Legislature(2005 - 2006)BUTROVICH 205

04/19/2006 03:30 PM RESOURCES


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Audio Topic
03:38:24 PM Start
03:45:26 PM SB278
04:33:48 PM Agrium Phase 2 Summary – Kenai Blue Sky Project
04:51:40 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 278 ALASKA CLIMATE CHANGE TASK FORCE TELECONFERENCED
Moved CSSB 278(RES) Out of Committee
Agrium Presentation - Blue Sky
*+ SJR 17 COLLECT MORE EXXON VALDEZ SPILL DAMAGES TELECONFERENCED
Scheduled But Not Heard
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         April 19, 2006                                                                                         
                           3:38 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Thomas Wagoner, Chair                                                                                                   
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Ben Stevens                                                                                                             
Senator Fred Dyson                                                                                                              
Senator Bert Stedman                                                                                                            
Senator Kim Elton                                                                                                               
Senator Albert Kookesh                                                                                                          
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER MEMBERS PRESENT                                                                                                         
                                                                                                                                
Senator Hollis French                                                                                                           
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 278                                                                                                             
"An  Act  creating the  Alaska  Climate  Change Task  Force;  and                                                               
providing for an effective date."                                                                                               
     MOVED CSSB 278(RES) OUT OF COMMITTEE                                                                                       
                                                                                                                                
Agrium Blue Sky Phase 2 Presentation                                                                                            
                                                                                                                                
SENATE JOINT RESOLUTION NO. 17                                                                                                  
Urging the  United States  Department of  Justice and  the Alaska                                                               
Department of Law  to identify all natural  resource damages from                                                               
the Exxon  Valdez oil spill  that were unanticipated at  the time                                                               
of the 1991  settlement, to develop plans to  remedy the damages,                                                               
and to present the ExxonMobil  Corporation with a request for the                                                               
full  $100,000,000 that  is available  through the  "Reopener for                                                               
Unknown Injury" clause of the  1991 civil settlement to carry out                                                               
these plans.                                                                                                                    
     SCHEDULED BUT NOT HEARD                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 278                                                                                                                  
SHORT TITLE: ALASKA CLIMATE CHANGE TASK FORCE                                                                                   
SPONSOR(s): SENATOR(s) OLSON                                                                                                    
                                                                                                                                
02/13/06       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/13/06       (S)       RES, FIN                                                                                               
04/12/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
04/12/06       (S)       Heard & Held                                                                                           
04/12/06       (S)       MINUTE(RES)                                                                                            
04/19/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Senator Donny Olson                                                                                                             
Alaska State Capitol                                                                                                            
Juneau, AK 99801-1182                                                                                                           
POSITION STATEMENT:  Sponsor of SB 278                                                                                        
                                                                                                                                
Dr. Glenn P. Juday                                                                                                              
Professor of Forest Ecology                                                                                                     
University of Alaska Fairbanks                                                                                                  
Fairbanks, AK                                                                                                                   
POSITION STATEMENT:  Supported SB 278                                                                                         
                                                                                                                                
DR. ROLAND MAW, Executive Director                                                                                              
United Cook Inlet Driftnet Association (UCIDA)                                                                                  
Kenai, AK                                                                                                                       
POSITION STATEMENT:  Supported SB 278                                                                                         
                                                                                                                                
BRIAN DAVIES, former chief of BP operations                                                                                     
Prudhoe Bay, AK                                                                                                                 
POSITION STATEMENT:  Supported SB 278                                                                                         
                                                                                                                                
BILL BOYCOTT, General Manager                                                                                                   
Agrium Kenai Nitrogen Operations                                                                                                
Kenai, AK                                                                                                                       
POSITION STATEMENT:  Presented Agrium Blue Sky Phase 2 Summary                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  THOMAS  WAGONER  called   the  Senate  Resources  Standing                                                             
Committee meeting to order at 3:38:24  PM. Present at the call to                                                             
order  were Senators  Ben Stevens,  Bert Stedman,  Ralph Seekins,                                                               
Kim Elton, Albert Kookesh, Fred Dyson, and Thomas Wagoner.                                                                      
                                                                                                                                
            SB 278-ALASKA CLIMATE CHANGE TASK FORCE                                                                         
                                                                                                                                
CHAIR   THOMAS  WAGONER   announced   SB  278   to   be  up   for                                                               
consideration.                                                                                                                  
                                                                                                                                
SENATOR OLSON, sponsor,  recapped that SB 278  establishes a task                                                               
force to  review climate changes, determine  the implications and                                                               
make  recommendations. He  introduced  experts in  the field  who                                                               
would give their perspective.                                                                                                   
                                                                                                                                
DR.  GLEN  JUDAY,  Professor of  Forest  Ecology,  University  of                                                               
Alaska, Fairbanks  (UAF), said he  would pose five  questions and                                                               
provide five answers.                                                                                                           
                                                                                                                                
1. Is it warmer in Alaska? Yes  it is and how much warmer depends                                                             
on: 1) location, 2 season- warming is  a bit faster in the winter                                                               
than  in the  summer, and  3) time frame  - the  National Weather                                                               
Service  tracks trends  in  30 year  blocks  that cover  complete                                                               
decades. For example 1971-2000 gives  a 30 trend showing that the                                                               
temperature  is up  about  2.5  degrees F  for  most stations  in                                                               
Alaska.  Barrow has  the strongest  warming with  an increase  of                                                               
over 4 degrees F.                                                                                                               
                                                                                                                                
2. What  is making Alaska  warmer? Solar  variability, volcanoes,                                                             
green house  gases and global  dimming drive  temperature changes                                                               
on the planet. The heat delivered  by ocean currents and El Niños                                                               
have  a particular  affect in  Alaska and  they have  become more                                                               
frequent,  stronger  and  longer lasting.  Therefore,  Alaska  is                                                               
warmer.                                                                                                                         
                                                                                                                                
3. Is  the warming affecting  anything we might care  about? Yes.                                                             
The average  glacial loss in Alaska  amounts to about 50  feet of                                                               
water and  the Arctic sea  ice is  at a minimum.  Currently there                                                               
are ice-free passages  in the Arctic in the summer  and the trend                                                               
is for the ice to be completely  gone by summer's end within 3 or                                                               
4 decades.  Lakes are  drying, river  low-flow episodes  are more                                                               
common  and  river temperatures  are  rising.  The permafrost  is                                                               
warming and some is thawing.  Trees are growing less because they                                                               
are  short of  water and  warm weather  phenomena such  as forest                                                               
fires and  insect infestations are  becoming more common  and are                                                               
affecting more forests.                                                                                                         
                                                                                                                                
4. Will  it continue to  get warmer? The best  evidence indicates                                                             
that if we  stop all greenhouse gas now, we  would still face 50-                                                               
70  years  of  additional  strong   warming.  If  greenhouse  gas                                                               
emissions  continue  to  accelerate,  there  is  a  straight-line                                                               
relationship between how much more warming there will be.                                                                       
                                                                                                                                
5. How  do we  know we can  trust the people  who are  telling us                                                             
this? Dr.  Juday cited  an article he  wrote for  Agroborealis, a                                                           
research magazine  published by the UAF  Agriculture and Forestry                                                               
Experiment Station  (AFES). In  1982 there  was a  national level                                                               
conference  in Alaska  that examined  the possibility  of climate                                                               
warming. He  took those predictions  and compared them  with what                                                               
has actually happened in 2006 and they are right on target.                                                                     
                                                                                                                                
DR. JUDAY said  a next reasonable step is to  get the people with                                                               
the  information together  with  the people  that  need to  know.                                                               
That's  what SB  278 does  and  it sounds  like a  good plan,  he                                                               
concluded.                                                                                                                      
                                                                                                                                
3:45:26 PM                                                                                                                    
SENATOR BERT STEDMAN commented ice ages  come and go and he finds                                                               
the information interesting  in light of the  fact that Ketchikan                                                               
had record  rainfall last year.  At least in Southeast  we're not                                                               
faced with drought conditions, he said.                                                                                         
                                                                                                                                
DR. JUDAY  responded it's difficult to  get all the nuances  in a                                                               
short  presentation, but  there's a  general principle  that when                                                               
you affect  the earth climate  system in a measurable  way, other                                                               
places can experience change that may be the opposite.                                                                          
                                                                                                                                
He related  that the steering  currents that bring  storms ashore                                                               
have not  been going  to most  of the  Alaska landmass,  but they                                                               
have been  going to  other places in  Alaska with  more frequency                                                               
and intensity.                                                                                                                  
                                                                                                                                
SENATOR SEEKINS asked where global  warming was this last January                                                               
in Fairbanks.                                                                                                                   
                                                                                                                                
3:47:07 PM                                                                                                                    
DR. JUDAY  explained that  the Arctic Ocean  basin has  been much                                                               
warmer  for  the  last  two  or  three  years  and  that  process                                                               
accelerated last January when lots of  warm air moved in. Air had                                                               
to move out  and go somewhere and that just  happened to be right                                                               
over Fairbanks. He noted that the  Arctic Ocean sea-ice has set a                                                               
minimum record  every month  for about  the last  year and  is on                                                               
track for another record melt-back.                                                                                             
                                                                                                                                
3:48:02 PM                                                                                                                    
SENATOR BEN  STEVENS asked if we  are at the end  of a glaciation                                                               
period and if so, when it started.                                                                                              
                                                                                                                                
DR. JUDAY replied  there were four major  episodes starting about                                                               
1  million  years   ago.  The  most  recent   was  the  Wisconsin                                                               
glaciation.  It began  about  70,000 years  ago,  reached a  peak                                                               
about  35,000  years ago,  and  ended  rather definitively  about                                                               
12,500 years ago.                                                                                                               
                                                                                                                                
SENATOR  BEN STEVENS  asked if  the  glaciers in  Alaska are  the                                                               
remnant of the last episode.                                                                                                    
                                                                                                                                
MR. JUDAY explained  that the ice in the glaciers  isn't that old                                                               
since it's  continually renewed and  there have been  warming and                                                               
cooling episodes, but  in general the answer is  yes. The portion                                                               
of the  land surface that  is covered  with ice was  much greater                                                               
during the  ice age than  it is  now and if  it gets a  whole lot                                                               
warmer it will get smaller yet.                                                                                                 
                                                                                                                                
SENATOR BEN STEVENS  said out of curiosity he'd like  to know the                                                               
dates of the other three glaciations.                                                                                           
                                                                                                                                
3:50:30 PM                                                                                                                    
MR. JUDAY replied he didn't recall all the dates off hand.                                                                      
                                                                                                                                
SENATOR DYSON asked if any icepacks are increasing at this time.                                                                
                                                                                                                                
MR.  JUDAY replied  there are  a few  in Alaska  and a  couple in                                                               
other places,  but they represent a  distinct minority. Generally                                                               
they  are  characterized  by  having  the  gathering  areas  high                                                               
elevations  so  the  main  effect   of  the  warming  that  we're                                                               
experiencing is to increase snowfall in those high elevations.                                                                  
                                                                                                                                
In Greenland  the last four  years of observation shows  a higher                                                               
rate  of   collapse  than  was   ever  anticipated.   At  current                                                               
temperatures it  now looks inevitable that  it will substantially                                                               
increase the sea  level. In Antarctica the record  is quite short                                                               
and  up until  2003 it  wasn't  possible to  confirm a  shrinking                                                               
trend. Since then it is  possible to confirm that substantial ice                                                               
loss is occurring.                                                                                                              
                                                                                                                                
3:52:59 PM                                                                                                                    
DR. ROLAND  MAW, Executive Director,  United Cook  Inlet Driftnet                                                               
Association   (UCIDA),  outlined   his  academic   background  in                                                               
ecology,   wildlife   management,   forestry  and   his   current                                                               
employment relating  to fisheries.  He expressed support  for the                                                               
previous comments and gave some insight  as to why the task force                                                               
is a  good idea.  With the current  warming trend  various models                                                               
predict a potential 10-foot rise in  sea levels in the next three                                                               
decades. If  the models  are correct, the  impact on  the fishing                                                               
industry  will  be  monumental.  Estuaries  will  flood  so  that                                                               
nursery areas for salmon and  other species will be lost; erosion                                                               
will occur from Nikiski to  Homer; and infrastructure for loading                                                               
and  unloading fishery  products will  be affected.  The proposed                                                               
task force is a good vehicle for looking at these issues.                                                                       
                                                                                                                                
He noted  the current problems  with salmon returns in  the MatSu                                                               
Valley.  Stream  flows  are  smaller  and  the  summertime  water                                                               
temperature is high  enough to be lethal for  migrating smolt and                                                               
adults. Last  summer for the first  time some lakes in  the MatSu                                                               
experienced anoxic conditions below 3  meters. The lack of oxygen                                                               
in  the  water  column  is   a  result  of  warming  temperature,                                                               
increased  vegetation, and  the subsequent  dying and  rotting of                                                               
vegetation.  Salmon  mortality shows  up  quickly  in the  anoxic                                                               
areas.                                                                                                                          
                                                                                                                                
3:58:08 PM                                                                                                                    
DR. MAW  suggested the  committee consider  adding representation                                                               
to the  task force to include  the industries that make  a living                                                               
on, around, and from the  water. He reiterated his agreement with                                                               
the previous speaker and said  global warming is happening and we                                                               
have to deal with it.                                                                                                           
                                                                                                                                
3:59:02 PM                                                                                                                    
SENATOR STEDMAN  asked if  tectonic rebound  is occurring  in the                                                               
Kenai Peninsula.                                                                                                                
                                                                                                                                
DR. MAW replied he did not know.                                                                                                
                                                                                                                                
3:59:44 PM                                                                                                                    
BRIAN  DAVIES, engineer  and  former chief  of  BP operations  at                                                               
Prudhoe Bay,  said that over the  last 35 years he  has noticed a                                                               
distinct  warming  phase in  the  climate,  which should  not  be                                                               
confused  with weather.  Alaska is  at the  leading edge  of this                                                               
global  warming and  is experiencing  change at  between two  and                                                               
four times the global average.                                                                                                  
                                                                                                                                
The trend is clear  and it would be imprudent not  to plan for it                                                               
to  continue. Furthermore,  it is  likely  that forestry,  marine                                                               
shoreline,  fishing,   natural  resource  development,   and  the                                                               
infrastructure  of  towns  and  villages  will  be  significantly                                                               
impacted. Mr.  Davies extended  his full support  to the  idea of                                                               
establishing a  broad based  and temporary  task force  to gather                                                               
information  and  develop  a  business  plan  to  deal  with  the                                                               
challenges   of   this   trend  and   hopefully   identify   some                                                               
opportunities.  SB 278  establishes a  vehicle to  begin planning                                                               
for eventualities.                                                                                                              
                                                                                                                                
4:03:17 PM                                                                                                                    
SENATOR SEEKINS referenced  page 2, line 2, and asked  if the ex-                                                               
officio members would be voting members.                                                                                        
                                                                                                                                
SENATOR OLSON replied to the best of his knowledge, yes.                                                                        
                                                                                                                                
SENATOR SEEKINS asked why the  Alaska Conservation Alliance (ACA)                                                               
has a dedicated  seat and what scientific expertise  it brings to                                                               
the table.                                                                                                                      
                                                                                                                                
SENATOR OLSON  replied the ACA  would have personnel that  have a                                                               
perspective if  not expertise that  might be helpful to  the task                                                               
force. He clarified  that the Senate president  and House speaker                                                               
would appoint all the members.                                                                                                  
                                                                                                                                
SENATOR SEEKINS asked who ACA is.                                                                                               
                                                                                                                                
SENATOR OLSON replied it is a  group of people that is interested                                                               
in conservation ideas and issues such as climate change.                                                                        
                                                                                                                                
SENATOR SEEKINS questioned whether the group didn't have a pre-                                                                 
established position.                                                                                                           
                                                                                                                                
SENATOR OLSON replied not necessarily.                                                                                          
                                                                                                                                
4:05:49 PM                                                                                                                    
SENATOR SEEKINS  asked if the primary  concern is to look  at the                                                               
effect  of warming  trends in  just the  northern regions  of the                                                               
state.                                                                                                                          
                                                                                                                                
SENATOR  OLSON replied  the idea  is to  look at  all areas,  but                                                               
there are differences  across the state. As  the previous witness                                                               
pointed out, the  trends are clear and it would  be imprudent not                                                               
to plan  and make  recommendations to meet  the changes  that are                                                               
coming.                                                                                                                         
                                                                                                                                
4:07:23 PM                                                                                                                    
SENATOR SEEKINS asked  how the selection of the  chair would take                                                               
place and whether any one of the appointees would qualify.                                                                      
                                                                                                                                
SENATOR  OLSON replied  any one  of  the 13  appointees would  be                                                               
eligible.  Oftentimes  taskforce  members   decide  who  will  be                                                               
chairperson.                                                                                                                    
                                                                                                                                
SENATOR SEEKINS said his task  force experience is that the chair                                                               
is typically a legislator. He was  curious if that was the intent                                                               
or whether  it would be  open to  everyone including a  member of                                                               
the Alaska Conservation Alliance.                                                                                               
                                                                                                                                
SENATOR OLSON responded  it would depend on the  good judgment of                                                               
the  Senate president  and the  House  speaker to  make sure  the                                                               
chair is well qualified for the task.                                                                                           
                                                                                                                                
4:08:28 PM                                                                                                                    
SENATOR STEDMAN recommended Senator Olson be the chair.                                                                         
                                                                                                                                
4:08:51 PM                                                                                                                    
SENATOR  SEEKINS  said  his  preference  for  chair  would  be  a                                                               
legislative member who has a particular interest in the subject.                                                                
                                                                                                                                
CHAIR WAGONER  remarked it would be  up to the president  and the                                                               
speaker to make sure that happens.                                                                                              
                                                                                                                                
SENATOR  ELTON said  his  understanding is  that  the task  force                                                               
would select  the chair. He  noted that  four of the  members are                                                               
legislators, which is  a significant voting block  if they wanted                                                               
a legislator to be the chair.                                                                                                   
                                                                                                                                
SENATOR  SEEKINS moved  to amend  page 2,  line 23,  to select  a                                                               
chairperson from among the members of the legislature.                                                                          
                                                                                                                                
SENATOR  ELTON  objected  primarily for  procedural  reasons.  He                                                               
suggested it  might be  best to  leave the  decision to  the next                                                               
committee  where  SB 278  will  meet  the  House bill,  which  he                                                               
suspected would be the vehicle.                                                                                                 
                                                                                                                                
SENATOR  SEEKINS  maintained  the  view  that  a  member  of  the                                                               
legislature ought  to be the  chair and he wanted  that clarified                                                               
in this committee.                                                                                                              
                                                                                                                                
SENATOR KOOKESH asked if it would affect funding.                                                                               
                                                                                                                                
CHAIR WAGONER  responded it would  be up to the  Senate president                                                               
and the House speaker to fund the task force.                                                                                   
                                                                                                                                
SENATOR KOOKESH said he'd support  the amendment if it meant that                                                               
funding would be more likely.                                                                                                   
                                                                                                                                
SENATOR  SEEKINS   noted  that  the  fiscal   notes  were  fairly                                                               
substantial.                                                                                                                    
                                                                                                                                
CHAIR WAGONER  said that's why the  bill is going to  the Finance                                                               
Committee.                                                                                                                      
                                                                                                                                
SENATOR OLSON  said he was  initially taken  back by the  size of                                                               
the  fiscal notes,  but believes  that the  $68,000 for  personal                                                               
services could be  cut significantly. That would  bring the total                                                               
down to a more appropriate number, he said.                                                                                     
                                                                                                                                
CHAIR  WAGONER  brought  the  discussion  back  to  the  proposed                                                               
amendment.                                                                                                                      
                                                                                                                                
SENATOR KOOKESH asked the sponsor to comment on the amendment.                                                                  
                                                                                                                                
SENATOR  OLSON  replied  he  recognized  that  this  could  be  a                                                               
contentious point and he would defer to the committee.                                                                          
                                                                                                                                
SENATOR SEEKINS  reviewed the fiscal  notes and said  the chair's                                                               
responsibility  is to  administer the  budget and,  in his  view,                                                               
that  responsibility   ought  to   fall  to   a  member   of  the                                                               
legislature.  The  chair's  further responsibility  is  to  bring                                                               
order to  the process,  not to  necessarily dominate  the result.                                                               
So,  he  said, this  would  in  no  way  threaten the  result  or                                                               
findings of the task force.                                                                                                     
                                                                                                                                
4:18:35 PM                                                                                                                    
SENATOR ELTON  pointed out  that the task  force is  charged with                                                               
the duty of highlighting the  issues and offering recommendations                                                               
to the  legislature and  selection of the  chairperson is  a most                                                               
important   initial   decision.   Because  of   negative   public                                                               
perception he cautioned against  restricting the selection to one                                                               
among four people rather than one among 13 people.                                                                              
                                                                                                                                
SENATOR ELTON maintained his objection.                                                                                         
                                                                                                                                
CHAIR  WAGONER commented  that with  the exception  of department                                                               
chairs, very few university officials have budget experience.                                                                   
                                                                                                                                
SENATOR KOOKESH expressed  the view that the task  force ought to                                                               
be able to pick the chair.                                                                                                      
                                                                                                                                
CHAIR WAGONER said  legislators are elected to  control funds and                                                               
he  believes  that in  most  cases  a  legislator would  be  more                                                               
conservative and control funds better than another member.                                                                      
                                                                                                                                
A roll  call vote was  taken and Amendment  1 passed with  5 yeas                                                               
and  1  nay. Senator  Dyson,  Senator  Stedman, Senator  Kookesh,                                                               
Senator Seekins, and  Senator Wagoner voted in  favor and Senator                                                               
Elton voted against.                                                                                                            
                                                                                                                                
SENATOR  STEDMAN moved  to report  CSSB  278(RES) from  committee                                                               
with individual recommendations and  attached fiscal notes. There                                                               
was no objection and it was so ordered.                                                                                         
                                                                                                                                
4:23:20 PM recess 4:26:59 PM                                                                                                
                                                                                                                                
CHAIR WAGONER announced that SJR 17 wouldn't be heard today.                                                                    
                                                                                                                                
^Agrium Phase 2 Summary - Kenai Blue Sky Project                                                                              
              AGRIUM PRESENTATION - KENAI BLUE SKY                                                                          
                                                                                                                                
CHAIR THOMAS WAGONER announced that  the committee would hear the                                                               
Agrium Presentation on Cook Inlet Oil and Gas in Transition.                                                                    
                                                                                                                                
BILL BOYCOTT, General Manager,  Agrium Kenai Nitrogen Operations,                                                               
presented the Phase 2 summary for  the Kenai Blue Sky Project. He                                                               
explained that  the Kenai  complex was  built to  convert natural                                                               
gas  to   anhydrous  ammonia  and   urea  products  for   use  in                                                               
agricultural and  petrochemical applications. About 2  percent of                                                               
the product  is used in Alaska,  but most is destined  for export                                                               
with the primary markets in South Korea and Mexico.                                                                             
                                                                                                                                
Gas availability in  Cook Inlet has been a  challenge. The demand                                                               
on the  system is about  200 Bcf annually  and at full  rates the                                                               
facility consumes  53 Bcf of  gas. He noted that  the neighboring                                                               
LNG facility  has the  capacity for  about 80  Bcf of  gas. Power                                                               
generation and the utility market account for another 70 Bcf.                                                                   
                                                                                                                                
The complex  has not run  at capacity  since 2001 and  the severe                                                               
decline  in  availability of  gas  in  Cook Inlet  continued.  In                                                               
November 2005 half  the facility was shut down  and it's unlikely                                                               
that  it will  be restarted  on natural  gas. In  the last  three                                                               
years the employment  at the facility has gone from  295 to about                                                               
160.                                                                                                                            
                                                                                                                                
Gas contracts  run through October  2006 but they are  working to                                                               
secure  gas  beyond that  time.  That's  a difficult  proposition                                                               
thought because the decline in  Cook Inlet is continuing. To keep                                                               
the facility alive  they have been looking  at other alternatives                                                               
because it would have a  significant economic impact on the Kenai                                                               
Peninsula and Alaska as a whole if the business were lost.                                                                      
                                                                                                                                
4:33:48 PM                                                                                                                    
                                                                                                                                
MR.  BOYCOTT  said there  is  commercially  proven technology  to                                                               
convert coal to feedstock for a  complex like this and one of the                                                               
byproducts is a significant amount of CO.  Preliminary evaluation                                                               
                                        2                                                                                       
indicates that  CO  flood technology  could allow recovery  of an                                                               
                  2                                                                                                             
incremental  300  million  barrels  of oil  in  Cook  Inlet.  The                                                               
Department of Energy has been working to better understand this.                                                                
                                                                                                                                
SENATOR DYSON  said he  has heard  that coal  gasification plants                                                               
are expensive and in the near  term just a limited number will be                                                               
permitted in the U.S.                                                                                                           
                                                                                                                                
MR.  BOYCOTT  responded  these  plants  are  clean  in  terms  of                                                               
environmental permitting.                                                                                                       
                                                                                                                                
SENATOR  DYSON  said  his  understanding   is  that  the  federal                                                               
government doesn't want  to move too fast  because the technology                                                               
is quite new.                                                                                                                   
                                                                                                                                
MR.  BOYCOTT  replied  there  is  significant  incentive  in  the                                                               
national  energy  policy  to use  this  technology.  The  federal                                                               
government is  encouraging the use  of alternate feed  stocks and                                                               
coal is  specifically targeted. Industrial gasification  and also                                                               
the use  of gasification for  power generation is  something that                                                               
is  encouraged  now.  The  federal  government  has  made  grants                                                               
available  for  these facilities,  but  the  funding is  limited.                                                               
Agrium  is not  competing for  those dollars,  but it  would take                                                               
advantage of  allowances for tax supports  should this commercial                                                               
opportunity move forward.                                                                                                       
                                                                                                                                
4:37:15 PM                                                                                                                    
SENATOR DYSON asked  if Agrium would come to  the legislature for                                                               
funding.                                                                                                                        
                                                                                                                                
MR.  BOYCOTT replied  no. Usibelli  Coal Mine  and Agrium  worked                                                               
together an  on an initial  screening and determined  the project                                                               
should move  forward. At  that time the  two companies  agreed to                                                               
fund  an  economic  feasibility study,  which  will  be  complete                                                               
within the 30 to 45 days. At  that point the outlay will be about                                                               
$4 million. Assuming  they should move forward, the  next step is                                                               
to produce  a bankable  commercial document  for the  next phase.                                                               
That means establishing  firm contracts for the  coal supply, for                                                               
the fertilizer  offtake, for  the power offtake,  and a  lump sum                                                               
turnkey   engineering  contract   with   a  process   performance                                                               
guarantee.  They could  then take  the  deal to  Wall Street  for                                                               
financing.  To  create  that  package  it  will  cost  about  $28                                                               
million, $13 million of which will be the engineering work.                                                                     
                                                                                                                                
SENATOR DYSON  asked who would  build and pay for  the additional                                                               
electric power  intertie that will  be needed so Agrium  can sell                                                               
power back to the grid.                                                                                                         
                                                                                                                                
MR.  BOYCOTT  replied   that  would  be  part  of   the  Phase  2                                                               
evaluation,  but they  anticipate an  additional charge  of about                                                               
1/2 cent  per kilowatt-hour. Agrium  is currently  evaluating how                                                               
much power it can export  because the facility itself consumes 90                                                               
megawatts  and it's  unlikely that  they  can get  that with  the                                                               
existing grid. They  have begun looking at what it  would cost to                                                               
fund the intertie in order to take  that power up to the grid and                                                               
they believe they  will be able to export about  60 megawatts. In                                                               
the  timeframe   under  consideration  they  would   probably  be                                                               
restricted  to  the  existing southern  intertie  design  because                                                               
developing  a new  design and  getting permits  by 2011  would be                                                               
very difficult.  If the intertie  were to  go in, it  would allow                                                               
the export  of between  130 and 180  megawatts depending  on what                                                               
happens with other production on the peninsula.                                                                                 
                                                                                                                                
4:41:25 PM                                                                                                                    
To date  it looks  as though  most of the  coal supply  will come                                                               
from  Beluga with  incremental capacity  from Fairbanks  [Healy].                                                               
Transportation from Healy  to Anchorage will be by  rail and then                                                               
barges will run from Anchorage and Beluga.                                                                                      
                                                                                                                                
The technology is coal gasification  with a pulverized coal power                                                               
plant to support energy needs. He  noted that at present they are                                                               
looking at  new environmental control  technologies on  the power                                                               
plant  that  allow   both  CO   sequestration  and  environmental                                                               
                             2                                                                                                  
performance.                                                                                                                    
                                                                                                                                
A point  that is sometimes  misunderstood is that the  plant does                                                               
not  produce  natural  gas.  It  produces  hydrogen  and CO   and                                                               
                                                           2                                                                    
nitrogen  is a  byproduct of  the  air separation  unit. In  this                                                               
facility some portion  of the hydrogen and  nitrogen combine into                                                               
ammonia then some CO  combines with ammonia to urea. The facility                                                               
                    2                                                                                                           
would be run such that capacity  would be increased by 20 percent                                                               
with all  the ammonia  and urea being  produced from  coal. Also,                                                               
significant CO   would be  available to  support an  enhanced oil                                                               
              2                                                                                                                 
recovery operation in  Cook Inlet. The current  estimate is 7,000                                                               
tons per day without CO recovery off the power plant.                                                                           
                       2                                                                                                        
                                                                                                                                
4:44:37 PM                                                                                                                    
With  300  employees at  the  facility,  the indirect  employment                                                               
benefit is  estimated to  be 900  positions. In  conjunction with                                                               
the mine  the direct  and indirect  employment estimate  is 2,000                                                               
jobs,  which is  significant.  Current plans  are  to double  the                                                               
current facility,  which sits on  80 acres and has  a replacement                                                               
value  of   $1.5  billion.  Obviously   that  is   a  significant                                                               
employment opportunity for Alaska.                                                                                              
                                                                                                                                
Although  power   generation  equipment   is  aging   and  future                                                               
dependence  on natural  gas is  potentially  problematic for  the                                                               
state, it's still challenging to  support the expenditure of $600                                                               
million to $700  million for a coal power plant  in Alaska with a                                                               
900-megawatt  grid. Nevertheless  they believe  this project  has                                                               
benefit to  the state. The  Beluga reserve is  opened; employment                                                               
on the Kenai  Peninsula is increased; the  most competitive power                                                               
generation  in  Alaska  is  supported; and  the  energy  base  is                                                               
diversified.                                                                                                                    
                                                                                                                                
MR. BOYCOTT  said he  and Mr. Johnson  meet with  the engineering                                                               
firms next week  to review Phase 1 work. Once  that evaluation is                                                               
complete they will look for funding  to initiate Phase 2 by July.                                                               
If the  opportunity is not  strong enough, they will  continue to                                                               
search for natural  gas and watch the  peninsula business prepare                                                               
to wind down.                                                                                                                   
                                                                                                                                
MR. BOYCOTT  said they are  asking for state and  federal support                                                               
for Phase  2, which is estimated  to be $28 million.  He has told                                                               
the  senior leadership  team  that Agrium  would  be required  to                                                               
provide  a  significant   amount  of  the  Phase   2  funding;  a                                                               
willingness to  contribute the Kenai  asset into the  new entity;                                                               
and  a willingness  to sign  a long  term agreement  to ensure  a                                                               
market for the  product. Obviously, he said,  Agrium and Usibelli                                                               
Coal Mine have already made a significant commitment.                                                                           
                                                                                                                                
4:50:17 PM                                                                                                                    
SENATOR ELTON asked  if coal gasification might  lock Agrium into                                                               
a higher  cost environment  than if  it took gas  from a  spur or                                                               
bullet line coming from the North Slope.                                                                                        
                                                                                                                                
MR. BOYCOTT  said no; to move  forward they must ensure  that the                                                               
coal  basis is  competitive over  the long  term. The  plants are                                                               
very  efficient and  on  a  cash basis  they  could compete  with                                                               
anything in the  world. The hurdle is getting the  money to build                                                               
the facility.                                                                                                                   
                                                                                                                                
There being  no further  business to  come before  the committee,                                                               
Chair Wagoner adjourned the meeting at 4:51:40 PM.                                                                            

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