03/27/2013 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HJR6 | |
| SB71 | |
| App Project Update | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 71 | TELECONFERENCED | |
| += | HJR 6 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
March 27, 2013
3:31 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Fred Dyson, Vice Chair
Senator Peter Micciche
Senator Click Bishop
Senator Lesil McGuire
Senator Anna Fairclough
Senator Hollis French
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE JOINT RESOLUTION NO. 6
Relating to legacy wells and legacy well sites; urging the
United States Department of the Interior, Bureau of Land
Management, to open new areas of the National Petroleum Reserve
- Alaska for environmentally responsible oil and gas
development; and requesting the Office of the Governor to
increase nationwide awareness about legacy wells and well sites.
- MOVED SCS HJR 6(RES) OUT OF COMMITTEE
SENATE BILL NO. 71
"An Act relating to the filing date for the final quarterly
payment of, and to the assessment of penalties under, the
fishery resource landing tax."
- HEARD AND HELD
PRESENTATION: Alaska Pipe Project (APP) Update
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HJR 6
SHORT TITLE: LEGACY OIL WELL CLEAN UP/AWARENESS; NPR-A
SPONSOR(s): REPRESENTATIVE(s) MILLETT
01/28/13 (H) READ THE FIRST TIME - REFERRALS
01/28/13 (H) RES
02/27/13 (H) RES AT 1:00 PM BARNES 124
02/27/13 (H) Moved Out of Committee
02/27/13 (H) MINUTE(RES)
03/01/13 (H) RES RPT 8DP
03/01/13 (H) DP: TARR, JOHNSON, P.WILSON, HAWKER,
SEATON, TUCK, SADDLER, FEIGE
03/04/13 (H) TRANSMITTED TO (S)
03/04/13 (H) VERSION: HJR 6
03/11/13 (S) READ THE FIRST TIME - REFERRALS
03/11/13 (S) RES
03/22/13 (S) RES AT 3:30 PM BUTROVICH 205
03/22/13 (S) Scheduled But Not Heard
03/25/13 (S) RES AT 3:30 PM BUTROVICH 205
03/25/13 (S) Moved SCS HJR 6(RES) Out of Committee
03/25/13 (S) MINUTE(RES)
03/27/13 (S) RES AT 3:30 PM BUTROVICH 205
BILL: SB 71
SHORT TITLE: PAYMENT OF FISHERY RESOURCE LANDING TAX
SPONSOR(s): SENATOR(s) MICCICHE
03/11/13 (S) READ THE FIRST TIME - REFERRALS
03/11/13 (S) RES, FIN
03/27/13 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
SHARON LONG, staff to Senator Giessel
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Explained that the Senate Committee
Substitute (SCS) for HJR 6 reflects the committee discussion on
March 25, 2013.
SENATOR MICCICHE
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Sponsor of SB 71.
JOHANNA BALES, Deputy Director
Tax Division
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Explained how the tax in SB 71 is applied
currently.
JULIANNE CURRY, Executive Director
United Fishermen of Alaska (UFA)
Juneau, Alaska
POSITION STATEMENT: Supported SB 71.
KATHY HANSEN, Executive Director
Southeast Alaska Fishermen's Alliance (SEAFA)
Juneau, Alaska
POSITION STATEMENT: Supported SB 71.
DAN SULLIVAN, Commissioner
Department of Natural Resources (DNR)
Juneau, Alaska
POSITION STATEMENT: Delivered an Alaska Pipeline Update.
JOE BALASH, Deputy Commissioner
Department of Natural Resources (DNR)
Juneau, Alaska
POSITION STATEMENT: Highlighted issues related to the Alaska
Pipeline Update presentation.
ACTION NARRATIVE
3:31:28 PM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:31 p.m. Present at the call to
order were Senators Fairclough, Micciche, Bishop, McGuire, Dyson
and Chair Giessel.
HJR 6-LEGACY OIL WELL CLEAN UP/AWARENESS; NPR-A
3:31:45 PM
CHAIR GIESSEL announced that HJR 6, which passed from committee
on 3/25/2013, was again before the committee.
3:32:00 PM
SENATOR DYSON moved to rescind the previous action to pass HJR 6
[as amended] out of committee. There were no objections and HJR
6 was again before the committee.
SENATOR DYSON moved to adopt SCS HJR 6(RES), labeled 28-LS-
270300\O as the working document.
CHAIR GIESSEL objected for discussion purposes.
SHARON LONG, staff to Senator Giessel, Alaska State Legislature,
Juneau, Alaska, explained that the committee substitute (CS)
reflects the committee discussion on Monday. It incorporates the
amendment that was adopted to the original version, correctly
naming the BLM employee to whom the resolution is being sent.
Further, the CS adds a new "Whereas" clause on page 1, line 13,
stating that the term "legacy wells" doesn't adequately connote
the legacy of negligence and environmental damage that is
inflicted by the NPR-A wells and asserts that "travesty wells"
better describes their nature.
She explained that language on page 3, line 14, asserts that the
legislature's preference for the term "travesty" is preferable
to "legacy" in light of the federal government's negligence. In
the resolve at the top of page 4, line 2, a phrase is added
noting a preference for an entity hiring Alaskans with Arctic
expertise for any remediation efforts.
CHAIR GIESSEL removed her objection.
3:34:36 PM
SENATOR FRENCH joined the committee.
SENATOR DYSON moved to report SCS HJR 6(RES), version O, from
committee to the next committee of referral with individual
recommendations and attached fiscal note(s).
SENATOR MICCICHE objected to add Ken Salazar to the list of
people receiving the resolution.
MS. LONG explained that the resolution goes to Mr. Salazar, but
the correction made to the amendment that was adopted to the
original version and correctly identifies Neal Kornze as the
Bureau of Land Management's principal deputy.
SENATOR MICCICHE removed his objection.
CHAIR GIESSEL found no further objection and announced that SCS
HJR 6(RES), version O, moved from committee.
3:36:10 PM
At ease from 3:36 to 3:38 p.m.
SB 71-PAYMENT OF FISHERY RESOURCE LANDING TAX
3:38:23 PM
CHAIR GIESSEL announced SB 71 to be up for consideration.
SENATOR MICCICHE, sponsor of SB 71, said this is just a bill
about fairness. It really just repairs glitches in the landing
resource tax statutes and regulations. It removes the potential
for unfair penalties and interest by commercial fishermen by
changing the current tax payment due date to align with the date
the actual data they use for their report is due by making it
due 30 days after.
He explained that Section 1 aligns the date that the resource
landing tax is due with the date that the statewide average fish
price report is released. Currently the report is due March 31
or the last day of the month following a month in which the
state publishes the statewide prices, but in many cases those
prices aren't even published when the report is due. So, the
mismatch in time results in late payment fines and interest for
well-intentioned producers. This measure would allow fishing
families to spend time fishing and not waste time on unnecessary
government regulation that has no value.
Section 2 also changes the timing of the estimated tax payments
needed to avoid estimated tax penalty to either 90 percent of
the amount calculated by multiplying the actual price paid at
the time the fishery resource was landed by the appropriate tax
rate or 100 percent of the taxpayer's liability for the prior
year.
SENATOR MICCICHE explained that the current statute includes
provisions for four equal quarterly payments, but that is not
how fisheries work. SB 71 allows fishermen to pay their taxes in
periods of time when they actually fished. It results in the
same amount but without the fines for lateness they can't help;
it creates a fair and equitable tax system by aligning the date
of the tax with the actual report that is published by the
Alaska Department of Fish and Game (ADF&G).
3:40:43 PM
SENATOR FAIRCLOUGH said she wanted to know from the Department
of Revenue (DOR) if the state actually has delinquent taxes that
are being paid under this scenario.
JOHANNA BALES, Deputy Director, Tax Division, Department of
Revenue (DOR), Anchorage, Alaska, answered yes and explained
that the taxpayers try to estimate the payment and pay it by
April 1, but they are often underpaid. However, the department
does not assess the penalty, because they understand that it is
reasonable cause. But the taxpayers are subject to interest that
is currently at 11 percent and that causes some hardship for
some.
SENATOR FAIRCLOUGH asked if anyone has overpaid the tax that the
state is paying back the 11 percent interest.
MS. BALES answered no that hasn't happened, because by statute
even though they are required to pay interest, they are only
required to if they don't issue a refund within 90 days and
normally the department does that.
SENATOR BISHOP asked if she had the sponsor statement in front
of her.
MS. BALES answered no, but that she had read it.
SENATOR BISHOP noted that the fourth paragraph says, "depending
on the fishery, the current statute requires payment of 50
percent of the landing taxes before they have even left the dock
to go fishing," and asked if a taxpayer is in arrears, does he
have to pay 50 percent of that before being allowed to leave the
dock to go fishing.
MS. BALES replied that could potentially happen, because right
now the estimated payments are required in four equal
installments that begin with the first of a fishing year, which
would be of the calendar year of January 1. So, a first payment
would be due March 15 and then June 15, September 15 and
December 15. It is possible if a fishery hasn't opened yet that
a taxpayer will have to make a payment.
SENATOR BISHOP remarked that they owe the money but they can't
leave the dock to go out and make the money to pay the debt.
SENATOR MICCICHE said they are likely not in arrears; they are
paying taxes on fish yet to be caught and that is unfair.
SENATOR FAIRCLOUGH wondered why the department hadn't brought it
forward sooner, because it seems so unfair.
3:44:45 PM
MS. BALES responded that they have been aware of this concern by
fishermen and have talked to different legislators about it
before and nothing was done. But now seems to be a good time.
SENATOR FAIRCLOUGH asked if the administration supported the
change.
MS. BALES said the department doesn't oppose it and had no
issues with doing it.
3:46:13 PM
JULIANNE CURRY, Executive Director, United Fishermen of Alaska
(UFA), Juneau, Alaska, supported SB 71, because it will change
current statutes regarding the timing and requirement of four
equal payments in estimated fisheries resource landing tax. SB
71 aligns the due date of paying the tax with the date the
corresponding report is due. The report is due March 31 or the
last day of the month following the month in which the state
publishes the statewide prices that must be used on the return
which generally is in May, but the tax is due on April 1. This
mismatch in timing results in late payment fines and interest
for well-intentioned producers as well as confusion,
frustration, and wasted time that could best be spent harvesting
and processing fish to increase revenue.
The current statute includes provisions for four equal payments,
but with the seasonal nature of many fisheries and the
variability in harvest, it's virtually impossible for resource
landing taxpayers to accurately predict their full-year's
harvest to calculate equal payments.
She concluded that SB 71 would create a fair and equitable tax
system by aligning the date of the tax with the report.
3:48:09 PM
KATHY HANSEN, Executive Director, Southeast Alaska Fishermen's
Alliance (SEAFA), Juneau, Alaska, said she is the one who
brought this legislation to Senator Micciche's attention and
thanked him for introducing it. She didn't know why it hadn't
been brought forward earlier other than that there has been
controversy over the landing tax in the past. This was brought
to her attention by a couple of her members who didn't want to
pay interest again on not having accurately calculated what they
thought they owed. It is a fairness issue, but they wouldn't
hear from a lot of people about it, because it only affects 67
landing taxpayers.
MS. HANSEN said they had received a letter from the Alaska
Scallop Association, which industry doesn't even start fishing
until the third quarter of the year. This is an example of
someone paying two quarters worth of tax or just not paying it
because they don't know if they will even have an income, a
season or how much they will make and then go back and pay the
penalties. These are the ones that are currently paying the
penalties.
3:50:11 PM
SENATOR DYSON stated that Ms. Bales said penalties weren't being
paid just interest.
MS. CURRY agreed that is what she said, but she would have to
check the background information she had received. She knew it
was interest for sure.
CHAIR GIESSEL, finding no further comments, closed public
testimony and held SB 71 in committee.
^APP Project update
Alaska Pipeline Project Update
3:51:52 PM
CHAIR GIESSEL announced the next order of business was the
Alaska Pipeline Project (APP) presentation.
3:52:22 PM
At ease from 3:52 to 3:53 p.m.
3:53:03 PM
DAN SULLIVAN, Commissioner, Department of Natural Resources
(DNR), Juneau, Alaska, said both APP/AGDC (Alaska Gasline
Development Corporation) are in a relatively good position now
compared to a year ago and they want to accelerate that
progress. One of the things they have been trying to do over the
past few years is to get a better understanding of some of the
history behind what has happened in the last 40 years in terms
of the state trying to commercialize North Slope gas.
3:55:25 PM
He said Larry Persily's office [Federal Coordinator, Alaska
North Slope Natural Gas Pipeline] had been doing a good job with
regard to historical analysis, but one thing that has made
commercialization more challenging despite efforts that date
back decades is when the different stakeholders are not aligned.
The different stakeholders are: Alaskans, the lease holders with
the gas on the North Slope, the builders (whether producers or
not) of a pipeline, the buyers (Alaskans and the potential,
particularly with LNG, of foreign companies and governments or
large volume buyers), regulators (state and federal permitters)
that can make or delay a project like this and a robust market
into which gas can be sold.
COMMISSIONER SULLIVAN said it is not easy to align these
interests, but one of his principle areas of focus in the last
couple of years has been to work on this alignment and it is
starting to come together. He had been getting out to Asia
really aggressively in the last couple of years and talking to
potential buyers and the Governor had met with the heads of
KOGAS in Korea, as well. The commissioner said he met with them
in Juneau when they told him they had an MOU with Yukon Pacific
in the 80s and had been watching North Slope gas for decades.
That project was focused on the regulatory permitting elements
and only later did they realize that the producers, the gas
leaseholders, weren't involved at all. They asked where the
other stakeholders were and he was able to tell them all the
stakeholders are starting to work together. That was encouraging
enough to them that the CEO and his whole LNG team came to
Alaska for three days to go into more detail.
3:58:32 PM
COMMISSIONER SULLIVAN said alignment is not always easy because
everyone has very different interests and the Governor had put
out benchmarks to try to drive alignment among the key
stakeholders and the APP and AGDC are both working well
together. AGDC had been making progress on regulatory and
permitting issues and APP is working on alignment on the
commercial issues and some of the technical issues.
Making the case for Alaska gas globally has been an important
way to advance progress on the project, the commissioner said,
so one of his strategic goals has been trying to create "demand
pull" for an Alaskan gas project where one sees timelines,
design work, and construction that can be accelerated because
large buyers are very interested in the project. And they are
starting to see some results on that.
4:01:38 PM
Finally, Commissioner Sullivan said, whether it's the APP or the
AGDC or a combination of both, this gas line is one of the most
studied permitted projects in U.S. history that has never
materialized. So, he has been sitting down with the companies,
federal government regulators and the state to see where there
have been previous authorizations, rights-of-ways, and EISs
(environmental impact statements) that relate to this and
catalogue them; then sit down with the federal regulators, in
particular, and say we don't have to start at ground zero. That
offer to them has been very positive. Larry Persily has said we
have to start focusing on fighting for a gasline not over one.
4:04:25 PM
A year ago there was no alignment in terms of commercializing
North Slope gas and Alaska was not considered a key potential
project in Asia. The 25 percent of North Slope conventional gas
was at Point Thomson was also still under dispute. In 2012, the
Governor's State of the State laid out a pretty aggressive road
map for work and set benchmarks.
4:06:12 PM
Importantly, Commissioner Sullivan said, Point Thomson was
settled and that was a strong settlement in the state's interest
for three reasons: for one, it's a strategic development first
because of the 70,000 barrel/day pipeline connecting Point
Thomson into TAPS and you now have the ability of the eastern
North Slope to be opened to development and exploration, which
is one of the most prolific areas of the North Slope and it
hasn't produced a drop of gas or oil ever since statehood.
SENATOR FRENCH said the road on Point Thomson that leaves
Prudhoe Bay and stops at Badami was going be an ice road every
year and asked if that was part of the settlement negotiations,
because it seems if you want to stimulate development out there
a road that can be used year-round should be built.
COMMISSIONER SULLIVAN said it wasn't a big part of the
discussion and he thought that was a great point.
SENATOR FRENCH remarked that it would be good if ExxonMobil
built it.
4:07:21 PM
JOE BALASH, Deputy Commissioner, Department of Natural Resources
(DNR), Juneau, Alaska, said there really isn't a road going out
to Badami. It's a roadless development with a spine road from
Deadhorse to Kuparuk in the west and on the way to Endicott on
the east. Alpine and Badami are western most and eastern most
roadless projects that have fundamentally constrained the
state's and industries' reach for exploration and development.
The reasons for those projects having been developed in a
roadless fashion, while relevant, are certainly questions that
are worth revisiting. They have had some passing conversations
at different times with the operators in each place and for
different reasons those conversations haven't moved very far. In
the case of Alpine, it's been in part the delays associated with
CD-5 and crossing the Coleville River, which is a big deal. The
residents in the village of Nuiqsut have raised in other
contexts the prospect of having road access if a bridge were put
in on the Coleville and not just a the Niglet Channel crossing
for CD-5.
And then as you move to the east, Mr. Balash explained, Badami
was first constructed by BP, but production was disappointing
and the field was shut in for some time. Savant has come in and
put some of the wells there into production and hopes to achieve
more. The opportunity to build an all-season road would make a
tremendous difference in both directions.
4:09:56 PM
COMMISSIONER SULLIVAN reiterated that it was a great question
that is relevant for a number of areas on the North Slope
including Point Thomson and that is one reason this is a
strategic development for the state.
The second is that it's a multi-billion dollar development and a
lot of that infrastructure will be able to be used for gas
commercialization as well as for the liquids development.
The third is jobs and he showed some of the different elements
of the project that were going on this winter. He explained that
over the last years they had been very focused on permitting
this with the Corps of Engineers and the North Slope Borough and
got it permitted in time and put a lot of people to work.
Senator Bishop, when he was commissioner for the Department of
Labor and Workforce Development (DOLWD), was very instrumental
in making sure we had a strong Alaska hire provision in the
Point Thomson settlement; the estimates are 700-800 sustained
jobs peaking at over 2,000. And throughout the course of last
year as the Governor's bench marks were being met one saw a lot
of big front page - Wall Street Journal, Financial Times of
London, Toronto Globe and Mail - articles that were positive for
the state.
4:12:34 PM
The Governor's third benchmark was putting the concept selection
and the associated timeline in more detail. The western Canadian
projects are some of Alaska's biggest competitors and in a
letter to the Governor companies talked about the integrated
team. This is important, because they hadn't been working
together on a large scale gas commercialization project for a
long time. This team is led by Exxon with the other companies
bringing in their particular expertise and different work they
had done: BP is focused on the upstream, TransCanada and Exxon
have been in the midstream, and ConocoPhillips focused on
liquefaction and the downstream LNG. They are starting to
consolidate their efforts through Denali and the APP project and
that has not happened in a long time. These companies compete
all over the world in different cultures and this is an
important element.
SENATOR DYSON said he didn't want to sound pejorative, since he
went to work for BP in 1971 and was skeptical, but once the
unconventional gas started being developed seven years ago, why
didn't the majors say go slow on building the line to Alberta?
Why didn't they stop that process and nominate a line to
tidewater once that became evident, because it was clear in AGIA
that the producers could drive the solutions.
COMMISSIONER SULLIVAN responded that in this job he tries to not
answer for companies and that you'd be crazy to not be
skeptical. But from a public policy standpoint, in 2011 the
governor was making speeches saying the opportunity is in Asia.
4:17:08 PM
SENATOR DYSON asked why the state kept spending money on
TransCanada once it became clear that it wasn't a viable
project. How much of the state's money got poured in as matching
funds on that project?
COMMISSIONER SULLIVAN replied that a significant amount of the
state spending and work on Alberta is very relevant to this
project - at least through Livengood. He didn't know the exact
amount of the state's spending or the work that was done.
SENATOR DYSON said when ANGDA was trying to get the North Slope
producers to release a little bit of propane for the
transportation sector on the Slope the company said "no way" the
clear implication being that any molecule sold to run trucks on
the North Slope would mean less oil to be able to produce. It
seems so disingenuous and then that leads to the question of why
in the world we ever think that they are going to release gas to
be sold until they are ready to do it.
MR. BALASH replied in terms of the company's willingness to sell
a given product or product stream, they have been selling
natural gas locally to Norgasco for decades and he was aware of
at least two contracts from individual producers at Prudhoe Bay
for sale to companies that transport that gas to Fairbanks. In
those cases, the expectation is there will be some amount of
propane that will drop out in the liquefaction process that
would be available for sale. As to the reasons why the operators
did not pursue the ANGDA option on propane, that is probably
better left to the record and the AOGCC maneuver to try to force
something on the order of pushing on a rope as opposed to
driving these things commercially in a way that allows everybody
to move forward together.
On the question of shouldn't we have seen the shale wave coming,
Mr. Balash said, in 2008 when the legislature was voting to
approve the license the price of natural gas in North America
was more than two times higher than it is today. In some ways we
were following the lead of the big sophisticated companies with
long term views. All the way through the open season that
occurred in 2010, he recalled that ExxonMobil was partnered with
TransCanada and APP, and that Denali was sponsored by
ConocoPhillips and BP. All three of the big North Slope lease
holders focused on projects headed to North America and that was
the case until late in the second quarter of 2011 when
ConocoPhillips and BP folded the tent on Denali, at which point
the state had to consider very carefully what the future of
commercialization was for the North Slope resource.
It was in late summer or early fall that the Governor called on
all four parties - TransCanada, ExxonMobil, BP, and
ConocoPhillips - to examine whether the Pacific market was the
place to go and that is when they turned the corner. We have
been in a bit of a transition since, but details are emerging
here and the promise of what can happen.
4:23:27 PM
SENATOR DYSON said he appreciated their initiative in taking a
time out to re-evaluate.
4:24:02 PM
COMMISSIONER SULLIVAN said the Governor also requested hardening
the project numbers and on this issue two things are important:
an LNG project of this size would be one of the largest in the
world with huge job numbers, but there is also a focus on gas to
Alaskans. And one of the elements under pipeline slides talks
about off-takes to Alaskans. That is a key component of this
project, because the volumes - estimated to be 300-350 mmcf/day
- wouldn't be just for export.
MR. BALASH agreed and added that would also assume some
additional demand growth largely for some of the mines that are
very interested in using natural gas.
COMMISSIONER SULLIVAN said this bill was a relatively broad
hardening of the numbers as the Governor asked, but they also
needed an associated timeline for this project, which hadn't
been done as a group together. He meets with the companies
almost daily and tries to get them to accelerate this timeline.
His slide 21 detailed the "stage-gated" approach that all the
large scale resource development walk through and he said that
he has been pressing the companies on moving into the pre-front
engineering and design phase. This is when you start getting
into significant investments by the companies as well as
significant numbers of employees. That would take them within a
year (essentially half way) through the stage-gated approach. He
said one of his messages to the legislature is in their meetings
with the companies to remind them of the urgency of moving into
pre-feed this summer.
MR. BALASH added if you think about the steps that are necessary
to bring the parties together, some take longer than others. The
steps associated with marketing LNG and the process that is
undertaken in identifying the reserves, the buyers, the pre-
agreements, the agreements themselves, and what the contract
terms are; these are key to the state's position as the lessee
royalty owner. The state continues to strive to understand the
(royalty in kind/royalty in value) RIK/RIV decision it has to
make; the default being to just sit in value and allow the
companies to take the lead and use their expertise and
relationships (with the state playing its conventional and
traditional role as the royalty collector not the royalty
marketer).
MR. BALASH said that he needs to be on top of evaluating how to
derive the dollar amount for the state's gas that comes through
that very complicated series of contracts from the buyer all the
way through up to the wellhead and that the state is certainly
familiar with how to deal with pipelines and tariffs, marine
transport and tankerage, but it doesn't have a good handle on
the valuation associated with liquefaction.
The method that might be employed to determine how much value
gets backed out of that market price for the liquefaction
service is a blank spot. It's not a regulated activity. It is
typically done in a very strict commercial sense and for lack of
a better term - a profit center for the project. Striking a
right balance there is going to be a struggle advancing through
the pre-feed stage. The state will have to understand in that
context which path leads to the best value for the long term.
4:30:57 PM
SENATOR BISHOP asked if the Federal Energy Regulatory Commission
(FERC) is in or out on the liquefaction plant.
MR. BALASH replied that the FERC will be very much involved in
the siting of the liquefaction facility, the safety reviews, and
the environmental considerations, but they aren't involved in
rate setting for liquefaction services.
SENATOR BISHOP asked Commissioner Sullivan if in his former
career at the State Department and taking trips to the Far East
he had any assets he was leaning on to talk about commercial
terms on liquefaction. Was he at liberty to say?
COMMISSIONER SULLIVAN said they had principally been talking
about getting buyers very interested in Alaska gas on these
trips, but hadn't gone into a lot of detail. They are attracted
to Alaska gas because of the comparative advantages over other
projects. Getting out there and explaining it has gotten
interest going.
4:33:30 PM
SENATOR DYSON remarked that it seemed like a chicken and the egg
thing for a couple of decades.
COMMISSIONER SULLIVAN answered when he talked about interests
aligning that the state had not done a lot of this previously.
He tells the companies exactly what the state is doing and he
has been going out to all the potential buyers and their
governments, which is critical in Asia, and walking them through
why this makes sense for them. He emphasized that there is huge
demand in Asia and stated that it's going to be filled by
companies operating in Alaska now.
He recognizes that Asia has resources in Qatar, Australian,
Russian, Western Canada, and the Gulf, and he is trying to get
the buyers to say they want to diversify to Alaska gas. The more
he can get potential buyers to doing that the more this project
will be accelerated from the demand side, and he is starting to
see a lot of interest.
4:36:23 PM
COMMISSIONER SULLIVAN said he is focused on getting a project
sanctioned because a project is hardly ever dropped once it is
sanctioned.
4:37:53 PM
He said the advantages of using Alaska LNG are compelling. He
received an invitation several days ago from LNG 17, the largest
LNG conference in the world, to present a version of this there.
Typically, he will mention both the state's efforts.
SENATOR FRENCH asked him to compare and contrast the economics
of both projects, what they do for the state and ask whether the
state is going to have the financial resources to make a
significant contributions to both projects or it should just
pick one.
4:39:57 PM
COMMISSIONER SULLIVAN responded that they get Asia's attention
by listing these issues: having a triple-A partner with a strong
balance sheet, explaining the royalty issue, and giving a sense
that the state of Alaska is very motivated to commercialize gas,
and, oh, as a matter of fact we have two projects going now.
SENATOR FRENCH said it's worth reminding folks that the gross
revenue from a large diameter pipeline at $5mcf is about $15
million/day versus the [TAPS] pipeline, which is one-third full
pumping 500,000 barrels of oil a day, but it is worth $55
million (over three times the value in an aging pipeline over
what you'll get from a brand spanking new huge volume gas line).
It's worth remembering that the economics of gas are still very
challenged.
4:41:56 PM
COMMISSIONER SULLIVAN said resource risk in Alaska with regard
to conventional gas is essentially zero - we know what we have
and it flows 8 bcf/day - and a lot of buyers are interested in
that. Thirty-five tcf of known reserves is co-located with
existing infrastructure on the North Slope depending on the
route. Alaska's reliability for exporting gas is well received
in Asia; we are the only place that has exported gas in North
America and we have done it for 40-plus years.
4:43:49 PM
Recent studies have shown that the Alaskan large volume project
competes very favorably globally against other projects.
Compared to the Gulf, Alaska brings more regulatory certainty in
terms of LNG projects than any other place in the U.S. that
wants to export gas; that goes for the export license as well.
4:44:50 PM
COMMISSIONER SULLIVAN said he also highlights some of the risks
and drawbacks of our competition and that he is planning on
continuing this advocacy.
4:45:49 PM
MR. BALASH said the key point in laying out the path forward in
2013 was getting to concept selection in mid-February. The
companies met that milestone and importantly, the location of
the gas treatment plant decision was made. It had an impacted on
what kind of pipe would be pursued. Had the treatment plant
decision been to locate it in the south as opposed to the north,
that would have had impacts on the type of pipe one would design
in terms of materials and capacity, because one would be moving
excess volume - CO2 and other contaminants - in the methane
stream and that would require an even bigger pipe and additional
hurtles for in-state use. It also would impact commercial issues
in terms of what happens to those contaminants when they are
pulled off (where will it go and who is responsible for it?).
So, getting the companies over the hurdle of where to locate the
treatment plant was a big step relative to being able to
continue to advance the work necessary in the pre-feed stage
that would allow the technical and regulatory work to continue.
He said they are now focused on pressing the companies to ensure
the summer field season is utilized; if the necessary field data
isn't fed into the ERL work that will be necessary for
applications to be filed when one gets to the feed stage, you
could potentially lose a whole year just with the seasonal
nature of things.
At the same time, Mr. Balash said, the Governor in his
benchmarks called on the parties to reach a commercial agreement
on advancing the pre-feed stage. So, the ERL step could be a
little bit of an interim effort. The pre-feed stage is an
important precursor to allowing the state to take some measure
of confidence in the work going forward. He added that the
budgets associated with the pre-feed stage begin to match the
state's financial contribution through the AGIA license and that
basic parity - a similar commitment on the part of the lessee's
to match the state's commitment in pursuit of this project - is
what he is looking for.
4:50:11 PM
COMMISSIONER SULLIVAN said these benchmarks have been helpful,
because there wasn't all kinds of alignment on getting to the
concept selection before. Working together is key having
recognized this is a window of opportunity that won't stay open
forever and that a whole lot of other states are trying to get
there before us.
MR. BALASH said the Alaska Gasline Development Corporation
(AGDC) had accomplished great work to date and had avoided
duplication. Part of the reason is when it was formed three
years ago as part of HB 369, this project was focused on a North
American destination. As the big commercialization effort has
shifted its focus there is a little more opportunity for synergy
and outright collaboration (he hopes). But at the present time
AGDC is hamstrung in its ability to participate in a meaningful
way in any conversation with any of the parties because of
confidentiality. The vulnerability that creates for any of the
other private parties - TransCanada, ExxonMobil or
ConocoPhillips - is if they discuss any of their plans with AGDC
those then become susceptible to a public records request which
all the other competitors would have the ability to request. So,
something needs to be done to address the aspect of
confidentiality in AGDC's business.
4:53:39 PM
SENATOR BISHOP said he was encouraged by the 42-inch diameter,
because that can be rolled in North America, which means more
jobs, but he wasn't certain the X-80 spec could be met.
CHAIR GIESSEL asked them if they track progress other projects
are making and does that push our producers forward to get
Alaska gas to market quicker.
COMMISSIONER SULLIVAN answered yes; Australia, for instance, has
close to 10 projects moving toward sanction in the next 12-18
months, but the labor costs are skyrocketing, so some companies
are pulling back from there. It's always difficult to tell,
because some of the North Slope producers participate in these
other projects. The state pays close attention and doesn't wait
for producers to go out to other serious buyers and tout Alaska.
For instance, British Columbia is a big competitor, but they
have some issues that we don't. The resource risk, for one: most
of their plays in Western Canada are shale gas plays and they
are not developed yet. They will need hundreds of rigs to
develop them and they have huge problems with First Nation's
issues.
4:56:55 PM
SENATOR MICCICHE said he appreciated their tenacity and hoped
they continue. He said they are on the right track but Alaskans
are impatient and advised to not ever underestimate the value of
having a second option. Keeping AGDC alive is a lever that lets
other folks know that Alaskans are serious.
COMMISSIONER SULLIVAN said he couldn't agree more.
CHAIR GIESSEL thanked the presenters for the update.
4:59:28 PM
Finding no further business to come before the committee, Chair
Giessel adjourned the Senate Resources Standing Committee
meeting at 5:00 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 71 version A.pdf |
SRES 3/27/2013 3:30:00 PM |
SB 71 |
| SB 71 Sponsor Statement.PDF |
SRES 3/27/2013 3:30:00 PM |
SB 71 |
| SB 71 Fiscal Note DCCED-DCRA-03-22-13.pdf |
SRES 3/27/2013 3:30:00 PM |
SB 71 |
| SB 71-Fiscal note DOR-TAX-03-22-13.pdf |
SRES 3/27/2013 3:30:00 PM |
SB 71 |
| SB 71 Alaska Tax Division 2012 Annual Report.PDF |
SRES 3/27/2013 3:30:00 PM |
SB 71 |
| SB 71 Support - Alaska Scallop Association.pdf |
SRES 3/27/2013 3:30:00 PM |
SB 71 |
| SB 71 Support - Southeast Alaska Fishermen's Alliance.pdf |
SRES 3/27/2013 3:30:00 PM |
SB 71 |
| SB 71 Support - J&R Fisheries - 3-15-13.PDF |
SRES 3/27/2013 3:30:00 PM |
SB 71 |
| SB 71 UFA support SRES 03 25 13.pdf |
SRES 3/27/2013 3:30:00 PM |
SB 71 |
| SRES Presentation Commercializing NS Gas Update Sullivan 2013.03.27.pdf |
SRES 3/27/2013 3:30:00 PM |
|
| HJR 6 vs O.pdf |
SRES 3/27/2013 3:30:00 PM |
HJR 6 |