Legislature(2013 - 2014)BUTROVICH 205
01/21/2013 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Who's Keeping the Lights & Heat On? Problems and Solutions | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
January 21, 2013
3:29 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
COMMITTEE CALENDAR
PRESENTATION: DNR OVERVIEW OF COOK INLET GAS SUPPLY ISSUES
- HEARD
PRESENTATION: WHO'S KEEPING THE LIGHTS & HEAT ON? PROBLEMS AND
SOLUTIONS
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
DAN SULLIVAN, Commissioner
Department of Natural Resources (DNR)
Anchorage, AK
POSITION STATEMENT: Continued his presentation on Cook Inlet gas
supply issues.
PAUL DECKER, Sr. Petroleum Geologist
Division of Oil and Gas
Department of Natural Resources (DNR)
Anchorage, AK
POSITION STATEMENT: Commented on Cook Inlet supply management
issues as part of the presentation.
JOE BALASH, Deputy Commissioner
Department of Natural Resources (DNR)
Anchorage, AK
POSITION STATEMENT: Commented on Cook Inlet supply management
issues as part of the presentation.
ACTION NARRATIVE
3:29:57 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, Dyson, Bishop and Chair Giessel.
^Presentation: DNR overview of Cook Inlet gas supply issues
Presentation: DNR overview of Cook Inlet Gas Supply Issues
^Who's Keeping the Lights & Heat On? Problems and Solutions
Who's Keeping the Lights & Heat On? Problems and Solutions
3:31:15 PM
CHAIR GIESSEL invited DNR Commissioner Sullivan to finish his
overview that he began at the previous meeting.
DAN SULLIVAN, Commissioner, Department of Natural Resources
(DNR), introduced his "leadership team" and continued his
presentation.
3:35:36 PM
COMMISSIONER SULLIVAN said that a lot of things broadly related
to managing the Cook Inlet Basin. It is a maturing oil and gas
basin and the contractual shortfall concerns are legitimate, but
large volumes of gas and oil in some intermediate sized fields
are still waiting to be discovered there.
3:38:14 PM
The Cook Inlet Basin is witnessing a transition from very large
producers - Chevron and Marathon - to midsized and small
companies - Hilcorp, Apache and NordAq. Hilcorp and Apache
specialize in coming into declining basins and turning them
around, and the state is happy they are coming here. Transitions
are slow and they can increase uncertainty; the sale of assets
from Marathon to Hilcorp was a good example of that.
The Inlet has multiple stakeholders - producers and utilities -
but a very small population not like rest of U.S., which could
present challenges moving forward.
3:40:13 PM
Strategic considerations:
-Energy security for Alaskans, keeping the lights on.
-Importance of all stakeholders working together; sometimes they
have different interests and the state has started playing a
convener role. DNR and the state have some authorities in this
Inlet, but some are less obvious.
-Isolated nature of power generation in Alaska requires focus on
self-sufficiency and redundancy.
-Importance of addressing immediate concerns but also ensuring
thinking through long-term implications of actions - like more
jobs and broader strategic interests like expediting the big gas
line.
3:43:10 PM
In summary he said there is the issue of finding a resource,
finding bigger volumes than the market needs at the time and
having the ability to have commercial interest in that market,
because there are other outlets like Agrium or export abilities.
The Cook Inlet is a "significant basin," he stated.
3:44:12 PM
PAUL DECKER, Sr. Petroleum Geologist, Division of Oil and Gas,
Department of Natural Resources (DNR), said he currently manages
the resource evaluation section. He referenced the United States
Geological Survey (USGS) 2011 estimates of thought to be left in
Cook Inlet Basin. They came up with mean numbers like 19 tcf and
650 mmbl/oil plus natural gas liquids. He said all the USGS
resource assessments are probabilistic in nature, meaning they
are based on statistics. They don't really know what is down
there and the "mean" is the best mid-range guess that is
accompanied by a very low low-end estimate and a much higher
high-end estimate.
3:47:33 PM
MR. DECKER said the DNR believes a lot of gas is left at
different levels of certainty in the Basin, but peak
deliverability is an issue in terms of keeping the lights on and
the heating running in Cook Inlet.
3:48:38 PM
SENATOR MICCICHE asked what the department was using as a "peak
peak" number for Cook Inlet. He understood that not meeting peak
days is what caused rolling black outs and that it amounted to
about 5.5 mmcf/day.
MR. DECKER said his studies weren't focused on the peak
deliverability issue and he wasn't sure they had a number set
out for that. His study estimated the quantities of resources
and reserves in the Basin.
COMMISSIONER SULLIVAN inserted that the actions they focused on
were consistent with what the department can do under statutes
and responsibilities like leases, units, encouraging production
and storage.
3:50:59 PM
MR. DECKER said the different entities have different
perspectives: his is managing the gas resource in its entirety
meaning the undiscovered resource, the discovered still non-
producing resources and the producing reserves. The utilities
have a laser focus on just getting gas under contract. The
producers are focused on delivering contracted gas in the most
efficient way possible.
The DNR and his division estimated Cook Inlet gas several
different ways using decline curve, material balance and
geologic volumetric analyses. On the other hand, Petrotechnical
Resources Alaska (PRA), hired by the utilities' consulting
group, drew their analysis based on decline curves alone, more
appropriate to their interests.
3:53:20 PM
MR. STOKES showed the first page of the updated PRA study that
was based on decline curve analysis, a common engineering
technique that examines historical data and projects it forward
to forecast how production rates will decline. Inherently it is
based on past production, a kind of analysis that assumes no
more production will be found, and they predicted a gas supply
shortfall in the next year which would increase every year after
that. While he didn't disagree, his study added several more
kinds of analyses.
3:55:11 PM
He said the DNR relied on the decline curve first and was much
like PRA's. However, that analysis was augmented with a material
balance analysis that found one-third more gas reserves in
existing fields and throughout the Basin. Their geologic
volumetric analysis found significantly more.
3:56:50 PM
He pointed out that the state doesn't receive reserve reports
from the industry, Native or federal lands and don't have data
for the biggest gas field, Kenai River field, and so has
somewhat limited information to work from.
3:57:26 PM
SENATOR FAIRCLOUGH asked if he checked reserves data that was
being declared publicly by individual companies in Cook Inlet or
how otherwise he was doing it.
MR. DECKER replied that he was not specifically auditing the
reserves that the companies report to the SEC, and that they
don't report their reserves on a field scale in any case. They
typically do a "role-up," maybe at the North American scale.
SENATOR FAIRCLOUGH said she thought the state should have access
to some rolled-up information, at least in Alaska.
COMMISSIONER SULLIVAN added one thing they have been doing is
talking with everybody in the Inlet and getting a better sense
of exploration activity there.
3:59:22 PM
JOE BALASH, Deputy Commissioner, Department of Natural Resources
(DNR), added that a subpoena was issued for every player in the
Inlet with the recent FTC enquiries surrounding the Marathon
acquisition by Hilcorp, and that the Department of Law (DOL)
likely has access to all of the very specific information the
department does not, but they can't share it.
SENATOR FAIRCLOUGH said they are trying to attract exploration
into the Basin everywhere and as small companies enter the
market their financials were more transparent than the larger
international companies', because they need reserves banked on
their bottom line to go out and bond or raise capital. That is
one spot that should be publically available to look at reserves
in the long term.
4:00:57 PM
MR. DECKER defined "material balance analysis" as a standardized
engineering approach to estimating the gas in place and
therefore the gas recoverable from a reservoir. That is done by
looking at the change in reservoir pressure over time, something
like air leaking out of a tire - based on the rate of that
decrease over time, they can predict how much is left. Using
that, in addition to the decline curve analysis, the department
can say with a high degree of confidence that there is about 32
percent more gas than the decline analysis on its own indicated.
That gas may be in pressure communication but not necessarily
producing through the active completions. He noted that the
reserve estimates quoted by the utilities and their consultants
do not incorporate that kind of analysis.
SENATOR MICCICHE asked if in other words he was saying that 32
percent more gas reserves may exist, but he was not judging
whether or not they were economically feasible to recover with
today's technology.
MR. DECKER replied that he would show where he believed the
material balance identified reserves would sit with respect to
commerciality in a moment and added that he thought they should
be commercial. In addition to the material balance analysis,
they looked at geologic volumetric analysis, which looks at all
the well logs, all the penetrations of the gas fields and picked
each potentially gas bearing sand and asked themselves if it
would produce or not. Then it got assigned to either a high
certainty pay category, a potential pay category or a non-pay
category. Those observations where mapped up in 3D and their
core volumes were mapped out along with their saturations and so
forth; recovery expectations were figured. They found that these
fields contain even more gas than the other analysis identified.
4:04:57 PM
MR. DECKER stated that PRA predicted a shortfall within a few
years as a cause for concern, but that should not be construed
to mean that the Cook Inlet resource has been depleted. Rather
it reflects the fact that not enough new wells are being brought
on line fast enough to keep pace with that decline. Because Cook
Inlet is isolated from the North American spot market, there
will always be a tension between over-supply and under-supply.
Producers have no economic incentive to drill for gas before
they can actually get it under contract and begin to recoup
their investment.
SENATOR DYSON asked if more gas is produced during the down part
(summer) of the wave chart than can be sold.
MR.DECKER said that has been true historically. Steps would be
taken to throttle back production on key wells and then just
certain wells would be turned on to meet swing production in the
winter.
SENATOR DYSON asked how gas storage fits into that demand
fluctuation.
MR. DECKER answered that the Cook Inlet Natural Gas Storage
Association (CINGSA) and other gas storage projects in Cook
Inlet are some of the key components to solving the dilemma. If
over the long run there is enough storage to sell into, then the
seasonal demand issue will go away and the economic incentive to
drill will be there.
SENATOR DYSON asked the average fluctuation in demand for a
year.
MR. DECKER answered about 260 mmcf/day.
4:08:34 PM
SENATOR DYSON related his concern about how companies can't make
enough money on gas annually basis to poke more holes in the
ground for it. Because of the delta on oil price they will drill
where oil can be found and get associated gas. But the state has
more interest in the gas and he asked what could be done about
encouraging gas development.
MR. BALASH responded that he was touching on the critical issue
of access to market. Why would you drill if you have no place to
sell your gas? The market in Alaska is relatively small and
highly volatile. As the big anchors that used to be present in
the Inlet, like Agrium or the export facility, fall away, that
causes problems for explorers and interest in exploration.
4:11:20 PM
SENATOR DYSON said half a dozen years ago part of the problem
was the Regulatory Commission of Alaska (RCA) that focused on
keeping prices down for the consumer rather than the investment
to keep the fields up and producing what would be needed for a
long time. Largely that issue has gone away, but could consumers
pay more to provide incentive to the producers?
MR. BALASH said he was touching on the consequences of an RCA
decision on APL-5 that was made about 8 years ago. Some of those
consequences had changed for the better, but unfortunately the
market lost some momentum in the planning and activities that
were going on at the time. There were "knock on effects" for the
export facility and the fertilizer plant that were quite
unfortunate and it will probably cost more to regain the
momentum there that is necessary.
COMMISSIONER SULLIVAN said Senator Dyson's two questions were
some of the broader policy issues to look at.
4:13:36 PM
CHAIR GIESSEL asked why producers can't turn wells off in summer
and turn them on in the winter.
MR. DECKER explained that without the gas flowing through the
tubing to the surface all the time, some of the entrained water
can infiltrate down the well and sit there or reservoir fluids
could migrate into the flow perforations that allow the gas to
flow into the well from the adjoining reservoir. That could
damage the framework of the reservoir sandstone that has water
sensitive clays that can swell up. It's like clogging up the
sponge holding the gas not to mention just filling the tubing up
with water if it's not being flushed out. It could result in
significant damage that might not be repairable.
4:15:12 PM
MR. DECKER said the USGS has large estimates for the Basin and
they are very intelligent people, so that means something. But
more important is the hundreds of millions of dollars that
companies are pouring into the Basin. They are voting with their
pocket books.
He next explained a schematic forecast from their 2009 study
that was not intended to be their best prediction of what was
going to occur. It assumed substantial investment and
redevelopment activity in the existing fields, plus or minus
some exploration success, but it didn't include wildcat drilling
or new discoveries. It focused specifically on the three or four
main fields that had enough geologic data to use for detailed
geologic volumetrics analysis. The most certain amounts of gas
DNR could identify left in the reservoirs was indicated by red,
the slightly less certain gas identified by engineering analysis
was indicated by orange, the high-confidence pay gas in green
and the less certain 50-percent risk potential-pay gas was
indicated by yellow.
4:17:58 PM
Slide 16 showed how the different volumes lined up in terms of
certainty using USGS standardized nomenclature. Undiscovered gas
was on the bottom and included companies that might want to
drill in a prospect. Once a well has been drilled and discovered
there is usually some lag before they know it's going to be
commercial and have sanction to drill and that would go into
"contingent resources." Once its' commerciality is proved, those
volumes slide into the reserves category. The estimates ranged
from high to low with a best estimate in the middle.
4:20:30 PM
He said the definition of "reserves" is oil and gas volumes that
are confirmed by drilling and the company was either certain or
highly convinced that they were going to be economically
producible. Up until that point they are just resources (what
you haven't actually found and those volumes that are discovered
but have not yet been demonstrated to be commercial).
4:21:05 PM
DNR looked at PRA's previous studies and in the 28 fields they
analyzed, there is an estimated 1.1 tcf of producible reserves.
Information from the geologic volumetric analysis indicated
another 335 bcf of undeveloped gas resources in three primary
fields (230 bcf at Beluga River, 70 bcf at Trading Bay Unit
Grayling Gas Sands and 50 bcf at the North Cook Inlet Unit.
Additional wells had been put in since the study, in some cases
tapping new compartments of the reservoir that were at virgin
reservoir pressures that hadn't been depleted at all, and they
had respectable flow rates of 1-7 mmcf/day (for the 3-10 wells).
Not all wells were successful, but a lot of them were.
4:22:52 PM
COMMISSIONER SULLIVAN said the main point Mr. Stokes made was
that gas that is not contract gas is not the same as a depleted
reservoir - and that gets mixed up in a lot of the newspaper
reporting. People just assume we're out of gas. "We're not out
of gas!"
4:24:36 PM
The department had focused on what is needed: more wells, more
investment and trying to pull on other levers that could help
with the overall security of supply in the Inlet. He updated the
committee on their actions next.
COMMISSIONER SULLIVAN said his main focus was where DNR has
authority to advance the state's interest and that was where
they, as the land manager, tried to aggressively market the
resource potential and leases by going directly to certain
potential investors like Hilcorp and Apache who have a proven
record of turning mature basins around, have strong backing and
a proven record of technical expertise to operate in a basin
like this and tried to get them up here to drill. Marathon and
Chevron are great companies but they have been signaling for a
long time they aren't that interested in Cook Inlet any more.
They also looked at the ability to use unit applications and
lease terms to leverage more drilling and investment,
particularly in Cook Inlet, and at streamlining permitting, so
that projects can move forward in a timely manner. Streamlining
permitting is one area where the federal government had not been
helpful in terms of delaying Cook Inlet permits. He said the
Attorney General had intervened to get projects moving forward
and they have tried to make the RCA process less uncertain. Bob
Swenson and his team had been doing a lot to gather and publish
and get out the expertise on the new geological information
including doing very specific briefings with potential companies
that are interested in Cook Inlet and the North Slope. He had
also worked with the Department of Law (DOL) to move the CINGSA
facility forward through the regulatory process, because two
years ago an RCA decision looked like it would completely stall
it. Now they are looking at ways to expand that storage
capability.
4:30:38 PM
The DNR and DOL had reoriented the Division of Regulatory
Affairs and Public Advocacy (RAPA) outlook to ensure that the
public interest was defined as a balance between price and
security of supply for Alaskans; previously it had been focused
on just the price. At the end of the day that can have the
consequences of undermining both price and security in the long
term.
4:31:31 PM
SENATOR DYSON related how he had been told by geologists that
the attractive formations for oil and gas production extend out
under the Moose Range on federal lands and how he contacted
President Bush to urge him to allow people to explore there. He
understood now that some 3D seismic had been going on and that
some drilling had been done on Native inholdings. What is going
on both and what can be done to get permission to go out there?
MR. BALASH said that NordAq, a CIRI lessee, was able to punch in
an ice road in and drill an exploration well in and around the
Moose Range in the spring of 2011 that gave them enough
confidence to sanction a development project that is currently
in NEPA review and is on track for a record of decision in late
winter/early spring. They would have to wait for things to dry
out a little before actually completing the road to a location
where they would be able to construct that pad and move forward
with additional drilling and testing that is a very important
part to being able to move from a discovered resource category
into the bookable reserve category that would allow them to
enter into contracts with utilities.
With regard to the 3D seismic program, another operator, Apache,
is attempting a basin-wide survey, he reported. They have gotten
less than helpful responses from the Refuge management and have
not been able to place their nodes on any of the inland
boundaries even though they are in the transition zone
associated with the edge of the water.
COMMISSIONER SULLIVAN said that the nodes are the size of coffee
cans.
MR. BALASH said there seems to be a double standard. When the
Refuge wanted to build a new visitor facility and parking lot
for itself, it didn't have a problem with looking at the impacts
and getting the authorizations in place.
4:36:58 PM
The National Marine Fishery Service (NMFS) has also been
challenging to deal with from a timeliness standpoint. Apache
was on track to ramp up their 3D seismic program this winter,
but because they were not able to get the biological opinion
necessary for some of the ESA compliance reviews and
authorizations, they had to put things off. While NMFS is back
on track now, they caused a kink in the overall plan which
results ultimately in delay.
SENATOR DYSON asked what the state could do to sweeten the feds
deal so they would let us start producing the gas.
COMMISSIONER SULLIVAN answered that the federal government is
not a monolith. The department works well with some agencies and
senior Department of Interior officials know about these
problems. Part of it is just the education, particularly about
Alaskans' energy needs, and the state will continue to press
that.
4:39:30 PM
SENATOR MICCICHE said the shortfall in Cook Inlet has been
predicted for 20 years and he is unaware of any volumes of gas
that were having trouble finding a contract. "We have a supply
issue and the public needs to understand that." He just asked
the department to continue looking for a parallel source of
energy to protect the nearly half million rate payers that are
depending on electricity and home heating in Southcentral
Alaska.
4:41:28 PM
COMMISSIONER SULLIVAN said his point was well taken and non-gas
power generation - Eva Creek, Healy, UCG and possibly hydro -
was being looked at. DNR had been spending a lot of time on
expediting transactions that advance the state's interests. The
Federal Trade Commission (FTC) investigation of the
Hilcorp/Marathon acquisition was strategically good for the
state, because the company seems highly motivated to try to turn
around the Basin. But at a certain point it looked like the FTC
didn't share that view. That required a lot of convener/problem
solving on the part of DNR and the DOL.
4:44:50 PM
COMMISSIONER SULLIVAN summarized recent Cook Inlet activity
saying that everything is not great, but the things they have
been doing are having a significant impact, for instance a host
of old and new players investing almost $500 million in 2012
they had two very highly successful lease sales. He said they
had been out there pitching to companies trying to get them to
come up here and drill more wells and that is happening. The rig
number has dramatically increased in the Inlet from 9 to 17
including two jack-up rigs. Apache's 3D seismic program opens up
enormous opportunities for the state and other potential
explorers. The gas storage is on line and the state is offering
attractive prices lower than Henry Hub.
COMMISSIONER SULLIVAN said they are also being vigilant, because
the last thing in the world they want to have happen is some
kind of accident that stops what they think is a Cook Inlet
renaissance because an operation caused harm to people or the
environment.
Conventional wisdom is that certain companies are only looking
for oil like Apache, but that is not what they are telling him.
If they do a 3D seismic program and find significant volumes of
gas that they can sell at a commercial price where they make
money, they would certainly be interested, and the top guy in
Apache is an Alaskan who he thought had a lot of the state's
interest. The same with Hilcorp.
4:49:21 PM
Moving forward the Commissioner said they were going to redouble
their efforts to continue to get more wells drilled and increase
investment, to encourage "behind the pipe" production and
continue to reach out to all the parties to look at different
ways to incentivize more Cook Inlet production. The issue of
information modernization is also important along with
infrastructure efforts on the west side of Cook Inlet, more gas
storage and additional tax incentives. They were also keeping an
eye on industrial sized markets, so you can have the
attractiveness of a basin with market certainty for large
volumes so investors will continue to be attracted here. They
were encouraging redundancy options for energy security; the
Governor and AEA/AIDEA were looking at a comprehensive North
Slope trucking project ready to meet potential near term and
immediate term shortfalls particularly on the Interior. Does
that have potential for peak volumes at a certain point? Yes,
the Commissioner said.
4:53:11 PM
The Governor had also talked about importing gas - as a last
resort. Nobody is saying no to it, but there are concerns
depending on how it's defined, particularly for large-volume,
long-term contracts of LNG or CNG. One of the utilities got DOE
permission to import 50 bcf for two years. That could stifle and
undermine the Cook Inlet renaissance and undermine jobs for the
local workforce.
4:54:29 PM
From a broader strategic perspective, Commissioner Sullivan
said, the LNG big line project is in serious competition
globally the western Canada project out of Kitimat and Prince
Rupert. The Asian countries know that the only place right now
in North American that has exported LNG to Asia is Alaska, but
the Canadians love to tout how they are going to be "the savior
of Asia." He frequently reminds all of them that the Canadians
haven't exported one molecule of gas anywhere in the form of LNG
or CNG.
COMMISSIONER SULLIVAN emphasized that importing gas from British
Columbia would validate and promote one of the Alaska's biggest
competitors to an Alaskan large-diameter LNG export project and
that doing something that has capacity just for peak emergency
needs versus a 20-year CNG contract with huge volumes had
enormously different implications for the state. He cautioned
them to have a sense of what the implications are for short-term
projects versus long-term projects before making any decisions.
4:55:49 PM
MR. BALASH directed attention to a slide of the history of APL-
5, a contract between Marathon and Enstar that would have been a
full requirements contract meeting all of Enstar's needs through
2016. That means Marathon would have been responsible for all of
the swings summer to winter all the way through 2016, and had a
linkage to Henry Hub pricing, which at the time this contract
was being reviewed by the RCA in 2005 was a little bit of an
increase over what Alaskans were accustomed to paying. The
Public Advocate in the DOL opposed the contract and some of the
other utilities opposed it as well. They were concerned it would
set a precedent for their pricing. In the end the RCA rejected
the proposal, but they didn't say why. It sent a chilling effect
through the Inlet and the marketplace that they hadn't recovered
from. Drilling dropped dramatically that year and it was very
likely the beginning of the end of Marathon's presence in
Alaska. Probably its knock on effects implicated and impacted
the LNG facility.
He explained that one of the things that came up shortly after
this RCA decision was an application by the co-owners at the
time, Marathon and ConocoPhillips, to extend the export license
necessary to operate the facility. Utilities and the state
through the Public Advocates office opposed the license
extension. So, that led to a short-term approach for managing
the local energy security issues. The objection the parties had
had to do with whether or not local needs would be met. If APL-5
had been approved with all of Enstar's needs and full
requirements through 2016 under contract, imagine what the
dynamic would have been in 2007 when this new export license
application was being reviewed by the DOE! The arguments and
considerations would have been drastically different. So, the
setback on APL-5 very likely had an impact on the way the DOE
export issue unfolded. People would be more than happy to be
paying Henry Hub pricing for Southcentral energy right now. This
incident underscores the danger of letting the regulatory
agencies try to second guess the market and the decisions that
are being made by the people who have the capital at risk.
He underscored a simple point: that we're not out of gas.
Marathon would not have put its corporate reputation and balance
sheet on the line if it didn't think there were sufficient
reserves to meet all of the requirements of Enstar through 2016
if it wasn't there. With that opportunity lost, Alaska is in a
dramatically different position today as a state and community
and is having to rethink how these issues are approached as a
consequence.
MR. BALASH said that with the curtailment of the LNG plant
moving to a seasonal only approach in the later years, the
signal to explorationists was changed. Nobody is going to drill
for a lot of gas if they can't sell a lot of gas, and Alaska
today is a shrinking market that has gotten smaller over the
last six years, and appears to be in danger of getting even
smaller if some of the import options are done on a long-term
contractual basis. Whatever interest is left in finding gas in
the Basin could be snuffed out by importing long-term contract
gas. "The hindsight on this is dramatic, but they can't change
what happened," Mr. Balash stated. Maybe they can learn some
lessons from it and make wiser decisions moving forward.
5:03:16 PM
CHAIR GIESSEL asked about LNG license expiration in two months.
MR. BALASH said there are two components of the license; a
volume component and a time component. It is the time that is
about to run out. At least another season-worth of volumes are
available under the license.
COMMISSIONER SULLIVAN summed up that positive developments were
seen in 2012. One of themes has been basin-wide significant
volumes, but utilities have valid concerns about peak demand
deliverability. The state will try to continue the trend of more
investment and more drilling and hopefully soon more production.
But they must be prepared on the energy security situation to
react to various scenarios while being aware of the long-term
implications of what they are doing. It is important to have all
the parties working together and he has tried to get everyone
together frequently.
5:06:37 PM
SENATOR DYSON asked if he took issue with needing 17 or 18 wells
to the stem decline.
MR. DECKER agreed that an additional rate of drilling is needed
in the Basin. And the main reason is that Chevron and Marathon
knew they were going to be out of the Basin and didn't have any
reason to sign up for delivering gas that they weren't going to
be selling.
SENATOR BISHOP observed there isn't a lack of gas.
MR. DECKER agreed.
SENATOR BISHOP said there is the lack of an anchor tenant for
the gas.
MR. DECKER said it's an issue of contracted gas.
COMMISSIONER SULLIVAN said the immediate issue is the contracted
gas. The department has been focused on the broader management
of the resource and getting investments going so contracting gas
is possible. A long-term anchor tenant is tremendously
important.
MR. DECKER agreed.
CHAIR GIESSEL thanked the presenters.
5:10:35 PM
Finding no further business to come before the committee, Chair
Giessel adjourned the Senate Resources Standing Committee
meeting at 5:10 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SRES_DNR Update_1-18-13 REVISED 1-21-13.pdf |
SRES 1/21/2013 3:30:00 PM |
|
| SRES Sullivan_Cook Inlet_Gas 1-21-13 FINAL.pdf |
SRES 1/21/2013 3:30:00 PM |