Legislature(2013 - 2014)BUTROVICH 205

01/18/2013 03:30 PM Senate RESOURCES


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03:30:02 PM Start
03:31:45 PM Overview: Department of Natural Resources
04:53:18 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Dept. of Natural Resources Overview TELECONFERENCED
Commissioner Dan Sullivan
Deputy Commissioner Joe Balash
Deputy Commissioner Ed Fogels
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                        January 18, 2013                                                                                        
                           3:30 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Cathy Giessel, Chair                                                                                                    
Senator Fred Dyson, Vice Chair                                                                                                  
Senator Peter Micciche                                                                                                          
Senator Click Bishop                                                                                                            
Senator Anna Fairclough                                                                                                         
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Lesil McGuire                                                                                                           
Senator Hollis French                                                                                                           
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Senator Charlie Huggins                                                                                                         
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
OVERVIEW: DEPARTMENT OF NATURAL RESOURCES                                                                                       
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
DAN SULLIVAN, Commissioner                                                                                                      
Department of Natural Resources (DNR)                                                                                           
Anchorage, AK                                                                                                                   
POSITION STATEMENT: Delivered an overview of DNR.                                                                             
                                                                                                                                
JOE BALASH, Deputy Commissioner                                                                                                 
Office of the Commissioner                                                                                                      
Department of Natural Resources (DNR)                                                                                           
Anchorage, AK                                                                                                                   
POSITION STATEMENT: Participated in the overview of DNR.                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:30:02 PM                                                                                                                    
CHAIR  CATHY   GIESSEL  called  the  Senate   Resources  Standing                                                             
Committee meeting  to order at 3:30  p.m. Present at the  call to                                                               
order  were  Senators  Fairclough, Micciche,  Dyson,  Bishop  and                                                               
Chair Giessel. Senators French and McGuire were excused.                                                                        
                                                                                                                                
^OVERVIEW: DEPARTMENT OF NATURAL RESOURCES                                                                                      
           OVERVIEW: DEPARTMENT OF NATURAL RESOURCES                                                                        
                                                                                                                              
CHAIR CATHY  GIESSEL, Alaska State  Legislature, stated  that the                                                               
business before  the committee  would be to  hear an  overview of                                                               
the Department of Natural Resources  by Commissioner Dan Sullivan                                                               
and Deputy Commissioner Joe Balash.                                                                                             
                                                                                                                                
3:31:45 PM                                                                                                                    
DAN  SULLIVAN,  Commissioner,  Department  of  Natural  Resources                                                               
(DNR), stated that the goal today  was to provide a review of the                                                               
accomplishments in 2012 and key  issues regarding the legislative                                                               
session. He  said one of the  messages was that there  is a sense                                                               
of optimism  that the state has  the resource wealth to  meet the                                                               
challenges ahead.                                                                                                               
                                                                                                                                
3:35:50 PM                                                                                                                    
COMMISSIONER  SULLIVAN   reported  that  in  2012   DNR  promoted                                                               
interest   in  the   state's   resources   both  nationally   and                                                               
internationally.  He acknowledged  that he  enjoyed pointing  out                                                               
that Alaska's  land base was more  than twice the size  of Texas.                                                               
Also of  interest is that  the federal government owns  more than                                                               
200 million acres  in Alaska; Native Corporations  own 44 million                                                               
acres; and the  state has about 100 million acres  of uplands, 60                                                               
million  acres of  tidelands, shore  lands, and  submerged lands,                                                               
and 40,000 miles of coastline.                                                                                                  
                                                                                                                                
He   displayed  estimates   of   North  Slope   and  Cook   Inlet                                                               
conventional  oil  and gas  reserves,  and  deferred to  the  DNR                                                               
geologists  and reservoir  engineers  to brief  the committee  in                                                               
more detail.  The current estimates  indicate that the  state has                                                               
conventional  resources that  will last  for decades,  which will                                                               
certainly  affect  policy. He  offered  to  follow up  with  more                                                               
detail on  a very positive  methane hydrate testing on  the North                                                               
Slope.  He  highlighted the  statement  that,  "Compared to  most                                                               
basins, Alaska is relatively  underexplored, with 500 exploration                                                               
wells on the  North Slope, compared to  Wyoming's 19,000." Texas,                                                               
by comparison, has about 250,000 exploration wells.                                                                             
                                                                                                                                
COMMISSIONER SULLIVAN said Alaska  was also a mineral storehouse.                                                               
If it were a  country, it would rank in the top  ten in the world                                                               
for  certain  critical  minerals including  coal,  copper,  lead,                                                               
gold, zinc, and silver.                                                                                                         
                                                                                                                                
COMMISSIONER SULLIVAN  reviewed the  key 2012  accomplishments of                                                               
the  divisions  within DNR.  The  Division  of Agriculture  (DoA)                                                               
advocated statewide for the "Alaska  Grown" program. The Division                                                               
of Forestry  (DoF) looked  forward to  briefing the  committee on                                                               
the Governor's Timber Jobs Taskforce  activities. The Division of                                                               
Geological & Geophysical Surveys  (DGGS) was the state equivalent                                                               
of  the U.S.  Geological  Survey  and probably  the  best in  the                                                               
nation.  A  key accomplishments  was  the  ongoing strategic  and                                                               
critical minerals assessment program.                                                                                           
                                                                                                                                
CHAIR GIESSEL  noted that the  legislature appropriated  funds to                                                               
build  a more  appropriate Geologic  Materials Center,  and asked                                                               
how the project was progressing.                                                                                                
                                                                                                                                
COMMISSIONER SULLIVAN deferred to Mr. Balash.                                                                                   
                                                                                                                                
3:42:34 PM                                                                                                                    
JOE  BALASH, Deputy  Commissioner,  Office  of the  Commissioner,                                                               
Department  of Natural  Resources (DNR),  informed the  committee                                                               
that  the  retrofitted  Eagle  River  facility  was  well  beyond                                                               
capacity and the stored materials  were potentially degrading. He                                                               
said that  the appropriated funds  were used to  identify current                                                               
and future  needs, and DNR  located a potential facility  in East                                                               
Anchorage before the Governor's  budget was released in December.                                                               
He noted that  there was a $15 million item  in the Department of                                                               
Administration (DOA)  budget for  purchase of that  facility, and                                                               
he  was promoting  that agency's  budget request.  He offered  to                                                               
provide  the committee  with specific  details when  there was  a                                                               
purchase agreement in hand.                                                                                                     
                                                                                                                                
COMMISSIONER  SULLIVAN  described  the current  facility  as  the                                                               
"history of Alaska" and offered  to give interested legislators a                                                               
tour.  He  noted that  in  2012  the current  Geologic  Materials                                                               
Center  hosted 507  visits from  industry and  academia. Many  of                                                               
these industry  representatives were  looking with an  eye toward                                                               
making investment decisions.                                                                                                    
                                                                                                                                
3:46:26 PM                                                                                                                    
SENATOR DYSON asked  if he had a feel for  the business case that                                                               
might  make  it  profitable  for a  particular  industry  to  use                                                               
natural gas liquids close to the production point.                                                                              
                                                                                                                                
MR.  BALASH reminded  the  committee that  the  mmbtu quality  of                                                               
Prudhoe  Bay gas  today was  not what  it once  was, because  for                                                               
years, the liquids  had been captured and sent down  TAPS and the                                                               
gas reinjected into  the reservoir. The NGLs that  remain part of                                                               
the  production stream  continue  to be  viewed  as an  essential                                                               
component  of an  anticipated massive  LNG project.  He suggested                                                               
the committee  look at the  topic further with the  assistance of                                                               
the Division of Oil and Gas.                                                                                                    
                                                                                                                                
SENATOR  DYSON  asked Commissioner  Sullivan  to  comment on  the                                                               
significance  of  Alaska's rare  earth  minerals  with regard  to                                                               
international geo-politics.                                                                                                     
                                                                                                                                
COMMISSIONER SULLIVAN  noted that the USGS  indicated that Alaska                                                               
has over 70  occurrences of rare earth minerals,  but that number                                                               
is likely higher. He offered to  follow up with the DGGS minerals                                                               
assessment reports  from the  last two  years. He  explained that                                                               
the  reports are  released periodically  to elicit  interest from                                                               
industry and  explorers. A recent  Petroleum News article  on the                                                               
topic  had  many promising  results  with  regard to  rare  earth                                                               
minerals and gold, mostly in  the Interior. He offered to provide                                                               
the article.                                                                                                                    
                                                                                                                                
SENATOR DYSON asked if there was activity at Bokan Mountain.                                                                    
                                                                                                                                
COMMISSIONER SULLIVAN said yes.                                                                                                 
                                                                                                                                
3:50:38 PM                                                                                                                    
COMMISSIONER SULLIVAN  continued to review the  DNR divisions. He                                                               
said the  Division of  Mining, Land and  Water was  DNR's largest                                                               
division. A key  accomplishment was to reduce  the permit backlog                                                               
by 38  percent in the last  18 months. He described  the Division                                                               
of Oil &  Gas as a critical  division that had a  lot of activity                                                               
in  2012.   He  complimented  Director  Barron   on  the  efforts                                                               
regarding leases and unit applications  to get companies to drill                                                               
more.  He informed  the committee  that the  Division of  Parks &                                                               
Outdoor  Recreation   was  the   largest  in  the   country.  Key                                                               
accomplishments  in  2012 include  two  national  honors for  the                                                               
National Boating  Safety Educator  of the  Year and  the National                                                               
Partners  in  Conservation.  He  said  the  Division  of  Support                                                               
Services staff keeps things running efficiently.                                                                                
                                                                                                                                
COMMISSIONER  SULLIVAN  said  the  Gas  Pipeline  Project  Office                                                               
monitors the  efforts of the  Alaska Pipeline Project  (APP) with                                                               
regard  to  the   48-inch  natural  gas  pipeline   in  order  to                                                               
commercialize North Slope natural gas.  It works closely with the                                                               
Alaska  Gasline  Development   Corporation  (AGDC).  He  deferred                                                               
discussion   of   key   accomplishments  until   later   in   the                                                               
presentation.                                                                                                                   
                                                                                                                                
COMMISSIONER  SULLIVAN  reminded  the committee  that  the  State                                                               
Pipeline Coordinator's  Office had permitting authority  over all                                                               
pipelines statewide. Key accomplishments  include issuance of the                                                               
right-of-way  lease for  the Point  Thomson  Export Pipeline.  He                                                               
relayed  that  the  Office of  Project  Management  &  Permitting                                                               
coordinates  the review  of large-scale  projects  in the  state.                                                               
That the office was very busy in 2012.                                                                                          
                                                                                                                                
3:54:06 PM                                                                                                                    
COMMISSIONER SULLIVAN  said the  second part of  the presentation                                                               
would be to  highlight six areas: 1) Securing  Alaska's future in                                                               
oil,  2)   Commercializing  North   Slope  Gas,   3)  Comparative                                                               
advantages  of  Alaska  LNG,  4)   Secure  Alaska's  future  with                                                               
strategic  and critical  minerals, 5)  Permitting reform,  and 6)                                                               
Sustainable development.                                                                                                        
                                                                                                                                
He  said that  with regard  to the  state's economic  future, the                                                               
most critical  issue was arresting  the TAPS  throughput decline.                                                               
To address this  issue, the Governor announced  an ambitious goal                                                               
of one  million barrels of  oil production per day  [through TAPS                                                               
within 10 years.]  He launched a four-part strategy  in the first                                                               
quarter of 2011.  The first was to increase  production by making                                                               
Alaska more  competitive. He emphasized  that tax reform  was the                                                               
cornerstone of  the strategy.  The second  important part  was to                                                               
ensure that the state, federal,  and borough permitting processes                                                               
were  structured  and efficient.  He  reported  that through  the                                                               
permitting process  in 2012,  DNR had  established a  very strong                                                               
relationship with the North Slope  Borough. The third part was to                                                               
facilitate  and  incentivize  the  next  phases  of  North  Slope                                                               
development. He  highlighted that there was  enormous opportunity                                                               
in both  large and  smaller fields,  the Outer  Continental Shelf                                                               
(OCS), and  shale and other  unconventional oil. The  fourth part                                                               
of  the strategy  was to  work with  the Department  of Commerce,                                                               
Community and  Economic Development  (DCCED) to  promote Alaska's                                                               
resources and a positive investment  climate to world markets. He                                                               
noted that the legislature appropriated  money for this promotion                                                               
and it yielded positive results.                                                                                                
                                                                                                                                
3:58:48 PM                                                                                                                    
COMMISSIONER  SULLIVAN said  that  in 2011  and  2012 there  were                                                               
strong lease  sales in Cook  Inlet, the North Slope  and Beaufort                                                               
Sea. Part  of that  success was  the result  of DNR's  efforts to                                                               
approach  companies,  explain  the  terms  of  lease  sales,  and                                                               
generally stimulate interest.                                                                                                   
                                                                                                                                
He displayed  a map depicting  the North Slope to  illustrate the                                                               
recent  and  proposed activity  for  oil  and  gas. Some  of  the                                                               
highlights  were that  shale oil  exploration was  ongoing, Shell                                                               
Oil Company was  able to drill exploratory wells  in the Beaufort                                                               
Sea  and Chukchi  Sea,  Point Thomson  was  settled, Linc  Energy                                                               
drilling  at  Umiat  was  moving  forward,  and  there  were  new                                                               
players, operators,  and explorers. He highlighted  the diversity                                                               
of conventional  and unconventional players and,  emphasized that                                                               
these  developments just  scratched  the surface  of the  overall                                                               
potential. The focus is to increase competition, he said.                                                                       
                                                                                                                                
COMMISSIONER SULLIVAN  reminded the committee that  DNR on Monday                                                               
would testify  on the challenges  associated with Cook  Inlet oil                                                               
and gas activity. He highlighted that  in the past two years this                                                               
basin had undergone  quite a renaissance in  terms of exploration                                                               
and investment. Some  of this renewed activity was  the result of                                                               
DNR's  focused efforts  to attract  new interest.  DNR personally                                                               
showed  the  CEOs of  some  of  these  companies the  Cook  Inlet                                                               
resource   basin   and   lease   terms   and   encouraged   their                                                               
participation.                                                                                                                  
                                                                                                                                
He displayed a map showing the  2012 oil and gas activity in Cook                                                               
Inlet  and  highlighted  an  excerpt  from  a  January  13,  2013                                                               
Petroleum  News  article.  It  said,  "While  dwindling  supplies                                                               
remain a concern,  the year (2012) saw companies  large and small                                                               
making significant  investments in the basin  after years without                                                               
exploration and  only limited development. If  the most ambitious                                                               
companies  were successful,  the region  would see  increased oil                                                               
and gas volumes some 55  years after production began." An August                                                               
27, 2011  article in  the Wall Street  Journal said,  "New energy                                                               
estimate breathes life into a declining Alaskan oil field."                                                                     
                                                                                                                                
4:02:43 PM                                                                                                                    
SENATOR GIESSEL recognized that  Senator Huggins had arrived, and                                                               
invited him to join the committee.                                                                                              
                                                                                                                                
COMMISSIONER  SULLIVAN opened  the discussion  on commercializing                                                               
North Slope gas and noted that  in early 2012 the major producers                                                               
were not working together, the  Point Thomson development was not                                                               
moving, and  nobody was talking  about Alaska despite  the rising                                                               
opportunities and  activity in Asia. "We  were not on the  map in                                                               
the  most  dynamic, important  market  in  the world,"  he  said.                                                               
Nevertheless,  the Governor  laid out  in the  2012 State  of the                                                               
State speech  some very important  benchmarks for a roadmap  to a                                                               
gas  pipeline. He  recognized that  sometimes  progress would  be                                                               
incremental and  despite some  skepticism, those  benchmarks were                                                               
met.                                                                                                                            
                                                                                                                                
One  of those  benchmarks  was the  issue  of alignment,  because                                                               
ConocoPhillips, BP  and ExxonMobil  were not working  together or                                                               
focused on  an LNG project.  At the Governor's behest,  the three                                                               
CEOs met  with the  Governor and  in late  March issued  a letter                                                               
stating that they  had "aligned on a  structured, stewardable and                                                               
transparent approach  with the aim  to commercialize  North Slope                                                               
natural gas resources within an AGIA framework."                                                                                
                                                                                                                                
The  Point Thomson  settlement  was  another important  benchmark                                                               
that DNR  achieved at the  end of  March. Noting that  Joe Balash                                                               
played  a  very  critical  role,  he  said  this  settlement  was                                                               
strategic  for  three  principle  reasons. First,  it  opens  the                                                               
eastern North  Slope. Part of  the initial development will  be a                                                               
70,000 barrel per day common  carrier liquids pipeline going into                                                               
TAPS. This  opens opportunity for  smaller explorers in  the area                                                               
and is very  important in terms of the TAPS  throughput issue and                                                               
bringing  infrastructure  to  that  remote  part  of  the  state.                                                               
Secondly,  the settlement  is important  from the  perspective of                                                               
gas commercialization.  Most of the ongoing  multi-billion dollar                                                               
infrastructure development  can be  used for the  gas reinjection                                                               
project. The issue of jobs is  the third reason the settlement is                                                               
strategic.  During the  construction  phase,  the sustained  jobs                                                               
estimate is  between 600 and  800 in  the state, peaking  at over                                                               
2,000.                                                                                                                          
                                                                                                                                
4:08:33 PM                                                                                                                    
COMMISSIONER SULLIVAN informed the  committee that there has been                                                               
three phases of activity since  the Point Thomson settlement. The                                                               
first  phase was  to explain  and  defend the  settlement to  the                                                               
legislature   in    general   and   the    Resources   Committees                                                               
specifically. He noted that one  person filed a lawsuit, although                                                               
it did  not appear  to be  progressing. DNR  then focused  on the                                                               
required state,  federal, and  borough permitting  processes. The                                                               
third  phase was  getting to  work building  ice roads  and other                                                               
infrastructure.                                                                                                                 
                                                                                                                                
4:09:25 PM                                                                                                                    
SENATOR BISHOP  complimented Commissioner Sullivan and  his staff                                                               
on the  settlement agreement  and stated that  he was  pleased to                                                               
report  that two  prime Alaska  contractors were  working on  the                                                               
project and had  an over 90 percent Alaska-hire  record. He asked                                                               
the  record to  reflect ExxonMobil's  serious effort  to purchase                                                               
goods and services  in the state, and "that anything  that can be                                                               
bought and manufactured in Alaska is being done."                                                                               
                                                                                                                                
COMMISSIONER SULLIVAN confirmed that  the settlement had a strong                                                               
Alaska  hire component,  and that  the former  labor commissioner                                                               
and new legislator played a large part.                                                                                         
                                                                                                                                
Continuing  the   presentation,  he   said  that   achieving  the                                                               
Governor's benchmarks  attracted huge national  and international                                                               
press. The Financial Times on 3/30/2012 reported:                                                                               
                                                                                                                                
     ExxonMobil,   BP   and  ConocoPhillips   have   reached                                                                    
     agreement  with   the  state   of  Alaska  to   take  a                                                                    
     significant  step forward  on a  $40bn-plus project  to                                                                    
     export  liquefied  natural  gas to  Asia,  resolving  a                                                                    
     long-running  lease dispute  that had  been holding  up                                                                    
     progress.                                                                                                                  
                                                                                                                                
     In a  joint letter, the  chief executives of  the three                                                                    
     companies  said  they  were  "aligned"  on  a  plan  to                                                                    
     develop the huge gas reserves  of Alaska's North Slope,                                                                    
     which until now  have been stranded without  a route to                                                                    
     market.                                                                                                                    
                                                                                                                                
Also on 3/30/12, the Wall  Street Journal reported that the Point                                                               
Thomson settlement "paves the way  for a pipeline project to ship                                                               
natural gas from the North  Slope, unleashing the state's massive                                                               
gas reserves."                                                                                                                  
                                                                                                                                
COMMISSIONER   SULLIVAN  stated   that   positive  news   reports                                                               
continued through  the rest of 2012.  He added that it  was not a                                                               
"done deal,"  but there  was progress and  it was  important that                                                               
Alaskans see what it was.                                                                                                       
                                                                                                                                
4:11:55 PM                                                                                                                    
SENATOR DYSON asked if he  anticipated a scenario where the state                                                               
would receive federal credit  for carbon sequestration if the CO                                                                
                                                                2                                                               
stripped out of Point Thomson gas was used to lift heavy oil.                                                                   
                                                                                                                                
COMMISSIONER  SULLIVAN responded  that  the  near-term focus  and                                                               
goal was  to finalize  the concept selection  on the  project. He                                                               
acknowledged  that the  companies were  looking at  that sort  of                                                               
"double positive," and  suggested that the experts  might be able                                                               
to provide specific details in a month or so.                                                                                   
                                                                                                                                
4:14:22 PM                                                                                                                    
COMMISSIONER  SULLIVAN   said  the  Governor  also   spoke  about                                                               
hardening  the numbers  by the  third quarter,  and on  10/1/2012                                                               
ExxonMobil,  ConocoPhillips, BP,  and TransCanada  sent a  letter                                                               
outlining their progress. In part, the letter stated:                                                                           
                                                                                                                                
     We  have  narrowed  the   broad  range  of  alternative                                                                    
     development   concepts  and   assessed  major   project                                                                    
     components, including  the gas pipeline,  gas treatment                                                                    
     to  remove  CO   and  other   impurities,  natural  gas                                                                    
                   2                                                                                                            
     liquefaction,   LNG   storage,  and   marine   terminal                                                                    
     facilities as described  on Attachment 2. Individually,                                                                    
     each of these components  would represent a world-class                                                                    
     project.  Combined, they  result in  a mega-project  of                                                                    
     unprecedented scale  and challenge;  up to  1.7 million                                                                    
     tons of steel,  a peak construction workforce  of up to                                                                    
     15,000, a permanent workforce of  over 1,000 in Alaska,                                                                    
     and an estimated  total cost in today's  dollars of $45                                                                    
     to $65+ billion.                                                                                                           
                                                                                                                                
He said  he particularly liked  what the Globe and  Mail reported                                                               
on 10/4/12. It said:                                                                                                            
                                                                                                                                
     A  massive  new proposal  to  export  natural gas  from                                                                    
     Alaska  brings  a major  competitor  into  the race  to                                                                    
     carry North American gas to  Asia, and adds pressure on                                                                    
     Canadian  export  projects  to build  quickly  or  risk                                                                    
     losing out...                                                                                                              
                                                                                                                                
     It is notable for the stature  of its backers - BP PLC,                                                                    
     Exxon Mobil  Corp., ConocoPhillips Co.  and TransCanada                                                                    
     Corp., which  have now joined forces  after dueling for                                                                    
     years  over separate  gas pipeline  projects -  and for                                                                    
     its scale.                                                                                                                 
                                                                                                                                
COMMISSIONER SULLIVAN said the attachments  were a very important                                                               
aspect of the letter to  Governor Parnell. Attachment 1 shows the                                                               
integrated   team   of   BP,  ExxonMobil,   ConocoPhillips,   and                                                               
TransCanada.  This multimillion  dollar, four-company  effort has                                                               
over 200  employees and contractors  working on it. He  said this                                                               
is an  impressive team and  the briefings thus far  indicate that                                                               
the team is working together very well.                                                                                         
                                                                                                                                
Attachment  2  provides  the   project  concept  description  and                                                               
specifications for  the liquefaction  plant, storage  and loading                                                               
facilities,  producing fields,  and pipeline.  He noted  that the                                                               
Governor requested  these details and  it gives Alaskans  a sense                                                               
of  the  size  and  scope  of the  project.  According  to  these                                                               
specifications, this  LNG project  would rank as  one of  the top                                                               
three in the world.                                                                                                             
                                                                                                                                
Attachment 3  shows the  work plans and  key decision  points for                                                               
moving  the project  forward,  and the  hundreds  of millions  to                                                               
billions  of  dollars the  companies  will  spend to  reach  each                                                               
decision  point. The  more money  the companies  spend, the  more                                                               
likely it  is that the  project will  go forward. He  assured the                                                               
committee  that DNR  was making  every effort  to accelerate  the                                                               
timeline  and encouraged  the members  to send  the same  message                                                               
when they  meet with these companies.  He noted that the  head of                                                               
ConocoPhillips in  Alaska recently spoke of  a potential sanction                                                               
decision as early as 2015, which is aggressive.                                                                                 
                                                                                                                                
COMMISSIONER  SULLIVAN reported  that  DNR also  made very  good,                                                               
complimentary progress  with AGDC  in 2012,  focusing principally                                                               
on   regulatory  issues.   He   emphasized   the  importance   of                                                               
complimentary   progress   in  commercial   upstream,   technical                                                               
engineering, and regulatory permitting.  Some paths are parallel,                                                               
but the activities are not duplicating, which is important.                                                                     
                                                                                                                                
SENATOR  DYSON asked  the commissioner  to comment  on the  rumor                                                               
that  some  Asian  utility  coalitions  had  been  in  the  state                                                               
evaluating the Alaska situation.                                                                                                
                                                                                                                                
4:19:31 PM                                                                                                                    
COMMISSIONER  SULLIVAN deferred  comment until  the next  part of                                                               
the presentation.                                                                                                               
                                                                                                                                
SENATOR BISHOP asked if the current  work was outside of AGIA and                                                               
therefore not reimbursable.                                                                                                     
                                                                                                                                
COMMISSIONER   SULLIVAN  explained   that  only   midstream  work                                                               
qualified for  AGIA reimbursement, and  that work was  being done                                                               
by  TransCanada/ExxonMobil -  the Alaska  Pipeline Project  (APP)                                                               
team. ExxonMobil was the lead for  the technical team, BP was the                                                               
lead  for  upstream  work,  and   ConocoPhillips  was  doing  the                                                               
downstream, liquefaction work.                                                                                                  
                                                                                                                                
Another  reason for  the progress  last year  was that  the state                                                               
undertook  a very  aggressive marketing  program  to compare  the                                                               
advantages of  Alaska LNG to  some of the highest  level Chinese,                                                               
Korean,  and  Japanese  government officials  and  utilities.  He                                                               
described the  effort as  "flooding the zone  in Asia"  to create                                                               
"demand  pull" among  consumers. "They  can help  with regard  to                                                               
accelerating the  timeline and they  can even help  possibly with                                                               
financing and upstream  investing," he said. Alaska  is now "back                                                               
on the map"  and viewed as a  serious player in what  is a fierce                                                               
global competition. In  part, this is because of  the dual effort                                                               
with both APP and AGDC.                                                                                                         
                                                                                                                                
COMMISSIONER SULLIVAN reiterated that  the marketing program that                                                               
laid out  the strong  comparative advantages  of Alaska  LNG over                                                               
other competitors was starting to bear fruit.                                                                                   
                                                                                                                                
4:23:19 PM                                                                                                                    
SENATOR MICCICHE  mentioned federal  legislation that  focused on                                                               
blocking  [unconventional gas]  exports  from the  Lower 48,  and                                                               
asked  if  DNR had  been  active  with the  Alaska  congressional                                                               
delegation to  ensure that  Alaskan exports  were secure  for the                                                               
future.                                                                                                                         
                                                                                                                                
COMMISSIONER  SULLIVAN  emphasized  that  he and  his  staff  had                                                               
followed the debate very closely  and had meetings with top-level                                                               
officials from the  Department of Energy (DOE),  the White House,                                                               
the  National  Security  Council,   and  the  Department  of  the                                                               
Interior.  The  basic  message  was that  Alaska  should  not  be                                                               
considered  part  of  the debate  regarding  exports  potentially                                                               
limiting  gas supplies  in  the  Lower 48.  In  Alaska, it  would                                                               
actually have the  opposite effect; a large  export project would                                                               
increase  volumes to  Alaskans and  decrease price.  He mentioned                                                               
discussions  with  Senator  Wyden   and  Congressman  Markey  and                                                               
reiterated  that DNR  had been  very aggressive  on the  topic to                                                               
ensure that Alaska does not get caught up in any export limits.                                                                 
                                                                                                                                
4:26:53 PM                                                                                                                    
COMMISSIONER   SULLIVAN   reviewed   some  of   the   comparative                                                               
advantages of Alaska LNG that  DNR had advertised to "hundreds if                                                               
not  thousands  of   people  in  Asia"  in  the   past  year.  He                                                               
highlighted the following:                                                                                                      
                                                                                                                                
   · The North Slope of Alaska has a huge resource base and                                                                     
     there is essentially no resource risk.                                                                                     
   · The route for a large-scale LNG project would be co-located                                                                
     with existing oil and gas infrastructure, and would have                                                                   
     limited environmental impact.                                                                                              
   · Alaska has a longstanding tradition of exceptional                                                                         
     reliability in exporting LNG to ASIA. ConocoPhillips has                                                                   
     never missed a shipment making it arguably the most                                                                        
     reliable supplier of gas to Asia.                                                                                          
   · Alaska does not use gas supplies for political purposes.                                                                   
   · Alaska LNG has geographic proximity advantages, political                                                                  
     legal stability, and cost competitiveness.                                                                                 
   · World-class businesses and LNG producers have already                                                                      
     invested billions on LNG studies and oil and gas                                                                           
     infrastructure in Alaska.                                                                                                  
   · The existing Alaska LNG export facility already has a U.S.                                                                 
     Department  of Energy  export license  and state  regulatory                                                               
     approvals are in place to produce and transport gas.                                                                       
   · Alaska LNG presents less political risk; it is not part of                                                                 
     the Lower 48 shale debate and controversy.                                                                                 
   · ANGSA resolved First Nation issues for Alaska that continue                                                                
    to plague Western Canada and British Columbia projects.                                                                     
   · The Presidential Finding of January 12, 1988 set a strong                                                                  
     precedent  that may  still  be  applicable today.  President                                                               
     Ronald  Reagan stated  the following:  "Accordingly, I  find                                                               
     that exports of  Alaska natural gas in  quantities in excess                                                               
     of 1,000  Mcf per day  will not diminish the  total quantity                                                               
     or quality nor increase the  total price of energy available                                                               
     to the United States."                                                                                                     
   · Alaska LNG has both downstream and upstream investment                                                                     
     opportunities.                                                                                                             
   · The Alaska project has comparative advantages over other                                                                   
     projects  or regimes.  For example,  prospective buyers  may                                                               
     want  to read  Wall Street  Journal articles  from September                                                               
     24,  2012  and  December  6,   2012  before  buying  gas  in                                                               
     Australia.                                                                                                                 
                                                                                                                                
4:31:00 PM                                                                                                                    
COMMISSIONER  SULLIVAN reiterated  that the  advertising campaign                                                               
was beginning to show results. The  CEO and LNG team of the Korea                                                               
Gas Corporation (KOGAS)  was in Juneau for two  days and received                                                               
a  briefing on  the  comparative advantages  of  Alaska LNG.  The                                                               
Alaska  Gas   Pipeline  Project   Office  signed   a  cooperation                                                               
agreement  with a  Japanese  consortium  called Resources  Energy                                                               
Inc. (REI). That entity is looking  at a study regarding a large-                                                               
scale   liquefaction  facility.   Mitsui  and   Mitsubishi  Heavy                                                               
Industry, Ltd.  have also reached  out to  DNR. In a  briefing at                                                               
the U.S. Embassy,  DNR met with the Japan  Bank for International                                                               
Cooperation  (JBIC).   Alaska  was  also  invited   to  Tokyo  in                                                               
September to the largest consumer/producer  LNG conference in the                                                               
world.  Attendees  included  the  energy  ministers  from  Qatar,                                                               
Australia, Canada,  and Russia and the  government ministry heads                                                               
from Taiwan, Korea,  Japan, China, and India.  Alaska was invited                                                               
to have a speaking role.  When the senior Japanese officials made                                                               
introductions, they  highlighted the Emir and  energy minister of                                                               
Qatar  and  thanked  them  for their  help  after  the  Fukushima                                                               
earthquake. The  Alaska delegation was the  only other delegation                                                               
that was introduced, and was  recognized as Japan's longest, most                                                               
reliable LNG supplier.  That is a good indication  that Alaska is                                                               
back on  the map and that  is what the Governor  was referring to                                                               
in the State of the State speech, he said.                                                                                      
                                                                                                                                
COMMISSIONER  SULLIVAN said  the current  focus is  to align  the                                                               
various  stakeholders,  because  that increases  the  chance  for                                                               
success.  However,   the  Governor  has  also   been  working  to                                                               
strengthen  AGDC  to  ensure  the  ability  to  move  forward  if                                                               
alignment does not come together.                                                                                               
                                                                                                                                
SENATOR BISHOP  urged caution with  regard to  skyrocketing labor                                                               
costs and  project labor agreements  and noted the  problems that                                                               
Australia was currently experiencing.                                                                                           
                                                                                                                                
COMMISSIONER SULLIVAN  confirmed that  labor costs were  having a                                                               
huge  impact  on Australian  projects.  Responding  to a  comment                                                               
about  being competitive,  he said  it was  time for  Alaskans to                                                               
stop fighting over a pipeline  and start fighting for a pipeline,                                                               
because the competition is fierce.                                                                                              
                                                                                                                                
4:37:31 PM                                                                                                                    
COMMISSIONER  SULLIVAN   reported  that  in  2011   the  Governor                                                               
launched a  comprehensive five-part  strategy to  secure Alaska's                                                               
future with regard  to strategic and critical  minerals. It would                                                               
undertake  a  statewide  assessment   of  the  strategic  mineral                                                               
potential;  develop infrastructure  partnerships and  incentives;                                                               
improve   the  structure   and  efficiency   of  the   permitting                                                               
processes;  encourage  partnerships   and  cooperation  with  the                                                               
federal government,  local governments, Native  corporations, and                                                               
potential new entrants; and attract new investment markets.                                                                     
                                                                                                                                
Alaska has seven producing mines  at Red Dog, Greens Creek, Pogo,                                                               
Fort Knox,  Usibelli, Nixon  Fork, and  Kensington. In  2011, the                                                               
gross  mineral  production value  totaled  $3.8  billion and  the                                                               
export  value  was  $1.8  billion.  These  mines  are  also  job-                                                               
intensive.  He   estimated  that   Fort  Knox   employed  700-800                                                               
employees  and  highlighted  that  the average  mining  wage  was                                                               
$100,000.  He   noted  that  in  2011   the  mineral  exploration                                                               
investment in  Alaska totaled $365  million, which  accounted for                                                               
about one-third of the total spent  on exploration in the U.S. In                                                               
2011,  30  exploration  projects  spent  more  than  $1  million,                                                               
another large summer job  creator. [Advanced exploration projects                                                               
include  Pebble,   Bokan  Mountain,   Donlin,  Money   Knob,  and                                                               
Niblack.]                                                                                                                       
                                                                                                                                
SENATOR  BISHOP   reported  that  Barrick  Gold   in  Nevada  was                                                               
switching to gas for its  surface fleet, which would reduce costs                                                               
by 60 percent. He mused about  how doing that could help marginal                                                               
Alaska projects.                                                                                                                
                                                                                                                                
COMMISSIONER  SULLIVAN highlighted  that Donlin  had started  the                                                               
permitting stage and  the current plan of  development included a                                                               
gas pipeline from Cook Inlet to the project.                                                                                    
                                                                                                                                
4:41:21 PM                                                                                                                    
COMMISSIONER  SULLIVAN  reminded  the committee  that  the  first                                                               
Alaska  Strategic  &  Critical  Minerals  Summit  took  place  in                                                               
Fairbanks in 2011 and the  national and international turnout was                                                               
impressive. The  2012 summit focused on  motivating "deal making"                                                               
and the  featured speakers included  state and  federal officials                                                               
and a representative from the  Japan Oil, Gas and Metals National                                                               
Corporation (JOGMEC).                                                                                                           
                                                                                                                                
COMMISSIONER   SULLIVAN   explained   that   when   the   Parnell                                                               
Administration  took  office,   the  permitting  backlog  totaled                                                               
2,500. DNR  focused on eliminating the  backlog, streamlining the                                                               
system,  and making  it timely.  He  noted that  House Bill  361,                                                               
which passed  with strong bipartisan support,  made high priority                                                               
statutory  changes  related  to  leasing  and  disposal  programs                                                               
intended to  reduce permitting  burdens. The  Governor introduced                                                               
SB 26 today, which builds on those comprehensive reform efforts.                                                                
                                                                                                                                
COMMISSIONER  SULLIVAN emphasized  Alaska's robust  environmental                                                               
standards  and  strong record  of  developing  its resources  and                                                               
protecting  the  environment.  The standards  exceed  most  other                                                               
jurisdictions in  the world and  investors are required  to abide                                                               
by  them.  He  said  Alaska  also  plays  a  strong  role  as  an                                                               
innovator.  Horizontal drilling  with its  limited impact  of oil                                                               
development was, in many ways, pioneered in Alaska.                                                                             
                                                                                                                                
4:45:52 PM                                                                                                                    
COMMISSIONER SULLIVAN highlighted the  Governor's tax reform bill                                                               
that  has  four  core  principles.  Oil taxes  must  be  fair  to                                                               
Alaskans,  encourage  new  production,  restore  balance  to  the                                                               
system,  and be  durable for  the long  term. He  relayed that  a                                                               
prediction by an energy security  think-tank was that by 2020 the                                                               
U.S.  would be  the number-one  producer of  oil and  gas in  the                                                               
world. He said  that Alaska has the geology to  be the leader. He                                                               
agreed with the Governor's recent  statement, that it was neither                                                               
acceptable nor fair to support the status quo without a plan.                                                                   
                                                                                                                                
He said  some other positive  efforts include the  new benchmarks                                                               
the Governor set for  gas commercialization, continued permitting                                                               
reform,  and the  continuing  efforts to  promote  the state.  He                                                               
mentioned the Mineral Exploration  Roundup Conference, a speaking                                                               
part  at  the  North  American   Prospect  Expo,  "Alaska  Grown"                                                               
produce, Alaska State  Parks hosting of "Arts in  the Parks," and                                                               
a feature article on Alaska in the Oil & Gas Journal.                                                                           
                                                                                                                                
4:47:55 PM                                                                                                                    
COMMISSIONER SULLIVAN concluded that  optimism was high but there                                                               
was a lot more work to do.                                                                                                      
                                                                                                                                
SENATOR  DYSON  asked  Commissioner  Sullivan  to  address  three                                                               
things now or later. First, he  asked about the potential in Cook                                                               
Inlet  for producers  not  to push  gas  development. Second,  he                                                               
asked  at what  rate  gas could  be taken  from  the North  Slope                                                               
reservoir without  sacrificing oil  production. He noted  that it                                                               
had been  15-20 years since  the Alaska Oil and  Gas Conservation                                                               
Commission (AOGCC)  had looked at  the North Slope  reservoir gas                                                               
off-take  rate.  Finally, he  asked  if  the state  should  start                                                               
looking  at exporting  coal to  Pacific Rim  markets. He  said he                                                               
also looked forward to a response about gas liquids.                                                                            
                                                                                                                                
[The assumption was that Commissioner  Sullivan would respond off                                                               
the record.]                                                                                                                    
                                                                                                                                
4:50:59 PM                                                                                                                    
SENATOR  MICCICHE  expressed  a  desire to  see  an  exercise  to                                                               
quantify the  enormous potential  for additional large  and small                                                               
industries  and  businesses  to  feed  off  the  gas  supply.  He                                                               
acknowledged  that  it would  be  a  challenge to  quantify,  but                                                               
imperative  in  justifying the  existence  of  a pipeline  moving                                                               
forward.                                                                                                                        
                                                                                                                                
CHAIR GIESSEL thanked Commissioner Sullivan.                                                                                    
                                                                                                                                
4:53:18 PM                                                                                                                    
There being nothing  further to come before  the committee, Chair                                                               
Giessel  adjourned   the  Senate  Resources   Standing  Committee                                                               
meeting at 4:53 pm.                                                                                                             

Document Name Date/Time Subjects
SRES_DNR Update_1-18-13 REVISED 1-21-13.pdf SRES 1/18/2013 3:30:00 PM