
Sea.  There are  a number of other issues that  the team is trying                                                              
to fully  understand, including  whale migration  on the  northern                                                              
route and  compressor station citing,  especially on  the southern                                                              
route, which will require more compression  facilities than will a                                                              
northern route.                                                                                                                 
                                                                                                                                
MR. KONRAD addressed  gas access, another key issue.   He said the                                                              
team is doing analysis of what sorts  of gas demand could develop,                                                              
in order to have  enough flexibility to address it.   To date, the                                                              
team's work doesn't  show any significant large  demand within the                                                              
state,  although clearly  there is  a  small amount  of demand  in                                                              
Fairbanks  and potential  demand  in Southcentral  Alaska; it  has                                                              
been hard  to pin that  down as a  finite number, however,  and no                                                              
one has come  forward to date with  a specific call on  the gas in                                                              
transit.   The team  is trying  to determine  how to structure  an                                                              
open  season to  address those  potential  needs in  terms of  how                                                              
capacity might be  allocated.  On the northern route,  the team is                                                              
trying to look at innovative ideas  for getting gas into Alaska in                                                              
order to make sure those needs are met.                                                                                         
                                                                                                                                
MR. KONRAD turned  attention to jobs.  Noting the  enormity of the                                                              
project,  he said  in terms  of construction  jobs within  Alaska,                                                              
there are more jobs than skilled  people, regardless of the route.                                                              
"We'll need to work to train Alaskans,  and irrespective of route,                                                              
there will  be an in-migration  of workers  [just because  of the]                                                              
scale  of the  project,"  he told  listeners.    "Indeed, it  will                                                              
actually  stretch North  American  resources in  terms of  finding                                                              
enough craft  and enough  industrial capacity  to do a  project of                                                              
this magnitude."                                                                                                                
                                                                                                                                
MR. KONRAD noted  that much of the construction will  occur in the                                                              
wintertime in the northern sections,  whereas line in the Lower 48                                                              
could be  built year-round  or in  the summer.   Therefore,  crews                                                              
from the  northern section could  be used in the  southern section                                                              
[at  that point],  which would  allow Alaskans  an opportunity  to                                                              
work  on southern  segments  of the  line.   He  pointed out  that                                                              
longer-term  jobs, not involving  construction, appear  comparable                                                              
for both  routes.  The pipeline  itself will provide a  very small                                                              
portion of the overall job market.   The pipe will be buried along                                                              
its  length and  monitored  by  "smart" compressor  stations  that                                                              
won't normally be manned.  Most long-term  jobs will be associated                                                              
with people in an office, in a control  room, or operating the gas                                                              
treatment plant on the North Slope.                                                                                             
                                                                                                                                
MR. KONRAD acknowledged the importance  of revenue to the State of                                                              
Alaska.   Clearly,  if  there is  an  economic  project that  goes                                                              
ahead, it  will likely  generate tens of  billions of  dollars for                                                              
the state  over the  project's life.   To  the extent the  initial                                                              
analysis  shows  the northern  route  to  be somewhat  more  cost-                                                              
effective,  it would result  in somewhat  higher revenues  for the                                                              
state.    He  emphasized  the need  to  do  more  engineering  and                                                              
"costing" before it can be understood and quantified, however.                                                                  
                                                                                                                                
MR. KONRAD  expressed confidence that  this line will be  built to                                                              
the  highest  standards  and  will be  safe,  operating  with  the                                                              
highest levels  of technology, automation, and  control equipment.                                                              
He mentioned unique  issues for either route.   The southern route                                                              
needs  to be  designed  to withstand  seismic  activity and  frost                                                              
heave, for  example.  The northern  route needs to be  designed to                                                              
withstand ice forces and frost heave.   He restated his confidence                                                              
that it can be  engineered, but noted that there is  a lot of work                                                              
in actually  doing so.  The  southern route has more  proximity to                                                              
human populations,  but the public  should have confidence  in the                                                              
high level of integrity and safety.                                                                                             
                                                                                                                                
MR.  KONRAD   addressed  timing.     He  reported  that   one  big                                                              
uncertainty  around  the  project   involves  the  timing  of  the                                                              
regulatory  process.   The  team  is  working with  regulators  to                                                              
streamline  the process.   Given  the issues  around the  northern                                                              
route, [the team]  perceives that it would take  longer to permit;                                                              
however, that isn't  certain.  The other timing aspect  is how the                                                              
Mackenzie Valley  line, if  it goes ahead,  will impact this.   He                                                              
said  the idea  of  doing  two such  "megaprojects"  with  limited                                                              
industrial  capacity in  North America "feels  like a  challenge."                                                              
He expressed the  need to look at the logistics;  if the Mackenzie                                                              
Valley project  gets a  "jump," it  would be  hard to find  enough                                                              
welders,  machinery,   and  equipment  to  do  the   two  projects                                                              
simultaneously,  and [Alaska's]  would have  to "dovetail"  behind                                                              
the  Mackenzie Valley  project.   Mr. Konrad  emphasized that  the                                                              
evaluations  will  mature  as  the  team  goes  through  its  work                                                              
program.                                                                                                                        
                                                                                                                                
MR.  KONRAD  noted that  in  addition  to  the 100  team  members,                                                              
contractors  are gearing up,  responding to  the sense  of urgency                                                              
conveyed by the  team.  At this point, 500-600  people are working                                                              
on  the  project.    He  cited  examples  of  activities  such  as                                                              
surveying.  He  also noted that technical and  regulatory work are                                                              
proceeding, which he would address later.                                                                                       
                                                                                                                                
MR.  KONRAD reported  that  the team  is  defining several  issues                                                              
beyond whether  the project is economic, including  the following:                                                              
laying groundwork  for creating whatever  legal entities  would be                                                              
required to  construct the  pipeline; working  on how to  shape an                                                              
open  season and  determining  tariff  structures  in relation  to                                                              
regulators;  and having  hundreds  of meetings  with  communities,                                                              
stakeholders, pipeline companies,  governments, regulators, and so                                                              
forth, in order to give people a sense of what is coming.                                                                       
                                                                                                                                
MR. KONRAD  told members  a good  portion of  the team's  activity                                                              
revolves around technical studies  that relate to the economics of                                                              
the project.  For  the carbon dioxide plants, to  be placed on the                                                              
North Slope, the  team is looking at three technologies  to remove                                                              
carbon dioxide  from the  gas stream; the  effort is to  narrow it                                                              
down   to  the   preferred   technology,   from   both  cost   and                                                              
environmental  perspectives.     Some  pending   developments,  if                                                              
successful, could  result in a real  [indisc.].  The team  is also                                                              
looking  at NGL  removal processes;  those  are more  conventional                                                              
technologies, but  still involve designing a plant  as efficiently                                                              
as possible in order to get the economics right.                                                                                
                                                                                                                                
MR.  KONRAD noted  that there  is a  lot of  work around  pipeline                                                              
hydraulic    simulations,    looking   at    various    pressures,                                                              
temperatures, diameters, and compression  configurations to design                                                              
an  optimum system  that is  both  cost-effective and  expandable.                                                              
Team members are  active in the exploration arena,  and would like                                                              
to  know that  the system  could  be expandable.    The nature  of                                                              
pipelines is  such that the more  volume that is moved,  the lower                                                              
the unit  costs are.  There  is an incentive, therefore,  if there                                                              
is success  in finding more gas,  to cost-effectively put  it into                                                              
the line so tariffs  are lower for everybody.  Mr.  Konrad said he                                                              
wouldn't  go into an  engineering discussion,  but told  listeners                                                              
these are the types of simulations  that the team is trying to run                                                              
in order to optimize the pipeline system.                                                                                       
                                                                                                                                
MR. KONRAD  directed  attention to  a graph and  talked about  the                                                              
volumes cited, mentioning 4 BCF/D  [billion cubic feet a day] as a                                                              
"base case" and  saying the desire is to optimize  around that and                                                              
then, with expandability, get it  up to perhaps 6 BCF/D.  He noted                                                              
that pipeline diameters on the graph  ranged from 44 to 56 inches.                                                              
The smaller the  line, the more compression is needed,  as well as                                                              
more compression  stations, which  affects environmental  and cost                                                              
factors.  The  larger the diameter and the less  the pressure, the                                                              
fewer are  needed, but it costs  more for steel.   Those tradeoffs                                                              
are  being   looked  at  in  order   to  have  the   economics  be                                                              
competitive.                                                                                                                    
                                                                                                                                
MR. KONRAD  reported that  in addition  to hydraulic studies,  the                                                              
team has 13 fairly significant technical  studies underway.  A big                                                              
one is  looking at the feasibility  of using even  higher-strength                                                              
steel than  that used in the  industry now; this would  lessen the                                                              
pipe-wall thickness,  hopefully translating into cost  savings; it                                                              
gets into  what mills are capable  of producing, for example.   He                                                              
also touched on  the logistics in having 3,500  miles of pipeline,                                                              
including  staging  facilities and  potential  fabrication  sites.                                                              
The  carbon dioxide  facility,  the  largest of  its  kind in  the                                                              
world, will  likely need to be  fabricated at multiple  sites; the                                                              
team is trying  to figure out how  and where to do that.   He also                                                              
mentioned the thousands of truckloads  needed to haul pipe for the                                                              
project,  as  well  as  rail  and   sea  transportation;  sealifts                                                              
potentially  will be  the  largest  in the  history  of the  North                                                              
Slope.  These are all big logistical challenges.                                                                                
                                                                                                                                
MR.  KONRAD turned  attention to  construction technology,  noting                                                              
that  over the  past ten  years or  so the  industry has  migrated                                                              
towards using  drilled river crossings for  environmental reasons;                                                              
that presents  real challenges  in terms of  the pipe  size, which                                                              
will likely be 48-inch heavy-walled  pipe; special studies will be                                                              
required to take  the industry another step from  where it is now.                                                              
As  for  trenching technology  -  the  ability  to put  big,  deep                                                              
trenches  in  permafrost  -  the team  is  looking  at  innovative                                                              
technology  so that blasting  is not  necessary; that could  offer                                                              
significant  cost  savings.    Another  consideration  is  whether                                                              
existing construction  equipment in  the industry can  be modified                                                              
to handle  the sorts of  pipe necessary;  studies are going  on in                                                              
that regard as well.                                                                                                            
                                                                                                                                
MR. KONRAD brought attention to the  regulatory front, noting that                                                              
a lot of  work is going on by  folks in the field,  both in Alaska                                                              
and Canada,  looking at  river crossings,  population centers,  or                                                              
where the  rights-of-way need  to go, for  example.   In addition,                                                              
for the FERC  [Federal Energy Regulatory Commission]  application,                                                              
it must be known that there are no  cultural resources or, if some                                                              
are identified, how those can be  avoided.  He noted that there is                                                              
much  landowner discussion,  especially in  the lower-48  segment.                                                              
Furthermore, this  weekend the team will begin  Beaufort Sea sonar                                                              
surveys of  the sea bottom, to  get more definition about  how the                                                              
northern  route  can  be  engineered;  the team  has  a  conflict-                                                              
avoidance agreement  in place  with the  North Slope Borough,  and                                                              
permits should be coming shortly from Washington, D.C.                                                                          
                                                                                                                                
MR. KONRAD concluded by saying there  are a lot of "moving parts,"                                                              
all moving  in the right  direction; he expressed  confidence that                                                              
the technical work would be done  by the end of the year, and that                                                              
there would be  enough information to know whether  the project is                                                              
economic  and to file  the permits.   He  turned the  presentation                                                              
back over to Mr. Marushack.                                                                                                     
                                                                                                                                
9:28 a.m.                                                                                                                       
                                                                                                                                
MR. MARUSHACK  pointed out that  when talking about  the technical                                                              
work, the team is talking about feasibility;  the design work will                                                              
come later and will cost hundreds of millions of dollars.                                                                       
                                                                                                                                
MR. MARUSHACK  informed members that  he would address  three main                                                              
aspects  of  government   engagement.    The  team   has  been  in                                                              
discussions with  "almost every agency  you can think of,  both on                                                              
the U.S., Alaska,  and Canadian levels."  In the  U.S., he and Mr.                                                              
Konrad, in  particular, have met  with the Alaska  [congressional]                                                              
delegation and all  key agencies to try to obtain  an idea of what                                                              
is possible;  members  have met with  key agencies  in Alaska  and                                                              
with the legislature.  They've also  met with the Canadian cabinet                                                              
and some  key agencies  there.  There  are weekly discussions,  at                                                              
minimum, among  team members, and  some people are  talking almost                                                              
daily with FERC to determine what  must be in the application, for                                                              
example.                                                                                                                        
                                                                                                                                
MR. MARUSHACK  noted that putting  a FERC application  together in                                                              
less than  a year is  unheard-of.  He  stressed the  importance of                                                              
putting in  front of FERC or  NEB an application that  is complete                                                              
enough that it  isn't rejected outright.  An incomplete  filing is                                                              
worse than no filing at all, and  yet the team still tries to make                                                              
these deadlines.                                                                                                                
                                                                                                                                
MR. MARUSHACK reported that the team  hasn't held as many detailed                                                              
discussions  in   Canada  with  the  territorial   and  provincial                                                              
governments,  or with  First Nations  people, as  are needed.   He                                                              
emphasized that much work has been  done on getting started on the                                                              
technical  aspects,  and that  the  team  is  now getting  to  the                                                              
governmental and political  aspects as members are freed  up to do                                                              
so.                                                                                                                             
                                                                                                                                
MR.  MARUSHACK  countered  newspaper   reports  from  Canada  that                                                              
indicate this project  can't be done; he said  the problems aren't                                                              
insurmountable but are difficult and complicated.                                                                               
                                                                                                                                
MR. MARUSHACK turned  attention to "State Engagement  Issues."  He                                                              
said the  team just started  that process  in the last  few weeks.                                                              
He  stressed  the  importance  of   having  dialogue  between  the                                                              
producers  and the  State of  Alaska  regarding "fiscal  stability                                                              
uncertainty."  As  the team has tried to identify  the key problem                                                              
areas, there  is an increasing  awareness that the  uncertainty of                                                              
risk is  a chief  problem.  He  remarked, "None  of us  have spent                                                              
this kind  of money  on a nonsanctioned  project before,  so we're                                                              
trying to eliminate risk where we can."                                                                                         
                                                                                                                                
MR. MARUSHACK pointed out that one  area of risk involves what the                                                              
"deal" will  be with the  state; there  needs to be  discussion in                                                              
that regard.   The objective is  to have the key  terms understood                                                              
prior to  the January legislative session.   The idea would  be to                                                              
work with the  state, trying to "line out" the  various aspects so                                                              
that  legislators would  have a  starting point.   Key  discussion                                                              
items include valuation clarity on severance and royalties.                                                                     
                                                                                                                                
MR.  MARUSHACK noted  that a  number  of issues  are not  pipeline                                                              
issues, but producer issues.  Ad  valorem tax certainty is an area                                                              
involving a lot  of cost.  One issue with this  project is that it                                                              
will  take so  much time  to develop  before the  first gas  [goes                                                              
through the line].   To do a present-value analysis  creates a big                                                              
problem; therefore,  the team would like to talk  about ad valorem                                                              
issues, a major cost during the initial  development phases of the                                                              
project.                                                                                                                        
                                                                                                                                
MR. MARUSHACK continued with key  items for discussion.  Referring                                                              
to  the item  "Gas  take-in-kind and  nomination  process" on  the                                                              
"State Engagement Issues" slide,  he explained that this gets into                                                              
what amount of gas is available in  Alaska over the long term.  So                                                              
far,  the team  has seen  that the  amount  of gas  at startup  in                                                              
Alaska would be very small when compared  to the [ultimate] volume                                                              
being talked about,  perhaps 20 to 30 million cubic  feet a day in                                                              
Fairbanks versus  a 4-BCF/D pipeline.   The pipeline  will require                                                              
long-term commitments.   He asked how that can  come together with                                                              
"growth  opportunities" for  the State  of Alaska.   He said  [the                                                              
team]  thinks  the  answer  is  expandability,   but  it  requires                                                              
dialogue  and   understanding  of  what  the   opportunities  are.                                                              
Addressing the  final key item  for discussion, "Project  risk and                                                              
long-term certainty,"  he noted the need  to talk to the  state to                                                              
ensure there is common footing on those issues.                                                                                 
                                                                                                                                
MR. MARUSHACK turned  attention to a slide  titled "Simplification                                                              
of State Royalty,  Severance Valuation."  He expressed  the desire                                                              
to  have a  common  royalty and  severance  methodology, with  the                                                              
pricing simple and clear.  [The team]  believes the wellhead price                                                              
for royalty and  severance should be linked to the  Lower 48 [with                                                              
a transportation  differential].   He said it  should not  be that                                                              
difficult where there  is a defined market in the  Lower 48.  [The                                                              
slide  showed the  following components,  alluded to  in the  oral                                                              
presentation:   "Define market price;  Agreement on  gas valuation                                                              
terms; Concurrence with FERC/NEB  tariff terms; Processing fees."]                                                              
He  suggested  that  using  those  components,  clarity  could  be                                                              
provided regarding the wellhead value.                                                                                          
                                                                                                                                
MR.  MARUSHACK  told members  two  issues  are of  major  concern:                                                              
economics  and  politics.    The  team  is  working  hard  on  the                                                              
economics,  which  it  doesn't  control   but  influences  through                                                              
choices about  how and where the  pipe is purchased,  for example,                                                              
or how to  deal with tariff [indisc.]  in order to make  it as low                                                              
as  possible.   However, the  team  has very  little influence  on                                                              
politics, which  could kill  the project.   Those two  issues will                                                              
ultimately decide whether there is a project.                                                                                   
                                                                                                                                
MR. MARUSHACK  addressed items on  the final slide,  titled "Wrap-                                                              
up," which read:                                                                                                                
                                                                                                                                
     We are fully engaged in a joint program to evaluate and                                                                    
     progress a large, modern pipeline from Alaska to Canada                                                                    
     and the lower-48 states                                                                                                    
                                                                                                                                
     There is a growing market for Alaskan gas, but we most                                                                     
     be cost-competitive to be a viable project                                                                                 
                                                                                                                                
       It is not yet clear that we can develop an economic                                                                      
     project                                                                                                                    
                                                                                                                                
     It is premature to preclude any options at this point                                                                      
                                                                                                                                
       Still targeting completion of engineering and route                                                                      
     studies by year end                                                                                                        
                                                                                                                                
MR.  MARUSHACK  finished  the  presentation  by  emphasizing  that                                                              
competition in the  Lower 48 includes LNG [liquefied  natural gas]                                                              
imports, coal-bed  methane, and  other gas.   This is  a strategic                                                              
project for which it doesn't matter  what prices are this year; it                                                              
matters what  will happen  eight years from  now and for  the next                                                              
twenty  years.   The team  is trying  to identify  all hurdles  in                                                              
order to  figure out  how to do  a project.   He again  emphasized                                                              
that it is not clear whether there  is an economic project at this                                                              
point,  and  stressed   the  importance  of  having   a  thorough,                                                              
methodical  way  of  looking  at the  two  route  options  without                                                              
precluding any options at this time.                                                                                            
                                                                                                                                
9:37 a.m.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  GREEN   noted  that  during  the   previous  day's                                                              
hearing, it was  asked whether gas could be sold  by the producers                                                              
without modifying  the lease agreements  [which allow for  the gas                                                              
to be used to lift oil].                                                                                                        
                                                                                                                                
MR. MARUSHACK or MR. KONRAD replied  that they think so; they have                                                              
gone through  the lease agreements,  which they believe  allow for                                                              
major gas sales up to 1.75 BCF/D.                                                                                               
                                                                                                                                
REPRESENTATIVE  GREEN responded  that according  to testimony  the                                                              
previous  day, this  is  one of  the big  questions  - some  lease                                                              
agreements  may or  may  not allow  that.   He  asked whether  the                                                              
team's understanding  is that  sale is allowed  up to  1.75 BCF/D,                                                              
with negotiations above that amount.                                                                                            
                                                                                                                                
MR. MARUSHACK or  MR. KONRAD replied, "We haven't  seen that as an                                                              
issue to date."  He offered to get  back to the committee on that.                                                              
                                                                                                                                
REPRESENTATIVE GREEN  asked:  If the agreements  don't all provide                                                              
for that, or if  there is a big question in  somebody's mind, will                                                              
this hold up the  project while that is being determined?   Or can                                                              
the project go ahead while that is being resolved?                                                                              
                                                                                                                                
MR.  MARUSHACK and  MR.  KONRAD indicated  [the  team] would  keep                                                              
doing all  the work it is  doing, and offered the  impression that                                                              
the state wants the producers to move forward.                                                                                  
                                                                                                                                
REPRESENTATIVE GREEN  responded affirmatively.   He noted  that in                                                              
the  newspaper  there  has  been mention  of  extracting  the  gas                                                              
liquids downstream  in Alberta, Canada.   He asked how  that would                                                              
affect the royalties due the state.                                                                                             
                                                                                                                                
MR. KONRAD replied  that it is one of the severance  [and royalty]                                                              
issues that  Mr. Marushack was talking  about; the team  will work                                                              
through  that with the  state, over  the next  several months,  to                                                              
come up with an agreed-upon valuation methodology.                                                                              
                                                                                                                                
REPRESENTATIVE  GREEN asked  whether  the team  has started  those                                                              
negotiations.                                                                                                                   
                                                                                                                                
MR.  MARUSHACK or  MR. KONRAD  answered  that there  has been  one                                                              
general meeting and one "a little  more detailed meeting," so that                                                              
the  people who  "work  the issues"  can  start  working with  the                                                              
state.   That  hasn't  happened yet,  though,  except for  general                                                              
conversations;   there   has   been  no   detailed   exchange   of                                                              
information.                                                                                                                    
                                                                                                                                
REPRESENTATIVE GREEN  said the legislative  body wouldn't  want to                                                              
come into  session in January with  that either unresolved  or not                                                              
resolved  to the  approval of  the legislature.   The  legislators                                                              
will want to see how those negotiations  are going before actually                                                              
reconvening.                                                                                                                    
                                                                                                                                
MR. MARUSHACK and MR. KONRAD indicated understanding.                                                                           
                                                                                                                                
9:42 a.m.                                                                                                                       
                                                                                                                                
REPRESENTATIVE DAVIES referred to  NGL and asked whether there are                                                              
possibilities for multiple locations for that "takeoff."                                                                        
                                                                                                                                
MR. MARUSHACK  or MR.  KONRAD answered  probably not, although  it                                                              
may  depend on  how  gas  is taken  out  in Alberta,  through  one                                                              
pipeline or multiple pipelines.   [Indisc.]                                                                                     
                                                                                                                                
AN UNIDENTIFIED  SPEAKER asked whether  it can be done  on smaller                                                              
scales.                                                                                                                         
                                                                                                                                
MR. MARUSHACK or MR. KONRAD suggested  NGLs could be taken out and                                                              
sent to California or Chicago, for  example, but wouldn't be taken                                                              
out along the route.  [Indisc.]                                                                                                 
                                                                                                                                
REPRESENTATIVE DAVIES  said it sounds  as if the  discussions with                                                              
the state executive branch are just  beginning.  He asked whether,                                                              
in those discussions,  state ownership or partial  state ownership                                                              
has been discussed as an option.                                                                                                
                                                                                                                                
MR. MARUSHACK  or MR. KONRAD  replied no,  it hadn't come  up, but                                                              
surmised that it would.                                                                                                         
                                                                                                                                
REPRESENTATIVE  DAVIES  asked  whether  the  team  is  willing  to                                                              
entertain state ownership as an option.                                                                                         
                                                                                                                                
MR.  MARUSHACK or  MR. KONRAD  said,  "The State  of Alaska's  our                                                              
partner."   He  said  his personal  concern  is only  a matter  of                                                              
timing  and being able  to work  efficiently on  all those  issues                                                              
[indisc.].   He stated willingness  to consider the idea  of state                                                              
ownership.                                                                                                                      
                                                                                                                                
REPRESENTATIVE DAVIES referred to  the FERC application.  He asked                                                              
whether it is  necessary to have the open season  begin in January                                                              
or right  away, or whether the  team could do the  application and                                                              
contemplate a later open season.                                                                                                
                                                                                                                                
MR. MARUSHACK  or MR. KONRAD replied,  "You need to have  an open-                                                              
season process in place to have a complete application."                                                                        
                                                                                                                                
REPRESENTATIVE DAVIES  asked whether the process  requires that it                                                              
start right away.                                                                                                               
                                                                                                                                
MR. MARUSHACK or  MR. KONRAD replied that he supposed  it could be                                                              
started  anytime, but  it  needs  to be  done  before putting  the                                                              
application  in.    [Indisc.]   Expansion  of  open  seasons  also                                                              
occurs.                                                                                                                         
                                                                                                                                
AN UNIDENTIFIED SPEAKER noted that  at the previous day's hearing,                                                              
the committee  had heard that FERC  can extend the open  season to                                                              
keep an  application alive  "without extending  that timeline  for                                                              
that open season."                                                                                                              
                                                                                                                                
AN UNIDENTIFIED SPEAKER said it will  be a major issue - access or                                                              
the lack thereof.  Just to say "we  can expand the line anytime we                                                              
want is  not the correct  answer," he added.   "It's one  of them,                                                              
but it's not the only answer."                                                                                                  
                                                                                                                                
9:46 a.m.                                                                                                                       
                                                                                                                                
SENATOR  OLSON  asked   what  the  general  sense   is,  from  the                                                              
producers' standpoint,  of state  involvement, at whatever  level,                                                              
for this project.                                                                                                               
                                                                                                                                
MR. MARUSHACK  or MR.  KONRAD said  from a small  businessperson's                                                              
standpoint,  he wasn't  sure  he would  like  to see  any type  of                                                              
government entity as his partner.  [Indisc.]                                                                                    
                                                                                                                                
MR. MARUSHACK or MR. KONRAD added:                                                                                              
                                                                                                                                
     We've  talked  to  a  lot  of   prospective  partners  -                                                                   
     pipeline companies,  et cetera - and I think  our desire                                                                   
     would be that,  to the extent there are  other companies                                                                   
     ... or entities  involved in this project,  that they're                                                                   
     bringing  value to the  project.  And  if the state  can                                                                   
     bring value  to the  project, that's a  good thing.   If                                                                   
     they're going  to take value  from the project  in terms                                                                   
     of not  being able to make  decisions or not  being able                                                                   
     to  be responsive  to  decisions that  need  to be  made                                                                   
     every  day   in  terms  of  building  and   operating  a                                                                   
     pipeline,  then that  would  be a  bad  thing, and  that                                                                   
     would be bad for all of us, probably.                                                                                      
                                                                                                                                
MR. MARUSHACK  or MR. KONRAD said  it isn't a question  of needing                                                              
equity  from  the state,  but  of whether  it  helps  to move  the                                                              
project along.                                                                                                                  
                                                                                                                                
9:48 a.m.                                                                                                                       
                                                                                                                                
SENATOR  OLSON  noted  that  up   North  there  are  economic  and                                                              
political issues.  He asked about  support for the northern route.                                                              
                                                                                                                                
MR. MARUSHACK and  MR. KONRAD replied that they  haven't seen much                                                              
support  [indisc.]  the  northern  route  yet.   There  have  been                                                              
surveys, and the dialogue is started,  but they don't have all the                                                              
answers yet.   The reaction is  somewhat emotionally based  on the                                                              
perception that  there will  be more jobs  and access to  gas from                                                              
the  southern  route,  as  well as  being  better  for  the  state                                                              
[indisc.].   There needs  to be more  dialogue in terms  of actual                                                              
facts around the decision to be made.                                                                                           
                                                                                                                                
9:50 a.m.                                                                                                                       
                                                                                                                                
CHAIRMAN  TORGERSON  asked  how  the group  plans  to  engage  the                                                              
legislature between  now and January.  He mentioned  the issues of                                                              
taxes and certainty regarding tariffs, for example.                                                                             
                                                                                                                                
MR. MARUSHACK or  MR. KONRAD expressed the need to  discuss how to                                                              
put something  together that  moves the  project along,  without a                                                              
backlash in the legislature.                                                                                                    
                                                                                                                                
MR.  MARUSHACK  or MR.  KONRAD  added  that  they would  make  the                                                              
request that the legislature and  the administration talk as well.                                                              
                                                                                                                                
9:50 a.m.                                                                                                                       
                                                                                                                                
REPRESENTATIVE DAVIES asked what  having terms "understood" means.                                                              
                                                                                                                                
MR. MARUSHACK or  MR. KONRAD answered that ideally  there would be                                                              
a set of possible answers.  He said  he is thinking of it in terms                                                              
of  corporations, as  opposed  to the  state.   He  likened it  to                                                              
worker bees'  getting together to  work out what they  believe the                                                              
proper answers are, and then moving up the line for approval.                                                                   
                                                                                                                                
CHAIRMAN TORGERSON  noted that  Mr. Bill  Corbus was present  from                                                              
the administration and could address tax issues.                                                                                
                                                                                                                                
9:51 a.m.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  OGAN  referred  to  the  [legislative  Majority's]                                                              
previous fiscal  policy of  reducing the budget  for five  years -                                                              
approximately $250 million.  Now  the budget is being increased by                                                              
$130-$140  million  in  general  fund  (GF) spending.    He  asked                                                              
whether  that  is having  any  chilling  effect on  decisions  and                                                              
concerns  about  future  taxation,  for  example.   He  asked  Mr.                                                              
Marushack and  Mr. Konrad  to respond,  as individuals,  about any                                                              
chilling effect on oil and gas development as a whole in Alaska.                                                                
                                                                                                                                
MR. KONRAD replied:                                                                                                             
                                                                                                                                
     Fiscal  stability is of  great interest  to us, both  in                                                                   
     terms of the rules which Mr.  Marushack has talked about                                                                   
     and in terms,  in a macro sense, that the state  is on a                                                                   
     steady path.  ... As an industry,  I think we'd  love to                                                                   
     see a balanced budget.  And  we understand it's not that                                                                   
     easy, but  the general sense  of stability would  help a                                                                   
     lot, and instability doesn't help a lot.                                                                                   
                                                                                                                                
MR. MARUSHACK added that the idea  of heading down a path and then                                                              
having part  of the  economics taken  away is pretty  frightening.                                                              
That  is why  there is  a desire  to start  engaging in  [dialogue                                                              
with] the state.                                                                                                                
                                                                                                                                
REPRESENTATIVE   OGAN  said   his  concern   is  that  there   are                                                              
legislators who want to impose an  income tax, for example, but he                                                              
has been hearing, from the industry,  concerns about the change in                                                              
direction.  On  another issue, he remarked that  the Department of                                                              
Revenue  has said  the  fluctuations  in gas  prices  have a  much                                                              
greater effect on the netback than,  say, possibly increased costs                                                              
of the  southern route.   He asked whether  that was  addressed in                                                              
the  presentation yesterday,  and whether  there is  a sense  that                                                              
"what the long-term price is going  to be will have a much greater                                                              
effect."   [There  was no  audible answer.]   Representative  Ogan                                                              
then asked:   What  can we  expect by  January:  Route  selection?                                                              
Project sanction?                                                                                                               
                                                                                                                                
MR. KONRAD  answered that  route selection by  the end of  2001 is                                                              
an  aspiration, as  is the  decision whether  or not  there is  an                                                              
economic project.                                                                                                               
                                                                                                                                
REPRESENTATIVE  OGAN asked  whether the  appropriate entities  "or                                                              
whoever controls the purse strings"  will make a decision on route                                                              
selection or a project sanction by the first of the year.                                                                       
                                                                                                                                
MR.  KONRAD   replied   that  he  thought   this  was   discussing                                                              
applications,  rather than  project  sanction.   As Mr.  Marushack                                                              
mentioned earlier,  there are hundreds of millions  of dollars for                                                              
engineering  and  cost-estimating  to  do  after  this  phase,  to                                                              
actually go  out and  get "real bids  for real  work."   The final                                                              
decision to construct the project  will be contingent upon getting                                                              
an  approved  application  and what  it  looks  like in  terms  of                                                              
stipulations  that are tolerable  or intolerable,  as well  as the                                                              
actual cost  at that  point.  Therefore,  he expects  sanction for                                                              
the  project to  be  down the  road some  years.   Typically,  one                                                              
doesn't sanction a project until  knowing it has been approved and                                                              
until there is an actual cost.                                                                                                  
                                                                                                                                
MR. MARUSHACK  agreed that  the actual  time of sanctioning  would                                                              
come some  time after receiving the  permits.  However,  the group                                                              
will be spending additional amounts of money [indisc.].                                                                         
                                                                                                                                
9:56 a.m.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  GREEN  referred  to  the  assertion  that  if  the                                                              
Mackenzie  line gets  ahead  of this  project,  there wouldn't  be                                                              
enough workforce  to do both simultaneously.   He said if  that is                                                              
still a viable route,  there will need to be some  sort of size or                                                              
volume determined  for the  Mackenzie portion  of this.   He asked                                                              
whether the Mackenzie  line is that far ahead of  this project; if                                                              
so, is  the Mackenzie  project anticipating  going "over  the top"                                                              
with gas  coming down,  or just building  for the Mackenzie  delta                                                              
gas?                                                                                                                            
                                                                                                                                
MR. MARUSHACK  or MR. KONRAD  answered that he  believes Mackenzie                                                              
is designing  for its  own project,  and he  doesn't know  whether                                                              
that  project is  ahead or  not, although  it began  earlier.   He                                                              
added,  "We're working  awfully  fast, and  I  don't know  whether                                                              
they'll go ahead or not."                                                                                                       
                                                                                                                                
REPRESENTATIVE GREEN  said his concern isn't the size  of the line                                                              
that Mackenzie is thinking about building.                                                                                      
                                                                                                                                
MR.  MARUSHACK  or MR.  KONRAD  responded  that if  the  Mackenzie                                                              
project does it  alone, it will be a 1-BCF/D line.   "Their gas is                                                              
coming," he added.                                                                                                              
                                                                                                                                
REPRESENTATIVE   GREEN  followed   up  on  Representative   Ogan's                                                              
concerns.  He  commenting on the volatility of gas  prices, and he                                                              
asked how  long the group  estimates a  gas contract will  be for.                                                              
He asked whether stability is being  looked at from the standpoint                                                              
of "take or pay"  for longer periods of time again,  as there used                                                              
to be.                                                                                                                          
                                                                                                                                
MR. MARUSHACK  or MR. KONRAD  answered that those  are independent                                                              
company decisions,  and the companies  aren't working  together in                                                              
terms of  how to  market their  gas or  whether it is  short-term,                                                              
medium-term, or long-term.                                                                                                      
                                                                                                                                
MR. MARUSHACK or MR. KONRAD added  that the producers will have to                                                              
commit that "they'll  make the gas flow," but as  to where it goes                                                              
and whether  it is sold "long term,  fixed, or spot" is  up to the                                                              
individual company.                                                                                                             
                                                                                                                                
9:59 a.m.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  GREEN  remarked  that other  companies  have  come                                                              
forward saying they  would like to build the line.   He asked, "Is                                                              
that in your  crystal ball, that some other company  would build a                                                              
line, transmit it  - like you do in the Lower  48 quite commonly -                                                              
and you would provide gas for another  company to sell, or sell it                                                              
through another company's transmission?"                                                                                        
                                                                                                                                
MR. MARUSHACK or MR. KONRAD answered:                                                                                           
                                                                                                                                
     If someone builds a better mousetrap  and then designs a                                                                   
     more  efficient system  than  we can  design  ourselves,                                                                   
     we're  all for it.   They'd  take the associated  risks.                                                                   
     That  would  be a  great  thing.   So  far, no  one  has                                                                   
     stepped forward to do that.                                                                                                
                                                                                                                                
REPRESENTATIVE  GREEN  asked whether  he  is hearing,  then,  that                                                              
there is no objection to someone else's transporting the gas.                                                                   
                                                                                                                                
MR. MARUSHACK or MR. KONRAD replied,  "No objection, provided it's                                                              
cost-effective."                                                                                                                
                                                                                                                                
10:00 a.m.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  FATE asked  how much  input the  group has  on the                                                              
Mackenzie project.  He surmised that  it isn't a race.  [The reply                                                              
was  indiscernible.]    Noting  that the  group  is  studying  two                                                              
routes, he then asked whether the  group has had discussions about                                                              
route preferences with FERC.                                                                                                    
                                                                                                                                
MR. KONRAD answered  that the environmental and  regulatory groups                                                              
are talking  with FERC about general  concepts relating to  how to                                                              
file  permits,  although there  may  have been  discussions  about                                                              
route specifics.                                                                                                                
                                                                                                                                
REPRESENTATIVE  FATE asked  whether  there is  any  idea how  many                                                              
[long-term] jobs there  would be in maintenance,  security, and so                                                              
forth along the length of either pipeline route.                                                                                
                                                                                                                                
MR. KONRAD replied  that with today's technologies  and the buried                                                              
pipeline, those jobs would be much  fewer than for Alyeska [TAPS].                                                              
                                                                                                                                
10:02 a.m.                                                                                                                      
                                                                                                                                
CHAIRMAN TORGERSON  thanked Mr. Marushack  and Mr.  Konrad, noting                                                              
that he would  put additional questions  in the form of  a letter.                                                              
He  said he'd  personally  put hundreds  of  hours into  severance                                                              
taxes,  for example.   As for  the ad  valorem tax,  he said,  "We                                                              
probably  won't  engage much  of  that  until  we know  what  your                                                              
project is."   He surmised that  "a holiday on that  property tax"                                                              
would  be  deferred  until  gas  is  actually  flowing,  which  he                                                              
suggested is an incentive to make the line more economical.                                                                     
                                                                                                                                
CHAIRMAN TORGERSON called a short  recess at 10:04 a.m.  He called                                                              
the meeting back to order at 10:08 a.m.                                                                                         
                                                                                                                                
Yukon Pacific Corporation                                                                                                     
                                                                                                                                
10:08 a.m.                                                                                                                      
                                                                                                                                
MR. JEFF LOWENFELS,  President and Chief Executive  Officer (CEO),                                                              
Yukon Pacific  Corporation  (YPC), came  forward to discuss  YPC's                                                              
right-of-way  and  LNG  project.    He noted  that  with  him  was                                                              
executive vice  president [Wayne]  Lewis.  [Provided  to committee                                                              
members were  four items:   A TAGS Conditional  Right-of-Way Lease                                                              
dated December  1988; a letter from  Mr. Lowenfels to  the Highway                                                              
Gas  Policy  Council  dated  April 10,  2001,  with  a  seven-page                                                              
attachment marked  "confidential"; a letter from  Mr. Lowenfels to                                                              
the Joint  Pipeline Office dated  July 2, 2001,  with attachments;                                                              
and a handout paralleling a slide presentation.]                                                                                
                                                                                                                                
MR. LOWENFELS  called  attention to  page 3 of  the last  handout,                                                              
noting that it depicts an 800-mile  pipeline to Valdez, from which                                                              
markets in the Pacific Rim will be  served, specifically in Japan,                                                              
Korea,  and Taiwan,  as well as  potential markets  in Mexico  and                                                              
western  North  America, including  California.    The project  is                                                              
"virtually  permitted,"  with  all  major permits  obtained.    He                                                              
indicated there would  potentially be a spur line  from Glennallen                                                              
into  the Wasilla  area, which  would  provide gas  to the  entire                                                              
Southcentral  area  and  to  the  Kenai  Peninsula.    Although  a                                                              
potential leg could  go from the Fairbanks area  down into Canada,                                                              
that isn't the project as designed today.                                                                                       
                                                                                                                                
MR. LOWENFELS referred to Prudhoe  Bay, noting that page 4 shows a                                                              
picture  of  the  conditioning  plant   that  would  be  built  to                                                              
condition the gas and take out the  carbon dioxide and impurities.                                                              
The  gas would  then  be transported  to  Valdez  in the  existing                                                              
pipeline corridor, using  chilled pipe.  Port Valdez  would be the                                                              
terminus and Anderson Bay the site  for construction and operation                                                              
relating to shipping from an LNG facility.                                                                                      
                                                                                                                                
MR. LOWENFELS  noted that  the project would  require a  number of                                                              
LNG tankers,  which are  state-of-the-art  already.  Tankers  from                                                              
Valdez could  serve markets not only  in Asia, but also  in Mexico                                                              
and North America.                                                                                                              
                                                                                                                                
10:11 a.m.                                                                                                                      
                                                                                                                                
MR. LOWENFELS pointed out that page  9 [unmarked in packets] lists                                                              
TAGS  permits and  authorizations.   Noting  that  Mr. Bill  Britt                                                              
[Department  of   Natural  Resources  (DNR)]  had   testified  the                                                              
previous  day  about the  quality  of  the various  projects,  Mr.                                                              
Lowenfels stated,  "We feel  that our project  permits are  at the                                                              
highest  level."  He  said YPC  is continuing  a wetlands  program                                                              
this summer that  will continue for another two  summers, with the                                                              
information  collected during  the summer  being processed  in the                                                              
wintertime.                                                                                                                     
                                                                                                                                
MR.  LOWENFELS explained  that the  permits allow  the ability  to                                                              
come down  to the detail required.   Page 11 shows  a construction                                                              
index for  a series  of map filings  in the  next couple  of weeks                                                              
with the  State of Alaska  on the  state rights-of-way;  the index                                                              
shows the  quantity of  information contained  on each map  YPC is                                                              
submitting, and page 12 depicts one  of the maps, with a detail of                                                              
1 inch  = 1,000  feet.  "We  know exactly  where we're  going," he                                                              
commented, "and we  know where we're going in great  detail."  Not                                                              
provided was the technical index.   He went on to say the maps are                                                              
part  of  YPC's   graphic  information  system,   and  are  highly                                                              
effective  and  useful  in  computerized  form so  the  state  and                                                              
federal  agencies can  know exactly  what  is going  on above  and                                                              
below ground,  as well  as what  is being  impacted, for  example.                                                              
This is the highest  detail, to his knowledge,  of any submissions                                                              
made to state and federal governments [indisc.].                                                                                
                                                                                                                                
10:13 a.m.                                                                                                                      
                                                                                                                                
MR.  WAYNE   LEWIS,  Executive   Vice  President,  Yukon   Pacific                                                              
Corporation, noted  that this series and the supporting  data will                                                              
be filed within  the next couple of weeks.  It  follows the filing                                                              
in  early  July  that  is  1  inch =  1  mile.    He  mentioned  a                                                              
construction series as well as a  full geotechnical series, noting                                                              
that it will be 141 maps.                                                                                                       
                                                                                                                                
MR. LOWENFELS said  as a result of that detail, shown  on page 14,                                                              
YPC  has been  able  to develop  accurate  cost  estimates of  the                                                              
project.    The chart  begins  at  9.2  million  tons a  year  for                                                              
startup, expanding to 13.8, and then  having a second expansion to                                                              
18.4.  He  pointed out that 9.2  million tons a year  equals about                                                              
1.2 billion  cubic feet a day; at  18.4 million tons a  year, that                                                              
is 2.5 BCF/D.                                                                                                                   
                                                                                                                                
MR.  LOWENFELS noted  cost estimates  on the  chart, and  informed                                                              
members that  the pipeline estimate  was done in  conjunction with                                                              
Willbros Engineering  and Michael Baker Jr.; the  LNG facility was                                                              
"costed"  by  Kellogg  Brown  &  Root  and  by  Air  Products  and                                                              
Chemicals, Inc.   Those are the  vendor licensees and  licensor of                                                              
the  process for  making  LNG, and  these  are extremely  accurate                                                              
estimates,  the best  possible.   The  estimate at  startup is  $6                                                              
billion, expanding  up to  $8.3 billion [for  the second  level of                                                              
expansion].  It  doesn't include the cost of the  ship, which will                                                              
be owned  by third  parties. He  explained that  he was  trying to                                                              
make an apples-to-apples comparison  between an LNG project and an                                                              
overland project in order to provide some clarity.                                                                              
                                                                                                                                
MR. LOWENFELS  reported that YPC  has learned that  developing gas                                                              
is a challenge  - perhaps one of the state's  greatest challenges.                                                              
He noted  that many people  in the room  had been in  the business                                                              
for 25  years or more.   He referred  to the list  of "characters"                                                              
from  1970 to  2001  on page  17,  which included  the  following:                                                              
"Arctic  Gas,   El  Paso,  Northwest/Foothills,   ACETS,  MACPORC,                                                              
Kivalina/Wainwright, GTL,  ARC, LNG Sponsor Group,  YPC/TAGS."  He                                                              
pointed out several  attempts to bring gas to  market, emphasizing                                                              
how complicated and difficult it is.                                                                                            
                                                                                                                                
MR.  LOWENFELS referred  to  page  18, noting  that  in the  1970s                                                              
Congress considered  three project options [to supply  North Slope                                                              
gas to the Lower 48].  The same options  remain today:  Arctic Gas                                                              
of 25  years ago is  now the "over-the-top"  project; the  El Paso                                                              
LNG  project was  similar to  the YPC  project of  today; and  the                                                              
Northwest/Foothills  project  is now  the  Alaska Highway  (Alcan)                                                              
project.                                                                                                                        
                                                                                                                                
MR. LOWENFELS reported  that the changes are these:   First, today                                                              
Alaskan gas can  serve more than one market, whereas  25 years ago                                                              
each market  was potentially a  single-market project,  taking the                                                              
gas to Asia  or to the Lower 48.   Not only has the  market to the                                                              
Lower  48 changed,  but  the Asian  market  for  LNG has  matured,                                                              
developed,  and  become  clear  regarding  its  demand  needs;  by                                                              
contrast, 25 years ago the potential  demand by 2000 was projected                                                              
to be 7 million  tons of LNG to Asia, so the change  to perhaps 30                                                              
or 40 million tons is a good one.   Second, 2 BCF/D previously was                                                              
the biggest  LNG project  anyone  had heard of;  by contrast,  now                                                              
people routinely talk  about taking 4 BCF/D of gas  from the North                                                              
Slope - and sometimes up to 6 BCF/D.                                                                                            
                                                                                                                                
10:19 a.m.                                                                                                                      
                                                                                                                                
MR. LOWENFELS  addressed the "apples-to-apples"  comparison chart,                                                              
noting four  basic configurations.   The first would be  a 4-BCF/D                                                              
TAGS  LNG  project  that  would serve  just  North  America.    He                                                              
indicated  the  chart overlays  the  YPC  project on  a  potential                                                              
overland project  to Calgary,  Alberta, and  pointed out  that the                                                              
costs  are relatively  the same.    He emphasized  that these  are                                                              
YPC's cost numbers,  based on 13.6 BCF/D, which  differ from those                                                              
of Mr. Konrad relating to 15 to 20  BCF/D.  He said for an apples-                                                              
to-apples  comparison,  "the  numbers  would be  12.8  versus  the                                                              
13.6."  He explained a related page that read:                                                                                  
                                                                                                                                
        Capital cost of TAGS and ALCAN project to Alberta                                                                       
     differ by less than 6 percent (cost-of-service is about                                                                    
     the same)                                                                                                                  
                                                                                                                                
     Pipeline tariff from Alberta  to Canadian/US border with                                                                   
     Lower  48 is about  the same  as the  LNG tanker  tariff                                                                   
     (about $0.50/mmbtu)                                                                                                        
                                                                                                                                
     Fuel consumption is about the same                                                                                         
                                                                                                                                
     Cost  of NGL  removal  for  ALCAN ([about]  $2  billion)                                                                   
     assumed the same as cost of LNG receiving terminals                                                                        
                                                                                                                                
MR. LOWENFELS pointed  out that the conclusion on  page 26 is that                                                              
the cost to deliver  4 BCF/D of North Slope gas  to the West Coast                                                              
of North America is about the same  as the cost to deliver 4 BCF/D                                                              
of gas in Canada to the Lower 48 via an Alcan pipeline.                                                                         
                                                                                                                                
MR.  LOWENFELS highlighted  one very  important  difference:   The                                                              
reason people talk about 4 BCF/D  for an overland pipeline is that                                                              
it is needed for economies of scale,  "just as we needed somewhere                                                              
between 1.8  and 2 billion cubic  feet a day for our  economies of                                                              
scale for an  LNG project."  That  means there must be  4 BCF/D of                                                              
that market in North American.  He elaborated:                                                                                  
                                                                                                                                
     For  the LNG  project,  we are  predicated  on going  to                                                                   
     Asia.  The meat and potatoes  of the project overland is                                                                   
     the  market  in  the  lower-48  states.    For  our  LNG                                                                   
     project, that meat and potatoes  becomes just gravy.  We                                                                   
     don't  need   all  of  that   4-billion-cubic-feet-a-day                                                                   
     market, competing in the United States.                                                                                    
                                                                                                                                
10:22 a.m.                                                                                                                      
                                                                                                                                
CHAIRMAN  TORGERSON asked  whether Mr. Lowenfels  could make  that                                                              
comparison without including the tankers.                                                                                       
                                                                                                                                
MR. LOWENFELS  answered that he would  show it later,  because the                                                              
cost of  service includes the tanker  tariff.  The  tanker portion                                                              
of the  project can  be taken  into account  by either owning  the                                                              
tankers and including them in the  cost of service as an ownership                                                              
item, along with  maintenance and operations, or by  taking a cost                                                              
of service that  a tankering company would charge  for the tariff.                                                              
Mr. Lowenfels added that the tanker  transportation is "out of our                                                              
original cost  number of 8.2."   He suggested perhaps it  would be                                                              
clarified as he continued.                                                                                                      
                                                                                                                                
10:23 a.m.                                                                                                                      
                                                                                                                                
MR. LOWENFELS said there is no question  ANGTA [Alaska Natural Gas                                                              
Transportation Act]  benefits are restricted to  that Alcan route.                                                              
Alaska  LNG  to  North America  may  involve  some  ANGTA  issues;                                                              
clearly, the "over-the-top"  route has the same ANGTA  issues.  He                                                              
noted that FERC may have jurisdiction  over the pipeline that goes                                                              
through Canada,  but doesn't currently have jurisdiction  over the                                                              
TAGS project  - which is entirely  within Alaska - except  for the                                                              
export site [at Valdez] and the safety of the LNG facility.                                                                     
                                                                                                                                
AN UNIDENTIFIED SPEAKER  offered that if there is  delivery to the                                                              
West Coast, there may be FERC involvement.                                                                                      
                                                                                                                                
MR. LOWENFELS  said there  would have to  be some tweaking  to the                                                              
permits,  but the  framework  is  there.   He  continued with  his                                                              
presentation, saying  it isn't limited to a 4 BCF/D  market in the                                                              
U.S.   There are international  markets as  well.  He  referred to                                                              
testimony  before  a committee  the  previous  year that  YPC  was                                                              
looking  at Mexican  markets  and  potentially bringing  gas  from                                                              
Mexico over  the border into California.   Today, he  noted, there                                                              
are seven proposed new LNG terminals  under discussion.  Four very                                                              
large companies, including El Paso  and Enron, have announced they                                                              
are going  to build LNG  receiving facilities in  Mexico [indisc.]                                                              
United States.                                                                                                                  
                                                                                                                                
MR. LOWENFELS  said the numbers range  from a new demand  of about                                                              
22 BCF/D up to  30 BCF/D needed in the Lower 48,  with 8 new BCF/D                                                              
needed between now and the year 2010.   Clearly, the LNG potential                                                              
for serving a good  portion of that market has been  put in place,                                                              
and is in play right now by these  large companies.  He noted that                                                              
many of these companies are involved in Alaskan gas today.                                                                      
                                                                                                                                
MR. LOWENFELS told  members that similar to the  overland pipeline                                                              
options,  increasing the  size of  the TAGS project  to a  4-BCF/D                                                              
project  only improves  the economies  of  scale.   He added,  "We                                                              
think our  economies of  scale work at  less than 2  billion cubic                                                              
feet  a day."    Furthermore,  similar  to the  overland  project,                                                              
taking gas  by LNG maintains  the security of  a supply of  gas to                                                              
the U.S. and from the U.S. to [indisc.].                                                                                        
                                                                                                                                
10:27 a.m.                                                                                                                      
                                                                                                                                
MR. LOWENFELS noted that the second  LNG market obviously is Asia.                                                              
Included in the  packet were the actual slides  from [Shiguru] Sam                                                              
Muraki, the buyer of LNG from Tokyo  Gas Company Ltd. who spoke to                                                              
the legislature [at a joint hearing  February 15, 2001, before the                                                              
Senate Resources Standing Committee,  the House Resources Standing                                                              
Committee, and the  House Special Committee on Oil  and Gas].  Mr.                                                              
Lowenfels  pointed out  that  the  pages in  the  packet show  the                                                              
existing  LNG  trade; various  prospects  for  new LNG  demand  in                                                              
Japan,  Korea, and  Taiwan; and  the demand  out of  Asia and  the                                                              
Pacific in general,  including "a little bit of  India and China,"                                                              
of  25-50 MTA  (million  tons per  annum).   He  noted that  these                                                              
numbers come from the second-largest buyer of LNG in Asia.                                                                      
                                                                                                                                
MR. LOWENFELS pointed  out that [YPC's] numbers are  not that much                                                              
different "because,  frankly, we take our numbers  from the buyers                                                              
in Asia."   He recalled that  Mr. Muraki had indicated  the future                                                              
natural gas  trade, as far as  he was concerned,  involved Alaska.                                                              
Mr. Lowenfels noted  that the page in the packet  shows gas coming                                                              
from Prudhoe  Bay to  the Asian market.   He  also noted  that Mr.                                                              
Muraki   had  indicated   Tokyo   Gas  has   contracted  for   new                                                              
construction  of  two LNG  tankers,  which are  being  constructed                                                              
"even within  our borders."  Mr.  Lowenfels said new  Asian demand                                                              
for LNG  by the  year 2010 is  projected to be  50 billion  tons a                                                              
year.  That is a big change from discussions 25 years ago.                                                                      
                                                                                                                                
MR.  LOWENFELS reported  that  one thing  that  hasn't changed  in                                                              
those 25  years is that Asia  is still [Alaska's]  largest trading                                                              
partner. He listed  seafood, timber, coal, and LNG  since 1969; he                                                              
stated the belief that more LNG will  cement that relationship and                                                              
that  [Asia]  will  continue  to  be  [Alaska's]  largest  trading                                                              
partner.                                                                                                                        
                                                                                                                                
10:29 a.m.                                                                                                                      
                                                                                                                                
MR. LOWENFELS  addressed  page 40,  which shows  LNG prices  as of                                                              
January 2001.   He said one of  the great ironies is  that the LNG                                                              
price in  Asia "during  the life  of our  project has always  been                                                              
sustained  high enough  to be  able to  handle our  project."   He                                                              
elaborated:                                                                                                                     
                                                                                                                                
     The  only reason,  it  seems to  me,  why we're  talking                                                                   
     about  an  overland project  is  because last  year  the                                                                   
     prices went  up, and all of  a sudden the  prices looked                                                                   
     like they  were going  to be high  enough to be  able to                                                                   
     afford an  overland project.   And so we got  interested                                                                   
     in the overland project.                                                                                                   
                                                                                                                                
     But the prices have been high  enough in Asia throughout                                                                   
     the history of  Yukon Pacific.  And if you  take a look,                                                                   
     in  January  they  paid $4.88  average  for  their  LNG;                                                                   
     Alaska, $4.54 for the LNG.   And the prices are reported                                                                   
     on a  lag-time basis.  The  last prices I saw,  I think,                                                                   
     were April  prices - very, very  similar, if not  just a                                                                   
     little bit higher.                                                                                                         
                                                                                                                                
MR. LOWENFELS  asked, "Well, what does  that mean in terms  of our                                                              
being able to serve that market?"   Noting that the [TAGS] cost of                                                              
service to Asia  is depicted on page 41, he suggested  the cost of                                                              
service to California could be determined  by looking at that page                                                              
as well.  He stated:                                                                                                            
                                                                                                                                
     We  believe that  we  can deliver  that  gas, without  a                                                                   
     wellhead  price -  so we don't  have a  fuel cost  price                                                                   
     included,  and we don't  have the  wellhead price  - but                                                                   
     our cost  of service  to Asia  ranges between $2.69  and                                                                   
     $2.91.   Going back one page,  to page 40, you  see that                                                                   
     they're  paying $4.88.   There is an  awful lot  of room                                                                   
     there, it seems to me, for some  negotiation with regard                                                                   
     to a wellhead  value that is attractive not  only to the                                                                   
     producers but also attractive to the State of Alaska.                                                                      
                                                                                                                                
     And  that  sensitivity that  [Commissioner]  Condon  was                                                                   
     talking  about  yesterday  is   grossly  amplified  when                                                                   
     you're  talking  about  the difference  between  $3  and                                                                   
     $3.10.  But it has less of a  difference if your cost of                                                                   
     service  ... is  $2.91  and the  price  that people  are                                                                   
     willing  to pay is  $4.88.   There is a  lot of room  in                                                                   
     here for value for the state  and for the producers, and                                                                   
     for [indisc.] some project.                                                                                                
                                                                                                                                
     The future LNG  market?  Well, there's no  question that                                                                   
     the LNG demand  in Asia, as indicated by  Sam Muraki, is                                                                   
     going to  be about  50 million tons  per year.   TAGS is                                                                   
     commercial at 13.8  million tons per year.   The cost of                                                                   
     service is $2.69 to $2.91 per  MMBTU.  The price they're                                                                   
     paying today is $4.88.  I think  we've got the economics                                                                   
     of a good project.                                                                                                         
                                                                                                                                
10:31 a.m.                                                                                                                      
                                                                                                                                
MR. LOWENFELS turned attention to  the third LNG market:  in-state                                                              
use.  He noted  that Commissioner Condon or perhaps  another state                                                              
official had  indicated the  previous day that  "they are  in fact                                                              
doing some studies on what potential  in-state use would be."  Mr.                                                              
Lowenfels said:                                                                                                                 
                                                                                                                                
     We've looked  at it.  The  state's looked at  it before.                                                                   
     We've  heard numbers  anywhere from  200 to 500  million                                                                   
     cubic  feet  a day  under  existing circumstances.    If                                                                   
     there were  to turn out to  be some changes in  the Cook                                                                   
     Inlet with  regard to a  [indisc.] facility or  the urea                                                                   
     facility, those  numbers would change.  If  there was an                                                                   
     entity such as  Netricity or one of these  groups that's                                                                   
     ...  up from  California  -  they're talking  about  the                                                                   
     potential of using Alaskan gas  ... in order to help the                                                                   
     "tech" industry  - those  numbers, again, would  change.                                                                   
     But  there's no question,  gas is  needed in  Fairbanks.                                                                   
     There's  no question,  gas  is needed  in  Valdez.   And                                                                   
     there is becoming a very serious  question that that gas                                                                   
     is needed here in [indisc.] area.                                                                                          
                                                                                                                                
MR.  LOWENFELS noted  that the  [Cook  Inlet] gas  resource is  in                                                              
decline.  He said  TAGS can still deliver North Slope  gas in time                                                              
to  offset any  decline  that is  projected  with  regard to  Cook                                                              
Inlet, at a price  competitive with the current  Cook Inlet price.                                                              
He returned  attention briefly to  the cost-of-service  numbers on                                                              
page 40.                                                                                                                        
                                                                                                                                
10:33 a.m.                                                                                                                      
                                                                                                                                
MR.  LOWENFELS discussed  potential  configurations  of a  Valdez-                                                              
based LNG project, listed on a page that read:                                                                                  
                                                                                                                                
     Potential configurations of the TAGS project                                                                               
                                                                                                                                
     1.   Stand  alone  at Valdez  with  LNG export  only  to                                                                 
          Asia (current TAGS configuration)                                                                                   
                                                                                                                                
     2.   Stand  alone  at  Valdez  with LNG  only  to  North                                                                 
          America (4 bifid option just discussed)                                                                             
                                                                                                                                
     3.   In combination  with an ALCAN pipeline  project via                                                                   
          a Y-line to Valdez from Delta Junction                                                                                
                                                                                                                                
     4.   Stand  alone at  Valdez with LNG  delivery to  both                                                                 
        North America and Asia (LNG supply hub in Valdez)                                                                     
                                                                                                                                
MR. LOWENFELS said  he doesn't like the term "hub,"  but likes the                                                              
idea of a  supply area that can  serve multiple markets.   That is                                                              
what Valdez  will become with an  LNG project.  He noted  that the                                                              
third listed option would be to Canada,  and emphasized that these                                                              
options didn't exist 25 years ago, nor did the [indisc.].                                                                       
                                                                                                                                
MR. LOWENFELS  told members  an LNG "Y"  or hub at  Valdez clearly                                                              
has intriguing advantages.  First,  it is "basically ready to go."                                                              
It  doesn't require  waiting  for a  lot more  permits  to make  a                                                              
corporate decision that  the project makes sense and  so forth.  A                                                              
smaller  Asian   project  and  a  larger  lower-48   project  than                                                              
previously  contemplated   are  among  the  possibilities.     For                                                              
example, a  4-BCF/D [LNG]  project could provide  1 BCF/D  to Asia                                                              
and 3 BCF/D to  North America, or 2 BCF/D to each.   There are any                                                              
number of changes.   He went on  to say, "The bottom  line is, our                                                              
budget ... needs  about 2 billion cubic feet of gas  a day to be a                                                              
very good economic project. Anything  over that makes these things                                                              
even better.  Multiple markets give us an opportunity."                                                                         
                                                                                                                                
MR. LOWENFELS explained  that the project infrastructure  would be                                                              
entirely within  Alaska.  He  remarked, "We're anticipating  12 to                                                              
15 thousand  [indisc.]  constructing this  project in ...  Alaska.                                                              
And we expect that there would be  600-700 people working directly                                                              
with the project  once it was completed.  And you  add on from the                                                              
potential spin-offs,  spur lines,  et cetera,  and I think  you're                                                              
talking about a much higher potential."                                                                                         
                                                                                                                                
MR. LOWENFELS  told members  the international politics  revolving                                                              
around the TAGS project versus an  overland project are minimized.                                                              
He stated:                                                                                                                      
                                                                                                                                
     We do not have to worry about  Canada.  We might even be                                                                   
     able  to induce  the  Mackenzie  delta people  to  bring                                                                   
     their gas to  Alaska, which is [indisc.],  not the other                                                                   
     way around.                                                                                                                
                                                                                                                                
     And certainly  the flexibility  to accommodate  changing                                                                   
     markets - in  Asia, we have a sustained price;  in North                                                                   
     American markets, we do not.   One might develop, and if                                                                   
     it  does,  we've  got  a  system  that  can  serve  that                                                                   
     particular [indisc.].   So it's a very,  very intriguing                                                                   
     change.  We  have become a multiple-market  location, as                                                                   
     opposed to a single-market location.                                                                                       
                                                                                                                                
10:36 a.m.                                                                                                                      
                                                                                                                                
MR.  LOWENFELS   turned  attention   to  a  handout   titled  "LNG                                                              
Positives." He noted  that LNG is portable and  can serve multiple                                                              
markets.  Alaska  LNG offers diversity of supply  from the world's                                                              
most  stable  supplier  to  the Asian  markets,  which  are  quite                                                              
concerned  about  stability.    Mr. Muraki  had  come  before  the                                                              
legislature and insisted that the  governor was wrong, and that in                                                              
fact  Asia  does  want Alaska's  gas.    Asia's  long-term  supply                                                              
projects are backed by 20-year contracts  with the world's largest                                                              
utilities,  for example,  whereas  yesterday  the CERA  [Cambridge                                                              
Energy  Research  Associates]  consultant  indicated  a  long-term                                                              
contract in  the Lower  48 is about  a year.   Alaska has  been an                                                              
extremely reliable supplier  to Japan for 32 years.   Finally, all                                                              
potential TAGS configurations can use [YPC's existing] permits.                                                                 
                                                                                                                                
MR. LOWENFELS  emphasized that YPC  would willingly work  with the                                                              
state, and would consider state ownership  of a project.  "We like                                                              
the idea  of a port authority,"  he added.   "We like the  idea of                                                              
transparency.   We want the state  to be involved in  ownership of                                                              
this project [indisc.]."                                                                                                        
                                                                                                                                
10:37 a.m.                                                                                                                      
                                                                                                                                
MR.  LOWENFELS  concluded  his  visual  presentation,  saying  the                                                              
following:                                                                                                                      
                                                                                                                                
     We  believe  that  when you  compare  the  economics  of                                                                   
     projects, you need to start  with the same daily volume.                                                                   
     That's why we talked about 4  billion cubic feet of gas.                                                                   
     You have to make apples-to-apples  comparisons, not only                                                                   
     in  costs but  in permitting  timelines and  engineering                                                                   
     timelines ....                                                                                                             
                                                                                                                                
     2005  to 2010,  the  Asian LNG  demand  is easily  large                                                                   
     enough to enable TAGS ... to  reach its [indisc.] scale,                                                                   
     and  the   Asian  LNG  market   is  not  based   upon  a                                                                   
     speculative  commodity pricing  like the  lower-48-state                                                                   
     [indisc.]   are.  Instead,   they  [indisc.]   long-term                                                                   
     contracts.  These are the standard.                                                                                        
                                                                                                                                
     And, again,  the TAGS project does not  necessarily have                                                                   
     to rely upon  the riskiest of the markets,  which is the                                                                   
     lower-48 states.  Again, with  our project, any gas sold                                                                   
     to  the  lower-48 states  is  gravy.   For  an  overland                                                                   
     project, it's  the actual meat  and potatoes -  it's the                                                                   
     whole deal.                                                                                                                
                                                                                                                                
     So, in summary,  we think that development  of the North                                                                   
     Slope  gas [has been  and will  be] challenging.   We've                                                                   
     got to take  a look at project size  [indisc.] economics                                                                   
     of shipping large  amounts of gas to the  West Coast, of                                                                   
     LNG,  are  about  the  same  as  the  economics  of  ...                                                                   
     shipping  that  same  amount  of  gas  to  the  lower-48                                                                   
     states.                                                                                                                    
                                                                                                                                
     An  LNG project  to the West  Coast has  to address  the                                                                   
     issues of ANGTA,  no question about it.   An LNG project                                                                   
     is compatible with [an] Alcan  Highway project, with the                                                                   
     Foothills  project.    I  don't   think  you'd  want  to                                                                   
     necessarily  get to [indisc.]  with a brand-new  highway                                                                   
     project; one's already been  permitted, and we have very                                                                   
     strong feelings  that, in fact, that  particular project                                                                   
     has advantages which should be taken advantage of.                                                                         
                                                                                                                                
     And  an LNG hub  in Valdez  allows Alaska  gas to  serve                                                                   
     multiple markets including the  lower-48 states, Mexico,                                                                   
     Asia, and possibly more.                                                                                                   
                                                                                                                                
10:39 a.m.                                                                                                                      
                                                                                                                                
MR. LOWENFELS turned attention to his letter in packets to the                                                                  
Highway Gas Policy Council, dated April 10, 2001.  He explained                                                                 
that it had been sent to all the council's members.  He stated:                                                                 
                                                                                                                                
     This letter  is an explanation  of [an] analysis  we did                                                                   
     of the Purvin & Gertz report  which was submitted to the                                                                   
     State of  Alaska and relied  upon [indisc.].   We looked                                                                   
     at  the Purvin  & Gertz  report,  and we  ... could  not                                                                   
     believe that  the numbers they used for the  LNG project                                                                   
     were the numbers  they used.  They used  generic numbers                                                                   
     for  an  LNG project  that  was  to  be located  on  the                                                                   
     equator, where  the efficiency  is very bad,  versus our                                                                   
     numbers  for  an LNG  project  located  in a  very  cold                                                                   
     climate, where the efficiency is extremely high.                                                                           
                                                                                                                                
     They  ...  used generic  cost  numbers, instead  of  the                                                                   
     exact cost numbers  which we have developed.   They used                                                                   
     the wrong number for the price  of LNG from Asia.  There                                                                   
     are any  number of things they  did which, when  we used                                                                   
     ...  their methodology  and went back  in and  corrected                                                                   
     the numbers,  we came  out with  a complete reversal  of                                                                   
     the value of this project to  the State of Alaska.  And,                                                                   
     in fact, we  came out with a wellhead netback  price for                                                                   
     an LNG project of over a dollar.                                                                                           
                                                                                                                                
     Now,  I'm  not  suggesting  that  that's  what  ...  the                                                                   
     wellhead price  ought to be.   But I am suggesting  that                                                                   
     the Purvin &  Gertz report was flawed.  We've  asked the                                                                   
     highway council  to ask Purvin & Gertz to  come back and                                                                   
     comment on our numbers [indisc.].                                                                                          
                                                                                                                                
     We've asked Purvin  & Gertz to comment.   We showed them                                                                   
     what  we  were  going  to submit  to  everybody.    They                                                                   
     thought,  for a  little while,  we  were going  to be  a                                                                   
     client,  and we had  a little bit  of cooperation.   And                                                                   
     when it became clear we were  not interested in becoming                                                                   
     a client until we knew that  the work that could be done                                                                   
     would be reliable, communication [indisc.].                                                                                
                                                                                                                                
     We would urge  you, as part of your comparison,  as part                                                                   
     of your analysis,  to contact Purvin & Gertz  and to ask                                                                   
     them  to  comment  on  our  analysis  of  their  report,                                                                   
     because  we believe  their report  is extremely  flawed.                                                                   
     And  they, in fact,  have created  a lot  of the  hubbub                                                                   
     about this particular  ability to bring gas  down to the                                                                   
     lower-48 states.                                                                                                           
                                                                                                                                
     We're  not  concerned  about  the  fact  that  40  large                                                                   
     companies  - oil  companies,  pipeline  companies -  are                                                                   
     subscribers to  this report.  We are concerned  that the                                                                   
     governor of the  State of Alaska indicated  at one point                                                                   
     that  this report  was influential  in  his deciding  to                                                                   
     back the  highway [route] over  an LNG project.   And if                                                                   
     that's true,  then we'd better make sure  that what's in                                                                   
     this  report  [indisc.];  that's  why  we  included  our                                                                   
     analysis, and  I would urge  you - I would  request, ask                                                                   
     you - to ask Purvin & Gertz [indisc.].                                                                                     
                                                                                                                                
MR. LOWENFELS thanked the committee.                                                                                            
                                                                                                                                
10:42 a.m.                                                                                                                      
                                                                                                                                
REPRESENTATIVE GREEN  mentioned the  flexibility to go  to markets                                                              
in Asia  and the Lower  48, as well  as "off-take"  in California.                                                              
He asked about the Northwest.                                                                                                   
                                                                                                                                
MR. LOWENFELS answered that YPC would  look at Mexico, California,                                                              
Oregon, and Washington.   Currently, two sites  are being promoted                                                              
by Outside companies  in Mexico that have capabilities  of serving                                                              
California.  There is quite a bit  of interest in serving the West                                                              
Coast  either  directly  or  [indisc.].   He  said  they  are  all                                                              
feasible  to  some  degree.    There  are  obviously  problems  in                                                              
California with citing, as well as  [indisc.] problems with moving                                                              
gas to the West Coast of the United States.  [Indisc.]                                                                          
                                                                                                                                
CHAIRMAN TORGERSON  asked Mr. Lowenfels to comment  on the Russian                                                              
gas to Japan and what influence that would have on the market.                                                                  
                                                                                                                                
MR.  LOWENFELS  answered  that  it nibbles  away  at  the  Alaskan                                                              
market, just  as LNG projects  coming into  the East Coast  of the                                                              
U.S., for example, nibble away at that market.                                                                                  
                                                                                                                                
TAPE 01-6, SIDE A                                                                                                             
                                                                                                                                
MR. LOWENFELS said  [YPC's] conversations with Tokyo  Gas indicate                                                              
"they're not all  that pleased with the idea of  having a pipeline                                                              
come  through  Canada."    He added  that  there  are  still  some                                                              
international  treaty problems and  Japan is  "still at  war" with                                                              
Russia.  That  is, therefore, not a "slam-dunk" project.   It will                                                              
challenge  the  ability of  Alaska  to get  as  large  a share  as                                                              
possible.                                                                                                                       
                                                                                                                                
CHAIRMAN  TORGERSON clarified  that he was  referring to  Sakhalin                                                              
LNG.                                                                                                                            
                                                                                                                                
MR. LOWENFELS responded, "We kind  of include that in our numbers;                                                              
we think that's a 'go.'"                                                                                                        
                                                                                                                                
CHAIRMAN  TORGERSON commented,  "They've upped  their reserves  to                                                              
something  like 86 trillion  feet  there in that  basin. ...  It's                                                              
comparable to Alaska, I suppose."                                                                                               
                                                                                                                                
MR. LOWENFELS concurred,  adding that it's another  indication "as                                                              
to why we  need to get into  that marketplace."  He  remarked that                                                              
the Sakhalin project  has phenomenal problems relating  to ice and                                                              
the location  of the fields to  be connected, "not to  mention the                                                              
geopolitical stability of the area."                                                                                            
                                                                                                                                
CHAIRMAN  TORGERSON  asked  what  YPC's  major  barrier  is  to  a                                                              
project's going  forward and whether  that barrier is  getting the                                                              
gas from the producers.                                                                                                         
                                                                                                                                
MR. LOWENFELS answered  that once the producers conclude  it is an                                                              
economic  project,  "they'll  let somebody  else  transport  their                                                              
gas."  He  noted that there  are questions about Prudhoe  Bay that                                                              
need to be followed up on.                                                                                                      
                                                                                                                                
CHAIRMAN TORGERSON remarked, "Our  royalty isn't enough to sustain                                                              
your project."                                                                                                                  
                                                                                                                                
MR. LOWENFELS responded:                                                                                                        
                                                                                                                                
     Unfortunately, it is not.  Now,  I understand that there                                                                   
     are some  problems with  [the] price  ... we're able  to                                                                   
     charge from  our royalty gas,  as well.  [Indisc.]   And                                                                   
     we keep hearing these secret  numbers.  But it's kind of                                                                   
     important, I  think, for people  who want to try  to buy                                                                   
     the gas to know what the state can sell it for.                                                                            
                                                                                                                                
10:45 a.m.                                                                                                                      
                                                                                                                                
REPRESENTATIVE DAVIES asked whether  Mr. Lowenfels has an estimate                                                              
of the long-term price of gas on the West Coast.                                                                                
                                                                                                                                
MR. LOWENFELS  said he did  not; it is very  hard to predict.   He                                                              
added that  in his office, there  is a folder with  ten statements                                                              
made by gas executives  in the Lower 48 about  desperately needing                                                              
the gas  in Alaska to  come to the Lower  48, and that  the prices                                                              
will  be high  enough  to support  that; at  the  bottom of  those                                                              
statements  are the  names  of the  individuals,  [with the  date]                                                              
1979.   He said  it takes  12 to  18 months  for new gas  supplies                                                              
[indisc.] to come online.                                                                                                       
                                                                                                                                
CHAIRMAN  TORGERSON asked  whether there  were further  questions;                                                              
none were offered.  He called an  at-ease at 10:47 a.m. and called                                                              
the meeting back to order at 10:51 a.m.                                                                                         
                                                                                                                                
Foothills Pipe Lines                                                                                                          
                                                                                                                                
10:51 a.m.                                                                                                                      
                                                                                                                                
CHAIRMAN TORGERSON  introduced Mr.  John Ellwood.   He  stated his                                                              
understanding  that Foothills  Pipe  Lines  Ltd. ("Foothills")  is                                                              
owned 50-50 by  TransCanada PipeLines Limited  ("TransCanada") and                                                              
Westcoast  Energy   Ltd.  ("Westcoast").    The   chief  executive                                                              
officers of both companies were present.                                                                                        
                                                                                                                                
MR. JOHN R.  ELLWOOD, Vice President, Engineering  and Operations,                                                              
Foothills Pipe  Lines Ltd., informed  the committee that  with him                                                              
were  Mr.   Dennis  McConaghy,   Executive  Vice  President   [Gas                                                              
Development] of  TransCanada and Co-Chief Executive  of Foothills;                                                              
and  Mr.   Mike  Stewart,   Executive  Vice  President   [Business                                                              
Development] of Westcoast and Co-Chief Executive of Foothills.                                                                  
                                                                                                                                
MR. ELLWOOD  offered a presentation  based on a  PowerPoint packet                                                              
distributed to  members [titled  "Alaska Highway Pipeline  Project                                                              
Update;  original  punctuation  and   capitalization  is  provided                                                              
unless  bracketed.]     [Much  of  Mr.  Ellwood's   testimony  was                                                              
difficult to discern because of the  sound quality.]  He discussed                                                              
the agenda on page 2, which read:                                                                                               
                                                                                                                                
     Review ANGTS Advantages                                                                                                    
     Overview of Alaskan Benefits of ANGTS                                                                                      
     Current Status                                                                                                             
     Withdrawn Partners Issue                                                                                                   
     Open Access                                                                                                                
     Potential State Participation                                                                                              
     Potential Gas Delivery to Southcentral Alaska                                                                              
     Path Forward to ANGST                                                                                                      
     Questions and Answers                                                                                                      
                                                                                                                                
MR.  ELLWOOD next  referred to  a page  titled "Alaskan  Northwest                                                              
Natural  Gas  Transportation  Company  Corporate  Ownership,"  and                                                              
mentioned a corporate  entity point of view.  He  pointed out that                                                              
TransCanada  and  Westcoast  would own  Foothills;  Foothills  and                                                              
TransCanada  would jointly  own the Alaska  Northwest Natural  Gas                                                              
Transportation Company  (ANNGTC), which holds the  certificates to                                                              
build the Alaska portion of this  project, whereas Foothills would                                                              
hold the Canadian certificates.                                                                                                 
                                                                                                                                
MR. ELLWOOD turned attention to pages that listed the "ANGTS                                                                    
Advantages."  He addressed the first listed advantage, "Earliest                                                                
Timing," which read:                                                                                                            
                                                                                                                                
     ANNGTC/Foothills was  selected by the United  States and                                                                   
     Canada  to  construct and  operate  the ANGTS  and  have                                                                   
     secured the following:                                                                                                     
                                                                                                                                
     Federal Lands ROW [rights-of-way]                                                                                          
                                                                                                                                
     Federal ROW on State lands                                                                                                 
                                                                                                                                
     FERC Certificate                                                                                                           
                                                                                                                                
     NEB Certificate                                                                                                            
                                                                                                                                
     US Corps 404 permits                                                                                                       
                                                                                                                                
     Yukon ROW                                                                                                                  
                                                                                                                                
     British Columbia Map Reserve                                                                                               
                                                                                                                                
     Each of  these components could  be expected  to require                                                                   
     18  to  36   months  to  secure  after  a   green  field                                                                 
     application is submitted.                                                                                                  
                                                                                                                                
10:55 a.m.                                                                                                                      
                                                                                                                                
MR. ELLWOOD turned attention to the second ANGTS advantage,                                                                     
"Flexible Framework," which read:                                                                                               
                                                                                                                                
     The  ANGTS framework  provides an  existing, tested  and                                                                   
     accepted  framework for expediting  the delivery  of ANS                                                                   
     gas to the Lower 48                                                                                                        
                                                                                                                                
     Canada  has  repeatedly  reaffirmed   its  intention  to                                                                   
     fulfill   its  commitments   reflected   in  the   ANGTS                                                                   
     framework                                                                                                                  
                                                                                                                                
     The ANGTS  framework allows for updates to  the existing                                                                   
     U.S.  and Canadian  regulatory framework  to modify  the                                                                   
     project, including  initial required shipping  capacity,                                                                   
     the  use of  updated technology,  environmental  review,                                                                   
     open access and negotiated rate structure                                                                                  
                                                                                                                                
     The  ANGTS sponsors  are committed  to working with  the                                                                   
     State,  ANS producers  and other  potential shippers  to                                                                   
     develop  a  project  that achieves  the  commercial  and                                                                   
     economic objectives of all parties                                                                                         
                                                                                                                                
MR. ELLWOOD, referring to updates, explained that in Canada                                                                     
[Foothills] has expanded its pipeline facilities five times since                                                               
the original  part of the project  was completed.  Each  was under                                                              
the  [ANGST]  regime,  and  each   time  [indisc.]  up  to  modern                                                              
standards.                                                                                                                      
                                                                                                                                
10:56 a.m.                                                                                                                      
                                                                                                                                
MR. ELLWOOD  discussed the third  ANGTS advantage,  "Land Tenure."                                                              
[The packet  contained a map  and sections addressing  Alaska, the                                                              
Yukon, and  North B.C.]   He noted that  in Alaska, there  are 434                                                              
miles of right-of-way  declared, both on federal  and state lands.                                                              
Approximately  200  miles are  under  active application  at  this                                                              
time.  In the  Yukon Territory, [Foothills] has  declared a right-                                                              
of-way  across  the  entire  territory.   And  in  northern  B.C.,                                                              
Foothills holds "map reserves" in British Columbia [indisc.].                                                                   
                                                                                                                                
MR. ELLWOOD discussed  the fourth ANGTS advantage,  "Land Tenure,"                                                              
which read:                                                                                                                     
                                                                                                                                
       Best alternative for delivering Alaskan gas to the                                                                       
     Lower 48                                                                                                                   
                                                                                                                                
     Can be constructed with proven technology                                                                                  
                                                                                                                                
     Has been extensively reviewed                                                                                              
                                                                                                                                
     Relies on existing infrastructure                                                                                          
                                                                                                                                
     Will minimize adverse environmental effects                                                                                
                                                                                                                                
     Delivers gas to Alaskan consumers                                                                                          
                                                                                                                                
MR.  ELLWOOD  noted   that  the  extensive  review   has  included                                                              
environmental  and  technical  review.    Regarding  the  existing                                                              
infrastructure,  this project doesn't  require constructing  major                                                              
new roads, for example.                                                                                                         
                                                                                                                                
10:58 a.m.                                                                                                                      
                                                                                                                                
MR. ELLWOOD addressed  the final ANGTS advantage,  "Best Access to                                                              
North American Pipeline Grid," which read:                                                                                      
                                                                                                                                
     Access to the North American grid enhances the success                                                                     
     of the Alaska Highway Pipeline                                                                                             
                                                                                                                                
       Foothills, TransCanada and Westcoast have built and                                                                      
     operate most of the gas pipelines in Canada                                                                                
                                                                                                                                
     Offers expanded market opportunities for Alaska Gas                                                                        
                                                                                                                                
       Foothills, TransCanada and Westcoast recognized as                                                                       
     experienced, reliable and cost effective pipe builders                                                                     
     and operators.                                                                                                             
                                                                                                                                
MR. ELLWOOD noted  that "expanded market opportunities  for Alaska                                                              
gas" includes reaching all North  American market centers by going                                                              
through  facilities that  "ourselves  or our  shareholders own  or                                                              
participate in."                                                                                                                
                                                                                                                                
10:59                                                                                                                           
                                                                                                                                
MR. ELLWOOD  turned attention to  "Alaskan Benefits,"  noting that                                                              
[the companies]  had commissioned  a study some  time ago  under a                                                              
joint venture between  a Calgary company and an  Anchorage company                                                              
to look at  economic impacts and benefits; their  results indicate                                                              
the following [provided in packet]:                                                                                             
                                                                                                                                
     Based on $3 to $5 mmbtu gas price range over 25 years                                                                      
                                                                                                                                
     Increase in Gross State Product     $55 to $122 billion                                                                    
                                                                                                                                
     Increase in employment              26,000 person years                                                                    
                                                                                                                                
     Increase in state and local gov't                                                                                          
           revenues                      $12 to $29 billion                                                                     
                                                                                                                                
     Increase in gross revenues for                                                                                             
       Alaskan Producers              $36 to $103 billion                                                                       
                                                                                                                                
     Gross revenue gains to Gas                                                                                                 
          Producers through earlier                                                                                             
          (3 years) connection           $4 to $12 billion                                                                      
                                                                                                                                
MR.  ELLWOOD paraphrased  from  the  next page,  "Current  Status,                                                              
ANGTS Update," which read:                                                                                                      
                                                                                                                                
     Finalizing state lands right-of-way [in Alaska]                                                                            
                                                                                                                                
      Negotiating a Memorandum of Understanding with Joint                                                                      
     Pipeline Office                                                                                                            
                                                                                                                                
     Continuing dialogue with:                                                                                                  
          Government officials in Ottawa and Washington                                                                         
          Aboriginal Communities                                                                                                
          ANS Producers                                                                                                         
          ANNGTC Withdrawn Partners                                                                                             
                                                                                                                                
11:00 a.m.                                                                                                                      
                                                                                                                                
MR. ELLWOOD turned attention to "Current  Status, Discussions with                                                              
Gas Producers/Shippers," which read:                                                                                            
                                                                                                                                
     Ongoing discussions with North Slope Producers                                                                             
                                                                                                                                
     Contact   with   other  interested   parties   such   as                                                                   
     exploration  and development  companies  [active on  the                                                                   
     North  Slope but  which don't  yet  hold any  reserves],                                                                   
     power generators and power marketers                                                                                       
                                                                                                                                
MR. ELLWOOD next discussed the page titled "Current Status,                                                                     
Discussions With Aboriginal Communities," which read:                                                                           
                                                                                                                                
     Continuing   to   build  upon   positive   relationships                                                                   
     Foothills has developed over two decades                                                                                   
                                                                                                                                
     Building  support through  discussion  of the  community                                                                   
     benefits of pipeline development                                                                                           
                                                                                                                                
MR. ELLWOOD paraphrased from the page titled "Withdrawn Partners                                                                
Issue," which read:                                                                                                             
                                                                                                                                
     ANNGTC Withdrawn  Partners have right to  recover monies                                                                   
     under certain circumstances                                                                                                
                                                                                                                                
     It  is  recognized  that the  Withdrawn  partners  issue                                                                   
     needs  to   be  addressed  in  the  overall   commercial                                                                   
     resolution of this pipeline development.                                                                                   
                                                                                                                                
     This  is an issue  between ourselves  and the  Withdrawn                                                                   
     partners                                                                                                                   
                                                                                                                                
     The process  to re-enlist  Withdrawn Partners has  begun                                                                   
     and although  in the early stages,  so far we  have seen                                                                   
     some encouraging signs.                                                                                                    
                                                                                                                                
MR. ELLWOOD  explained that originally  there were 11  partners in                                                              
the Alaska  Northwest Consortium, but  the only two  remaining are                                                              
Foothills  and TransCanada.   Those  [withdrawn]  partners have  a                                                              
right to recover some money.                                                                                                    
                                                                                                                                
11:02 a.m.                                                                                                                      
                                                                                                                                
MR. ELLWOOD next addressed "Open Access," which read:                                                                           
                                                                                                                                
     Alaska's   interests  best   served  by  continued   gas                                                                   
     exploration and development                                                                                                
                                                                                                                                
     Access to pipeline vital to E&P activity                                                                                   
                                                                                                                                
     Financing  for the initial  pipeline will require  long-                                                                   
     term shipping contracts                                                                                                    
                                                                                                                                
     Additional future capacity provided by:                                                                                    
          Additional compression                                                                                                
          Looping                                                                                                               
          Combination of both                                                                                                   
                                                                                                                                
     Additional capacity  will be available to  all [shippers                                                                   
     and  second-generation  producers]  on  an  open  access                                                                   
     basis                                                                                                                      
                                                                                                                                
     As  a   pure  pipeline  service   provider,  it   is  in                                                                   
     [Foothills'] interests  to provide expanded  capacity to                                                                   
     meet demand                                                                                                                
                                                                                                                                
11:04 a.m.                                                                                                                      
                                                                                                                                
MR. ELLWOOD addressed "Potential State Participation," which                                                                    
read:                                                                                                                           
                                                                                                                                
     We understand  the State is looking at ways  to directly                                                                   
     participate in a pipeline development                                                                                      
                                                                                                                                
     There are  several ways the  State could participate  in                                                                   
     the ANGTS                                                                                                                  
          As a lender or guarantor                                                                                              
          As a shipper                                                                                                          
          As an equity partner                                                                                                  
                                                                                                                                
     ANNGTC/Foothills  would consider discussion of  these or                                                                   
     other matters of interest to the State                                                                                     
                                                                                                                                
     Gas to Southcentral Alaska                                                                                                 
                                                                                                                                
     Current gas demand in Southcentral  is approximately 220                                                                   
     Bcf per year                                                                                                               
                                                                                                                                
     This volume could  be delivered via a 16-inch  spur line                                                                   
     connected to the ANGTS near Fairbanks                                                                                      
                                                                                                                                
     As a pure pipeline service provider,  it is in Foothills                                                                   
     interests  to serve additional  supply and market  areas                                                                   
     whenever it is economic to do so                                                                                           
                                                                                                                                
MR. ELLWOOD clarified that there is no particular point chosen                                                                  
for a connection to the ANGTS near Fairbanks.                                                                                   
                                                                                                                                
11:05 a.m.                                                                                                                      
                                                                                                                                
MR. ELLWOOD addressed "Path Forward for ANGTS," which read:                                                                     
                                                                                                                                
     Foothills                                                                                                                
                                                                                                                                
     Continuing to  work toward goal of commercial  alignment                                                                   
     with Producers and potential Shippers                                                                                      
                                                                                                                                
     Finalizing state lands ROW                                                                                                 
                                                                                                                                
     Building support  in Canada  for two stand alone  arctic                                                                   
     pipelines                                                                                                                  
                                                                                                                                
     Recommendations to Joint Committee                                                                                       
                                                                                                                                
       Publicly encourage gas producers and pipeliners to                                                                       
     bring collective strengths to the table and accelerate                                                                     
     development of the ANGTS                                                                                                   
                                                                                                                                
        Support the conclusion that only ANGTS meets the                                                                        
       Governor's goal of earliest possible start for the                                                                       
     pipeline project                                                                                                           
                                                                                                                                
MR.  ELLWOOD   thanked  the  committee   and  offered   to  answer                                                              
questions.                                                                                                                      
                                                                                                                                
CHAIRMAN TORGERSON asked the presenters  to talk further about the                                                              
discussions with  the producers, including what  barriers they see                                                              
right now regarding  [ANNGTC/Foothills] "coming together  with the                                                              
terms."                                                                                                                         
                                                                                                                                
AN UNIDENTIFIED  SPEAKER, apparently on teleconference,  mentioned                                                              
endeavoring  to have collaboration  in order  to have them  better                                                              
understand the merits of the ANGTS [indisc.].                                                                                   
                                                                                                                                
CHAIRMAN  TORGERSON asked  whether the withdrawn  partners  are an                                                              
issue to them also, and whether that is a barrier.                                                                              
                                                                                                                                
THE  SAME  UNIDENTIFIED  SPEAKER  answered  that it  is  an  issue                                                              
[indisc.].                                                                                                                      
                                                                                                                                
CHAIRMAN TORGERSON asked the speaker  to briefly mention Mackenzie                                                              
Valley.  He  requested verification of his understanding  that the                                                              
speaker is  involved in  at least a proposal  to build  a pipeline                                                              
out of there.                                                                                                                   
                                                                                                                                
THE  SAME  UNIDENTIFIED  SPEAKER  said  Foothills  itself  is  not                                                              
[indisc.]  engage in  a line  from the  delta to  [indisc.] for  a                                                              
pipeline.  Both  TransCanada and Westcoast separately  are looking                                                              
at the possibility [indisc.].                                                                                                   
                                                                                                                                
11:08 a.m.                                                                                                                      
                                                                                                                                
CHAIRMAN  TORGERSON  noted  that   "almost  everyone's  had  their                                                              
opinion of  which route  goes first  and the  impact to  the other                                                              
route."  He requested comment on that.                                                                                          
                                                                                                                                
AN UNIDENTIFIED SPEAKER said he'd  heard with interest some of the                                                              
questions  and  comments  about   what  is  going  on  in  Canada,                                                              
including a suggestion that FERC  regulate the pipeline in Canada.                                                              
"I don't see that  happening," he said.  He added  that there is a                                                              
dynamic going  on here:   Canadians, including the  government and                                                              
certain  commercial  proponents,   are  actively  looking  at  the                                                              
development  of the Mackenzie  delta [indisc.].   When  looking at                                                              
that development,  probably three  or four  things will  drive it.                                                              
One  is  "producibility."   In  Alaska,  7  BCF/D today  is  being                                                              
reinjected back into  Prudhoe Bay; that is ready  to go, under the                                                              
right economic  conditions.   By contrast,  that doesn't  exist in                                                              
the Mackenzie delta.  He stated:                                                                                                
                                                                                                                                
     Probably -  in our opinion -  two to perhaps  upwards of                                                                   
     five years  of exploration and development  activity ...                                                                   
     is going  to define  both the scope  and timing  of that                                                                   
     development.                                                                                                               
                                                                                                                                
     The  second  large  issue  is  the  regulatory  process.                                                                   
     There    are   13   or    14   overlapping    regulatory                                                                   
     jurisdictions.   There  are  required permits  [indisc.]                                                                   
     development up  the Mackenzie Valley [indisc.].   By our                                                                   
     count, somewhere  in the neighborhood of  425 individual                                                                   
     permits  in the group  are [indisc.].   That  regulatory                                                                   
     process  needs to be  permanent.  But  the good  news is                                                                   
     that the  regulatory agencies  are starting  discussions                                                                   
     about  harmonizing  that regulatory  process.   But  the                                                                   
     reality is that  you [indisc.].  Sometimes  you get that                                                                   
     clarified,  and that's  absolutely  the  key to  anybody                                                                   
     proceeding down a path of trying to permit a pipeline.                                                                     
                                                                                                                                
     Then  I think the  third issue  is that  it's very  well                                                                   
     known  and   well  reported   in  the  media   what  the                                                                   
     aboriginal  groups'   aspirations  to  participate   and                                                                   
     perhaps even  legally own and operate a pipeline  up the                                                                   
     Mackenzie  Valley.  ...  From our  perspective,  we  ...                                                                   
     recognize  that First  Nations participation  will be  a                                                                   
     part of  [indisc.].   How that  is actually achieved  is                                                                   
     going to  take some time, and  I think you've  seen that                                                                   
     the groups are not completely  aligned. ... That's going                                                                   
     to take timing,  and I think that's ... one  of the risk                                                                   
     elements to the combined "over  the top/up the Mackenzie                                                                   
     Valley"  concept, if you  will, that really  underscores                                                                   
     what  I would  view as  a compounding  [indisc.].   It's                                                                   
     very much ... timing and economics.                                                                                        
                                                                                                                                
11:11 a.m.                                                                                                                      
                                                                                                                                
AN UNIDENTIFIED  SPEAKER said [indisc.].   The two  resources both                                                              
have to  come to market  and [indisc.]  be thought of  as crowding                                                              
each other  out.   The only  other observation  is that  Mackenzie                                                              
Valley [indisc.] is  largely self-contained.  He  said he believes                                                              
there is an opportunity for them  to "get their act together" over                                                              
the  next 12  to 18  months.   He  mentioned Alaska  and being  as                                                              
expeditious as possible.                                                                                                        
                                                                                                                                
11:12 a.m.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  GREEN  referred   to  testimony  the  day  before,                                                              
mentioned in the newspaper that morning,  that there could be some                                                              
resistance in Canada to this sort  of pipeline.  He asked what the                                                              
feeling is  about that  either being the  case generally  or being                                                              
any kind of obstruction.                                                                                                        
                                                                                                                                
AN  UNIDENTIFIED  SPEAKER asked  whether  that  was to  a  highway                                                              
pipeline. [There  was no audible  response.]  He said  he believes                                                              
there are  some parts to that.   No doubt, the  federal government                                                              
in Ottawa hopes  it [indisc.].  There is a potential  of "regional                                                              
development   implication  and   benefits,  [indisc.]   developing                                                              
reserves in the Mackenzie [delta] area."                                                                                        
                                                                                                                                
THE SAME UNIDENTIFIED SPEAKER continued,  saying he believes it is                                                              
also pretty clear in Ottawa that  energy has not been an issue for                                                              
perhaps 15 years.   However, the price has gone up  in the past 12                                                              
months; although  it has subsided  a bit, it has  rekindled energy                                                              
as an  issue on  the "political  stage" in  Ottawa, which  is just                                                              
"getting mobile" in this regard.                                                                                                
                                                                                                                                
THE SAME UNIDENTIFIED  SPEAKER pointed out that there  is a treaty                                                              
in  place between  the two  countries, but  the [U.S.]  government                                                              
hasn't  yet asked  [Canada's]  federal government  about  it.   He                                                              
stated:                                                                                                                         
                                                                                                                                
     [It is] my  view - it would be a very strong  one - that                                                                   
     if asked,  the Canadian government  is going to  live up                                                                   
     to  the   treaty  that  exists.     Now,  in   terms  of                                                                   
     resistance,  you  could  ...  look  at  that  ...  in  a                                                                   
     regulatory  permitting  sense.   Clearly,  starting  and                                                                   
     using what we  have, the existing approval,  is going to                                                                   
     mitigate against resistance  that could arise in a green                                                                   
     field application,  from an environmental side  and from                                                                   
     a competitors' [indisc.].                                                                                                  
                                                                                                                                
ANOTHER UNIDENTIFIED  SPEAKER mentioned using the  ANGTS [indisc.]                                                              
and getting  [indisc.] to  market.  By  contrast, there  are other                                                              
formulations wherein all the issues  about how Canada will respond                                                              
to bringing  Alaskan  gas across  [indisc.].   That's a much  more                                                              
formidable undertaking.  He said  the treaty isn't going to assign                                                              
the various  conditions involved in  [indisc.] lived up to  by the                                                              
Canadian government.                                                                                                            
                                                                                                                                
CHAIRMAN  TORGERSON  noted  that  the  previous day  there  was  a                                                              
presentation  by a representative  from Cambridge Energy  Research                                                              
Associates, who  was talking  about potential political  conflicts                                                              
between the State  of Alaska and the Canadian government  - to his                                                              
own  understanding,  mainly because  of  "our" opposition  to  the                                                              
"over-the-top"    route.      Chairman    Torgerson   said    that                                                              
representative had no response to  his question about "the premier                                                              
of Alberta saying  'no pipeline unless I steal  all the liquids.'"                                                              
He  said  that is  the  same  thing.   All  the  governments  have                                                              
responsibility to  constituents to get  the highest and  best use.                                                              
Chairman Torgerson went on to say:                                                                                              
                                                                                                                                
     So when  we exercise our  rights, then we're  considered                                                                   
     to  be  - in  his  view -  counterproductive  to  what's                                                                   
     happening  in Canada.    But we  also  know there  [are]                                                                   
     other premiers that tried to  block the Alaska route and                                                                   
     went  to Ottawa  to  ask for  legislation  to block  the                                                                   
     Alaska  route until  the Mackenzie  delta [project]  was                                                                   
     built.  And that's also public knowledge. ...                                                                              
                                                                                                                                
     He  was  referring to  that,  and  I think  that's  what                                                                   
     Representative Green was talking  about, the perceived -                                                                   
     at least  in his thoughts  - conflict between  the State                                                                   
     of Alaska and ... the Canadian  government. ... Again, I                                                                   
     don't see that;  I see us as doing things  that we think                                                                   
     [are] right  for Alaska,  no more than  all the  rest of                                                                   
     them are,  and it's  part of the  mix when you  sit down                                                                   
     and try to work these things out.                                                                                          
                                                                                                                                
AN UNIDENTIFIED SPEAKER responded:                                                                                              
                                                                                                                                
     When I get  confronted with that, that there's  no doubt                                                                   
     that there  is some sentiment  in Ottawa that  disagrees                                                                   
     with the legislative approach  that [indisc.] have taken                                                                   
     here in Alaska, [indisc.], that,  to me, is just kind of                                                                   
     bristle  and background  noise that  I think  ultimately                                                                   
     ... is irrelevant.                                                                                                         
                                                                                                                                
     When I  say to  the people in  Ottawa, about the  debate                                                                   
     over the  routing - and I  [indisc.] this to  the energy                                                                   
     ministry -  is just go  up to Alaska  and talk to  a few                                                                   
     [indisc.].   You'll  find out  what  people think  about                                                                   
     routing.  And  I know, Senator, you were  in Alberta ten                                                                   
     days  ago.    And  you've  seen  the  benefits  of  what                                                                   
     development of the natural gas  industry and value-added                                                                   
     industry [indisc.]  in that and do to an  economy over a                                                                   
     period of time.   And I think it's pretty  simple, in my                                                                   
     mind, how to counter that. ...                                                                                             
                                                                                                                                
     In  terms  of Premier  Klein,  I think  Premier  Klein's                                                                   
     statements about  having to say about where  the liquids                                                                   
     are  processed -  and  [indisc.] saying  "extracting  my                                                                   
     fair share on the way" or something  like that? - I view                                                                   
     that as  a way of  engaging in the  issue and  staking a                                                                   
     claim that he wants to be part of the debate.                                                                              
                                                                                                                                
     I think the  analysis isn't that the  Alberta government                                                                   
     has [indisc.] at stake, in an  ownership sense ....  The                                                                   
     Alberta  government  wasn't   in  interested  in  seeing                                                                   
     [indisc.] getting  access to  those liquids in  a market                                                                   
     sense to make better use of  the existing infrastructure                                                                   
     that's in Alberta.   And I think he ...  could have been                                                                   
     perhaps  more  judicious in  his  choice of  words;  but                                                                   
     that's what that was about.                                                                                                
                                                                                                                                
11:18 a.m.                                                                                                                      
                                                                                                                                
ANOTHER UNIDENTIFIED SPEAKER added (indisc).  He mentioned                                                                      
including optimizing the existing ability in Alberta and in the                                                                 
infrastructure that takes  gas from Alberta to the Lower  48.   He                                                              
said the advent  of Alaska gas will be "useful  and synergistic to                                                              
how  that infrastructure  is currently  being used."   He  offered                                                              
that  regarding the  interests of  Alberta on  the liquids  issue,                                                              
"the alignment will let the market decide."  He added:                                                                          
                                                                                                                                
     They do  have a fundamental  alignment that I  think can                                                                   
     be  built  on.    Again,  that  goes  to  the  issue  of                                                                   
     [indisc.].   And some of our  companies have had  a long                                                                   
     ... experience with extraction  issues, and although the                                                                   
     Alberta  government   [indisc.],  I  think   they  fully                                                                   
     understand  the  notion  of   [indisc.]  and  how  those                                                                   
     decisions are going to be made.                                                                                            
                                                                                                                                
CHAIRMAN  TORGERSON clarified  that he doesn't  blame the  premier                                                              
for what he did.  He then said:                                                                                                 
                                                                                                                                
     He  has certain  avenues available  to  raise red  flags                                                                   
     when he wants more value added  in his -- as well as the                                                                   
     State  of  Alaska  and  the   Yukon  ...  the  Northwest                                                                   
     Territories, and all four are  using whatever tools they                                                                   
     have ... to make the highest  and best use for ... their                                                                   
     particular constituents.  ... I made that  clear through                                                                   
     his chief of staff at the meeting  that you folks set up                                                                   
     for me, that ... came by and  visited with us there.  So                                                                   
     we'll have more business with  [them] a little later on.                                                                   
                                                                                                                                
11:21 a.m.                                                                                                                      
                                                                                                                                
REPRESENTATIVE DAVIES  referred to a  comment made earlier  by the                                                              
producers  that the  simultaneous  construction  of a  [Mackenzie]                                                              
Valley and  highway pipeline  would tax  North American  resources                                                              
and perhaps world resources.  He  asked, "Do you concur with that?                                                              
Is that a substantial issue?"                                                                                                   
                                                                                                                                
AN UNIDENTIFIED  SPEAKER concurred that simultaneous  construction                                                              
of two  such projects  would be very  difficult to achieve,  given                                                              
the capabilities  of the pipeline  construction industry  in North                                                              
America.  He said it would be far  better to sequence the two, one                                                              
behind the other.                                                                                                               
                                                                                                                                
REPRESENTATIVE DAVIES  referred to the state ownership  issue.  He                                                              
asked, "Do  you see any  real opportunities  for the state  to add                                                              
value to your  proposal?  Or is  that just something that  you are                                                              
willing to consider for political reasons?"                                                                                     
                                                                                                                                
THE SAME UNIDENTIFIED SPEAKER responded:                                                                                        
                                                                                                                                
     I  think  we've said  in  our  presentation ...  we  are                                                                   
     willing to consider it.  I think  both of our respective                                                                   
     companies would  come from ... the view  that government                                                                   
     ownership is not  the preferred way to go.   But if that                                                                   
     was  what was  required to  actually  make something  go                                                                   
     [indisc.], that would be considered.                                                                                       
                                                                                                                                
     Our  experience, ...  and the company  of Westcoast,  is                                                                   
     that we don't  want to have government  involvement make                                                                   
     an uneconomic project economic.   This project has to be                                                                   
     economic to start with.  [Indisc.]                                                                                         
                                                                                                                                
AN UNIDENTIFIED SPEAKER  said the state has a  legitimate interest                                                              
in  how  the  final [indisc.],  but  other  dimensions  of  equity                                                              
ownership are available to the state [indisc.].                                                                                 
                                                                                                                                
11:24 a.m.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  GREEN returned to  the topic of  gas liquids.   He                                                              
noted that the producers are talking  about a significant pressure                                                              
to keep the  gas liquids in a  gaseous phase.  He asked,  "If that                                                              
weren't required  - for example, if  we were to withdraw  those in                                                              
the  state  and ship  dry  gas -  we  wouldn't  need that  high  a                                                              
pressure;  therefore,  we wouldn't  need  ... the  technology  for                                                              
steel.   Would that significantly  reduce the cost  and ultimately                                                              
the netback to the state?"                                                                                                      
                                                                                                                                
AN UNIDENTIFIED  SPEAKER answered  that it certainly  could change                                                              
the capital  costs of a project.   Lower pressure would  require a                                                              
reduced  wall thickness  of the  pipe,  which is  cheaper to  buy.                                                              
Whether it changes the total, however,  is not so clear because it                                                              
also  reduces  the  volume  that  can be  put  through  the  pipe.                                                              
[Indisc.]                                                                                                                       
                                                                                                                                
REPRESENTATIVE  GREEN  replied  that he  certainly  subscribes  to                                                              
that.  However,  the concern he'd heard expressed  was not knowing                                                              
where  the kind  of steel  needed  [for higher  pressures] can  be                                                              
obtained, or what kind of mill would  be necessary.  He said he is                                                              
thinking there  is another way around  it, which may be  to reduce                                                              
the pressure.                                                                                                                   
                                                                                                                                
11:26 a.m.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  GREEN  noted that  in  the  U.S., FERC  and  other                                                              
agencies limit the amount of transportation  or pipeline tariff to                                                              
be  paid.   He commented  that  "tariff" is  a  sensitive term  in                                                              
Alaska because of the TAPS line, and added:                                                                                     
                                                                                                                                
     There  wasn't a  garden-variety-type  determination;  it                                                                   
     was  depending on  arm's-length-type of  sales. ...  You                                                                   
     have a  producer that  [transmits] and  then it goes  to                                                                   
     his refinery.   So "tariff"  was a real difficult  thing                                                                   
     to  determine   [and]  has   always  been  a   point  of                                                                   
     conjecture.  It hasn't been  so with gas lines.  And I'm                                                                   
     wondering if  Canada has that same sort of  a regulatory                                                                   
     regime that would limit the  amount of tariff that would                                                                   
     be charged - a percentage.                                                                                                 
                                                                                                                                
AN UNIDENTIFIED SPEAKER commented on gas liquids:                                                                               
                                                                                                                                
     Our analysis  would indicate that more  modest pressures                                                                   
     will still  carry a significant quantity of  liquids off                                                                   
     the North Slope. ... [Indisc.]  probably get us into the                                                                   
     range  where we're  carrying  very large  quantities  of                                                                   
     liquids  off the  North Slope  [indisc.].   Cooling  the                                                                   
     liquids may  be able to be  stopped; you could  argue it                                                                   
     can be done [indisc.].                                                                                                     
                                                                                                                                
ANOTHER UNIDENTIFIED  SPEAKER said on  the tariff side  they fully                                                              
expect this  would be  a negotiated  tariff between equity  owners                                                              
and shippers.   [Indisc.]   "We do have  experience with  how this                                                              
works," he added,  citing a project that went  into operation last                                                              
fall between northwestern  British Columbia and  Chicago, which to                                                              
date is  probably the largest  natural gas pipeline  project built                                                              
in  North  America;  it  has a  negotiated  toll  structure.    He                                                              
suggested that when  pipeline companies own pipelines,  there is a                                                              
natural  balance   of  commercial   interests  from   a  financial                                                              
perspective.    Although not  having  exact  terms in  mind,  they                                                              
expect it would  be some negotiated toll structure  based on long-                                                              
term shipping  agreements to  provide appropriate balance  between                                                              
risk and [indisc.].                                                                                                             
                                                                                                                                
[ANOTHER UNIDENTIFIED  SPEAKER added  some indiscernible  comments                                                              
about interests in the pipeline.]                                                                                               
                                                                                                                                
REPRESENTATIVE OGAN  referred to  comment that they  don't foresee                                                              
FERC regulating  Canada.   He asked whether  that is  addressed by                                                              
the treaty,  for example.  He  asked what the  presenters envision                                                              
and how the treaty fits in.                                                                                                     
                                                                                                                                
AN  UNIDENTIFIED  SPEAKER  replied   that  the  Northern  Pipeline                                                              
Agency  in Canada  would  regulate  construction  of the  Canadian                                                              
portion of  it.  When it goes  into operation, NEB  would regulate                                                              
the ongoing operation, and FERC would do the same in Alaska.                                                                    
                                                                                                                                
ANOTHER   UNIDENTIFIED  SPEAKER   expressed  confusion   regarding                                                              
comments made about ANGTA by the  FERC representative the previous                                                              
day.    The  unidentified  speaker  said the  ANNGTC  -  of  which                                                              
Foothills  and  TransCanada  are  the  active  partners  -  has  a                                                              
conditional  FERC certificate under  ANGTA.   And to suggest  that                                                              
there is  no application in front  of FERC with respect  to ANGTA,                                                              
he believes goes contrary to fact.                                                                                              
                                                                                                                                
11:31 a.m.                                                                                                                      
                                                                                                                                
CHAIRMAN  TORGERSON  asked,  "If  the  producers  file  under  the                                                              
[Natural]  Gas Act  for a  right-of-way,  are you  folks going  to                                                              
proceed  to represent  your interests  at court  or through  legal                                                              
action?"                                                                                                                        
                                                                                                                                
AN  UNIDENTIFIED  SPEAKER  answered  by  first  referring  to  the                                                              
companies before the  committee that day.  They have  been at this                                                              
since the  mid-1970s, have  spent a  fair bit  of money,  and have                                                              
waited a long time,  he said.  Not only do they  believe they have                                                              
something  worth some  commercial  value, but  they truly  believe                                                              
that if the desire is to expedite  construction of a pipeline from                                                              
Alaska,  using the  ANGTA framework  and  building on  what is  in                                                              
place  [indisc.].   He  said  there  are commercial  interests  to                                                              
protect.  He added:                                                                                                             
                                                                                                                                
     We  have   very  strong  legal   views,  ...   from  our                                                                   
     perspective,   of  what  rights   we  enjoy  under   the                                                                   
     decisions and  approvals that were rendered  in the late                                                                   
     1970s.    We  have  a  view  about  whether  or  not  an                                                                   
     application  could be heard  under the Natural  Gas Act.                                                                   
     We have a very strong view as  to whether or not anybody                                                                   
     else can  get past us to  the ANGTA framework.   And ...                                                                   
     our  view would be  ... that  we don't  want to go  down                                                                   
     that road.  We think it's in  the interests of everybody                                                                   
     to collaborate and build on what we have.                                                                                  
                                                                                                                                
ANOTHER UNIDENTIFIED  SPEAKER mentioned  collaboration  and people                                                              
holding the keys  to an expedited regulatory treatment,  saying he                                                              
believes there  is an inevitability  about it.  He  also mentioned                                                              
timing, as  well as  regulatory and legal  forums under  the ANGTA                                                              
regime.  [Indisc.]                                                                                                              
                                                                                                                                
CHAIRMAN TORGERSON  suggested it  is to  nobody's benefit  to take                                                              
this to court,  which would delay  it.  He asked whether  there is                                                              
any way  to expedite a  decision from FERC.   He noted  that there                                                              
may not  be an application  until March or  April.  He asked:   Is                                                              
there a process  through which FERC can formally  be asked some of                                                              
the  questions  on the  routing,  for  example,  or does  it  just                                                              
require waiting and seeing?                                                                                                     
                                                                                                                                
AN  UNIDENTIFIED  SPEAKER  answered   that  with  respect  to  the                                                              
development of  ANGTS, no decision  is needed.  It  is authorized.                                                              
"They have  issued their  certificate  to us,"  he added.   Noting                                                              
that there potentially will be amendments,  he said those can only                                                              
come after the  commercial deal is pulled together,  and after the                                                              
full project  scope is understood.   "Nothing is needed  from FERC                                                              
at this point," he reiterated.                                                                                                  
                                                                                                                                
REPRESENTATIVE  DAVIES  first  requested   elaboration  about  the                                                              
relationship between  FERC and [indisc.].  He asked  how they will                                                              
coordinate once things are up and  running.  Second, he asked what                                                              
the presenters'  stance is now  with respect to  their discussions                                                              
with the producers.   He asked, "Have  you made an offer  to them,                                                              
or ... are you waiting for them to  do their due-diligence process                                                              
they're going through, and then see where that shoe lands?"                                                                     
                                                                                                                                
TAPE 01-6, SIDE B                                                                                                             
                                                                                                                                
AN  UNIDENTIFIED SPEAKER  mentioned  all the  things necessary  to                                                              
make this happen,  saying a mechanism relating to  the treaty will                                                              
help to achieve that.                                                                                                           
                                                                                                                                
ANOTHER UNIDENTIFIED SPEAKER added  [indisc.], mentioning the due-                                                              
diligence  process  of finding  alternatives,  the  need for  more                                                              
collaboration, and the need to have  a better understanding of the                                                              
relative  merits  "of  our  alternative"  in order  to  help  them                                                              
expedite their coming to terms with the routing selection.                                                                      
                                                                                                                                
CHAIRMAN  TORGERSON  thanked  the presenters  and  announced  that                                                              
there would be a short at-ease.                                                                                                 
                                                                                                                                
Alaska North Slope LNG Sponsor Group                                                                                          
                                                                                                                                
11:40 a.m.                                                                                                                      
                                                                                                                                
CHAIRMAN TORGERSON  announced that  next the committee  would hear                                                              
from  the  [Alaska  North  Slope]   LNG  Sponsor  Group  ("Sponsor                                                              
Group"),  composed  of  Phillips   Alaska,  Inc.,  BP  Exploration                                                              
(Alaska) Inc., Foothills, and Marubeni Corporation.                                                                             
                                                                                                                                
MR.  STEVE ALLEMAN,  Commercial Manager,  Alaska  North Slope  LNG                                                              
Project, noted that present was Mr.  George Findling.  He informed                                                              
members that both he and Mr. Findling  are residents of Anchorage,                                                              
employed by  Phillips Petroleum Company;  however, he  himself was                                                              
speaking as the commercial manager  for the Alaska North Slope LNG                                                              
Project.                                                                                                                        
                                                                                                                                
MR.  ALLEMAN  referred  to  presentations  to  the  House  Special                                                              
Committee on Oil  and Gas on February 27, 2001, and  to the Senate                                                              
Resources Standing Committee on April  7, 2001.  He noted that the                                                              
Sponsor  Group  had  indicated it  is  in  the  midst of  Stage  2                                                              
activities,  scheduled for  completion by  the end  of this  year.                                                              
Although most of those activities  are still works in progress, he                                                              
would offer an overview of ongoing LNG efforts.  He stated:                                                                     
                                                                                                                                
     The Sponsor Group  ... began working in October  of 1998                                                                   
     to  try to  make  an  Alaskan LNG  project  economically                                                                   
     viable and  cost-competitive in  the market.   Phillips,                                                                   
     BP,  Foothills, and  Marubeni  ... are  the current  and                                                                   
     ongoing sponsors in this LNG effort.                                                                                       
                                                                                                                                
     From  the very beginning,  we have  maintained a  strong                                                                   
     market  focus.   Most  of  our sponsors  have  personnel                                                                   
     living and working  in East Asia.  We  have longstanding                                                                   
     LNG  market relationships  that  allow  us insight  into                                                                   
     what the marketplace is saying.                                                                                            
                                                                                                                                
     For  example,  early  in  Stage   1  we  challenged  the                                                                   
     conventional wisdom  that an Alaskan LNG project  has to                                                                   
     be  sized at  14 or  more million  tons per  year.   Our                                                                   
     market  evaluation indicated  that we  needed a  smaller                                                                   
     project to give us the best  chance of getting a toehold                                                                   
     in this fiercely competitive LNG marketplace.                                                                              
                                                                                                                                
     So  the focus  of  the Stage  1  technical  work was  to                                                                   
     innovatively  redesign  a smaller  market-entry  project                                                                   
     where costs could be deferred  and overall risks reduced                                                                   
     and  yet  still  be  expandable   later  as  ...  demand                                                                   
     [grows]. The result was a 7-8  million tons per ... year                                                                   
     design, which we currently estimate  would cost about $5                                                                   
     billion  without ships.   This  market-entry project  is                                                                   
     the basis for our point-forward work. ...                                                                                  
                                                                                                                                
     Through  our ... personnel  in East  Asia, we are  quite                                                                   
     aware that the  East Asian market is very  interested in                                                                   
     Alaska  LNG.   There is  no  myth or  mystery about  the                                                                   
     positives that the market sees  in LNG from Alaska.  But                                                                   
     we are  also very aware  that this  is only part  of the                                                                   
     story.    The more  crucial  question  is:   Under  what                                                                   
     conditions  would  the  market  move  from  interest  in                                                                   
     Alaska LNG to commitment to purchase?                                                                                      
                                                                                                                                
11:43 a.m.                                                                                                                      
                                                                                                                                
     There is significant  East Asian LNG competition  in the                                                                   
     form of  potential and in-progress large  expansions and                                                                   
     new  grassroots  LNG  plants.  As  we  detailed  in  our                                                                   
     presentations during  the session, there are  over 60-80                                                                   
     million  tons   per  year  of  potential   LNG  projects                                                                   
     fiercely competing for 20-40  million tons of East Asian                                                                   
     LNG demand that is projected  to be needed by the end of                                                                   
     the decade.                                                                                                                
                                                                                                                                
     Unfortunately, Alaska  is not yet cost-competitive  with                                                                   
     the majority of these other  LNG projects on a unit-cost                                                                   
     basis.     Further,   we  cannot   yet  demonstrate   an                                                                   
     economically  attractive  capital payback  project  with                                                                   
     assumptions that  are reasonably saleable to  the market                                                                   
     [or] to the investors.  This  all comes back to Alaska's                                                                   
     unique  competitive  disadvantage:    the  800-mile  gas                                                                   
     pipeline to tidewater.                                                                                                     
                                                                                                                                
     As to  where we are today,  the LNG Sponsor Group  is in                                                                   
     the last half of its Stage 2  work program.  In Stage 2,                                                                   
     we  are using the  Stage 1  market-entry project  design                                                                   
     and  working   on  primarily   commercial  -  but   also                                                                   
     technical  - ways  to reduce  costs and risks.   ...  We                                                                   
     expect to  complete these  deliverables on schedule,  by                                                                   
     the end of this year and within our $3 million budget.                                                                     
                                                                                                                                
     These efforts  include continued engineering  design and                                                                   
     cost  optimizations that  have  already identified  over                                                                   
     $400 million  of additional  capital-cost reductions  in                                                                   
     this stage.                                                                                                                
                                                                                                                                
     The LNG Sponsor Group is currently  evaluating synergies                                                                   
     around sharing  facilities with a southern-route  lower-                                                                   
     48 pipeline.   There  are cost-savings opportunities  in                                                                   
     the gas-treating  plant and the pipeline  transportation                                                                   
     and compression from Prudhoe to the takeoff point.                                                                         
                                                                                                                                
     We  should   also  keep  in  mind  that   while  sharing                                                                   
     infrastructure will reduce costs,  it will not eliminate                                                                   
     [them].  The  costs for treating and  transporting would                                                                   
     be realized either  as capital or as fees  [indisc.]  We                                                                   
     are in  the middle of  that evaluation, but  intuitively                                                                   
     we  don't   expect  sharing   alone  to  eliminate   the                                                                   
     competitive disadvantage of the pipeline.                                                                                  
                                                                                                                                
     We mentioned during session  that we have already looked                                                                   
     at the potential value of a  joint public-private entity                                                                   
     in Stage  2 and  have found  no compelling advantage  to                                                                   
     such   a  joint  project   at  this   time.    We   have                                                                   
     communicated  this as  part of  our ongoing  discussions                                                                   
     with the [Alaska] Gasline Port  Authority, expressing to                                                                   
     them, in part, that any benefits  .... passed to private                                                                   
     enterprise will then also be [taxable].                                                                                    
                                                                                                                                
     Further, public  borrowing rates are unlikely  to offset                                                                   
     private  entities' potential  tax deduction of  interest                                                                   
     and  depreciation.   I would  hasten to  point out  that                                                                   
     does  not preclude  a public  entity  from developing  a                                                                   
     competitive [project] on its own.                                                                                          
                                                                                                                                
     Also  ongoing   is  an  evaluation  of  key   risks  and                                                                   
     mitigation  strategies  for this  project.   While  this                                                                   
     work  is  not  finished,  there have  been  no  ...  big                                                                   
     surprises to date.  Risk items  such as price, price and                                                                   
     cost escalation, cost overruns,  and other expected risk                                                                   
     factors that  are typical for  any project of  this size                                                                   
     and  magnitude are  also very  much a part  of this  LNG                                                                   
     project.                                                                                                                   
                                                                                                                                
     While  much of  our  Stage 1  focus  was  on East  Asian                                                                   
     markets,  we are currently  exploring the potential  for                                                                   
     alternate  markets in  the Lower  48 and  Mexico.   That                                                                   
     effort is  also in mid-cycle  review and is  on schedule                                                                   
     for  timely completion.    We expect  to  find that  the                                                                   
     California[-Mexico]  market   is  subject  to  the  same                                                                   
     market forces and that all other  gas sources, including                                                                   
     LNG  import projects,  will do  their part  to make  ...                                                                   
     this market fiercely competitive.                                                                                          
                                                                                                                                
     With this  California-Mexico market  focus, we  have not                                                                   
     forgotten  about  East  Asian  markets in  our  Stage  2                                                                   
     efforts.    Marubeni  continues   to  staff  our  Market                                                                   
     Liaison  Office  out of  Tokyo  to gather  feedback  and                                                                   
     respond  to  market  questions.    We are  also  in  the                                                                   
     process  of analyzing other  competing ... LNG  projects                                                                   
     into East Asia  and how these projects are  estimated to                                                                   
     compare  to  our efforts  on  a  cost-of-service  basis.                                                                   
     That  evaluation is  on schedule for  completion by  the                                                                   
     end of the year.                                                                                                           
                                                                                                                                
     However,  as we  presented during  session, Alaskan  LNG                                                                   
     has   a  long  way   to  go   to  be   cost-competitive,                                                                   
     particularly  on  a  unit-cost basis,  into  East  Asia,                                                                   
     primarily because of the 400-  to 800-mile buried Arctic                                                                   
     pipeline.   The industry benchmark for capital  cost per                                                                   
     million  tons  per  annum (MTPA),  excluding  ships,  is                                                                   
     reportedly  around  $250 million  per  million tons  per                                                                   
     annum (per MTPA).   Because of the pipeline,  unit costs                                                                   
     for our Alaska  LNG stand-alone project are  above [$600                                                                   
     million per MTPA].                                                                                                         
                                                                                                                                
     Finally,    an   externally   generated    environmental                                                                   
     assessment for  permitting the Nikiski route  is nearing                                                                   
     completion.  Once that work  is done, we will develop an                                                                   
     overall  permitting  strategy for  expeditiously  moving                                                                   
     forward  with either  the Nikiski  or  the Anderson  Bay                                                                   
     route   and  site,   if  market   conditions  and   cost                                                                   
     competitiveness  improve to  the point  of initiating  a                                                                   
     project.  While  that external work has slipped  about a                                                                   
     month behind  our schedule, it  is still expected  to be                                                                   
     complete [prior to the end of Stage 2].                                                                                    
                                                                                                                                
     I tried  to be quick,  but hopefully this  overview will                                                                   
     give you a flavor for our past  and ongoing efforts with                                                                   
     the  Sponsor Group.     As stated,  we  fully expect  to                                                                   
     complete  our Stage  2 work  on time  and within  budget                                                                   
     before the  end of this year.   Once we have all  of our                                                                   
     results, we  will then be in  a much better  position to                                                                   
     determine what,  if any, next steps make  the most sense                                                                   
     for LNG.                                                                                                                   
                                                                                                                                
11:48 a.m.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  GREEN asked  whether Mr.  Alleman or Mr.  Findling                                                              
was present  during the YPC presentation.   [There was  no audible                                                              
answer.]   He asked why there  are such divergent  views regarding                                                              
LNG.                                                                                                                            
                                                                                                                                
AN  UNIDENTIFIED SPEAKER  answered  that it  relates to  different                                                              
views of the marketplace.  [Indisc.]                                                                                            
                                                                                                                                
REPRESENTATIVE  GREEN said YPC  had shown  a rather stable  price.                                                              
He  asked whether,  in Mr.  Alleman's estimation,  that cost  will                                                              
start  to  subside  because  of   the  additional  supply  of  LNG                                                              
worldwide.                                                                                                                      
                                                                                                                                
AN UNIDENTIFIED  SPEAKER replied,  "We're not discouraged  by what                                                              
we're  seeing  ...   in  the  LNG  marketplace   [indisc.]."    He                                                              
acknowledged that it is competitive,  there are a lot of different                                                              
projects,  and it  could  be expected  to  have  some pressure  on                                                              
[indisc.].                                                                                                                      
                                                                                                                                
ANOTHER  UNIDENTIFIED SPEAKER  explained what  he believes  is the                                                              
fundamental difference:                                                                                                         
                                                                                                                                
     We  see an [indisc.]  oversupply in  marketing to  Asia,                                                                   
     and that oversupply looks more  cost-competitive than we                                                                   
     are.   We just don't think  the market, the  buyers, are                                                                   
     going to opt for a higher cost  abroad until that lower-                                                                   
     cost [LNG] has been cleared out.                                                                                           
                                                                                                                                
11:50 a.m.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  PORTER asked  Mr. Alleman  to expand  on the  idea                                                              
that port authority  or state ownership didn't seem  to pencil out                                                              
because of an  offset in depreciation, for example.   He said he'd                                                              
thought the  tax break and  benefit would be substantial,  whereas                                                              
it sounds as though it is not.                                                                                                  
                                                                                                                                
AN UNIDENTIFIED  SPEAKER restated the  question, asking how  it is                                                              
that a  public entity, which  has a tax  exemption, would  not add                                                              
value to a project.                                                                                                             
                                                                                                                                
ANOTHER UNIDENTIFIED SPEAKER answered:                                                                                          
                                                                                                                                
     The reason  is, is  that what we  were looking at  was a                                                                   
     collaborative  project between an  entity like  the port                                                                   
     authority  - or some  other governmental authority  that                                                                   
     had  tax   exemptions  -  and  a  private   entity  like                                                                   
     ourselves.                                                                                                                 
                                                                                                                                
     And the  ... inability to  have benefits comes  from the                                                                   
     following:   Even if the  revenues from the  project are                                                                   
     exempt from  the income taxes  [indisc.], when  they try                                                                   
     to  pass  benefits for  that  to  us,  in some  form  or                                                                   
     fashion, it becomes taxable  income to us.  So what they                                                                   
     were saving on  one side may end up being  an income tax                                                                   
     on the  other.   So when you  take the whole  enterprise                                                                   
     together, the  tax savings here turn into  tax [indisc.]                                                                   
     there, and the overall project isn't [indisc.].                                                                            
                                                                                                                                
     Now, what  Steve [Alleman]  mentioned in his  testimony,                                                                   
     that  doesn't  address the  issue  of where  the  public                                                                   
     entity does  the whole thing  [itself].  It  keeps those                                                                   
     tax benefits  for [itself] and doesn't try  to pass them                                                                   
     on to private entities.  So  we were looking at a narrow                                                                   
     case of a ... cooperative project,  and that's where the                                                                   
     tax benefit can be [indisc.], tax relief.                                                                                  
                                                                                                                                
AN  UNIDENTIFIED  SPEAKER  said that  doesn't  include  any  other                                                              
combinations or some type of averages.                                                                                          
                                                                                                                                
ANOTHER UNIDENTIFIED  SPEAKER replied that [indisc.]  a tax ruling                                                              
that  the   tax  exemption   goes  because   of  the   fundamental                                                              
governmental [indisc.].                                                                                                         
                                                                                                                                
11:53 a.m.                                                                                                                      
                                                                                                                                
CHAIRMAN TORGERSON  asked whether the  partners in the  study also                                                              
will be  partners in  the project, and  whether that  decision had                                                              
been made.                                                                                                                      
                                                                                                                                
AN UNIDENTIFIED SPEAKER answered:                                                                                               
                                                                                                                                
     The way  we have our project  defined right now  is that                                                                   
     we  buy gas from  the producers,  build and  own a  gas-                                                                   
     treating  facility, own  the gas pipeline,  own the  LNG                                                                   
     facility and the ships.  There's  several different ways                                                                   
     to  do that,  ...  but [indisc.]  come  in  and own  the                                                                   
     pipeline - as you heard the  question today, about "that                                                                   
     may be a more  effective way to do it."   So that hasn't                                                                   
     been  settled  to  date,  exactly   how  that  ownership                                                                   
     [indisc.].                                                                                                                 
                                                                                                                                
CHAIRMAN  TORGERSON,  for  scheduling  purposes,  noted  that  Mr.                                                              
Alleman had  said the Sponsor Group  wouldn't have much  more data                                                              
until the end of  the year to share with the committee.   He asked                                                              
whether that is accurate.                                                                                                       
                                                                                                                                
AN UNIDENTIFIED  SPEAKER  said he  would be glad  to let  Chairman                                                              
Torgerson know if something became available.                                                                                   
                                                                                                                                
11:54 a.m.                                                                                                                      
                                                                                                                                
REPRESENTATIVE DAVIES  asked:  Suppose  there were a  50-50 equity                                                              
partnership  [indisc.].   Wouldn't the  50 percent  of the  equity                                                              
that came to  the state be subject  to that tax advantage  and, in                                                              
fact, bring the overall cost of the project down?                                                                               
                                                                                                                                
AN UNIDENTIFIED  SPEAKER responded that Representative  Davies was                                                              
correct.  He added that the piece  [the Sponsor Group] was looking                                                              
at was where the port authority would  provide a financing vehicle                                                              
and, by  doing so,  [indisc.] some  tax advantages  to "us."   The                                                              
fundamental theory  wasn't that [indisc.].   The idea was  "to try                                                              
to pass as  much benefit, to  make the project more  attractive to                                                              
us,  and to  [indisc.]."   He  added, "But  you're  correct:   the                                                              
expenses that  a governmental entity  [indisc.] the  equity, those                                                              
revenues that are derived from that [indisc.]."                                                                                 
                                                                                                                                
11:55 a.m.                                                                                                                      
                                                                                                                                
CHAIRMAN  TORGERSON asked  whether there  were further  questions;                                                              
none  were offered.   He  thanked the  presenters, then  announced                                                              
that the committee would take a lunch break until 1:15 p.m.                                                                     
                                                                                                                                
Alaska Gasline Port Authority                                                                                                 
                                                                                                                              
TAPE 01-7, SIDE A                                                                                                             
1:15 p.m.                                                                                                                       
                                                                                                                                
CHAIRMAN TORGERSON noted  that there was only a half  hour for the                                                              
following  presentation;  he  suggested  it may  be  necessary  to                                                              
continue  it  during  the  Fairbanks  meeting  [in  August].    He                                                              
reported  that  interesting  discussions  during  the  break  with                                                              
members  had changed  some  of his  own  thoughts  on "what  their                                                              
authority was."                                                                                                                 
                                                                                                                                
AN UNIDENTIFIED SPEAKER noted that  a member of the Alaska Gasline                                                              
Port Authority group is the mayor of Fairbanks, Rhonda Boyles.                                                                  
                                                                                                                                
MR. CHARLES E. COLE, Vice Chairman,  Alaska Gasline Port Authority                                                              
(AGPA), came forward,  noting that he was speaking  at the request                                                              
of  George  Ahmaogak,  Sr.,  mayor  of  the  North  Slope  Borough                                                              
[chairman of AGPA].   He introduced the following  people:  Rigdon                                                              
Boykin, senior partner in the national  and international law firm                                                              
of  O'Melveny &  Myers, LLP;  and  Brent Surpy  (ph), senior  vice                                                              
president of Bechtel Corporation.                                                                                               
                                                                                                                                
1:16 p.m.                                                                                                                       
                                                                                                                                
MR. COLE  informed members  that AGPA,  formed pursuant  to Alaska                                                              
Statutes in October 1999, is composed  of the North Slope Borough,                                                              
the Fairbanks North  Star Borough, and the City of  Valdez; it was                                                              
ratified  by  the  electorate  of each  of  those  communities  in                                                              
October 1999.                                                                                                                   
                                                                                                                                
MR.  COLE explained  that AGPA's  initial  ordinance provided  for                                                              
ownership  and  construction  of   the  gas  line;  that  was  the                                                              
principal idea, with the premise  of distributing the net revenues                                                              
of the ownership  of the gas line  as follows:  60 percent  to the                                                              
State of Alaska; 30 percent to all  communities throughout Alaska,                                                              
with a  minimum contribution annually  of $50,000; and  10 percent                                                              
remaining with  AGPA.  Under its  present concept, AGPA  would use                                                              
that 10  percent to reduce  the cost  of energy to  outlying rural                                                              
districts in Alaska.                                                                                                            
                                                                                                                                
MR.  COLE   addressed  AGPA's  mission.     Beyond   the  previous                                                              
description, the fundamental mission  is to enable the development                                                              
of ANS gas to  the maximum benefit of all Alaskans.   Ownership of                                                              
the pipeline by AGPA offers the possibility  - and likelihood - of                                                              
substantially  lowering the  effective costs  of transporting  gas                                                              
from  the North  Slope to  the market,  as well  as improving  the                                                              
economics to  a degree necessary  to make development of  that gas                                                              
financially viable.                                                                                                             
                                                                                                                                
MR. COLE  reported that  the group  retained by  AGPA consists  of                                                              
Bill  Walker  of  Walker  Walker  and  Associates,  general  legal                                                              
counsel; Rigdon  Boykin of O'Melveny  & Meyers, LLP -  "the brains                                                              
behind the operation";  and expert organizations  retained to help                                                              
AGPA develop  the economics  of the project.   He noted  that AGPA                                                              
has  entered into  a memorandum  [of  understanding] with  Bechtel                                                              
Corporation to develop cost estimates  for the conditioning plant,                                                              
pipeline,  and  LNG  facilities   at  Valdez.    Furthermore,  the                                                              
internationally  known  firm,  Taylor-DeJongh,  Inc., as  well  as                                                              
Merrill  Lynch,  will  perform  financial   modeling  and  act  as                                                              
financial advisors.                                                                                                             
                                                                                                                                
MR.  COLE lauded  Mr.  Boykin,  O'Melveny  & Meyers,  and  Bechtel                                                              
Corporation  for  their  work.    He  noted  that  following  [the                                                              
presentation], AGPA  would furnish  "hard" numbers about  the cost                                                              
of the construction  of the conditioning plant,  pipeline, and LNG                                                              
facilities in Valdez.  Bechtel Corporation  has put in 55,000 man-                                                              
hours into the  development of those numbers, he  pointed out, and                                                              
has provided a  remarkable work product.  Taylor-DeJongh  has done                                                              
the same,  he added,  noting that  that firm  has run numbers  and                                                              
continued to  refine them  for the past  two years; those  numbers                                                              
also would be  provided, along with the sensitivity  analysis that                                                              
firm has done based upon a number of variables.                                                                                 
                                                                                                                                
1:22 p.m.                                                                                                                       
                                                                                                                                
MR. COLE reported  that the focus has changed a  little over time,                                                              
as  AGPA has  learned more  about the  project from  work done  by                                                              
Bechtel,  Mr. Boykin, and  Taylor-DeJongh.   The original  premise                                                              
was that [AGPA] would build and own  the project, take the natural                                                              
gas from the  North Slope to Valdez,  make LNG there, and  sell it                                                              
to the  Far East.   In order to  do so, it  was decided to  make a                                                              
comprehensive  model   that  includes  conservative   costs  -  an                                                              
estimate  for all  aspects of  the  line, including  construction,                                                              
financing, and  operations.  The  costs would include  development                                                              
costs, permitting  costs, and various financing  fees and interest                                                              
during construction.                                                                                                            
                                                                                                                                
MR. COLE  mentioned working  capital, six  months of debt  service                                                              
reserves, and  interest.   He also  noted that construction  costs                                                              
were   to  be   all-inclusive:     equipment;  "capital   spares";                                                              
construction;  freight; catalysts  and chemicals  for the  initial                                                              
fill;  commissioning  and  startup  costs;  engineering  services;                                                              
escalation of 8  to 10 percent, depending upon the  facility; a 10                                                              
percent  contingency;  insurance;  licensing fees  and  contractor                                                              
risk; overhead; and fees.                                                                                                       
                                                                                                                                
MR.  COLE  told  members  AGPA was  able  to  develop  those  hard                                                              
numbers. In May 2000, Bechtel Corporation  completed its [indisc.]                                                              
cost  study, based  upon all  the  factors just  mentioned.   Then                                                              
Taylor-DeJongh performed its economic  modeling.  The initial base                                                              
case provided a new cost estimate  for the gas processing facility                                                              
at the  North Slope,  the pipeline,  and the  LNG facility.   That                                                              
data served  as a  base for development  of various  alternatives.                                                              
It   also  provided   a   realistic  and   fiscally   conservative                                                              
methodology for  looking at solutions  to improving  the economics                                                              
of the project.                                                                                                                 
                                                                                                                                
1:25 p.m.                                                                                                                       
                                                                                                                                
MR. COLE  asked:   Guess what we  found?  The  answer:   It didn't                                                              
work. Out of  these hard numbers, therefore, and  by taking a hard                                                              
look, AGPA  reached two basic  conclusions.  First,  the economics                                                              
of the  project clearly  are affected  by the  amount of  liquids,                                                              
both as natural  gas liquids (NGL) separated out  on the Slope and                                                              
inserted  into  the pipeline,  and  as  propane separated  out  as                                                              
liquid propane gas  (LPG) in Valdez.  The value  of these liquids,                                                              
as shown  in the financial  report, is  substantial.   Second, the                                                              
project  needs to  be combined  with other  potential projects  in                                                              
order to share  the cost of the pipeline and  the gas conditioning                                                              
facilities.   Furthermore,  since  June  2000 the  economics  have                                                              
changed substantially in the East, Mexico, and the Lower 48.                                                                    
                                                                                                                                
MR.  COLE  reported  that  based upon  the  cost  information  put                                                              
together  by Bechtel  Corporation  and the  financial modeling  of                                                              
Taylor-DeJongh,   AGPA  now   believes  the   most  economic   and                                                              
beneficial  project - for  both Alaska  and the  producers -  is a                                                              
two-project "Y"  line, with one branch  to the Lower 48  along the                                                              
highway,  split at "Big  D," and  the other  branch going  down to                                                              
Valdez  along the  Alyeska  pipeline route.    In addition,  there                                                              
would be a spur line from Glennallen to Anchorage.                                                                              
                                                                                                                                
MR. COLE explained  that AGPA believes using one  or both of these                                                              
routes   would    substantially    reduce   the   potential    for                                                              
"environmental assaults"  on the project  and related delays.   In                                                              
addition, the  economies of scale  would be improved  by combining                                                              
these two  projects, reducing the  pipeline cost for  each project                                                              
from $7  billion to  $4.85 billion  - a  savings of slightly  more                                                              
than $2  billion for  each project,  for a  total savings  of $4.3                                                              
billion.                                                                                                                        
                                                                                                                                
1:28 p.m.                                                                                                                       
                                                                                                                                
MR.  COLE  listed   components  of  the  "Y"  line   project:    a                                                              
conditioning  plant  on  the  North Slope  with  the  capacity  to                                                              
condition sufficient  gas to put  into a 6-BCF/D; a  550-mile, 56-                                                              
inch-diameter  pipeline  operating  at 2,220  maximum  pounds  per                                                              
square inch  from the North Slope  to Delta Junction;  a 150-mile,                                                              
44-inch-diameter  branch line carrying  3 BCF/D to  the [Canadian]                                                              
border  along the  "Foothills  route";  a fractionation  plant  in                                                              
Calgary or the  U.S. to extract the LPG from  the lower-48 branch;                                                              
a 256-mile,  46-inch-diameter  pipeline also  carrying 3  BCF/D to                                                              
Valdez; a spur line to Anchorage  from Glennallen; a fractionation                                                              
plant to extract  the liquid propane in Valdez;  and a 15-million-                                                              
tons-a-year LNG plant  - fully ramped up - and  port facilities in                                                              
Valdez.                                                                                                                         
                                                                                                                                
MR. COLE provided figures for the  "hard" costs:  $4.2 billion for                                                              
a conditioning  plant;  $9.7 billion for  the pipeline,  including                                                              
the two branches; $450 million for  the LPG fractionation plant at                                                              
Valdez; and $3.65  billion for the LNG plant and  port facilities.                                                              
Therefore, the total construction cost would be $18 billion.                                                                    
                                                                                                                                
MR. COLE  next listed  the "soft"  costs:   nearly $5 billion  for                                                              
interest  during   construction;  $900  million  for   an  owners'                                                              
contingency; $1 billion  for debt service reserve;  and $1 billion                                                              
for fees and  working capital.  Therefore, the  "soft" costs would                                                              
total $7.8  billion, approaching  50 percent  of the  construction                                                              
costs.                                                                                                                          
                                                                                                                                
MR.  COLE noted  that subtracted  was  preconstruction revenue  of                                                              
$3.2 billion.   Therefore,  the total  financing cost is  somewhat                                                              
over $22 billion.   He said these  are "pretty good numbers."   He                                                              
cited the  vast experience  of Bechtel  Corporation in  this area,                                                              
reiterating that Bechtel  had spent more than  50,000 man-hours in                                                              
developing those numbers.                                                                                                       
                                                                                                                                
1:33 p.m.                                                                                                                       
                                                                                                                                
MR. COLE acknowledged  this isn't the  only way it will  work.  He                                                              
reiterated that  the thinking of  AGPA has changed as  the numbers                                                              
have been  developed and reworked;  they are prepared to  make the                                                              
numbers available  with the hope that further  optimization of the                                                              
design  will  reduce costs  even  further.   However,  from  their                                                              
standpoint, the  project has been  demonstrated to  be financially                                                              
viable, and it  should be attractive to producers,  the state, and                                                              
Alaskans in general.                                                                                                            
                                                                                                                                
MR. COLE reiterated  that when AGPA started, the  mission was just                                                              
the  LNG plant  from  the North  Slope to  Fairbanks  and down  to                                                              
Valdez.  The shift in focus came  because that project didn't work                                                              
economically.                                                                                                                   
                                                                                                                                
MR. COLE reported that the financial  results of the two-project Y                                                              
line show  it would yield  to the producers  $2 to $3  billion per                                                              
year, and to the  state $750 million.   Payments  in lieu of taxes                                                              
could  be  made,   approximately  $150  million.     Available  to                                                              
communities throughout  the state would  be $110 million,  and for                                                              
the construction of infrastructure  the cost would be $37 million.                                                              
                                                                                                                                
MR. COLE  listed the benefits  of a port  authority concept:   the                                                              
income from  the venture  will be tax  exempt; the port  authority                                                              
can finance  this project with nearly  100 percent debt  - some of                                                              
the bonds  would be  tax exempt,  and project  financing would  be                                                              
non-recourse  financing;   the  port  authority   has  substantial                                                              
political advantages  both within and  outside the state;  and the                                                              
port authority would  not be subject to FERC and  could distribute                                                              
a lot of money in-state.  Mr. Cole told listeners:                                                                              
                                                                                                                                
     I have long felt that we in  the state of Alaska must be                                                                   
     on  guard  to  make  sure that  our  residents  and  our                                                                   
     consumers  don't get ripped  off by  the cost of  energy                                                                   
     that  we supply  to the country.   We  people in  Alaska                                                                   
     should realize  consumer benefits  to our crude  oil and                                                                   
     to  our natural  gas.  ...  The port  authority  concept                                                                   
     would give  us more control  over costs of  this natural                                                                   
     gas, which I think is very, very important.                                                                                
                                                                                                                                
1:38 p.m.                                                                                                                       
                                                                                                                                
MR. RIGDON  BOYKIN, Senior Partner,  O'Melveny & Myers,  LLP, said                                                              
they had  prepared a  slide of  an economic  analysis of  what the                                                              
liquids do.  He explained:                                                                                                      
                                                                                                                                
     For example, I think you heard  earlier today one of the                                                                   
     groups said that  LNG is not economic and  it would cost                                                                   
     $700 per ton of production versus  what the norm is with                                                                   
     between $200  and $300 per  ton of production  capacity.                                                                   
     That's true  on the surface.   However, if  you allocate                                                                   
     liquids  to  reduce  that  cost,   it  brings  us  to  a                                                                   
     competitive position worldwide.                                                                                            
                                                                                                                                
     This slide basically does that.   It basically shows you                                                                   
     that,  where they  get  the $700  per  ton of  LNG.   It                                                                   
     basically comes from the LNG  plant [indisc.] $273.  The                                                                   
     pipeline   adds   another    roughly   $300,   and   the                                                                   
     conditioning plant  adds another $140.  However,  if you                                                                   
     take the  benefit of  the LPGs,  the propane, that  will                                                                   
     [be] taken  out, whether it's  in Calgary or  in Valdez,                                                                   
     and offset this; it brings the  cost per ton of LNG down                                                                   
     to $340.  That's at $12.50 per barrel for the LPGs.                                                                        
                                                                                                                                
     If you  assume a $15 price,  for example, for  the LPGs,                                                                   
     which is probably  closer to a historic price,  it would                                                                   
     reduce the  EPC cost  per ton to  $267.  So, that's  the                                                                   
     real comparison you ought to  use when you're looking at                                                                   
     this project versus a project in Darwin or wherever.                                                                       
                                                                                                                                
MR. BOYKIN went through the benefits,  saying he'd put in a little                                                              
more over 8 BCF  into the processing facility and  had taken out a                                                              
little over 2  BCF of carbon dioxide and other  chemicals that can                                                              
be reinjected in  the wells.  He added, "So  we're actually buying                                                              
a little over 6.7 BCF of gas."                                                                                                  
                                                                                                                                
MR. BOYKIN noted  that they'd decided to establish  a benchmark to                                                              
measure things against,  and they'd posited a price  of the gas at                                                              
the  wellhead of  75  cents [indisc.]  on  a absolute  off-the-top                                                              
basis and 35 cents as a subordinated payment.                                                                                   
                                                                                                                                
AN  UNIDENTIFIED  SPEAKER  asked  how that  number  compared  with                                                              
Chambers'.                                                                                                                      
                                                                                                                                
MR. BOYKIN  replied that Chambers  was talking about the  range of                                                              
70s in  one of their studies.   He used  75 cents at  the wellhead                                                              
for the producers, and they decided  to use extremely conservative                                                              
prices for the sale  of the gas and LNG.  He added  that he "hoped                                                              
like the devil  that Jeff's numbers and others panned  out, but he                                                              
couldn't use them  because they are not a good  historical average                                                              
they could  finance off of."  He  said they assumed a  price of $3                                                              
for the sale of gas in Chicago and  a price of $2.50 at Valdez for                                                              
LNG.   This equates to  roughly a price of  $3.10 in Japan.   They                                                              
also assumed a  tariff from the Alaska-Canadian  border to Chicago                                                              
of $1.20, a number derived from Canadian transporters.                                                                          
                                                                                                                                
MR.  BOYKIN  said in  the  slide  he was  presenting,  the  really                                                              
significant  number is  120,000 barrels  of  propane extracted  in                                                              
Valdez  and  140,000  of  LPG extracted  somewhere  in  Canada  or                                                              
Chicago  down the  line; he  indicated there  is a  huge value  to                                                              
those numbers.   The benefit to producers  from 75 cents per MBTUs                                                              
would be a little  over $2 billion per year.   The state would get                                                              
in $371 million royalty and severance  tax, $81 million in royalty                                                              
and  severance tax  on the  NGLs,  and $148  million in  corporate                                                              
income tax.                                                                                                                     
                                                                                                                                
MR.  BOYKIN reported  that he  assumes [indisc.],  which would  be                                                              
less than  the customary  20 mils, of  $114 million, and  the $222                                                              
million for  the state  and the  $148 million,  which would  go to                                                              
Alaskan municipalities  ($111 million directly and  $37 million to                                                              
build  infrastructure  to  deliver  gas  to  non-pipeline-corridor                                                              
communities).  Even after doing all  of that, $532 million will be                                                              
left  over.   That  can  be  distributed  to stakeholders  in  the                                                              
process, whoever they might be.   It could go to increasing the 75                                                              
cents to  the producers,  or it could  be used  as a cushion.   It                                                              
could also run sensitivity studies.   If the price for LNG and gas                                                              
is  10 cents  higher, it  would generate  $200  million extra  per                                                              
year.  So if  it were $4 versus $3, basically,  that amounts to $2                                                              
billion  per year.   He said  he doesn't  believe  it will be  $4,                                                              
however.   He believes it will  be closer to CERA's  prediction of                                                              
$3 to $3.25.                                                                                                                    
                                                                                                                                
MR. BOYKIN  said in any event,  the decrease in interest  rates of                                                              
one-half percent will increases revenue  by $120 million per year.                                                              
An increase in the  sales price of the NGLs and  LPGs of $2.50 per                                                              
barrel increases  the revenue  by $300  million per  year.   And a                                                              
reduction in the  construction costs, for example,  using existing                                                              
equipment  on  the  Slope,  increases  the  amount  available  for                                                              
distribution by  $120 million per year.   The AGPA has  a lot more                                                              
data available in the study prepared  for the committee.  He noted                                                              
that if  the committee wants any  sensitivities run, AGPA  will be                                                              
glad  to do  that; he  offered  to give  the  committee access  to                                                              
special data as well.                                                                                                           
                                                                                                                                
CHAIRMAN  TORGERSON announced  that  he would  like  to pick  this                                                              
topic back up  when the committee meets in Fairbanks  on August 14                                                              
and 15.                                                                                                                         
                                                                                                                                
MR.  COLE said  he  could furnish  the  committee  with a  40-page                                                              
presentation  that contains  very  detailed data;  that will  give                                                              
committee members time to study the  data before the next meeting.                                                              
                                                                                                                                
CHAIRMAN  TORGERSON  noted  that  one  of the  reports  is  marked                                                              
confidential.                                                                                                                   
                                                                                                                                
MR. COLE asked Chairman Torgerson  to use his discretion about its                                                              
use.   He  suggested  using the  data to  ask  questions of  other                                                              
parties to test the data itself.                                                                                                
                                                                                                                                
REPRESENTATIVE  FATE asked  if  the models  will  be available  to                                                              
other investigators on the pipeline  so that the committee can ask                                                              
questions   later  regarding   whether  the   models  can   become                                                              
benchmarks to measure data against.                                                                                             
                                                                                                                                
MR. BOYKIN  or MR. COLE  replied that the  answer is yes  and that                                                              
they would encourage that.  He noted  if people don't ask everyone                                                              
the hard questions  and challenge assumptions, "we're  never going                                                              
to get  there."  He  feels AGPA will  be better if  challenged, as                                                              
will others, and hopefully out of  that process something [better]                                                              
will be developed than any single entity has.                                                                                   
                                                                                                                                
MR. COLE  said if, after  studying the  data, the committee  would                                                              
like  AGPA to  run further  assumptions before  the next  meeting,                                                              
AGPA would be pleased to do so.                                                                                                 
                                                                                                                                
REPRESENTATIVE OGAN  asked if Mr. Cole's statement,  that the AGPA                                                              
is not subject  to FERC, is based  on the assumption that  it will                                                              
be shipping  to Japan.   He asked what  the situation would  be if                                                              
AGPA  shipped  to  the  West  Coast.   He  pointed  out  that  the                                                              
committee has  heard some conflicting  viewpoints in the  last few                                                              
days; for  example, if one molecule  goes to the West  Coast, FERC                                                              
will have its fingers in the pie.                                                                                               
                                                                                                                                
MR. COLE  said that is true  for a private project;  however, this                                                              
is a government-owned  project that is defined out  of the Natural                                                              
Gas Act,  so it  would not  be subject  to FERC jurisdiction  even                                                              
though a  branch of the  pipeline will  eventually get gas  to the                                                              
Lower 48.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  OGAN   asked  if  Mr.  Cole  has   looked  at  the                                                              
possibility of AGPA owning the pipeline to that point.                                                                          
                                                                                                                                
MR. COLE  said he  believes so;  however, the  economics would  be                                                              
maximized to  the degree  AGPA owns  everything across  the entire                                                              
state, because the return AGPA is  willing to accept is much lower                                                              
than the  return anyone  else is  willing to  accept.  AGPA  would                                                              
basically  be transporting  gas across  a greater  distance for  a                                                              
fraction  of what a  private entity  would charge.   That  enables                                                              
AGPA to give  a higher price to  producers and give a  lower price                                                              
for in-state use.                                                                                                               
                                                                                                                                
SENATOR  KELLY   asked  whether  municipal-   or  government-owned                                                              
pipelines anywhere  else that are transporting gas  for interstate                                                              
use are not regulated by FERC.                                                                                                  
                                                                                                                                
MR. COLE said there  are a couple of small lines  in the South, to                                                              
his knowledge.                                                                                                                  
                                                                                                                                
SENATOR KELLY asked if that gas is utility gas.                                                                                 
                                                                                                                                
MR. COLE replied that it is hooked  in to make the pipeline, so it                                                              
would be in interstate  use.  He noted that if it  were owned by a                                                              
private  entity,  it  would  be   subject  to  FERC  jurisdiction;                                                              
however, FERC has explicitly disclaimed jurisdiction on it.                                                                     
                                                                                                                                
1:53 p.m.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  DAVIES asked what  AGPA's assumption  is regarding                                                              
when the pipeline  gets to the Canadian  border.  He asked  if the                                                              
economic model is  based on the pipeline to the  state boundary or                                                              
whether the analysis is based on the pipeline to Henry Hub.                                                                     
                                                                                                                                
MR. COLE  said AGPA talked to  producers in Canada  regarding what                                                              
the cost would be for them to do  it from the Canadian border down                                                              
to Alberta and  from Alberta to Chicago.  Those  studies have been                                                              
done, so  it didn't make  sense for AGPA  to duplicate that.   The                                                              
number reported was that the charge from there would be $1.20.                                                                  
                                                                                                                                
REPRESENTATIVE   DAVIES  asked  what   his  assumption   is  about                                                              
ownership.                                                                                                                      
                                                                                                                                
MR. COLE said AGPA is assuming it would not own it.                                                                             
                                                                                                                                
The committee took a brief at-ease from 1:55 p.m. to 2:05 p.m.                                                                  
                                                                                                                                
Kenai Peninsula Borough                                                                                                       
                                                                                                                                
MR. DALE BAGLEY, Mayor, Kenai Peninsula  Borough, said their group                                                              
includes representatives from the  Mat-Su as well.  The Cook Inlet                                                              
Pipeline Terminus  Group's main  goal is to  promote a  Cook Inlet                                                              
route  that provides  the most  benefit to  Alaska.   He told  the                                                              
committee:                                                                                                                      
                                                                                                                                
     We're not proposing to build  the pipeline, but if there                                                                   
     is  going to be  an LNG  pipeline to  tidewater, we  are                                                                   
     advocating that it should be  a Cook Inlet route instead                                                                   
     of a Valdez route. ...                                                                                                     
                                                                                                                                
     Thirty-five  TCF of natural  gas has been discovered  on                                                                   
     the North  Slope, and no one  has been looking.   When a                                                                   
     pipeline is  built, search for  natural gas  will begin.                                                                   
     There  are  some  predictions   that  100  TCF  will  be                                                                   
     discovered  on  the  North   Slope.    To  put  this  in                                                                   
     perspective, EnStar  provides for the natural  gas needs                                                                   
     of 100,000  consumers in the Mat-Su, Anchorage,  and the                                                                   
     Kenai  Peninsula.   They  use  approximately  50 BCF  of                                                                   
     natural gas  per year.   Thirty-five TCF ...  would last                                                                   
     prime EnStar  consumers for 700 years.   Actual reserves                                                                   
     could actually last consumers for over 2,000 years.                                                                        
                                                                                                                                
     The bottom line  is that there is plenty  of natural gas                                                                   
     for  in-state use  as  well  as export  use.   There  is                                                                   
     enough  natural  gas on  the  Slope  for an  LNG  export                                                                   
     pipeline, gas-to-liquids  production, and a  pipeline to                                                                   
     the Midwest.                                                                                                               
                                                                                                                                
     BP  is currently  constructing  an $86  million  gas-to-                                                                   
     liquids pilot  plant in Nikiski.   The Midwest  Canadian                                                                   
     gas pipeline is becoming more  likely every day.  If the                                                                   
     in-state LNG  pipeline is filled along with  the Midwest                                                                   
     pipeline, both  projects can share costs from  the North                                                                   
     Slope   to   Fairbanks,  making   both   projects   more                                                                   
     economically feasible.   Both groups that  are proposing                                                                   
     an LNG line are looking to share  costs with the Midwest                                                                   
     line  to  Fairbanks.    The  important  point  is  these                                                                   
     projects are not in competition  with each other.  There                                                                   
     is  enough  gas for  one  LNG export  pipeline,  gas-to-                                                                   
     liquids production, and a Midwest pipeline.                                                                                
                                                                                                                                
     Phillips  has been  producing,  shipping, and  marketing                                                                   
     LNG from  Nikiski for 32  years.  Since acquiring  ARCO,                                                                   
     Phillips now  has a 44 percent ownership  in the Sponsor                                                                   
     Group.  Foothills Pipeline,  a Canadian firm, has Arctic                                                                   
     natural   gas   pipeline  construction   expertise   and                                                                   
     experience.   Foothills is also  looking at  the Midwest                                                                   
     pipeline.    Marubeni Corporation,  a  Japanese  Company                                                                   
     with  Asian  market  experience, has  opened  a  Sponsor                                                                   
     Group office in  Japan.  BP is a recent  addition to the                                                                   
     Sponsor Group.   BP would like to see natural  gas and a                                                                   
     gas-to-liquids  pilot plant in  Nikiski.  They  are also                                                                   
     looking at the Midwest pipeline.                                                                                           
                                                                                                                                
     These are the right players.   They have the natural gas                                                                   
     reserves.   They have the expertise and  experience that                                                                   
     comes from decades of producing  natural gas.  They have                                                                   
     worldwide natural  gas marketing experience.   They have                                                                   
     successfully  permitted  and built  projects  throughout                                                                   
     the world.                                                                                                                 
                                                                                                                                
     The Sponsor  Group has successfully permitted  and built                                                                   
     projects throughout  the world.   The Sponsor  Group has                                                                   
     finished  phase one  of their feasibility  study.   They                                                                   
     spent $20  million on their  first phase and are  now in                                                                   
     phase 2.  During the first phase  they considered routes                                                                   
     all  across Alaska.   They  narrowed their  choice to  a                                                                   
     Cook Inlet route and a Valdez  route.  Soon they'll make                                                                   
     a decision  between the two  routes.  On the  map you'll                                                                   
     see  the proposed  Cook Inlet  pipeline  follow the  oil                                                                   
     pipeline  from  the  North Slope  to  Fairbanks.    From                                                                   
     Fairbanks,  the proposed  pipeline would  branch off  to                                                                   
     Cook Inlet.                                                                                                                
                                                                                                                                
     The port authority  group is proposing a  line to Valdez                                                                   
     with  consumers  in  the Southcentral  area  paying  for                                                                   
     residential lines to Southcentral.   If the over-the-top                                                                   
     route  happens, it may  be even  longer before a  stand-                                                                   
     alone  LNG  North-Slope-to-tidewater  pipeline  will  be                                                                   
     economically feasible.                                                                                                     
                                                                                                                                
     The  Cook   Inlet  LNG  line   will  be  a   $7  billion                                                                   
     construction  project.   In  addition  to the  pipeline,                                                                   
     there will  be a conditioning  plant on the  North Slope                                                                   
     and  a billion  dollar LNG plant.   There  will be  jobs                                                                   
     during  the   engineering  phase  and   during  pipeline                                                                   
     construction.  There will [be]  jobs along the route and                                                                   
     at  the LNG  plant  located  at the  pipeline  terminus.                                                                   
     There  will be jobs  from support  industries that  will                                                                   
     develop  throughout the  state.  These  will be  quality                                                                   
     jobs that will promote growth  in Alaska and will create                                                                   
     many more  jobs throughout our economy.  Consumer needs,                                                                   
     industry needs  and space for  new industry -  these are                                                                   
     the three main reasons for a Cook Inlet LNG line.                                                                          
                                                                                                                                
     On consumer  needs, the gas  reserves in Cook  Inlet are                                                                   
     declining and are not estimated  to last longer than 20-                                                                   
     30 years.   Locating the terminus  on Cook Inlet  is the                                                                   
     only  option   that  serves  the  majority   of  Alaskan                                                                   
     consumers.   Seventy percent of all Alaskans  live along                                                                   
     the  route  or  in  the Cook  Inlet  area.    There  are                                                                   
     consumers along  the route including Fairbanks,  Nenana,                                                                   
     Healy,  Denali,  and  Talkeetna.    Anchorage  has  many                                                                   
     residential and business consumers.                                                                                        
                                                                                                                                
     Mat-Su  is  the fastest-growing  area  in  Alaska.  This                                                                   
     growth needs  natural gas.  The Point  MacKenzie project                                                                   
     would use this gas to expand  their industrial area near                                                                   
     a port.  Natural gas could be  used to make electricity,                                                                   
     fertilizer, fuel cells, and  things that we haven't even                                                                   
     thought  of  yet.    Nenana could  use  barges  to  ship                                                                   
     compressed  gas or LNG  to villages in  the Bush.   This                                                                   
     pipeline should benefit the majority of Alaskans.                                                                          
                                                                                                                                
MR.  BAGLEY  showed   the  committee  photos  to   illustrate  his                                                              
testimony.    He said  Anchor  End  is the  biggest  taxpayer  and                                                              
largest  employer  on  the Kenai  Peninsula  ($30  million  annual                                                              
payroll).  It is the largest fertilizer  producer in the world; it                                                              
recently bought this plant, has plans  to expand the facility, and                                                              
needs plenty of gas.                                                                                                            
                                                                                                                                
MR. BAGLEY  said Phillips  has been  producing  LNG for 32  years,                                                              
with their  tankers coming into Cook  Inlet every 10 days.   Their                                                              
LNG facility in Cook Inlet is known  across the world as a premier                                                              
plant and serves as a prototype for  new facilities.  Furthermore,                                                              
Southcentral  Alaska  has  thousands  of residents  who  work  for                                                              
natural-gas-dependent  industries;  if  their  needs  continue  to                                                              
grow, there  will be  less gas  available for  industry use.   The                                                              
Alaska natural gas pipeline would protect these jobs.                                                                           
                                                                                                                                
MR.  BAGLEY told  members Cook  Inlet has  space for  a large  LNG                                                              
facility and new  industry.  Industry has looked  there, but there                                                              
wasn't a  guaranteed supply of natural  gas.  Having  a guaranteed                                                              
supply  of natural  gas  opens  up possibilities  for  communities                                                              
along the  Cook Inlet route.   He reiterated  that the  three main                                                              
reasons for the  Cook Inlet LNG pipeline are:  to  provide for in-                                                              
state consumers, [to provide for]  industry, and because they have                                                              
the space for the LNG plant and new industry.  He told members:                                                                 
                                                                                                                                
     Every August,  we have an  industry appreciation  day to                                                                   
     thank the  oil and gas  industry, as well  as commercial                                                                   
     fishing and  tourism industries. You are all  invited to                                                                   
     join  us this  year, Saturday,  August  25, Kenai  Green                                                                   
     strip,  for the Industry  Appreciation Day  Celebration.                                                                   
     ...                                                                                                                        
                                                                                                                                
     Cook Inlet is  wide and safe.  The narrowest  part is 12                                                                   
     miles  wide.  The  natural geology  of upper Cook  Inlet                                                                   
     protects   from  tsunami  damage.     Last  year   1,000                                                                   
     shiploads  of natural  gas  was safely  shipped  through                                                                   
     Cook Inlet.                                                                                                                
                                                                                                                                
MR.  BAGLEY  continued  to  say   that  Cook  Inlet  has  a  close                                                              
relationship  with  the  natural  gas industry.    The  regulatory                                                              
agencies are  in place  and are familiar  with Cook Inlet  natural                                                              
gas production and transport. Cook  Inlet has a trained work force                                                              
and  the  infrastructure  to support  expanding  the  natural  gas                                                              
industry.    He  added  that in-state  gas  needs  should  not  be                                                              
ignored.                                                                                                                        
                                                                                                                                
MR.  BAGLEY  reported   that  the  Kenai  Peninsula   Borough  has                                                              
discussed the port  authority concept; if it is needed  to make an                                                              
LNG line economically feasible, they  are prepared to team up with                                                              
other municipalities and make it  work for them too.  He remarked,                                                              
"At this time we are in the wait-and-see mode on that."                                                                         
                                                                                                                                
REPRESENTATIVE OGAN  said there was no  doubt in his mind  that as                                                              
far as  the total benefit  to Alaskans,  LNG is probably  going to                                                              
provide  more benefits  to Alaskans  than any  other project.   He                                                              
asked what Mr. Bagley thought.                                                                                                  
                                                                                                                                
MR. BAGLEY  replied that he thought  an LNG facility  and terminus                                                              
at tidewater were  very important.  He didn't have  a problem with                                                              
a  Midwest line  either.   He  hoped  the economics  would  change                                                              
enough for the Sponsor Group to consider  an LNG line to tidewater                                                              
in Cook Inlet for the reasons he'd outlined.                                                                                    
                                                                                                                                
REPRESENTATIVE  GREEN asked  if  the attitude  in  the Nikiski  or                                                              
Kenai areas is that if the energy  was there, that community would                                                              
still welcome the spin-off types of industries.                                                                                 
                                                                                                                                
MR. BAGLEY  responded  that they  would be very  receptive  to new                                                              
industry.                                                                                                                       
                                                                                                                                
AN UNIDENTIFIED  SPEAKER said  he was on  the assembly  of Nikiski                                                              
for 14  years, and  they had been  inundated with  a lot  of ideas                                                              
about new industry.   He said they have repeatedly  been told they                                                              
have  less than  a decade  of natural  gas reserves.   They  would                                                              
support at  least a spur coming  down to serve Anchorage  and Mat-                                                              
Su.                                                                                                                             
                                                                                                                                
CHAIRMAN TORGERSON announced an at-ease from 2:17 to 2:19.                                                                      
                                                                                                                                
Williams Energy Services                                                                                                      
                                                                                                                                
MR. JEFF COOK,  Vice President, External Affairs,  Williams Energy                                                              
Services,  introduced   the  new   president,  Diane   Prier,  who                                                              
previously served  as Vice President of Operations  at their Rocky                                                              
Mountain mid-stream  operations.  Williams is forming  a dedicated                                                              
team  to study  the  commercialization opportunities  with  Alaska                                                              
natural gas.  It has 10 members and  is called the Williams Arctic                                                              
Project Team.   One  of the members  is Wayne  Buck, lead  for the                                                              
Regulatory  Government and  Community Affairs.   He most  recently                                                              
lived  in   Kentucky  and  now  lives   in  Tulsa.  To   make  the                                                              
presentation today was Mr. Caven  Carlton, who has been serving as                                                              
director  of Business  Development, but  is now  the project  team                                                              
director.                                                                                                                       
                                                                                                                                
MR. CAVEN  CARLTON told  the committee,  "We're not here  pitching                                                              
our own project,  even though we  have a lot of  economic interest                                                              
in  participating in  a  natural gas  project  and the  associated                                                              
opportunities."   He  offered a  slide  presentation, noting  that                                                              
Williams has about 14,000 employees  nationwide and 500 in Alaska.                                                              
Their  energy assets  stand  across North  America,  and they  are                                                              
currently  the  second-largest  natural gas  pipeline  company  in                                                              
North America, behind  El Paso, which took the lead  from them two                                                              
years ago.  On  an average day, they move about  20 percent of all                                                              
natural gas that  moves in North America.  They  have probably the                                                              
largest natural  gas-to-liquids gathering process of  any pipeline                                                              
network in North American, and that  gives them the opportunity to                                                              
add value to this project.                                                                                                      
                                                                                                                                
MR.  CARLTON reported  that  in Alaska,  Williams  has a  200,000-                                                              
barrel-per-day  refinery  at  North  Pole and  an  almost  billion                                                              
barrel terminal  in Anchorage, as  well as a minority  interest in                                                              
the TAPS line.   They currently market the royalty  oil for Alaska                                                              
and pay about $12 million in taxes to the state.                                                                                
                                                                                                                                
MR. CARLTON explained that his sixth  slide highlighted their core                                                              
values and  beliefs.  They have  commitment to communities.   Cuba                                                              
Waddlington,  their president  this year,  serves as the  National                                                              
Chairman for United  Way of America and won the  Spirit of America                                                              
award, which  is given  to the best  corporate citizen  for United                                                              
Way.                                                                                                                            
                                                                                                                                
MR. CARLTON highlighted the four  major points about their view of                                                              
an Arctic  pipeline project.   First, they  believe Arctic  gas is                                                              
necessary  to meet  North American  demand growth.   Second,  they                                                              
think  it  is  essential  that  opportunities   within  Alaska  be                                                              
analyzed,  which   goes  to  the  heart  of   their  petrochemical                                                              
feasibility  study.   Third, they  are  in strong  support of  the                                                              
Alaska Highway route as being the  best and fastest way to get gas                                                              
to  market.   And fourth,  they think  this  project will  benefit                                                              
significantly by participation of more strong pipeline members.                                                                 
                                                                                                                                
MR. CARLTON addressed  the first point.  A compilation  of studies                                                              
on natural gas forecasts say by 2010  there will be about 19 BCF/D                                                              
of  natural gas  demand growth  in  North America.   They  believe                                                              
conventional  supply  sources,  including   the  western  Canadian                                                              
sedentary basin, will generate about  10-15 BCF/D of supply growth                                                              
during that  period.  That makes  a 4-9 BCF/D shortfall  that will                                                              
be needed by 2010 in order to get  to the 30 BCF/D.  He commented,                                                              
"Arctic gas would certainly fill that hole."                                                                                    
                                                                                                                                
MR. CARLTON  summarized the  next four slides,  saying they  are a                                                              
detailed study of  how they believe the gas will  flow through the                                                              
North American market  once it hits the Chicago line.   They don't                                                              
believe all of the  gas will go to Chicago, although  a large part                                                              
of it  would.  They  are a 14 percent  minority-owner of  the line                                                              
going there; on  the West Coast portion they own  24 percent.  The                                                              
Northwest Pipeline  System that serves the Pacific  Northwest also                                                              
has significant expandability and  can accommodate some of the gas                                                              
going there.                                                                                                                    
                                                                                                                                
MR. CARLTON reported  that one area that needs  to be sufficiently                                                              
addressed is  how to minimize  risk associated with  this project.                                                              
He remarked,  "It is  a several-billion-dollar  project,  and that                                                              
level of risk  and the long lead time [have]  a tremendous ability                                                              
to push back or potentially prevent  this project from happening."                                                              
He pointed out that the Energy Marketing  and Trading business has                                                              
been set up to mitigate those risks  and to look at how they could                                                              
help with  the state's royalty  gas to  minimize that risk  to the                                                              
state.   He  said certain  fixed-pricing  arrangements they  could                                                              
enter into would allow that to happen.                                                                                          
                                                                                                                                
MR. CARLTON  noted that  Slide 15 illustrates  that a collar  is a                                                              
combination of  a cap and a floor.   A "swation" is  a combination                                                              
of a swap and an option, which gives  the state an option, at some                                                              
point in the  future, to enter into  a swap arrangement.   This is                                                              
where Williams  sets a  predetermined price,  for instance  $3 for                                                              
the gas; if the price realized for  that gas is lower than $3, "we                                                              
essentially  bear  that risk."    If  it's  higher than  $3,  it's                                                              
essentially  trading  risk  and giving  certainty  and  guarantees                                                              
going  forward.   He said  this is  not  unique to  Williams.   He                                                              
added, "There  are a number of  other strong energy  marketing and                                                              
trading  companies ....  We're  certainly very  proud  of our  own                                                              
trading and marketing outfit, but  there's a very health marketing                                                              
and trading industry in North America."                                                                                         
                                                                                                                                
MR. CARLTON  skipped to Slide  18, "Opportunities  Within Alaska."                                                              
Williams is  initiating a feasibility  study for in-state  gas use                                                              
and an in-state  petrochemical industry.  Their  team is assembled                                                              
and is putting  together a detailed  action plan.  There  are 100-                                                              
150 separate  bullet items  they have identified  that need  to be                                                              
researched and  analyzed before they can conclusively  say whether                                                              
it's feasible to have a petrochemical  industry in Alaska and what                                                              
investment opportunities  there are.   He didn't have  any answers                                                              
today.                                                                                                                          
                                                                                                                                
MR.  CARLTON  explained  that  there are  a  lot  of  complexities                                                              
involved with in-state uses, like  moving a high-pressure in-state                                                              
pipeline system  and wanting to have  a small delivery off  of it;                                                              
it's challenging economically  to make that work.   He added, "Not                                                              
to say that  it can't work, but  that is an avenue that  has to be                                                              
explored."                                                                                                                      
                                                                                                                                
Mr. CARLTON said  second, they are looking at whether  there is an                                                              
opportunity to do things like natural  gas power generation, which                                                              
is exploding  all across  the Lower 48.   The latest  statistic he                                                              
heard  is that every  other  day, for  the next two  years,  a new                                                              
natural  gas-powered   generation   facility  will  come   online.                                                              
Williams  wants to build  power generation  facilities along  with                                                              
their gas  pipeline facilities.   He added, "We've  been extremely                                                              
successful  in  accomplishing that.  ...  I  think right  now  our                                                              
portfolio  is   about  15,000  megawatts  of  natural   gas  power                                                              
generation."                                                                                                                    
                                                                                                                                
MR. CARLTON said  they are looking at petrochemical  opportunities                                                              
in the state.   First, one must  look at removing the  natural gas                                                              
liquids.   There  are ethane  and  propane and  C4/plus, which  is                                                              
probably less  likely to play a  part in a petrochemical  business                                                              
in  the state.   He  highlighted that  the volume  of natural  gas                                                              
liquids  that  might be  needed  to  have a  viable  petrochemical                                                              
industry  in the state  would be  minimal if  the economics  work.                                                              
They would not need  all of the natural gas liquids  in the state.                                                              
For example, he  said, "If you were to build  a world-scale ethane                                                              
cracker in  Alaska, you  would use  approximately 8-10  percent of                                                              
the  ethane in  the gas  line.   This  could give  Alaska a  large                                                              
foothold for the petrochemical industry."                                                                                       
                                                                                                                                
MR. CARLTON  said a key  point is that  if the industry  does make                                                              
sense here,  the infrastructure issue  will have to  be addressed.                                                              
Williams has  significant infrastructure  in Alaska today,  with a                                                              
200,000-barrel-per-day North Pole  refinery; it is situated on 600                                                              
acres and  is uniquely  situated best  for other opportunities  if                                                              
they work economically.  He emphasized  that they have significant                                                              
amounts of "pet-chem"  experience across North  America, providing                                                              
200,000 barrels per  day in NGL food stock and  producing ethylene                                                              
and propane at  a refinery in Memphis and two  different locations                                                              
in Louisiana.   They also  currently have  a project going  in Red                                                              
Water Facility.                                                                                                                 
                                                                                                                                
MR.  CARLTON explained  that Slide  21  provides an  idea of  what                                                              
their  facility  is capable  of.    Yesterday it  produced  42,000                                                              
barrels of jet fuel,  and it is one of the major  suppliers of jet                                                              
fuel in North America.                                                                                                          
                                                                                                                                
2:38 p.m.                                                                                                                       
                                                                                                                                
MR.  CARLTON  told  members,  "The Alaska  Highway  route  is  the                                                              
preferred route  for this  pipeline."  First,  the belief  is that                                                              
this route can be placed in service  considerably earlier than any                                                              
other route  by at least  a few years; he  thought it could  be in                                                              
this  decade.    Second,  they  feel  it  is  essential  that  the                                                              
regulatory,  environmental,   political,  and   technical  hurdles                                                              
associated  with  an over-the-top  route  not  be  underestimated.                                                              
Third, a stand-alone  Mackenzie Valley pipeline can  be built when                                                              
those supplies are  ready, but they are not ready  now.  He added,                                                              
"There are still several years of  exploration and production work                                                              
that need to  take place ... before they could  finance a pipeline                                                              
of that magnitude."                                                                                                             
                                                                                                                                
MR.  CARLTON noted  that the  next  point Williams  makes is  that                                                              
pipeline  participation is  extremely important  in this  project.                                                              
He said:                                                                                                                        
                                                                                                                                
     I'm  referring  to  a company  like  Williams  or  major                                                                   
     pipeline companies in North  America.  One of the things                                                                   
     that  accompanies   a  large,  capital-intensive,   long                                                                   
     pipeline  project is  delay and the  numerous amount  of                                                                   
     hurdles  ...  that  must  be  achieved.  ...  It  is  an                                                                   
     extremely  complex,  time-consuming  process.   This  is                                                                   
     something that  over the last  90 years has  become what                                                                   
     we do.                                                                                                                     
                                                                                                                                
MR. CARLTON explained that they think  it's important that healthy                                                              
working relationships  be formed  with key stakeholders  along the                                                              
right-of-way,  and   that  there   be  a  significant   amount  of                                                              
consulting.   They have already  consulted in the  Yukon Territory                                                              
with key  aboriginal groups  along the  pipeline right-of-way  for                                                              
the Alaska Highway route there.   He remarked, "That was extremely                                                              
well received."                                                                                                                 
                                                                                                                                
MR. CARLTON  made a further  point:   in North American  all long-                                                              
haul  natural gas  pipeline companies  are owned  and operated  by                                                              
natural gas  pipeline companies.   There are  probably one  or two                                                              
exceptions  of  a short-haul  offshore  type where  producers  own                                                              
their systems.  He said, "Pipelines  can add value if you get this                                                              
project happening."   This  would be their  highest priority.   He                                                              
added, "Currently,  Williams has about  $30 billion in  assets and                                                              
estimates have been made of $20 billion  for the potential cost of                                                              
this project.   That  gives you and  idea of  just how  large this                                                              
project is."                                                                                                                    
                                                                                                                                
MR.  CARLTON referred  to  Slide  25 and  said  Williams had  been                                                              
involved with  this project  since the 1970s  and was  the project                                                              
director for the  Alaska portion of things.  In 1994  they had 750                                                              
employees  and contractors,  at their  peak.  They were  extremely                                                              
involved in selecting the routes.                                                                                               
                                                                                                                                
MR. CARLTON  turned his attention  to Slide 27, pointing  out that                                                              
those were their  expansion projects.  They have  approximately $4                                                              
million - $5  million of gas pipeline expansion  projects that are                                                              
lined with steel today.                                                                                                         
                                                                                                                                
MR.  CARLTON  next addressed  Slide  28,  which shows  a  900-mile                                                              
large-diameter  pipeline  scheduled  to  deliver  Rockies  gas  to                                                              
southern California.  In 1985 this  idea first came up.  They were                                                              
successful  in getting  numerous  stakeholders onboard  to get  it                                                              
built, getting  it in  service in  1992.   They have just  started                                                              
expanding it from 700 MCF/D to 2  BCF/D, which should be completed                                                              
by 2003.  It's  the largest expansion in a pipeline  ever, showing                                                              
Williams'  experience in  building  complicated pipeline  projects                                                              
over a long period of time.                                                                                                     
                                                                                                                                
MR.  CARLTON  said their  Gulf  Stream  pipeline project  is  $1.6                                                              
million project  and they  partner with  Duke Energy.   It  is the                                                              
only undersea  long-haul pipeline  in North  America.   They broke                                                              
ground on  June 1, 2001.   Slide 31 shows that  Williams purchased                                                              
the largest  LNG import terminal  in North America, about  an hour                                                              
south of Washington, D.C.  They are  reacclimatizing that facility                                                              
to go  into service  next year.   Slide  32 shows  that they  have                                                              
established the 10-member team to pursue Arctic development.                                                                    
                                                                                                                                
MR. CARLTON  urged anyone  to call with  questions and  offered to                                                              
answer questions from the committee.                                                                                            
                                                                                                                                
REPRESENTATIVE DAVIES  asked if Williams  is one of  the [indisc.]                                                              
partners.                                                                                                                       
                                                                                                                                
MR. CARLTON replied  that Williams is a partner.   He added, "Most                                                              
of the  key players  that are  out today  are [indisc.]  partners.                                                              
So, we're  not unique."   He  said he  thought this project  would                                                              
need at least  one strong U.S.  pipeline company and at  least one                                                              
strong Canadian pipeline  company in order to  capitalize on their                                                              
knowledge and experience, both technical and regulatory.                                                                        
                                                                                                                                
[AN  UNIDENTIFIED  SPEAKER asked  a  question about  developing  a                                                              
smaller scale project in Alaska; the answer was indiscernible.]                                                                 
                                                                                                                                
2:49 p.m.                                                                                                                       
                                                                                                                                
MR. CARLTON  said he'd heard that  it is not technically  possible                                                              
or attractive  to take out natural  gas liquids in the  state, and                                                              
that the primary processing would be in Alberta.                                                                                
                                                                                                                                
REPRESENTATIVE  GREEN referenced  the  slides showing  anticipated                                                              
growth that  stopped with the Ohio-West  Virginia area.   He asked                                                              
if that was because  they don't serve the Eastern  Seaboard states                                                              
or is because of some other reason.                                                                                             
                                                                                                                                
MR.  CARLTON replied  that Williams'  largest market  is the  Mid-                                                              
Atlantic.    He has  tried  to approximate  existing  natural  gas                                                              
pipeline corridors.                                                                                                             
                                                                                                                                
REPRESENTATIVE GREEN asked why long-haul  pipeline are operated by                                                              
pipeline companies rather than owner-transporters.                                                                              
                                                                                                                                
MR.  CARLTON  replied  that historically  all  expansions  of  all                                                              
natural gas long-haul pipelines are  built, owned, and operated by                                                              
pipeline  companies.   He  said  there  is no  decided  advantage.                                                              
Natural  gas  pipelines  have  been  looked  at  as  a  lower-term                                                              
investment than other opportunities.   Williams is eager to invest                                                              
capital in it.                                                                                                                  
                                                                                                                                
REPRESENTATIVE GREEN  said Slide 27 shows a  significant expansion                                                              
($5 billion)  going on right  now.  He  asked, if Williams  became                                                              
heavily involved in a gas transportation  line, whether that would                                                              
be a significant  amount of their  total worth.  He also  asked if                                                              
the  company was  in a  position  to take  another expansion  like                                                              
that.                                                                                                                           
                                                                                                                                
MR. CARLTON  responded  that they had  no uncertainty  whatsoever.                                                              
He added:                                                                                                                       
                                                                                                                                
     We are extremely  eager to take a key role  in an Arctic                                                                   
     pipeline  project .... What  I want  you take home  from                                                                   
     this slide  is not that  we're stretched and  don't have                                                                   
     any  more  resources;  it's that  we're  gathering  more                                                                   
     experience today in building  pipeline than anyone else.                                                                   
     ... Most  of our  growth has  happened on expansions  to                                                                   
     our systems.                                                                                                               
                                                                                                                                
REPRESENTATIVE GREEN said they have  an anticipated growth of $700                                                              
million to  $2 billion, almost a  300 percent increase.   He asked                                                              
how they accomplished that fantastic growth.                                                                                    
                                                                                                                                
MR. CARLTON replied that commercially  the capacity was set up for                                                              
700 MCF/D.   This is the only  pipeline that takes Rockies  gas to                                                              
southern California.   It provides direct access;  they don't have                                                              
to  go through  a  local  distribution company.    "It  is a  very                                                              
premium pipeline,"  he added.  He  said at the time it  was built,                                                              
they knew it would be expanded.   So it was planned and done at or                                                              
below the  existing toll.   With  the California situation,  there                                                              
has been  huge demand  to get  new natural  gas supplies  into the                                                              
state.  In  March of this year,  he said, "we approached  the FERC                                                              
and said, 'We  have the ability in  three months' time  to add 135                                                              
MCF/D to the system, and we need your help.'"                                                                                   
                                                                                                                                
MR.  CARLTON said  it usually  takes  one or  two years  to get  a                                                              
pipeline  project certificated.   He  added, "I  think it took  us                                                              
three weeks  that FERC  approved  our project.   It's the  fastest                                                              
it's ever happened in the history of FERC."                                                                                     
                                                                                                                                
2:57 p.m.                                                                                                                       
                                                                                                                                
REPRESENTATIVE FATE  asked what he  meant that economies  of scale                                                              
are difficult, yet along some of  their pipeline they have created                                                              
power generation  at a very  minimal cost.   He asked if  they had                                                              
determined  the cost  of  the small  power  generation along  that                                                              
pipeline.                                                                                                                       
                                                                                                                                
MR. CARLTON  answered [most of  his answer was  indiscernible], "I                                                              
think if [it] can have loads on the  order of 100 or 200 MCF/S, it                                                              
becomes much more  feasible.  It's whenever you look  at your 5 to                                                              
10  MCF/D  that  it becomes  more  of  a  challenge  economically,                                                              
especially on an high-pressure system."                                                                                         
                                                                                                                                
REPRESENTATIVE  FATE  said  they  wanted  to review  some  of  the                                                              
assumptions to see  if they could outlet the gas  at high pressure                                                              
to a liquefied  natural gas plant,  for example, where  it crosses                                                              
the Yukon River.                                                                                                                
                                                                                                                                
MR. CARLTON offered assistance on  that, saying they have four LNG                                                              
production facilities on their pipeline system today.                                                                           
                                                                                                                                
REPRESENTATIVE  OGAN asked  how Williams  overcomes the hurdle  of                                                              
wanting to build a pipeline without owning any gas.                                                                             
                                                                                                                                
MR. CARLTON said  that was a good question.  He  added, "It's very                                                              
clear  to  everyone  including  us that  the  producers  hold  the                                                              
cards."   He said their goal  was to find  a way to work  with the                                                              
producers.  They are not trying to  compete with them, but want to                                                              
position themselves to add significant value to this project.                                                                   
                                                                                                                                
CHAIRMAN TORGERSON said he looked  forward to getting an update in                                                              
Fairbanks.                                                                                                                      
                                                                                                                                
3:03 p.m.                                                                                                                       
                                                                                                                                
SENATOR  ROBIN TAYLOR,  Alaska State  Legislature,  sponsor of  SB                                                              
221, first  thanked the  committee for taking  the amount  of time                                                              
they have  on this issue.   He then  brought attention to  SB 221,                                                              
which  provides  for  an  all-Alaskan  pipeline and  is  the  only                                                              
legislation  pending that  would do  so.  His  primary concern  in                                                              
introducing it is  jobs for Alaska, and following  that, "Alaskans                                                              
need to be on  the construction of any future  pipeline, a partial                                                              
owner, if not  a total owner of  the project, so that  Alaska, for                                                              
the first time, receives a true fair share of the project."                                                                     
                                                                                                                                
SENATOR  TAYLOR noted  that many  have said  producers and  owners                                                              
have to be in  agreement before any gas goes down  a pipeline.  He                                                              
commented, "Well,  Alaska happens to  be one of those  owners, and                                                              
it's high  time that gas  was no longer  locked and frozen  on the                                                              
North Slope, but  was freed up.  And  it has to get to  at least a                                                              
deep water port before it can be provided to world markets."                                                                    
                                                                                                                                
SENATOR TAYLOR said an all-Alaskan  pipeline to Valdez is not only                                                              
possible,  but the permits  exist  today, and  YPC has pledged  to                                                              
contribute their  permits to this  project should  the legislature                                                              
pass it.   He commented  that he was  disturbed by the  remarks of                                                              
Mr. Small  [of Cambridge Energy  Research Associates  (CERA)], who                                                              
indicated that if in the future Alaska  wishes to build a pipeline                                                              
to  the   Midwest,  Alaska   will  have  to   have  to   be  "more                                                              
conciliatory"' towards the Canadians.  He stated:                                                                               
                                                                                                                                
     The  idea of having  Alaska's heritage  and future  held                                                                   
     hostage by foreign governments  and foreign politicos is                                                                   
     disturbing to  me.  I am  comforted by the fact  that we                                                                   
     have  sufficient  gas on  the  Slope of  known  reserves                                                                   
     today -  to say nothing  of what the potential  reserves                                                                   
     are  for our  future -  that Alaska  can easily  develop                                                                   
     both pipeline  projects.  That is, we can  first develop                                                                   
     an all-Alaska  pipeline following the existing  corridor                                                                   
     and branching  off probably  at Glennallen and  going to                                                                   
     the  Anchorage  bowl.  If  there's  anything  that  will                                                                   
     provide long-term  jobs and  security for the  people of                                                                   
     Alaska in  the development of  its gas resources,  it is                                                                   
     [an] all-Alaska pipeline.                                                                                                  
                                                                                                                                
SENATOR TAYLOR  said there is  significant support  throughout the                                                              
Alaskan community  for this proposition.   He also  mentioned that                                                              
the  liberal  government in  British  Columbia  is going  to  move                                                              
forward  in developing  gas  resources off  the  coast of  British                                                              
Columbia.   Furthermore, Bolivia  announced yesterday it  would be                                                              
building a $5 billion, 5,000-mile  natural gas pipeline and tanker                                                              
route, taking landlocked  gas out of Bolivia and  shipping it into                                                              
Mexico and then to California.   He stated:                                                                                     
                                                                                                                                
     The rest of  the world is trying to take  advantage.  If                                                                   
     we have  to wait for the  owners to get onboard  for the                                                                   
     producers to  be happy, for  us to sucre enough  support                                                                   
     from the Canadians  that they're willing to  now talk to                                                                   
     us about how  many jobs they're going to  develop, if we                                                                   
     wait for  all those  things to  occur, I firmly  believe                                                                   
        the markets are going to filled and the window of                                                                       
     opportunity will be lost.                                                                                                  
                                                                                                                                
SENATOR  TAYLOR   concluded  by   saying  he  looked   forward  to                                                              
discussing  the   all-Alaskan  gas   pipeline  project   with  the                                                              
committee.  [End of discussion of SB 221.]                                                                                      
                                                                                                                                
3:09 p.m.                                                                                                                       
                                                                                                                                
The committee took an at-ease.                                                                                                  
                                                                                                                                
3:40 p.m.                                                                                                                       
                                                                                                                                
CHAIRMAN TORGERSON  announced that the Joint Natural  Gas Pipeline                                                              
Committee  meeting  had  begun  for   the  purpose  of  discussing                                                              
committee business.   He noted that the next meeting  will be held                                                              
in Fairbanks  on August 14  and 15.  He  will work on  the agenda.                                                              
Representative Davies  will be requesting that the  committee meet                                                              
at the  conference room  at the  University of  Alaska.   He noted                                                              
that the  September meeting  will be held  in Kenai but  the dates                                                              
have  not been  set yet.   The  October  meeting will  be held  in                                                              
Anchorage.                                                                                                                      
                                                                                                                                
REPRESENTATIVE OGAN asked about the  sound system at the Fairbanks                                                              
facilities because  he has been  getting reports that  the current                                                              
meeting has  been difficult to hear  in Juneau.  He  also reminded                                                              
Chairman Torgerson  that the Council of State  Governments and the                                                              
Community Council will meet.                                                                                                    
                                                                                                                                
CHAIRMAN TORGERSON  said he  is not aware  of the sound  system in                                                              
Fairbanks, but  he added that the  Anchorage LIO meeting  room has                                                              
never been used before; they know  now to add a microphone for the                                                              
testifiers.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  DAVIES  said  he  hopes  to secure  the  Board  of                                                              
Regents' conference room in Fairbanks  because it has a good sound                                                              
system.                                                                                                                         
                                                                                                                                
CHAIRMAN  TORGERSON  asked  members   to  contact  him  about  any                                                              
particular  items they  want placed  on  the agenda  for the  next                                                              
meeting.   He plans to finalize  that agenda around August  1, and                                                              
he  plans to  schedule  a  presentation  from the  port  authority                                                              
groups and from  the expert on state ownership.   He hopes to have                                                              
an update from  the administration on sharing some  of its ongoing                                                              
studies.  He also  plans to ask the FERC to  send a representative                                                              
and to  ask Nan Thompson  from the RCA to  attend so that  the two                                                              
can discuss  who has the authority.    He found  the presentations                                                              
by  the  FERC   and  RCA  representatives  to   be  confusing  and                                                              
contradictory.  He will send letters  to them with questions to be                                                              
answered.                                                                                                                       
                                                                                                                                
CHAIRMAN TORGERSON informed the committee  that the second item of                                                              
business pertains  to approval of committee travel  to Whitehorse,                                                              
Yellowknife,   Vancouver,  and  Edmonton   to  visit   with  their                                                              
legislative   counterparts   to  establish   a   better  line   of                                                              
communication.  He has been in contact  with all of them.  He just                                                              
left Calgary and set up good contacts  there.  He noted that Ronda                                                              
Thompson has created a preliminary schedule.                                                                                    
                                                                                                                                
MS.  RONDA THOMPSON,  Staff,  International  Trade Office,  Alaska                                                              
State Legislature,  informed the committee that  because they will                                                              
be traveling during  the summer months, they have  a better chance                                                              
to  use   ERA  airlines  and   fly  directly  from   Anchorage  to                                                              
Whitehorse.   Direct flights  are available  on Monday,  Wednesday                                                              
and Friday.  She suggested leaving on July 30 or August 1.                                                                      
                                                                                                                                
MS. THOMPSON informed members that  to accomplish the goals of the                                                              
committee,  they will  need  to spend  a couple  of  hours in  the                                                              
Yukon.  It is also most important  that the committee spend a fair                                                              
amount  of time  in  Yellowknife with  Ministers  Kim Antoine  and                                                              
Roger Allen; they  have visited the Alaska legislature  many, many                                                              
times.   Ms. Thompson noted that  elections were recently  held in                                                              
Alberta;  the  new  cabinet  is very  anxious  to  meet  with  the                                                              
committee  and  Premier Klein  in  Edmonton.   Ms.  Thompson  also                                                              
mentioned  arrangements   made  to   visit  with  Minister   Pearl                                                              
Calahasen.   She said she  has heard  that several members  of the                                                              
NEB would  be agreeable to  meeting as well.   The new  cabinet in                                                              
Victoria is only  one month old, she noted.  The  cabinet, the new                                                              
Prime  Minister  of British  Columbia,  Gordon Campbell,  and  the                                                              
Minister of Energy  are a lot more amenable to  mending fences and                                                              
to getting to  know the committee members.  The  airfare will cost                                                              
about $2,000  per person.  Pickup  and delivery from  the airports                                                              
will be handled by the Canadian government.                                                                                     
                                                                                                                                
CHAIRMAN TORGERSON  clarified that the total cost  per person will                                                              
run  about $3,000.   He  pointed out  that the  Joint Natural  Gas                                                              
Pipeline  Committee  has no  budget,  so travel  costs  are to  be                                                              
submitted to  the presiding officers  upon return.  He  has spoken                                                              
with both presiding  officers, who said they would  not disapprove                                                              
travel reimbursement.   He commented that he would  like the North                                                              
Slope legislators  to accompany the  committee on  the Yellowknife                                                              
portion  of  the  trip,  particularly   Representative  Joule  and                                                              
Senator  Olson.   He  asked  committee  members  to let  him  know                                                              
whether they plan to go and then the timeline will be arranged.                                                                 
                                                                                                                                
The committee  discussed possible  dates for departure.   Chairman                                                              
Torgerson  tentatively set  the  departure date  on  August 6  and                                                              
asked Ms. Thompson to poll all members.                                                                                         
                                                                                                                                
3:53 p.m.                                                                                                                       
                                                                                                                                
CHAIRMAN  TORGERSON said  the third  item of  business before  the                                                              
committee is  the contract  with a firm  to monitor activities  in                                                              
the  U.S.   House  and   the  U.S.   Senate.     He  proposed   to                                                              
Representative  Green,   in  his  capacity  as   chairman  of  the                                                              
Legislative  Council,  that  the  committee  enter  into  a  small                                                              
contract with  a firm  to monitor the  activities of  the national                                                              
energy  policy in  Washington, D.C.    The firm  would advise  the                                                              
committee when  hearings will be  held so that a  committee member                                                              
could attend the  hearings.  He has selected C.J.  Zane, who works                                                              
for Dyer, Ellis  and Joseph, a law  firm in Washington,  D.C.  Mr.                                                              
Zane has submitted  a proposal to monitor activities  at a cost of                                                              
about   $5,000    per   month   from   July    through   December.                                                              
Representative Green has agreed to sign the contract.                                                                           
                                                                                                                                
CHAIRMAN TORGERSON  announced that the  next issue is  whether the                                                              
committee should  hire a  lobbying firm  for activities  in Ottawa                                                              
and in Washington, D.C., to represent  the legislature's interests                                                              
if, and  when, an  energy bill  starts moving.   He suggested  the                                                              
committee needs  to take  the time to  go to Washington,  D.C., or                                                              
else  hire a  lobbyist.   He  said  he does  not  have a  proposal                                                              
prepared,  but any  proposal  would  have to  be  approved by  the                                                              
Legislative Council.                                                                                                            
                                                                                                                                
REPRESENTATIVE  OGAN  said  he feels  the  Alaska  legislature  is                                                              
fairly  well  represented  in  Washington,   D.C.,  since  [former                                                              
Senator]  Drue Pearce is  a top  advisor to  the Secretary  of the                                                              
Interior  and Alaska's  congressional delegation  is in  agreement                                                              
with  the legislature  on  this issue.    He questioned  how  much                                                              
additional  money   should  be  spent  to  hire   consultants  and                                                              
lobbyists.                                                                                                                      
                                                                                                                                
CHAIRMAN  TORGERSON asked  Representative Ogan,  or any  committee                                                              
member, how many  calls he got from those folks  notifying him the                                                              
energy bill  was being  worked on  during the  last week.  [No one                                                              
responded.]  Chairman Torgerson said  that was his point.  He said                                                              
he is not sure whether the legislature  needs anyone to lobby, but                                                              
if it  did, and no  committee member was  available to do  so, the                                                              
legislature could  be in  a weird position.   He repeated  that he                                                              
doesn't have a proposal to hire anyone.   He pointed out that C.J.                                                              
Zane  was chief  of staff for  Congressman  Young.   He said  in a                                                              
perfect world,  someone would call  a committee member, but  he is                                                              
concerned that no one will call.                                                                                                
                                                                                                                                
REPRESENTATIVE OGAN said he would  be happy to assign his staff to                                                              
monitor the congressional committee schedules.                                                                                  
                                                                                                                                
3:58 p.m.                                                                                                                       
                                                                                                                                
CHAIRMAN  TORGERSON   said  he  believes   all  staff   should  be                                                              
monitoring that,  but his concern  is that the information  is not                                                              
flowing freely from Washington, D.C.,  to this committee.  He told                                                              
members these  issues need to be  discussed and placed  before the                                                              
Legislative Council for funding.   He thought the next Legislative                                                              
Council meeting could  be at least one month away,  and a request-                                                              
for-proposals process  would take awhile,  so it could be  as late                                                              
as September or October before anyone is onboard.                                                                               
                                                                                                                                
CHAIRMAN  TORGERSON   said,  regarding  the  fiscal   regime,  the                                                              
committee  will need  a  legislative number  "cruncher"  regarding                                                              
whether or not any money is given  to the administration.  He said                                                              
from what  he has  seen, he  does not  trust the  administration's                                                              
numbers and  would want  someone to  go over them.   He  feels the                                                              
Division of Legislative Finance could  do some of the work, but he                                                              
believes the committee  should hire an expert.  He  noted that the                                                              
producers have  expressed interest in  entering into that  kind of                                                              
discussion,  and  it  will  be hard  to  do  unless  someone  with                                                              
international  status can put  it together.   He pointed  out that                                                              
Pedro van  Meurs was  on contract  with the  administration.   The                                                              
administration  had  requested  $75,000  for  fiscal  regimes,  he                                                              
noted, but pulled the request.                                                                                                  
                                                                                                                                
CHAIRMAN  TORGERSON  referred  to open-season  access,  saying  he                                                              
thought  it might  be settled  when FERC  and RCA  representatives                                                              
come to  Fairbanks, but  he doubts it.   He said  this is  a major                                                              
issue  and DNR  is a  little bit  squeamish about  making a  legal                                                              
opinion public.  He surmised that  the committee will have to hire                                                              
someone to take that issue on.                                                                                                  
                                                                                                                                
REPRESENTATIVE  OGAN expressed interest  in dovetailing  the open-                                                              
season  issue  with the  hub  concept,  and  finding some  way  to                                                              
delineate complete  state authority  to points  on the hub.   That                                                              
way, if it gets to Delta, the state  would have control of any new                                                              
gas sales  or open seasons.   He suggested  there may be a  way to                                                              
legally  construct  something along  those  lines  to bypass  FERC                                                              
authority.                                                                                                                      
                                                                                                                                
CHAIRMAN TORGERSON  said he isn't  sure that is exactly  the same;                                                              
it is similar to the FERC-versus-RCA  issues.  He repeated that he                                                              
was confused by the testimony from the team.                                                                                    
                                                                                                                                
REPRESENTATIVE FATE  said he thinks it is a matter  of determining                                                              
whether  FERC  is  ready  to  determine,  for  tariff  principles,                                                              
whether  they  consider  the  wellhead  to  be  literally  at  the                                                              
wellhead or,  if they  move down  and have the  wellhead as  a new                                                              
setup, it  could be called  a hub and  would be exempt  from FERC.                                                              
He  personally  feels that  is  a  stretch,  but he  believes  the                                                              
committee should get a legal opinion on it.                                                                                     
                                                                                                                                
4:03 p.m.                                                                                                                       
                                                                                                                                
CHAIRMAN TORGERSON said  he does not disagree.  He  noted that the                                                              
next item, ANGTA  versus the Alaska [Natural] Gas  Act, is also an                                                              
issue; at best,  there are several  opinions on how that  is to be                                                              
applied.  The  committee probably needs some legal  advice on that                                                              
also.                                                                                                                           
                                                                                                                                
REPRESENTATIVE  FATE   commented  that  the  committee   did  hear                                                              
conflicting opinions.                                                                                                           
                                                                                                                                
CHAIRMAN TORGERSON  noted that it  is difficult for  the committee                                                              
to take  formal action before the  Legislative Council if  it does                                                              
not have firm dates.                                                                                                            
                                                                                                                                
REPRESENTATIVE  OGAN  suggested  asking  Jack  Chenoweth  [of  the                                                              
Division of Legal Services] to look into some of these issues.                                                                  
                                                                                                                                
CHAIRMAN TORGERSON  said he could,  but he is  not an expert.   He                                                              
informed the  committee that Mr.  Chenoweth wrote the  opinions on                                                              
[SB]  164, which  the  Office of  the Attorney  General  disagreed                                                              
with.    He  said  regarding  FERC  issues,  he  would  guess  the                                                              
committee  would  need  to  hire a  Washington,  D.C.,  firm  that                                                              
watches that committee all of the time.                                                                                         
                                                                                                                                
REPRESENTATIVE DAVIES  asked Chairman Torgerson if he  has been in                                                              
communication with FERC staff.                                                                                                  
                                                                                                                                
CHAIRMAN  TORGERSON said  he visited  with  FERC department  heads                                                              
when he was in Washington, D.C.   They are willing to sit down and                                                              
work through the questions so the  committee understands them, but                                                              
the testimony yesterday made the answers more confusing.                                                                        
                                                                                                                                
REPRESENTATIVE DAVIES suggested making that attempt first.                                                                      
                                                                                                                                
REPRESENTATIVE  DAVIES  asked  Chairman  Torgerson  if  he  has  a                                                              
strategy for evaluating  the question of whether  the state should                                                              
take an equity interest in any of this.                                                                                         
                                                                                                                                
CHAIRMAN TORGERSON  said, other than what  Commissioner [Pourchot]                                                              
talked about, he  sponsored a bill that the legislature  passed, a                                                              
bill that had a fiscal note.                                                                                                    
                                                                                                                                
REPRESENTATIVE DAVIES  asked Chairman  Torgerson if he  would rely                                                              
on that.                                                                                                                        
                                                                                                                                
CHAIRMAN TORGERSON said  the law required DNR to  report and share                                                              
the data with  the committee every 30  days.  All of  the data was                                                              
supposed  to come  to  the committee.   One  of  the problems  the                                                              
committee  is having  with the reports  is that  the committee  is                                                              
given a  summary, but  it is  not being  told how the  conclusions                                                              
were  made.   He explained  that is  the problem  with the  fiscal                                                              
regime:   the committee does  not know the underlying  methodology                                                              
or components  of DNR's decision making.   He noted the  report is                                                              
due back  to the legislature  on January 31.   DNR has  hired CH2M                                                              
Hill to  do the  risk assessment  portion, as well  as a  New York                                                              
financial firm that does a lot of consulting on pipelines.                                                                      
                                                                                                                                
4:07 p.m.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  GREEN noted  the key  is to get  a monthly  update                                                              
because January 31  will be a late date for the  legislature to be                                                              
getting information.                                                                                                            
                                                                                                                                
CHAIRMAN TORGERSON  said he believes the committee  should request                                                              
that  the  Legislative  Council  at least  go  forward  on  fiscal                                                              
regimes and  the open season  access issues.   He noted  he missed                                                              
the model on GTL, LNG and Alcan and  over-the-top pipeline routes.                                                              
When  the Department  of  Revenue  made their  presentation,  they                                                              
actually had  another one,  which he  thought the committee  would                                                              
see, which  was all four modeled  out and netbacks on all  four of                                                              
those.   He suggested  the committee could  ask the Department  of                                                              
Revenue to show  it that model.  He stated that  his guess is that                                                              
the  committee  will eventually  end  up  hiring an  economist  to                                                              
advise the legislature on the numbers  so that the legislature can                                                              
look at this from its perspective.                                                                                              
                                                                                                                                
REPRESENTATIVE OGAN commented the  committee is running a parallel                                                              
course with the administration.                                                                                                 
                                                                                                                                
CHAIRMAN TORGERSON said unfortunately, that is probably true.                                                                   
                                                                                                                                
REPRESENTATIVE  FATE felt  it is true  and is  caused by  the fact                                                              
that the administration  is not communicating its  findings to the                                                              
legislature.    The Legislative  Budget  & Audit  (LBA)  Committee                                                              
broke  loose  a  good portion  of  the  funds  the  administration                                                              
requested,  $1.5 million,  $923,000  plus $180,000.    It is  very                                                              
clear that  the Pipeline Coordinators'  Office will be  doing some                                                              
of  the  things  the  committee is  discussing:    trying  to  get                                                              
information.                                                                                                                    
                                                                                                                                
CHAIRMAN TORGERSON said that his  recommendation to LBA is to fund                                                              
studies  through the  committee, rather  than the  administration.                                                              
However, the CERA  study is a little different.   CERA offered all                                                              
legislators the  password at  one time so  that they  could access                                                              
daily  reports.   He said that  LBA turned  down  the rest of  the                                                              
requests for  the labor study and  for hiring lawyers  [to monitor                                                              
activities  in] Washington,  D.C., and Ottawa.   So,  essentially,                                                              
the committee  and the  administration will  run parallel  courses                                                              
because  the  administration  will  find  the money  to  do  those                                                              
things.                                                                                                                         
                                                                                                                                
CHAIRMAN  TORGERSON  continued,  saying  the governor  has  a  $.5                                                              
million contingency fund for these  sorts of expenses.  He had the                                                              
CERA  contract;  instead of  paying  it  out, however,  he  pumped                                                              
$180,000  over to  the Department  of  Revenue, so  that gave  him                                                              
another  $180,000.   Again, if  the administration  wants a  study                                                              
done, it  will find the money,  but he doesn't believe  LBA should                                                              
fund it and then  have to beg for the information.   He noted that                                                              
most of  the money LBA  dealt with the  previous evening  was pre-                                                              
application  money, and it  is the  legislature's match,  the 95:5                                                              
portion.  As much  as he doesn't like to give  them anything, they                                                              
do need desks, telephones, and so forth.                                                                                        
                                                                                                                                
REPRESENTATIVE  GREEN  remarked,   having  served  on  the  merger                                                              
committee, that he  finds the amount of information  missing to be                                                              
incredible.  Although  he opposes this duplication  of efforts, he                                                              
believes it  is necessary because  the legislature is  not getting                                                              
information from  the administration; he believes  the legislature                                                              
could be duped  into the wrong decision.  If  the legislature gets                                                              
the information  six or seven months  from now and is  expected to                                                              
make a  decision, he  believes the legislature  would be  doing it                                                              
blindfolded.  The studies will be  costly, but the project will be                                                              
extremely important to the state for 50 years.                                                                                  
                                                                                                                                
CHAIRMAN TORGERSON  agreed this project will involve  billions and                                                              
billions of dollars,  so if the legislature has to  spend a couple                                                              
of millions  of dollars, he  will not oppose  it.  He  pointed out                                                              
that the administration  will have to spend a lot  more than that;                                                              
it spent $1.5  million on the merger.   He stated that  it doesn't                                                              
bother him to say he doesn't know  the answer and that they should                                                              
hire an expert.   The open-season and open-access  issues are huge                                                              
and recently surfaced.  He said he  has spent a lot of time on the                                                              
fiscal regimes, but  it has not been in relation  to the gas side.                                                              
Chairman  Torgerson said  since a Legislative  Council meeting  is                                                              
not planned,  he will not ask for  a motion, but if this  comes up                                                              
before the  Fairbanks meeting and  the Legislative  Council meets,                                                              
he will notify members and set up a teleconference.                                                                             
                                                                                                                                
REPRESENTATIVE GREEN  said, should  the committee decide  that one                                                              
or more of these issues needs a special  study, it goes beyond his                                                              
signatory  authority and  he  fears the  committee  will not  find                                                              
problems until the middle of September.                                                                                         
                                                                                                                                
CHAIRMAN TORGERSON  remarked that the committee will  need its own                                                              
fiscal analysis  of the  severance tax.   The producers  have said                                                              
they would  like to have that cleared  up by the end  of the year.                                                              
At any  rate, the committee  should have  the models.   Initially,                                                              
the committee  can get  that from the  Department of  Revenue, but                                                              
the larger question on Alaska's severance  tax or fiscal regime is                                                              
one that  only five or  six people in the  world can answer.   The                                                              
committee needs to  hire one of those experts  to compare Alaska's                                                              
situation to this.                                                                                                              
                                                                                                                                
CHAIRMAN TORGERSON  went on to say  he is sure  the recommendation                                                              
will be  that Alaska needs  to have a  more progressive  system in                                                              
which price is added as a component  to the formula.  In that way,                                                              
if  there  is 3  million  cubic  feet  per  day, for  example,  it                                                              
wouldn't be  charged per well, but  anything above that  should be                                                              
price-sensitive.   So  at $5 per  barrel, instead  of making  $500                                                              
million,  the state  would make  $800  million; at  $2, the  state                                                              
would  make  nothing.   That  same  recommendation has  been  made                                                              
whenever anyone has looked at Alaska's fiscal regime.                                                                           
                                                                                                                                
4:17 p.m.                                                                                                                       
                                                                                                                                
CHAIRMAN  TORGERSON  announced that  the  committee  would take  a                                                              
recess until the public testimony period.                                                                                       
                                                                                                                                
4:26 p.m.                                                                                                                       
                                                                                                                                
CHAIRMAN  TORGERSON  called the  meeting  back  to order  for  the                                                              
purpose of taking public testimony.                                                                                             
                                                                                                                                
MR. SCOTT HEYWORTH,  Director, Our Gas, Our Future,  said he is so                                                              
impressed with  the hard-hitting questions the committee  has been                                                              
asking.  He  offered his sincere appreciation  for the committee's                                                              
efforts.  He  noted that he had  three points to make.   First, he                                                              
has not heard  any good news  from the industry or  about anything                                                              
during the last  two days.  However, he has heard  two things that                                                              
concern him.   He heard Mr.  Marushack discuss how the  state will                                                              
make tens of billions, which tells  him that the oil industry will                                                              
make hundreds of billions.                                                                                                      
                                                                                                                                
MR.  HEYWORTH  said  second,  the   newspapers,  specifically  the                                                              
Anchorage  Daily  News and  the  Journal  of Commerce,  have  been                                                          
reporting  a  price  of  $10  billion  for  the  Canadian  highway                                                              
pipeline.  Yesterday, when Commissioner  Pourchot made his report,                                                              
he  set the  cost at  $15 billion  [according  to page  10 of  his                                                              
report].   This morning,  Mr. Conrad  testified  that the cost  of                                                              
this project  is $15 to  $20 billion.  In  48 hours, the  price of                                                              
the pipeline  doubled.  Backbone  estimated six months ago  a cost                                                              
of $16 to  $20 billion.  His  group has been talking  about $15 to                                                              
$20  billion  for  the  entire  nine   months  of  its  existence.                                                              
Everyone denied it could cost that  much, yet today that amount is                                                              
on the record.   He surmised that  the cost will be closer  to $25                                                              
billion six or eight years from now.                                                                                            
                                                                                                                                
MR. HEYWORTH noted that YPC has estimated  $6 billion.  He further                                                              
noted that  Mr. Jeff  Lowenfels has never  changed his  number; he                                                              
stays with  good, hard  facts, while  the industry, and  sometimes                                                              
the  administration, has  been  making the  argument  that LNG  to                                                              
Valdez  is  uneconomical  because  it  will cost  too  much.    He                                                              
questioned how  - if at $6 billion  it was uneconomical  - it will                                                              
be economical at $20 billion.                                                                                                   
                                                                                                                                
MR. HEYWORTH  stated that  his third point  is the most  critical.                                                              
Mr.  John  Ellwood  of  Foothills   said  the  U.S.  and  Canadian                                                              
governments have  not sat  down and talked  yet.  But  Mr. Ellwood                                                              
emphasized that he believes the Canadian  government will abide by                                                              
the  ANGTA treaty.    He noted  that  is significant  because  the                                                              
Canadians in the early 1980s built  the Southern pre-built as part                                                              
of the  ANGTS agreement.   They built  their part of  the pipeline                                                              
for 2.6  BCF, [under]  ANGTA treaty  law.   Now, the governor  and                                                              
industry  are suggesting  5  BCF, according  to  Mr. Roger  Marks.                                                              
That is  illegal.   Canada is going  to abide  by the treaty.   He                                                              
questioned why Canada  would want 4 BCF of Alaska  gas coming down                                                              
through their field  when they have Canadian gas to  explore.   He                                                              
said he understands their point.                                                                                                
                                                                                                                                
MR. HEYWORTH said  he'd polled residents of Anchorage  three weeks                                                              
ago.  The  poll results show  65 percent favor Valdez,  26 percent                                                              
favor the  highway, and 10 percent  are undecided.  He  noted that                                                              
40 percent  of the voters  reside in  Anchorage.  Alaskans  do not                                                              
favor  the  highway  project,  and  it  will  take  an  incredible                                                              
turnaround for anyone to be behind the Canadian route.                                                                          
                                                                                                                                
MR. HEYWORTH  concluded by saying he  supports LNG to Valdez.   He                                                              
asked the  committee to work  together with the  administration to                                                              
get  a  best  interest  finding for  the  citizens  of  Alaska  to                                                              
determine  the best  project.   He  noted that  this project  will                                                              
bring revenues  to Alaska for  50 to 70  years; this project  is a                                                              
very important responsibility.                                                                                                  
                                                                                                                                
CHAIRMAN TORGERSON asked the next witness to testify.                                                                           
                                                                                                                                
MR.  JERRY McCUTCHEON,  representing  himself,  said  none of  the                                                              
proposed gas  lines are  feasible.  The  situation is  worse today                                                              
than 20  years ago.   Inflation does not  work in reverse  - there                                                              
may be better plants,  but it will not be much  cheaper to put the                                                              
pipe  in the  ground.   He  suggested the  committee  get the  Van                                                              
Coolin  (ph)  report  from  1974.   In  that  report,  the  author                                                              
projects  various   gas  withdrawals   and  the  effects   on  the                                                              
reservoir.   Mr. McCutcheon said:                                                                                               
                                                                                                                                
     The interesting  part to that is about as  much oil that                                                                   
     you recovered  out of  that - Prudhoe  Bay - Van  Coolin                                                                   
     predicted it  could be recovered in the first  place; so                                                                   
     what the effects will be [indisc.].   So [indisc.] round                                                                   
     about public  document 95-73, on page 570,  said Prudhoe                                                                   
     Bay [is]  producing 15  billion barrels  - and this  was                                                                   
     1977 -  while they were telling  us 9.6 billion.    They                                                                   
     told Congress 15.  Well, that's  not real [indisc.] back                                                                   
     in those  days.   Well, we  are headed  for the 15,  and                                                                   
     it's just not 15 because the OOYP has grown a bit.                                                                         
                                                                                                                                
     The producibility  of Prudhoe Bay, if we  don't take the                                                                   
     gas on it, is about 20 billion,  so we are a little more                                                                   
     than  halfway  there  [indisc.].   Projections  of  what                                                                   
     would happen  to the reservoir when the high  amounts of                                                                   
     gas that you  can take out of it:  remember  one thing -                                                                   
     it  is  absolute,  everybody  in  the oil  patch  -  the                                                                   
     highest recovery  from any oil reservoir occurs  when it                                                                   
     is  produced  at  or  above  a  bubble  point  [indisc.]                                                                   
     discovery pressure.   Prudhoe  Bay was at 4,400  pounds;                                                                   
     we're less  than 3,400 pounds  now.  It wasn't  supposed                                                                   
     to  get below 36,  I think  something like  that -  it's                                                                   
     just  going on  because  there is  no  control over  it.                                                                   
     [Indisc.]  raise the proportionate  amount of  pressure.                                                                   
     The money is in the oil.                                                                                                   
                                                                                                                                
     If you  really wanted  to do  something, build a  stupid                                                                   
     gas line from  MacKenzie delta to Prudhoe  Bay and shove                                                                   
     20 TCF of gas down Prudhoe Bay.   That will get you your                                                                   
     oil.  Then,  following that, gather up all  of the field                                                                   
     fuel,  the power  plants and  the rest of  the stuff  at                                                                   
     Prudhoe Bay and  stuff it down there.  For  every volume                                                                   
     of gas that you [indisc.] in  a power plant, you produce                                                                   
     9  volumes  of  injectable  gas.   That  will  help  the                                                                   
     pressure and stop the critical  pressure decline and may                                                                   
     even reverse it.                                                                                                           
                                                                                                                                
     I've heard some  of the numbers up there,  but it's hard                                                                   
     to find  out what  it [indisc.]  fuel catch the  exhaust                                                                   
     gases from and shove them back  down in Prudhoe Bay.  No                                                                   
     one can  get a gross number  of how much of the  fuel is                                                                   
     being burned up there.                                                                                                     
                                                                                                                                
     That's all.  Go get yourselves  a [indisc.] and consider                                                                   
     repressurizing  Prudhoe  Bay.   Remember,  on the  Kenai                                                                   
     Peninsula they  had absolutely no  use for gas  and they                                                                   
     had  Swanson  River,  so  they decided  to  go  for  gas                                                                   
     injection and  then they decided they didn't  want to do                                                                   
     a water  [indisc.], but  they did  one anyway.   Anyway,                                                                   
     the main thing  that they did is that they  went over to                                                                   
     the  Kenai gas  field  and they  leased  gas from  Union                                                                   
     Marathon  to stuff down  there.  They  leased it  for 10                                                                   
     cents an MCF.                                                                                                              
                                                                                                                                
     About  ten years ago,  with Chevron,  I think, or  maybe                                                                   
     it's longer  now, Chevron was  still running it  - Union                                                                   
     Marathon came to  Chevron and said when are  we going to                                                                   
     get  our gas  back?   We  in  our wildest  dreams  never                                                                   
     thought that  you would [indisc.].   Well, we  don't see                                                                   
     any; we're  done with it.   In order for  Union Marathon                                                                   
     to  get  their  gas  back, they  had  to  buy  the  damn                                                                   
     [indisc.].   Think about  it:   we've lucked out  twice.                                                                   
     There was no use for the gas  when the Swanson River was                                                                   
     found.   There was no use  for the gas for  Prudhoe Bay.                                                                   
     Everything else [indisc.].                                                                                                 
                                                                                                                                
MS. THERESA OBERMEYER, representing herself, expressed concern                                                                  
about the nomination of Ben Stevens to the legislature and                                                                      
testified on other matters unrelated to the gas line.                                                                           
                                                                                                                                
There being no further testimony or business to come before the                                                                 
committee, CHAIRMAN TORGERSON thanked participants for attending                                                                
and adjourned the meeting at 4:40 p.m.                                                                                          

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