Legislature(2011 - 2012)BUTROVICH 205
03/26/2012 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Presentation by Chrystia Chudczak, Assistant Commissioner, Canadian Federal Northern Pipeline Agency | |
| SB215 | |
| SB209 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 215 | TELECONFERENCED | |
| += | SB 209 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
March 26, 2012
3:33 p.m.
MEMBERS PRESENT
Senator Joe Paskvan, Co-Chair
Senator Thomas Wagoner, Co-Chair
Senator Bill Wielechowski, Vice Chair
Senator Bert Stedman
Senator Hollis French
MEMBERS ABSENT
Senator Lesil McGuire
Senator Gary Stevens
OTHER LEGISLATORS PRESENT
Senator Cathy Giessel
Senator Joe Thomas
COMMITTEE CALENDAR
PRESENTATION: By Chrystia Chudczak, Assistant Commissioner,
Canadian Federal Northern Pipeline Agency on the Alaska Highway
Gas Pipeline Project
- HEARD
SENATE BILL NO. 215
"An Act requiring the Alaska Gasline Development Corporation to
construct a natural gas pipeline to deliver Cook Inlet natural
gas to Fairbanks and other communities between Cook Inlet and
Fairbanks that do not have access to a natural gas pipeline."
- HEARD & HELD
SENATE BILL NO. 209
"An Act relating to oil and gas or gas only leasing; requiring
that a minimum work commitment be included in each oil and gas
and gas only lease and that a proposed plan of development be
included in an application for an oil and gas or gas only lease;
and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 215
SHORT TITLE: GASLINE DEV. CORP: IN-STATE GAS PIPELINE
SPONSOR(s): SENATOR(s) THOMAS
02/21/12 (S) READ THE FIRST TIME - REFERRALS
02/21/12 (S) RES, FIN
03/19/12 (S) RES AT 3:30 PM BUTROVICH 205
03/19/12 (S) Heard & Held
03/19/12 (S) MINUTE(RES)
03/23/12 (S) RES AT 3:30 PM BUTROVICH 205
03/23/12 (S) Heard & Held
03/23/12 (S) MINUTE(RES)
03/26/12 (S) RES AT 3:30 PM BUTROVICH 205
BILL: SB 209
SHORT TITLE: DEVELOPMENT PLANS FOR OIL & GAS LEASES
SPONSOR(s): SENATOR(s) WIELECHOWSKI
02/21/12 (S) READ THE FIRST TIME - REFERRALS
02/21/12 (S) RES, FIN
03/23/12 (S) RES AT 3:30 PM BUTROVICH 205
03/23/12 (S) Heard & Held
03/23/12 (S) MINUTE(RES)
03/26/12 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
CHRYSTIA CHUDCZAK, Assistant Commissioner
Northern Pipeline Agency
Canada
POSITION STATEMENT: Presented overview of Canadian portion of
the Alaska Highway Gas Pipeline Project.
FRANK RICHARDS, Deputy Coordinator
Office of the Federal Coordinator for the Natural Gas
Transportation Projects
Canada
POSITION STATEMENT: Commented on Alaska Highway Gas pipeline
Project issues.
PETER TAYLOR
Counselor of Canada
Anchorage, AK
POSITION STATEMENT: Commented on Canada's shale gas developments
and oil and gas export issues.
SCOTT HEYWORTH, Chairman
Alaska Natural Gas Development Authority (ANGDA)
Anchorage, AK
POSITION STATEMENT: Delivered an overview of what ANGDA had done
with the Beluga to Fairbanks (B2F) project.
RICHARD "O.D." ODSATHER
Odsather International Marketing
ANGDA contractor
Fairbanks, AK
POSITION STATEMENT: Answered questions on pipeline routing
related to SB 209.
SENATOR JOE THOMAS
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Co-sponsor of SB 215.
KARA MORIARTY, Executive Director
Alaska Oil and Gas Association (AOGA)
Anchorage, AK
POSITION STATEMENT: Did not support SB 209.
DAVID STONE
Mayor of Yakutat
Yakutat, AK
POSITION STATEMENT: Supported SB 209.
ACTION NARRATIVE
3:33:45 PM
CO-CHAIR JOE PASKVAN called the Senate Resources Standing
Committee meeting to order at 3:33 p.m. Present at the call to
order were Senators Stedman, French, Co-Chair Wagoner and Co-
Chair Paskvan. Senator Wielechowski joined the meeting shortly
after.
^Presentation by Chrystia Chudczak, Assistant Commissioner,
Canadian Federal Northern Pipeline Agency
Presentation by Chrystia Chudczak, Assistant Commissioner,
Canadian Federal Northern Pipeline Agency on the Alaska Highway
Gas Pipeline Project
3:35:19 PM
CO-CHAIR PASKVAN welcomed Assistant Commissioner Chudczak of
Canada's Federal Northern Pipeline Agency.
CHRYSTIA CHUDCZAK, Assistant Commissioner, Northern Pipeline
Agency, Canada, introduced herself.
FRANK RICHARDS, Deputy Coordinator, Office of the Federal
Coordinator for the Natural Gas Transportation Projects, Canada,
introduced himself.
PETER TAYLOR, Counselor of Canada, Anchorage, AK, introduced
himself.
CO-CHAIR PASKVAN asked them to comment on what Canada is doing
with respect to the large diameter pipe.
MS. CHUDCZAK said she would talk about how Canada is preparing
for the Alaska Gas Highway Pipeline Project should it go ahead.
The biggest question on the table for all parties is the
commercial uncertainty around the project. The project will go
ahead only if they are commercially viable, if the markets want
it, and if the producers seek and find successfully securing
customers for it.
Within this rubric, they view the project as being the same; its
purpose continues to be to ship natural gas from the North Slope
through Alaska, the Yukon, Northeastern B.C. and into the Lower
48. Its footprint is essentially the same: the same route and
scope. But the context against which decisions are being taken
has changed in the last 35 years. Technology advances have
enabled pipeline technology to become more sophisticated pumping
more gas through more safe materials - through smaller pipe at a
higher pressure, for example. New environmental laws have come
into play in Canada and elsewhere; for example, the Canadian
Environmental Assessment Act exists now, but didn't 35 years
ago. This impacts how they regulate and make decisions around
large-scale resource projects and other projects.
Society's values have also shifted, she said. For example, now
value is placed on traditional knowledge that is gleaned from
Aboriginal people from First Nations that is used in the process
of regulatory decision making in Canada.
3:38:15 PM
MS. CHUDCZAK said that clearly new market pressures are at play:
"shale, shale and shale; Asia, Asia and Asia; and liquefied
natural gas or LNG and LNG." She assured them that Canada is
ready to proceed should this project become commercially viable.
The three "buckets of assets" they bring to the table are first
their existing legal instruments that have been granted
throughout the last 35 years on this project. These are, first,
the international treaty with the government of the United State
(US). This is important because it is the only pipeline project
that is the subject of an international treaty. With that, comes
special obligations and responsibilities on both sides to
fulfill.
Secondly, as a consequence of that treaty, they have the
Northern Pipeline Act, a piece of legislation that actually
creates the Northern Pipeline Agency, which gathers all the
authorities from various different departments in the government
of Canada and centralizes them in a single place.
Third, in 1978, the government of Canada issued certificates of
public convenience to this project, so it has been approved
unlike the US version of it, in which companies are not certain
they will go ahead.
MS. CHUDCZAK said also in terms of existing instruments, the
company has in its possession an easement with the government of
the Yukon for the corridor through the Yukon, an important asset
moving forward.
She said the second bucket of assets is the fact that Canada is
an experienced regulator in this project having regulated stage
1 in the late 70s and 80s; they also have experience in the
environmental assessment process. As part of that they have
attached 750 terms and conditions to the certificates that are
extensively prescribed.
3:40:53 PM
Finally, they have an efficient regulatory framework. This
single-window model that consolidates all federal authorities
under one roof is unique in Canada and is looked upon to a
certain extent as being a model for the future. This agency has
the responsibility government-wide for consulting with First
Nations.
MS. CHUDCZAK said this law hints about how the regulatory
framework was set up using the existing Northern Pipeline Act as
a legal model. But the biggest challenge has been how to update
information over the last 30 years related to the economy, to
the environment and to society, because things have changed. So,
they are using the Act and invoking the process of striking
advisory councils in the Yukon and Northeastern B.C. that will
conduct public review processes that will speak to and enable
the public to contribute their ideas as to what needs to be
updated. In the end a report will be put forward to the minister
who will act on it. She said this doesn't happen unless
relationships have been built and individuals including the
governments have been engaged and Canada has been doing that
since 1978 even as the project has grown and gotten smaller.
3:42:29 PM
She emphasized the importance of their fiduciary obligation to
the approximately 30-plus First Nations along the pipeline
corridor route in the Yukon and B.C. on behalf of the crown to
consult with them when a project impacts their rights. Some have
settled land claims and others don't, but the law requires
taking their interests into account when a project has a
material impact on them. She related that Canada has decided to
fund certain First Nation groups through grants and
contributions that will allow them to build the human capacity
to deal with others.
In fulfilling their treaty obligations they have revitalized
their engagement with is the State of Alaska and the government
of the US and she stated that building strong relationships
between both jurisdictions allows them to understand each
other's regulatory perspectives and processes more clearly and
be able to advance the project should it proceed more quickly on
both sides of the border.
MS. CHUDCZAK summarized that they are streamlining pipeline
regulations and invoking modern business practices in their own
agency to ensure they modernize and are technologically up-to-
date and can collaborate in a timely way. They are moving toward
securing six tangible outcomes that are key to meeting the
following treaty and project goals:
1. Meet and exceed environmental standards and social economic
standards through a smart process that is collaborative
2. Respect existing federal approvals
3. Ensure safe pipeline design/construction through regulatory
transparency
4. Secure maximum socio-economic benefits by encouraging
business relationships between proponents, First Nations and
local communities
5. Meet their duty to consult Aboriginal peoples by
strengthening how they consult and how frequently they do it
6. Engage the public and industry through a timely predictable
process.
Looking ahead, Ms. Chudczak said, they couldn't predict the
commercial direction of this project clearly, but they are
preparing for the future. That was why she was there describing
what they are doing. They believe this is what it takes to
support long term growth and job creation in both Canada and in
North America. They ultimately believe that this is the type of
activity that will unleash North America's natural resource
advantage.
3:45:23 PM
SENATOR STEDMAN said it was nice to have Canadian neighbors come
down and give them an update. He asked for an update of the
MacKenzie line, since Exxon was involved with it. He also said
that the Energy Council had watched escalation of the oil sands
development and the proposal to export gas, and potentially oil,
through the West Coast B.C.
3:48:06 PM
MR. TAYLOR responded that the MacKenzie line got its regulatory
approval last year, but in terms of something happening they are
laboring under the same considerations Alaska is, which is the
market in the Lower 48. He said that Canada is already exporting
gas to the Lower 48 mostly from Alberta and a couple of major
shale gas plays in Northeastern B.C. are now online and starting
to feed into the system. So there is a surplus of gas. He
understood that the MacKenzie line has regulatory approval but
no precedent agreements with producers that would allow them to
build a very expensive line in the north - same as Alaska. He
said last year Premier McCloud talked about the MacKenzie Valley
line and he thought perhaps he was trying to talk it up because
there is no indication of commercial contracts.
On the broader question about exports from Canada to the US and
elsewhere, obviously they are the largest foreign supplier of
natural gas to the US along with 2.5 million barrels of oil (an
increasing proportion of it from oil sands). He said there is
talk of an pipeline to Kitimat to export oil to Asia and he
stated that this is something his Prime Minister and his Energy
Minister have mentioned a number of times as a question of
diversification from almost total dependence on the US market.
However, consultations with First Nations and others haven't
taken place about it and the regulatory process is not there.
He noted that US Senator Murkowski said if oil is going to be
exported from Kitimat, the tanker traffic would be awfully close
to Alaskan waters in terms of single hull ships. He talked to a
friend in Transport Canada about this who said that technically
that is correct at the moment, but since Canada will have a
double hull requirement by 2015, there is no prospect that any
oil if shipped from Kitimat would be shipped in single hull
tankers.
SENATOR STEDMAN said Southeast is always struggling to increase
trade traffic with Prince Rupert, because it is so close to us;
with the new port and rail line there, the state was hoping to
take advantage of some synergies. And he was confident that B.C.
and Southeast Alaska would be working in conjunction with some
form of spill response for Dixon Entrance.
3:54:09 PM
MR. TAYLOR stated that the Coast Guard has already raised the
issue of tanker traffic and relevant authorities are already
aware of it and won't let the rest forget. He asked if anyone
had statistics about the times when the Alaska refineries or
Southeast buys fuel products from sources other than Canada.
SENATOR STEDMAN responded that more comes into Anchorage,
dealing with the Anchorage airport and other areas. Southeast
gets most of its fuel products from Cherry Point in Washington
State. He explained that Alaskan oil goes to Cherry Point to be
refined and shipped back because Alaska doesn't have the mass of
population to warrant construction of refineries. He didn't know
if Canada was considering refineries in B.C., but Prince Rupert
and Kitimat are substantially closer to Alaska than Cherry
Point.
3:56:32 PM
SENATOR FRENCH said shale gas in the Lower 48 has had a big
impact on our pipeline and asked how much more or less gas
Alberta is exporting to the US.
MR. TAYLOR replied that honestly he didn't know, but it's fairly
clear that B.C. is producing shale gas into the system that
supplies large chunks of gas to urban Canada as well as large
chunks of gas to the urban US and Midwest.
CO-CHAIR PASKVAN said when it comes specifically to the 1,700
mile pipeline from the North Slope into Canada, the US
Coordinator's Office budget was significantly cut and asked what
the status of Canada's budget was.
MS. CHUDCZAK replied that currently their budget is $1.3 million
annually. On top of that they have approximately $1.2 million in
a grants contributions fund for First Nations communities for
capacity building. A federal budget will be talked about in
Parliament this Thursday by the Minister of Finance and they
will have to see what he does.
CO-CHAIR WAGONER asked for more information about the single-
window model.
MS. CHUDCZAK responded that the agency is a single-window model
that was created in 1978 through an act of Parliament that gave
effect to the treaty as well. Basically, it takes various
federal departments that have pieces of legislation that impact
on the regulatory process - the Fisheries Act and the Permitting
Transport Act, for example - and delegates them to the proper
minister. At this point, it is the Minister of Natural
Resources. In doing that delegation, her agency would be making
decisions on the regulatory side through that window; the
authority to make decision on transport would come to them
through the Minister of Transport. So, instead of having four
ministers out there making separate decisions that are
coordinated but not integrated, a single minister does it for
all.
CO-CHAIR WAGONER asked if the minister could be different for
different projects.
MS. CHUDCZAK replied that this model only exists for this
specific project.
MR. RICHARDS remarked that in 1976, Congress created the Alaska
Natural Gas Transportation Act and it gave what was called the
Office of the Federal Inspector that same single window
authority. That office then had various other federal regulatory
agencies working under it on the regulatory permits. That law
was changed in the Alaska Natural Gas Pipeline Act in 2004 when
the office was stripped of its single-window authority.
CO-CHAIR WAGONER said this was a good model for an all-
encompassing program and asked where he could find an
organizational lay out.
MS. CHUDCZAK replied the Canadian law would lay that out.
4:01:28 PM
CO-CHAIR PASKVAN said that in general he was intrigued by the
portion of her presentation and asked what she meant by "shale -
shale - shale - Asia - Asia - Asia."
MS. CHUDCZAK replied that with respect to this agency and
project, they are hearing the same thing he is about the
potential of an LNG option in Alaska as one of the various
competing proposals. Ultimately, it's a commercial decision and
Canada is prepared to move forward if that decision is taken.
CO-CHAIR PASKVAN asked for concluding remarks.
MS. CHUDCZAK thanked the legislature for allowing them this
opportunity to address them.
4:03:30 PM
At ease from 4:03 to 4:05 p.m.
SB 215-GASLINE DEV. CORP: IN-STATE GAS PIPELINE
4:05:16 PM
CO-CHAIR PASKVAN announced consideration of SB 215 and a
continuation of the Monday, March 26, presentation.
SCOTT HEYWORTH, Chair, Alaska Natural Gas Development Authority
(ANGDA), Anchorage, AK, said he had two contractors with him to
give an overview of what ANGDA had done with the Beluga to
Fairbanks (B2F) project.
4:07:05 PM
He said about four years ago, Governor Palin called a press
conference and asked ANGDA and Enstar to run a "project," which
was a gasline from Cook Inlet to Fairbanks. ANGDA had one
meeting with Enstar who pulled away, but ANGDA continued and
started looking at the Ft. Richardson/Glenn/TAPS corridor route.
They felt that it had the most population with three military
bases, Golden Valley Electric and the Flint Hills Refinery. They
already had a state unconditional right-of-way lease from
Glennallen to Palmer and it would be very easy to work in the
existing TAPS corridor, recently valued at $12 million by
Legislative Budget and Audit (LB&A). ANGDA ran out of funding,
but completed 80 to 90 percent of the route.
4:08:47 PM
CO-CHAIR PASKVAN wanted to know if the following statement in a
December 2009 report was still true:
There are sufficient additional natural gas reserves
in the Cook Inlet region for development and delivery
to Fairbanks via the B2F Pipeline. Therefore, the
supply of gas to existing consumers of Cook Inlet
Natural Gas would not be adversely impacted.
MR. HEYWORTH responded that he didn't know how much faith he had
in that statement even four years ago, but today he believed
there was plenty of gas in Cook Inlet, 3.5 tcf or 10-15 years of
gas according to Furie. Cook Inlet is supposed to have three
jack-up rigs working in it this summer, and there is a good
chance a lot more gas will be found if they get lucky like Furie
did in striking a big find on the very first well.
4:10:46 PM
CO-CHAIR WAGONER related that Furie said on Wednesday that their
estimate was down to 750 bcf/d and they still hadn't flow tested
the well or done a lot of logs on it. And only two jack-up rigs
will be in Cook Inlet this summer, the Endeavor and Spartan 151;
there never was a third.
MR. HEYWORTH remarked that he was disappointed about going down
to 750 bcf.
CO-CHAIR PASKVAN asked him to elaborate a little more on why the
B2F project was not completed.
MR. HEYWORTH replied that a couple of things coincided. As ANGDA
got started on Governor Palin's B2F project, a parallel instate
gasline committee was started in HB 269; its first chairman was
Harry Noah who passed it off to Bob Swenson, who passed it off
to Dan Fauske. The other group was strongly for the Parks
Highway; but ANGDA ran out of funds and support and started
receiving a lot of resistance from the Army Corps of Engineers
and the Bureau of Land Management (BLM). The state decided to
get behind Mr. Fauske and HB 9.
4:14:17 PM
SENATOR FRENCH asked how much longer the Glenn/Richardson route
is than the Parks Highway route.
MR. HEYWORTH answered that he wanted help in answering that from
Mr. Odsather.
4:14:55 PM
RICHARD "O.D." ODSATHER, Odsather International Marketing, ANGDA
contractor, Fairbanks, AK, answered that one line, Glennallen to
Delta to North Pole, is 30 miles shorter than the other. The
distance for the Glenn Highway/Tok/North Pole route was about
437 miles and the distance for the Milepost 39/Dunbar/Fort
Greely route was 467 miles; three military bases were involved.
SENATOR FRENCH said he wanted to compare a line from Big Lake to
Fairbanks versus a line from Fairbanks to the nearest pipeline
coming down the Richardson and the Glenn Highways.
MR. ODSATHER responded to subtract 25 miles from the 467 miles
for going up through Dunbar, because it's 25 miles from Big Lake
to Milepost 38 on the Enstar line.
SENATOR FRENCH asked him how many pipeline miles it was from Big
Lake to Fairbanks up the Parks Highway saying he came up with
271 miles. Mr. Odsather agreed.
SENATOR FRENCH asked how many miles it was from the nearest
pipeline touching the grid that connects Anchorage to Fairbanks
through the Glenn/Richardson route if its 271 miles from Big
Lake to Fairbanks.
MR. ODSATHER responded that they had to back up a bit, because
to make them equal, you have to go from Fairbanks up to Fort
Greely to pick up the three military bases.
SENATOR FRENCH asked why the three military bases have to be
included.
MR. ODSATHER explained that the B2F line includes Fort
Wainwright, Eielson Air Force Base and Fort Greely as anchor
tenants.
SENATOR FRENCH asked Mr. Odsather if he was saying that he had
added enough pipe to the 271 miles from Big Lake to Fairbanks to
touch the three bases (if they all agreed that is something that
has to be done).
MR. ODSATHER replied "Yes, sir...if you want to make them equal,
you have to do that."
4:20:25 PM
CO-CHAIR WAGONER said Mr. Odsather was saying you have to add
the distance from Fairbanks back down to the bases using the
Parks Highway route, but you don't have to add the bases. First,
they need to figure out what it takes to get to Fairbanks and
then if the bases want the gas they can build a supply line from
wherever the hub is established.
SENATOR FRENCH asked how big the pipe would be.
MR. ODSATHER replied 24 inches from Palmer to Delta and 10
inches from Delta to North Pole.
4:24:02 PM
CO-CHAIR PASKVAN asked if the 24 inch pipe from Delta into
Palmer was for the lateral from the anticipated 48 inch line
going to Canada.
MR. ODSATHER answered yes and he added that it's a totally
reversible pipeline.
CO-CHAIR PASKVAN asked if building a gasline next to a railroad
(the Parks route) would save any money.
MR. ODSATHER answered if you can get the permits from the
highway or the railroad, fine, but it may be difficult going
through Denali State Park where the highway goes through an
"omnibus road" and its subsurface is owned by the federal
government. So, you might have to negotiate with the federal
government.
CO-CHAIR PASKVAN asked if it was good or bad to have a railroad
close by.
4:25:40 PM
MR. ODSATHER replied that personally he would move it off to the
edge of the road, because that is the greatest thaw area and
therefore the least stable.
4:26:06 PM
SENATOR JOE THOMAS, Alaska State Legislature, Juneau, AK, co-
sponsor of SB 215, observed that the B2F line was considered
important at one time and a reduced-size plastic pipe was going
to go from Delta into Fairbanks, because they were anticipating
that a line would come down through Fairbanks anyhow. So, you
put in the plastic line and when the big line was built you
could remove the plastic one.
The Parks Highway is 365 miles from Anchorage to Fairbanks and
you're roughly 30 some miles north of that. So if you run right
into Fairbanks, you subtract 30 miles off of that and come up
with a 335 mile pipeline.
SENATOR FRENCH said he was a big supporter of this project and
gas pipelines in general, but the North Slope gas project is so
big that it's hard to pinpoint when it will actually happen, and
that was why they were considering taking existing gas
production to where was needed in the Interior. He asked if they
were thinking about using plastic pipe as a short-term fix.
MR. HEYWORTH replied that ANGDA had researched PVC pipe and it
could be used if it was going down the Glenn/Richardson/TAPS
corridor where it's very close to either base. But to be fair,
an existing Enstar line goes to Big Lake and it has an 18 inch
tap at the end of it. You could come off of that and proceed
north on the Parks Highway and come into Dunbar and Nenana and
get into Fairbanks and North Pole. But what he really wanted to
convey to the committee was the idea that if the ASAP pipeline
comes off the North Slope from Livengood down through Minto to
Dunbar and then cuts over to the UAA campus with the 39-mile
lateral, then 20-mile increments gets you to Fairbanks, North
Pole and Eielson. The lateral could be a smaller 10 inch
pipeline coming all the way down to and through Delta Junction.
He asked why you would come down just to Dunbar if you start
with the lateral going all the up to North Pole and not just
continue down the Glenn/Richardson at that point and hit all the
military bases: Livengood to Dunbar, east to Golden Valley and
North Pole and then pick up the ANGDA route to Palmer. It's a
much cheaper pipeline that catches everybody.
SENATOR FRENCH said he appreciated his answer and that he was
just trying to get up to speed by thinking of the quickest,
cheapest solution.
SENATOR THOMAS said realistically the only base you would leave
out if you came from mile 39 and went up the Parks Highway by
building a 340 mile pipeline would be Fort Greely. A plastic
pipe would probably last long enough if an instate line of some
type would be installed at a later date.
SENATOR FRENCH said it would be interesting to know how much gas
can move through 12 inch plastic pipe, because he didn't how
long Fairbanks was going to wait to get a steel pipeline from
the North Slope - and he didn't think they could wait that long.
SENATOR THOMAS replied that someone probably has the calculation
for a temporary fix to Fairbanks, but he thought a 10 or 12 inch
pipe would be more than enough.
4:33:57 PM
SENATOR FRENCH said every single house in Fairbanks would have
to convert and distribution lines would have to be laid and
wondered how long that would take no matter how the gas gets
there.
SENATOR THOMAS agreed.
CO-CHAIR WAGONER said they should establish a location for a
hub. Pipelines don't put all the supply lines out there; they
let whoever has the certificate of public convenience do it. The
main thing is to get the gas to that area and let everyone else
worry about the distribution.
CO-CHAIR PASKVAN agreed and said the line between Fairbanks and
Big Lake does not need to be 24 inches. That's only if you want
to pre construct the lateral to hook up with a future large
diameter line going to Valdez or through Canada.
CO-CHAIR WAGONER said there should be just one line to take care
of all the needs.
[SB 215 was held in committee.]
SB 209-DEVELOPMENT PLANS FOR OIL & GAS LEASES
4:37:32 PM
CO-CHAIR PASKVAN announced the consideration of SB 209. He asked
Senator Wielechowski if he had any comments before the committee
heard the invited testimony.
SENATOR WIELECHOWSKI said he did not have additional comments
but he had received a lot of favorable feedback on the bill.
4:38:37 PM
ARA MORIARTY, Executive Director, Alaska Oil and Gas Association
(AOGA), is a business trade association to foster long-term
viability of oil and gas industry. AOGA hold active leases for
more than 1.2 million acres of state land. They do not support
SB 209. She gave the following comments:
COMMENTS OF THE ALASKA OIL & GAS ASSOCIATION
ON SB 209
SENATE RESOURCES COMMITTEE
MARCH 26, 2012
Co-Chairmen Paskvan and Wagoner, Members of the
Committee: good afternoon. For the record, my name is
Kara Moriarty and I'm the Executive Director of the
Alaska Oil and Gas Association (AOGA). Thank you for
the invitation and opportunity to testify on Senate
Bill 209.
AOGA is a business trade association whose mission is
to foster the long-term viability of the oil and gas
industry for the benefit of all Alaskans. Our 16
member companies represent the breadth and scope of
the industry in Alaska, and have interests all across
Alaska, both onshore and offshore.
As I've mentioned in previous testimony, AOGA's
members hold active leases for more than 1.2 million
acres of state land.
AOGA does not support Senate Bill 209. This bill was
described as being a "pro-development bill that simply
seeks to get more oil in the pipeline." We
respectfully and emphatically disagree. We think this
bill would do the exact opposite and kill development
before it even has a chance of happening because it
will have a chilling effect on the very first step in
the development process, the leasing program.
4:40:26 PM
The current leasing system in Alaska is an "auction"
system that is used on State land and is also used on
federal lands in the Gulf of Mexico, offshore Alaska,
and the National Petroleum Reserve. For state leases,
the areas offered are quite small. By law, a lease
cannot be more than 5,760 acres, or 9 square miles.
The bid variable for the "auction" is almost always a
cash bonus. The bonus is calculated by multiplying the
number of dollars per acre bid by the number of acres
contained in the lease. Whoever bids the most for each
lease wins the exclusive rights to explore on that
lease for the term of the lease. Every activity that
is carried out on the lease requires permits. No
permits are granted, or lately even guaranteed, as a
result of the bidding process.
This bill seems to shift the current leasing program
into a licensing program. Licensing is used around the
world and comes in many different variations.
Typically VERY large areas of land are made available
to be licensed by competing companies. The licenses
Senate Resources Committee Page 2 SB 209 March 26,
2012 are often awarded based on the work commitment
made. Typically there is no cash bonus. The winner is
determined by how much work, and often the kind of
work, the potential licensee is willing to do.
Licenses are awarded for only very large tracts of
land, and the jurisdiction usually provides seismic
information and awards permits in a much more
expedient manner versus Alaska where state and federal
permits take years, not months.
4:42:30 PM
Alaska has had a licensing program for frontier
exploration areas for almost 20 years. Licenses are
available for up to 500,000 acres of land and are
based on a work commitment and there is no bonus bid.
It is important to note, that the current state
licensing program is and was created for the
exploration basins, not the producing provinces, so it
is current statute that licensing cannot be used in
the Cook Inlet or on most areas of the North Slope.
When the current area-wide leasing program was
established, it was clear the administration and
legislature at the time saw the need for both systems,
and the legislature did not want to give up the bonus
bids in those areas. In fact, the state's area-wide
leasing program is one of the few bright spots of
doing business in Alaska from an oil and gas company's
perspective, because our current area-wide leasing
program is very consistent. SB 209 would create
administrative burdens that will likely alter the
certainty for timing and awarding of bids.
Additionally, a number of licenses have been awarded
and wells have been drilled in these exploration
frontier basins, but it is crucial to point out that
no production has yet resulted from a license.
As I mentioned, licensing involves very large swathes
of land. In doing some research, we evaluated an
upcoming licensing round in Greenland, the entire
licensing area is about 50,000 square kilometers. The
individual licenses will be available within that area
range from 420,000 acres to 940,000 acres. By
comparison, the entire Prudhoe Bay field is about
215,000 acres. So, the smallest license available is
about twice the size of the entire Prudhoe Bay
oilfield. Additionally, the smallest license available
would contain about 72 state leases.
If the state wants to turn our current area-wide
leasing program into a licensing program, then the
state should evaluate all facets of a licensing
program, such as providing much more seismic
information up front and expediting the permitting
process.
4:45:01 PM
In evaluating this last lease sale on December 7,
2011, the state received over $14 million in high
bonus bids and leased almost 335,000 acres in 178
different tracts of land. Two currently producing
companies participated in this sale; long-time Alaska
company ConocoPhillips won 34 tracts and one of the
state's smallest producers, Pioneer Natural Resources,
submitted one bid, which it obtained for one tract.
The other companies that participated were Royale
Energy, Great Bear Petroleum, Repsol, 70th & 148 (a
division of Armstrong Oil and Gas), Woodstone
Resources, Savant Alaska, Alaska LLC and individuals
such as Dan Donkel, Samuel Cade, Paul Gavora, Andrew
Bachner and Keith Forsgren.
I think it is important to note, that the two most
recent producing fields, Oooguruk and Nikaitchuq, were
leases originally obtained by one of these smaller
companies and were eventually sold and/or partnered
with a producing company to explore and produce these
leases.
Following the lease sale in December, the commissioner
of Natural Resources, Dan Sullivan stated, 'It was
quite a respectable showing.' He went onto say, 'I
would say that there were some companies that I
thought would show up who didn't. It's always hard to
know why…' Sullivan said further, 'These (lease sales)
are just the first inning of a long term strategy…
Here is the issue: We recognize the status quo is not
working. A critical part of our five-point plan is tax
reform.'
4:47:23 PM
Even though the state received 219 bids for the North
Slope area-wide lease sale, no bids were submitted for
the same lease sale in the Foothills area.
Senate Bill 209 says that for each lease a company
wants to submit a bid for, the bidder must submit a
plan of development for that lease. So, for this last
North Slope Area-wide lease sale, 219 individual bids
were received and as I mentioned 178 tracks were sold.
Under this legislation, the above bidders would have
had to submit 219 individual plans of development for
evaluation. Royale Energy would have had to submit 87
different plans of development, Great Bear 32 and
Repsol 26. AOGA finds it hard to believe that
especially these smaller companies or any companies
would have the ability and resources to submit
detailed plans of development prior to submitting a
bid for lease. The same concern rings true not only
for the North Slope, but for Cook Inlet as well. Cook
Inlet is experiencing a resurgence of interest and
requiring a plan of development prior to a lease sale
is impractical and unnecessary.
In addition, this bill would require companies to
provide their own interpretation of each lease prior
to bidding and determine how they will develop each
lease without having the opportunity to evaluate each
lease. A company may have limited seismic and may not
have access to all the current well data. The bidder
may be working from a geologic concept that can't be
tested until they actually have the lease and are able
to evaluate it. That's what exploration is for, to
test what is actually there, much in the same way
Repsol is doing with their leases on state land and
what Shell is trying to do in the offshore. A company
should not be forced into making unnecessary
commitments before it has a robust opportunity to
evaluate and understand what the potential of the
lease might be.
Not one of my member companies believes this bill will
result in more development or put more oil in the
pipeline. On the contrary, we believe that forcing
companies to perform this intrusive exercise will do
nothing more than drive out the very explorers Alaska
is trying to attract.
Thank you for the opportunity to testify and I'm happy to
take any questions the committee may have.
SENATOR WIELECHOWSKI commented that maybe he could work with
AOGA to craft better language, because it was not his intent to
require plans of development like the ones a company must have
in getting a unit approved, but rather for a company to come
forward with some minimum work commitments and a timeframe. So,
you don't get speculators coming in and acquiring leases to just
hold on to them with no intention of developing.
CO-CHAIR PASKVAN asked her to submit written testimony. He also
noted that the DNR Division of Oil and Gas and Department of Law
were invited to testify.
4:52:53 PM
DAVID STONE, Mayor of Yakutat, Yakutat, AK, thanked the
committee for inviting him to testify on SB 209. He agreed with
developing our resources for the benefit of Alaskans, but he
said the state leases are not designed to be a stored value.
They are designed to be developed. Norway's model is you develop
in a reasonable time or the leases are null and void. There
should never be another Pt. Thomson - four decades and now the
state is spending a fortune on lawsuits trying to get the land
developed. Many small developers want to get on that land and
it's being tied up by the big three.
CO-CHAIR WAGONER thanked Mayor Stone for testifying.
CO-CHAIR PASKVAN said that concluded today's hearing on SB 209.
[SB 209 was held in committee.]
4:55:18 PM
CO-CHAIR PASKVAN adjourned the Senate Resources Standing
Committee meeting at 4:55 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Northern Pipeline Agency Canada_SEN RES_03-26-2012.pdf |
SRES 3/26/2012 3:30:00 PM |