02/25/2008 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB315 | |
| Alaska Natural Gas Development Authority (angda) Presentation | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| + | HB 315 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 25, 2008
3:44 p.m.
MEMBERS PRESENT
Senator Bert Stedman, Vice Chair
Senator Lyda Green
Senator Gary Stevens
Senator Bill Wielechowski
Senator Lesil McGuire
MEMBERS ABSENT
Senator Charlie Huggins, Chair
Senator Thomas Wagoner
OTHER LEGISLATORS PRESENT
Senator Joe Thomas
COMMITTEE CALENDAR
HOUSE BILL NO. 315
"An Act extending the termination date of the Big Game
Commercial Services Board; and providing for an effective date."
MOVED HB 315 OUT OF COMMITTEE
Alaska Natural Gas Development Authority Presentation by Harold
Heinze, Executive Director
PREVIOUS COMMITTEE ACTION
BILL: HB 315
SHORT TITLE: EXTEND BIG GAME COMMERCIAL SERVICES BOARD
SPONSOR(s): RULES BY REQUEST OF LEG BUDGET & AUDIT
01/15/08 (H) READ THE FIRST TIME - REFERRALS
01/15/08 (H) L&C, FIN
01/28/08 (H) L&C AT 3:00 PM CAPITOL 17
01/28/08 (H) Moved Out of Committee
01/28/08 (H) MINUTE(L&C)
01/31/08 (H) L&C RPT 6DP 1NR
01/31/08 (H) DP: GARDNER, LEDOUX, BUCH, RAMRAS,
GATTO, OLSON
01/31/08 (H) NR: NEUMAN
02/05/08 (H) FIN AT 1:30 PM HOUSE FINANCE 519
02/05/08 (H) Moved Out of Committee
02/05/08 (H) MINUTE(FIN)
02/06/08 (H) FIN RPT 3DP 5NR
02/06/08 (H) DP: KELLY, JOULE, THOMAS
02/06/08 (H) NR: CRAWFORD, HAWKER, STOLTZE, MEYER,
CHENAULT
02/11/08 (H) TRANSMITTED TO (S)
02/11/08 (H) VERSION: HB 315
02/13/08 (S) READ THE FIRST TIME - REFERRALS
02/13/08 (S) RES, FIN
02/20/08 (S) RES AT 3:30 PM BUTROVICH 205
02/20/08 (S) Heard & Held
02/20/08 (S) MINUTE(RES)
02/25/08 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
HAROLD HEINZE, Executive Director
Alaska Natural Gas Development Authority (ANGDA)
Anchorage AK
POSITION STATEMENT: Gave presentation for the Alaska Natural Gas
Development Authority.
ACTION NARRATIVE
VICE CHAIR BERT STEDMAN called the Senate Resources Standing
Committee meeting to order at 3:44:59 PM. Present at the call to
order were Senators Green, Stevens, Wielechowski and Stedman.
HB 315-EXTEND BIG GAME COMMERCIAL SERVICES BOARD
3:46:01 PM
VICE CHAIR BERT STEDMAN announced HB 315 to be up for
consideration.
SENATOR GREEN moved to report HB 315 from committee with
individual recommendations and accompanying fiscal notes. There
were no objections and it was so ordered.
3:46:47 PM
^Alaska Natural Gas Development Authority (ANGDA) Presentation
3:47:44 PM
HAROLD HEINZE, Executive Director, Alaska Natural Gas
Development Authority (ANGDA) said the authority is a public
corporation of the State of Alaska. It exists under statute and
was passed by the initiative process. It is under the control of
a seven-member public board and has six members; Scott Hayworth
is the acting chairman. It employs about six or seven individual
consultants on a part time basis and has hired several dozen
contractors, almost all Alaskan, since it was formed in 2003.
3:48:04 PM
SENATOR MCGUIRE joined the committee.
3:49:53 PM
MR. HEINZE said ANGDA applied for a license under the Alaska Gas
Line Inducement Act (AGIA) and he wanted first to comment on
that process; secondly he wanted to discuss other things that
relate to it.
3:52:18 PM
MR. HEINZE said he would first talk about a "spur line" and
ANGDA's interest in getting North Slope gas to market in a way
that benefits Alaskans. Most recently it has focused entirely on
making the connection between the instate resource and the
individual Alaskan consumer through the electric utilities and
the gas transmission companies. The key element in all that is
a gas transmission system that would run from a major project,
either highway or an LNG project, and connect into the Cook
Inlet area where there is extensive use of Cook Inlet gas.
Second, as part of his project thinking, he said he considered
numerous takeoff points along the way for gas users, wholesale
propane facilities et cetera. He also tried to look at people
who might want to put gas on the pipeline system after
discovering it. Someone has to speak for them at some point in
the process. He illustrated a spur line system in his
presentation.
MR. HEINZE said ANGDA's AGIA application described an Alaska gas
market that used 250 Mmcf/day for both heating and electric
generation. Propane is an ideal fuel in the rural setting and he
said North Slope gas is rich in it - far more than the 10,000
barrels/day his chart indicated. In addition, he said, Alaska
has always looked at both Valdez as an LNG port and Cook Inlet
as an LNG and industrial site. Both are very important to Alaska
in the long run and so ANGDA's approach goes through Glennallen
and keeps all of those options open even if they are not part of
the initial system. (The slide illustrated his view of the
propane distribution system in Alaska.)
He said every compressor station would become a source of
propane because it gets extracted there anyhow and propane could
be trucked from there or sent down the Yukon River. Once it got
to tidewater, it could be moved all up and down the coast in
barges.
3:55:09 PM
MR. HEINZE said ANGDA's application was limited in scope and
focused only on the instate connection to a highway pipeline
they proposed would start at Delta Junction, then run to
Glennallen, to Palmer and then to Beluga. It was sized entirely
for just residential heat and electrical load. It was not on the
same scale as the "big project," but would cost over $1 billion.
The people who would be obligated to pay for it would be the
ones with meters hanging on their houses.
The second part of ANGDA's application conceived of a major
project going to Valdez; it was a shorter amount of pipeline, a
lower tariff and a lower cost. The two tariff numbers when
coupled with a realistic estimate of the tariff in a big pipe
would result in a transportation cost from the North Slope to
Cook Inlet that would look very similar to the transportation
charge from the North Slope to Alberta or Chicago. Again, he
said the volume assumption is just for the residential load and
that any export or industrial loads would drop the tariffs
significantly.
VICE-CHAIR STEDMAN asked him to comment on the capital costs for
a scenario where another entity built the larger 48-inch line to
Alberta or Chicago and ANGDA built a bullet line to Beluga.
MR. HEINZE speculated that from Delta Junction (on the chart of
their proposed spur line system) a 48-inch pipe would probably
be less than $1 from the North Slope to that point.
3:59:30 PM
VICE-CHAIR STEDMAN asked if the spur line coming out of Delta
Junction were backed by the state, would it still cost $1
billion to build.
MR. HEINZE answered their estimate is $1.25 billion for a spur
line from Delta Junction into the Cook Inlet area.
SENATOR WIELECHOWSKI asked at what point would it not make sense
to have a line to Alberta, because gas is used for instate needs
and the pipe might not be full.
MR. HEINZE answered they had looked at that concept and a few
years ago a 2 Bcf/day LNG project was economic, feasible and
competitive, but they decided also that it would be a really big
project with a lot of moving parts. They then started focusing
on getting gas to Alaskans. He referenced a letter to the
governor that was written over a year ago in response to a
similar question. They basically concluded at that time that the
economics of a spur line coming off a big pipe would be
difficult, but very workable, for just residential customers.
They also found that for a small project that would go all the
way to the North Slope, an industrial user or exporter would
have to be added. The right balance would just have to be found.
VICE-CHAIR STEDMAN noted Senator Thomas was in attendance.
4:04:36 PM at ease 4:06:27 PM
MR. HEINZE said 24-inch sized pipe is very available in the
world steel market and can be made by just about any steel mill.
All of the equipment exists for construction and all they would
have to do is gather it up; the 1,000-member workforce with the
skills needed already exists within Alaska. The engineering
design and permitting would need to be done to get ready for the
construction phase. He said that ANGDA had already obtained a
conditional right-of-way from the State of Alaska for the
Glennallen to Palmer leg and visualizes coming down from Delta
Junction to Glennallen in close proximity to the Trans-Alaska
Pipeline (TAPS). Two rights-of-way already exist from Palmer to
Beluga. He envisioned three years to field construction and two
to three years for this kind of a pipeline.
4:08:50 PM
MR. HEINZE said ANGDA's application contained a full set of
legal and contractual documents to make the commitments for the
gas necessary to start building the pipeline. They also
developed a cost of service model on an Excel spreadsheet. He
added that ANGDA did not survive the completeness review because
they didn't go to the North Slope; they hoped one of the
applicants would refer to them directly and by that reference to
be included in the process.
MR. HEINZE emphasized that Alaskans all over needs to have some
sort of crack at getting this energy and stated that everybody
is in some sort of difficulty energy-wise.
4:12:09 PM
SENATOR WIELECHOWSKI asked if he was successful in getting
commitments for the propane portion of the project.
MR. HEINZE answered they had developed a propone demonstration
project down the Yukon River. The concept would be to truck
propane since there is no pipeline from the North Slope down to
the Yukon River and the City of Tanana is proceeding on that
project. ANGDA awarded a contract to a project developer to work
for them. Getting the propane has been one of the on-again off-
again easy-difficult parts. At first it was pretty easy because
propane is made on the North Slope as part of the production
facilities and it is used to chill the gas. But it turns out
that that supply is not available for this project, so they will
have to find other opportunities or ask the state if it wants to
take some royalty propane in-kind.
SENATOR WIELECHOWSKI asked why the change of opinion on the
propane supply.
4:14:52 PM
MR. HEINZE replied just that it's being fully utilized already.
He stressed in slide 11 that it's not enough to say they have
five off-take points in Alaska. To make it work, you have to
have an ability to make a physical connection and a contract;
you need financial commitments and regulatory approvals. This
would take about three years.
4:15:52 PM
He said Cook Inlet clearly has alternatives, but every time he
has done an evaluation of them, all of the scenarios that use
gas or more heavily rely on gas always come out cheaper to the
consumer. It's because a huge investment in gas infrastructure
already exists there and any other project would require
infrastructure that the consumer would have to pay for. They
found little difference in projects between locally found gas,
gas brought in from the North Slope and imported LNG from
Indonesia. So, he concluded, the power is in using the existing
infrastructure, not exactly what the gas source is.
4:17:51 PM
He reviewed Slide 13, which was a chart of the variance in daily
demand over a one-year period. The peaks were in the middle of
the winter when a lot of gas is burned for heat and electricity.
In the summer the heating load almost goes away and that sharp
up and down is the challenge to the current system. It's hard to
sustain producing wells and develop the economics of drilling
wells in the summer; and the winter demands strain the system
the other way. The advantage of the Kenai LNG plant and the
Agrium plant, however, is that they can be turned off or down in
the winter so supply could go to residents.
4:20:36 PM
MR. HEINZE next shifted gears to the Plan B idea and summarized
that everything he has covered is compatible with the AGIA
process and with any proposal he has seen from anybody at this
point. On the other side of the issue he has the sense of two
discomforts with where the state is on the gas issue right now.
One is the issue of timing and the need for some solution for
instate needs; it's clear that even the most aggressive of the
other plans is at least a decade out and realistically more than
that.
It also becomes an issue of probability - the bigger more
complex projects are, the more there is an opportunity for
things to go awry. He felt that sense of discomfort over these
two issues in the legislature, as well. He said he would present
the rest of his talk in that spirit emphasizing that he didn't
have an answer, but he had some ideas.
One idea is that the situation is different today than it was a
couple of years ago. The opportunities are different on the
North Slope. Clearly Anadarko is already looking for gas in the
foothills; two years ago that opportunity did not exist. They
could find a field of 3 Tcf to 5 Tcf. That provides the basis to
anchor a small project and an explorer who has found gas has
every motive to monetize it as quickly as possible. They have
tremendous incentives to dedicate that gas to the instate market
with the recently-passed tax incents that give preference to gas
marketed in Alaska by dropping the severance tax from 25 percent
to 5 percent. Also not lost on the Foothills opportunity, is
that the partners to Anadarko are BG Group and PetroCanada. BG
Group has told this committee that if they had gas in Alaska,
they would like to monetize it through an LNG project out of
Valdez.
4:25:03 PM
The second item on his chart was Point Thomson and he said that
now, as opposed to two years ago, he could say pretty
confidently that within one to two years, it would be under
active development. And if you can build a small single high-
pressure gas line coming off the North Slope, you could build
one from Point Thomson and run both the condensate and the gas
into that kind of a pipeline system. It would look very
different in terms of development than what is on the table.
4:26:26 PM
He observed if there was a high pressure gas line coming off the
North Slope to an instate system, it would be logical to extract
the ethane-propane-butane that is brought to the surface every
day with the 8 Bcf gas that is reinjected. One could continue
re-injecting the gas and take the more valuable ethane, propane
and butane to market. That is good conservation, and a good
argument could be made that if you didn't do that and had the
opportunity, that would constitute waste as defined in Alaska
statutes. He added that the state is also a royalty gas owner
and at some point it has an obligation to assure that gas is
available in the state if needed. Also, having that gas as a
back-stop is key to reaching a commercial transaction with other
parties.
Finally, Mr. Heinze put forth that the process of converting gas
to liquids costs a lot of money, but the virtue of it is that
you get an extraordinarily high-quality product. If the first
thing you do is put it in the oil line, you lose cleanliness,
but if it is put in a high pressure gasline, it maintains its
identity as a very high quality product.
So, Mr. Heinze summarized:
Well, maybe with a little fresh thinking, we can go up
north and find something other than Prudhoe Bay, find
something other than the same three producers that we
constantly look to to solve this problem and maybe we
can find some other ways to advance the project.
4:30:15 PM
He referred to Slides 15 and 16 to illustrate a project based on
new North Slope gas supplies. He concluded this basin-opening
project would be Plan B.
4:32:42 PM
MR. HEINZE argued there is an expectation out there "that we do
something with the North Slope gas that helps the economy,
creates jobs and makes energy supplies more readily available
and more reasonably priced." He next presented a conceptual
slide that he borrowed from a Society of Petroleum Engineers
article on the different concepts behind moving gas and remarked
it's not a simple world of just pipelines versus LNG, but rather
of compressed natural gas, petrochemicals, gas-to-liquids and
making the gas into electricity and moving the electrons (this
could work in the Nenana Basin).
4:33:34 PM
Slide 18 illustrated ANGDA's game plan which is to:
1. continue to work with all project sponsor under AGIA
2. sponsor open season informational workshops
3. conduct high-priority field work along instate connector
pipeline alignments
4. continue development of major elements of design, logistics
and construction
5. secure financing with public private utility and industrial
partners.
MR. HEINZE said ANGDA would continue to search for commercial
entities that would be capable of taking over the project that
ANGDA started. He thought a number companies would be interested
if they thought a gas project was actually going to happen,
because an instate system would fit their strategic direction in
the longer term. He concluded by thanking the committee for
giving him this opportunity.
VICE-CHAIR STEDMAN thanked him, too, for updating the committee
on this project and adjourned the meeting at 4:38:35 PM.
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