SB 247-AK NATURAL GAS DEV. AUTHORITY INITIATIVE  CHAIR SCOTT OGAN called the Senate Resources Standing Committee meeting to order at 3:35 p.m. Present were Senators Stevens, Seekins, Dyson, Elton and Chair Ogan. Senators Wagoner and Lincoln were excused. The first order of business to come before the committee was SB 247, sponsored by Senator Wagoner and discussed the previous week. MR. BILL POPP, Oil and Gas Liaison, Kenai Peninsula Borough, supported SB 247 and said, "We believe there should be a component of due diligence in the process if the Alaska Natural Gas Development Authority Project does, in fact, go forward." He explained the Cook Inlet Basin accounts for 85 percent of the power generated from natural gas within the Railbelt grid, but proven reserves are estimated to be enough for a 10-year supply. Additional potential reserves are questionable in terms of bringing them to market at this point. The Borough feels that Cook Inlet should be a component of any project, at least during the analysis, to see if that route offers any economies of sale that reduce the overall project cost "... because that's what this project will be all about...." CHAIR OGAN asked why the Assembly passed a resolution supporting a buyback of gas leases in the Kenai Peninsula when everyone knows about the gas reserves problem. Supporting SB 247 is inconsistent with that position. MR. POPP replied that a split vote of the Assembly requested buyback of 22,000 acres of state leased properties below Anchor Point in the Homer Bench area. The mayor chose not to veto the resolution and let it go forward based on the fact that there are other ways to resolve the issue. Whether the buyback happens is another policy that state government would have to make. The administration strongly supports new development of gas resources in the Kenai Peninsula Borough wherever they may be and the south peninsula is a key area. SENATOR SEEKINS said he was confused by that vote as well and he still isn't clear about what the Kenai Borough Assembly wants the legislature to do. He asked if a spur line from Glennallen to the Southcentral gas distribution grid (page 1, lines 7 - 8) would satisfy demand on the Kenai Peninsula for both residential and commercial uses considering the current decline in existing fields. MR. POPP replied that the answer is complex and the spur line in the greater scheme of Proposition 3 is a sideshow. The $12 billion estimate is strictly for the line from the North Slope to Valdez. No cost analysis has been done on the 160 - 190 mile spur line from Glennallen to the Cook Inlet Basin. If the construction from the North Slope to Valdez is successfully completed in 5 to 7 years and on budget, the spur line may be another 2 to 4 years behind that, because of the issues of manpower and simultaneous construction. He did not know what need would be left by the time the spur line was completed. The Kenai Borough already has an industrial base that relies on plentiful supplies of natural gas, which is now over 120 BCF annually (between the Agrium nitrogen plant and the LNG export plant). Also, eliminating hundreds of miles of pipe would drop the cost of the project. Expanding an existing LNG plant, which can be done according to Conoco Phillips would eliminate the need for a new plant completely. Us of existing capacity, dock and support facilities and workforce can also reduce a project's cost. That's why the borough thinks this route should be looked at before a final route is chosen. SENATOR SEEKINS related that Senator Wagoner had graphically explained to the committee how, eventually, demand for residential gas in the Anchorage Bowl would bring the supply for commercial prospects to zero without some additional gas supply. He asked Mr. Popp if he agreed. MR. POPP replied that a pattern of growth is taking place in the gas heating utility market that is showing that market will be taking a bigger and bigger bite out of the overall supply situation within the Cook Inlet Basin. High demand days will necessitate utilities shutting down supplies. That's becoming more and more pronounced with each passing year with our current deliverability and supply situation in the Cook Inlet Basin. The ongoing exploration activities will not solve problems for the 15 - 25 year horizon and longer term supply needs will have to be found elsewhere. SENATOR ELTON said this committee has talked about funding for ANGDA and Chair Ogan's bill, which expands the scope of ANGDA to the highway route and pushes back the date for the report by six months to January 1, 2005. He said although that proposal makes sense, the appropriation is for $2.15 million to accomplish the existing scope of work. He asked if the scope is expanded and the fiscal note as well, would the borough consider providing matching funds. MR. POPP replied that he would have to ask the Assembly and Mayor. He noted that between $12 million and $14 million worth of industry research has been performed on the route that is being added. It is available - as is the Yukon Pacific research - for a price, probably commensurate with the amount previously spent. If $2.15 million is sufficient to gain access to Yukon Pacific's research about the key pieces the Valdez route requires, he thought a proportional amount may be required for the research generated by the previous pipeline task force. The task force's research was based on the premise that industry could not do it at a reasonable rate of return. CHAIR OGAN recalled that over $100 million was spent for design and permitting, and expressed concern that a route change will require a new EIS, engineering studies and permits. He didn't know why BP decided that route wasn't feasible and said, although he would love to see it happen, he didn't really feel that it would. MR. POPP understood his concerns and added that any number of permits are still outstanding for the Valdez terminus, itself. Seven hundred million metric tons of rock must be removed to create a flat site and a barge operation must be permitted. Industry officials indicated that they believe the Railbelt route is permittable. Probably an EIS would have to be done, but that issue would arise with the Valdez terminus, as well. Those issues must be balanced and a fair comparison of routes should be made. CHAIR OGAN asked if Agrium and the LNG plant currently use 60 BCF each per year. MR. POPP replied that those are round numbers; the LNG plant uses approximately 70 BCF per year depending on temperature conditions and other variables. At peak efficiency and full capacity, Agrium could use 55 BCF per year. CHAIR OGAN said the Valdez proposal is for about 530 BCF per year for LNG. He asked if a new plant to process that much more gas would have to be built. MR. POPP replied that the existing plant is operating at capacity now, but the existing footprint and dock facilities can be expanded for larger capacity without the removal of anything but trees and overburden. If a new plant is necessary, a number of sites within the Cook Inlet Basin are readily buildable. SENATOR SEEKINS asked if the Valdez line were built, whether the Anchorage Bowl would depend on the deliquefication plant from Valdez for natural gas? MR. POPP replied that is a good question. The industrial base would be the first to go, because home utilities would take priority over industrial uses. Hundreds of jobs would be lost. Gas could be imported to Anchorage, maybe even from a foreign source. CHAIR OGAN asked Mr. Popp to relay to the Assembly his and Senator Seekins' concerns about its mixed messages. Legislators want a consistent message for or against gas development. MR. POPP said that the Assembly might be entertaining the Chinese national gas buyer who is coming to Alaska in a couple of weeks along with the vice president of the Korean National Gas Company. CHAIR OGAN thanked him for his testimony and held SB 247 for further work.