Legislature(2025 - 2026)BUTROVICH 205
04/07/2025 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| SB114 | |
| Presentation: Pegasus Update: Megaproject Considerations | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 114 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
April 7, 2025
3:30 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Bill Wielechowski, Vice Chair
Senator Matt Claman
Senator Forrest Dunbar
Senator Scott Kawasaki
Senator Shelley Hughes
Senator Robert Myers
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Kelly Merrick
COMMITTEE CALENDAR
SENATE BILL NO. 114
"An Act relating to an in-state natural gas pipeline developed
by the Alaska Gasline Development Corporation; and providing for
an effective date."
- HEARD & HELD
PRESENTATION: PEGASUS UPDATE: MEGAPROJECT CONSIDERATIONS
- HEARD
REVIOUS COMMITTEE ACTION
BILL: SB 114
SHORT TITLE: GAS PIPELINE FAIRBANKS SPUR
SPONSOR(s): SENATOR(s) CRONK
02/28/25 (S) READ THE FIRST TIME - REFERRALS
02/28/25 (S) RES, FIN
03/21/25 (S) RES AT 3:30 PM BUTROVICH 205
03/21/25 (S) Scheduled but Not Heard
04/07/25 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
SENATOR MIKE CRONK, District R
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Sponsor of SB 114.
PAUL MENKE, Staff
Senator Mike Cronk
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions on SB 114.
FRANK RICHARDS, President
Alaska Gasline Development Corporation (AGDC)
Anchorage, Alaska
POSITION STATEMENT: Answered questions on SB 114.
JOMO STEWART, President
Fairbanks Economic Development Corporation
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of SB 114.
GRIER HOPKINS, Mayor
Fairbanks NorthStar Borough
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of SB 114.
ELENA SUDDUTH, General Manager
Interior Gas Utility
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of SB 114.
KEN HUCKABA, representing self
Wasilla, Alaska
POSITION STATEMENT: Testified with concerns on SB 114.
JOSEPH MILLER, President & Chief Executive Officer (CEO)
Pegasus-Global Holdings, Incorporated
Cle Elum, Washington
POSITION STATEMENT: Presented the report, Pegasus Update:
Megaproject Considerations.
JEREMY CLARK, Senior Vice President
Pegasus-Global Holdings, Incorporated
Cle Elum, Washington
POSITION STATEMENT: Presented the report, Pegasus Update:
Megaproject Considerations.
ACTION NARRATIVE
3:30:26 PM
CHAIR GIESSEL called the Senate Resources Standing Committee
meeting to order at 3:30 p.m. Present at the call to order were
Senators Kawasaki, Myers, Hughes, and Chair Giessel. Senators
Dunbar, Claman, and Wielechowski arrived thereafter.
SB 114-GAS PIPELINE FAIRBANKS SPUR
3:31:13 PM
CHAIR GIESSEL announced the consideration of SENATE BILL NO. 114
"An Act relating to an in-state natural gas pipeline developed
by the Alaska Gasline Development Corporation; and providing for
an effective date."
3:31:33 PM
SENATOR MIKE CRONK, District R, Alaska State Legislature,
Juneau, Alaska, introduced himself.
3:31:46 PM
PAUL MENKE, Staff, Senator Mike Cronk, Alaska State Legislature,
Juneau, Alaska, introduced himself.
3:31:50 PM
SENATOR CRONK paraphrased the sponsor statement for SB 114:
[Original punctuation provided.]
Sponsor Statement for SB 114
"An Act relating to an in-state natural gas pipeline
developed by the Alaska Gasline Development
Corporation; and providing for an effective date."
The Alaska Gasline Development Corporation (AGDC) was
established in 2010 with the passage of HB 369 in the
26th Legislature. HB 369 included language that
stated, "the state's significant reserves of natural
gas should be made available on a priority basis in
the state to enhance employment opportunities, expand
the state's economy, and supply a significant portion
of community energy needs."
The near- 100,000 people in the Fairbanks North Star
Borough pay the highest electricity rates on the
Railbelt, according to a report published by the
University of Alaska Fairbanks Alaska Center for
Energy and Power. If a spur to Fairbanks is not built,
the citizens of the Golden Heart City will continue to
pay exorbitant electricity costs.
Businesses and citizens living in Alaska's 2nd most
populous city and the entire Fairbanks North Star
Borough desperately need the energy relief that would
come from a spur connected to a natural gas pipeline.
The AGDC maintains that the development of a spur line
to Fairbanks and 34 other identified communities,
although technically feasible, would need to be
evaluated prior to construction.
SB 114 guarantees that an in-state pipeline would
include a spur to the City of Fairbanks and the
Fairbanks North Star Borough and ensures that all
Alaskans can benefit from a natural gas pipeline.
SENATOR CRONK paraphrased the sectional analysis for SB 114:
[Original punctuation provided.]
Sectional Analysis for SB 114
"An Act relating to an in-state natural gas pipeline
developed by the Alaska Gasline Development
Corporation; and providing for an effective date."
Section 1: Amends AS 31.25.005(4) to establish a
requirement for the Alaska Gasline Development
Corporation to include a direct spur line to the City
of Fairbanks and the Fairbanks North Star Borough in
the construction of an in-state natural gas pipeline.
Section 2: Establishes an immediate effective date.
3:32:52 PM
CHAIR GIESSEL noted the zero fiscal note from the Department of
Commerce, Community and Economic Development (DCCED), OMB
Component Number 2986, dated March 14, 2025. She also noted two
documents available for review, including the Alaska Gasline
Development Corporation (AGDC) Fact Sheet, the Spatial Energy
Burden Analysis of the Fairbanks North Star Borough by the
Alaska Center for Energy and Power (ACEP), and two Alaska
liquified Natural Gas (LNG) project maps.
3:33:48 PM
SENATOR HUGHES expressed support for this project; however, she
surmised that the project would require funding. She directed
attention to the fiscal note from the Department of Commerce,
Community and Economic Development (DCCED), OMB Component Number
2986, dated March 14, 2025, which states that SB 114 would not
have a fiscal impact on AGDC or the construction of the Alaska
Liquified Natural Gas Project. She asked about funding sources
for the Fairbanks spur line project.
3:33:54 PM
SENATOR DUNBAR joined the meeting.
3:34:20 PM
MR. MENKE explained that SB 114 applies to the in-state gasline
portion of the project that ended in 2019. He said the recent
announcement from AGDC is for an export line. He shared a recent
cost estimate of $150-$200 million. He expressed hope that
federal receipts would pay the bulk of the cost and noted
federal support. He deferred to AGDC for additional information.
3:35:43 PM
FRANK RICHARDS, President, Alaska Gasline Development
Corporation (AGDC), Anchorage, Alaska, asked to hear the
question again.
3:35:55 PM
SENATOR HUGHES said that the Fairbanks spur line is estimated to
cost $150-$200 million; however, this is not reflected in the
DCCED fiscal note for SB 114. She wondered how the project would
be financed. She asked if this cost would be included as part of
the Alaska LNG project and would thus become part of the
financing put forward by Glenfarne.
3:36:21 PM
MR. RICHARDS clarified that the most recent cost estimate for
the Fairbanks spur line is $180-$200 million. This cost is all-
inclusive with contingency. He stated that it would be a 32-mile
pipeline and briefly described its location. He explained that
the Alaska LNG project does not include the Fairbanks spur line.
He said the Fairbanks spur line was designed as part of the
Alaska Stand Alone Pipeline (ASAP) at the request of the State
of Alaska. He briefly described the engineering design process,
which provided the necessary spur line construction permits from
the Department of Natural Resources (DNR). He reiterated that
this was designed under the Alaska Stand Alone Pipeline (ASAP)
project and is separate from the Alaska LNG project. With
respect to using federal receipts to pay for the spur line, he
indicated that this would be welcome. He said AGDC recently
signed a memorandum of understanding with an Alaskan pipeline
owner/operator to take on the development of the Fairbanks spur
line. He shared how AGDC would work with that developer by
providing access to the permits, etc., and the developer would
bear the costs to complete the project.
3:37:05 PM
SENATOR CLAMAN joined the meeting.
3:38:23 PM
SENATOR HUGHES asked Mr. Richards to repeat his comment
regarding the possibility of using federal receipts to help fund
the spur line.
3:38:36 PM
MR. RICHARDS said he was not aware of a request to the federal
administration to cover the cost of the Fairbanks spur line.
3:38:51 PM
SENATOR HUGHES asked whether a private company would build [the
spur line] and charge a tariff to pay for the project.
3:39:01 PM
MR. RICHARDS confirmed this understanding and said the process
would be similar to pipeline expansions in southcentral Alaska.
He briefly described that process.
3:39:26 PM
SENATOR HUGHES asked whether Mr. Richards could share the name
of the company.
3:39:38 PM
MR. RICHARDS said the company asked that its name remain
confidential. However, he noted recent discussions between the
company and delegates from Fairbanks. He said AGDC is waiting
for the company's approval to share its identity.
3:39:57 PM
SENATOR WIELECHOWSKI joined the meeting.
3:40:06 PM
SENATOR KAWASAKI commented that the Legislature has discussed
many LNG plans over the years. He pointed out that the initial
cost estimate for ASAP was close to $1 billion and asked why the
current estimate is less.
3:40:49 PM
MR. RICHARDS said the Alaska Legislature previously directed
AGDC to evaluate the opportunity to develop an in-state LNG
pipeline that would include a spur line into Fairbanks (the
Stand Alone Pipeline project). Once AGDC completed the front-end
engineering and design process, the overall project cost was an
estimated $10 billion. This included a $7 billion pipeline, of
which the Fairbanks spur line was a part. He explained that at
that time the estimated cost of the Fairbanks spur line was $150
million (including contingency).
3:41:53 PM
SENATOR KAWASAKI asked about the tariff for Fairbanks residents
for a $200 million spur line, assuming the LNG needs of those
residents remains the same.
3:42:20 PM
MR. RICHARDS said the ASAP spur line was designed to accommodate
current and future needs of Fairbanks residents. He estimated
the tariff (for existing volumes) would be $1.20-$1.40. He said
he would provide the most recent economic evaluation to the
committee.
3:42:56 PM
SENATOR MYERS directed attention to the Wood McKenzie Study and
asked about the estimated gas usage of Fairbanks residents in
that study.
3:43:16 PM
MR. RICHARDS said he would need to review the report to supply
the number.
3:43:35 PM
SENATOR MYERS shared his understanding that the Wood Mackenzie
study estimated 11 billion cubic feet (bcf)/year into Fairbanks;
however, Fairbanks currently uses 1.5 bcf/year. He emphasized
the difference between the two. He offered a hypothetical
situation and asked about the impact this would have on the
price of the gas in Fairbanks and Southcentral Alaska.
3:44:16 PM
MR. RICHARDS said he would need to run this through ADGC's
economic model to provide accurate data.
3:44:27 PM
CHAIR GIESSEL opened public testimony on SB 114.
3:44:58 PM
JOMO STEWART, President, Fairbanks Economic Development
Corporation, Fairbanks, Alaska, testified in support of SB 114.
He emphasized that a spur line into the Fairbanks area would
provide residents with access to affordable LNG. He discussed
how a previous ADGC development proposal, which bypassed the
Fairbanks North Star Borough, placed strain on Fairbanks area
residents. He discussed a variety of ways ADGC has shown it does
not consider the Fairbanks spur line a priority. He noted that
the highest priority of the State of Alaska is to monetize North
Slope LNG and to satisfy the energy needs of Southcentral
Alaska. He asserted that it would be unconscionable for a trans-
Alaska gas line to bypass Fairbanks or render gas too expensive
to benefit residents. He stated that SB 114 does not solve the
issue of transporting gas to residents at an affordable price;
however, it begins an important conversation.
3:47:38 PM
GRIER HOPKINS, Mayor, Fairbanks NorthStar Borough, Fairbanks,
Alaska, testified in support of SB 114. He said it would be
unconscionable if the interior was left out but pointed out that
the project is not required to include the Fairbanks spur line.
SB 114 creates this requirement. He said it is heartening to
hear that a private business is interested in funding and
operating the spur line; however, the additional cost is
disheartening, considering that Southcentral residents do not
pay an additional fee for the Anchorage spur line. He said the
interior LNG market is expanding and preparing for the necessary
infrastructure. He noted that the Fairbanks North Star Borough
is working to increase the customer base and is working to
connect the local military bases to natural gas. He emphasized
the importance of SB 114.
3:50:48 PM
ELENA SUDDUTH, General Manager, Interior Gas Utility, Fairbanks,
Alaska, testified in support of SB 114. She said interior Alaska
has some of the highest utility costs in the country. This is
due in part to the harsh climate and to highly expensive fuel
sources. She emphasized the strain this puts on families and
businesses, making it difficult for the region to grow. She said
the Interior Gas Utility (IGU) serves approximately 1.5 billion
cubic feet (bcf) of LNG per year to homes and businesses. She
briefly described this process and emphasized the high cost. She
said the cost is twice that of Southcentral Alaska. She stated
that this cannot continue and referred to the $44 billion spent
on the natural gas pipeline. She noted that the Wood Mackenzie
study considers 11 bcf/year and said an increase of $1.20 would
only be possible if the gas is affordable. She briefly discussed
how high costs in interior Alaska could impact costs for all
Alaskans. She indicated that IGU is ready and willing to put
forth the required effort to develop the necessary
infrastructure to support the Fairbanks spur line. She
emphasized that the cost of building the spur line cannot be
placed on ratepayers.
3:54:06 PM
KEN HUCKABA, representing self, Wasilla, Alaska, testified with
concerns on SB 114. He mentioned contracts and briefly discussed
how Australia was negatively impacted by export contracts. He
emphasized that Alaska needs first-take, long-term, low-cost
contracts. He expressed concern that the discussion has turned
to tariffs. He stated that the agreements, plans, and intentions
do not equal contracts.
3:55:55 PM
CHAIR GIESEL held public testimony open.
3:56:13 PM
CHAIR GIESSEL held SB 114 in committee.
^PRESENTATION: PEGASUS UPDATE: MEGAPROJECT CONSIDERATIONS
PRESENTATION: PEGASUS UPDATE: MEGAPROJECT CONSIDERATIONS
3:56:26 PM
CHAIR GIESSEL announced the presentation, Pegasus Update:
Megaproject Considerations and Questions
3:57:30 PM
JOSEPH MILLER, President & Chief Executive Officer (CEO),
Pegasus-Global Holdings, Incorporated, Cle Elum, Washington,
introduced himself and gave a brief overview of Pegasus-Global
Holdings, Incorporated (Pegasus).
3:58:02 PM
JEREMY CLARK, Senior Vice President, Pegasus-Global Holdings,
Incorporated, Cle Elum, Washington, introduced himself.
3:58:11 PM
MR. CLARKE advanced to slide 2:
[Original punctuation provided.]
Pegasus's 2019 Report Overview
• Engaged by the State to provide advice concerning
the risks associated with megaprojects, including
specifically the proposed Alaska LNG project.
• Reviewed the Trans-Alaska Pipeline System (TAPS)
and Strategic Reconfiguration project execution
and issues encountered.
• Identified issues commonly realized on
megaprojects.
• Discussed impact of cost overruns.
• Provided examples of contract tools to mitigate
risks.
MR. CLARK noted that findings from the 2019 report remain
relevant. Challenges and issues will be detailed later in the
presentation.
3:59:26 PM
MR. CLARKE advanced to slide 3:
[Original punctuation provided.]
Megaprojects Defined
• Typically have costs in excess of $1 billion USD.
• Comparably high benefits and correspondingly high
risk.
• Multi-year construction, often longer than a
decade from feasibility planning through
execution.
• Many stakeholders that can have substantial
impacts on the project (environmentally,
economically).
• Unique aspects/scopes (i.e. not a bigger version
of a smaller project).
• Conventional project management processes and
priorities often not sufficient.
4:00:12 PM
MR. CLARKE advanced to slide 4:
[Original punctuation provided.]
Megaproject Challenges
• Inherent risks due to long planning/execution
horizons and complex interfaces.
• Technology/components that are often not standard
(including FOAK).
• Decision-making and planning involves multiple
parties with conflicting interests.
• Unplanned events (black swans) are often not
accounted for, but megaprojects have high
exposure and high resulting impacts.
• Over optimism on costs, benefits, and risk
treatment.
4:00:55 PM
CHAIR GIESSEL asked Mr. Clarke to define "FOAK."
4:01:06 PM
MR. CLARKE explained that "FOAK" is an acronym meaning "first of
a kind." He said the acronym is used to describe many things,
including a project that has never been executed, technology, or
an aspect of a project.
4:01:34 PM
SENATOR HUGHES asked whether the Alaska LNG project is
considered FOAK.
4:01:41 PM
MR. CLARKE said the project is not FOAK; however, some
applications may be FOAK. For example, the engineering involved
in working through permafrost and certain technologies.
4:02:17 PM
SENATOR CLAMAN asked for more information about "black swans."
4:02:29 PM
MR. CLARKE explained that a "black swan" describes a high
impact, low probability event. He offered an example to
illustrate this.
4:03:22 PM
MR. CLARKE advanced to slide 5:
[Original punctuation provided.]
The "Iron Law" of Megaprojects
"Over budget, over time, under benefits, over and over
again." Bent Flyvbjerg
92 percent of megaprojects come in over budget, over
schedule, or both!
MR. CLARKE stated that completed megaprojects generally provide
benefits (even at a higher-than-planned cost). He offered an
example to illustrate this. He noted that the cost-benefit ratio
can vary depending on how costs are allocated and treated.
4:05:08 PM
SENATOR HUGHES asked whether there is a rule of thumb for
determining the cost and timeline of a project.
4:05:34 PM
MR. CLARKE said there are industry standard practices; however,
it is generally project specific. He explained that the
Association for the Advancement of Cost Engineering (AACE
International) has practices for developing cost estimates and
schedules. He noted that this includes a table demonstrating the
expected estimate range for the different stages of development.
He briefly explained how this would apply to various stages. He
reiterated that the exercise is generally project specific.
4:06:36 PM
MR. CLARKE advanced to slide 6:
[Original punctuation provided.]
LNG Project Risks
Examples
Risk Factor: Project Economics
Impact on Project Development: Long-term sales
contracts that allow for a sufficient return typically
underpin the financing of LNG projects. Developers
generally need to secure long-term buyers for a large
portion of the project's capacity before sanctioning a
project; high project costs/changing markets can have
a large impact on if/when a project is sanctioned;
cost overruns post-FID impact project returns.
Risk Factor: Regulatory Approvals
Impact on Project Development: Regulatory process
typically time consuming and costly, particularly for
high-profile projects that attract opposition groups.
May require additional requirements (including scope
changes).
Risk Factor: Partner Priorities
Impact on Project Development: Alignment amongst
project partners on strategies and objectives can be
challenging; partners may face different constraints,
have differing risk exposure.
Risk Factor: Ability to Execute
Impact on Project Development: Partners must have the
technical, operational, financial, and logistical
capabilities to execute the project. Technical hurdles
may impact project feasibility. Craft labor must be
available to support project needs. Limited number of
contractors able to execute megaprojects.
Risk Factor: Weather/Environment
Impact on Project Development: Adverse/extreme weather
impacts productivity and can lead to missed
construction windows and schedule extensions.
Risk Factor: Supply Chain/Logistics
Impact on Project Development: Timely receipt of key
material and equipment. Challenge of delivering to
remote locations.
MR. CLARKE noted that these risks are standalone but are often
interdependent. He offered an example to illustrate how changes
in environmental requirements stemming from the regulatory
process could impact the design or scope of a project. This
would then impact the other risk factors.
4:08:06 PM
MR. CLARKE advanced to slide 7, containing an infographic
illustrating the impact of risk mitigation and decision-making
over the duration of a project. He noted that the left side
contains the beginning stages, conceptual and feasibility
aspects. The ability to influence costs decreases as the project
advances. He directed attention to the "phase gates" (small red
arrows along the bottom of the chart). He explained that these
can serve as formal review steps to ensure the project is
advanced enough to proceed to the next stage of development.
4:09:02 PM
MR. CLARKE advanced to slide 8, containing an infographic
illustrating specific stage gates for a typical LNG facility. He
pointed out that the final investment decision follows the
feasibility study and noted that design and engineering commence
before reaching project execution.
4:09:29 PM
CHAIR GIESSEL asked whether the final investment decision (FID)
point would be considered the "go/no-go" decision point.
4:09:42 PM
MR. CLARKE replied yes. He explained that, at that point, enough
information is available to make an informed decision.
4:10:03 PM
SENATOR KAWASAKI asked whether other stage gates prior to FID
could indicate whether or not to move forward.
4:10:32 PM
MR. CLARKE said it is up to the project owner and stakeholders
to define those decision points. He shared that in some
projects, a decision has been made at the conceptual or
feasibility points. He shared reasons this may occur. He
reiterated that it is up to the stakeholders. He stated that FID
represents the final investment decision, with parties entering
contracts to execute the project.
4:11:19 PM
SENATOR KAWASAKI noted that each step and stage has an
associated cost. He opined that it would be beneficial to have
steps earlier in the process that allow stakeholders to evaluate
project feasibility. He asked if there are ways to ensure
companies, corporations, businesses, and/or groups could set the
process up in a way that would minimize risk in the event that a
project does not meet feasibility requirements prior to reaching
FID.
4:11:59 PM
MR. CLARKE said the stage gate process serves as a mitigation
check. However, aligning this to specific established decision
points would make risk mitigation points clear. He explained the
intention behind the stage gate process.
4:12:36 PM
CHAIR GIESSEL suggested that the Alaska LNG project is at the
feasibility study stage, noting that AIDEA had indicated its
intention to reimburse Glenfarne Group, LLC (Glenfarne) $50
million, dependent on Glenfarne's assessment of the feasibility
of the Alaska LNG project. She asked if Mr. Clarke could comment
on this.
4:13:14 PM
MR. CLARKE said that Pegasus-Global is aware that Glenfarne was
engaged to develop the feed study for the project. He indicated
that this is the extent of his knowledge of the issue.
4:13:39 PM
MR. CLARKE advanced to slide 9:
[Original punctuation provided.]
Contracting Approaches
• Size and complexity of megaprojects typically
requires multiple delivery methods and
contracting approaches.
• Risk should generally be assigned to the party
best able to manage/mitigate it.
• For a contractor to assume a risk, additional
costs and/or contingencies are expected.
• Cost-plus and time and materials contracting
approaches run the risk of the contractor low-
balling the bid to win the award, leading to
extensive change orders.
• Firm price/lump sum contracting approaches run
the risk of the contractor adding excess
contingency and still has the risk of disputes
if major issues are encountered.
MR. CLARKE said that a contracting methodology should match the
needs of the project and its environment. The methodology should
consider the risks, regulations, capabilities, and experience of
its partners. It should also support the strategic vision of the
project owners and provide alignment amongst the contract
parties. He briefly discussed various approaches, including
"design-bid-build" and "design-bid" (adversarial) and
partnership and alliance contracting (collaborative). He noted
previous success for large projects utilizing more collaborative
approaches.
4:14:45 PM
MR. CLARKE advanced to slide 10:
[Original punctuation provided.]
Risk Allocation
Basic Allocation Principles
• Control: risk should be allocated to the party
best in position to control and manage variable
relevant to that risk.
• Clarity: allocation decisions should be clearly
articulated and defined in relevant documents and
the project contracts.
• Consistency: allocation decisions need to be
expressed consistently across the project.
• Fairness: allocation should be conducted in a
balanced, clear, and consistent manner.
Balance risk allocation to ensure alignment between
the parties on project objectives.
MR. CLARKE pointed out the relationship between risk and fees,
stating that assuming all project risk would result in an
increase in fees. Risk management efforts must remain robust,
with live participation from project team members throughout the
planning and execution phases.
4:15:34 PM
CHAIR GIESSEL asked for a definition for "EPC."
4:15:40 PM
MR. CLARKE explained that EPC is an engineering, procurement,
construction agreement. He briefly described these. He added
that "EPCM" is engineering, procurement, and construction
management. He briefly described these.
4:16:26 PM
MR. CLARKE advanced to slide 11, noting that the Trans-Alaska
Pipeline System (TAPS) faced many of the same challenges as the
Alaska LNG project:
[Original punctuation provided.]
Trans-Alaska Pipeline System
GAO Report Findings Challenges and Cost Overruns
Site-specific Challenges:
• More groundwater than anticipated.
• Underground construction required deeper/wider
trenches than planned.
• Wide variations in soil conditions.
• Permafrost more difficult to move and drill than
planned.
• Less backfill material sites available, requiring
additional hauling.
• Tolerances for valve support structures far more
critical than planned; temperature changes and
settlement required realignment.
• Productivity impacts in cold weather.
Construction Cost Overruns:
• Feasibility estimate contained no allowance for
escalation (also experienced 4-year delay to
start of construction).
• Insufficient contingency (10 percent) compared to
status of engineering.
• Underestimated amount of elevated pipe.
• Additional infrastructure required, but not in
initial scope.
• Underestimated support structure (camps,
airstrips).
• Underestimated scope for environmental
requirements (vapor recovery, ballast water
treatment system).
4:17:35 PM
MR. CLARKE advanced to slide 12 and noted that lessons learned
from the execution of the TAPS project are relevant to the
Alaska LNG project:
[Original punctuation provided.]
Trans-Alaska Pipeline System
GAO Report Findings Lessons Learned
• Initial and subsequent cost estimates should be
viewed with skepticism.
• As much site-specific data as is feasible should
be obtained.
• Technical and geological uncertainties should be
thoroughly investigated.
• Government approval should be contingent on
detailed planning for management control,
including cost controls.
• Future project expenditures should have an
ongoing government audit to protect the public's
interest.
4:18:22 PM
MR. CLARKE advanced to slide 13
[Original punctuation provided.]
Strategic Reconfiguration Project (2004)
Prudence Review Findings
• Project engineer lacked Alaska experience, failed
to effectively manage the project.
• Poorly defined scope at sanction, leading to poor
cost/schedule estimates.
• Reduction of project contingency to an
unrealistic level to improve project economics.
• No meaningful oversight by project owner.
• Failure to rely on internal project risk
assessments.
• Assumed control of project at Supplement 1
decision point, despite insufficient resources to
do so.
MR. CLARKE said that costs increased from approximately $200
million to nearly $800 million. He explained that, as a result
of both TAPS and the Early Reconfiguration Project having early
estimates challenged, it is increasingly common for megaprojects
to identify early cost estimates through a range of probable
outcomes. (Rather than a single point estimate.) He stated that
this provides greater perspective for possible outcomes.
4:19:39 PM
SENATOR MYERS surmised that both TAPS and the Strategic
Reconfiguration project were overseen by individuals unfamiliar
with Alaska's unique environmental challenges and this led to
cost overruns. He asked if this assessment is correct.
4:20:09 PM
MR. CLARKE shared his understanding that this was a finding with
respect to the Strategic Reconfiguration project and indicated
that it could be true for both.
4:20:22 PM
MR. CLARKE advanced to slide 14:
[Original punctuation provided.]
Open Questions on the Alaska LNG Project
• Status of program management plans.
• Status of the project's risk management program.
• Status of conceptual or preliminary engineering
(pre-FEED).
• Scope of the FEED Study efforts.
• Oversight of Glenfarne.
4:21:09 PM
SENATOR CLAMAN noted that the Alaska LNG project is estimated at
$44 billion and wondered about the potential underestimation.
4:21:27 PM
MR. CLARKE replied that he is not able to offer a specific
percentage or dollar value. He explained that it is simply the
reality of megaprojects. He added that the data indicates that
90 percent of megaprojects have been over schedule and/or over
budget. He said it is important to know how much of the
estimated budget is dedicated to risk and contingency. He posed
a question related to encountering risks and evaluating whether
the contingency would be adequate (or whether additional funds
would be needed). He emphasized that the initial assumptions are
a key factor.
4:22:19 PM
SENATOR CLAMAN shared his understanding that the Alaska LNG
project would likely cost more; however, the exact cost is
unknown.
4:22:25 PM
MR. CLARKE commented that an estimate is a prediction of a
future condition based on a set of assumptions. He said that how
those assumptions play out will impact the final cost.
4:22:44 PM
SENATOR HUGHES recalled an earlier statement regarding a $14
billion project that ultimately cost over $36 billion. She noted
that this is more than double and asked what caused those
overruns. She suggested that this could provide insight into
what to watch for with the Alaska LNG project.
4:23:10 PM
MR. CLARKE said that it is difficult to pinpoint specific issues
and dollar amounts. He said general themes included the
bankruptcy of one of the project partners (the lead designer for
the technology) and an underestimation of the resources required
to perform the work in conjunction with training programs
developed specifically for that program. He noted that the
project was executed during the Covid-19 pandemic, which added
an additional layer of difficulty.
4:24:36 PM
SENATOR HUGHES expressed hope that the Alaska LNG project would
not see that high level of overrun.
4:24:46 PM
SENATOR WIELECHOWSKI referred to the TAPS cost overrun and asked
whether that experience would likely clarify cost estimates and
expectations for the Alaska LNG project.
4:25:16 PM
MR. CLARKE said that past experiences should provide an
awareness, particularly with respect to environmental
requirements. He expressed uncertainty about whether this would
translate into more robust estimates and planning. He said the
development teams are responsible for ensuring megaprojects
reach the next step of readiness.
4:25:59 PM
SENATOR WIELECHOWSKI asked whether Pegasus has information about
Glenfarne's overruns on previous projects or whether that
information is readily available.
4:26:12 PM
MR. CLARKE replied that Pegasus has very limited information on
Glenfarne's past projects and expertise.
4:26:32 PM
SENATOR WIELECHOWSKI asked what type of team Pegasus envisions
to provide oversight of Glenfarne.
4:26:50 PM
MR. CLARKE replied that many approaches are possible. He briefly
described how Pegasus does independent monitoring. He explained
that independent monitors join the project team, attend project
meetings, and take part in discussions. The independent monitors
take an independent perspective on the status of the project.
4:27:42 PM
CHAIR GIESSEL asked whether other organizations also do
independent monitoring.
4:27:50 PM
MR. CLARKE replied yes.
4:27:57 PM
SENATOR HUGHES asked whether Pegasus has reviewed the TAPS
project to determine what caused the more than ten times
increase in cost. She suggested that those issues could also
impact the Alaska LNG project.
4:28:31 PM
MR. CLARKE said the review of the TAPS project was limited to
the Government Accountability Office (GAO) report.
4:29:14 PM
MR. CLARKE advanced to slide 15:
[Original punctuation provided.]
Recommendations
• Detailed review of the FEED Study (including
updated cost estimate).
• Readiness reviews prior to FID and prior to
execution.
• Perform a contract risk review for the EPC/EPCM
contract.
• Independent project monitor/advisory committee
during execution.
4:30:05 PM
SENATOR WIELECHOWSKI expressed support for independent
monitoring. He noted that tariffs impacted TAPS and would also
impact the Alaska LNG project. He asked about the procedure to
implement independent monitoring.
4:30:43 PM
MR. CLARKE said this has been done through the legislature or
through the regulatory body that has chief oversight (e.g. a
public service commission).
4:31:08 PM
SENATOR WIELECHOWSKI wondered about the detailed process.
4:31:31 PM
MR. CLARKE shared that, in New Jersey, this is a part of the
administrative code and briefly discussed how independent
monitoring is implemented there.
4:32:03 PM
SENATOR KAWASAKI commented on the varied interests that support
gas line construction and opined that many would eagerly accept
a project with a low estimated cost. However, he shared that he
does not believe this is not a fair approach. He asked how the
legislature could ensure that the independent monitor is truly
independent, given that so many interests are involved.
4:33:04 PM
MR. CLARKE opined that a third party, with no financial stake in
the project outcome, would be the clearest approach.
4:33:25 PM
MR. MILLER agreed. He said that at the current stage of project
development it is especially important, as there is a general
bias toward optimism. He said it is important to seek an
independent group that is agnostic about project success and
that could provide factual analysis and neutral assessments.
4:34:02 PM
SENATOR CLAMAN commented on the challenges inherent to
megaproject analysis and cost estimations.
4:35:40 PM
MR. CLARKE affirmed that megaprojects are challenging.
Megaprojects will inevitably encounter change (whether big or
small) and that change will have an impact. He stated that at
the outset, optimism is common. He added that, while each
megaproject is unique, assumptions can be benchmarked against
similar projects.
4:36:23 PM
CHAIR GIESSEL directed attention to slide 8 and expressed
concern that the Alaska LNG project has reached the FID point
too early. She expressed hope that the project is still in the
feasibility study stage and that no phases have been skipped.
She referred to the $44 billion estimate (2015) and said this
would be subject to considerable inflation and additional
tariffs would apply to materials. She opined that employing an
independent third party is critical to making the right
decisions regarding the Alaska LNG project.
4:37:33 PM
SENATOR MYERS commented on the history of unsuccessful
megaprojects in Alaska and asked if megaprojects have a masking
effect on the economy (e.g. masking smaller projects that could
have a positive economic impact or masking problematic economic
conditions).
4:38:09 PM
MR. CLARKE replied that megaprojects demand a great deal of
attention and resources and tend to dominate the economic and
political landscape.
4:39:06 PM
CHAIR GIESSEL thanked the presenters.
4:41:00 PM
There being no further business to come before the committee,
Chair Giessel adjourned the Senate Resources Standing Committee
meeting at 4:41 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 4.7.25 Pegasus-Global Holdings Inc. Presentation to Senate Resources.pdf |
SRES 4/7/2025 3:30:00 PM |
|
| SB 114 Fiscal Note DCCED.pdf |
SRES 4/7/2025 3:30:00 PM |
SB 114 |
| SB 114 Research AGDC Fact Sheet 3.10.2025.pdf |
SRES 4/7/2025 3:30:00 PM |
SB 114 |
| SB 114 Research Alaska LNG Project Map 1.png |
SRES 4/7/2025 3:30:00 PM |
SB 114 |
| SB 114 Research Alaska LNG Project Map 2.png |
SRES 4/7/2025 3:30:00 PM |
SB 114 |
| SB 114 Research FNSB ACEP Report 3.10.2025.pdf |
SRES 4/7/2025 3:30:00 PM |
SB 114 |
| SB 114 Sectional Analysis version A.pdf |
SRES 4/7/2025 3:30:00 PM |
SB 114 |
| SB 114 Sponsor Statement version A.pdf |
SRES 4/7/2025 3:30:00 PM |
SB 114 |
| SB 114 Testimony - GVEA Letter of Support 3.10.25.pdf |
SRES 4/7/2025 3:30:00 PM |
SB 114 |
| SB 114 version A.pdf |
SRES 4/7/2025 3:30:00 PM |
SB 114 |