Legislature(2007 - 2008)BUTROVICH 205
02/01/2008 03:30 PM Senate RESOURCES
| Audio | Topic |
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| Start | |
| Backbone Ii | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 1, 2008
3:37 p.m.
MEMBERS PRESENT
Senator Bert Stedman, Vice Chair
Senator Lyda Green
Senator Gary Stevens
Senator Bill Wielechowski
MEMBERS ABSENT
Senator Charlie Huggins, Chair
Senator Lesil McGuire
Senator Thomas Wagoner
OTHER LEGISLATORS PRESENT
Senator Joe Thomas
COMMITTEE CALENDAR
Presentation from Backbone II by Malcolm Roberts, representing
Walter Hickel, Co-Chair David Gottstein and Co-Chair Mike Kenny
PREVIOUS COMMITTEE ACTION
No previous action to consider
WITNESS REGISTER
MALCOLM ROBERTS
Representing Former Governor Hickel
Anchorage, AK
POSITION STATEMENT: Commented on an Alaska LNG project.
DAVID GOTTSTEIN, Co-chair
Backbone II
Anchorage, AK
POSITION STATEMENT: Commented on an Alaska LNG project.
MICHAEL KENNY
Backbone II
Anchorage, AK
POSITION STATEMENT: Commented on an Alaska LNG project.
ACTION NARRATIVE
VICE-CHAIR BERT STEDMAN called the Senate Resources Standing
Committee meeting to order at 3:37:43 PM. Present at the call to
order were Senators Wielechowski, Green, Stevens and Stedman.
Senator Stedman said Chair Huggins was not able to be here today
and he would chair the meeting.
^Backbone II
3:38:40 PM
VICE CHAIR STEDMAN invited the presenters from Backbone II
forward - Co-chair Malcolm Roberts, representing Governor Wally
Hickel, and Co-chair David Gottstein, and Mike Kenny (former
secretary-treasurer, Alaska Teamsters).
3:39:55 PM
MALCOLM ROBERTS began by saying he was a long-time associate and
aide to former governor Hickel. He worked with him when he was
Interior Secretary in 1970 and on and off ever since.
DAVID GOTTSTEIN, Co-chair, Backbone II, said he is an interested
participant.
MICHAEL KENNY, Co-chair, Backbone II, said he worked as a
surveyor in Alaska for 22 years and represented Local 959 for 14
years and acted as secretary treasurer for the last three years.
MR. ROBERTS began by reading some testimony and thoughts from
former Governor Hickel. He said Backbone II first started as
Backbone I during the merger when BP was acquiring Atlantic
Richfield worldwide. A number of Alaskans began thinking about
what it would mean for the competition on the North Slope if
Arco Alaska was absorbed into one of the other majors. Backbone
formed as a group of concerned Alaskans that has included since
its beginning Governor Jay Hammond, many former legislators,
cabinet officers and ordinary citizens who are focused on oil
and gas issues and how Alaska benefits from its inheritance.
3:41:36 PM
He read Governor Hickel's comments as follows:
Fifty-six years ago this January, I was in Washington,
DC as several key Republicans in the US Senate,
formerly arch enemies of Alaska Statehood, shifted to
our side.
As a 33-year old carpenter and builder, I had flown to
DC at my own expense to make the case that Alaska
could stand on its own feet, and be self-sufficient,
if the Statehood Bill granted us an adequate land and
resource base. The bill that had passed the US House
just days earlier proposed to give our young State
only 3 million acres! Many of the most prominent
statehood supporters back home were cheering that
statehood was at hand, but I was furious. I explained
our problem to Senate Republican Leader Robert A. Taft
who listened intently for an hour. Finally he asked,
'How many acres do you need, young man?'
'One-hundred million!' I blurted out.
In the days and weeks ahead, Taft successfully
recommitted the Statehood bill, and from that day
forward, every draft of the Alaska Statehood Bill
included a land and resource entitlement of 100
million acres or more. In 1958 our Statehood bill
passed both houses of Congress and was approved at the
polls by the Alaska voters making it a Compact between
the United States and the people of Alaska. We became
heirs to 103 million acres - granted so we could pay
our own way and not have to rely on Federal
generosity. That's what this discussion of the natural
gas pipeline is all about. You own Alaska, Mr.
Chairman, as does everyone in this room and every
Alaskan watching on TV. You own Alaska!
3:43:36 PM
As legislators, you share the responsibility and the
great opportunity along with our governor as the
trustees of what is one of the most valuable legacies
from the many-year battle to win our statehood. In
that fight, a model constitution was written by
Alaskans and that Constitution was approved by
Congress and is a part of our Compact. In agreeing to
these terms, we created the first constitutional
democracy worldwide where the lands and resources are
owned in common. I call it the owner state. The
Constitution explicitly gives us the guidelines for
how to make owner state decisions such as the one
before us today.
Is it to 'monetize' the ocean of natural gas awaiting
a transportation system at the North Slope or is it to
'maximize' this resource? 'Monetize' means to sell for
the best price you can get - to transform an asset
into cash. However, all of you in this room are well
aware that Article VIII of the Constitution requires
that we develop our natural resources for the maximum
benefit of our people. Here is what that means to me.
With our North Slope natural gas, Alaska can finally
break from our colonial past.
Since the Treaty of Cession with Russia of 1867,
Alaska's abundant, God-given resources have been
almost entirely exported in the raw. In territorial
days, our people were forced to stand by helplessly
and watch it happen. We were hired by someone else to
cut our trees, catch our fish, drill holes in our
ground and load our natural wealth into ships, trucks
and airplanes for shipment to somewhere else where
someone else created year-round, well paying jobs for
their people and made fortunes by adding value to
those resources - while Alaskans were left earning
pennies on the dollar.
3:45:23 PM
Today, with North Slope natural gas, we have the
opportunity to reverse our history of subservience. We
were the victims of those delegates Bob Bartlett
warned us about at the Constitutional Convention -
'those who come, take, and leave nothing. Or those
who lock up our resources and do nothing.'
Our great opportunity now is to use our clean natural
gas to help our fellow Alaskans who desperately need
heat, light and fuel in our villages and the energy to
help our larger communities grow and thrive. We must
insist that the precious gas liquids that travel with
the gas are used to strengthen our private sector here
in our state. That should resonate with those who
believe that Alaska needs a strong private sector.
We also have the opportunity to create a revenue
stream to cover the cost of state government as we
provide basic services essential for our people. In
other words, our gas is the key to strengthen both
sectors of our unique owner state - an enlightened and
activist government and a healthy and creative private
sector. For that to happen, I have believed since I
first studied the benefits of North Slope gas in the
early 1980s that an all-Alaska line will best serve
our people and our state.
For the record, I supported the passage of AGIA and
was pleased to learn in late November that there were
five applicants. I was disappointed when the State
disqualified all but one of them. I imagine that the
way the law was written, the State was unable to work
with the applicants to help them all provide the 'must
haves' defined in law. As a result, we were left with
no comparison between an overland Canadian route and a
route to tidewater and LNG. When we became aware of
this, Backbone wrote a letter on January 14 to
Governor Palin urging her team to take another look.
'Without a comparison,' we wrote, 'there will be no
way to determine the. The legislature and Alaska
people face an all or nothing choice.'
3:47:09 PM
Fortunately, Commissioners Irwin and Galvin have
decided to compare the TransCanada proposal to the
benefits of an LNG system. And I am pleased that the
legislature, including this committee, had already
decided to examine all of the applications and hear
out all the companies, entrepreneurs and visionaries
who submitted proposals in good faith. Those who want
to bury AGIA have already begun shoveling dirt. Don't
buy it.
The AGIA process is alive and well. Amendments to the
process may be in order, but for the first time,
Alaskans can compare the economics of the proposals
and the benefits and risks to Alaskans. Much of this
information was kept secret from the Alaska people
prior to AGIA.
To help you compare the proposals, we have prepared a
matrix that compares 9 key benefits and risks (see
attached). It is a rough draft, done by volunteers and
many of the blanks have not been filled in. I
respectfully urge this committee, Mr. Chairman, and
the Administration to review this draft, fill in the
blanks, and make your own comparisons.
3:48:05 PM
Senator Joe Thomas joined the committee.
And take your time. Alaskans have worked and waited
for a gasline for nearly 30 years. Take another
session or even two to ensure that you and the
administration make the right decision. From the data
in the AGIA applications, you will learn that an
Alaska natural gas pipeline is economic. Indeed, it is
not only economic it will be enormously profitable.
And you will learn that LNG is not a false dream as
its detractors have tried to convince you for years.
LNG has become as common in the global energy parlance
as oil. It, too, is fungible; it can be shipped
anywhere or swapped with other LNG produced elsewhere
saving time and costs. And it represents a cleaner
energy alternative for a world deeply concerned about
pollution and carbon release. All three of the major
North Slope producers have invested heavily in its
development worldwide.
Now let's look at the bigger picture. Let's talk
about Alaska's role in the economic fabric of the
world. On August 3 of last year, my friend the Russian
explorer, icebreaker captain and leader in the Upper
House of the Russian Duma, Arthur Chilingarov, planted
a Russian flag at the North Pole two miles beneath the
surface of the Arctic Ocean. That courageous act made
world headlines and ushered in the Age of the Arctic
just as Sputnik sparked the Space Age.
For the first time, the human race began thinking
differently about the North. The Arctic is no longer
perceived as just a cold, foreboding place of little
importance to people's lives in the temperate and
tropical regions of the earth. The world realized for
the first time that the Arctic is a storehouse of
great wealth including vast untapped energy resources.
Mr. Chilingarov got our attention partly because the
world is beginning to understand that there is a
direct connection between energy and affluence, energy
and poverty, energy and pollution, energy and
technology, and energy and peace. It is my belief,
having worked closely with Russia's top scientists and
economists for years, that the Arctic rivals the
Middle East for energy potential. And a natural gas
pipeline through Alaska that turns natural gas into a
liquid easily shipped to world markets will be the
first of many great Arctic benefits that Alaska will
share with the world.
Alaskans, let's not build for today, tomorrow, this
decade or the next. We can build an 'Arctic Land and
Marine Highway to the World' that lasts a century (see
maps).
3:51:29 PM
MR. ROBERTS said the first map shows the TransCanada proposal of
moving gas through Canada, a distance of 1700 miles. The
remainder is the distance to Chicago is about 3500 miles. He
advised the committee that the legislature and the
administration have to decide the destination and the use of the
gas if it goes in this direction and warned that gas going to
Canada could end up being totally used to heat up the tar sands.
MR. ROBERTS said the other map illustrated Alaska as a player in
taking Arctic resources to the world. He said that China
understands the power of LNG both as energy and as an
alternative to coal that is a terrible environmental problem for
them and is building 10 receiving stations. This is how Governor
Hickel thinks they should view Alaska's natural gas.
He continued reading Governor Hickel's comments:
3:54:36 PM
Thanks to your recent actions Alaska is blessed with a
fiscal surplus. So I emphasize, don't be panicked into
making a decision. I urge you and Governor Palin to
invite a second round of AGIA applications after this
one. Welcome these applicants and work with them. A
place to start might be a combination of more than one
of the proposals currently in the Governor's office.
Or perhaps the best applicant has not yet come
forward.
Governor Palin has a gift for creative thinking and
problem solving. Let's back her up in finding the best
way forward. The key is to remember your solemn pledge
not to monetize but to maximize our resources for the
benefit of our people.
And there's another alternative to bring to your
attention. If none of the current or future applicants
can truly maximize this resource, there is another
way. I would have no problem if the State of Alaska
were to take a major ownership position in a gas
line. Indeed, as I have written in a recent column in
the Anchorage Daily News, I would have no problem if
the State of Alaska were to build our own gas line. If
I were a younger, I would volunteer to build it myself
for the sheer fun of it. Well, I might charge a dollar
a year for my services. A state-owned natural gas
pipeline would be no different than the Alaska
Railroad the Marine Highway system, the Ted Stevens
International Airport, the Bradley Lake hydro electric
facility and a dozen other state owned utilities and
transportation entities. They are all part of the
infrastructure of our owner state.
When you take a look at the potential revenues and
earnings, a state-owned gasline will provide enormous
benefits to Alaskans - additional billions for both
Alaska's public and private economies. In a period of
a few years, we could provide abundant, clean energy
for Alaskans, our fellow citizens in the South 48 and
our friends in Asia. Fellow Alaskans, don't be
dismayed by the challenges and the complexities of
this opportunity. A new frontier awaits us. Let's go
for it! Thank you very much.
3:56:39 PM
DAVID GOTTSTEIN also read his comments as follows:
Let me start by saying that Alaska is in a very
enviable position. We are a storehouse of natural
resources, particularly hydro-carbons that are in
great and growing demand around the world and AGIA has
shown that interest in and the economics of a gas line
are robust on a global scale. Our future is bright if
we stay the course and let the competitive process run
through to completion.
Like most Alaskans, I was disappointed that the Port
Authority LNG project bid was deemed to be incomplete
and therefore not eligible to be selected in the next
phase of AGIA. The phase whereby all remaining
participants would be evaluated and compared for a
determination as to whether they meet the ultimate
standard or representing the project that provides for
the maximum benefit to the residents of Alaska.
Even though there are members of Backbone who in their
gut genuinely believe that LNG option represents the
best all-around gas line option of Alaska, our
official position is that all legitimate proposals
should be considered and that the best project as
deemed by the people of Alaska should be the project
chosen. Our caution and advice to the administration
first and foremost was that Alaskans would be very
uncomfortable if they were faced with an all or
nothing TransCanada option without any comparison to
an LNG one. That the TransCanada option should only be
chose if Alaskans are able to see and judge the
differences and after that they conclude it is the
better option. Otherwise we will be faced with a
divisive electorate and an again stalled process.
Most Backbone members believe that ultimately there
will be enough gas discovered that a route to Valdez,
the LNG option, and one through Canada will both
eventually be commercial viable in combination. The
question becomes which direction we go with first.
That is in the large part what AGIA will answer.
It is no doubt that ConocoPhillips and the other
producers with that AGIA will fail and go away. Then
they will claim that they were right in the first
place and that only they can do the project. All
indications now are that that is not true. There is
demand for our gas qualified entities are willing to
commit to it. The producers are in a game of chicken
however. They want us to believe that they control the
gas and only they can bring it to market. That is true
only if we let them. The truth is that now we have
proof of a market through the TransCanada bid.
Requiring the producers to supply commercial volumes
of gas or be subject to lease violations. That is in
addition to the anti-trust exposure they incur by
withholding our gas from an economic market. The lack
of requiring take-or-pay contracts in order to make
use of the federal loan guarantees means that you
don't even need buyers to obtain financing which means
it will get financed and built, they will have to
come. The producers posture that the supply of gas for
a project is in question, but it isn't really. Not if
Alaska simply exercises its rights. AGIA's important
open season and access requirements will greatly
enhance the long term availability and growth of
supply. In the end the producer will participate not
necessarily because they want to, but because they
will have to - at least on the supply side.
3:59:33 PM
One of the classic and most profitable achievements on
Wall Street is to garner the rewards and ship the risk
off to others. That is simply what ConocoPhillips is
trying to do by demanding fiscal certainty. They err
in thinking we are foolish enough to grant that to
them. It's a two way street however. I would expect
them to react being equally appalled should the state
demand fiscal certainty in the form of a floor for
well-head values at $90/barrel of oil and $8/mcf of
gas. Risk is a zero sum game. As long as there is a
market ready to commit without such fiscal
requirements, as there certainly has been proven
exists, we don't need to grant the producers such a
huge risk subsidy. So remember, the term fiscal
certainty is code-word for less risk for them and more
risk for us. Intel and General Motors don't receive
these kinds of special income tax commitments when
they invest billions of dollars in new plant and
equipment. The benefits of doing business in land
governed by the rule of law, property rights in a
secure environment is balanced by the uncertainty
surrounding the future decisions of a free people in a
democracy. So, only when ConocoPhillips gets in the
game for real should their proposal be taken
seriously.
We are not opposed to producer participation, but let
us remember that a purely producer owned line gives
them more control and advantage by limiting the
distribution of the product to the markets they sell
into as opposed to an independent pipeline company
that makes more money the more gas put through the
pipeline.
We also believe that how gas is brought to market is
not just a state issue, but a national one as well.
The federal loan guarantees are a reflection of that
because of nation priorities. At our own peril, we
would be naive to think that part of the benefit
calculus will not consider the amount of oil from
Canada that could be set free from the tars ands and
made available to the North American market reducing
our dependence on foreign Middle Eastern oil sources.
It is not so much an Alaskan issue, but it will
influence the Federal Energy Department's thinking.
All that being said we believe that the administration
was faced with a difficult set of circumstances. They
wanted to maintain the integrity of the AGIA request
for application process, but also maintain a path to
wind up with the best project for Alaska, whatever
that might be. On the other hand, the Alaska Gasline
Port Authority application represented the only
Valdez/LNG routings, the one that most Alaskans
believe has a good chance of being the one providing
the maximum benefit.
But a failed Port Authority bid doesn't default a
Canadian route being superior without even a
comparative evaluation. That is why I believe the
Palin administration has offered a solution that is
fair, reasoned and falls within he AGIA process. And
that is only if the TransCanada proposal can be
publically shown to be better than an LNG option, will
it be granted a license. It might be that we have to
take an extra step to get to the right place but we
have waited 30 years. We can wait a bit more.
The good news is that we will know once and for all
from an estimate point of view what the net present
value of the state both approaches contain the access
to energy by Alaskans the value added processes
anticipated the permanent jobs created the offset of
oil revenues due to volumes of gas shipments, the
costs of completion to Southcentral consumer in higher
energy costs and many other values, both positive and
negative. The rough part comes in deciding which is
best in combination. Is more volume and money later,
and more uncertain, more valuable than smaller less
risky takes? And how much net present valued does it
take to be worth more than a good paying job? These
are the kind of judgments you legislators and the
Alaskan public will be faced with in the final
analysis. It will be your job now to keep the
administration's feet to the fire with regard to a
full and thorough comparison of an LNG versus Canadian
route. A good understanding of the TransCanada
proposal will tell us a lot about the economics of a
producer lines as well, should they ever decide to
come to the party.
Part of the good news is that the administration
rightfully and artfully has crafted a framework to
keep us on track and heading in the right direction.
Only if in totality a TransCanada line outshines an
LNG option will we grant the license. If not, we have
the ability to move directly in a way that matches the
landscape at the time for a final assessment and
determination.
4:06:04 PM
Before I leave you today, I wanted also take a very
brief opportunity to comment on another topic, not
totally unrelated as it has also to do with energy for
Alaskans. It is my opinion that there needs to be a
more rational alignment of generation, transmission
and the distribution of electricity in the Railbelt
and on to rural communities and the state has a big
role to play and has an interest in making sure it is
done well. I think the merger discussions by ML&P and
Chugach just represent the tip of the iceberg in that
regard.
Twenty years ago I was active in the attempt to build
a Susitna Dam project. As there has been a lot of
inaccurate information transmitted regarding it, I
wanted to make sure you had an accurate framework. I
am not active in any new movement, but contrary to
what others have suggested, Susitna's generating cost
was in the 11-14 cents per kilowatt, not the 30 cents
bantered about. Also, the whole reason it collapsed
was that the price of oil dropped to $12 per barrel in
the mid eighties. I remember it well and was
personally instrumental in pushing for transparency in
the break=-even economics of the project. I and others
pressured Harza Engineering, one of the joint venture
project partners of Harza-Ebasco, to provide that
analysis. The answer was $18/barrel. With $12 oil and
dramatically reduced state revenues, the appetite for
more money for dams evaporated.
4:07:27 PM
Now, I am not an expert or up-to-date on the current
economics of a dam, but what a shame with $90/barrel
hindsight and $18 break even economics that we lost
the momentum. I don't know if the cost of the project
has gone up equally five-fold, but it might be wroth a
look. And it could be a good long term solution to
providing low cost energy for Alaskans far in to the
future long after gas and oil run out. Alaska could
benefit when oil and gas prices are high, but our
residents could be protected from high energy prices
with a more green solution.
Thank you again for allowing us this ample opportunity
to share our thoughts.
4:08:41 PM
MICHAEL KENNY read his comments as follows:
Thank you Chairman Huggins and members of the
Resources Committee for the opportunity to address and
offer t you some thoughts which may assist in
illuminating the path I believe all Alaskans crave to
travel; the path that will bring our Alaskan North
Slope (ANS) natural gas to market, the path that leads
present day and future Alaskans to the prosperity
bequeathed to us by the first people and pioneers of
the Great Land through their toil and steadfastness
and foresight.
I speak to you as an Alaskan associated with the group
known as Backbone. We may speak with differing tones
and voices, but we are in complete harmony with our
lifelong dedication to make certain that when the
natural resources of Alaska are developed it is done
to the maximum benefit of its citizens. This requires
us to act wisely with our focus not on monetizing our
development of non-renewable resources or a short term
windfall in our life time but on making certain
maximum benefit extends to future Alaskans. Our
Constitution was not written to cover only those of us
here in the present. Alaska is an owner state - a
great blessing carrying with it great responsibilities
to future generations.
My intention in addressing you today is to share my
concerns that without a proper comparison of competing
routes and projects, the mandate expressed in our
constitution will not be met.
It is my opinion that the process followed to date
under AGIA is vastly superior to the process the
previous administration utilized in 2005 under the
auspices of the Stranded Gas Act. But no process is
without flaws and AGIA is no exception. Only one
application is judged acceptable by the administration
and it is for a project to deliver Alaska gas to
Canada. There are some words in the approved
TransCanada application that vaguely refer to an LNG
alternative, but there are two precise and distinct
applications proposing an all-Alaskan LNG route were
disapproved for different reasons. The administration
also indicated that they were not completely
dismissing an LNG project. We shall see what that
means.
I trust that a license will be awarded only after a
through and transparent analysis of the competing
routes and projects. It is difficult to look forward
to a license being awarded to an applicant because it
was judged most successful at navigating the
application process. We deserve a thorough examination
of the competing visions. A decision of this magnitude
will reverberate far into the future and must be the
result of today's Alaskans understanding the pros and
cons of the various alternative and coming to a
reasoned decision. The following eight observations
are offered for your consideration.
4:12:04 PM
First, the producers, ExxonMobil, BP and
ConocoPhillips have gone to great lengths and will
continue to do so to preclude Alaskan LNG from
competing in the Pacific Rim marketplace, the world's
most lucrative market. Relying upon industry funded
studies undertaken during the Knowles administration
they claim Alaskan LNG is not competitive. That may be
accurate from their internal corporate point of view
in terms of maximizing their stockholders return on
investment. Furthermore, most sovereigns, unlike
Alaska, grant development and production leases on a
"use it or lose it" basis, so the stockholders expect
the leadership of BP and ConocoPhillips and Exxon to
maximize and not lose the leases in Indonesia for
example. The AGIA has highlighted the fact that Alaska
LNG does make economic sense to a n7umber of global
energy giants. It is ironic that the TAPS oil pipeline
routing to Valdez was aggressively demanded by some of
the same Alaskan resource leaseholders precisely
because Alaska is located at the crown of the very
lucrative Pacific Rim/Asian markets.
A second observation is that LNG is the wave of the
future. The largest investment that Exxon has ever
made is in an LNG project with Qatar for the
production of liquefied natural gas, which they will
ship into the Gulf of Mexico and which will eventually
find its way to markets throughout the Northeast and
Midwestern United States.
There is continued speculation that a consortium
modeled on OPEC will be formed. LNG is becoming a
global commodity and it offers a dynamic flexibility
st
in reaching lucrative markets. LNG is so very 21
Century.
The third observation - the Mackenzie Valley Pipeline
(MPV) project is floundering. Imperial/Exxon stated
that the $7 billion estimate in 2004 made the MVP very
marginal indeed. The producers headed for the exists,
however, when the estimate in early 2007 came in at
$16.2 billion (in 2006 dollars) and the Canadian
government showed no interest in using taxpayer
dollars for subsidies and guarantees in the face of
the recording breaking profits being announced by the
producers. Reportedly there is now a proposal to have
TransCanada part of the aboriginal pipeline group
build and own the $8 billion pipeline while the
producers withdraw from the aboriginal pipeline group
and invest $8 billion and the necessary infrastructure
at the Mackenzie River Delta gas fields.
The past CEO of Exxon, Lee Raymonds, and his
successor, Rex Tillerson, have stated in no uncertain
terms that the MVP must precede the Alaska Highway
Pipeline project (AHPP). Of course their preferred
project is to bring the ANS natural gas "over the top"
and thus make the MVP more lucrative. Many Alaskans
considered their manner and tone to be disrespectful.
Rising above this now familiar arrogance and the
really huge conflict of interest inherent in the
possibility that both the MVP and the AHPP are in
TransCanada portfolio, we wonder why is it so
important to get that Mackenzie natural gas to the
south, which brings us to the fourth observation.
4:16:29 PM
The answer can be found in two words - tar sands. In
order to extract and produce synthetic oil from the
Athabascan tar sands, huge amounts of natural gas and
water are necessary. Since it seems likely that
Alberta has already passed peak production of its
natural gas, the energy firms will be reliant on
tapping in to new energy sources for their needs.
Eventually full development of the tar sands will
yield an amount of oil exceeded only by Saudi Arabia.
It is gigantic and it has attracted gigantic
investments from all over the world.
Since natural gas is the key to the profitability of
these investments, pressure is being applied to assure
a source or sources are available. Alaska is certainly
a location that has attracted great attention of late.
The corruption scandal is but one symptom. The case
for building the AHPP is shrouded with talk of
transporting our natural gas to the Midwestern United
States. It would be extremely surprising if that talk
corresponded with reality. Our Alaskan gas is needed
for the Canadian tar sands and our natural gas solids
for the Alberta petrochemical industry.
4:18:09 PM
A fifth observation: The tar sands projects have drawn
increasing opposition as the mining has gone forward.
Many environmentally inclined Canadians view the use
of natural gas energy to produce synthetic oil energy
as extremely wasteful much as many Americans feel
using corn to produce oil is a waste of resources -
the energy used to do it exceeding in some cases the
energy received from making the oil. The Canadian
emissions inherent by using this amount of natural gas
will exceed the Kyoto Treaty by over 25 percent and
the greenhouse warming will be increased
proportionately. First Nations organizations are upset
over the degradation of the water tables, the
Athabasca River Drainage and the Slave Lakes. Labor
organizations are concerned by the importation of
workers from Indonesia and other Asian countries who
are afforded little if no protection and can be
deported at the whim of employers.
It may never reach the critical mass between these
organizations to stop the tar sand development, but it
can be effective to stop development of the Mackenzie
Valley pipeline or the Alaska Highway pipeline thus
gaining leverage over the tar sand development.
A sixth observation. Future developments in the Arctic
Ocean and the Beaufort Sea are no longer deep in the
future. Political maneuvers this past year by Russia,
Norway and Canada indicate they are aware of the huge
potentials and are staking out their claims. Alaska's
oil transportation corridor connecting the Arctic
Ocean with the Pacific Ocean will be enhanced by the
addition of a gas transportation system in the same
corridor. Connecting the Arctic Ocean with the Pacific
Ocean is something that will come about sooner or
later and it's better that we build this now.
Seventh observation: It looks like the fear card is
now back in play. Like the ghost of Christmas past
former Governor Murkowski has reappeared to promote
the producers as owning the gas and whose interests
are paramount. Almost simultaneously voices from
Washington DC can be heard warning of a federal take
over. The oil industry has enjoyed unparalleled
influence over American policy for the past eight
years. There is a very good chance that that deck will
be reshuffled coming this November. I believe that our
decisions should not be rushed by those types of
threats. It may come to pass that a new president or
congress may decide a project such as Sinopec's which
promises to over the lifetime of that project reduce
the balance of trade deficit that we have with China
by $500 billion. That may be of interest to a future
administration.
I remain confident that when the administration and
legislature examine and analyze the competitive routes
and projects including the Chinese in a transparent
and informative deliberation, Alaskan's will be
overwhelmingly supportive of the result. The result
down not have to be a zero sum game where there is
only one winner.
While I do not claim to be fully informed, it does
seem that the all Alaskan route can be accomplished in
a short time frame and more importantly has the
advantage of being within Alaskan and American
sovereignty. The producers have powerfully robustly,
sharply and fiercely demanded fiscal certainty. I
believe Alaska must in the same way demand certainty
of another sort and that is the certainty that if the
line goes through Canada that we have certainty that
there is no agendas by either the foreign government
of the producers to impede the development and
transportation of our resource. That certainty will
never be attained; it can only be realized if we avoid
foreign entanglements in our routing. This is not
meant to imply that after we have completed an LNG
project, and with the expected discovery of much more
Alaska North Slope natural gas, a spur line to Alberta
would be inappropriate.
Great comedy is reliant upon great timing and of
course the tragic face of comedy may reflect poor
timing. If we were to transport our gas via a static
delivery system, 1700 miles inland we would be
building last century's project. Turning our backs on
the historic opportunity available to Alaska via a
dynamic, global LNG project would certainly be a
tragedy.
I thank you very much for allowing me the opportunity
to share my observations with you.
4:23:47 PM
VICE-CHAIR STEDMAN stated that Chairman Huggins is inviting the
firms from the tar sands to testify before the Resources
Committee. He believed that gas in Alaska is clearly one target
to get that energy source to extract that oil.
4:25:50 PM
MR. KENNY responded he would be all for sending gas to the tar
sands if the LNG piece were in place. It's a question of
priorities.
VICE-CHAIR STEDMAN said the legislature was concerned also that
the liquids would be available to the state so that it could
develop a petro-chemical industry. They recognized that Alberta
has issues with supply.
SENATOR STEVENS asked Mr. Kenny to flesh out his comments on the
threat of a federal takeover.
MR. KENNY responded that a report has floated around Washington
DC since the $18 billion guarantee that if Alaska doesn't act
that the federal government would step in and make certain that
the gas was monetized and sent to the Midwest. The DC
negotiations were two-pronged - one was for a floor for the
price of natural gas. That wasn't supported by our usually
allies in Louisiana and Texas. They weren't too keen on the $18
billion guarantee, but the Midwestern Democratic senators were
very interested in getting what they thought would be a good
cheap supply of American natural gas. Given that dynamic
comments were made that this is where we are headed. There is a
certain school of thought in DC that if this doesn't happen,
that the feds could take over. He didn't know how it could be
done legally.
4:29:21 PM
SENATOR WIELECHOWSKI expressed appreciation of their coming down
and asked what happens to Backbone if the governor goes with the
TransCanada bid.
MR. GOTTSTEIN replied if there's a fair hearing and it becomes
obvious to Alaskans that a Transcanada project provides more
benefits to the residents of Alaska, they "would sign on." In
the absence of that, Alaskans would have a tough time. If the
economics of an LNG project represents 98 percent of the value a
Transcanada project along with a lot of jobs, it would be hard
to argue against it. But if it had only 80 percent of the value,
it would be a tougher decision. Backbone believes that it should
be a decision of the Alaskan people.
4:31:53 PM
VICE-CHAIR STEDMAN said they have the old Stranded Gas fiscal
analysis and hopefully the administration will come forward with
one from TransCanada. He didn't know how the body would make a
decision without an analysis of the economics.
MR. GOTTSTEIN said the challenge is that comparing the projects
is like comparing apples and oranges. Not all the projects have
the same types of values. An all Alaskan project provides value
through jobs, but he agreed the onus is on the administration to
do a good job of the analysis.
4:34:10 PM
MR. ROBERTS urged the committee to ask the administration for a
model of what an LNG option would be and to ask the presenters
in the coming days to add what they could to it.
Vice-chair Stedman thanked them for testifying today. There
being no further business to come before the committee, he
adjourned the meeting at 4:37:09 PM.
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