Legislature(2017 - 2018)BARNES 124
03/08/2017 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB111 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 111 | TELECONFERENCED | |
HB 111-OIL & GAS PRODUCTION TAX; PAYMENTS; CREDITS
1:03:33PM
CO-CHAIR TARR announced that the only order of business would be
HOUSE BILL NO. 111, "An Act relating to the oil and gas
production tax, tax payments, and credits; relating to interest
applicable to delinquent oil and gas production tax; and
providing for an effective date."
CO-CHAIR TARR said in conjunction with the committee's work on
HB 111, Tom Barrett, President, Alyeska Pipeline Service
Company, [and retired Admiral in the U.S. Coast Guard (USCG)],
would present an update on the Trans-Alaska Pipeline System.
1:04:44 PM
TOM BARRETT, President, Alyeska Pipeline Service Company
(Alyeska), provided a PowerPoint presentation entitled, "TAPS
Update." He informed the committee Alyeska is honoring the
Trans-Alaska Pipeline System (TAPS) on its 40th anniversary;
TAPS is a remarkable piece of infrastructure and a part of the
history of the state, along with oil production on the North
Slope over the last 40 years. He told a story of meeting a
visitor in Fairbanks who brought her children to see the
pipeline after hearing their grandfather's stories about Alaska
and the construction and operation of the pipeline during its
early years. Mr. Barrett related that the people who worked on
the pipeline, and who work there today, take pride in the
pipeline and understand that its successful operation matters to
everyone in the state. However, he said he is more interested
in the next 40 years and working to maintain the pipeline's
fundamentally strong, solid, and sound infrastructure, in order
to keep TAPS functional and moving forward: a goal that needs
help from the legislature because a major driver [of continued
operation] is production.
MR. BARRETT presented slide 3, noting TAPS operates in a tough
environment of hurricane force wind and blizzards that challenge
its 40-year-old infrastructure, and which, therefore, requires a
lot of care. In addition, throughput is at 25 percent of
maximum capacity, although throughput increased last year and is
up in January and February of this year as well. He pointed out
TAPS is challenged by its aging infrastructure, impacts of
declining throughput, and - beginning 10 to 15 years ago - risk
from global cyber [terrorism], which due to the pipeline's
automated system, garners an enormous amount of attention to
keep its operations safe. Further, Alyeska is "solid" on the
environment and in business performance, and seeks to keep
operating costs down; however, the efforts to keep TAPS running
safely are among the most expensive in the U.S. "Bottom line,"
he said, TAPS successful performance comes from its people who
are tough, smart, and who work in conditions as difficult as
those during the construction of the pipeline.
1:10:02 PM
MR. BARRETT directed attention to slide 4, and offered that
efforts to prevent an aging infrastructure from impeding
operations include: major electrification and automation
projects at pump stations to provide variable speed drivers in
order to better manage fluctuations; replacement of the flare
tip at Pump Station 1 after a drone inspection conducted by the
University of Alaska Fairbanks (UAF); completion of a four-year
valve testing program; continued pipe inspections at all pump
stations and storage tanks; major inspection of the large
gravity underground lines at the Valdez Marine Terminal;
increased use of "smart" instrumented pigs to assess the
mainline; replacement of loading arms on two loading berths in
service at Valdez.
REPRESENTATIVE RAUSCHER requested additional information on the
drone.
MR. BARRETT explained that a sensor package that contains high
fidelity cameras, infrared, or geophysical global positioning
service (GPS) locator information is hung from a drone.
Although drones cannot be operated over water out of line-of-
sight, UAF, the Federal Aviation Administration (FAA), Alyeska,
and others are conducting a pilot program to determine whether
drones can be operated safely over the pipeline corridor to
provide less-expensive and more reliable assessments. He
pointed out approximately one-half of TAPS runs aboveground due
to seismic activity and permafrost, and because the pipeline is
located in an earthquake zone, Alyeska utilizes 70,000 pipeline
supports to keep the pipeline stable and prevent lateral or
vertical movement. At this time Alyeska believes a drone and
sensors could detect vertical deflections [bends], and if so
crews could then be sent to specific sites as needed for
measurements. Further, security is always an issue; security
patrols drive the line, stations are locked out, and terminals
receive more security than ever post-[the terrorist attacks of
September 11, 2001]. Mr. Barrett opined technology has unknown
potential to improve the state's understanding of TAPS.
1:16:02 PM
CO-CHAIR TARR asked for information on the aforementioned "smart
pigs."
MR. BARRETT explained pigs are a pipeline inspection tool and
TAPS uses two different kinds of pigs, one of which is a scraper
pig made of hard plastic that scrapes off wax. Alyeska needs to
know the condition of the pipeline inside as well as outside,
thus "instrumented pigs" measure the thickness of the pipe to
reveal wall loss or pits, detect corrosion from the outside due
to wall loss, and measure a gouge or a deflection. The pigs
used on TAPS weigh approximately 10,000 pounds and the data from
the vendor is analyzed for approximately three to six months.
One challenge to the operation of the pigs occurs where TAPS
crosses a mountain range because as the pig descends, it
accelerates until it abruptly contacts the oil at the bottom.
However, industry technology has made the pigs more rugged, so
they do not lose their sensors on impact. The data from the
sensors calls attention to a potential loss of pipe wall or a
dent in the pipe, which would then require a physical inspection
to determine whether the pipe needs to be dug up and repaired.
He said Alyeska was exploring the use of a "hat" pig design,
which has never been used on a 48-inch pipeline, and explained
that rather than scraping, it would "jet the oil," dissolve the
wax, and put the wax back in the flow stream.
1:20:20 PM
MR. BARRETT, in response to Representative Rauscher, said a pig
could travel a distance of 280 miles on battery power; current
technology allows the instrumented pigs to run in two segments,
from Pump Station 1 down to a new launcher/receiver at Pump
Station 9 - where it is reset - and then continuing to the end.
This is possible because battery life has improved.
1:21:25 PM
REPRESENTATIVE RAUSCHER asked whether pigs are equipped with
cameras.
MR. BARRETT advised cameras are useless in the oil stream; the
pig measures the thickness of the pipe wall and magnetic
resonance. Cameras are used on tethered "crawler" pigs which
can travel in "clean" lines under buildings or through difficult
bends and turns. Alyeska engineers based the crawler pig design
on pigs used in natural gas pipelines, and there is hope that
further technology will improve the design and facilitate the
use of cameras in smaller lines.
REPRESENTATIVE PARISH surmised that most pigs travel from oil
pressure.
MR. BARRETT said yes, pigs move with the flow of oil. He
pointed out if the flow continues to decline, pigs will become
stuck in the pipeline because pigs require an oil flow of
approximately one foot per second.
MR. BARRETT directed attention to throughput decline and noted
that last calendar year, TAPS throughput was approximately 8,000
barrels per day up over what was anticipated; through January
and February 2017, there has been a further increase, which is a
welcome change from the last 10 years. The decline issue is a
particular challenge in cold weather, and he explained that
although the line is always full with about 9 million plus
barrels of oil, the flow rate is slower with less oil. When
TAPS was built, it took approximately four days to move a barrel
of oil from Pump Station 1 to Valdez, but currently it takes
almost 18 days; furthermore, with extremely low temperatures in
the Interior for periods of 7-10 days, as throughput slows,
small amounts of water in the oil can become ice, which poses a
risk to pump stations and can damage equipment. To manage the
ice, heat is added through recirculation at Pump Stations 3, 4,
7, and 9, to minimize the risk of ice causing problems. A
second and worse problem caused by slow flow is paraffin wax,
which can clog the pipe, but also can adhere to the pipe wall
and cause corrosion. In response to wax, Alyeska has
instrumented the pipeline with testing devices such as cameras,
to understand how wax forms in the pipeline - at various flow
rates under varying conditions - in order to solve this problem
prior to continued throughput decline. To further address cold
weather, Alyeska installed methanol injection ports that are
used to inject antifreeze if pipeline flow is stopped, which
will make a restart easier [slide 6]. Mr. Barrett assured the
committee Alyeska is working on solutions to continue
operations; however, to the question as to how long TAPS can
operate, his answer is that TAPS is being managed in a
significant risk profile and needs the legislature's assistance
to prevent decline and to continue to increase throughput.
1:30:58 PM
CO-CHAIR TARR asked how heat recirculation occurs.
MR. BARRETT explained some of the pump stations - like Pump
Station 7 - are no longer used to pump oil, and so loops of pipe
have been added; the oil runs through drag valves that create
friction which generates heat, resulting in several degrees of
increased temperature. Although, he said, a better and more
cost-efficient way to generate heat is to use a fire heater.
REPRESENTATIVE RAUSCHER asked whether the wax scraped by the pig
dissolves from the heat of the oil.
MR. BARRETT returned attention to slide 6 that showed a picture
of a pig trap, a pig, and wax. The wax does not dissolve but is
a hard, hazardous material that must be removed and shipped
south in oil drums at high expense. In further response to
Representative Rauscher, he said he was unsure of the length of
the run that generated the amount of wax shown on slide 6.
MR. BARRETT restated Alyeska seeks to understand what causes the
wax to form, and at what flow rate.
REPRESENTATIVE PARISH questioned whether more hazardous material
would accumulate during winter than in summer.
MR. BARRETT deferred to Mr. Van Wingerden, Alyeska Pipeline
Service Company.
1:34:20 PM
KLINT VAN WINGERDEN, Engineering Manager, Oil Movements
Department, Alyeska Pipeline Service Company, attributed wax
accumulation to freeze/thaw cycles; in fact, in winter, the heat
transfer is less, thus the highest heat transfer is during the
spring breakup season and through the summer months because
where the pipeline is routed through the ground and up the
riverbeds, heat loss is high, which contributes to wax
precipitation.
MR. BARRETT turned to the subject of environmental stewardship,
and pointed out Alyeska completes hundreds of response drills
every year. The Ship Escort/Response Vessel System (SERVS)
operation is unique in that Alyeska has over 400 fishing boats
on charter for near-shore potential cleanup in Valdez from
Valdez, Cordova, Homer, Kodiak, and Seward. The vessels receive
training each year, participate in exercises to prepare for an
emergency, and are essential for the safe operation of TAPS.
Further, the pipeline crosses over 700 streams which are
surveyed to make sure the fish can run clear, run free, and that
pipeline activity does not impede fry or fish movement. In
addition, TAPS crosses 34 major rivers [slide 7].
MR. BARRETT noted that Alyeska's employees are instinctive
conservationists and he told the story of Katie, the muskox who
was rescued by Alyeska employees. In his experience, wolves,
bears, moose, fox, birds, and caribou are often seen along the
pipeline and he said conservation is an inherent value of
Alyeska employees [slide 8]. Continuing to marine operations,
Mr. Barrett said over 40 years Alyeska has loaded nearly 22,000
tankers, carrying 17 billion of barrels of oil, and today loads
approximately 20 tankers per month for market. Today's tankers
are equipped with double hulls and he stressed much of his focus
and effort is on preventing an incident, as much as responding
to an incident; he reviewed Alyeska's response operations
including SERVS, response tugs and barges, and trained response
fishing vessels [slide 9]. Currently, Alyeska is transferring
its marine services provider from Crowley Marine Services to
Edison Chouest Offshore, and the transfer will be finalized in
2018. The contract was competitively bid with the intent to
make some changes in operations, although performance standards
are based on contingency plans required by the state for tankers
and for the terminal. In addition to performance standards, the
bid sought new equipment to replace old, including barges that
are 50 years old. In response to the bid, Edison Chouest
Offshore offered a best-value service package of new equipment
including escort tugs, new docking tugs, new barges, and a new
utility tug, all of which are under construction. The new
equipment will provide more horsepower and additional features.
The transition plan is underway, and he described some of the
pertinent activities. He assured the committee that the current
provider will meet its commitments through the end of the
existing contract. Mr. Barrett cautioned the greatest risk is
in crews that are not qualified or experienced in Prince William
Sound waters. He restated the new equipment is better, modern,
and has more capability; for example, all of the escort vessels
will meet load line requirements and USCG requirements, and are
equipped with some of the best technology available. The bid
process was purposefully long to allow interested companies time
to build new equipment [slide 10].
1:45:47 PM
CO-CHAIR JOSEPHSON said he was impressed by the new
infrastructure and capability of Edison Chouest, but noted
criticisms of the successful bidder from both the Prince William
Sound Regional Citizens' Advisory Council, and the Department of
Environmental Conservation (DEC). He asked Mr. Barrett to speak
to those concerns.
MR. BARRETT answered DEC will have to approve Alyeska's revised
contingency plan with the new equipment before operations begin
in 2018. Alyeska's goal is to give DEC whatever information it
needs to certify the tugs, which will also need USCG and
American Bureau of Shipping (ABS) certifications. He pointed
out DEC is a good agency with which to work, however, obtaining
its approval on a change takes 315 days, which is costly and
difficult for Alyeska. Therefore, the contingency plan process
must begin long before any of the vessels are in the water.
Furthermore, some of the design-build concepts requested by DEC
are proprietary. In any case, Edison Chouest's contract must
meet the requirements of the contingency plan and will do so.
Regarding the Prince William Sound Regional Citizens' Advisory
Council (advisory council) he remarked:
They've raised some questions, some of which I
fundamentally disagree with and I think are ill-
informed and ill-advised. That's their prerogative,
we don't tell them what to do or how to do it, and I
value the citizen input and, and but we've scrubbed
their report and ... some of the material in that
report is simply not accurate, that's the only way I
can put it. But again, we'll keep working with them
and meeting with them and hopefully get to one place.
MR. BARRETT, speaking from his experience as an Admiral in the
USCG, strongly cautioned against conducting training exercises
with new tugs and a tanker in conditions suggested by the
advisory council. He said this type of training in an
uncontrolled environment risks lives, and he gave examples of
unsafe and safe training exercises that do not take unnecessary
risks in unknown conditions. He noted the new tugs will have
equipment sought by the advisory council, and assured the
committee Alyeska will provide the requested information to
agencies in a timely manner.
1:52:21 PM
MR. BARRETT, in response to Co-Chair Tarr, explained a
contingency plan is a plan to address the contingency of a
tanker oil spill of a certain size. For example, Alyeska must
have the equipment, trained people, and the ability to manage a
spill safely, contain it, and clean it up; Alyeska also has
contingency plans for the pipeline. For Prince William Sound,
there are separate contingency plans for the tankers and for the
terminal itself.
1:53:13 PM
REPRESENTATIVE BIRCH noted that Edison Chouest is a great outfit
and it is exciting to see new equipment coming online.
REPRESENTATIVE PARISH said he was excited to hear about state-
of-the-art technology and better hardware; however, he expressed
concern about out-of-state crews brought into one of the most
challenging environments in the world. Alyeska has maintained a
high level of Alaska-hire [employment policies], and he asked
whether Edison Chouest would adhere to a similar standard of
acquiring high quality Alaskan captains and crews.
MR. BARRETT said in accordance with the Alaska Native
Utilization Agreement, Alyeska's contract contains the Alaska
Native Program and maintains a 20 percent Alaska Native hire
standard; Edison Chouest is required - and has committed - to
uphold that standard. Alyeska is 95 percent Alaska-hire,
although marine operators average less; Crowley has between 200
and 220 employees working under the marine operators' contract
and the majority are not Alaskans. He expressed his confidence
that Edison Chouest will have trained crews, and opined it will
hire Alaskans and also "certainly bring in some of their own
people." Mr. Barrett observed Edison Chouest has excellent
training facilities.
MR. BARRETT recalled most of those who built TAPS were not
Alaskans, today however, Alyeska encourages Alaska hire through
its [local hire] preferences; furthermore, 70 percent of its
support businesses are headquartered in Alaska, and over 20
percent of its workforce are Alaska Native. Ninety-five percent
of Alyeska employees live in Alaska, some in villages, and he
estimated about 40 percent are "blue collar" employees. He
lauded the union-sponsored Fairbanks Pipeline Training Center
that serves to train instrument, electrical, and mechanical
technicians, and educational opportunities through the
University of Alaska Anchorage. He advised Edison Chouest will
begin hiring for the marine services contract late in 2017
[slide 12].
REPRESENTATIVE PARISH asked whether Edison Chouest currently
operates in any other environment comparable to that of Valdez.
MR. BARRETT responded that Edison Chouest operates in
Antarctica, is an ice-capable operation, and is a global
company. However, from an ecological perspective, some aspects
of Prince William Sound are globally unique, and thus "it can be
tough water, and we shut down a lot." He noted that operations
in Prince William Sound are different now than 25 years ago for
many reasons, including an increase in activity, and he related
details of the rescue of 500 cruise ship passengers. Mr.
Barrett again expressed tremendous pride in Alyeska employees,
and reiterated that they are mainly Alaskans.
2:02:12 PM
MR. BARRETT offered that the future of TAPS includes keeping the
systems up with maintenance and addressing the declining flow,
because throughput is the bottom line for TAPS. The pipeline
was designed to run most efficiently at 2 million barrels, which
is a much higher level than throughput today. Therefore, the
future of TAPS also depends upon state and federal willingness
to remove the obstacles to developing Alaska's enormous
resources. He urged for making resources available for safe
development, so that Alyeska can fulfil its obligation to move
the resources safely to market. In addition, federal and state
regulatory processes need to be simpler and better coordinated
because dueling federal agencies cost money and cause
frustration. Mr. Barrett said Alaska also needs a competitive
business environment - which has improved - although in the last
15 years the oil and gas market has changed due to the
availability of oil and shale gas in the Lower 48. Alaska is
now competing with North Dakota, Oklahoma, and Texas, and not
just with the Middle East and overseas sources of oil and gas.
Today, the U. S. is the largest petroleum producer in the world
and with Alaska's resources, there is an opportunity to create
an environment wherein operators will develop its resources. He
cautioned at current oil prices, the ability to move product
quickly and easily to the market is also very different than it
was 15-20 years ago. He referred to a newspaper article that
characterized Alaska as an owner state with the industry as its
adversary, and pointed out that Alyeska has dozens of Alaska
business partners, and they work to succeed together. In
closing, he said, "You've got to have a vision of where you want
to be long-term, and then you've got to have an action plan to
get there. And, if you just act without the vision piece being
right, then you've kind of got a nightmare." The challenge for
Alyeska is to safely operate TAPS for the next 10-20 years.
Speaking from his previous experience, he advised to plan and
train for the worst cases, but hope for the best [slide 13].
REPRESENTATIVE RAUSCHER said he appreciates the fact that
Alyeska is 95 percent [Alaska-] hire, and also appreciates the
maintenance of TAPS, and Alyeska's safety concerns and training.
He questioned whether the [owners of the] response fishing
vessels volunteer their services.
MR. BARRETT responded that the vessels volunteer to participate
in the program and they are qualified by Alyeska. When the
vessels are working for Alyeska they are paid, and training is
scheduled offseason. Although the work is voluntary, the
vessels are reimbursed and crews are paid during training. He
described how the training is beneficial to all.
2:11:10 PM
CO-CHAIR TARR recalled at one time when oil prices were down
there was a glut of supply, and she asked how Alyeska adjusts
operations when there is no buyer awaiting at the West Coast
terminals.
MR. BARRETT answered that Alyeska adjusts its operations based
strictly on throughput, which is driven by the producers and the
markets. A change in law that indirectly affected Alyeska was
that TAPS crude could always be exported as long as it was
transported in U. S. flagged vessels; however, now TAPS crude
can be taken globally in [foreign] flagged vessels that meet
USCG standards, and that are certified and qualified. Last year
some oil was transferred to non-U.S. flagged vessels, as
shippers moved outside the U.S. [market]. Mr. Barrett clarified
that Alyeska does not participate in where the oil is marketed;
however, every barrel of TAPS throughput "counts" regardless of
its price, and he restated TAPS throughput is up.
REPRESENTATIVE TALERICO referred to safety and training, and
said he appreciates the safety culture at TAPS, and strongly
agreed that training should not take place in an uncontrolled
environment.
MR. BARRETT related that he is always interested in learning
others' ideas about safety. As an aside, he said that he is a
Vietnam veteran and recently saw the movie, "Hacksaw Ridge,"
which is a [true] story about the first conscientious objector
to receive the Medal of Honor. [Corporal] Donald Sperl of
Juneau was also a conscientious objector who held a Bronze Star,
and is buried in a local cemetery. Mr. Barrett said Mr. Sperl
was also a hero deserving of recognition.
[HB 111 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB111 ver O 2.8.17.PDF |
HRES 2/13/2017 1:00:00 PM HRES 2/17/2017 1:00:00 PM HRES 2/20/2017 1:00:00 PM HRES 2/22/2017 1:00:00 PM HRES 2/22/2017 6:30:00 PM HRES 2/24/2017 1:00:00 PM HRES 2/27/2017 1:00:00 PM HRES 3/1/2017 1:00:00 PM HRES 3/1/2017 6:00:00 PM HRES 3/6/2017 6:30:00 PM HRES 3/8/2017 1:00:00 PM |
HB 111 |
| HB111 Fiscal Note DOR-TAX 2.12.17.pdf |
HRES 2/13/2017 1:00:00 PM HRES 2/17/2017 1:00:00 PM HRES 2/22/2017 1:00:00 PM HRES 2/22/2017 6:30:00 PM HRES 2/24/2017 1:00:00 PM HRES 2/27/2017 1:00:00 PM HRES 3/1/2017 1:00:00 PM HRES 3/1/2017 6:00:00 PM HRES 3/6/2017 6:30:00 PM HRES 3/8/2017 1:00:00 PM HRES 3/13/2017 1:00:00 PM |
HB 111 |
| HB111 Sectional Analysis 2.12.17.pdf |
HRES 2/13/2017 1:00:00 PM HRES 2/17/2017 1:00:00 PM HRES 2/20/2017 1:00:00 PM HRES 2/22/2017 1:00:00 PM HRES 2/22/2017 6:30:00 PM HRES 2/24/2017 1:00:00 PM HRES 2/27/2017 1:00:00 PM HRES 3/1/2017 1:00:00 PM HRES 3/1/2017 6:00:00 PM HRES 3/6/2017 6:30:00 PM HRES 3/8/2017 1:00:00 PM |
HB 111 |
| HB111 Sponsor Statement 2.12.17.pdf |
HRES 2/13/2017 1:00:00 PM HRES 2/17/2017 1:00:00 PM HRES 2/20/2017 1:00:00 PM HRES 2/22/2017 1:00:00 PM HRES 2/22/2017 6:30:00 PM HRES 2/24/2017 1:00:00 PM HRES 2/27/2017 1:00:00 PM HRES 3/1/2017 1:00:00 PM HRES 3/1/2017 6:00:00 PM HRES 3/6/2017 6:30:00 PM HRES 3/8/2017 1:00:00 PM HRES 3/13/2017 1:00:00 PM |
HB 111 |
| HB111 Supporting Document - TAPS Presentation - Tom Barrett 3.8.17.pdf |
HRES 3/8/2017 1:00:00 PM |
HB 111 |