Legislature(2021 - 2022)BUTROVICH 205
03/22/2021 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| Overview of Qilak Lng | |
| Overview of the Alaska Lng Project | |
| Usibelli Coal | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
March 22, 2021
3:30 p.m.
MEMBERS PRESENT
Senator Joshua Revak, Chair
Senator Peter Micciche, Vice Chair
Senator Click Bishop
Senator Gary Stevens
Senator Natasha von Imhof
Senator Jesse Kiehl
Senator Scott Kawasaki
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
Overview of Qilak LNG by Chair and CEO Mead Treadwell
- HEARD
Overview of the Alaska LNG Project by AGDC President Frank
Richards
- HEARD
Remarks by Lorali Simon on Usibelli Coal and the AGDC
presentation
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
MEAD TREADWELL, Chair and CEO
Qilak LNG
Anchorage, Alaska
POSITION STATEMENT: Presented an overview of Qilak LNG
operations.
DAVID CLARK, Chief Operating Officer
Qilak LNG
Anchorage, Alaska
POSITION STATEMENT: Answered questions and provided information
during the Qilak LNG presentation.
FRANK RICHARDS, President
Alaska Gasline Development Corporation (AGDC)
Anchorage, Alaska
POSITION STATEMENT: Presented an update on Alaska LNG.
LORALI SIMON, Vice President of External Affairs
Usibelli Coal Mine
Fairbanks, Alaska
POSITION STATEMENT: Presented information on Usibelli Coal and
commented on the AGDC presentation.
ACTION NARRATIVE
3:30:31 PM
CHAIR JOSHUA REVAK called the Senate Resources Standing
Committee meeting to order at 3:30 p.m. Present at the call to
order were Senators Stevens, Bishop, Kawasaki, von Imhof, Kiehl,
Micciche, and Chair Revak.
^Overview of Qilak LNG
OVERVIEW OF QILAK LNG
3:32:24 PM
CHAIR REVAK announced the committee would first hear a
presentation from former Lieutenant Governor Mead Treadwell on
Qilak LNG.
3:32:34 PM
MEAD TREADWELL, Chair and CEO, Qilak LNG, Anchorage, Alaska,
referenced the written testimony he submitted and began the
slide presentation with a review of his role in helping the
state commercialize North Slope gas. He related that as
lieutenant governor he worked with the legislature to focus on
shipping gas to Asian markets. This was the beginning of the
Alaska Gasline Development Corporation.
3:34:19 PM
MR. TREADWELL turned to slide 2 and reminded the members that
ExxonMobil, Hilcorp, and ConocoPhillips own 32.4 Tcf across gas
fields on the North Slope with probable gas reserves of 100 Tcf.
However, previous efforts to commercialize the gas through a
pipeline have proven to be too expensive and uncompetitive. He
offered his view that the Yukon Pacific project did not go
forward because the cost of gas was not enough to make up for
the lost oil. There were also several projects that tried to
take gas down the Alaska highway, but the cost of getting the
gas to the hub in Calgary was more expensive than the value of
gas at the hub. While Alaska was working on the latest project
to take gas across the state, Yamal LNG in Russia proved the
economic viability of Arctic LNG using icebreaking LNG tankers
to export LNG throughout the year. He highlighted that compared
to the Yamal Peninsula, Point Thomson on the North Slope is
2,000 miles closer to the maximum ice edge in the Arctic Ocean
and Bering Straits.
3:36:19 PM
MR. TREADWELL advised that the first exports of Yamal LNG were
about 16.8 million tons per annum (MTPA). This plant is a little
larger than what was discussed for the Yukon Pacific gasline and
a little less than the AGDC gasline. He noted that Jamal decided
to go to floating near shore LNG facilities for its next
projects. The proposed LNG projects in the Russian Arctic
include Arctic LNG 1 and 2 each of which will be 16.5 million
tons per annum (MTPA). Current estimates are that 4-5 cargo
ships per day or 1,500 to 1,800 tanker shipments per year will
come from Russia through the Bering Straits headed to the Asian
market.
MR. TREADWELL stated that Qilak LNG looked at doing this on the
North Slope and ultimately entered a Heads of Agreement with
ExxonMobil, operator of the Point Thomson Unit (PTU). The
concept is to condition the gas onshore and ship it through a
subsea pipeline 6-9 miles into federal waters to a gravity-based
structure (GBS) that would be grounded in about 45 feet of
water. This would be deep enough to provide a turning radius for
the tankers and far enough from shore to avoid conflict with
subsistence whaling. He noted that food security is a core value
of the company.
MR. TREADWELL directed attention to the pictures of three ice-
class LNG tankers on slide 5. He explained that the bows are
specifically designed for navigation in open water with much
greater efficiency than older style icebreakers. The Yamal LNG
project has 15 Korean made Mark 1 vessels in operation and 6
Mark 2 vessels are on order for the Arctic LNG 2 project.
Qilak's feasibility study found the newer vessels cost less, are
more powerful, and more efficient. The cost per vessel is about
$290 million.
3:38:32 PM
MR. TREADWELL pointed out that the efforts to build a multi-
billion dollar pipeline across the state does not get the gas
much closer to market; the difference between shipping from the
North Slope to Tokyo and Cook Inlet to Tokyo is just 40 miles.
He related that when the Qilak LNG Project was announced in
2019, offtake was identified in China and the Philippines. Since
then the company has signed agreements with two Japanese trading
companies for offtake and one transshipment operation. He
offered his belief that the capacity for project offtake was
more than double what is needed for the project.
MR. TREADWELL highlighted that the new Secretary of Energy
supports LNG exports as a cleaner energy and is hopeful that the
industry can reduce its own emissions. He opined that Qilak is
in a good place. It is starting with conventional gas, the CO
2
can be sequestered in the field, and operating in very cold
temperatures will significantly improve efficiency for the
liquefaction. New technology will be used such that the
refrigerant component will not be an emitter. Savings will also
be realized through the shorter distance to Japan compared to
other U.S. markets. Additionally, senior members of the Japanese
government and others have expressed interest in the feasibility
studies to further reduce greenhouse gas emissions. This
includes the possibility of bringing carbon dioxide back to
Alaska for reinjection in fields that can use it for enhanced
oil production such as Cook Inlet.
3:41:32 PM
MR. TREADWELL emphasized that the Qilak LNG is America's best
choice for LNG, and it will be of great benefit to Alaska. He
urged the legislature to support the project and similar
companies that want to invest private capital in Alaska to
pioneer a breakthrough for Alaska gas development. He also
encouraged the legislature to ask the Alaska Energy Authority
(AEA) to update its past work on LNG deliveries to coastal
communities given the potential of the supply, the existing
potential of Russian and Canadian containerized LNG supply and
advancements in ISO containers that make LNG supplies to small
communities more viable.
He said support from the state and federal government as well as
the North Slope Borough is essential. He mentioned getting
approval of royalty gas sales associated with the project when
it is appropriate, and the importance of a stable tax structure
to secure financing. He said they are not looking for state
support but they do anticipate Alaskans having some ownership of
the project and they believe AIDEA has the legal authority for
that.
MR. TREDWEALL mentioned the right the state has to transit
federal land to develop its resources and noted that the project
will need to cross federal land to put the gravity-based
offshore structure in place. He also mentioned that he and
Lieutenant Governor Meyer have been working at the university
level on screening technologies to reduce greenhouse gas
emissions. Finally, he expressed hope that the agreement between
the Department of Natural Resources that has yielded
constructive talks and personal ties, will be renewed at the
appropriate time.
3:44:34 PM
SENATOR VON IMHOF asked if the $5 billion initial prefeasibility
cost estimate for the project includes the gas conditioning
plant, the pipeline extending six miles offshore, and the
equipment that is needed.
MR. TREADWELL replied the $5 billion covers everything except
the conditioning plant, and noted that the Heads of Agreement
looks at the Point Thomson Unit to provide the conditioning. He
acknowledged that the feasibility study prior to feed looks at
including the conditioning offshore or in another configuration
onshore.
3:46:00 PM
SENATOR VON IMHOF asked what he knows about financing options
for offshore gas, because financing options for offshore oil
drilling is drying up.
MR. TREADWELL mentioned redlining efforts by certain global
banks against Arctic production and opined that every project
should be evaluated on its own merits. He added that on its own
merits, Qilak LNG will produce conventional gas and require very
little infrastructure. He acknowledged that a couple of banks
were not interested, but there has been no appreciable problem
with redlining.
SENATOR VON IMHOF asked if the investment in Yamal LNG is
comparable to Qilak LNG projections and if they are getting a
return.
CHAIR REVAK asked him to begin his response with information
about how long Yamal LNG has been operating.
3:47:57 PM
MR. TREADWLL responded that project was heavily subsidized
initially with the icebreakers and it probably was not needed in
the second round. He noted that the anticipated production is
equivalent to 5 or 6 of the AGDC pipelines or 25 Qilak projects.
He offered his belief that Qilak can beat them on transportation
economics, distance, greenhouse gas emissions, security, and
diversity. He deferred the question about the specific economics
of Jamal LNG to David Clark.
3:49:33 PM
DAVID CLARK, Chief Operating Officer, Qilak LNG, Anchorage,
Alaska, stated the economics on phase one is difficult to
project because the Russian government subsidized the port
development, but the intention on the second project is to
expand LNG production to 60-80 million tons per year. He
described the Qilak project as very competitive.
SENATOR MICCICHE asked how the project competes with traditional
tidewater producers.
MR. TREADWELL replied Alaska has a better climate, better
transportation, no competing gas prices at the well head, no
Panama Canal to contend with, and the overall cost of production
is competitive with other supplies. Qatar and Russia are trying
to expand market share and this last week the U.S. broke its own
export record. He offered his belief that Qilak is competitive
in that marketplace and the buyers indicate the same.
3:53:17 PM
SENATOR VON IMHOF offered her understanding that even if the
State of Alaska does not invest in the Qilak project, it still
makes money in its royalty-in-kind or royalty returns.
MR. TREADWELL answered that is correct.
SENATOR VON IMHOF asked what Qilak LNG needs from the state for
the project to move forward if there are investors that deem
Alaska's gas as viable and competitive.
MR. TREADWELL replied state attention will be important in the
royalty discussions, and the ability for Alaskans to own a piece
of the project through AIDEA financing could be helpful as the
company goes for global financing. The intention today is to
update the committee on Qilak's efforts and enlist the
legislature's moral support.
3:55:10 PM
SENATOR BISHOP suggested that if and when he returns with
financial requests, he should be prepared to talk about how the
company will engage with Alaska contractors and Alaska labor to
build the project.
MR. TREADWELL confirmed that he would be happy to do so. He
added that the focus now is to pioneer a competitive way to do
direct export. It will be Alaskans operating the project.
Negotiations are underway with a shipping company to work with
Alaskans as joint venture partners. It is important for the
North Slope Borough to be involved as the conditioning plant and
pipeline will likely have an ad valorem tax component. He said
it would help if the legislature were to urge the Alaska Energy
Authority to redo its studies on local gas distribution with ISO
containers. He committed to do everything possible to make gas
available for distribution in Alaska.
3:57:17 PM
SENATOR MICCICHE said he looks forward to the fiscal comparison
with the tidewater producers. He asked if the economics of the
project are based partially on coastal tanker distribution like
what occurs in Japan and Norway or primarily on mainline
offtake.
MR. TREADWELL answered the company is talking with three
entities in Japan that are following a national plan to be a
transshipper of energy to other Asian ports. To the question, he
said the closest port would be Japan, northern Korea, or China
with transship smaller tankers for markets beyond.
3:59:24 PM
CHAIR REVAK thanked him for the presentation.
^ Overview of the Alaska LNG Project
Overview of the Alaska LNG Project
3:59:41 PM
CHAIR REVAK announced the next order of business would be a
presentation from Frank Richards on the Alaska LNG Project.
3:59:48 PM
FRANK RICHARDS, President, Alaska Gasline Development
Corporation (AGDC), Anchorage, Alaska, began the presentation
explaining that AGDC was created by the Alaska State Legislature
with the goal to maximize the benefit of Alaska's North Slope
natural gas resources through development of infrastructure to
move gas to local and international markets.
MR. RICHARDS reviewed the history of AGDC paraphrasing slide 3.
• 2010 - HB 369 instructed AHFC to conduct a pre-
feasibility study of a small diameter pipeline
from the North Slope to Fairbanks and south-
central Alaska.
• 2013 - HB 4 created the Alaska Gasline
Development Corporation (AGDC) in AS 31.25,
giving broad powers and funding to advance the
Alaska Stand Alone Pipeline Project ("ASAP").
• 2014 - SB 138 gave AGDC authority to represent
the SOA in the LNG terminal of the Alaska
Liquefied Natural Gas Project ("Alaska LNG").
• 2016 - State of Alaska bought out Trans Canada
and AGDC was granted the entire 25% SOA share in
AKLNG.
• 2016 - Pre-Front End Engineering and Design
("Pre-FEED") was completed and the Producers,
based upon the economics resulting from that
work, stepped aside to allow AGDC to continue
working the project.
• 2017 - AGDC assumed 100% ownership of Alaska LNG
Project.
• 2020 - FERC granted AGDC authorization to
construct Alaska LNG Project.
4:02:04 PM
MR. RICHARDS directed attention to the flowchart on slide 4 and
explained that in early 2020 AGDC's board of directors asked for
a review of the Wood Mackenzie work in 2016 that identified the
Alaska LNG Project as uneconomic due to cost and develop a plan
going forward. The corporation developed a strategic plan to
look at the competitiveness of the project and the ways to
reduce the overall cost of supply as well as ways to move the
project forward by returning to private sector led development.
In 2018 Governor Dunleavy gave clear direction to the
corporation to bring the private sector back to development and
oversight of the project.
MR. RICHARDS stated that the proposed structure of the project
is based on a tolling model. This is very different than the
equity model originally envisioned by the producers or the debt
for equity model proposed by former Governor Walker. The
proposed commercial structure of the project is non-integrated
to attract a range of investors who will focus their investment
in specific asset classes and risk return profiles. This will
allow the gas treatment plant and pipeline to be established as
tolling facilities, which is in line with the guidance from Wood
Mackenzie in 2016. Companies with specific technical
capabilities may be attracted to the project without exposure to
risk of other components of the project. Pipeline companies can
focus on the pipeline while energy companies can focus on the
LNG plant. This is similar to the Gulf of Mexico LNG project,
and the project LNG Canada is pursuing that has separate
investors for the pipeline and LNG plant.
4:04:24 PM
MR. RICHARDS reviewed the summary of the alignment of the
strategic parties that appears on slide 6:
• Advancing the structure and leadership of the
project with Strategic Parties consisting of:
- North Slope producers
- A major pipeline developer
- LNG buyers
- Banks and financial corporations
• These parties have the technical and financial
capacity to bring this project to completion.
• Strategic parties have a combined market
capitalization of $1.25 trillion.
• New potential strategic parties with significant
market capitalization have approached AGDC.
MR. RICHARDS explained that the work over the last several years
included identifying strategies to reduce the overall cost of
the project $8.5 billion to bring the total installed cost to
$38.7 billion. This allowed the project to move through the
economic stage gate to advance to the entry into the feed gate.
The project has received the necessary approval from the
Department of Energy to ship to both Free Trade Agreement and
Non-Free Trade Agreement countries. This means there is no
limitation on the sale of the LNG in Asian markets. Along with
the Federal Energy Regulatory authorization to build the
facilities, the Alaska Oil and Gas Conservation Commission gave
offtake approval for up to 3.6 Bcf/day of gas from the North
Slope. The corporation is also continuing to engage with and ask
for support from both the state and federal governments to
advance the project and make it more viable into the future.
MR. RICHARDS stated that the corporation has good support from
Point Thomson Unit operators as well as the Prudhoe Bay
operators and has agreed upon indicative terms for the gas
supply. Consideration is given for these parties to participate
in the gas treatment plant as both owners and operators. A
leading North American pipeline company has agreed to
participate, and there is strong interest from infrastructure
banks to promote the tolling strategy. The corporation has also
had continuing discussions with Asian markets about offtake from
Alaska. A final component of the world-class partnership the
corporation is building is a project lead for the liquefaction
facility. The corporation has been talking to leading LNG
operators around the world to stimulate interest.
4:08:12 PM
MR. RICHARDS turned to slide 9 that provides an overview of the
Alaska LNG Project. He explained the project will utilize about
34 trillion cubic feet (Tcf) of produced conventional natural
gas resources from Point Thomson and Prudhoe Bay. The gas stream
will be combined at Prudhoe Bay where it will be conditioned.
The CO will be extracted and reinjected into the reservoir, not
2
released into the atmosphere. The gas will pass into an 807
mile, 3.3 Bcf/day, pipeline and flow to tidewater in Nikiski. A
20 million ton per year liquefaction facility and loading berth
will be built in Nikiski to accommodate two cargo ships daily to
ship the offtake to Asian markets. He noted that the Alaska LNG
project meets low carbon LNG standards because it utilizes power
generated from hydroelectric facilities to power the plant.
4:10:23 PM
MR. RICHARDS reported that in 2020 the Alaska LNG Project
concluded its work with the regulatory entities and was
designated a FAST-41 project, meaning it could meet schedules
designated by federal agencies. In 2020 AGDC received all
federal permits including the EIS, FERC order, 404 permit, EPA
401 certification, incidental take regulations, and incidental
harassment authorization for protected marine species. With
receipt of the state right of way, the project has 90 percent of
the rights of way in hand for the gas conditioning facility and
pipeline.
MR. RICHARDS paraphrased the cost reduction work outlined on
slide 11, which read as follows:
• AGDC analyzed and updated the total capital and
operating cost projections of the AKLNG project
from the 2015 Joint Venture Agreement estimates.
• AGDC worked with senior engineers and project
management professionals from BP and ExxonMobil
to review original cost estimates and concluded
that, with changes in the industry, costs could
be reduced significantly.
• AGDC contracted with Fluor Corporation to
evaluate cost reduction opportunities and update
the Class 4 Cost Estimate.
• Updated Class 4 Cost Estimate with input into
project economic model developed with input from
BP, ExxonMobil, DOR, and an investment bank.
• Outcome was decision by Board of Directors that
Alaska LNG Project is commercially and
technically viable.
He said the foregoing work validated that the $38.7 billion is
representative of the cost to bring the project forward.
4:12:42 PM
MR. RICHARDS displayed the bar graph on slide 12 that shows in
[2015] the cost estimate of Alaska LNG delivered to Asia was
about $12 per million Btu (MMBtu). With the cost estimates and
optimizations described earlier, the cost estimate is about
$7.40/MMBtu. This is in the middle of the competitive field.
Noting that the Qatar Expansion is the lowest cost project and
would be hard to beat, he opined that the efforts AGDC has
undertaken to reduce costs is indicative of the opportunity for
Alaska and private sector parties to market and move the Alaska
LNG Project forward.
He offered his belief that there were ways to continue to
optimize the project to make it more economic. He pointed to the
waterfall chart on slide 13 that identifies variables such as
the cost of the gas at the wellhead, federal loan guarantees,
property tax or payment in lieu of taxes (PILT), and other cost
optimizations regarding plan development. To achieve this, it
will take work from the administration and the legislature to
discuss PILT and fiscal stability. He agreed with Mr. Treadwell
that the state needs a stable fiscal regime so any potential
investors know the tax structure will not change. The other
factor is that Alaska is an order of magnitude higher than any
other jurisdiction for property taxes or payment in lieu of
taxes. For example, Alaska is about 15 times higher than
jurisdictions in Louisiana and Texas are paying for property
taxes for gas plants. Alaska has the opportunity to make itself
more competitive by identifying ways to lower property taxes as
well as providing ownership opportunities to boroughs in lieu of
the tax rates. He added that since AGDC currently owns 100
percent of the Alaska LNG Project, the state needs to decide by
what percentage that ownership should be diluted by private
sector investment.
4:16:42 PM
MR. RICHARDS explained that the line chart on slide 15 reflects
what happened to LNG prices because of COVID-19. At the
beginning of the pandemic in 2020, the spot market range of LNG
was $2 to $3. When winter came on the price in Asia jumped about
15 times to about $35/MMBtu and then settled in the $5 to $6
range. He commented that companies that had gas to sell in
January made a significant amount of money.
MR. RICHARDS turned to the chart by Global Strategies that
projects global LNG supply and demand from 2020 to 2050 should
decarbonization initiatives be put in place. The orange line
shows partial transition because of a slight delay in the
decarbonization efforts. The purple line reflects a delay of
about 10 years to shift from coal to LNG or ultimately hydrogen.
the blue line shows a potential peak of LNG at about 800-900
million tons per year (Mt/year) and then a potential reduction
due to the creation of a hydrogen fuel and hydrogen delivery
mechanism to meet demand. He said this is the first time we've
seen the potential that if Alaska's natural gas is not brought
to market until 2050 or 2060, it may not be brought to market.
4:19:12 PM
MR. RICHARDS highlighted some of the realities about
decarburization that ensure that LNG will continue to play a
role as a bridge fuel for the next several decades:
• On February 8th, the Department of Energy
projected that coal and natural gas will still
contribute nearly 40% of U.S. electricity
generation in 2050.
• Wind and solar power energy sources will increase
but they aren't ready to meet the huge demand for
electricity without fossil fuels and nuclear
power in the mix.
• China is the world's biggest polluter, generating
28% of the planet's yearly carbon dioxide
emissions.
MR. RICHARDS offered his perspective that the Alaska LNG Project
will have significant positive effects on Alaska for decades to
come. It could provide an outlet for associated gas from
potential oil finds on the North Slope, which would reduce the
overall risk for those operations. The state can monetize the
tremendous resources on the North Slope to help the treasury.
Construction and long term operation of these projects will
provide high paying private sector jobs well into the future. He
projected that AGDC will be able to provide cleaner energy to
Alaskans along the pipeline route and potentially to isolated
villages either down the river system or through ISO containers.
He opined that in the future there is the potential for blue
hydrogen production from natural gas, and the basin in Cook
Inlet would fit hand-in-hand as a potential carbon sequestration
sink.
4:21:48 PM
MR. RICHARDS mentioned the impacts COVID-19 had on the Alaskan
economy and related that AGDC talked with Governor Dunleavy
about potentially phasing the Alaska LNG Project to provide
lower cost and cleaner energy to the Interior. Developing the
gasline from Point Thomson to Fairbanks as an infrastructure
project could take advantage of federal stimulus funds and help
the state move toward economic recovery.
He reviewed the positive effects this first phase infrastructure
project could have on the Alaska economy:
• Potential to attract stimulus and private funding
to quickly create jobs and revitalize Alaska.
• Phase One opportunity: $5.9 billion clean energy
infrastructure initiative.
• Immediately ignites our economy, put thousands of
Alaskans back to work.
• Resolves longstanding climate, pollution, and
energy problems affecting rural and urban
Alaskans.
• Alaska LNG is unique; the project has major
permits required to start Phase One work now.
4:24:21 PM
MR. RICHARDS stated that the map on slide 22 identifies that
phase one is a pipeline project. It uses Point Thomson gas
initially because it does not need as much conditioning to
remove the CO. It flows into the 32 inch, above ground Point
2
Thomson transmission line to a future gas treatment plant, then
through the 42 inch mainline to Fairbanks. He said the estimated
cost is $5.9 billion and the project could proceed quickly
because the designs and authorizations to move forward are in
place. Importantly, this would significantly reduce the risk of
the full-scale Alaska LNG Project. AGDC would be working with
the private sector to develop and execute the project.
4:25:07 PM
MR. RICHARDS reviewed the directives in the (2014) Letter of
Intent for Senate Bill 138:
• Employ Alaska residents and contract with Alaska
businesses to the extent they are qualified,
available, ready, willing, and cost competitive.
• Use, as far as practicable, job centers and
associated services operated by the Department of
Labor and Workforce Development.
• Participate with the Department of Labor and
Workforce Development to update the training plan
for an LNG export project including main
operations.
• Advertise for available positions locally and
use, as far as practicable, Alaska job service
organizations to notify the Alaska public.
• Work with the Department of Labor and Workforce
Development and other organizations to provide
training.
MR. RICHARDS highlighted the potential economic stimulus
associated with immediately starting phase one:
• Propels a near-term economic recovery for Alaska:
• $1.5 billion impact in first 24 months
• 1,400+ high-paying direct jobs
• 20,000+ indirect jobs
• Immediate benefit to hardest-hit service
industries (e.g., restaurants, hotels,
transportation, warehousing, etc.).
• Delivers natural gas to Interior Alaska in 2025.
• Private sector leadership:
• Build and operate
• Invest capital in ownership depending on
level of Federal infrastructure funds
available to Alaska
• Will significantly decrease gas supply costs.
• 75% Federal infrastructure support: $15
MMBtu
• 100% Federal infrastructure support: $5
MMBtu
• Will provide cleaner air.
• Some of the worst air quality in the nation.
• Bring relief to residents with no
alternative to diesel or wood.
• Will boost military readiness and efforts to
alleviate climate impacts.
• Will reduce costs for producing minerals.
4:27:47 PM
MR. RICHARDS emphasized the need to balance environmental and
energy needs as the nation shifts to renewable sources of power.
He quoted excerpts from an article published by the Progressive
Policy Institute that support that perspective:
"Natural gas will play an indispensable role in
managing the risk that a precipitous leap to
renewables will make electricity more expensive and
potentially less reliable."
"Political debate around energy and climate policy
often presents Americans with a false choice between
natural gas and renewable energy the two are
intertwined."
4:28:31 PM
MR. RICHARDS highlighted the opportunities associated with
utilizing federal stimulus funds for the phase one
infrastructure project:
• Fund the project alongside private sector Lead
Party:
• Owner Builder Operator (OBO) would invest
capital.
• OBO to receive minimum return ahead of any
State payback.
• Gas is delivered to Fairbanks for $5 -
$15/MMBtu depending on Federal
infrastructure funding.
• Significantly de-risks Alaska LNG.
• Once Alaska LNG is sanctioned by investors, gas
prices normalize to under $5/MMBtu in Interior
and Southcentral Alaska.
• The Alaska LNG project final phase will bring
additional job creation.
• Alaska LNG's clean-energy infrastructure
positions Alaska to remain a major energy
exporter far into the future by exporting LNG and
eventually hydrogen.
MR. RICHARDS reported that AGDC is working with the Alaska
Congressional Delegation, the Biden Administration, and
leadership in Congress to demonstrate that Alaska has an
infrastructure project that could provide for economic
opportunities nationwide. Alaska would benefit from the pipeline
but the materials for the project would come from Lower 48
factories and heavy equipment manufacturers.
4:30:00 PM
MR. RICHARDS reviewed the AGDC component in the Governor's FY22
budget proposal:
• FY22 Operating Budget:
• No new capitalization needed
• $3,081,600 authorization
- 10% reduction from FY21
- Authorizes use of funds from Alaska LNG
Project Fund
• Future funding sources
- Statutory Designated Program Receipts
• $50,000,000 (private sector funds)
- Federal Receipt Authority
• Economic Stimulus/Infrastructure Funds
• AGDC will continue to:
• Advance Alaska LNG Project towards FEED
Stage Gate.
• Transition leadership to private sector lead
parties.
• Maintain maximum value of State of Alaska
investment.
• Work with state and federal entities on
additional ways to optimize.
MR. RICHARDS concluded the presentation saying the foregoing is
a quick overview of AGDC's work over the last year on the Alaska
LNG Project.
4:30:47 PM
SENATOR VON IMHOF asked why he was confident that federal
stimulus funds would be authorized for this project when the
Biden Administration recently cancelled the Keystone Pipeline.
MR. RICHARDS replied it will be an uphill battle but the funds
certainly would not be available if they didn't march up that
hill. It's an opportunity to put Alaskans back to work in the
near term.
4:31:57 PM
SENATOR MICCICHE pointed out that a real threat to the project
is that the current administration has people who have
intervened in the permitting of every natural gas and LNG
project in the last 20 years.
MR. RICHARDS replied it is an excellent point but they are
trying to identify the project as an opportunity to build
critical infrastructure for Alaska. He acknowledged that it does
not fit within the green energy goal, but it does provide
opportunities to improve air quality around Fairbanks and
provide cleaner energy to villages that are reliant on diesel.
The potential in the second phase to use methane molecules for
blue hydrogen production is also worthy of consideration.
4:34:48 PM
SENATOR MICCICHE asked if he was envisioning a parallel path for
private investment in the second phase that could happen at the
same time as the first phase because it is difficult to look at
the economics of the first phase if the second phase isn't a
reality.
MR. RICHARDS confirmed that phase one is not an economic
standalone project. Rather, it is the initial phase of the full
scale Alaska LNG Project that is envisioned to proceed in
parallel.
4:37:27 PM
SENATOR KAWASAKI highlighted that the need for lower cost
cleaner energy is not only for the residential market but also
for the multiple military installations in the state.
SENATOR KAWASAKI pointed out that the pipeline is actually about
70 miles west of Fairbanks and a lateral line is supposed to
reach into Fairbanks. He asked if the lateral line and gas
treatment plant ARE part of the $5.9 billion estimate.
4:38:42 PM
MR. RICHARDS answered that the main fuel line terminates near
the Chatanika River about 30 miles west of Fairbanks. The
lateral 12-inch line is a sufficient size to meet the needs in
Fairbanks and the private sector will have an opportunity to
develop that. It is not included in the Alaska LNG
authorizations so it was not included in the original request.
4:40:09 PM
CHAIR REVAK referenced the graph on slide 12 that compares the
competitiveness of Alaska LNG in 2015 and 2021 compared to other
jurisdictions around to world. He said he supports the idea and
potential for lower cost energy and jobs, but he worries about
how competitive the project might be and therefore the risk that
the state might be subsidizing the gas in the future. He asked
if it would be possible to get an updated competitive analysis.
MR. RICHARDS replied the chart is up to date. The first bar on
the left reflects the cost of supply in 2015 dollars but the
rest of the bars reflect 2020 dollars. The Alaska LNG (2021
unoptimized) price is based on cost reductions from 44.3 in 2015
dollars to 38.7 in 2021 dollars. This was the economic stage
gate they went through with the AGDC Board of Directors to show
the potential for a competitive project midway between the other
12 jurisdictions. He acknowledged that it would take additional
work, opportunities, and optimizations to be competitive with
the lower cost projects. This entails discussions about payment
in lieu of taxes, federal loan guarantees currently available,
and additional optimization to the construction and operations.
Responding to the question about risk to the state, he said the
state has to decide the percentage of ownership it wants to
retain for this project. If the decision is for the project to
be 100 percent private, the only risk to the state would be the
tax revenues if it did not go forward.
4:43:40 PM
CHAIR REVAK thanked him for the presentation.
^USIBELLI COAL
USIBELLI COAL
4:43:58 PM
CHAIR REVAK announced the final order of business would be to
hear from Lorali Simon with Usibelli Coal.
4:44:11 PM
LORALI SIMON, Vice President of External Affairs, Usibelli Coal
Mine, Fairbanks, Alaska, encouraged Alaskans to visit the
company's website at usibelli.com for more information. She
reported that Usibelli provides coal to six powerplants in the
Interior. Without this coal, annual energy costs for the 100,000
people in the area would be $140 million higher, and these
ratepayers are already paying among the highest rates in the
nation.
MS. SIMON advised that she could comment on what she heard today
and set the record straight when necessary. She referenced the
statement on slide 9 of Mr. Richard's presentation that says,
"Gas will meet the needs of local markets, reducing use of
highly polluting fuels in interior Alaska."
She questioned how realistic it is to say that coal will be
replaced by natural gas in Interior Alaska when Fairbanks and
adjacent communities rely on coal for about 30 percent of their
energy needs and there is no ready alternative. She said the
Alaska LNG Project is not viable without significant government
subsidy and AGDC acknowledges that on slide 20.
4:46:03 PM
MS. SIMON stated that numerous air quality monitoring studies
have disproved the claim that the particulate matter (PM) issue
in Fairbanks comes from powerplants. She said environmental
regulators agree that the best way to improve air quality in
Fairbanks is for homeowners who rely on wood for heat to burn
dry firewood. To that end, a wood kiln that provides dry
firewood is now operating in the community.
She cited slide 25 of the AGDC presentation and said the
implication is that the military will benefit from the Alaska
LNG Project. However, Eielson Air Force Base recently rebuilt
its coal-fired boilers and an EIS process is underway at Fort
Wainwright. She said these military bases have enjoyed energy
security from coal for decades, and switching to an alternative
fuel would result in massive cost increases. The University of
Alaska, Fairbanks foresaw and avoided these price hikes by
continuing to use coal. Additionally, Governor Dunleavy
identified the draft EIS at Fort Wainwright as inadequate and
questioned switching from coal citing the negative impacts on
ratepayers in the area, Doyon, Limited and its shareholders, and
the private sector jobs that Usibelli provides.
4:47:25 PM
MS. SIMON observed that slides 20 and 21 infer that the Alaska
LNG Project will help meet the Biden Administration's low carbon
initiatives. However, President Biden does not consider natural
gas resources and building gas pipelines as a way to achieve his
zero carbon initiatives. In fact, President Biden has issued
numerous Executive Orders to stop further development of natural
gas resources, including pipelines. As Senator von Imhof
mentioned, he halted the Keystone Pipeline, and he also issued a
moratorium on all federal activities related to oil and gas
leasing on the Coastal Plain of the Arctic National Wildlife
Refuge (ANWR).
MS. SIMON concluded that some gas developers consistently
discount the role and value of coal plants in Interior Alaska.
She suggested that the focus instead should be on technological
innovation to help reduce emissions as well as the cost and
benefits to public health, the environment, and the economy.
She invited the committee to attend the Resource Development
Council meeting on April 1 to hear a presentation titled,
"Hidden in Plain Sight, Alaska's Energy Solution."
4:49:07 PM
SENATOR BISHOP commented that the some years ago the National
Park Service issued a report on air quality and Denali National
Park was found to have the cleanest air of any national park in
the nation. It is about 30 miles from a coal fired powerplant.
4:49:35 PM
CHAIR REVAK thanked Ms. Simon for the presentation.
4:50:23 PM
There being no further business to come before the committee,
Chair Revak adjourned the Senate Resources Standing Committee
meeting at 4:50 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SRES Qilak LNG- Mead Treadwell Testimony 3.22.21.pdf |
SRES 3/22/2021 3:30:00 PM |
|
| SRES Qilak LNG Presentation 3.22.21.pdf |
SRES 3/22/2021 3:30:00 PM |
Qilak LNG Project |
| SRES AGDC Alaska LNG Project Update Presentation 3.22.21.pdf |
SRES 3/22/2021 3:30:00 PM |
Alaska Gas Line Development (AGDC) Project Update |