Legislature(2007 - 2008)BUTROVICH 205

02/11/2008 03:30 PM Senate RESOURCES


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03:38:05 PM Start
03:38:42 PM Presentation: Agia Applicant Alaska Gasline Port Authority
05:10:37 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: AGIA Applicant TELECONFERENCED
Alaska Gasline Port Authority
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                       February 11, 2008                                                                                        
                           3:38 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Charlie Huggins, Chair                                                                                                  
Senator Bert Stedman, Vice Chair                                                                                                
Senator Lyda Green                                                                                                              
Senator Lesil McGuire                                                                                                           
Senator Gary Stevens                                                                                                            
Senator Bill Wielechowski                                                                                                       
Senator Thomas Wagoner                                                                                                          
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Senator Joe Thomas                                                                                                              
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
Presentation:  AGIA Applicant Alaska Gasline Port Authority                                                                     
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to consider                                                                                                  
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
BILL WALKER, General Counsel and Project Manager                                                                                
Alaska Gasline Port Authority                                                                                                   
POSITION STATEMENT:  Gave PowerPoint presentation and answered                                                                
questions.                                                                                                                      
                                                                                                                                
CRAIG RICHARDS, of Counsel                                                                                                      
Walker and Leveque LLC                                                                                                          
Anchorage, AK                                                                                                                   
POSITION STATEMENT:  Assisted with PowerPoint presentation and                                                                
answered questions.                                                                                                             
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  CHARLIE  HUGGINS  called  the  Senate  Resources  Standing                                                             
Committee meeting  to order at 3:38:05  PM.  Present at  the call                                                             
to  order   were  Senators  Wagoner,  Green,   McGuire,  Stedman,                                                               
Wielechowski, and Chair Huggins;  Senator Stevens arrived shortly                                                               
thereafter.  Also in attendance was Senator Joe Thomas.                                                                         
                                                                                                                                
  ^Presentation:  AGIA Applicant Alaska Gasline Port Authority                                                              
                                                                                                                                
3:38:42 PM                                                                                                                    
CHAIR HUGGINS  announced the presentation  by the  Alaska Gasline                                                               
Port  Authority ("Port  Authority") relating  to its  application                                                               
under the Alaska Gasline Inducement Act (AGIA).                                                                                 
                                                                                                                                
3:39:00 PM                                                                                                                    
BILL WALKER, General Counsel and  Project Manager, Alaska Gasline                                                               
Port  Authority,  told members  much  has  happened in  the  last                                                               
couple  of months  relating to  the Port  Authority's efforts  to                                                               
build  a gas  pipeline.    The Port  Authority  existed in  1999,                                                               
before the  Stranded Gas  Act and AGIA,  and will  continue until                                                               
there is  a pipeline.  Mr.  Walker said the Port  Authority has a                                                               
lot  of  passion  for  this  issue, with  a  voluntary  board  of                                                               
directors  stretching  from  the   North  Slope  Borough  to  the                                                               
Fairbanks North Star Borough and the City of Valdez.                                                                            
                                                                                                                                
MR. WALKER reported  that over the years  the municipalities have                                                               
put about $1.5  million into this effort,  with about $20 million                                                               
from the  private sector.  The  Port Authority hasn't had  to ask                                                               
the legislature  for funding.   He surmised since  companies have                                                               
been  willing  to  step  up and  contribute  millions,  they  are                                                               
serious about  working with the  Port Authority.  He  noted Craig                                                               
Richards would present  some topics today.   Radoslav Shipkoff of                                                               
Greengate  LLC, on  teleconference today  from Washington,  D.C.,                                                               
has been the  Port Authority's financial advisor  since 1999; his                                                               
company has performed all the financial modeling.                                                                               
                                                                                                                                
3:41:38 PM                                                                                                                    
SENATOR STEVENS joined the meeting.                                                                                             
                                                                                                                                
MR.  WALKER began  the PowerPoint  presentation, duplicated  in a                                                               
28-page handout.  He showed a  slide that said the mission of the                                                               
Port Authority has always been to build  - or cause to be built -                                                               
a gas  pipeline from the  North Slope  to Valdez for  the maximum                                                               
benefit of  all Alaskans.   Noting this  mission has  been tested                                                               
recently,  he  said  it  doesn't   have  to  be  under  the  Port                                                               
Authority's name.   He expressed confidence in  the AGIA process,                                                               
saying it has caused mountains  of information to come forth that                                                               
Alaskans didn't have before.                                                                                                    
                                                                                                                                
MR.  WALKER  told members  the  Port  Authority always  wanted  a                                                               
complete  cost  estimate on  a  turnkey  basis, together  with  a                                                               
financial market analysis.  Now that  data is available.  He said                                                               
the  results   are  exciting.    Although   some  companies  have                                                               
withdrawn, they'd  specified it wasn't because  of the economics,                                                               
which are strong.                                                                                                               
                                                                                                                                
MR.  WALKER  explained  that slide  3,  labeled  "All  Alaska/LNG                                                               
Project  Returns the  Highest Wellhead  Value,"  tells the  whole                                                               
story of  why the Port  Authority continues  to push for  an all-                                                               
Alaska project.   A  netback on  a project  of 2.7  billion cubic                                                               
feet a day  (Bcfd) has a higher wellhead value  than a project of                                                               
4.5 Bcfd;  it is  a market  function.   While the  Port Authority                                                               
prefers that the gas be  consumed within Alaska, realistically it                                                               
must be exported to Canada, Asia, or another location first.                                                                    
                                                                                                                                
MR. WALKER  said the  economic model  assumes that  shippers will                                                               
take it  to the  best market  and that  gas can  be put  into six                                                               
different  markets.     The   Port  Authority   believes  "market                                                               
optionality" -  which other slides  will address -  is important.                                                               
Of the projects looked at  worldwide, none began with the largest                                                               
piece; most  started with  the smallest piece  and then  added to                                                               
it, as done for Qatargas 1, 2, 3, and ultimately 4.                                                                             
                                                                                                                                
MR. WALKER opined  that it is highly unusual that  Alaska has the                                                               
opportunity  to  begin  with  a smaller  project  with  a  higher                                                               
wellhead  price.   He attributed  this to  liquefied natural  gas                                                               
(LNG), which allows  taking advantage of world  markets, not just                                                               
a single market where a pipeline hub might be.                                                                                  
                                                                                                                                
3:45:43 PM                                                                                                                    
MR.  WALKER  turned  to  slide   4,  "Bechtel,"  which  showed  a                                                               
breakdown of the cost estimate and had the following two points:                                                                
                                                                                                                                
        - Bechtel provided approximately $10 million in                                                                         
        engineering work for the Project/Application.                                                                           
     - Bechtel cost estimate:  $23.65 billion.                                                                                  
                                                                                                                                
He noted since  1999 Bechtel spent about  $10 million toward this                                                               
effort, updating  the project model  and cost estimate.   For the                                                               
final 2007 cost  estimate for the application,  the vast majority                                                               
of work  was performed  by that  company, using  approximately 50                                                               
engineers in Houston,  Texas, where Mr. Walker spent  most of the                                                               
summer.   He  lauded Bechtel,  which  he noted  has made  several                                                               
presentations to the Alaska State Legislature.                                                                                  
                                                                                                                                
CHAIR  HUGGINS  referenced Bechtel's  total  cost  estimate.   He                                                               
asked what the effective date was for that.                                                                                     
                                                                                                                                
MR. WALKER answered  November 30, 2007, the date of  the AGIA bid                                                               
submittal.  Prior work was done  in 2000, it was updated in 2005,                                                               
and there  was a complete  update in  2007.  He'd  deleted slides                                                               
showing  every pipe  yard  and storage  location,  the number  of                                                               
miles of  pipe, construction camps  on the route, and  the number                                                               
of bids per camp; he'd felt  such detail wasn't necessary for the                                                               
committee, he said,  although a total of 15,000  pages was turned                                                               
in November  30.  The  estimate is approximately  $12 billion for                                                               
the pipeline  and $7  billion for  the LNG  facilities.   A third                                                               
party is  assumed for  the gas conditioning  plant (GCP),  with a                                                               
toll built into the tariff for gas conditioning.                                                                                
                                                                                                                                
3:48:24 PM                                                                                                                    
MR. WALKER  showed slide 5,  "The All Alaska  Project," surmising                                                               
members had seen it before,  but without the 18 offtake locations                                                               
depicted on the map.    It had the following points:                                                                            
                                                                                                                                
     Gas Conditioning Plant in Prudhoe Bay                                                                                      
     - removes impurities                                                                                                       
          - compresses and chills the gas to pipeline                                                                           
        specifications                                                                                                          
                                                                                                                                
     - Pipeline from Prudhoe Bay to Valdez                                                                                      
     - parallel to TAPS                                                                                                         
     - pre-build to Delta Junction for later tie-in for the                                                                     
        Alaska/Canada Highway Project                                                                                           
     - tie-in at Glennallen for a spur line to Alaska South                                                                     
        Central natural gas grid                                                                                                
                                                                                                                                
     LNG Facility in Valdez                                                                                                     
        - integrated LNG liquefaction and LPG extraction                                                                        
        facilities                                                                                                              
     - includes storage and vessel loading facilities                                                                           
                                                                                                                                
MR. WALKER  provided details.   He said this project  consists of                                                               
an 806-mile pipeline from Prudhoe  Bay to Valdez, parallel to the                                                               
Trans-Alaska Pipeline  System (TAPS) for  oil.  It is  a 2.7 Bcfd                                                               
pipeline, with  gas chilled to  28 degrees Fahrenheit.   The GCP,                                                               
the  first piece  on the  North Slope,  is oversized  because the                                                               
Port  Authority   realizes  2.7  Bcfd   in  a  48-inch   line  is                                                               
significantly under capacity.   Liquefaction in Valdez  is at the                                                               
terminal  site   approved  by   the  Federal   Energy  Regulatory                                                               
Commission (FERC) at  Anderson Bay, as obtained  by Yukon Pacific                                                               
Corporation (YPC); a slide addresses that.                                                                                      
                                                                                                                                
MR.  WALKER discussed  anticipated offtake  locations.   Although                                                               
the  minimum number  for the  application was  five, he  reported                                                               
that the  Port Authority had  asked entities between  Prudhoe Bay                                                               
and  Valdez  - every  military  base,  as  well as  villages  and                                                               
industrial entities -  if they'd be interested in  gas coming off                                                               
this line; without exception, the answer was yes.                                                                               
                                                                                                                                
MR. WALKER noted  the original 22 locations were  narrowed to 18.                                                               
He  indicated other  applicants have  proposed offtake  points in                                                               
Canada at  Burwash Landing.  The  goal is as many  offtake points                                                               
as possible, he  told members, to distribute  gas through Alaska.                                                               
Also, gas can be put into the pipe to get it to market.                                                                         
                                                                                                                                
MR. WALKER  suggested one obvious  point is at Glennallen,  for a                                                               
spur line into  Southcentral Alaska, and provisions  are made for                                                               
a spur line to Canada at a later  date.  The pipe is oversized to                                                               
Delta Junction,  48 inches, then  becoming 42 inches.   It starts                                                               
at  2.7 Bcfd,  but he  said there  is ample  room for  additional                                                               
expansion  through  compressors.     It  will  start  with  three                                                               
compressors.  The first is  the gas conditioning plant at Prudhoe                                                               
Bay;  it comes  out  with  pressure there.    The two  additional                                                               
compressor  stations   are  approximately  100  miles   north  of                                                               
Fairbanks and 100 miles north of Glennallen.                                                                                    
                                                                                                                                
3:52:07 PM                                                                                                                    
SENATOR WAGONER asked at what pressure the line will operate.                                                                   
                                                                                                                                
MR. WALKER answered 2200 pounds per square inch (psi).                                                                          
                                                                                                                                
SENATOR  WAGONER asked  who'd pay  the  cost of  all these  small                                                               
amounts of gas for the offtake sites listed.                                                                                    
                                                                                                                                
MR. WALKER answered it would be  paid for by those taking the gas                                                               
off.   Envisioned is  some sort of  local distribution  system, a                                                               
necessary piece.                                                                                                                
                                                                                                                                
SENATOR WAGONER  asked if  the people who  were contacted  by the                                                               
Port Authority  had been told  how much  it would cost  to reduce                                                               
the pressure of that gas, odorize it, and distribute it.                                                                        
                                                                                                                                
MR. WALKER  replied no.   They'd inquired about interest  and had                                                               
found strong interest.   He noted the application  refers to nine                                                               
centralized  distribution  centers  because many  could  use  one                                                               
center.  It  may be more economical to have  fewer offtake points                                                               
and more of  a distribution system.  But  that calculation hasn't                                                               
been completed yet.                                                                                                             
                                                                                                                                
SENATOR WIELECHOWSKI asked how much  it would cost to offtake the                                                               
gas and the expected charge for  in-state use.  For example, does                                                               
this anticipate  using distance-sensitive rates?   He also asked,                                                               
with 18 offtake points, how much  gas is expected to be available                                                               
at Valdez.                                                                                                                      
                                                                                                                                
3:53:48 PM                                                                                                                    
MR. WALKER  replied the maximum  anticipated for in-state  use is                                                               
0.5 Bcf, the rule of thumb they've used.                                                                                        
                                                                                                                                
SENATOR WIELECHOWSKI asked how they set the rates.                                                                              
                                                                                                                                
MR. WALKER explained  that the application uses  a true distance-                                                               
sensitive rate.   The  fewer miles of  distance in  the pipeline,                                                               
the lower it is.  If it  goes past a compressor station, the cost                                                               
of that  is included in the  rate.  In further  response, he said                                                               
the Port  Authority wouldn't  control the price  of the  gas, but                                                               
would provide  the facility and  infrastructure to move it.   All                                                               
the  Port   Authority  could   propose  is   the  rate   for  the                                                               
transportation charge, which is a distance-sensitive rate.                                                                      
                                                                                                                                
CHAIR HUGGINS welcomed Senator Joe Thomas.                                                                                      
                                                                                                                                
3:55:49 PM                                                                                                                    
MR. WALKER  turned to  slide 6,  "Gas Conditioning  Plant (GCP),"                                                               
which had the following points:                                                                                                 
                                                                                                                                
     (a) 3rd Party Ownership                                                                                                    
     (b) Alaska Regional Native Corporation or Consortium                                                                       
                                                                                                                                
He  explained that  they'd broken  the $24  billion project  into                                                               
four different  pieces, for manageability.   First is the  GCP at                                                               
Prudhoe  Bay.   The Port  Authority has  looked at  the GCP  with                                                               
private  entities and  believes  it can  be  done in-state,  with                                                               
Alaskan  companies.   The  regional  corporations  seem to  be  a                                                               
natural, and the Port Authority has  met with them; he said there                                                               
seems to be a strong interest.                                                                                                  
                                                                                                                                
MR.  WALKER  highlighted  tax  benefits   for  whoever  owns  and                                                               
operates the  GCP, benefits he  believes should remain  in Alaska                                                               
if possible.   In response  to Senator Wagoner, he  recalled that                                                               
this  is through  accelerated depreciation  in  the 2004  federal                                                               
energy Act.   He opined that it is an  easy and appropriate piece                                                               
to do separately.                                                                                                               
                                                                                                                                
MR. WALKER  said the Port  Authority had given thought  to having                                                               
the producers be the owner-operator.   While it is a possibility,                                                               
some  suggest it  might be  better to  have someone  independent,                                                               
because of access  issues.  He said the board  feels it should be                                                               
a local, Alaskan company.  He  pointed out that much has happened                                                               
since TAPS was  built, with a lot of growth.   He emphasized that                                                               
his entity believes this can truly be all-Alaskan.                                                                              
                                                                                                                                
3:58:29 PM                                                                                                                    
MR. WALKER showed slide 7,  "Marine Transportation," noting there                                                               
has  been previous  discussion about  the transportation  of LNG,                                                               
including  Jones  Act  issues.   He  said  the  Port  Authority's                                                               
project  allows  shippers  that  put gas  into  the  pipeline  at                                                               
Prudhoe  Bay to  take it  anywhere in  the world  they wish.   As                                                               
shown on  the slide, the  Port Authority has a  teaming agreement                                                               
with Mitsui OSK  Lines and BGT Ltd., which  have eight U.S.-built                                                               
LNG tankers.                                                                                                                    
                                                                                                                                
MR. WALKER  told members time  was spent in Washington,  D.C., to                                                               
determine the  process and difficulty  of reflagging  those ships                                                               
out of the  U.S.; the owners of the vessels  have retained a D.C.                                                               
law firm to look at it.   He indicated staff to the congressional                                                               
delegation advised that  it isn't a lot to ask  to reflag a U.S.-                                                               
built vessel, because  it puts U.S. workers to work  on the ship.                                                               
Those  vessels would  be available  to  ship LNG  from Valdez  to                                                               
other Pacific Coast points.                                                                                                     
                                                                                                                                
MR. WALKER noted  for those who want to ship  LNG to Asia, Mitsui                                                               
OSK Lines is  the largest in the world, with  about 645 ships, 80                                                               
of  which are  LNG  tankers.   It  is the  largest  owner of  LNG                                                               
tankers in the world, and  the Port Authority is comfortable with                                                               
its  technology.   He  indicated  Mitsui OSK  Lines  has been  to                                                               
Alaska, is  familiar with shipping  requirements, and  has looked                                                               
at  the  Port  Authority's  information   on  the  terminal  site                                                               
including water depth.  Thus the  Port Authority has no issues on                                                               
the shipping.                                                                                                                   
                                                                                                                                
CHAIR HUGGINS asked whether this assumes an export permit.                                                                      
                                                                                                                                
MR.  WALKER replied  the  assumption is  that  the export  permit                                                               
obtained by  YPC would remain  in existence.  Saying  he'd spoken                                                               
with the  attorney in Washington,  D.C., who obtained  the permit                                                               
for YPC, Mr.  Walker recalled that it expires 25  years after the                                                               
first shipment of LNG.  Every year  the fee is paid for the state                                                               
right-of-way,  and  the  federal right-of-way  was  renewed  this                                                               
year.  With FERC, the LNG  license at Anderson Bay at Valdez must                                                               
be renewed  every three years,  so that was  renewed in May.   He                                                               
said the export license seems as good as the day the ink dried.                                                                 
                                                                                                                                
4:02:46 PM                                                                                                                    
SENATOR  WAGONER inquired  whether anyone  has asked  the federal                                                               
Department  of Energy  (DOE)  about the  validity  of the  export                                                               
license  today, especially  based upon  a project  that uses  the                                                               
$18 billion federal loan guarantee.   He also asked if a response                                                               
has been put in writing.                                                                                                        
                                                                                                                                
MR. WALKER relayed the assumption  that someone couldn't do both,                                                               
based  on  meetings they've  had  with  the  DOE about  the  loan                                                               
guarantee.   Thus  the assumption  for the  AGIA application  and                                                               
model is that there'll be no federal loan guarantee.                                                                            
                                                                                                                                
CHAIR HUGGINS  asked whether  the Port  Authority has  a declared                                                               
affiliation with a pipeline company to do the pipeline piece.                                                                   
                                                                                                                                
MR. WALKER replied no, not at this time.                                                                                        
                                                                                                                                
4:04:23 PM                                                                                                                    
MR. WALKER showed  slide 8 and began a lengthy  discussion of the                                                               
Port Authority's  experience under AGIA, noting  they'd testified                                                               
last year  in favor of the  Act.  He  opined that a good  job was                                                               
done by  the media  in explaining  the circumstances  relating to                                                               
the Port  Authority.  However,  he wanted to restate  it directly                                                               
and answer any questions.                                                                                                       
                                                                                                                                
MR.  WALKER  recalled  after  AGIA  passed,  the  Port  Authority                                                               
immediately went  to the Lower  48 to put together  a consortium.                                                               
The process began  in June.  The Port Authority  was pleased with                                                               
the response,  particularly from  one pipeline company  that came                                                               
to Alaska several times and wanted  to do it all, working closely                                                               
with  the Port  Authority on  a pipeline  to Valdez  and worrying                                                               
about the  LNG later.   The Port  Authority said no,  wanting LNG                                                               
along  with   the  pipeline,  and   ultimately  put   together  a                                                               
significant pipeline company and a significant LNG company.                                                                     
                                                                                                                                
MR. WALKER  said that company very  much liked the data  and work                                                               
from Bechtel  and had wanted  to update  it itself.   That's when                                                               
the Port Authority's board made  that tough decision of "build or                                                               
cause to  be built."   There was one  condition:  If  the company                                                               
didn't  bid, it  would give  the updated  data back  so the  Port                                                               
Authority could submit a bid.                                                                                                   
                                                                                                                                
MR.  WALKER  recalled  about  that   time,  August  12,  2007,  a                                                               
Petroleum  News article  quoted David  Sokol, talking  about Mid-                                                             
America's  bid,  as  saying  he  couldn't  believe  the  kind  of                                                               
pressure  he was  under to  not  submit a  bid; Mr. Sokol  didn't                                                               
divulge the partners, saying he didn't  want them to be under the                                                               
same kind of  pressure.  Mr. Walker told members  he hadn't fully                                                               
appreciated what  Mr. Sokol  was saying  at the  time and  had to                                                               
read between the lines.                                                                                                         
                                                                                                                                
4:08:14 PM                                                                                                                    
MR.  WALKER   said  the  Port   Authority  continued   with  this                                                               
consortium,  providing   data  and   making  everything   it  had                                                               
available.    The  others  came  up  with  the  YPC  permits,  he                                                               
indicated,  and  all was  fine  until  mid-October, when  he  was                                                               
informed that the pipeline entity  was withdrawing.  He said that                                                               
was the company's  choice, but it declined to give  back the Port                                                               
Authority's data, which was needed to put a bid together.                                                                       
                                                                                                                                
MR. WALKER explained that, at first,  the LNG company said it was                                                               
unsure about bidding, but then said  it would bid.  Thus the Port                                                               
Authority  put  in  a  bid  November  30  referencing  that  bid.                                                               
However, the LNG company didn't  actually submit a bid, which was                                                               
discovered the  next day.   Then the  Port Authority  became more                                                               
aggressive and finally received the data.                                                                                       
                                                                                                                                
MR.  WALKER said  when the  Port Authority  received the  state's                                                               
letter  requesting additional  information,  areas of  deficiency                                                               
were pointed out that they were  well aware of, since they'd only                                                               
been able to  provide the little data available at  the time.  In                                                               
responding, they could have  1) submitted the minimum information                                                               
that  complied with  its original  bid or  2) submitted the  best                                                               
information they had.  Since the  goal was to build or have built                                                               
a gas  pipeline - and  wasn't necessarily to be  successful under                                                               
AGIA - he said the Port Authority chose the latter.                                                                             
                                                                                                                                
MR.  WALKER  told  members  he   takes  responsibility  for  that                                                               
decision.  It was the first  time in ten years the Port Authority                                                               
had  all the  cost estimates  and  market data,  put together  by                                                               
leading  companies around  the world.    Access to  the data  was                                                               
gained  Friday  night,  December 15,   in  Houston;  it  was  due                                                               
December 18  at  2 o'clock.    Noting  they'd worked  around  the                                                               
clock,   he  expressed   pride  in   the  application   submitted                                                               
December 18, before it  became public.  Mr. Walker  said the Port                                                               
Authority had no  advantage by submitting it  with a supplemental                                                               
request from the administration.                                                                                                
                                                                                                                                
MR. WALKER explained that the  Port Authority had believed it was                                                               
best for  the State  of Alaska  to have  those companies  use the                                                               
Port  Authority's data  to submit  a bid.   When  he'd asked  the                                                               
pipeline company why it was  withdrawing, the answer was that the                                                               
economics were fine  and it was just a business  decision.  Also,                                                               
the LNG company  had indicated the economics  were getting better                                                               
and better.   While he  didn't know what  was meant at  the time,                                                               
Mr. Walker said now that the  data is available and put together,                                                               
he sees  that a  smaller project  can have  about a  $1 advantage                                                               
with respect to the wellhead, compared with a larger project.                                                                   
                                                                                                                                
4:13:09 PM                                                                                                                    
SENATOR  WIELECHOWSKI   asked  if   the  Port  Authority   has  a                                                               
confidentiality  agreement with  the LNG  and pipeline  companies                                                               
that prohibits disclosing their names.                                                                                          
                                                                                                                                
MR. WALKER replied yes.  While  not convinced the agreement is as                                                               
strong as previously,  he hasn't publicly shared the  names.  The                                                               
goal is  to advance a pipeline  project.  He added  that the Port                                                               
Authority benefited  from the relationship  to the tune  of about                                                               
$2  million of  work to  have the  data updated,  and there  is a                                                               
complete  project,  down to  the  nuts  and  bolts.   In  further                                                               
response about  the withdrawal, Mr. Walker  declined to speculate                                                               
and said he'd rather focus on the path forward.                                                                                 
                                                                                                                                
CHAIR  HUGGINS noted  the Port  Authority's AGIA  application was                                                               
deemed  noncompliant, which  the Port  Authority then  contested.                                                               
He asked about specific points of disagreement.                                                                                 
                                                                                                                                
4:15:23 PM                                                                                                                    
MR.  WALKER   opined  that   the  Port   Authority's  application                                                               
submitted  December  18  was  fully  compliant,  answering  every                                                               
question  raised and  having every  piece necessary.   Provisions                                                               
under AGIA  disallow filing  an appeal, he  said, which  the Port                                                               
Authority agreed  to in testimony  last year.  However,  the Port                                                               
Authority believes the Alaska  Statutes and Alaska Administrative                                                               
Code allow the commissioner to choose to reconsider.                                                                            
                                                                                                                                
MR. WALKER added that the  administration didn't misread the Port                                                               
Authority's first  application.  But  he believes there  had been                                                               
efforts  to prevent  its  bidding; thus  the  Port Authority  had                                                               
provided the  administration with  copies of  correspondence with                                                               
the withdrawn  partners and  a copy of  the draft  complaint he'd                                                               
prepared and had ready to file in order to obtain that data.                                                                    
                                                                                                                                
MR.  WALKER told  members the  Port Authority  had shown  what it                                                               
could under a confidential arrangement.   While knowing the first                                                               
application   had  significant   problems,  the   Port  Authority                                                               
complied  before  anything became  public  and  thus believes  no                                                               
advantage was gained by its  submittal December 18; nor was there                                                               
was any disadvantage to another  bidder, since the Port Authority                                                               
hadn't seen anyone  else's bid.  However, the  Port Authority was                                                               
told  the  second  filing  couldn't  be  considered  because  the                                                               
questions  couldn't   be  answered   from  within   the  original                                                               
application.                                                                                                                    
                                                                                                                                
CHAIR HUGGINS  recalled the Port Authority  received notification                                                               
January 3 that the reconsideration request was disallowed.                                                                      
                                                                                                                                
MR. WALKER affirmed that.                                                                                                       
                                                                                                                                
CHAIR  HUGGINS recalled  a briefing  related to  a commitment  to                                                               
look  at  an  LNG course  of  action.    He  asked what  sort  of                                                               
commitment was made to the Port Authority then.                                                                                 
                                                                                                                                
MR. WALKER replied there wasn't one  at that point, though it was                                                               
communicated  that there  would be  an independent  look at  LNG.                                                               
Clarifying it isn't an aspersion  against this administration, he                                                               
said the  Port Authority  has lived  and breathed  the all-Alaska                                                               
LNG project for ten years.   An in-house analysis doesn't provide                                                               
comfort that the analysis will be  aggressive.  It is likely that                                                               
the administration  will interpret  some things  differently; for                                                               
example, the specific market makes a  lot of difference.  He also                                                               
recalled a $200,000 analysis by  the former administration with a                                                               
somewhat negative  slant, done by  an East Coast  consultant that                                                               
never even contacted the Port Authority.                                                                                        
                                                                                                                                
4:19:19 PM                                                                                                                    
CHAIR  HUGGINS asked  whether  an  analysis is  being  done of  a                                                               
Canadian route and also LNG, for a baseline.                                                                                    
                                                                                                                                
MR. WALKER replied  he believes so.  Now that  the Port Authority                                                               
is outside  of AGIA,  it can  do things  it couldn't  under AGIA,                                                               
although  its  offer  to work  with  the  administration,  making                                                               
consultants  such as  Mr. Shipkoff available,  was declined.   He                                                               
said it's confusing.  The  Port Authority isn't allowed to remain                                                               
in the  process, having been  told reconsideration  isn't allowed                                                               
under  AGIA.   But  the side-by-side  analysis  being done  isn't                                                               
allowed either.  He noted later he would discuss solutions.                                                                     
                                                                                                                                
4:21:58 PM                                                                                                                    
MR. WALKER turned to slide  9, "Alaska's Successful Fight to Keep                                                               
TAPS in Alaska," with the following point:                                                                                      
                                                                                                                                
     In the early 1970's Alaska successfully fought to keep                                                                     
        the Trans-Alaska Oil Pipeline from going through                                                                      
      Canada for the very same reasons the gasline should                                                                       
     remain in Alaska.                                                                                                          
                                                                                                                                
He gave  personal recollections and mentioned  jobs, value added,                                                               
and refineries,  pointing out  that if TAPS  had turned  at Delta                                                               
Junction and  headed through Canada,  much of  the infrastructure                                                               
in Alaska wouldn't  exist, or the jobs.  Mr.  Walker said this is                                                               
one of the forces that keep the Port Authority going.                                                                           
                                                                                                                                
4:23:26 PM                                                                                                                    
MR.  WALKER  showed  slide 10,  "Significant  Advantages  of  All                                                               
Alaska Line," with the following points:                                                                                        
                                                                                                                                
        - Substantial permitting already in place (YPC)                                                                         
        results in the earliest gas to Alaska.                                                                                  
     - Lower energy cost and clean burning fuel to Alaskan                                                                      
        communities.                                                                                                            
     - All jobs remain in Alaska -                                                                                              
        - Construction                                                                                                          
        - Operations                                                                                                            
        - Maintenance                                                                                                           
                                                                                                                                
MR. WALKER  gave details.   He said companies are  impressed with                                                               
the  amount of  permitting  done  by YPC;  Wayne  Lewis and  Jeff                                                               
Lowenfels have a 16-year history with  YPC.  Noting he spent time                                                               
at  YPC's   Anchorage  warehouse,   where  he  marveled   at  the                                                               
$100 million of effort in  gathering permits, environmental data,                                                               
and  so on,  he indicated  there have  been five  "due diligence"                                                               
reviews on  that data and  not one company  has said there  is no                                                               
value.   He highlighted the  importance of clean-burning  fuel in                                                               
Fairbanks and elsewhere.  Turning  to jobs, he said this provides                                                               
not only a higher wellhead price, but also the jobs.                                                                            
                                                                                                                                
4:25:40 PM                                                                                                                    
CHAIR HUGGINS recalled  that Dr. Pedro van Meurs,  talking to the                                                               
legislature  last October,  opined  that  it wasn't  economically                                                               
viable to go through  Canada at the time and that  if there was a                                                               
viable project, he'd recommend LNG.                                                                                             
                                                                                                                                
MR.  WALKER agreed.   Recalling  that  David Keane  said the  LNG                                                               
project  would  enable a  "highway"  project,  starting with  the                                                               
smallest  and then  adding  on,  Mr. Walker  opined  that an  LNG                                                               
project would later cause a highway project to become economic.                                                                 
                                                                                                                                
4:26:44 PM                                                                                                                    
MR. WALKER  showed slide 11,  "Reasons Why All Alaska  Project is                                                               
Superior," with the following points:                                                                                           
                                                                                                                                
     - Value added industry/jobs in Alaska.                                                                                     
     - Alaska controls its own destiny.                                                                                         
     - Earliest construction date.                                                                                              
         - Smaller project requires only STATE plus ONE                                                                         
        Producer to commit gas, reducing risk of failed open                                                                    
        season.                                                                                                                 
     - Market optionality.                                                                                                      
     - Superior economics - higher wellhead value.                                                                              
                                                                                                                                
MR. WALKER  elaborated.  He  lauded Alberta's access  to liquids;                                                               
surmised that what happened on the  Kenai Peninsula is the tip of                                                               
the iceberg for Alaskan value-added  opportunities; and said it's                                                               
important for  Alaska to control  its own destiny.   Noting there                                                               
has been  much analysis of  how many  years the YPC  permits will                                                               
cut from  the process, Mr.  Walker said  he's heard one  to five.                                                               
The Port  Authority application  was put in  as if  those permits                                                               
didn't  exist,  he  added,  a worst-case  scenario  of  the  last                                                               
quarter of  2017.   He emphasized  there are  existing rights-of-                                                               
way, with the all-Alaska line pre-staked 55 percent of the way.                                                                 
                                                                                                                                
MR. WALKER told members the  smaller project only requires one of                                                               
the three producers.  With  a 2.7 Bcfd project, viable at 2 Bcfd,                                                               
it could  be the  state and  one producer.   He  recalled Dr. van                                                               
Meurs saying  if a project  can be "bite size,"  it can go.   The                                                               
previous  processes  have  required   concurrence  of  all  three                                                               
producers, he noted.                                                                                                            
                                                                                                                                
MR. WALKER  turned to market optionality.   He opined that  it is                                                               
imperative  to  have  the  most   markets  possible.    The  Port                                                               
Authority project  has six available  within the confines  of the                                                               
export license.   The market  that the Port Authority  is looking                                                               
at is whatever gets gas to  Alaskans first.  He said Alaska's gas                                                               
shouldn't  be restricted  except by  the laws  in place.   Alaska                                                               
should be  able to take its  product to the market  that pays the                                                               
highest price.  Once this resource  is gone, it's gone.  He noted                                                               
that  the final  bullet, superior  economics and  higher wellhead                                                               
value, was discussed already.                                                                                                   
                                                                                                                                
4:32:32 PM                                                                                                                    
MR. WALKER  showed slide  12, "Value  Added," with  the following                                                               
points:                                                                                                                         
                                                                                                                                
     - Alaska should have full access to liquids for value                                                                      
        added industry.                                                                                                         
     - Agrium                                                                                                                   
     - ANGDA study.                                                                                                             
                                                                                                                                
He  cited  the Kenai  Peninsula's  Agrium  plant as  the  state's                                                               
biggest success story,  though not operating now  because of lack                                                               
of  gas in  Cook Inlet.   Mr.  Walker expressed  concern that  if                                                               
additional incentives are given to  the three producers, with the                                                               
hope  that eventually  all three  will agree  to something,  more                                                               
facilities  will  close,  weakening  an  incredible  position  of                                                               
strength now.                                                                                                                   
                                                                                                                                
MR.  WALKER thanked  Scott  Heyworth of  the  Alaska Natural  Gas                                                               
Development Authority  (ANGDA), who'd told  him ANGDA is  doing a                                                               
value-added study.   Mr. Walker  predicted the ANGDA  study would                                                               
show significant benefits to the state  as a result of being able                                                               
to utilize the liquids in Alaska.                                                                                               
                                                                                                                                
CHAIR HUGGINS  inquired about  the advantage  of an  in-state gas                                                               
provision with  respect to holding  down the price of  gas, which                                                               
he indicated was in the  2007 legislation known as Alaska's Clear                                                               
and Equitable Share (ACES).                                                                                                     
                                                                                                                                
MR. WALKER recalled legislative  testimony about constituents who                                                               
are  paying double  this year  for gas;  he opined  that this  is                                                               
causing the  whole economy to grind  to a halt, since  people who                                                               
spend a lot to  heat their homes won't do other  things.  He said                                                               
in Fairbanks  gas is $25  per thousand cubic feet  (Mcf), heading                                                               
to $28.   Henry Hub is perhaps  $8, and in Alberta  it around $7;                                                               
that would  be a huge  help.  Much of  Alaska is tied  to diesel,                                                               
even No. 1  diesel when it's  cold enough.  Expressing  hope that                                                               
the  ANGDA study  would show  that value,  he said  it's actually                                                               
value added if a household's expenses are so much lower.                                                                        
                                                                                                                                
4:35:59 PM                                                                                                                    
MR. WALKER showed  slide 13, "Alaskan Autonomy," a  map of Alaska                                                               
with    the   following    wording:       "Decisions    regarding                                                               
permits/negotiations for  the All  Alaska line  would be  made in                                                               
Alaska."   Reiterating that much  was learned from TAPS,  he said                                                               
the more that can be kept under Alaskan control, the better.                                                                    
                                                                                                                                
MR. WALKER turned  to slide 14, "YPC Permits Available  to an All                                                               
Alaska Project," with the following points:                                                                                     
                                                                                                                                
        - Anderson Bay LNG/MT facility Air Quality (PSD)                                                                        
        permit (8 years)                                                                                                        
        - FERC authorization for siting LNG/MT facility                                                                         
        (7 years, 3 months)                                                                                                     
       - Anderson Bay (LNG terminal) Final EIS (7 years,                                                                        
        3 months                                                                                                                
        - Federal Pipeline Right-of-way Grants (4 years,                                                                        
        5 months)                                                                                                               
     - TAGS Project-wide Final EIS (4 years, 5 months)                                                                          
       - Presidential finding approving export of Alaska                                                                        
        natural gas (3 years, 8 months)                                                                                         
       - DOE/OFE Authorization for export of natural gas                                                                        
        (Order 350) (23 months)                                                                                                 
     - State of Alaska Conditional ROW Lease (21 months)                                                                        
     - Coastal Zone Consistency Determination (10 months)                                                                       
     - DOE/OFE Confirmation of Order 350 (March 8, 1990)                                                                        
     - Ahtna Corp. Right-of-way Agreement                                                                                       
                                                                                                                                
MR. WALKER emphasized  the time it took to obtain  some of these,                                                               
noting that the  longest was 8 years; that the  siting permit was                                                               
renewed last year; and that  another right-of-way doesn't need to                                                               
be obtained from  the federal or state  government, although what                                                               
exists might  need to be  updated.  He likened  it to a  lease or                                                               
rental, paid for.                                                                                                               
                                                                                                                                
MR. WALKER,  surmising this pipeline  goes down  the right-of-way                                                               
of the  most studied piece of  earth, said there have  been three                                                               
environmental impact statements for this  route - one by Alyeska,                                                               
one renewal,  and one  by YPC  - and there  are few  surprises at                                                               
this point, which is desirable when doing such a project.                                                                       
                                                                                                                                
4:38:06 PM                                                                                                                    
CRAIG  RICHARDS, of  Counsel, Walker  and Leveque  LLC, presented                                                               
slide 15, "All Alaska  LNG is viable with Gas  Committed by State                                                               
and One  Producer," which  consisted of three  tables.   He began                                                               
with  a  table  showing  required gas  reserves  to  a  pipeline,                                                               
depicting projects at  2.0, 2.7, and 4.5 Bcfd  and showing totals                                                               
over 30 years.                                                                                                                  
                                                                                                                                
MR. RICHARDS noted a 4.5  Bcfd project requires about 50 trillion                                                               
cubic  feet  (Tcf)   of  gas;  a  2.7  Bcfd   project,  the  Port                                                               
Authority's  base case  in its  AGIA application,  requires about                                                               
30 Tcf; and  the smaller yet  still economically project  - shown                                                               
as 2.0 Bcfd  - requires a little  over 20 Tcf.  He  recalled that                                                               
TransCanada's application  said it  could go as  low as  3.5 Bcfd                                                               
and still have a viable project - about 40 Tcf of gas.                                                                          
                                                                                                                                
MR. RICHARDS explained  that the table on proven  gas reserves by                                                               
shipper demonstrates  that Alaska  has about  33.5 Tcf  of proven                                                               
reserves at  Prudhoe Bay  and Point  Thomson; Kuparuk  adds maybe                                                               
1.0, so it  totals about 35 Tcf.  Noting  financial advisors have                                                               
said about  30 years of proven  reserves are needed to  finance a                                                               
pipeline, he said  for TransCanada it's still short  about 5 Tcf,                                                               
even at the lowest viable flow-through  rate; even if that can be                                                               
proven  up in  time  for  the project,  there  needs  to be  full                                                               
participation by the State of Alaska and all three producers.                                                                   
                                                                                                                                
MR.  RICHARDS told  members  the 2.0  Bcfd  project, however,  is                                                               
viable  at  20 Tcf.   Highlighting  what  has happened  at  Point                                                               
Thomson in  the last year,  he noted  this table shows  the major                                                               
gas holders  in Alaska.   That 9 Tcf  reverted back to  the state                                                               
from  ExxonMobil,  BP, Chevron,  and  ConocoPhillips  to a  small                                                               
extent, he  said; the  title will  be clear in  2009.   Hence the                                                               
state has gone  from being the smallest gas  controller in Alaska                                                               
to the largest.                                                                                                                 
                                                                                                                                
MR.  RICHARDS  said  the  State   of  Alaska  now  owns  outright                                                               
36 percent of  the gas produced at  the wellhead, a third  of the                                                               
gas to commit to a pipeline to bring  to market.  This is 12 Tcf,                                                               
or 60 percent of a viable project.   Thus it only requires adding                                                               
one producer  to get to  20 Tcf.   It could be  ExxonMobil, shown                                                               
with  7.8 Tcf for  23.3 percent;  or  ConocoPhillips, shown  with                                                               
7.7 Tcf for 23.1 percent;  or perhaps BP, shown  with 5.7 Tcf for                                                               
16.9 percent, plus a little extra from somewhere else.                                                                          
                                                                                                                                
4:40:41 PM                                                                                                                    
MR.  WALKER  showed  slide 16,  "Market  Optionality,"  with  the                                                               
following points:                                                                                                               
                                                                                                                                
     - Alaska consumers                                                                                                         
     - Lower 48                                                                                                                 
     - Other premium worldwide markets                                                                                          
                                                                                                                                
He said the  Port Authority believes the first  market is Alaskan                                                               
consumers.  Gas can go the  Lower 48 three ways:  1) by having an                                                               
enabling pipeline  for a later  "highway" project,  assuming that                                                               
gas goes  into the  Lower 48; 2) as  LNG to  the West  Coast; and                                                               
3) since both  LNG and oil  are swapped regularly and  because of                                                               
Alaska's location  in relation to  the world market,  swaps could                                                               
be done  that send LNG  to both U.S. coasts.   It depends  on who                                                               
ships gas.                                                                                                                      
                                                                                                                                
MR.  WALKER  emphasized  having the  greatest  number  of  market                                                               
options.   He  said  all this  comes down  to  a successful  open                                                               
season, which  means a smaller  project that doesn't  require all                                                               
three producers and that has  market optionality - the ability to                                                               
go anywhere in the world someone wants to take the product.                                                                     
                                                                                                                                
4:42:42 PM                                                                                                                    
MR. WALKER  turned to slide  17, "All Alaska Project  returns the                                                               
Highest Wellhead Value"; identical to slide  3, it had a table of                                                               
projected  20-year  average  netback prices  for  the  All-Alaska                                                               
Gasline and Alcan Highway Projects.   He said the higher wellhead                                                               
value  relates  to  the  market  looked  at,  the  one  the  Port                                                               
Authority believes will  get gas to Alaskans first.   The average                                                               
price  is Henry  Hub plus  $3;  it ranges  from  $2 to  $4.   The                                                               
Alberta market is Henry Hub minus  75 cents.  This runs out to 20                                                               
years past construction.                                                                                                        
                                                                                                                                
MR. WALKER  reported this  figure was obtained  from a  number of                                                               
sources, including  entities the  Port Authority is  working with                                                               
in that  market, some Japanese  public energy companies  that are                                                               
forecasting 20  years past the construction  completion date, and                                                               
various trade  journals.  He  said there  are four ways  the Port                                                               
Authority has vetted that number.                                                                                               
                                                                                                                                
MR. WALKER showed slide 18, with the following points:                                                                          
                                                                                                                                
     All Alaska/LNG Project DOES NOT Require:                                                                                   
     - Federal government as "bridge shipper".                                                                                  
     - Federal loan guarantees.                                                                                                 
     - All 3 Producers.  No single producer, such as Exxon,                                                                     
        can cause open season to fail.                                                                                          
     - Additional North Slope gas discoveries prior to open                                                                     
        season.                                                                                                                 
     - Resolution of Canadian aboriginal land issues.                                                                           
     - Additional Federal or State ROW's (already obtained                                                                      
        by YPC).                                                                                                                
     - A Federal export license (already obtained by YPC).                                                                      
                                                                                                                                
MR. WALKER  explained that no  bridge shipper is required  at the                                                               
open season.   And the Port Authority doesn't  believe there will                                                               
be a  failed open season  because the  volume is 2.7,  within the                                                               
current offtake  at Prudhoe  Bay under Rule 9  of the  Alaska Oil                                                               
and Gas  Conservation Commission  (AOGCC); it doesn't  require an                                                               
oil mitigation plan.                                                                                                            
                                                                                                                                
4:44:45 PM                                                                                                                    
SENATOR McGUIRE  noted it wouldn't  total 2.7 without one  of the                                                               
producers.  She  asked:  Thinking about an open  season, have you                                                               
looked at the unit agreements and  do you feel confident that the                                                               
way those  are structured,  one producer could  break out  of the                                                               
pack and bid to be part of that 2.7 Bcfd?                                                                                       
                                                                                                                                
MR. RICHARDS  replied he'd looked  at that  a year ago  and might                                                               
not recall all the details.   The Prudhoe Bay operating agreement                                                               
is  typically where  one would  find the  gas-balancing provision                                                               
among operators,  allowing one operator  to remove its  gas while                                                               
the  others maintain  their gas  in  the reservoir.   He  opined,                                                               
however,  that Prudhoe  Bay doesn't  have a  viable gas-balancing                                                               
provision, which  he said  is unacceptable;  it should  have one,                                                               
and the state should require that.                                                                                              
                                                                                                                                
MR.  RICHARDS  added  that  federal  law is  clear:    It  is  an                                                               
antitrust  violation for  one producer  to keep  another producer                                                               
from getting its gas to market by not agreeing to a gas-                                                                        
balancing  provision.   Additionally,  in a  number  of cases  in                                                               
Louisiana  and Texas,  those have  been held  to be  a breach  of                                                               
lease  terms with  respect  to the  implied duty  to  get gas  to                                                               
market.   The  State of  Alaska, in  his opinion,  has the  legal                                                               
right  - through  AOGCC or  the Department  of Natural  Resources                                                               
(DNR), with  the adoption  of regulations -  to create  a default                                                               
gas-balancing  provision, which  he believes  it should  do.   He                                                               
surmised doing  so would motivate  the producers to come  up with                                                               
their own provision.                                                                                                            
                                                                                                                                
4:46:28 PM                                                                                                                    
MR. WALKER  continued with  slide 18,  saying the  Port Authority                                                               
hasn't  put in  for the  federal loan  guarantee because  it's an                                                               
uphill  battle that  would  cause  delay.     Mentioning that  no                                                               
single producer  can veto  it, he cited  interplay seen  over the                                                               
years with regard to routes.                                                                                                    
                                                                                                                                
MR. WALKER stressed not needing  additional gas discoveries prior                                                               
to  an open  season; he  cited advice  that the  financial market                                                               
wants  to  ensure   reserves  are  proven.     He  recalled  that                                                               
Commissioner  Irwin said  there  is  plenty of  gas  for all  the                                                               
projects;  while agreeing  with  that,  Mr. Walker indicated  the                                                               
term proven  reserves means something different  when financing a                                                               
$20 billion project.   He highlighted sufficient  proven reserves                                                               
for a 2.0  or 2.7 Bcfd project, surmising  there'll be additional                                                               
gas  someday, but  not necessarily  enough  for a  4.5 Bcfd  open                                                               
season within 18 months.                                                                                                        
                                                                                                                                
MR. WALKER said land issues  for this project have been resolved,                                                               
but not for a line  through Canada; he recalled telling companies                                                               
that are  considering going through  Canada that perhaps  an all-                                                               
Alaska line  would be  best for  them, too,  since it  would give                                                               
more options  and a reason to  resolve issues.  As  for state and                                                               
federal  rights-of-way  (ROWs),  he   said  those  were  obtained                                                               
through the YPC  permits and don't need to be  applied for again;                                                               
nor does an export license need to be requested.                                                                                
                                                                                                                                
4:49:44 PM                                                                                                                    
MR.  WALKER showed  slide 19,  "History  of Gasline  Incentives,"                                                               
which stated, "20+  years of incentives have not  resulted in the                                                               
building of a gas  line in Alaska."  Noting he'd  made a study of                                                               
this back  to 1985,  Mr. Walker  expressed frustration  about the                                                               
incentive  process.   He highlighted  the cycle:   talking  about                                                               
building  a gas  pipeline, forming  teams, doing  studies, making                                                               
concessions,  putting  together legislative  incentive  packages,                                                               
having nothing  happen, having a  change of  administrations, and                                                               
then starting over.                                                                                                             
                                                                                                                                
MR.  WALKER suggested  because Alaska  now is  in the  number-one                                                               
position with  respect to controlling  gas, the state  should say                                                               
enough is  enough.   The incentive process  hasn't worked.   Even                                                               
the  Stranded  Gas Act  and  the  $13.25 billion  offered  didn't                                                               
result  in a  commitment to  actually build  a pipeline;  rather,                                                               
there was a commitment to work towards it.                                                                                      
                                                                                                                                
MR. WALKER also  mentioned the federal energy bill.   He recalled                                                               
that  Lower  48 natural  gas  trade  associations had  said  they                                                               
wouldn't  have their  tax dollars  used to  subsidize a  gas line                                                               
from Alaska and wouldn't accept the  price floor, and so that was                                                               
taken  out.   As  for  issues  associated with  so-called  bridge                                                               
shipping,  Mr. Walker said  he hasn't  received indications  that                                                               
will happen either.                                                                                                             
                                                                                                                                
MR. WALKER told  members the Port Authority  project doesn't need                                                               
such incentives.  When it applied  under the Stranded Gas Act, it                                                               
didn't  ask for  incentives,  and it  isn't  applying under  AGIA                                                               
because  of wanting  the incentives  and $0.5  billion in  funds.                                                               
The Port  Authority is in  this for the long  haul - it's  just a                                                               
little  longer haul  than originally  believed.   He opined  that                                                               
this project  is the closest project  to being built and  has the                                                               
fewest   hurdles.     Highlighting  the   skyrocketing  cost   of                                                               
utilities, he  said something must  be done.  The  Port Authority                                                               
believes it has figured out a solution.                                                                                         
                                                                                                                                
4:54:37 PM                                                                                                                    
MR. WALKER showed  slide 20, "Benefits of  State Participation in                                                               
Gas Pipeline Ownership," with the following points:                                                                             
                                                                                                                                
     1. Pipeline will finally be built.                                                                                         
     2. Earliest gas to Alaskans.                                                                                               
        3. Complies with voter mandate for an All Alaska                                                                        
        gasline.                                                                                                                
     4. Lowest pipeline tariff.                                                                                                 
      5. Tax exempt financing through the Alaska Railroad                                                                       
        Transfer Act (up to $17 billion).                                                                                       
     6. Significantly reduces risk of failed Open Season.                                                                     
                                                                                                                                
MR. WALKER  recalled meetings in  Houston last summer  with large                                                               
companies in the LNG or  exploration business on the North Slope.                                                               
The pipeline partner  had slipped away for some  reason, and he'd                                                               
asked  what   people  would   think  if   the  State   of  Alaska                                                               
participated in just  the pipeline piece.  The  response had been                                                               
that  it  would be  a  big  step  forward, the  most  significant                                                               
statement that a project would happen.                                                                                          
                                                                                                                                
MR. WALKER opined  that there'd be a true  alignment of interests                                                               
in  that case.   Both  the state  and the  shippers would  want a                                                               
lower  tariff, for  instance,  since the  state  would make  more                                                               
money on a lower tariff and higher wellhead price.                                                                              
                                                                                                                                
MR. WALKER reported  being told that when a  host government says                                                               
it will be  involved and have an open season,  companies show up.                                                               
When others  hold an open  season, by contrast, companies  may or                                                               
may not  show up;  there is concern  about potential  gaming with                                                               
respect  to  the pipeline  piece,  for  example, when  a  company                                                               
doesn't own part  of the pipeline.  He also  recalled being asked                                                               
in Calgary whether  Alaska has learned nothing in  30 years about                                                               
how the pipeline piece should work;  he indicated he was told the                                                               
state should have  at least 51 percent ownership  in the pipeline                                                               
in order to have a lower tariff.                                                                                                
                                                                                                                                
MR.  WALKER indicated  pipeline  companies have  said they  don't                                                               
want  to be  involved in  just the  pipeline piece,  which has  a                                                               
regulated return.   Thus  it's a  tough piece.   If there  were a                                                               
goldmine  and a  market, he  said,  a road  would be  built.   He                                                               
likened  this pipeline  to a  third  lane of  the Richardson  and                                                               
Dalton Highways.                                                                                                                
                                                                                                                                
MR. WALKER  proposed that  the state take  a significant  role in                                                               
the pipeline  piece.  He  recalled being advised there'd  be high                                                               
interest in  a liquefaction  piece in that  case.   He emphasized                                                               
that it doesn't  have to be done through the  Port Authority.  He                                                               
opined that the  legislature is the best entity  to jumpstart it,                                                               
to say the  "incentive parade" is over and there  will be an all-                                                               
Alaska pipeline, starting now.                                                                                                  
                                                                                                                                
SENATOR McGUIRE  voiced concern that  the state doesn't  have the                                                               
expertise;  because of  its  procurement code  and  being in  the                                                               
U.S., it  can't get things  done as international  sovereigns do.                                                               
She said  no disrespect is meant  to the state or  its employees,                                                               
but she sees it as a terribly inefficient business model.                                                                       
                                                                                                                                
5:00:20 PM                                                                                                                    
MR.  WALKER  replied  he  understands  the  concern  but  doesn't                                                               
envision  a  state  employee's involvement.    Experts  would  be                                                               
retained.  Other states have  been involved in projects; he cited                                                               
California's involvement in building an  aqueduct in the 1960s to                                                               
take water  from north to south,  noting Alaska's gas is  also in                                                               
the north,  away from its  more southern population  and markets.                                                               
And  many things  in Alaska  are sophisticated,  he pointed  out,                                                               
including the successful permanent fund and the railroad.                                                                       
                                                                                                                                
MR. WALKER agreed  with Senator McGuire that  Alaska doesn't have                                                               
the expertise  today, but  said it  is there.   He has  been told                                                               
it's a  piece of pipe with  two compressor stations.   Yes, there                                                               
is  detail, and  obviously there  has  to be  the right  pipeline                                                               
company  as the  builder and  operator.   Everything wouldn't  be                                                               
done in-house.  He turned the presentation back to Mr. Richards.                                                                
                                                                                                                                
5:03:18 PM                                                                                                                    
MR. RICHARDS  showed slides  21 and  22, "State  Participation in                                                               
the All Alaska Gasline," which had the following points:                                                                        
                                                                                                                                
     1. The State should form a consortium of investors to                                                                      
        own, finance  and construct the pipeline  to Valdez,                                                                    
        with  the  State   holding  a  controlling  interest                                                                    
        (e.g., 51%).                                                                                                            
                                                                                                                                
    2. Private   development    and   financing    of   the                                                                     
        liquefaction,   GCP,  and   shipping  would   follow                                                                    
        easily.                                                                                                                 
                                                                                                                                
      3. Typical pipeline project finance could be limited                                                                      
        recourse  whereby   equity  holders   would  provide                                                                    
        credit   support   to   the  debt   lenders   during                                                                    
        construction.   After  completion,  the recourse  to                                                                    
        the equity participants would fall away.                                                                                
                                                                                                                                
       4. With a controlling interest in the $12 billion                                                                        
        pipeline,  assuming 25%  equity  and  75% debt,  the                                                                    
        State  would contribute  approximately $1.5  billion                                                                    
        in equity  and would have  a risk exposure of  up to                                                                    
        $6 billion during the construction period.                                                                              
                                                                                                                                
         5. Customary mitigants that reduce lender pre-                                                                         
        completion risk would lessen  the State's $6 billion                                                                    
        risk   exposure  (e.g.,   lump  sum   turnkey  price                                                                    
        provisions,  liquidated  damages  in  the  event  of                                                                    
        performance  shortfalls, cost  overrun standby  debt                                                                    
        facilities   from    financial   investors,   credit                                                                    
        enhancement from outside parties).                                                                                      
                                                                                                                                
      6. With the State as lead consortium member, it will                                                                      
        be  able to  control the  development phase  process                                                                    
        and timeline  which, when combined with  the State's                                                                    
        12+  tcf  of gas,  creates  the  best chance  for  a                                                                    
        timely and successful open season.                                                                                      
                                                                                                                                
MR. RICHARDS highlighted the effort  to find the weak points that                                                               
prevent  a  gas pipeline  and  strengthen  those.   He  said  the                                                               
pipeline portion is where help  is needed, where there's the most                                                               
difficulty in  getting investors interested.   The desire  is for                                                               
the state to  have a 51 percent equity interest  in a $12 billion                                                               
pipeline.  After 75 percent is paid  for by debt, the state would                                                               
have about a  $1.5 billion investment in the  pipeline, giving it                                                               
majority control.                                                                                                               
                                                                                                                                
MR. RICHARDS  noted risk  exposure comes with  that, up  to about                                                               
$6 billion because of being on  the hook for debt payments during                                                               
construction.   Typically  during  pipeline construction,  equity                                                               
investors cover debt payments if  they're not made.  The exposure                                                               
in this  case is up  to half of the  debt costs of  the pipeline.                                                               
After construction, when gas flows,  equity holders are no longer                                                               
on the hook for that debt.                                                                                                      
                                                                                                                                
MR.  RICHARDS emphasized  for $1.5  billion the  State of  Alaska                                                               
could move a  pipeline forward; be a majority  owner; and, during                                                               
construction only,  have risk exposure  of about $6 billion.   As                                                               
shown in  point 5,  there is  an excellent  chance that  the risk                                                               
exposure  could   be  mitigated  significantly   through  various                                                               
financing mitigation provisions.                                                                                                
                                                                                                                                
5:04:52 PM                                                                                                                    
MR.   RICHARDS   turned  to   slide   23,   "Examples  of   State                                                               
Participation  in   Economic  Development/Infrastructure,"  which                                                               
listed  various  Alaska  public corporations,  with  columns  for                                                               
total  assets,  assets  less liabilities,  and  unrestricted  net                                                               
assets.  He  said it shows that the $1.5 billion  which the state                                                               
needs to move the pipeline  forward isn't significant in light of                                                               
other public corporations in operation.                                                                                         
                                                                                                                                
MR. RICHARDS  recalled when  the permanent  fund was  created, it                                                               
was debated whether it should be  a development bank or run as an                                                               
independent endowment  like a pension  fund; the latter  won out.                                                               
However,  the Alaska  Industrial Development  & Export  Authority                                                               
(AIDEA),  the  Alaska  Municipal  Bond Bank  Authority,  and  the                                                               
Alaska  Housing  Finance  Corporation   (AHFC)  were  created  to                                                               
fulfill  that development  role; AHFC  was capitalized  at almost                                                               
$1 billion  in the  1980s,  about  the amount  needed  to move  a                                                               
pipeline forward.   He opined that  it isn't out of  keeping with                                                               
state history  or reasonable risk  exposure for the state  to put                                                               
up $1.5 billion to get this pipeline going.                                                                                     
                                                                                                                                
5:05:58 PM                                                                                                                    
MR. WALKER  concluded the presentation with  three slides labeled                                                               
"The  Way Forward."    The  first, slide  24,  had the  following                                                               
points:                                                                                                                         
                                                                                                                                
     Option 1                                                                                                                 
     - Continue current process with applicant (TCPL) with                                                                      
        Administration internally constructing a strawman                                                                       
        LNG project for comparison.                                                                                             
                                                                                                                                
     - Legislature approves recommendation of AGIA license                                                                      
        to the Canadian project without the independent                                                                         
        analysis to provide proper checks and balances.                                                                         
                                                                                                                                
MR. WALKER  explained that under  Option 1, things could  be left                                                               
as is,  with the  legislature given the  opportunity to  vote the                                                               
Canadian project  up or down.   If the contract were  voted down,                                                               
it would lead to Option 2, shown on slide 25 as follows:                                                                        
                                                                                                                                
     Option 2 - AGIA II                                                                                                       
        - Legislature does not approve AGIA license for                                                                         
        Canadian line.                                                                                                          
                                                                                                                                
     - Administration undertakes AGIA II this summer                                                                            
        Cost = 1 year delay                                                                                                     
                                                                                                                                
MR.  WALKER  told members  in  this  instance the  administration                                                               
would reassess,  come back with additional  requests for proposal                                                               
(RFPs), and  start the process  again.  Recommending  against it,                                                               
he surmised it could cost a  year's time or more and might result                                                               
in fewer bidders the second time around.                                                                                        
                                                                                                                                
5:07:52 PM                                                                                                                    
MR.  WALKER recommended  Option 3,  a parallel  process shown  on                                                               
slide 26 as follows:                                                                                                            
                                                                                                                                
     Option 3 - Parallel Process:                                                                                             
     - Legislature retains its own experts now to evaluate                                                                      
        ALL Alaska LNG Project.                                                                                                 
                                                                                                                                
      - Allows Legislature to be fully informed regarding                                                                       
        the All Alaska gas line option at time of                                                                               
        Administrative recommendation of an AGIA license                                                                        
        award.                                                                                                                  
                                                                                                                                
     - In Special Session Legislature either:                                                                                   
        1. Awards TransCanada AGIA license, or                                                                                  
        2. Adopts legislation to enable construction of All                                                                     
          Alaska LNG project.                                                                                                   
                                                                                                                                
MR. WALKER told  members this isn't unprecedented.   In the past,                                                               
the legislature retained its own  experts to analyze the Stranded                                                               
Gas  Act and  other  things.   The  recommendation  is to  retain                                                               
experts now,  to evaluate what  isn't in  AGIA.  Mr.  Walker also                                                               
said the  legislature's hands aren't  tied because of  AGIA; this                                                               
wouldn't affect AGIA.   He expressed hope  that legislators would                                                               
want  to  be as  independently  informed  as possible  about  all                                                               
options, rather than just vote up or down on one application.                                                                   
                                                                                                                                
MR.  WALKER  clarified  that  he wasn't  being  critical  of  the                                                               
administration or  the process, but  was saying that  the purpose                                                               
of AGIA was  to do what's best  for Alaska.  He  opined that this                                                               
can be accomplished, even with the limitations of AGIA.                                                                         
                                                                                                                                
MR.  WALKER  said assuming  a  special  session, the  legislature                                                               
could award it to a Canadian  project or adopt legislation for an                                                               
all-Alaska  project.    The  Port   Authority  isn't  asking  for                                                               
legislative action or  amendment of AGIA at this  point.  Rather,                                                               
the request  is to retain  independent experts  to do a  full and                                                               
robust analysis of the all-Alaska  line.  He opined that Alaskans                                                               
are anxious  for that to  be done.   While wanting the  state, as                                                               
the majority  controlling interest  on the  North Slope,  to step                                                               
forward and say it is doing  a project, he also encouraged a full                                                               
analysis by experts to verify what was presented.                                                                               
                                                                                                                                
5:09:58 PM                                                                                                                    
CHAIR HUGGINS  asked whether the  Port Authority would  allow the                                                               
legislature to have the benefit of its research.                                                                                
                                                                                                                                
MR. WALKER  affirmed that, saying  everything the  Port Authority                                                               
had would be available.                                                                                                         
                                                                                                                                
CHAIR HUGGINS thanked the presenters, indicating the committee                                                                  
had held off hearing from them until the reconsideration request                                                                
was taken up by the administration.                                                                                             
                                                                                                                                
There being no further business to come before the committee,                                                                   
Chair Huggins adjourned the Senate Resources Standing Committee                                                                 
meeting at 5:10:37 PM.                                                                                                        

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