Legislature(2005 - 2006)Fairbanks Assembly

08/23/2005 09:00 AM RESOURCES

Download Mp3. <- Right click and save file as

Audio Topic
09:22:13 AM Start
09:54:11 AM Overview – Nenana Basin Gas Project and the Economic Impact and Potential
11:51:00 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Joint with (H) Resources and the TELECONFERENCED
(H) Special Committee on Oil and Gas
Update on Nenana Gas Project and the
Economic Impact and Potential
Meeting will be held in the
Fairbanks North Star Assembly Chamber
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
              SENATE RESOURCES STANDING COMMITTEE                                                                             
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                                                                           
                        August 23, 2005                                                                                         
                           9:22 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
SENATE RESOURCES                                                                                                                
 Senator Thomas Wagoner, Chair                                                                                                  
 Senator Ralph Seekins, Vice Chair                                                                                              
 Senator Kim Elton                                                                                                              
 Senator Gretchen Guess                                                                                                         
HOUSE RESOURCES                                                                                                                 
 Representative Jay Ramras, Co-Chair                                                                                            
 Representative Ralph Samuels, Co-Chair                                                                                         
 Representative Jim Elkins                                                                                                      
 Representative Carl Gatto                                                                                                      
 Representative Gabrielle LeDoux                                                                                                
 Representative Kurt Olson                                                                                                      
 Representative Paul Seaton                                                                                                     
 Representative Harry Crawford                                                                                                  
 Representative Mary Kapsner                                                                                                    
HOUSE OIL AND GAS                                                                                                               
 Representative Vic Kohring, Chair                                                                                            
 Representative Beth Kerttula                                                                                                   
 Representative Berta Gardner                                                                                                   
 Representative Lesil McGuire                                                                                                   
 Representative Ralph Samuels                                                                                                   
MEMBERS ABSENT                                                                                                                
SENATE RESOURCES                                                                                                                
 Senator Ben Stevens                                                                                                            
 Senator Fred Dyson                                                                                                             
 Senator Bert Stedman                                                                                                           
HOUSE RESOURCES                                                                                                                 
 All members present                                                                                                            
HOUSE OIL AND GAS                                                                                                               
 Representative Nancy Dahlstrom                                                                                                 
 Representative Norman Rokeberg                                                                                                 
OTHER MEMBERS PRESENT                                                                                                         
 Senator Gene Therriault                                                                                                      
 Senator Beth Kertulla                                                                                                          
 Representative John Harris, Speaker                                                                                          
 Representative John Coghill                                                                                                    
 Representative Bill Stoltze                                                                                                    
 Representative Mike Chenault                                                                                                   
 Representative David Guttenberg                                                                                                
 Representative Berta Gardner                                                                                                 
COMMITTEE CALENDAR                                                                                                            
OVERVIEW: Update on Nenana Gas Project and the Economic Impact                                                                  
and Potential                                                                                                                   
WITNESS REGISTER                                                                                                              
KEVIN BANKS, Senior Commercial Analyst                                                                                          
Division of Oil and Gas                                                                                                         
Department of Natural Resources                                                                                                 
400 Willoughby Ave.                                                                                                             
Juneau, AK  99801-1724                                                                                                          
POSITION STATEMENT: Commented on the Nenana Gas project.                                                                      
MARIE CROSLEY                                                                                                                   
Natural Resource Specialist                                                                                                     
Department of Natural Resources                                                                                                 
400 Willoughby Ave.                                                                                                             
Juneau, AK  99801-1724                                                                                                          
POSITION STATEMENT:  Commented on the Nenana Gas project.                                                                     
JIM MERY                                                                                                                        
Doyon Limited                                                                                                                   
Fairbanks AK                                                                                                                    
POSITION STATEMENT: Commented on the Nenana Gas project.                                                                      
BOB SWENSON                                                                                                                     
U. S. Geological Survey                                                                                                         
Juneau AK                                                                                                                       
POSITION STATEMENT: Commented on the Nenana Gas project.                                                                      
MITCH USIBELLI                                                                                                                  
Usibelli Energy                                                                                                                 
Fairbanks AK                                                                                                                    
POSITION STATEMENT: Commented on the Nenana Gas project.                                                                      
CURTIS THAYER                                                                                                                   
Enstar Natural Gas                                                                                                              
Anchorage AK                                                                                                                    
POSITION STATEMENT: Commented on the Nenana Gas project.                                                                      
DAN BRITTON                                                                                                                     
Fairbanks Natural Gas                                                                                                           
Fairbanks AK                                                                                                                    
POSITION STATEMENT: Commented on the Nenana Gas project.                                                                      
KATE LAMAL, Vice President                                                                                                      
Power Supply                                                                                                                    
Golden Valley Electricity Association (GVEA)                                                                                    
Fairbanks AK                                                                                                                    
POSITION STATEMENT: Commented on the Nenana Gas project's impact                                                              
on utilities.                                                                                                                   
HAROLD HEINZE                                                                                                                   
Alaska Natural Gas Development Authority (ANGDA)                                                                                
Fairbanks AK                                                                                                                    
POSITION STATEMENT:  Commented on the ANGDA proposals.                                                                        
STEVEN DENTON                                                                                                                   
Usibelli Coal, Inc.                                                                                                             
Fairbanks AK                                                                                                                    
POSITION STATEMENT: Commented on the impacts of the Nenana Gas                                                                
project on coal.                                                                                                                
ROCKY PAVEY                                                                                                                     
Rocky's Heating Service                                                                                                         
Fairbanks AK                                                                                                                    
POSITION STATEMENT: Commented on residential uses of gas.                                                                     
ACTION NARRATIVE                                                                                                              
^OVERVIEW - Nenana Basin Gas Project and the Economic Impact and                                                              
CHAIR THOMAS WAGONER called the joint meeting of the Senate                                                                   
Resources Standing Committee, the House Resources Standing                                                                      
Committee  and the  House Special  Committee  on Oil  and Gas  to                                                               
order at 9:22:13 AM. Present  were Senators Gretchen Guess, Ralph                                                             
Seekins,  Kim Elton,  and Chair  Thomas Wagoner;  Representatives                                                               
Paul Seaton,  Berta Gardner, Gabrielle LeDoux,  Kurt Olson, Lesil                                                               
McGuire,  Harry  Crawford, Chair  Vic  Kohring  and Co-Chair  Jay                                                               
CO-CHAIR JAY RAMRAS announced that  Kevin Banks would present the                                                               
potential  for  gas  markets  in   the  Alaska  Interior  to  the                                                               
committee  and   Marie  Crosley,  Natural   Resource  Specialist,                                                               
Department of Natural Resources (DNR) would assist him.                                                                         
KEVIN BANKS, Senior Commercial Analyst,  Division of Oil and Gas,                                                               
Department  of Natural  Resources (DNR),  presented a  slide show                                                               
indicating the  Alaska Natural Gas  Company was  delivering about                                                               
100 million cubic  feet (MCF) of gas per year  into the Fairbanks                                                               
area and has  established a substantial customer base  and a fair                                                               
amount  of infrastructure.  The demand  grows about  100 MCF  per                                                               
year; about 46 percent of  it is associated with residential uses                                                               
and about 64 percent is commercial.                                                                                             
He  said that  DNR had  compiled studies  indicating if  gas were                                                               
made  available to  Fairbanks, demand  could grow  to potentially                                                               
6.5 BCF per year by  2020 assuming current penetration and growth                                                               
rates. Power generation  could go from 6.5 BCF in  2009 to 27 BCF                                                               
in 2020. That  will depend on whether Fairbanks  could convert to                                                               
gas and  provide most  of its  area with  a central  power supply                                                               
with  gas-fired electricity  and  industrial gas  use is  limited                                                               
only by one's imagination.                                                                                                      
Another  source  of  demand,  Mr.  Banks  explained,  is  in  the                                                               
Interior -  the Fairbanks  area and  the Southcentral  Cook Inlet                                                               
Region  are in  a sense  connected. Either  gas will  be supplied                                                               
from the Interior  into the Cook Inlet or perhaps  a gas pipeline                                                               
from the  North Slope is  connected from the North  Slope through                                                               
the  Interior  via  a  spur line.  Studies  show  that  potential                                                               
shortfalls of gas  in the Cook Inlet could be  anywhere 18 BCF to                                                               
as much  as 91  BCF in  2020 depending  on continuing  demand for                                                               
industrial exports  and LNG  for fertilizer  manufacturing. Slide                                                               
two illustrated growing energy demand.                                                                                          
In Cook Inlet,  LNG and urea account for about  60 percent of the                                                               
demand for gas; another 7 or  8 percent goes to field operations.                                                               
Gas supply  is starting to drop  off and by 2009  the demand will                                                               
begin to  substantially exceed the supply.  Removing exports from                                                               
the equation  could stave  off shortfalls for  a while,  but that                                                               
might cause demand to fall off,  which could lead to a decline in                                                               
exploration. He said:                                                                                                           
     You want  to be able to  continue to add to  the supply                                                                    
     of gas  in Cook  Inlet by  encouraging explorers  to go                                                                    
     out and look  for it. At the same time  in order to get                                                                    
     through a  gas shortfall, you  have to pull  demand off                                                                    
     the  market.... It's  something  of a  problem for  the                                                                    
     market to deal with....                                                                                                    
MR.  BANKS explained  that  gas isn't  delivered  by nice  steady                                                               
averages;  it  is  delivered  mostly in  winter.  Cook  Inlet  is                                                               
already in  a situation where its  peak demand is not  met by the                                                               
average supply and  will be in a considerable  shortfall by 2013.                                                               
Producers are  looking for  storage to bring  some kind  of level                                                               
supply. Agrium's response  to this lower supply is  to produce at                                                               
less than full capacity.                                                                                                        
MR.  BANKS said  a few  years ago  building a  gas pipeline  from                                                               
Anchorage to Fairbanks  was estimated to cost  $190 million. That                                                               
study was  reengineered and the numbers  are now as much  as $240                                                               
million for a  24-inch line to Cook Inlet. The  cost for gas from                                                               
the North Slope into Fairbanks could  be $4 to $5.50; to move gas                                                               
on a spur line  down to Cook Inlet would cost  $1 to $1.40; their                                                               
city gate price would be between  $4.88 and $7. What he is trying                                                               
to say is that Nenana can supply  into a market as long as it can                                                               
be  $3.93 to  $5.68.  "You  either buy  gas  from  a North  Slope                                                               
pipeline   or  gas   from  Nenana.   Nenana  will   have  to   be                                                               
If the  gas line is built  either through an LNG  plant in Valdez                                                               
or a  highway project into  Alberta, the Interior market  in some                                                               
respects will be  connected to the wider Lower  48 market through                                                               
the netback  calculation, because 90  percent of the oil  that is                                                               
produced in Alaska is shipped to outside markets. He explained:                                                                 
     So  essentially, in  spite  of the  fact  that we  live                                                                    
     close to  the source  of energy and  enjoy some  of the                                                                    
     benefits of a lower tariff  getting fuel from the North                                                                    
     Slope into  the Interior  or in the  case of  the other                                                                    
     slide,  even into  Cook Inlet,  the netback  price, the                                                                    
     price that  we start with  is governed or  generated by                                                                    
     what's going on in the Lower 48.                                                                                           
Unocal and Enstar  have an imbedded price term  imbedded based on                                                               
the  Henry Hub  that is  a reference  for a  prices all  over the                                                               
Lower 48.  Enstar, in  an interest  to assure  an uninterruptible                                                               
supply of gas and to encourage  new exploration in the Inlet, has                                                               
recognized that  no matter  where gas  comes from,  including new                                                               
supplies, it will have to be  matched to the supplies of gas from                                                               
elsewhere in the State of Alaska, including the Nenana Basin.                                                                   
9:54:11 AM                                                                                                                    
SENATOR GENE  THERRIAULT asked if his  statement about converting                                                               
electric generation  in the Interior  to gas was predicated  on a                                                               
complete conversion to gas or is there a coal component.                                                                        
MR. BANKS replied  that the switch was assumed to  be entirely to                                                               
SENATOR THERRIAULT asked  when the department expects  to get any                                                               
kind of results from exploration going on in the Nenana Basin.                                                                  
MR.  BANKS  replied  that  he  would defer  that  answer  to  Bob                                                               
CHAIR WAGONER  asked if gas  was piped to Fairbanks,  what effect                                                               
would that have  on the cities' economy in terms  of buying power                                                               
for the consumer.                                                                                                               
MR.  BANKS  replied  that  he   didn't  know  how  much  of  each                                                               
household's budget was spent on  energy, but he estimated that it                                                               
represents a  pretty substantial decrease  in the cost  of energy                                                               
and  would  make those  dollars  available  to  the rest  of  the                                                               
CO-CHAIR RAMRAS  said he  wanted to know  what the  percentage of                                                               
energy  savings  would  be  for  the  average  homeowner  in  the                                                               
Interior in moving  from a home heating oil economy  to a natural                                                               
gas economy. He  estimated that they pay $2.39 a  gallon for home                                                               
heating oil or $700 to $800 a month during the winter.                                                                          
MR. BANKS replied that it might  be a 40 percent decrease in your                                                               
heating budget that would be available for other items.                                                                         
10:00:00 AM                                                                                                                   
BOB SWENSON,  U.S. Geological Survey,  began his  presentation by                                                               
answering   Senator   Therriault's   question   about   the   gas                                                               
exploration  timeframe  saying  the exploration  cycle  from  the                                                               
initial  phase  of data  gathering  to  the development  mode  is                                                               
anywhere from five  to eight years. It is  possible to accelerate                                                               
that depending on access, timing,  land ownership is and what the                                                               
operator is willing to release.                                                                                                 
He said  that Alaska  has a tremendous  resource base.  The North                                                               
Slope is a world-class hydrocarbon basin  - as is the Cook Inlet.                                                               
Because of that, a lot of other  basins in the state have been on                                                               
the  back burner.  He  used  slides to  show  the committee  that                                                               
Southern  Alaska, specifically  Cook Inlet,  has about  2 TCF  of                                                               
remaining reserves and a mean  estimate of 20 TCF. Central Alaska                                                               
has a mean estimate of 9 TCF.                                                                                                   
A USGS report indicates that North  Alaska has over 33 TCF of gas                                                               
reserves behind pipe and a  tremendous amount of potential on the                                                               
North Slope. It also reports that  Central Alaska has 500 BCF gas                                                               
to 7.3 TCF of conventionally  recoverable reserves, a mean of 2.8                                                               
MR. SWENSON cautioned that all the  basins are high risk and that                                                               
it's important to  know the difference between  negative data and                                                               
lack of  data. The Interior basins  have a lack of  data and that                                                               
is  where  exploration  efforts  are  being  focused.  Innovative                                                               
programs are also a key to help mitigate the risk.                                                                              
He  said that  the Nenana  Basin  is not  the only  gas basin  in                                                               
Interior Alaska; there  are the Kulitna Minchumina  and the Yukon                                                               
Flats basins.  Basins that have  similar geology can  be compared                                                               
to each other if they have  a significant amount of data. He said                                                               
that  all the  basins are  Tertiary in  age. The  next number  of                                                               
slides illustrated formations in the different areas.                                                                           
10:15:00 AM - conclusion of Mr. Swenson's presentation                                                                        
MITCH   USIBELLI,   Usibelli   Energy,  said   there   are   four                                                               
participants  in  the Nenana  Basin  project  - Andex  Resources,                                                               
Doyon  Limited,   Usibelli  Energy  and  Arctic   Slope  Regional                                                               
Corporation.   Andex   Resources   and  Arctic   Slope   Regional                                                               
Corporation have a  lot of expertise in oil  and gas development,                                                               
but Doyon  Limited really took  the initiative five years  ago in                                                               
compiling a  lot of the initial  data and attracted Andex  to the                                                               
project. Usibelli  Energy is  a new  company formed  to diversify                                                               
energy sources beyond coal in  the Interior. He characterized the                                                               
Nenana Basin as under-explored, but  looks like a gas-prone basin                                                               
of non-marine sediments.                                                                                                        
He said  that the  state of Alaska  instituted a  new exploration                                                               
program  in 2003,  which  was another  milestone  in tipping  the                                                               
balance  for  attracting  the   three  Alaskan  participants.  He                                                               
presented a  slide of gas  exploration wells in the  Interior and                                                               
contrasted them to those in Cook Inlet.                                                                                         
MR.  USIBELLI explained  that Usibelli  Energy would  be drilling                                                               
exploration  wells in  a range  from  9,000 to  11,000 ft.  deep.                                                               
Their exploration license  on state lands was issued  in 2002 for                                                               
a term  of seven years. The  work commitment of $2.2  million has                                                               
been satisfied with the seismic  program that was just completed.                                                               
The new development this year  was the University of Alaska being                                                               
allowed to  select up to 90,000  acres of land within  the basin.                                                               
There is a total of over a half million acres of licensed area.                                                                 
He explained  that marine sediments  are typically  oil-prone and                                                               
non-marine sediments  tend to be  gas-prone. There are  two types                                                               
of gas - biogenic gas or  methane, which is produced by bacterial                                                               
activity in a  coal seam and is found generally  in shallow areas                                                               
- 2,500  ft. to 6,000  ft., as in  Cook Inlet. Depths  below that                                                               
are too  warm and too tight  for the bacteria to  survive. If gas                                                               
stays  in the  coal  seam,  it's called  coalbed  methane. If  it                                                               
migrates  out  of  the  coal  seam  into  an  adjacent  sandstone                                                               
reservoir, it's called biogenic or shallow gas.                                                                                 
Thermogenic gas  is created at depths  of 8,000 to 12,000  ft. by                                                               
the thermal conversion of coal,  shales and organic material into                                                               
the  higher-order  heavier  gases. Typically,  sediment  migrates                                                               
into an area  and vegetation grows on top, subsides  and then the                                                               
process  is  repeated.  This continues  until  a  geologic  event                                                               
creates an uplift  and buries that vegetation. Then  the cycle is                                                               
started  over again.  When the  vegetation gets  buried at  great                                                               
depths,  it converts  to  peat,  then to  lignite,  then to  sub-                                                               
bituminous coal  and then to anthracite.  Methane is "off-gassed"                                                               
from the bacterial activity. He elaborated:                                                                                     
     So,  if you  have coal  seams, you  have by  definition                                                                    
     produced gas. That happens over  long periods of time -                                                                    
     millions of  years. That  doesn't continue  forever. It                                                                    
     normally peaks  out.... Once you  get past  that point,                                                                    
     you start  getting into  anthracite and  graphite, it's                                                                    
     overly  mature and  you've run  out of  gas. And  if it                                                                    
     hasn't  found a  home by  then, if  it hasn't  migrated                                                                    
     into  a trap,  then it's  just been  off-gassed to  the                                                                    
MR. USIBELLI  said his organization  is looking for gas  that has                                                               
migrated  and  has  been  sealed  into  a  reservoir  by  tighter                                                               
formations.  They  have  found  some  reservoir  rock  and  rocks                                                               
capable  of seal.  He explained  that Cook  Inlet has  folds that                                                               
form  domes  that contain  accumulations.  The  Nenana Basin  has                                                               
similar-aged units  and rock material,  but until  an exploration                                                               
well  is actually  drilled, they  won't  know for  sure what  the                                                               
formations are.  A larger  drill rig  is required  for a  well in                                                               
Nenana than  for a well  in Cook Inlet,  but smaller than  on the                                                               
North Slope. If they get  a discovery, they would immediately try                                                               
to delineate the reserves to see  if it is an economically viable                                                               
field. He  summarized, "I  guess the overall  thing here  is that                                                               
we're just getting started on this.  The lion's share of the work                                                               
is ahead of us."                                                                                                                
10:46:00 AM - conclusion of Mitch Usibelli testimony                                                                          
CO-CHAIR RAMRAS said  the soonest he figures  Fairbanks would see                                                               
gas would be in 2016.                                                                                                           
     Some of the promise that  we've discussed is, you know,                                                                    
     that we could  find gas nearby, sooner,  develop it and                                                                    
     then be able to  leverage a distribution pipeline using                                                                    
     an existing right-of-way  that doesn't require Canadian                                                                    
     permits,  doesn't  require  us to  source  the  world's                                                                    
     steel  supply  for a  year  or  two years,  as  Senator                                                                    
     Stevens has indicated.                                                                                                     
He asked Mr.  Usibelli how the Legislature  could help accelerate                                                               
this process.                                                                                                                   
MR.  USIBELLI responded  by first  thanking  the Legislature  for                                                               
extending  the timeframe  for  the  exploration incentive  credit                                                               
application, which  it did last  session, as these  projects tend                                                               
to take longer than anticipated.                                                                                                
CO-CHAIR RAMRAS  said Andex it  is more aggressive and  that Norm                                                               
Phillips with  Doyon indicated that they  were ready to go  at an                                                               
earlier date and asked him to comment on that.                                                                                  
MR.  USIBELLI  replied that  he  wouldn't  characterize Andex  as                                                               
being more aggressive.                                                                                                          
     That  was  their  roll  as   operator.  Their  roll  as                                                                    
     operator  in our  agreements was  for  them to  propose                                                                    
     activity going  forward. And  our roll  as participants                                                                    
     is to  evaluate that early  and for  all of us  then to                                                                    
     sit down and discuss that  and decide where we're going                                                                    
     and that's what we did.                                                                                                    
He  hoped to  be prepared  in the  very near  term so  that if  a                                                               
project doesn't get sanctioned on the  North Slope and there is a                                                               
rig that  would work  at Nenana,  they could  make a  decision to                                                               
commence drilling this winter. "So,  I mean, that's still not off                                                               
the table."                                                                                                                     
CO-CHAIR RAMRAS asked  what the expense component  of getting the                                                               
next leg of the drill rig is.                                                                                                   
An  unidentified  person  replied  that the  initial  well  would                                                               
probably cost  about three times  as much as the  initial seismic                                                               
program.  That's why  they want  to make  sure the  commitment is                                                               
being thoroughly  evaluated in reacting to  what's happening with                                                               
the drill availability.                                                                                                         
MR. USIBELLI added that they  were potentially looking at putting                                                               
two holes  in the ground  in one season  and that would  cost $18                                                               
million to $20 million more.                                                                                                    
CO-CHAIR  RAMRAS pointed  out that  the hard  dollar cost  is the                                                               
next  hurdle  to overcome  for  a  discovery. There  was  general                                                               
agreement to that comment.                                                                                                      
REPRESENTATIVE DAVID  GUTTENBERG asked  what the timeline  is for                                                               
setting up a  drilling rig and then moving it  and how many wells                                                               
could be drilled in a season.                                                                                                   
MR. USIBELLI  answered the most  they could  drill is one  or two                                                               
wells in a season.                                                                                                              
     Of course,  you would want  to see the results  of that                                                                    
     first well... to  decide then whether you  are going to                                                                    
     drill the second  well and where. So you may  go in and                                                                    
     permit several sites and then  determine where you want                                                                    
     to drill  that second well,  if you  do it in  the same                                                                    
CHAIR WAGONER asked what would  be the overall economic impact on                                                               
his coal business if producible wells were brought in in Nenana.                                                                
MR. USIBELLI  replied that the price  of whatever gas made  it to                                                               
Fairbanks would be established by  market conditions and that has                                                               
to  compete  with existing  diverse  forms  of energy  supply  in                                                               
Fairbanks. It would have an impact.                                                                                             
     That  not just  coal; but  there's oil-generated  power                                                                    
     here,  there's   hydropower  that's  wheeled   up  from                                                                    
     Bradley  Lake,  there's  Cook Inlet  gas  power  that's                                                                    
     wheeled  up over  the Intertie.  So, Fairbanks  already                                                                    
     has  a fairly  diversified  power  supply from  various                                                                    
     sources  and gas  would have  to come  in and  fit into                                                                    
     that   scenario  and,   of   course,   our  costs   for                                                                    
     exploration and  development have to come  in less than                                                                    
     whatever market price  is. There's a wide  range as you                                                                    
     saw from  the earlier slides  of what the price  of gas                                                                    
     could be.                                                                                                                  
10:54:00 AM                                                                                                                   
SENATOR KIM ELTON  asked what kind of  a role he saw  for the new                                                               
landowner, the University of Alaska,  and how would that interact                                                               
with his organization.                                                                                                          
MR.  USIBELLI replied  that he  hadn't  had detailed  discussions                                                               
with the University,  but his assessment is that  they are simply                                                               
getting a new landlord and  that doesn't affect their exploration                                                               
and development plans.                                                                                                          
REPRESENTATIVE JOHN COGHILL asked  why his exploration plans head                                                               
to the southern  part of the basin, but the  deeper portion seems                                                               
to be the more northern portion.                                                                                                
MR. USIBELLI replied  that there were logistical  reasons as well                                                               
as technical  reasons for that plan.  A lot of the  historic data                                                               
that they  are building on was  located in the southern  area and                                                               
they are  trying to mitigate  some of the  risk by using  some of                                                               
the preexisting seismic in the southern area.                                                                                   
REPRESENTATIVE COGHILL asked what their  season is for getting in                                                               
and out  of the  Nenana area  and how  they would  control public                                                               
JIM MERY, Doyon  Limited, replied that the  drilling season would                                                               
be  in late  January through  the end  of March  with winter-only                                                               
exploration,  at least  in the  early phases.  Ice bridges  would                                                               
have to be built across the  Nenana River and access issues would                                                               
get  solved when  break up  comes. If  development happens,  more                                                               
permanent access would have to be addressed.                                                                                    
CHAIR WAGONER  asked if and when  they were going to  do any more                                                               
three-dimensional work.                                                                                                         
MR. USIBELLI replied that since they  are looking at such a large                                                               
area that  has such sparse  data, the  conclusion was that  3D is                                                               
not  justified economically.  They would  probably zero  in after                                                               
drilling, not prior.                                                                                                            
10:58:00 AM                                                                                                                   
CO-CHAIR  RAMRAS  asked,   with  3  TCF  of  gas   in  the  basin                                                               
potentially, what  is necessary to  make the gas  economic enough                                                               
to be able to build infrastructure  so that it is not stranded in                                                               
the Nenana Basin.                                                                                                               
MR.  USIBELLI replied  that was  a difficult  question to  answer                                                               
because of  the lack of  known characterization of  the reservoir                                                               
and the basin.  If 3 TCF were there, that  would clearly be large                                                               
enough to  justify supplying  Fairbanks and  looking at  the fact                                                               
that Cook Inlet has consumed 7 TCF in the last 50 plus years.                                                                   
CO-CHAIR RAMRAS  asked Bob  Swenson to comment  on an  article in                                                               
the  "Journal of  Oil and  Commerce" that  said the  Nenana Basin                                                               
enjoyed the geology that would make  it the fraternal twin of the                                                               
Cook Inlet  Basin. He  also wanted Mr.  Usibelli to  elaborate on                                                               
250  wells that  have been  drilled in  Cook Inlet  and how  that                                                               
might correspond to  the number of wells that will  be drilled in                                                               
the Nenana Basin.                                                                                                               
11:00:59 AM                                                                                                                   
MR. SWENSON  replied that one  of the  reasons it was  called the                                                               
fraternal twin  of Cook Inlet  is because of the  geologic system                                                               
that  is present  in both  basins. They  are both  reservoirs and                                                               
sources of  gas, but  the differences are  in the  structures. In                                                               
Cook Inlet,  gas was discovered early  on as a by-product  of oil                                                               
exploration. They were drilling for  deeper oil and it along with                                                               
gas.  Those formations  were easy  to  find even  on early  1060s                                                               
seismic data. Eight TCF of gas  was found in the process and that                                                               
put them in a stranded gas situation.                                                                                           
The Nenana Basin, on the other  hand, even though it has the same                                                               
coal  sandstone reservoir  system  that makes  it that  fraternal                                                               
brother has  a very different  tectonic history. The way  the big                                                               
folds are developed  is somewhat different. The  Nenana system is                                                               
along  a  major   fault  system;  Cook  Inlet   has  an  over-all                                                               
compressive system. He elaborated:                                                                                              
     It's very  important on how  complex those  faults are,                                                                    
     how  complex those  structures are.  In the  Cook Inlet                                                                    
     you have  very, very,  large features with  very little                                                                    
     faulting  associated with  it. Faults,  in most  cases,                                                                    
     turn out  to be a  problem, because gas leaks  up those                                                                    
     faults. In  the big  fields, the  Kenai gas  field, the                                                                    
     North  Cook Inlet  field, the  Beluga River  gas field,                                                                    
     the faulting  within that fold is  very, very, limited.                                                                    
     That's  what's  going to  be  so  important with  these                                                                    
     folks'  work -  is  to identify  what those  structures                                                                    
     really  look  like.  With  the  current  seismic  data,                                                                    
     clearly   the    structures   are   there,    but   our                                                                    
     understanding of  those is  limited. So,  that's really                                                                    
     the difference that we have there.                                                                                         
     In the  Cook Inlet, I think  it's in a second  phase of                                                                    
     exploration. The big structures  have all been drilled;                                                                    
     there's  clearly  additional  potential, but  the  very                                                                    
     easy structures  have been found  and drilled  out. So,                                                                    
     that's in a very different  phase of its exploration. I                                                                    
     hope that answers your question.                                                                                           
11:04:00 AM                                                                                                                   
MR. USIBELLI  concurred with  his answer  and added  that another                                                               
difference  is that  the Nenana  Basin is  smaller than  the Cook                                                               
Inlet  and initial  indications are  that it  is probably  warmer                                                               
than Cook Inlet,  which is very cool. Therefore  the shallow zone                                                               
where the biogenic gas is created is a much wider window.                                                                       
     That's one of the reasons  Cook Inlet is so successful.                                                                    
     And  the  Nenana  Basin,   although  it's  smaller  and                                                                    
     shallower, we think it's a  warmer basin and one of the                                                                    
     advantages  is  that  that  deeper  Thermogenic  window                                                                    
     would be higher and wider.                                                                                                 
REPRESENTATIVE COGHILL  asked how  deep the  first well  would be                                                               
MR. USIBELLI  replied that  the units they  want to  identify are                                                               
10,000 ft. to 12,000 ft. down.                                                                                                  
CO-CHAIR  RAMRAS commented  that his  sense is  if he's  from the                                                               
Kenai or  the Cook Inlet  region, he  is starting to  worry about                                                               
where he is going to get gas from  after the year 2012, but if he                                                               
could be  selfish and local, he  is troubled with where  he could                                                               
get some  relief for  the cost  of heating  his home  or business                                                               
right now and asked for some optimistic comments.                                                                               
11:07:00 AM                                                                                                                   
MR. USIBELLI responded:                                                                                                         
     If I  were to  characterize this, I  would say  that we                                                                    
     have guarded optimism. We're  very optimistic that this                                                                    
     basin,   in  general,   has   the  characteristics   to                                                                    
     potentially be  commercially viable, but that's  a very                                                                    
     different thing  than going  out there  and determining                                                                    
     on your first drilling effort  how the system works and                                                                    
     where it is.                                                                                                               
     There is a difference between  optimism of the basin in                                                                    
     general and optimism about whether  you are going to be                                                                    
     successful  in  finding  the discovery  on  your  first                                                                    
     drilling  effort   out  there.  So,  when   I  say  I'm                                                                    
     guardedly optimistic,  I have to distinguish  those two                                                                    
     from  a technical  standpoint  and  that's where  we're                                                                    
     coming from, I think.                                                                                                      
11:08:00 AM                                                                                                                   
MR. MERY, jumped in saying:                                                                                                     
     I  can  do this  a  little  differently.... What  we're                                                                    
     looking for  is basically enough gas  for Fairbanks for                                                                    
     about  20 years,  because  with  that comes  commitment                                                                    
     from  people  like Golden  Valley  and  other folks  to                                                                    
     actually take gas  and do conversions to  power - those                                                                    
     kinds of things.  That puts it in maybe the  500 to 700                                                                    
     BCF of gas range.... I  think it's doable and you could                                                                    
     see gas here in Fairbanks in five years.                                                                                   
REPRESENTATIVE HUGH  FATE asked if  they had  any plans to  do 3D                                                               
seismic  since  it   is  much  more  accurate   in  locating  the                                                               
MR. USIBELLI replied  that Usibelli Energy didn't  have any plans                                                               
at this point for using 3D  even though it is much more accurate.                                                               
The problem  is that the  expense keeps  them confined to  a much                                                               
smaller  area  to   analyze.  They  are  not  at   the  point  of                                                               
identifying a  target that would  justify reducing their  look to                                                               
that one target.                                                                                                                
CHAIR WAGONER  said Cook  Inlet has had  the advantage  of having                                                               
two or  three pretty  large world-class  gas discoveries  and the                                                               
chances of that happening again  in the Nenana Basin or elsewhere                                                               
are very  slim. He asked Mr.  Swenson to touch on  the subject of                                                               
Cook Inlet being out of - not  gas - but being out of inexpensive                                                               
11:10:55 AM                                                                                                                   
MR. SWENSON  replied that the large  fields in Cook Inlet  have a                                                               
number  of different  attributes that  are unusual.  Not everyone                                                               
thought in  the beginning that  those types of reserves  would be                                                               
discovered. There  are a  number of geologic  reasons for  that -                                                               
one of them  is that Cook Inlet has stacked  reservoirs. It's not                                                               
like the North Slope where everything is in one reservoir and                                                                   
one seal holds back all the gas and oil. He explained:                                                                          
     If you have  a fold, it will be from  3,000 ft. down to                                                                    
     8,000  ft. in  a  bunch of  different reservoirs.  That                                                                    
     similar  system is  active in  the Nenana  Basin and  I                                                                    
     think you  could say  it's not  that those  large large                                                                    
     discoveries  are unreasonable  in the  Nenana Basin.  I                                                                    
     think these guys  will agree. I don't  think they would                                                                    
     be out spending the risk capital  to be here to do that                                                                    
     unless they have the chance  of finding that. It really                                                                    
     gets to what's the amount of  data that we have, as a I                                                                    
     pointed  out, and  the quality  of the  data and....  I                                                                    
     don't think it's  true that we can say  that the Nenana                                                                    
     Basin does  not have that  chance. It's just  given the                                                                    
     knowledge that we  have right now - it is  part of that                                                                    
     distribution  of  probability  that one  of  those  big                                                                    
     fields could  exist. It's  what we  know, what  we know                                                                    
     about the basin right now  suggests that most likely it                                                                    
     wouldn't be,  but it  certainly is  part in  reality of                                                                    
In reference to Co-Chair Ramras' question earlier, he said:                                                                     
     I  think  it's important  to  recognize  this group  of                                                                    
     explorers. This is the type  of companies that are very                                                                    
     very important  to us  continuing on  both in  the Cook                                                                    
     Inlet as  well as in  the Interior Basins. It's  a very                                                                    
     risky project;  it takes  a lot  of wherewithal  to get                                                                    
     out and do this front line  wildcat data and to go out.                                                                    
     So, I'm actually very proud  of these guys if they have                                                                    
     the wherewithal to do that.                                                                                                
11:13:00 AM                                                                                                                   
CO-CHAIR RAMRAS asked if gas is found that is more spread out,                                                                  
how would it be brought to the gas treatment plant.                                                                             
Specifically, he asked:                                                                                                         
     Are  the gas  treatment plants,  are they  going to  be                                                                    
     sized? Can they  be sized? Do they take a  long time to                                                                    
     construct?  Is there  a great  deal of  permitting that                                                                    
     goes in  to that?  Do you  have to  analyze the  gas to                                                                    
     find out what kind of  methanes and propanes are in it?                                                                    
     Is  there anything  in it  that offers  some relief  to                                                                    
     rural Alaska?                                                                                                              
MR. MERY  replied Thermogenic  gas that might  be present  in the                                                               
Nenana Basin  in all  likelihood would  contain propanes  and his                                                               
group  "has  identified"  stripping   them  out  and  using  them                                                               
MR.  USIBELLI  followed  up  saying   that  the  development  and                                                               
construction of  gathering systems  would be covered  under their                                                               
plan of  development if a discovery  were made. He would  want to                                                               
get  gas  to  market  as  soon as  possible  and  Usibelli  would                                                               
probably not  wait to  design, permit  and build  a full-capacity                                                               
pipeline to  Fairbanks. It would  look at having  facilities that                                                               
would  allow them  to  either  treat and  strip  out certain  gas                                                               
components or simply to compress or  liquefy the gas and barge it                                                               
out to  villages and truck  it into Fairbanks  - so they  can get                                                               
established in the marketplace while pursuing a pipeline.                                                                       
     I  agree  with Jim.  You  don't  need  the full  3  TCF                                                                    
     discovery  before  you   justify  proceeding  with  the                                                                    
     project. You  need something smaller than  that and you                                                                    
     don't necessarily need to wait until you build a full-                                                                     
         sized pipeline to Fairbanks. There are ways of                                                                         
      starting to get the product to market prior to that.                                                                      
     And that should all accelerate the process.                                                                                
SENATOR  THERRIAULT asked  him  what kind  of  opposition he  had                                                               
experienced in  the permits they  have applied  for or if  he had                                                               
experienced organized opposition to their work so far.                                                                          
MR. MERY  replied that  one area  of concern  is the  Minto Flats                                                               
State Game Refuge, although they  are not currently interested in                                                               
that area. They enjoy a large  well of support in both Nenana and                                                               
Minto communities. He  hasn't seen any red flags  with respect to                                                               
this project right now.                                                                                                         
MR. USIBELLI  added that  when he toured  the seismic  program in                                                               
March, some  of the initial  lines were already signed  with trap                                                               
lines and marked up with snow mobile and dog sled tracks.                                                                       
11:18:00 AM                                                                                                                   
REPRESENTATIVE COGHILL  said that answered  a question he  had on                                                               
access, because they have created  an avenue for people to travel                                                               
on. He  also wanted to  know if they  had run across  barriers to                                                               
the  new  exploration  style that  the  Legislature  should  know                                                               
MR. USIBELLI  replied that Usibelli  Energy is in the  process of                                                               
submitting its first incentive credit application.                                                                              
CO-CHAIR RAMRAS  said any time the  price of gas goes  up, people                                                               
want  to know  if it's  the  state's gas  and oil,  why they  are                                                               
paying such  a premium for  it. He asked  how it would  be priced                                                               
and if the  increment of discovered gas was too  small to justify                                                               
a 50-mile  24-inch diameter  pipe, what were  the other  means of                                                               
transporting the  gas and what would  the tariff be. Would  it be                                                               
off of  the Henry price or  more tied into the  cost of competing                                                               
forms of energy,  in which case that doesn't  necessarily offer a                                                               
cost savings for  Alaskans. It just offers an  alternative to the                                                               
existing source of energy.                                                                                                      
MR. MERY replied that even if  you were pricing to the Henry Hub,                                                               
which is $5 to $6.50 MCF, there  is almost a $10 savings on 1 MCF                                                               
of gas compared to fuel oil today, a huge savings.                                                                              
11:22:14 AM                                                                                                                   
CO-CHAIR RAMRAS  surmised that they  didn't have find the  full 3                                                               
TCF in order to be able  to introduce larger quantities of gas to                                                               
the  Fairbanks  market. He  asked  Chair  Wagoner to  detail  the                                                               
nature of how gas  in Cook Inlet is delivered to  a home in Kenai                                                               
as  opposed to  the  delivery mechanism  Fairbanks,  which is  an                                                               
antiquated method of trucks, sleds and vehicles.                                                                                
CHAIR  WAGONER replied  that  some wells  had  just been  drilled                                                               
around Ninilchik. That involves  commercially producing a well, a                                                               
pipeline to deliver,  a step-down station to  reduce the pressure                                                               
and  to  odorize  the  gas  and  then  delivery  into  the  home.                                                               
Anchorage has  a pipeline system  basically up both sides  of the                                                               
Inlet. For Fairbanks,  the gas is first  pressurized in Anchorage                                                               
and then  shipped and injected  into Fairbanks' systems.  He said                                                               
that LNG is a lot better product to do that with.                                                                               
CO-CHAIR  RAMRAS said  he wanted  gas for  Fairbanks and  doesn't                                                               
want to wait for a North Slope  line to be built. He related that                                                               
last year Fairbanks  was dangerously close to not  having any gas                                                               
because  an avalanche  had  closed  the road  into  town. He  was                                                               
interested  in  how the  cost  of  a  project could  justify  the                                                               
delivery of 3 TCF if gas is trucked 50 miles instead of 350.                                                                    
CHAIR WAGONER related  that, Ninilchik, one of  the recipients of                                                               
the gas,  was going to  install a pressurization  and odorization                                                               
station and a distribution system.  It was estimate that it would                                                               
save one of  the small schools there of a  minimum of $27,000. If                                                               
that  savings  is   projected  into  a  community   the  size  of                                                               
Fairbanks,  that would  be a  tremendous amount  of money  saved.                                                               
Beaver  Loop field  is very  small, but  commercially viable  and                                                               
that  oil is  trucked  continuously into  Kenai.  "So, there  are                                                               
other methods of doing it and  doing it on an economic basis, but                                                               
hopefully we get more gas than that out of the Nenana field."                                                                   
MR. SWENSON  added that the amount  of oil found is  an important                                                               
point and long-term supply would  attract different industries to                                                               
the Fairbanks  area, but  if the  user base  is small  that would                                                               
affect the return on investment, also.                                                                                          
CO-CHAIR RAMRAS  noted that  the difference in  the price  of gas                                                               
between Anchorage and Fairbanks is  the tariff, which consists of                                                               
the pressurization and a 350-mile  truck run, "And we're going to                                                               
find out  how much  that is!" From  his Fairbanks  perspective he                                                               
     I  know that  home heating  oil  is at  $2.39 a  gallon                                                                    
     right now  in Fairbanks and  it's too much.  It's going                                                                    
     to be  a painful winter  for low income,  fixed income,                                                                    
     and  two-income earning  families this  year and  if we                                                                    
     don't  figure  out how  to  get  some relief  into  our                                                                    
     community  long before  we see  a gas  line that  comes                                                                    
     down  from the  North Slope,  it  is going  to be  very                                                                    
     difficult  to  live in  Fairbanks  and  enjoy the  same                                                                    
     quality  of  life  that  we've  had  for  the  last  10                                                                    
MR. BANKS responded:                                                                                                            
     My calculation  would get gas  from the North  Slope to                                                                    
     Fairbanks for less  than what buyers down  in the Lower                                                                    
     48  would be  paying  for gas,  simply  because of  the                                                                    
     difference between  the transportation  all the  way to                                                                    
     Alberta  and the  Lower  48  versus the  transportation                                                                    
     cost to  just Fairbanks.  So, at the  outset, residents                                                                    
     of  the   Interior  will   enjoy  that   difference  in                                                                    
     But the  fact remains  that a pipeline  all the  way to                                                                    
     Valdez  or  to  Alberta  will  be  carrying  gas  to  a                                                                    
     marketplace  and that  the amount  of gas  that can  be                                                                    
     used by  Fairbanks or  even Alaska  in general  in Cook                                                                    
     Inlet will  remain a  very small  portion of  that. So,                                                                    
     the economic  driver that gets  the pipeline  built and                                                                    
     gets  the development  in other  gas  resources in  the                                                                    
     North   Slope   that   will  eventually   support   the                                                                    
     construction of  such a large  pipeline will  be driven                                                                    
     by  Lower 48  prices.  And, as  I  pointed out,  that's                                                                    
     precisely  what  we've  seen over  the  years  for  the                                                                    
     supply of  crude oil  in Alaska  - that  our refineries                                                                    
     enjoy a lower cost of  crude oil than do refineries in,                                                                    
     say, on the  West Coast. And as a result,  take my word                                                                    
     for it, we are paying  less for gasoline here in Alaska                                                                    
     than our neighbors in California or Washington.                                                                            
REPRESENTATIVE  BETH KERTTULA  asked what  kind of  return Alaska                                                               
gets at production.                                                                                                             
MR. BANKS answered:                                                                                                             
     Right now, I think the  licenses there would convert to                                                                    
     leases with  a 12.5  percent royalty.  Production taxes                                                                    
     will  depend  on what  kind  of  economic limit  factor                                                                    
     (ELF) might apply  should one apply there  and also the                                                                    
     kind of incentive credits that  will be permitted. But,                                                                    
     at least,  we can say that  12.5 percent of the  gas at                                                                    
     the moment will be the state's royalty.                                                                                    
MR. BANKS  said that  12.5 percent is  the statutory  minimum for                                                               
new  leases  and  royalty  can  be  reduced  under  very  special                                                               
provisions of the law.                                                                                                          
CO-CHAIR RAMRAS  noted that much of  the Nenana Basin was  in the                                                               
University land transfer and so  the royalties would accrue to it                                                               
and not the state.                                                                                                              
REPRESENTATIVE KERTTULA  asked if  any of the  state's incentives                                                               
currently require any kind of price limit to consumers.                                                                         
MR. BANKS replied no. Either you  have an incentive if prices are                                                               
low or alternatively  there could be some kind of  penalty if the                                                               
price of fuel oil or gasoline  were too high. That begins to look                                                               
like an excise tax.                                                                                                             
SENATOR  THERRIAULT commented  that the  difference in  price for                                                               
gas between Alaska and the Midwest was a FERC issue and:                                                                        
     We will  not have to  pay the rate  as if the  gas were                                                                    
     shipped  all the  way  to the  Midwest,  because it  is                                                                    
     taken off in  Alaska and frees up  capacity. That's one                                                                    
     of the  things that FERC,  I think, looked out  for the                                                                    
     state of Alaska.                                                                                                           
He said it has been  stated that the Interior communities support                                                               
gas development, but the opposition  often comes from outside the                                                               
state and  he wanted to know  if they were experiencing  that. He                                                               
also wanted  to hear  about bottlenecks  in the  state permitting                                                               
system so they could be removed.                                                                                                
MR. USIBELLI  related that comments in  opposition to development                                                               
were filed during the best  interest findings, but he didn't know                                                               
how that would impact getting permits.                                                                                          
SENATOR  THERRIAULT   asked  Chair  Wagoner  what   part  of  his                                                               
constituency is served with natural gas.                                                                                        
CHAIR WAGONER guessed about 75 percent.                                                                                         
SENATOR THERRIAULT said that a  lot of his constituents are rural                                                               
so they don't even  get cable TV, but in a  town like Anchorage a                                                               
mile of  pipe could serve 100  homes. Getting the gas  into homes                                                               
changes the dynamics of the tariff.                                                                                             
CHAIR WAGONER said  that's why the other percentage  of people in                                                               
his district didn't have gas.                                                                                                   
CO-CHAIR RAMRAS remarked that the  two senators were illustrating                                                               
the  correlation   he'd  like  to  draw   between  Fairbanks  and                                                               
Anchorage.  Anchorage   is  a  large  community   with  gas  pipe                                                               
available.  Fairbanks   natural  gas  would  have   to  have  the                                                               
rationale and the  economic justification to fund a  gas grid. It                                                               
would be easy to beat the  price of trucking gas 350 miles versus                                                               
50 miles,  but not so  easy to replicate the  infrastructure that                                                               
Cook Inlet  already has.  The idea  is to  get cheaper  energy to                                                               
Interior and rural Alaska.                                                                                                      
CHAIR  WAGONER  stated  that  some  people  have  hydro-generated                                                               
electric heat as a backup to oil or gas.                                                                                        
11:51:00 AM - Lunch Break -                                                                                                   
CO-CHAIR RAMRAS reconvened the meeting.                                                                                         
CURTIS  THAYER, Enstar  Natural Gas,  opened his  comments saying                                                               
that Enstar  was established in  1961 shortly after  discovery of                                                               
natural gas  in Cook Inlet  and it currently serves  over 330,000                                                               
Alaskans.   It  has   121,000  meters   spinning  at   homes  and                                                               
businesses.  It owns  and operates  3,000  miles of  distribution                                                               
mains and  high-pressure gas transmission  lines and  about 2,600                                                               
distribution  mains. Its  direct  impact on  Alaska's economy  is                                                               
approximately $170  million. He  said their  expertise is  in the                                                               
compression   plant,  engineering   and  construction,   pipeline                                                               
engineering,    environmental    permitting   and    construction                                                               
management. Its  most recent project  was the Kenai  Kachemak Bay                                                               
pipeline,  a 33-mile  pipeline  that brought  in  the new  fields                                                               
south of Ninilchik that cost $540,000 per mile.                                                                                 
For  perspective, he  said Chugach  Electric, the  second largest                                                               
utility  in  the  state,  has 69,000  meters  and  Golden  Valley                                                               
Electric  has about  40,000. His  slides indicated  that the  LNG                                                               
plant  uses 39  percent of  the gas  in Cook  Inlet; Agrium  uses                                                               
about 27  percent; Enstar  uses about  18 percent;  and Anchorage                                                               
Light and Power and Chugach Electric uses about 16 percent.                                                                     
MR. THAYER  said that  Enstar's delivered  cost to  the Fairbanks                                                               
consumer at  the burner tip  is $5.11.  Fuel oil was  $13.28. His                                                               
slide  compared  that  to  propane   and  electric  companies  as                                                               
recently as this spring. He explained:                                                                                          
     If  the consumers  in Southcentral  Alaska switched  to                                                                    
     fuel  oil, it  would jump  from $140  million per  year                                                                    
     that  the consumers  pay  in  Southcentral for  natural                                                                    
     gas, the next lowest cost  is fuel oil at $553 million.                                                                    
     So, right now there is  over a $300 million difference.                                                                    
     That's why  we are so  concerned and we are  looking to                                                                    
     Fairbanks, the Nenana Basin and  the North Slope gas to                                                                    
     help keep  natural gas flowing  in Southcentral  and in                                                                    
     the Fairbanks homes.                                                                                                       
Enstar's rates are adjusted every  December and more than half of                                                               
their contracts  are based against the  36-month trailing average                                                               
of Henry Hub  prices. He anticipated that the price  of gas would                                                               
go up 17 percent this next year.                                                                                                
CO-CHAIR RAMRAS commented that his  figures were the crux of this                                                               
discussion - how  to replace the energy source,  provide the same                                                               
amount  of BTUs  in their  homes and  yet inject  more disposable                                                               
income into  the local economy without  government doing anything                                                               
except facilitating.                                                                                                            
MR. THAYER said when this slide  was produced on June 21, he took                                                               
the  Henry Hub  price of  $7.80 -  and for  the tariff  used what                                                               
Enstar  charges  its  customers,  about   $1.12  per  MCF  -  and                                                               
converting the  amount of fuel  oils to MCF,  came up with  a $15                                                               
million difference. "It was a snapshot in time."                                                                                
CO-CHAIR  RAMRAS  remarked  that  this followed  along  with  the                                                               
savings Chair Wagoner was mentioning earlier.                                                                                   
SENATOR THERRIAULT said he thought  Mr. Thayer's graph overstated                                                               
the  savings somewhat,  because a  lot  of the  population is  so                                                               
MR. THAYER  agreed, but  added that customers  who get  access to                                                               
the natural  gas would be  cutting their  bill by 40  percent. He                                                               
said that Kenai  and Mat-Su have developed  mechanisms that allow                                                               
the system  to expand. For  instance, the borough lends  money to                                                               
neighborhoods to convert into user districts.                                                                                   
He explained the next slide,  which graphed gas supply and demand                                                               
using  Department   of  Energy  2004  figures   and  those  lines                                                               
intersect  in 2012.  The gas  and electric  utilities don't  have                                                               
access to  a good portion  of the  gas because it's  dedicated to                                                               
the Agrium  Plant or  the LNG  plant. He hoped  to have  some gas                                                               
under  contract within  the  next  three to  six  months, but  he                                                               
couldn't contract it for five years  at a time. "We're putting it                                                               
together a little bit at a time with various producers."                                                                        
MR. THAYER  said the real  reason they are  here today is  to see                                                               
how North  Slope or Nenana Basin  gas can come to  Cook Inlet via                                                               
the Parks Highway. Initially, they  estimated the spur line could                                                               
cost up to $500 million,  but that's truly debatable depending on                                                               
the  price  of  steel,  which  is  the  biggest  unknown.  Enstar                                                               
engineers have said a 24-inch line  would be needed to continue a                                                               
supply of about 1 BCF per  day into Cook Inlet and estimate there                                                               
is plenty  of gas both  on the North Slope  and in Cook  Inlet to                                                               
supply Southcentral Alaska and Fairbanks.                                                                                       
He  said  that  the  Alaska  Natural  Gas  Development  Authority                                                               
(ANGDA) is also  looking at the Richardson Highway  as a possible                                                               
route  into  Southcentral  Alaska.  The advantage  to  the  Parks                                                               
Highway route  is the fact that  gas is along the  proposed route                                                               
in the  Nenana Basin.  He noted  that Enstar  has a  10-inch line                                                               
under  Turnagain Arm  that was  built in  1960 that  is still  in                                                               
service today.  To meet  demand, another  20-inch line  was built                                                               
under Turnagain Arm  in the 1980s and any future  spur line would                                                               
be a long-term gas line.                                                                                                        
Enstar asked  the question, "Do  you support  a spur line?"  on a                                                               
poll  and  85 percent  of  its  respondents including  people  in                                                               
Ketchikan and Juneau said they  do. Enstar, Arctic Slope Regional                                                               
Corporation and  Michael Baker Engineering  will soon  commence a                                                               
$3 million conceptual study of  a Parks Highway route. A recently                                                               
passed highway bill  made an additional $2  million available for                                                               
this study that  should be done within the next  12 to 18 months.                                                               
Some  of the  routing  issues are  environmental and  permitting,                                                               
potential  resource development,  right-of-way ownership  and the                                                               
social and economic impact analysis.                                                                                            
CO-CHAIR RAMRAS asked how much gas  would be needed in the Nenana                                                               
Basin to  economically justify  building a  pipe along  the Parks                                                               
Highway from Nenana up to Fairbanks or down to the spur.                                                                        
MR.  THAYER responded,  "We like  the 3-5  TCF number."  He added                                                               
that the study  would consider both North Slope  and Nenana Basin                                                               
CO-CHAIR RAMRAS asked if the  line could be incremental and could                                                               
the Cook Inlet line be retrofitted  to connect to the North Slope                                                               
line once it is on-line.                                                                                                        
MR. THAYER replied yes and his  next slide was an overview of the                                                               
various lines,  but he said,  "By no  means are we  picking sides                                                               
until the studies are done. It  just happens that somebody has to                                                               
be primary and  somebody has to be secondary on  a map." The next                                                               
slide was a timeline  of 2009 - 2010 if a spur  line proves to be                                                               
possible.  The  two  biggest unknowns  were  permitting  and  RCA                                                               
review, both government functions.                                                                                              
CO-CHAIR  RAMRAS  said  the  other  two  factors  that  would  be                                                               
integrated with Enstar's  timeline would be the  discovery of gas                                                               
by Doyon and  Usibelli and the third component  would be creating                                                               
the pipe to get to the demand that would exist in Fairbanks.                                                                    
MR. THAYER replied that was  right. He summarized that Enstar has                                                               
partnered  with the  Department  of Energy,  Municipal Light  and                                                               
Power,  Chugiak,  Artic  Slope  Energy, Michael  Baker,  and  the                                                               
Alaska  Natural  Gas  Development  Authority  and  all  concerned                                                               
parties in working  together on how to bring  gas to Southcentral                                                               
Alaska and Fairbanks.                                                                                                           
SENATOR  THERRIAULT   said  he  thought  storage   challenges  in                                                               
Fairbanks would be even greater than in Southcentral.                                                                           
MR. THAYER agreed.                                                                                                              
REPRESENTATIVE PAUL SEATON  related that Cook Inlet  has very dry                                                               
gas  (Biogenic)   and  that   Nenana  gas   might  be   very  wet                                                               
(Thermogenic),  but Mr.  Thayer's  slide showed  the wet  portion                                                               
being more  expensive than fuel  oil. He asked if  he anticipated                                                               
propane  coming out  of Nenana  Basin would  be higher  than fuel                                                               
MR. THAYER replied that he wanted  to defer that answer to Harold                                                               
Heinze, because  Enstar is not  in the propane business.  He said                                                               
the slide did not take wet or dry gas into account.                                                                             
SENATOR  RALPH SEEKINS  remarked no  matter what  route was  used                                                               
there  would  be  similar  challenges   in  terms  of  danger  to                                                               
threatened species, geological formations, et cetera.                                                                           
MR.  THAYER agreed  and said  the  idea of  the study  is not  to                                                               
recreate information that exists, but to  try to pull all the old                                                               
information from  the last  10 or 15  years together  and compare                                                               
the differences.  "We're going to  get a rough  estimate...." The                                                               
Parks  Highway  has  three  possible   corridors  -  the  Highway                                                               
corridor, the Railroad corridor and  the Intertie corridor. A gas                                                               
pipeline  could  come  through  any  of  them  or  a  combination                                                               
CO-CHAIR  RAMRAS said  the next  presenter would  be Dan  Britton                                                               
from  Fairbanks Natural  Gas and  asked  him to,  along with  his                                                               
presentation,  keep  in  mind  the  issues  of  creating  of  the                                                               
sourcing  of energy,  Enstar's desire  to  build a  pipe with  an                                                               
adequate supply  of hydrocarbons  and connecting the  demand with                                                               
the pipe.                                                                                                                       
DAN BRITTON,  Fairbanks Natural Gas  (FNG), said the  company was                                                               
started  in  1997  and  the  idea was  to  bring  a  natural  gas                                                               
alternative to  the Fairbanks community.  The desire was  to stay                                                               
competitive  with the  other energy  sources.  He explained  that                                                               
Northern  Eclipse buys  its  gas  at the  Cook  Inlet and  Beluga                                                               
fields; Enstar transports it on  Fairbanks Natural Gas' behalf to                                                               
a  facility located  near the  Little Susitna  Recreational Area.                                                               
The facility  liquefies the gas  to a cryogenic temperature  to -                                                               
260F for  storage. He said  that natural gas  will not turn  to a                                                               
liquid as  a result of compression  alone; it needs to  be cooled                                                               
also. One-gallon of  LNG will expand 600 times  and propane stays                                                               
liquid at ambient pressures and temperatures.                                                                                   
Once  the  gas  is  liquefied  it is  transported  in  trucks  to                                                               
Fairbanks where  it is  stored in  large vessels  until consumers                                                               
are  ready to  use it.  Then it  is reheated  back to  a gas  and                                                               
CO-CHAIR RAMRAS  asked what  it would cost  to replicate  the Pt.                                                               
McKenzie LNG  compression plant to  transport gas from  Nenana to                                                               
Fairbanks if  there was not enough  of it in the  Nenana Basin to                                                               
warrant a pipe.                                                                                                                 
MR.  BRITTON replied  that Fairbanks  Natural  Gas has  estimated                                                               
that a  liquification plant  right now would  cost $6  million to                                                               
$10 million.  This didn't include  the trucks or storage  once it                                                               
reaches Fairbanks.                                                                                                              
CO-CHAIR RAMRAS  noted that trucks  are available since  they are                                                               
being used now for the longer distance from Anchorage.                                                                          
MR. BRITTON replied that their  trucking expense would go down by                                                               
30 percent.  The trucking component adds  approximately $1.50 per                                                               
MCF, not including the cost of the LNG trailers, themselves.                                                                    
SENATOR THERRIAULT pointed  out that people would not  be able to                                                               
have an LNG  bottle outside their homes as they  do currently for                                                               
propane just because of its storage requirements.                                                                               
MR. BRITTON agreed  and said that natural gas  can be distributed                                                               
through  a pipe  distribution system  as compressed  gas or  LNG.                                                               
Compressed gas is  not very efficient because  the space required                                                               
to get enough  energy to serve a home would  require a very large                                                               
tank  with  very  high  pressures.  LNG  requires  very  capital-                                                               
intensive  equipment and  therefore,  for a  residence, it's  not                                                               
CHAIR WAGONER asked what the cryogenic process adds to the cost.                                                                
MR. BRITTON  replied that it depends  on the capital cost  of the                                                               
storage  facility, but  operation-wise it  probably adds  $.50 to                                                               
$1.00 per MCF.                                                                                                                  
CO-CHAIR RAMRAS  asked how many MCF  would a residence burn  in a                                                               
month during the winter.                                                                                                        
MR. BRITTON replied that FNG uses  an average of 190 MCF per year                                                               
for its modeling,  but that can vary widely. The  monthly peak is                                                               
usually 2.5 times the average in Fairbanks.                                                                                     
CO-CHAIR  RAMRAS recapped  that  their best  estimate in  savings                                                               
would be $1 from shortening  the haul from Anchorage to Fairbanks                                                               
to   Nenana  to   Fairbanks,  and   the  additional   savings  of                                                               
approximately $1  that Chair Wagoner mentioned  of regasification                                                               
in Fairbanks.                                                                                                                   
MR.  BRITTON agreed  and said  that it  takes 1.2  MCF of  gas to                                                               
liquefy 1 MCF of gas so  there is a loss in efficiency converting                                                               
LNG to  begin with.  This doesn't take  into account  the capital                                                               
component  of the  facility, the  trucking, the  trailers or  the                                                               
storage and the vaporization. "Those  are the components that are                                                               
different than a conventional pipeline source."                                                                                 
CO-CHAIR RAMRAS  asked if  it is  cheaper to  heat the  same size                                                               
home  on heating  oil or  natural gas  with his  present delivery                                                               
MR.  BRITTON answered  that  he  has a  slide  that compares  the                                                               
historical and  current pricing  of gas  versus oil.  Today their                                                               
gas  to  a residential  customer  is  a  little below  $1.60  per                                                               
gallon. The current  price of fuel oil to  a residential customer                                                               
is $2.39 or so.                                                                                                                 
CO-CHAIR    RAMRAS    speculated    that    the    liquification,                                                               
regasification and transportation would  cost about 20 percent of                                                               
the gross  volume to  Anchorage and Fairbanks  would be  paying a                                                               
component to  regasify it  again and the  tariff is  around $2.50                                                               
per MCF.                                                                                                                        
     So if,  in fact,  you were  able to  back out  of those                                                                    
     costs and  you had  just a  straight pipe  and whatever                                                                    
     the tariff would be, Curtis  Thayer and Enstar, whoever                                                                    
     the  pipeline  builder  would  be,  the  savings  would                                                                    
     actually  stair-step down  from  the  $1.60 per  gallon                                                                    
     equivalent  to   somewhat  less  than  that.   Is  that                                                                    
MR. BRITTON  replied yes, but  he pointed  out that he  would not                                                               
have  the   advantage  of   having  long-term   contracts.  Their                                                               
distribution tariff would be slightly  higher than Enstar's given                                                               
the  facts  that  their  customer   base  is  smaller  and  their                                                               
investments are  newer so the  depreciation is higher.  "We would                                                               
be closer to Enstar, although  we'd still be slightly higher than                                                               
CO-CHAIR RAMRAS  supposed that the  efficient market  for natural                                                               
gas  would be  to  discover a  sufficient amount  of  gas in  the                                                               
Nenana Basin  to warrant the  construction of a 50-mile  pipe and                                                               
delivery right to customers. He remarked:                                                                                       
     And  every time  that we  back away  from that,  we get                                                                    
     less efficient and we loose  a volume of product and we                                                                    
     add  steps.... Even  with all  of those  things, you're                                                                    
     saying that the  cost to heat Chair  Wagoner's gas home                                                                    
     is two-thirds  of the  cost of  what it  is to  heat my                                                                    
     home on home heating oil presently.                                                                                        
MR. BRITTON replied  yes - based on prices today.  He presented a                                                               
series  of slides  showing  where the  company  started with  its                                                               
distribution system and how it  might continue to evolve. He said                                                               
that Fairbanks has such extremes  in temperatures that everything                                                               
that  gets  built has  to  get  built  for  that peak  day.  That                                                               
includes  the distribution  system, LNG  production and  storage.                                                               
"So, utilization of your capital  is very difficult. If your peak                                                               
day is  two and  half times  what your average  is, it  becomes a                                                               
very difficult thing to deal with."                                                                                             
CO-CHAIR RAMRAS asked  how close Fairbanks was to  running out of                                                               
natural gas when the avalanches occurred last winter.                                                                           
MR.  BRITTON replied  that after  the  avalanche, their  delivery                                                               
trucks were rerouted through Glennallen.                                                                                        
REPRESENTATIVE BILL STOLTZE, asked a question about permitting.                                                                 
MR.  BRITTON replied  that FNG  has good  relations with  the RCA                                                               
[Regulatory  Commission   of  Alaska],   the  city   and  borough                                                               
government  and DOTPF  in obtaining  their rights-of-way  and, to                                                               
date,  its   investors  have   borne  the   cost  of   all  their                                                               
distribution  expansion, not  their  customers.  He thought  that                                                               
Enstar would allow customers to pay into its capital cost.                                                                      
MR.  THAYER  added  that  in  communities  where  it's  not  cost                                                               
effective to  serve people  with natural  gas, the  boroughs have                                                               
allowed  residents to  form assessment  districts. They  petition                                                               
themselves and by a super  majority vote to assess themselves for                                                               
bringing  a natural  gas  line into  an area.  Once  the line  is                                                               
extended into an area, the  homeowners reimburse the borough with                                                               
a $20 service charge and a per household tariff.                                                                                
He related that  the RCA operates under a  cost causer/cost payer                                                               
process. As  the cost  causer, the  RCA would  need to  pay those                                                               
costs. One of  the biggest reasons Ninilchik could  not afford to                                                               
have  gas is  because  the regulating  station  would cost  about                                                               
$225,000  and the  homeowners  would have  to  absorb that  cost.                                                               
However,  he reminded  them that  homeowners are  given a  credit                                                               
based  on an  estimate of  how much  gas their  home or  business                                                               
would be  allowed to  use. The  estimated cost  to extend  a line                                                               
into an  area is  based on Enstar's  construction costs  from the                                                               
previous year.  This year, it  was estimated to cost  about $8.81                                                               
per foot to bring a main line in.                                                                                               
CO-CHAIR  RAMRAS clarified  that  Fairbanks Natural  Gas does  in                                                               
Fairbanks what  Enstar does  in Anchorage.  But Enstar's  role is                                                               
different in  building a pipe  from Nenana to Fairbanks  than the                                                               
present capacity Anchorage enjoys.                                                                                              
MR. THAYER added  that Alaska Pipeline Company  is the subsidiary                                                               
that operates their 450 miles of transmission lines.                                                                            
CO-CHAIR  RAMRAS asked  what the  cost per  mile is  to lay  down                                                               
residential pipe.                                                                                                               
MR.  BRITTON  replied that  FNG  uses  $100,000  per mile  as  an                                                               
MR. THAYER replied that Enstar uses $8.81 per foot.                                                                             
MR.  BRITTON  speculated  that Enstar  could  be  blending  costs                                                               
because they are doing a lot  of new construction and those costs                                                               
are significantly  lower than putting infrastructure  in existing                                                               
roadways like FNG is doing.                                                                                                     
CO-CHAIR  RAMRAS asked  Mr.  Thayer if  he  thought the  economic                                                               
growth of Fairbanks is inhibited by high-energy costs.                                                                          
MR. THAYER  replied that Fairbanks  would boom if it  could lower                                                               
the cost of its energy by 40 percent.                                                                                           
CO-CHAIR  RAMRAS asked  Mr.  Britton if  FNG  focuses on  getting                                                               
lines  out to  the large  industrial  users because  there is  no                                                               
guarantee homeowners would convert to gas.                                                                                      
MR. THAYER  replied yes. Enstar  has a limited amount  of capital                                                               
and it looks at the best use of that capital in any given year.                                                                 
CO-CHAIR  RAMRAS thanked  both gentlemen  for their  presentation                                                               
and announced that Kate Lamal would testify next.                                                                               
KATE  LAMAL,   Vice  President,   Power  Supply,   Golden  Valley                                                               
Electricity  Association (GVEA),  explained that  their lines  go                                                               
north to Fox on the Steese  Highway and down to Delta where there                                                               
is a  lot of growth. She  wanted to make three  basic points. One                                                               
is about mining and economic  development in the Interior and how                                                               
energy prices can  be stabilized, as well  as affordable. Another                                                               
point was that  GVEA has the ability to add  generation as needed                                                               
to serve  new loads for  large mines that are  under development.                                                               
And lastly,  she wanted to show  how natural gas could  play into                                                               
their future and what they feel is natural gas's competition.                                                                   
She said  that GVEA currently  serves two large gold  mines, Fort                                                               
Knox  and  Pogo, and  showed  the  committee  a map  of  possible                                                               
connections  to  other  utilities  and industry.  She  said  that                                                               
Golden Valley is fuel diverse and  that's one of the best ways to                                                               
keep power  cost stable and  relatively low. They use  coal, oil,                                                               
hydro, natural gas and are  currently building a power plant that                                                               
will  be  fueled  on  naphtha. A  couple  of  low-cost  long-term                                                               
contracts  with  Chugach  and  ML&P are  expiring  and  they  are                                                               
talking about what happens when  these utilities run out of their                                                               
cheap natural gas.                                                                                                              
MS. LAMAL also noted that Fort  Knox would be closing in the next                                                               
couple of  years and one  of the ways  Golden Valley will  try to                                                               
meet low  growth in the future  is by building a  new power plant                                                               
fueled with naphtha,  a lower value product with  very good value                                                               
in the  existing quality bank.  The new  units are dual  fuel and                                                               
can easily  be switched to  natural gas if it  becomes available.                                                               
Also, Golden  Valley owns the  2.3-mile pipeline that  brings oil                                                               
from the TAPS into the refineries.  If natural gas does come from                                                               
the North Slope,  GVEA has an existing  right-of-way, an existing                                                               
pipeline and  the expertise to  operate it  to bring it  into the                                                               
North Pole facilities. She explained  another efficiency of using                                                               
naphtha is that the exhaust gas from it will go through a once-                                                                 
through  steam generator  that runs  a steam  turbine -  and, she                                                               
emphasized, for just  the price of the gas turbine  and the once-                                                               
through steam  generator, GVEA's  output will  double. It  can go                                                               
from  a 60-megawatt  unit to  120-megawatt unit  in a  very short                                                               
She said  that Nenana gas would  be very attractive to  GVEA, but                                                               
it would  be competing with  other fuels from the  perspective of                                                               
the electric utility. She explained:                                                                                            
     First of all,  there is abundant coal  in the Interior.                                                                    
     We currently  have a coal-fired  power plant  in Healy.                                                                    
     That  plant is  running extremely  well. It's  breaking                                                                    
     all of  its old records;  it's 37 plus years  old. It's                                                                    
     been retro  fit with emission  controls and it  is very                                                                    
     cheap,  particularly  with  the escalating  oil  prices                                                                    
     that we're  seeing right  now. That's  going to  be the                                                                    
     competition of  natural gas  - is  going to  be against                                                                    
     coal, for one thing.                                                                                                       
     Natural  gas  is also  going  to  be competing  against                                                                    
     products  that  refineries  may want  to  sell  to  the                                                                    
     utilities in  the state  at a lower  price if  they see                                                                    
     the competition  coming forward. And lastly,  and being                                                                    
     very realistic  when I say  natural gas is going  to be                                                                    
     competing with wind, wind  or alternative energies will                                                                    
     never  replace  our  fossil  fuel.  However,  when  the                                                                    
     utilities  have to  make capital  investments and  they                                                                    
     have  to do  that  particularly  the investments  where                                                                    
     there's  no growth  to  support  those investments.  If                                                                    
     they  can offset  higher cost  fuel, wind  becomes more                                                                    
     attractive. So,  that's what happening  here -  is that                                                                    
     throughout   the   country   wind  is   becoming   more                                                                    
     attractive as we have these escalating fuel prices.                                                                        
CO-CHAIR RAMRAS  thanked her very  much for her  presentation. He                                                               
announced that BILL  BOYCOTT, Agrium, was not able  to attend and                                                               
that Harold  Heinze would  be the next  presenter. He  noted that                                                               
power cost  equalization is  an important issue  and he  would go                                                               
over  gas  and propane  as  a  rural  energy  mix. He  asked  him                                                               
specifically to put  on his 20-year hat to consider  how they may                                                               
better serve rural Alaska.                                                                                                      
HAROLD HEINZE, Alaska Natural  Gas Development Authority (ANGDA),                                                               
explained  that he  is a  state employee  who lives  in Anchorage                                                               
where the  committee has  just established  that energy  is cheap                                                               
and they have a little bit of  a supply problem and he is sitting                                                               
in  Fairbanks where  energy is  expensive  and he  is going  talk                                                               
about  where  energy  is  really  much  more  expensive  than  in                                                               
He presented a chart of benefits  the ANGDA made up when it first                                                               
started in  2003. He  emphasized that  he has  consistently found                                                               
that all Alaskans  want to know how they can  get cheaper energy.                                                               
It seemed so logical that when  the pipe crossed the Yukon River,                                                               
why wouldn't something  be done at that point to  move the energy                                                               
up and  down it. He  believes that  Fairbanks will get  gas going                                                               
through their town  somewhere. Getting gas to  tidewater opens up                                                               
other kinds of things that can be done with coastal communities.                                                                
ANGDA just finished a propane  study revealing that the logistics                                                               
of energy  distribution in Alaska  needs to be improved.  He said                                                               
that flying  around 100 tanks  of propane  in planes is  not very                                                               
efficient,  but if  you want  to  get more  efficient, you  could                                                               
deliver propane  in a system  of tanks  much like people  use for                                                               
filling  up  propane tanks  for  their  grills. Take  your  empty                                                               
propane  tank into  your hardware  store and  pick up  one that's                                                               
full in return. Everywhere barges  went and everywhere containers                                                               
were  delivered, propane  could be  delivered in  those kinds  of                                                               
tanks. These kinds of systems dramatically improve efficiency.                                                                  
The other part of improving  the cost effectiveness of the system                                                               
is  how   things  get  financed.   Wyoming  has  a   natural  gas                                                               
development authority  and all it  does is provide  the financing                                                               
for  pipelines. It  estimates is  has made  the state  of Wyoming                                                               
about a  half a  billion dollars  a year. It  acts as  the broker                                                               
between those people who explore for  gas who need a pipeline and                                                               
those people  who build pipelines,  but need gas  discoveries. As                                                               
the  honest broker,  they close  the  deal. "Those  opportunities                                                               
exist throughout Alaska...."                                                                                                    
A PND  study looked  at the  logistical problems  associated with                                                               
marine delivery  of propane to  10 coastal communities.  It found                                                               
that  one of  the biggest  factors  affecting cost  was having  a                                                               
limited  period of  time to  get supplies  into a  port and  that                                                               
would  have  associated large  storage  costs  to store  a  whole                                                               
year's supply. A  lot of things were found  to improve logistical                                                               
systems  other  than  building  pipelines,  like  establishing  a                                                               
couple of distribution centers from  which people could barge gas                                                               
to their communities.                                                                                                           
MR.  HEINZE showed  slides comparing  energy prices  and said  he                                                               
found that propane could help  some individual homes reduce their                                                               
energy costs  by being  used for cooking  and water  heating. For                                                               
power  generation he  found only  a few  examples where  he would                                                               
consider even  using propane  to make  electric power.  The study                                                               
indicated that  it would be  very easy  to make 40,000  to 50,000                                                               
barrels a day of propane in  Alaska and the current rate is under                                                               
2,000  barrels  a day.  The  study  suggested that  using  10,000                                                               
barrels of propane a day would  be a reasonable growth number for                                                               
the longer term in Alaska.                                                                                                      
The next couple  of slides presented facts about  a possible spur                                                               
line  from Delta  Junction  to Glennallen  and  Palmer. He  said,                                                               
"What  is  obvious to  us,  at  least, is  that  this  is a  very                                                               
feasible out.  We've done  enough work  to feel  very comfortable                                                               
with it." One of the advantages of  this route is that half of it                                                               
can be  put in the TAPS  right-of-way and that would  cut down on                                                               
construction time, in  particular. This project could  be used as                                                               
a prebuild into a big project  if the big pipeline moves forward.                                                               
Producers have indicated they would  take the first five to seven                                                               
years to  deal with design  and permitting and all  the logistics                                                               
that it  takes. ANGDA estimates that  a spur line could  be built                                                               
in five  to seven years.  He emphasized  how important it  was to                                                               
have  a  couple of  commercial  customers  to  make a  spur  line                                                               
economically viable and ANGDA has looked  at how to make sure the                                                               
industrial  customers are  there and  how best  to fit  them into                                                               
paying the bills.                                                                                                               
CHAIR  WAGONER  said  someone  talked  to  the  Senate  Resources                                                               
Committee  about  barging  gas  into  some  of  the  Southeastern                                                               
communities  and  asked if  he  had  any interaction  with  those                                                               
MR. HEINZE replied  that the gentleman's name  was Frank Havasack                                                               
and his company  holds certificates of utility type  service to a                                                               
number of communities  up and down the coastal  area. His concept                                                               
was to bring propane into the  area and have a piped distribution                                                               
system  in the  communities. But  at  this point,  ANGDA has  not                                                               
worried  very  much  about  how  to  distribute  gas  within  the                                                               
communities,  but  rather  about  getting it  to  a  distribution                                                               
center  on the  beach and  unloaded. Private  entrepreneurs would                                                               
figure out what to do with it from there.                                                                                       
     The   advantage   of  propane   is   that   it  is   so                                                                    
     transportable  in so  many  different  ways in  smaller                                                                    
     quantities.  Again, that's  why when  we looked  at the                                                                    
     Yukon River first. It just  seemed a natural to want to                                                                    
     be able to use something there in terms of propane.                                                                        
REPRESENTATIVE GABRIELLE LEDOUX asked if  he was working with the                                                               
Denali Commission, which  has bulk fuel storage tanks  in many of                                                               
the rural areas.                                                                                                                
MR. HEINZE replied  no, they are not working together,  but he is                                                               
aware of  what the commission is  doing and he has  done his best                                                               
to  make it  aware of  what he  is doing.  He hoped  some of  the                                                               
things  ANGDA  is  doing  would help  them  make  some  decisions                                                               
because the  Denali Commission  has been  dealing with  some very                                                               
bad bulk storage problems.                                                                                                      
SENATOR SEEKINS asked if the  study showed that propane would not                                                               
necessarily  reduce  the cost  of  electric  production in  rural                                                               
MR.  HEINZE replied  that the  study showed  that at  a household                                                               
level,  if  there   was  plenty  of  propane   and  an  efficient                                                               
distribution system  for it, you  could probably help  lower some                                                               
portion of the energy cost of every household in Alaska.                                                                        
CO-CHAIR RAMRAS  thanked him for  his presentation  and announced                                                               
that  Steven  Denton would  make  his  presentation next  on  the                                                               
economic impact of gas on coal in Fairbanks.                                                                                    
STEVEN DENTON,  Usibelli Coal Mine,  said some people  think that                                                               
coal is  just going to go  away when gas comes  to Fairbanks, but                                                               
both resources  are there in  such abundance that they  should be                                                               
looked at  as being  complementary parts  of an  economic engine,                                                               
not as one excluding the other.                                                                                                 
He  focused his  presentation  on production  of electricity.  He                                                               
said that  stability is necessary,  as Ms. Lamal stated,  but for                                                               
big  mining  projects it's  imperative  to  have low-cost  energy                                                               
also. Coal  prices have been very  stable over the long  haul and                                                               
there is every  reason to expect they will continue  to be stable                                                               
in  the future.  But  where  gas prices  are  going is  anybody's                                                               
guess.  One   graph  indicated  that   states  with   the  higher                                                               
percentage of coal in their mix enjoy lower electricity rates.                                                                  
Most   of   his   information  came   from   Energy   Information                                                               
Administration (EIA)  data that is  available on a  huge website.                                                               
It says  that coal will  stay stable and  that natural gas  is $6                                                               
MBTU  for electrical  and industrial  utilization, very  close to                                                               
the Henry Hub price. It's now peaking out at around $9.                                                                         
R. W. Beck,  an engineering firm that has a  lot of experience in                                                               
the  energy industry,  was commissioned  by  the Railbelt  Energy                                                               
Utilities to  perform a  study in  2004. It  recommended building                                                               
new coal-fired 150-megawatt power plant  at both ends of the rail                                                               
belt for  cost saving purposes  and for diversification.  It also                                                               
recommended going to much larger units than are being used now.                                                                 
Another slide  showed two  prices that  were conservative  on the                                                               
coal side, but optimistic  on the gas side - $5  MBTU for gas and                                                               
$1.50 for coal delivered from  Healy into the Southcentral Basin.                                                               
Electric generation  cost about  $47 per  megawatt hour  for coal                                                               
and about  $52 per megawatt  hour for natural gas.  Another slide                                                               
showed  a savings  of $10  million  per year  using a  coal-fired                                                               
power plant while a gas one  was being built. Paying off the debt                                                               
on a coal  plant would save over $1 billion  in present value for                                                               
Railbelt  energy  consumers with  a  150  to 200  megawatt  power                                                               
plant. "That's not an insignificant  savings and it's something I                                                               
don't think  that we can afford  to ignore in our  planning going                                                               
MR. DENTON  said that Usibelli Coal  has 350 to 400  direct jobs,                                                               
depending on  how they are  categorized. Putting in the  new coal                                                               
burning units  would probably  generate around  200 more  jobs in                                                               
the state. He reiterated that they  need to look for diversity in                                                               
energy creation  and the challenge  is to use those  resources in                                                               
an appropriate and prudent fashion.                                                                                             
He  wanted to  address  the  notion that  coal  is  a dirty  fuel                                                               
     I think  that's probably  an accurate statement  if you                                                                    
     have  somebody  with  an old  potbelly  stove  with  no                                                                    
     controls on  it sitting in one  house and a guy  with a                                                                    
     gas burner in  the other. That's a  valid statement and                                                                    
     for those kind  of things, that's another  reason why I                                                                    
     would not expect coal to  become the fuel of choice for                                                                    
     people to heat  their house and cook their  eggs in the                                                                    
     morning and  that sort  of thing,  but coal  is subject                                                                    
     for  electric  power  generation to  exactly  the  same                                                                    
     regulations that all other fuels  are. You have to meet                                                                    
     the same  regulations and even  for a power  plant, any                                                                    
     fuel  burned in  a  power plant,  burned improperly  is                                                                    
     going to be a big polluter....                                                                                             
SENATOR SEEKINS asked how many  years would the Healy coal source                                                               
be able to supply electric generation.                                                                                          
MR. DENTON replied  about 200 years at  current consumption based                                                               
on their current leases.                                                                                                        
SENATOR SEEKINS asked where Usibelli's  coalbed methane plans are                                                               
in terms of exploration.                                                                                                        
MR. DENTON replied that they  are behind the Nenana Basin project                                                               
and he had just been mailed  the draft best interest finding from                                                               
the state. Usibelli had applied  for leases under the old shallow                                                               
gas-leasing program and  it is now going  through the exploration                                                               
license  process and  is  several months  away  from having  that                                                               
license in place  - and about two years away  from doing anything                                                               
meaningful out there  - simply because their  attention is really                                                               
focused on the Nenana Basin right now.                                                                                          
SENATOR SEEKINS  asked the  status of the  clean coal  project in                                                               
MR. DENTON  replied that  Golden Valley  Electric and  AIDEA were                                                               
negotiating the separation  of the plant and he  was not involved                                                               
in those negotiations.                                                                                                          
REPRESENTATIVE  JEANETTE  JAMES  asked  him  to  comment  on  the                                                               
gasification of coal and its potential as an energy source.                                                                     
MR. DENTON  answered that  natural gas could  be made  from coal,                                                               
but  it  should   be  utilized  as  feedstock   for  things  like                                                               
petrochemical  industries and  hydro-production. He  thought that                                                               
was where the  future of gasification lies.  The process produces                                                               
hydrogen and  carbon monoxide and  those can be reformed  to make                                                               
any number of things, like diesel fuel.                                                                                         
        So, if you can take $1.00 to $1.50 coal and even                                                                        
     tripling the cost of converting those BTUs to liquid,                                                                      
     you're still way ahead of the ballgame.                                                                                    
SENATOR THERRIAULT  asked if the  coal-fired plant in  Mat-Su had                                                               
progressed at all.                                                                                                              
MR. DENTON replied  that he couldn't speak  specifically for Mat-                                                               
Su Electric,  but their  engineers trade data  back and  forth to                                                               
see  whether it  is the  best thing  to do  in the  long run.  He                                                               
hadn't heard any announcement.                                                                                                  
SENATOR THERRIAULT asked if anything  had happened with Anchorage                                                               
area generators.                                                                                                                
MR. DENTON replied that it was very quiet.                                                                                      
CO-CHAIR RAMRAS  thanked him for  his presentation and  said that                                                               
Rocky Pavey  would be  the next presenter  on conversion  of home                                                               
heating oil to natural gas.                                                                                                     
ROCKY  PAVEY,  Rocky's  Heating   Service,  started  by  assuming                                                               
they've  got  gas  in  the Nenana  Basin.  Homeowners  and  small                                                               
business owners  are excited about  natural gas for  four reasons                                                               
in Fairbanks.  Number one  is because it's  clean; number  two is                                                               
it's convenient;  number three is  it offers an amazing  array of                                                               
choices; and number four is it's cost effective.                                                                                
MR. PAVEY  explained that by  clean he  means when he  services a                                                               
furnace, he  gets his brushes  out and  cleans away the  soot and                                                               
it's  nasty -  even if  it has  been burning  clean all  year. If                                                               
natural gas  is set up  properly, you can  come back five  or six                                                               
years later  and the heat  exchanger still looks brand  new. That                                                               
means the homeowner  is getting the full use of  his heating BTU.                                                               
If you have a  line to your house, you don't  have to worry about                                                               
delivery because of a heavy snow  load or running out of fuel. He                                                               
said that one  of his largest overtime call outs  is due to "out-                                                               
of-fuels" even when customers are on automatic delivery.                                                                        
He explained that  fuel oil uses the basic oil  burner and that's                                                               
it, but an  array of equipment is available for  use with natural                                                               
gas. Materials other  than cast iron can be used  for the heating                                                               
appliances, which can  achieve efficiencies of up  to 99 percent.                                                               
With  oil the  best you  can do  is 85  to 86  percent. His  last                                                               
natural gas delivery cost him  $1.10 per 100,000 BTUs compared to                                                               
oil that was $1.61 per BTU.                                                                                                     
MR. PAVEY advised  that people who are  thinking about converting                                                               
an oil-fired system  that is more than five years  old should get                                                               
a  whole  new  heating  unit, because  soot  deposits  and  leaky                                                               
gaskets  in older  systems let  combustion escape.  But it  would                                                               
cost $1,800 to $2,200 to  convert an existing oil-fired appliance                                                               
over to a  gas-fired appliance if the heating unit  does not have                                                               
to  be  replaced. New  units  are  comparable  for gas  and  oil.                                                               
Fairbanks does  not allow residents  to vent a  gas-fired chimney                                                               
through an outside masonry chimney,  because exhaust gases coming                                                               
in from gas-fired equipment is  so much cooler they will condense                                                               
outside creating sulfuric  acid that will eat the  mortar and the                                                               
chimney will collapse. Other considerations  would come into play                                                               
based  on individual  applications. He  explained that  switching                                                               
from  an oil  fired-boiler to  a gas  fired boiler  would cost  a                                                               
little more  because domestic  hot water  supply would  require a                                                               
different set up with gas.                                                                                                      
CO-CHAIR  RAMRAS asked  in what  other residential  districts had                                                               
Mr. Britton built besides Doyon Estates in Fairbanks.                                                                           
MR.   BRITTON  replied   that  his   primary  concentration   for                                                               
residential is in the south Fairbanks area.                                                                                     
CO-CHAIR  RAMRAS  asked  what percentage  of  homeowners  he  has                                                               
passed have opted to convert to natural gas.                                                                                    
MR. BRITTON  replied that  each area  is quite  different ranging                                                               
from 75  percent down  to 10  percent. Their  distribution system                                                               
was in place  before Doyon was developed. One  hundred percent of                                                               
new construction will be gas  for both residential and commercial                                                               
construction if it is available.   Ten percent gas usage would be                                                               
in  neighborhoods  that  didn't  have  the  discretionary  income                                                               
available for a conversion.                                                                                                     
CO-CHAIR RAMRAS surmised  that the people who  would most benefit                                                               
from  the energy  savings with  natural  gas would  be the  least                                                               
likely to convert because of the cost component.                                                                                
MR.  PAVEY  agreed  saying  those  areas  would  have  the  older                                                               
equipment as  well and they  are looking at not  just converting,                                                               
but swapping  out the  entire system and  he personally  balks at                                                               
converting older equipment because of liability issues.                                                                         
SENATOR  SEEKINS  asked  who the  shareholders  are  in  Northern                                                               
MR.  BRITTON replied  that currently  its shareholders  are based                                                               
out  of Dallas  and are  primarily  managed by  a company  called                                                               
Rosewood Resources.                                                                                                             
CO-CHAIR  RAMRAS  asked  Mr.  Pavey  if  there  would  be  enough                                                               
technicians to bring  in a large number of gas  boiler systems if                                                               
a large amount of gas was discovered and brought to Fairbanks.                                                                  
MR. PAVEY replied:                                                                                                              
     No, not  even close.  You talk  to any  service company                                                                    
     out there right now. They  can't keep up right now with                                                                    
     the load  that they  have currently serving  just doing                                                                    
     annual tune-ups  and the odd  boiler swap out -  oil to                                                                    
     oil  - I  was serious  when I  said get  in touch  with                                                                    
     Hutchinson  Career Center  and start  a program  there,                                                                    
     because  they could  absorb 50  techs a  year there  in                                                                    
     this community  and not even  blink - especially  if we                                                                    
     have a  main line  tapped right  here. You're  going to                                                                    
     have  contractors flooding  from  the  Lower 48,  quite                                                                    
     frankly is what I envision  - because you are not going                                                                    
     to have the capability to  do this in-house, to do this                                                                    
     right here.  Every heating contractor  in the  Lower 48                                                                    
     is  going  to  see  a mini-boom  in  this  economy  and                                                                    
     they're going  to come start  beating on the  door here                                                                    
     and  trying  to  do  business with  this  town....  I'm                                                                    
     telling you  right now, Fairbanks does  not have enough                                                                    
     techs to put in massive  swap outs. You would literally                                                                    
     be going seven days a week, 24 hours a day.                                                                                
CO-CHAIR RAMRAS asked Representative  Stoltze how conversion from                                                               
home heating oil to gas was accomplished.                                                                                       
REPRESENTATIVE STOLTZE  replied that  when his family  in Chugiak                                                               
converted  in the  early  80s, it  was a  tough  pill to  swallow                                                               
because the entry price was  pretty steep and converting required                                                               
cascading so the first guy really  had to bite the bullet. It had                                                               
a lot  of success,  however, as  the area grew  and in  the newer                                                               
CHAIR WAGONER said he just put  $12,000 into his house going to a                                                               
much more efficient system, but you  have to have the money to do                                                               
it. "I  have saved equal to  what the increase is  in natural gas                                                               
over  the last  two years  have  been and  that's a  lot. It's  a                                                               
little over 20 percent."                                                                                                        
MR. PAVEY agreed saying:                                                                                                        
     "You're right, if you can  go to munchkin style and the                                                                    
     condensing  modulating  boilers,   which  is  what  I'm                                                                    
     putting in  my shop here  in Fairbanks, you can  save a                                                                    
     tremendous amount of money - gobs!"                                                                                        
CO-CHAIR RAMRAS said:                                                                                                           
     We  will  conclude  that building  a  pipeline  in  the                                                                    
     Nenana gas basin would save  the community of Fairbanks                                                                    
     gobs  and I  thank you  for summarizing  a whole  day's                                                                    
     worth of testimony, Rocky, I appreciate that.                                                                              
The meeting was adjourned at approximately 4:30 p.m.                                                                            

Document Name Date/Time Subjects