Legislature(2015 - 2016)BARNES 124
03/13/2015 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB105 | |
| Presentation(s): Alaska Oil and Gas Competitiveness Review Board Update | |
| State of Alaska, Alaska Lng Project, 3rd Party Cost Forecast by Department of Natural Resources | |
| Asap Project Reconfiguration Plan by Alaska Gasline Development Corporation | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | HB 132 | TELECONFERENCED | |
| += | HB 105 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 13, 2015
1:00 p.m.
MEMBERS PRESENT
Representative Benjamin Nageak, Co-Chair
Representative David Talerico, Co-Chair
Representative Mike Hawker, Vice Chair
Representative Bob Herron
Representative Craig Johnson
Representative Kurt Olson
Representative Paul Seaton
Representative Andy Josephson
Representative Geran Tarr
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Jim Colver
COMMITTEE CALENDAR
HOUSE BILL NO. 105
"An Act relating to the programs and bonds of the Alaska
Industrial Development and Export Authority; related to the
financing authorization through the Alaska Industrial
Development and Export Authority of a liquefied natural gas
production plant and natural gas energy projects and
distribution systems in the state; amending and repealing bond
authorizations granted to the Alaska Industrial Development and
Export Authority; and providing for an effective date."
- HEARD AND HELD
PRESENTATION(S):
Alaska Oil and Gas Competitiveness Review Board Update
- HEARD
State Of Alaska, Alaska LNG Project, 3rd Party Cost Forecast by
Department Of Natural Resources
- HEARD
ASAP Project Reconfiguration Plan by Alaska Gasline Development
Corporation
- HEARD
HOUSE BILL NO. 132
"An Act relating to the support of the Alaska liquefied natural
gas project by the Alaska Gasline Development Corporation."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 105
SHORT TITLE: AIDEA: BONDS;PROGRAMS;LOANS;LNG PROJECT
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/11/15 (H) READ THE FIRST TIME - REFERRALS
02/11/15 (H) ENE, RES, L&C, FIN
02/17/15 (H) ENE AT 10:15 AM BARNES 124
02/17/15 (H) Heard & Held
02/17/15 (H) MINUTE(ENE)
02/24/15 (H) ENE AT 10:15 AM CAPITOL 17
02/24/15 (H) Moved CSHB 105(ENE) Out of Committee
02/24/15 (H) MINUTE(ENE)
02/25/15 (H) ENE RPT CS(ENE) 7DP
02/25/15 (H) DP: NAGEAK, WOOL, TILTON, TALERICO,
CLAMAN, COLVER, VAZQUEZ
03/09/15 (H) RES AT 1:00 PM BARNES 124
03/09/15 (H) Heard & Held
03/09/15 (H) MINUTE(RES)
03/13/15 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
TOM HENDRIX, Chair
Alaska Oil and Gas Competitiveness Review Board
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation and
update on the Alaska Oil and Gas Competitiveness Review Board.
JERRY BURNETT, Deputy Commissioner
Office of the Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Answered questions during the PowerPoint
presentation and update on the Alaska Oil and Gas
Competitiveness Review Board.
MARTY RUTHERFORD, Deputy Commissioner
Office of the Commissioner
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Provided the State of Alaska, Alaska LNG
Project, third party cost forecast in accordance with Section 77
of Senate Bill 138 [28th Alaska State Legislature].
DAN FAUSKE, President
Alaska Gasline Development Corporation (AGDC)
Anchorage, Alaska
POSITION STATEMENT: Provided information regarding the Alaska
Stand Alone Pipeline (ASAP) reconfiguration plan [the planned
PowerPoint presentation, "ASAP Reconfiguration", was not given].
FRANK RICHARDS, P.E., Vice President
Engineering and Program Management
Alaska Gasline Development Corporation (AGDC)
Anchorage, Alaska
POSITION STATEMENT: Assisted in providing information regarding
the Alaska Stand Alone Pipeline (ASAP) reconfiguration plan [the
planned PowerPoint presentation, "ASAP Reconfiguration", was not
given].
ACTION NARRATIVE
1:00:07 PM
CO-CHAIR BENJAMIN NAGEAK called the House Resources Standing
Committee meeting to order at 1:00 p.m. Representatives Herron,
Johnson, Josephson, Seaton, Olson, Hawker, Talerico, and Nageak
were present at the call to order. Representative Tarr arrived
as the meeting was in progress. Representative Colver was also
present.
HB 105-AIDEA: BONDS;PROGRAMS;LOANS;LNG PROJECT
1:01:59 PM
CO-CHAIR NAGEAK announced that the first order of business is
HOUSE BILL NO. 105, "An Act relating to the programs and bonds
of the Alaska Industrial Development and Export Authority;
related to the financing authorization through the Alaska
Industrial Development and Export Authority of a liquefied
natural gas production plant and natural gas energy projects and
distribution systems in the state; amending and repealing bond
authorizations granted to the Alaska Industrial Development and
Export Authority; and providing for an effective date." [Before
the committee was CSHB 105(ENE).]
1:02:09 PM
REPRESENTATIVE HAWKER stated he would like to bring up HB 105
because the committee and co-chairs had requested amendments for
this bill by noon today. While the bill itself is simple, he
said, this deadline is difficult because he does not yet know
enough about the specifics of the project being taken by Alaska
Industrial Development and Export Authority (AIDEA) and what its
alternative plans are. Prior to the committee taking amendments
or reporting the bill, he said he would like an opportunity to
hear more from AIDEA and the other entities participating in
that new project.
CO-CHAIR TALERICO submitted that the committee was looking for
more of a plan for the project and more needed to be heard from
other participants and entities. He suggested that more
information be provided by the utilities involved as well as
others. Given that well over $200 million would be required for
this project, he maintained that more information is needed by
committee members.
REPRESENTATIVE JOSEPHSON asked whether the co-chairs have a
schedule in mind.
CO-CHAIR NAGEAK replied he would like to hear what the other
committee members have to say.
1:05:09 PM
REPRESENTATIVE JOHNSON offered his concern about the pace and
said he would like to get more information because he does not
know what the problem is, much less how to fix it. He therefore
stated that additional time is needed.
REPRESENTATIVE OLSON related that about two months ago AIDEA
launched a $750,000 study on all the alternatives of getting
energy relief to Fairbanks. He suggested the committee have
AIDEA share an update on this study.
REPRESENTATIVE SEATON noted that at the bill's previous hearing,
he had questioned the presenter about whether it was limited to
LNG. The presenter had thought that there was some way the
wordings could be interpreted that that could be a small
diameter pipeline as well going from Cook Inlet. Representative
Seaton recalled that he had told the presenter he would like to
see a legal opinion in this regard because that would be such a
stretch "and whether the committee wants to have it cheaper
energy for Interior Alaska if we are including or not including
that portion ... in that analysis." Since he has not yet
received an answer, he said he is hoping the committee will have
more time to get the information from the Interior project.
REPRESENTATIVE HERRON said he, too, would like more information
so he can make a better conclusion and decision.
1:07:19 PM
REPRESENTATIVE OLSON recollected that at the previous hearing
the committee asked for additional information on the port
authority's gas offering of several years ago, but the committee
only received the names of some of the companies and not much
information. He said receiving more information in this regard
would also be helpful.
REPRESENTATIVE JOSEPHSON shared the committee's desire for more
information on the revised AIDEA plan. Given the crisis in the
Interior, however, he offered his hope that something will be
done this session with ample time for the other body to look at
the bill as well.
REPRESENTATIVE HAWKER pointed out that a companion bill is
currently being heard in the Senate.
REPRESENTATIVE OLSON commented that in his eight years on this
committee, the committee has always tried to send the cleanest
bill forward that it can, even when there is a companion bill.
He opined that the committee having inadequate information would
be a disservice to the people in Fairbanks as well as to the
rest of the state.
1:09:12 PM
CO-CHAIR NAGEAK offered his belief that a bill will not move
forward today. He agreed the committee needs to see a plan from
the people who brought the bill forward.
CO-CHAIR NAGEAK held over HB 105 after determining there was no
objection to doing so. He directed committee staff to talk with
AIDEA about a future presentation of the alternative studies.
^PRESENTATION(S): Alaska Oil and Gas Competitiveness Review
Board Update
PRESENTATION(S):
Alaska Oil and Gas Competitiveness Review Board Update
1:10:11 PM
CO-CHAIR NAGEAK announced that the next order of business is a
PowerPoint presentation and update on the Alaska Oil and Gas
Competitiveness Review Board.
1:10:29 PM
TOM HENDRIX, Chair, Alaska Oil and Gas Competitiveness Review
Board, offered his appreciation for being able to testify today.
JERRY BURNETT, Deputy Commissioner, Office of the Commissioner,
Department of Revenue (DOR), noted that the Department of
Revenue (DOR) staffs the Alaska Oil and Gas Competitiveness
Review Board.
1:10:57 PM
MR. HENDRIX turned to slide 2, explaining that the overview he
is providing today follows the report [entitled "Alaska's Oil
and Gas Competitiveness Report 2015"] that the committee has
already received.
MR. HENDRIX moved to slide 3, specifying that the Alaska Oil and
Gas Competitiveness Review Board was formed under Senate 21
[28th Alaska State Legislature]. The board was created to
establish and maintain salient data regarding oil and gas
exploration, development, and production in Alaska, and to
advise the Alaska State Legislature on the state's fiscal
system, labor pool, and regulatory competitiveness. Reviewing
the members of the board, he said the board's two public members
are Joey Merrick, a business secretary for Alaska Laborers'
Local 341; and Rodney Brown, the treasurer for the Plumber and
Pipefitters Local 375. The board's three [administration
department heads] are Randall Hoffbeck, Commissioner, Department
of Revenue (DOR); Mark Myers, Commissioner, Department of
Natural Resources (DNR); and Kristin Ryan, [Director, Division
of Spill Prevention & Response], filling in for the commissioner
of the Department of Environmental Conservation (DEC). The
board's one commissioner from the Alaska Oil and Gas
Conservation Commission (AOGCC) is Mike Gallagher. The board's
three oil and gas subject matter experts are Pete Stokes,
Petroleum Engineer [Petrotechnical Resources of Alaska]; Curt
Freeman, geologist [Avalon Development Corporation]; and Tom
Maloney, CPA [CH2M Hill]. The board's two industry trade group
representatives are Kara Moriarty, President/CEO, Alaska Oil and
Gas Association (AOGA); and himself. Providing background
information about himself, Mr. Hendrix shared that he was born
and raised in Fairbanks, has two grown children and a grandson,
resides in Palmer, and has been with Carlile Transportation
Systems, Inc. for 23 years where he is currently vice president
and running the company's oil and gas division.
1:14:27 PM
MR. HENDRIX drew attention to slide 4, explaining the board
began its work by identifying [Alaska's oil and gas producing]
peers. The peers identified by the board are located in the
Arctic, North America, Europe, and the Pacific Region and all
the jurisdictions have concession-type fiscal arrangements for
tax and royalties that are similar to Alaska. The identified
jurisdictions have similar size reserves and undiscovered
resource potential as Alaska, and have a history of significant
hydrocarbon production.
MR. HENDRIX said Alaska has vast resources [slide 5]. Although
not all of them are proven reserves, Alaska has a third of the
nation's reserves. Regarding land and lease sales in Alaska
[slide 6], he said the federal lands are vast [61 percent], but
are locked up and challenging to develop. The private lands [12
percent] have the smallest offering and are contrary to many of
Alaska's peers. State lands [27 percent] have the most
potential for development in the short term. The State of
Alaska's lease sale program is more consistent and reliable than
the federal government, which is very important to the state.
1:16:18 PM
MR. HENDRIX brought attention to slide 7, stating that drilling
activity in Alaska is a good indicator of petroleum-related
activity. For example, there was an uptick in activity when
Senate Bill 21 was enacted [June 2013]. He pointed out that
slide 7 is from the Alaska Oil and Gas Conservation Commission
and depicts all well activity, including workover wells, water
production wells, coiled tubing unit drilling, and infield
production drilling and said the slide shows a tremendous amount
of activity.
MR. HENDRIX turned to slide 8, specifying it is a Baker Hughes
measure. He advised that the number of active drilling rigs on
slide 8 differs from the number of drilling rigs shown on slide
7. This is because AOGCC measures every drill rig activity,
whereas the Baker Hughes slides are more of a production
drilling, fixed rig, reported by the bit salesmen. He said
slide 8 shows that Alaska has had a fairly consistent drilling
program through the ups and downs compared to the other states
which have gone through boom and bust cycles. While the well
counts and the rig counts are significantly different [from the
other states], the slide shows that there is a tremendous amount
of stability in Alaska.
1:18:20 PM
MR. HENDRIX reviewed North Slope infrastructure and challenges
[slide 9]. He said current infrastructure consists of: the
Trans-Alaska Pipeline System (TAPS), the state-owned Dalton
Highway, and oil and gas related infrastructure that is
primarily owned by industry. While there has been conversation
about whether industry or the state should own these, it is not
an issue that the board looks at. Current North Slope
challenges are: incident response, increased water handling
capability as fields decline, and the oil flow contingencies for
the Trans-Alaska Pipeline System. The board has met with former
Commissioner Kemp and discussed roads and other Department of
Transportation & Public Facilities infrastructure. However, he
noted, the board has not yet had a chance to meet with new
commissioner, Marc Luiken.
MR. HENDRIX addressed the infrastructure of the Cook Inlet and
the frontier basins [slide 10]. He said the Cook Inlet has 34
units/fields, all of which are connected to infrastructure to
bring oil or gas into processing facilities. As well, there are
oil pipelines, dockage, and gas storage facilities. He said the
six frontier basins include the Fairbanks area, Glennallen,
Kotzebue, Emmonak, Egegik, and Port Moller.
1:20:11 PM
MR. HENDRIX, regarding labor and employment [slide 11], reported
that the board met with the Department of Labor & Workforce
Development and learned about the department's current training
programs. Tracking workforce development will be one of the
board's "dashboard items" when doing its study. Workforce
development is something to be keenly aware of because it is
necessary for being able to attract industry expansion in the
state. Having labor involved on the board is key in Alaska's
future growth. Expansion in this area would be important and a
competitive advantage for Alaskans.
CO-CHAIR NAGEAK pointed out that his district has two training
centers. He said they are very important programs to meet the
North Slope labor needs. He inquired whether there is anything
the legislature can do to ensure that these two training centers
will continue to be a program of the Department of Labor &
Workforce Development.
MR. HENDRIX deferred to the department to answer the question,
saying he cannot speak directly to the department's business.
He reported, however, that the Department of Labor & Workforce
Development provided an extremely good presentation to the board
showing the state's different training programs. Looking at the
state's available workforce and the programs to train additional
Alaskan workers is something the board believes should be
measured and watched closely to ensure Alaska has a workforce of
Alaskans to do that.
1:23:24 PM
MR. HENDRIX said slide 12 is not in the board's report, but
shows the difficulty, challenges, and complexity that is had in
permitting. He pointed out that the yellow boxes depicted on
the graphic are items that the State of Alaska can make changes
to, if needed. The board has not identified whether the state's
permitting process is fast enough, robust enough, or competitive
with other states, but permitting is something the board must
study closely to ensure that Alaska is not disadvantaged by its
permitting process as compared to competing jurisdictions.
MR. HENDRIX addressed slide 13, which lists the typical
permitting requirements. He said federal, state, and local
permits are required to explore and develop, whether onshore or
on the outer continental shelf (OCS).
MR. HENDRIX turned to slide 14, which shows how royalty and
different taxes make up the Alaska fiscal system. He noted that
the pie chart is from a better time than what the state is faced
with today. Not shown on slide 14, he added, is the actual
federal and local taxes that are generated in the process.
MR. HENDRIX stressed that slide 15, highlighting the petroleum
fiscal regimes of Alaska's peer groups, is not meant to be a
comparison because there is no perfect fiscal system. Of note,
he said, is that those fiscal regimes having higher taxes - such
as Norway, Australia, or Australia deepwater - do not have
royalties. While not a comparison, the slide is a snapshot of
the factors that were in place at the time the board's report
was put together. Nothing remains static for long for many of
the jurisdictions, he advised, especially during low prices.
1:26:23 PM
MR. HENDRIX moved to slide 16, pointing out that the Alaska Oil
and Gas Competitiveness Review Board was faced with a very fast
start. The board was mandated by Senate Bill 21, but due to the
referendum the board's first meeting didn't occur until August
2013. Then the change in Alaska's administration resulted in a
change-out of some of the board's members. The board has had 10
meetings and extremely good participation in getting the report
done; however, the 2015 report does not meet the statutory
requirements under Senate Bill 21. The board's task was for a
deliverable at end January 2015 with written findings, and this
report by no means is written findings or recommendations. The
board has assembled a baseline of where [Alaska] is at today and
a starting point. In looking at what it has been tasked with
doing, the board has discovered that an outside study needs to
be done, much like the experts the administration has hired for
different studies for oil and gas. The board feels it important
that this be an outside study to ensure there is good feedback
from oil companies or producers or folks who are interested in
doing business in Alaska. If it comes from the state he does
not think that the oil companies or explorers would feel as
compelled to give absolutely anything that might be a criticism
or something that the state could fix. So, the board feels that
having a third party do that will yield far better information
and analytics. There is a broad base from which this
information needs to be drawn. As unfortunate as it is, the
board has prepared a request for proposals (RFP) where the board
has asked for funding to continue its work. Following this
study the board believes it can meet its statutory requirements
to give written recommendations, but that work has not been
completed yet.
1:29:24 PM
MR. BURNETT added that the Department of Revenue (DOR) has met
with the Alaska Oil and Gas Competitiveness Review Board. He
confirmed the board has had 10 meetings and has been working on
the aforementioned. He specified the fiscal note for Senate
Bill 21 was simply for funding the administrative costs of
operating the board. The board, including the commissioners on
the board, have concluded that an outside study is needed. The
report was due in January [2015], which is about when
administratively it was understood what the needs would be, so
it didn't come to DOR in time for the budget process this year.
It continues to be discussed, he said, and he thinks all the
board members, including DOR Commissioner Hoffbeck, are
supportive of finding funding someplace. There could be a way
to get funding from industry, but because an unbiased report
must be ensured public funding is being looked at as the source,
and this will be discussed with members of the legislature. A
meeting was held with the governor's office earlier today and
support was received for making a funding ask for this work.
1:31:00 PM
MR. HENDRIX stated that without funding in this budget cycle the
board's work will be pushed out nine months. The board would
not be brought to a complete stop, he said, but without that
funding the board cannot get to the written recommendations
required under statute. Other items that will be pushed out as
a result of no funding are the board's future deliverables
[slide 17]. The date for the board's next report to legislative
committees is January 15, 2017; with lack of funding that date
will be pushed out. The board can try to compress this work,
but this work is extremely important to the State of Alaska and
the board wants to be thorough and accurate in the execution of
this. So, he advised, there will have to be something
legislatively to push the dates for delivery on the January 15,
2017, deadline, as well as the January 31, 2021, deliverable.
MR. HENDRIX noted the board is diverse and includes a large
contingent of labor, for which he is glad because labor is a key
piece of Alaska's competitiveness. He concluded by thanking all
of the departments for their participation, as well as that of
AOGCC, because every department gave its time to pull together
the data the board has presented in its 2015 report.
1:33:41 PM
REPRESENTATIVE JOHNSON asked whether the board has an estimate
on the amount of funding needed.
MR. HENDRIX replied the board has identified a request of
$300,000 in the RFP.
1:34:06 PM
REPRESENTATIVE HAWKER appreciated Mr. Hendrix's acknowledgement
that the board's 2015 report does not comply with the statutory
requirements. He inquired whether the board's intention is to
supplement this with a report that is in compliance with the
statutory requirements for the January 31, 2015, report in
addition to the January 15, 2017, and January 31, 2021, reports,
or whether the intention is to move on forward with the 2017 and
2021 reports.
MR. HENDRIX responded that the board intends to submit what was
statutorily required prior to the January 2017 report. So, the
board will meet its statutory requirements, which will take more
time, prior to the 2017 deliverable. The board owes the House
Resources Standing Committee a report as outlined statutorily in
Senate Bill 21 and also owes another report in 2017.
REPRESENTATIVE HAWKER asked whether the board will be able to
complete the 2015 report if the legislature does not appropriate
funds for the consulting study.
MR. HENDRIX answered no. Responding further, he explained that
"without having the data to be able to do the comprehensive
study that we ... need the information and professional surveys
to pull together, his answer would be 'no', we're not going to
turn out a quality product ... that we would feel that we could
recommend to the state to move forward with."
1:36:55 PM
REPRESENTATIVE TARR observed the RFP will be issued on March 23
[2015] and the contractor's work period will be May 4 to July 1
[2015]. Concluding that something must therefore come together
fairly quickly, she asked whether the plan is to issue the RFP
without knowing how it will be paid for. She further inquired
whether July 1, 2015, is when the board is expecting to get the
consultant's final work product that would then be integrated
into what Representative Hawker was just asking.
MR. BURNETT replied the expectation is that those dates will be
moved, those dates are there as placeholders. So, depending on
when funding is available and how it is identified, the dates
will be moved. However, the body of the RFP is ready to go, so
the dates can be changed and the RFP put out.
REPRESENTATIVE TARR observed the notice to award is April 20
[2015] with the contract for May 4 to July 1, a window of two
months. She asked whether two months is enough time for a
contractor to be able to complete the study work.
MR. HENDRIX responded yes.
1:38:23 PM
REPRESENTATIVE HERRON requested Mr. Hendrix to state for the
record why the board slid past this deadline.
MR. HENDRIX answered that the legislative directive [requiring]
the board to produce written findings was a hurdle if the board
had been formed and started as soon as Senate Bill 21 was
passed. With less than seven months, and a volunteer board,
coming up with the deliverable mandated under Senate Bill 21 is
an insurmountable task.
1:39:23 PM
REPRESENTATIVE SEATON turned to slide 12 regarding the
regulatory and permitting structure. He recalled Mr. Hendrix's
statement that comparisons needed to be made with other
jurisdictions. He asked which comparisons were being made; for
example, costs per unit of production, accidents, oil spills, or
looking at regulations in relation to results.
MR. HENDRIX replied that slide 12 speaks to permitting. He said
a comparison of Alaska's permitting process needs to be made
with other states, provinces, and jurisdictions to ensure that
Alaska's permitting system doesn't inhibit producers from being
able to get permits to develop leases. The board is trying to
compare Alaska's permitting system, labor system, and fiscal
system. Permitting was an item that the board strongly felt
needed to be matched up against Alaska's competitive peers to
ensure that Alaska's system is as good or better to try to
attract business to the state of Alaska.
1:41:09 PM
REPRESENTATIVE SEATON remarked that there are reasons for
permits. He inquired whether the board's review of permitting
will include looking at the outcomes of the other permitting
systems as well as how functional they are. For example, will
the review be about how quickly the permits could be gotten
through the system or how well did the permits control water,
oil spills, and accidents.
MR. HENDRIX responded the board is cognizant of the environment
and how responsible the producers are in the environment. But,
the permitting view being taken by the board is very simple, it
is just looking at the application and processing of permits to
be able to develop hydrocarbons and nothing more than that.
1:42:28 PM
REPRESENTATIVE SEATON specified that if it is found that another
state's system allows for quicker drilling, he wants to know the
value of those quicker permits; for example, what the outcomes
are and whether it was responsible permitting. Without that
information it will be unknown whether that other state's
permitting was responsible permitting or whether Alaska has
excess requirements that do not generate any value for the
state. It would be valuable information, he opined, to know the
end outcome of the chain of permits in the other jurisdictions.
The committee took an at-ease from 1:43 p.m. to 1:45 p.m.
^State of Alaska, Alaska LNG Project, 3rd Party Cost Forecast by
Department of Natural Resources
State Of Alaska, Alaska LNG Project, 3rd Party Cost Forecast by
Department Of Natural Resources
1:45:01 PM
CO-CHAIR NAGEAK announced that the next order of business is a
presentation on the State of Alaska, Alaska Liquefied Natural
Gas (LNG) Project, third party cost forecast.
MARTY RUTHERFORD, Deputy Commissioner, Office of the
Commissioner, Department of Natural Resources (DNR), noted she
is the lead for the State of Alaska on the Alaska LNG Project
(AK LNG). She said she is before the committee to present the
third party cost forecast to the legislature in accordance with
Section 77 of Senate Bill 138 on the amount of money the state
may be obligated to pay a third party - TransCanada - under an
agreement or contract under AS 38.05 if a North Slope natural
gas project is terminated before the first flow of gas in the
project. The report is focused on information specific to
development costs that TransCanada is undertaking on the state's
behalf through the precedent agreement (PA). This PA was signed
in June 2014 and has a term of no more than two years and is
expected to last through the Pre-front-end engineering and
design (Pre-FEED) phase of the Alaska LNG Project.
1:46:55 PM
MS. RUTHERFORD related that on February 17, 2015, DNR provided
an updated report to the committee. It was an update of the
previously submitted report that was sent on January 29, 2015.
She projected onto the screen a copy of the February 17, 2015.
As of December 31, 2014, TransCanada has reported spending $13.7
million on the state's behalf, she said. This was from January
2014 through December 2014. This amount includes $5.6 million
net of Alaska Gasline Inducement Act (AGIA) reimbursements spent
from January 1 to June 9 on concept selection costs. Another
$7.8 million was spent on Pre-FEED cash calls and $300,000 on
carrying costs. Through the Pre-FEED phase it is anticipated
that TransCanada will incur a total of $108 million, split up as
follows: $77 million in Alaska LNG Project cash calls made on
the state's behalf; $18 million in TransCanada's internal costs
for Pre-FEED; $5.6 million net of AGIA reimbursements on the
concept selection, which was cost prior to entrance into Pre-
FEED; and $8 million in carrying costs, which are allowance for
funds used during construction (AFUDC) or, in this case, funds
used during development.
1:48:17 PM
MS. RUTHERFORD said that going forward the State of Alaska has
several options. The state can exercise the equity option at
any point between now and the end of 2015. If the state
exercises this option, the state can choose anywhere from 0 - 40
percent of the 25 percent that is held on the state's behalf by
TransCanada, and the state would owe anywhere between 0 and 40
percent of the total costs up to that point. Another option is
that the state can continue as is with TransCanada holding the
full 25 percent of the state's equity interest in the midstream,
which means the pipeline and the gas treatment plant (GTP). The
third option is that the state could also terminate the
precedent agreement between now and any time up until the end of
Pre-FEED if the state provides TransCanada with a 90 day notice.
Also, TransCanada has the option to terminate the precedent
agreement. The estimates of what would be owed vary depending
on the date the state exercises either option as that will
depend on what reimbursable costs have already been accrued and
the associated carrying costs at the time of termination.
MS. RUTHERFORD concluded, saying the aforementioned completes
her presentation which was for the purposes of getting onto the
record the information that was provided in the two letters.
1:49:57 PM
REPRESENTATIVE HAWKER asked whether the aforementioned numbers
are in line with the costs that were anticipated when Senate
Bill 138 was passed a year ago.
MS. RUTHERFORD replied yes, they actually are almost exactly in
alignment.
REPRESENTATIVE HAWKER concurred and offered his congratulations
to Ms. Rutherford.
The committee took an at-ease from 1:50 p.m. to 1:51 p.m.
^ASAP Project Reconfiguration Plan by Alaska Gasline Development
Corporation
ASAP Project Reconfiguration Plan by Alaska Gasline Development
Corporation
1:51:37 PM
CO-CHAIR NAGEAK announced that next order of business is a
presentation on the reconfiguration plan for the Alaska Stand
Alone Pipeline (ASAP) Project.
1:51:46 PM
DAN FAUSKE, President, Alaska Gasline Development Corporation
(AGDC), thanked the committee for its patience, noting that AGDC
was supposed to be before the committee more than a week ago,
but various things occurred and that was not able to happen. He
said the AGDC Board met yesterday [March 12, 2015] with the
three new board members in attendance. The meeting started at
9:00 a.m. and concluded about 3:30 p.m., with the meeting going
very well. He said that today he will review the outcome of
that board meeting as well as what the board of directors has
asked the staff to do over the next few weeks in reference to
the slide show that Mr. Richards will present today on the
reconfiguration to collect data and to come up with some
assessments as to what potential costs might be involved in the
request that has been made of staff by the board. [This planned
presentation, "ASAP Reconfiguration", was not given.]
1:53:23 PM
REPRESENTATIVE HAWKER asked a "framing question" prior to
commencement of the slide show. He recalled that the last time
Mr. Fauske was before the committee, Mr. Fauske was with Ms.
Rutherford and all the stakeholders in the Alaska LNG Project
(AK LNG). At that time, the committee was given assurances that
everything was on track, on budget, moving forward, and the
issues were being resolved. Later that day, however, the
administration announced that a new competing project was in
place. He requested Mr. Fauske to address what happened after
that committee meeting in which AGDC gave a very resounding
endorsement for the work that was being done in accordance with
Senate Bill 138 and the directions the legislature had
established by policy. He asked what has brought Mr. Fauske
before the committee today to talk about a reconfiguration of
what [the committee] thought was [the state's] backup project.
MR. FAUSKE replied:
What's happened is that there has been interest shown
and the good work still continues. What [staff has]
been asked to look into is an upsizing of that
project. We are on track, we are on budget, we are
moving along precisely as we were directed to do under
not only [House Bill] 4, but [Senate Bill] 138. ...
the request that has been brought forward to [staff]
is to take a look at the upsizing of the project so as
to make it more economical. In other words, the 500
million feet that we've had ... through statutory
constrictions in the past and/or policy restrictions.
As of late last year, we had arrived at a position
where the 500 million, and I've stated this before, is
economical in the sense of it can still supply gas to
Alaskans at a price we believe below imported LNG.
Where you run into a problem, we feel, is that when
you go above that, and ... Alaska only needs about 250
million feet a day, at least on the Railbelt section,
that doesn't include as we branch it out further
hopefully into the future, only needs about 240/250
million feet of gas a day. With a limit of 500 that
means you have to sell that other ... 250 million feet
of gas in order to maintain the tariff schedules that
we have published. There is where it gets a little
tricky, where you might have a gas that is not in a
position to be sold readily to ... an Agrium or a
Donlin Creek or a Conoco or whoever else that might
want to purchase that residual gas.
1:56:20 PM
MR. FAUSKE continued his reply:
The administration has also announced that they had
felt that way; that they wanted to see an upsizing.
That is not new news. What happened yesterday was the
board has directed [staff] to come back in a couple
weeks with an estimate as to what work would be
involved, or what the costs would be, to look at a
reconfigured ANSI.
MR. FAUSKE explained that the current design is to an American
National Standards Institute (ANSI) 600, 36 inch, one compressor
station, 800-mile-long pipeline coming down to Beluga. He
continued his reply:
What we have been asked to take a look at is an ANSI
600 with added compression to go from 500 million up
to 1.4 - 1.5 billion feet of gas a day. And then to
take a look at what it would take for an ANSI 900,
which is denser steel and ... stronger steel ... to
look at a pipeline that could generate, again with
more compression, up to 2.5 billion feet of gas a day.
... that is the directive [staff] has been given.
Ancillary to that will be some additional work on the
gas treatment plant [GTP]. There is no LNG
configuration made in this ... estimate which falls in
line with what [House Bill] 4 has always ... remember
we are talking ASAP [Alaska Stand Alone Pipeline],
we've never been involved in the liquefaction business
on the ASAP side. That was always the intent, was to
get the gas to Beluga, and that the sale from beyond
that point after where it had fed into the ... ENSTAR
line, that any commercial activity after that would be
the responsibility of the person or firms or companies
buying that residual gas. So, Representative Hawker,
that's what's changed.
1:58:19 PM
REPRESENTATIVE HAWKER asked another "framing question", saying
he is now thinking back to the first time Mr. Fauske was before
the committee this legislative session, rather than the last
time. He commented that he is sometimes not sure which Mr.
Fauske he has in front of him. He recalled that an ASAP Project
update was given at the first meeting and his takeaway from that
discussion was that the original ASAP, AGIA-limited, concept was
a backup project that was prepared and ready to move forward
into an open season should AGDC choose. But, with the success
that was going on with AK LNG, [the ASAP] open season timeframe
had been sort of suspended. It was thought that AK LNG would
move forward, but if it didn't, AGDC was ready to take ASAP and
ramp it up into a much larger project that would allow the state
to continue its momentum in getting gas if something happened to
AK LNG. Now it sounds like ASAP is no longer being viewed as a
backup project. The governor has now characterized it as a race
to the finish -- that ASAP is to compete with and enter into a
race and a competition for state resources with AK LNG. He
asked whether what has been heard from the governor comports
with the directive that AGDC staff has received and where staff
is taking this new reconfiguration.
2:00:11 PM
MR. FAUSKE responded:
The way I'd like to characterize that is ... the
administration, the governor's comments, bear a strong
resemblance to - the board of directors met, the
governor didn't direct me to do this - but the board
of directors has met. ... we're going to analyze this
data to come back to the board with what kind of costs
are associated with this. And I'd like to talk about
that for just a moment, if I may. We currently, prior
to the issuance of Administrative Order 271 from
Governor Walker, to I think it was six projects,
directing them to cease and desist on ...
discretionary funding. And we had prior to that
announcement already started that work in reference
to, we were so far ahead time-wise of AK LNG that it
made no sense for us to continue to spend the money at
the clip we were spending it, so we had ratcheted back
the spend by about $90 million and we settled on $60
million as ... nondiscretionary funding that would
continue that project to move forward doing work that
was beneficial to both projects. And then it also
stayed within the parameters of the administrative
order issued by the governor. And so, that's where we
currently were.
2:01:41 PM
MR. FAUSKE continued his reply:
ASAP has completed FEED [front-end engineering and
design]. And if we were not constrained, and I'm not
saying that being constrained is bad because the AK
LNG we're partners in that too ... we're proud of the
work we're doing on that. But we are the state's
representative on the liquefaction piece of the Alaska
gasline ... AK LNG Project, but it made no sense for
us to continue to move forward ... to hold it and to
file for the recourse tariff filing with the RCA,
subsequent to that hold an open season knowing that
the outcome would probably not be beneficial based on
the work that AK LNG is doing and would you get, for
instance in this case, would the producers bid. And
there was the desire to allow the other project to
catch up; the intent then being as you move into that
first to second quarter 2016, which has been the
published dates shown, it's slipped a few months I
know, when the ... PRE-FEED [pre-front-end engineering
and design] work is completed and the decision or the
time has come for the FEED decision to be made, it's
always been the intention that you would have two
projects melded together. ... if AK LNG were
successful, which would be a great event, the work
that we had done would ... meld into that ... and it
would go on. But I think it's a fair statement to say
that you're not going to see two projects, so the
intent was always that that's what would occur.
2:03:11 PM
MR. FAUSKE continued his reply:
... what's been published now and the discussion is:
Is 500 million the size line that you want to end up
with at the end of the day if, in the event, ... FEED
... isn't successful. If there's a decision that's
made by industry and others that this project isn't
worthy or doesn't meet market conditions to a level
that companies are comfortable, including the State of
Alaska, to spend $60 billion, what should the fallback
position be? That's where we find ourselves. Do we
want to end up at the end of the day with a 500
million feet per day gas pipeline that's very well
designed - and I want to say this to Frank and the
employees and consultants we have had, we've done
exemplary work - I'm just so proud of it, it just
stands up to any scrutiny. We've just submitted our
class 3 estimate, which is good. ... but the question
is, and what's being raised is: Do we want to end up
at 500 million feet design, let's just call it June of
next year, in the event that a FEED decision doesn't
make it and doesn't go forward? I think we then find
ourselves - and statements that have been made about a
merchant type program where you're marketing dealing
directly with market forces and buyers of gas - rather
than necessarily producers. And so, there's this
distinct difference....
2:04:43 PM
REPRESENTATIVE HAWKER agreed that Mr. Fauske characterized the
committee's previous meeting just as he recollected it: it
doesn't make sense to continue on the backup project while
making progress on the much larger integrated project, the
entire LNG project not just the in-state gas project. He agreed
with Mr. Fauske that the likelihood of a successful open season
for "ASAP 1" was highly unlikely, particularly since all the
people that hold and have all the gas are the investors in the
other project -- there is no gas for ASAP at the moment.
MR. FAUSKE interjected, "Including the state."
REPRESENTATIVE HAWKER said "the state has no gas until the
producers produce it." He inquired as to "what has changed that
suddenly makes it proper now ... to spend the money the
legislature earmarked for that backup project that had been
testified to us was going to be protected, marshalled, preserved
for the future, to start forward right now on the course of
expanding a project." He further asked, "How can we expect a
different outcome than what you had reached the conclusion and
testified to us would be the fate of any other competing project
here just ... a month ago?"
2:06:06 PM
MR. FAUSKE offered:
I don't think we need to expect a different outcome.
... for clarity, we've been asked to, as quickly as we
can, come back with some estimates at what the cost of
doing the very work that I described would be. We
haven't been directed to start that project, at this
point .... We're going to come back to the board in a
short period of time with ... the estimates because
then you have to analyze the remaining money in the
fund. Is there enough to do it? There's a great deal
of analysis. What level of estimate do you end up
with at the end of the day? As you know, we have no
requests in before ... the legislature ... for funding
on the ASAP Project. The work was going to continue
on what we're doing on the complementary work for both
projects; we're doing that. What's changed,
Representative Hawker, is that we've been asked to
supply some numbers for what could be a subsequent
decision made on that, I will admit that, when we go
back to the board.
REPRESENTATIVE HAWKER recalled testimony that without the
constraints of AGIA, AGDC had already, in concept, taken the
original ASAP Project far beyond the original 500 million cubic
feet per day and was looking at it being a much larger line.
The question, he said, is whether the state would receive value
by continuing to invest money in developing the larger scale or
would it be duplicative. He noted his appreciation of the
distinction between AGDC not spending, but rather looking at
spending here today.
2:08:11 PM
CO-CHAIR TALERICO asked whether the direction is just for the
pipe component.
MR. FAUSKE replied no. The resolution is pipe, but with that is
the ancillary, one must look at the gas treatment plant (GTP),
what the pipe is going to attach itself into. He said numbers
will therefore be reviewed that include pipe reconfiguration as
well as estimates as to what the GTP would have to be. He then
reminded the committee that ASAP was designed using the Fluor
Solvent [Process] because the directive of House Bill 4 (28th
Alaska State Legislature) was to bring gas to Alaskans at the
lowest possible cost. The design was not for an LNG line, but
rather a pipeline flowing utility grade gas. However, prior to
the passage of House Bill 4, an addendum was included specifying
[the requirement] to haul about 1.5 percent propane, which
equates to about 4,000 barrels of propane [passing through the
pipeline] for potential use down the Yukon and/or the Richardson
Highway. Therefore, AGDC is going to examine whether a larger
line could be used while maintaining the Fluor Solvent design or
would an amine process have to be used to produce. Are we
switching now to an LNG line or would this be a gasline? The
directive was not to change to an LNG line with an LNG plant
configuration, but AGDC is going to obtain numbers as to whether
the same Fluor Solvent Process could be used to deliver the gas
in greater volumes to the same destination.
2:10:13 PM
REPRESENTATIVE TARR surmised that after this work is completed
there will be three options:
If you're at FEED with the ASAP line as it is ... we
have all the ... specs and engineering work ... ready
for that stage, and then this will give you a second
piece of information for some alternatives, and then
AK LNG. So, at some point here we'll have essentially
three alternatives to evaluate?
MR. FAUSKE said he would not characterize them as alternatives,
rather he clarified that AGDC will obtain the numbers, get back
to the board with the idea that if it fits within the parameters
of what [AGDC] can afford or the board wants to do, then there
might be another alternative. However, currently [AGDC] is
still at the point of obtaining estimates as to how much the
endeavor would cost. He acknowledged that a third alternative
could result. He further clarified that it's an attempt to
determine whether "you can operate where we're currently at,
redesign, up the volume, ... stay within the funding levels that
we're currently at." He advised that the schedule cannot be
forgotten. "You want to time yourself so that you're coinciding
with the already published FEED decision based on the AK LNG
side." The difficulty, he opined, is in terms of the level of
design that could be accomplished to get to the class 3
estimates, which has taken a great deal of time.
FRANK RICHARDS, P.E., Vice President, Engineering and Program
Management, Alaska Gasline Development Corporation (AGDC),
interjected that AGDC does the work to industry standards.
2:12:01 PM
REPRESENTATIVE TARR recalled there was testimony at a previous
meeting that pipe had been ordered and some testing had been
done. She surmised that at some point that work could be for
naught because a different decision could be made.
MR. FAUSKE clarified that that pipe was ordered to be tested for
the current design of ANSI 600, 36-inch [pipe].
MR. RICHARDS specified that the pipe was ordered specifically
for areas where strain accumulation was expected from
discontinuous permafrost either from frost settlement or frost
heave. The pipe was an X70 class pipe. Mr. Richards offered
that the work is beneficial to the ASAP Project, any new
iteration of the ASAP Project, or the AK LNG Project. He opined
that it's beneficial work because it's about the grade of steel
and meeting those design criteria for a pipeline.
2:13:34 PM
REPRESENTATIVE SEATON pointed out that the cost of the two
pipelines is impacted by whether the gas is utility grade or LNG
grade and whether CO could be carried. He then recalled a
2
recent presentation from Agrium Inc. regarding restart during
which it was related that CO is an input necessary for its
2
process. He asked if AGDC is working with Agrium Inc. regarding
the amount of CO necessary for the processing of urea and
2
whether the [proposed] pipeline configuration still makes sense
with higher levels of COin the pipe versus North Slope LNG
2
quality.
MR. FAUSKE said that AGDC has met with Agrium Inc. several times
in the past, but not recently. He acknowledged that there is a
difference in the [level of] COwith the Fluor Solvent Process
2
versus the LNG quality gas versus utility grade gas.
MR. RICHARDS noted his agreement with Mr. Fauske that AGDC has
met with Agrium Inc. several times in the past, but not of late.
The current design of the ASAP Project with the Fluor Solvent
Process is one in which the gas is reduced down to a consistency
of about 3 percent CO flowing down to Southcentral Alaska.
2
2:15:45 PM
REPRESENTATIVE SEATON presumed that AGDC will be in
conversations with Agrium Inc. as this is analyzed.
MR. FAUSKE replied that AGDC will probably have discussions with
Agrium Inc. He then explained that AGDC, as a builder of a
pipeline, will state the consistency of the available gas during
the open season and as the bids/requests are received and
analyzed, the consistency of the available gas can be altered.
He remarked, "You don't want to end up, at the end of the day,
with a pipe that you miss a golden opportunity to have a large
anchor tenant and not have the ability to service that client."
2:17:13 PM
REPRESENTATIVE HERRON related his understanding that the work
product will be completed by the next regular board meeting [of
AGDC]. He inquired as to when that board meeting will be held.
MR. FAUSKE related his belief that the next board meeting is
scheduled for [April 9th]. However, he noted that in the event
[the work product is completed] sooner, or there is a compelling
reason through the available data, AGDC can certainly request a
meeting of the board sooner. Mr. Fauske acknowledged that this
is an issue that plays heavily into what the committee is
considering, and therefore the sooner the data can be comprised
the better.
2:18:20 PM
REPRESENTATIVE HAWKER returned to the topic of pipes and sizing
up without really sizing for LNG. He related his understanding
that AGDC staff has only been tasked with determining cost
estimates to scale up the pipe size.
MR. FAUSKE said that's correct.
REPRESENTATIVE HAWKER then inquired as to why [estimates would
be made] to scale up the pipe without the intent and purpose of
it being an LNG project. He questioned whether estimates not
considering an LNG project are being made to avoid saying there
is a competing LNG project.
MR. FAUSKE clarified that AGDC is not involved in an LNG
project, the only LNG project in which AGDC is involved is AK
LNG. However, he related his understanding that AGDC will
consider LNG.
MR. RICHARDS informed the committee that the presentation and
what the AGDC Board has provided goes into the specifics of the
reconfiguration plan. He offered to address that now or during
the presentation.
2:20:04 PM
REPRESENTATIVE JOSEPHSON, following up on Representative Tarr's
question, inquired as to whether the discussion of a third
alternative would be more properly characterized as a
reconfiguration or reconsideration of a reconfigured first
alternative that is House Bill 4.
MR. FAUSKE opined that [AGDC] is ensuring that ASAP is designed
at a level that better suits the needs of Alaska or a market-
type condition or the ability to produce more product than it's
currently designed to achieve. The ultimate goal, he said, is
that AK LNG goes forward and is the end product. However, what
[AGDC] is looking at is what is being done in the interim in
terms of the desired end product, if this was not to occur. Mr.
Fauske said that 500 feet doesn't fit with comments that were
made or the sense of the board. The [pipeline] needs to be
sized at a level that provides a more competitive advantage to
Alaska or the ability to deliver a product at a greater level,
and AGDC is trying to develop some numbers as to what that
alternative would cost.
2:22:01 PM
REPRESENTATIVE JOSEPHSON asked whether there is anything in
House Bill 4, Senate Bill 138 [28th Alaska State Legislature],
or the precedent agreements that would preempt this in any way.
In other words, he asked whether Mr. Fauske has read anything,
or been informed of anything, that would stop this policy
adaptation.
MR. FAUSKE related AGDC's belief that under House Bill 4, AGDC
has the ability to review this and potentially do this.
However, Senate Bill 138 does restrict AGDC in the sense that AK
LNG could only be proposed if it involves working within the AK
LNG parameters of the legislation. Mr. Fauske opined that AGDC
believes that under House Bill 4 it has the ability to review
this as the language refers to "providing the best alternatives
for Alaska" and "operating in a prudent manner". He said, "I
think that's what we're exercising here is ... let's take a look
at that to see if we can end up at a level that makes more sense
to the state."
2:23:19 PM
REPRESENTATIVE HAWKER questioned how AGDC can be progressing in
a prudent manner when the directive of House Bill 4 was for AGDC
to continue with the project plan established per House Bill 369
[26th Alaska State Legislature], with modifications necessary to
meet the other statutory objectives of House Bill 4 and House
Bill 369. The top responsibility was to get gas to communities
in Alaska first and foremost. Representative Hawker, again,
inquired as to how it can be prudent at this time to embark on
this course, when, as acknowledged earlier, there is no gas for
this project. He recalled an earlier rationale that it was
prudent, responsible, and appropriate to back off from the
further post-AGIA limitations scale-up of ASAP. He therefore
inquired as to what the AGDC Board believes has changed as the
current testimony is contradicting prior testimony.
MR. FAUSKE replied that he doesn't believe he is contradicting
the testimony yet. By that, he reiterated that AGDC is
developing cost estimates to report to the AGDC Board to
determine if this is a prudent endeavor that should be pursued.
He said, however, that Representative Hawker's question would
bear far more weight if the AGDC Board decides to go forward.
2:25:24 PM
REPRESENTATIVE HAWKER characterized a scenario in which the AGDC
Board chooses to move forward as a serious question about
prudence and diligence and a horrific contradiction. He pointed
out that the governor clearly stated in writing that he was
embarking on a competing project that would be in a race to the
finish with AK LNG. When the two competing projects reach the
final investment decision (FID), the executive would choose
between the two projects and put the resources behind the chosen
project. However, he emphasized, that's not what is being
described today. Rather, he is hearing testimony that the AGDC
Board has directed staff to price larger pipe, which is very
inconsistent with what he was expecting to hear. He said he
expected to hear testimony that AGDC is executing the direction
established by the chief executive officer of the state.
Therefore, he questioned who he should believe: Mr. Fauske or
the governor.
2:27:04 PM
MR. FAUSKE specified that the governor did not direct him to do
anything, the AGDC Board did. He opined that there is a
difference. He acknowledged that the governor has been quite
public that the 500 million makes no economic sense. He said
the AGDC Board has requested staff to review the alternatives to
[the 500 million]. Mr. Fauske continued:
This involves so many moving parts ... because we're
not only trying to figure out what exactly does this
mean because we're so far down the trail on the other
project. We also have a business relationship on the
AK LNG side, so then you get into the sharing of data
and ... does that relationship stay the same? And I
don't know the answer to that yet. I do know that
that will factor in heavily to a decision going
forward for information going back to the board ....
We've had the ability to share data in the work that
we're doing. I was clear to the board yesterday that
it's going to be my desire to work with the industry
to try and keep that relationship whole. ... the
industry has been quite outspoken as well as to their
concerns or possible confusion over this action. So,
I think over the next few weeks, we're going to be
working very hard to try and clear that up, try to
figure out what will this thing actually look like if
it goes forward and, to the best of our ability, what
those costs would be.
2:28:56 PM
REPRESENTATIVE HAWKER recalled a press conference in which the
governor named Mr. Fauske as his point man to respond to all
questions about his competing pipeline project that would
compete with the AK LNG pipeline to FID, at which point the
governor would decide [which project would move forward].
MR. FAUSKE explained that he was not at that press conference.
He noted his appreciation for the governor's acknowledgement and
AGDC team. However, the governor's comments, he said, don't
reflect his actions yesterday. He reiterated that yesterday he
was not taking action from the governor but rather from the AGDC
Board of Directors.
REPRESENTATIVE HAWKER identified the problem as the inability to
know who is credible. He opined that he doesn't know if the
governor is intending to do what he has said publicly or whether
to believe what is being said today. Representative Hawker said
he is horribly confused.
2:31:01 PM
REPRESENTATIVE JOHNSON said he thinks that what he is hearing
Mr. Fauske say is: "It's just a coincidence that the governor
appoints three new board members, does a press conference, and
the board takes a different direction." He asked whether it is
just coincidence.
MR. FAUSKE replied:
No, it's not a coincidence. ... I think this is a
board that's taking some action based on the desire of
the administration and, but more importantly, to
analyze what we know has been said to see if it makes
any economic sense. I'd like to hold out in
reservation, and ... I think I can speak for any
prudent individual whether the governor or anybody
else, that if we come back with some numbers that say
this makes absolutely no sense, based on whatever, I
think then we could have a different discussion. I'd
like to remain hopeful on that. I've been working on
this a long time.
2:32:07 PM
REPRESENTATIVE JOHNSON requested that Mr. Fauske repeat his
answer.
MR. FAUSKE responded:
I'm saying that we've been asked to come back to our
board with what we think this would cost. This could
be a situation where, if it comes back and it exceeds
the amount of money that we have on hand to do it
accurately, then you have to sit down with people
whoever they might be - governor on down - if you're
looking at [legislative] request for funding, if
you're looking at a toll, a reconfiguration. We're
trying to come up with ... facts and figures that
would support doing this action. We don't know at
this point if we have enough funds to do that. ... I
guess what I'm trying to say is, if we could revisit
this at a such time. I'm trying to be defensive of
this isn't a final decision yet. This has been some
work that's been assigned to us to go look at.
2:33:02 PM
REPRESENTATIVE JOHNSON said he is sure this will be revisited.
He asked whether Mr. Fauske is talking money to kick the tires
or money to build the project. He further asked how far Mr.
Fauske has been instructed to go and what Mr. Fauske's intention
is. He inquired whether Mr. Fauske is asking for money for the
research to find out if it's feasible, or what the line is here
because he hasn't heard anything specific and it's just kicking
tires and will cost X.
MR. FAUSKE answered that he didn't mean to say it that way. He
said: "We're not here requesting money. We're going to come
back with the idea of what this is going to cost to do."
2:33:40 PM
REPRESENTATIVE JOHNSON asked, "What is 'this'?"
MR. RICHARDS replied:
What the board asked us to do yesterday was to come
back with a scope, schedule, and budget to do
additional work on two pipe class size. So that means
we are to go back and in the next two weeks develop
what's it going to take to advance through a Pre-FEED
and FEED effort for ANSI 600 and an ANSI 900 pound
class pipeline.
2:34:17 PM
REPRESENTATIVE JOHNSON inquired as to how much of that work AGDC
has already done through the ASAP project.
MR. RICHARDS responded:
The FEED work that we've just completed now for the
ASAP Project was for a 36 inch, ANSI 600 pound class
pipe, with a gas conditioning facility on the North
Slope to utility grade gas. So that was for a 500
million standard cubic foot a day throughput. That's
been the ... basis of our work to date. What the
board has asked us to do is, then, with that ANSI pipe
class in order to increase the volume throughput, then
you need to add compression and you need to have
additional conditioning facilities upsized on the
North Slope. So they've asked us to go back and say
what's it going to take in order to do the design
efforts for that upsizing of the gas conditioning
facility and the look at doing compression stations
along the pipeline route, feeding into an LNG facility
by someone else.
2:35:22 PM
REPRESENTATIVE JOHNSON said he understands that, but his
question is how much of the work on the ANSI 600 pipe has AGDC
staff already done.
MR. RICHARDS answered, "We've done FEED-level work for the ANSI
600 pipe."
REPRESENTATIVE JOHNSON asked how much of that is duplicative for
this new project called the "governor's plan", or "new
pipeline", or whatever it is going to be called.
MR. RICHARDS replied:
If we call it "reconfigured" or "ASAP Prime", whatever
we call it ... consider this: the two main components
right now of the ASAP Project, as currently designed,
is a gas conditioning facility and a pipe. The pipe
work is solid and can be used for anything going
forward, because you would be adding additional
conditioning on the slope and compressor stations. So
the pipe, the design of the pipe, the right-of-way
work, that is all solid work that can be used for an
additional, or reconfigured, project.
2:36:31 PM
REPRESENTATIVE JOHNSON said his point is [the state] is sharing
information that it has already paid for under ASAP with this
"transformer pipeline", but it is supposed to be siloed
eventually so [the state] is not competing with its partners in
sharing information that the AK LNG pipeline has. It seems, he
said, that there is a sieve of information going back and forth.
MR. RICHARDS responded:
The existing cooperation that we have between AGDC and
our AK LNG partners is a very solid relationship.
Primarily we're looking at work on the pipeline right-
of-way. So we're looking at the geohazards work,
we're looking at the geotechnical work, we're looking
at cultural resource work, wetlands delineation, and
we are looking at essentially the strength of the
pipe, so that the ... strain-based pipe design effort
that we've been undertaking in the small-scale testing
is of value to both projects. The cooperation
agreement is between ... the AK LNG partners and AGDC
for the ASAP Project at 500 million max. So, if we
were to ... reconfigure the project to greater volume,
we would no longer be able to, unless we can reach a
common understanding and agreement to do that at a
future date.
REPRESENTATIVE JOHNSON said he will follow up later because he
is being unable to articulate his question very well.
2:38:21 PM
REPRESENTATIVE HERRON asked whether it is the AGDC Board that is
driving the boat or whether another captain is driving the boat.
MR. FAUSKE answered:
I think it's an accurate statement to say that the
board of directors takes the action. Through my
entire existence of doing this type of work, governors
have appointed boards ... and to state that boards
don't have some responsibility to the governor would
be inaccurate on my part. I'm not saying that's what
occurred, but of course there is some interplay when
governors make their appointments. To what level it
occurred here, I'm sure that there has been
discussions. I am just speculating. I wasn't in the
room, I don't know, but I'm just, I'm past history.
I'm sure that when someone appoints someone to a
board, there is some interaction there as to what is
desirous of that individual. But I'd like to defend
the board on that regard. At the end of the day it's
the board that makes the decisions ... the board that
has fiduciary and legal responsibility. And so I'm
not trying to be vague here ... I would assume nothing
else.
2:39:57 PM
REPRESENTATIVE OLSON, regarding what transpired yesterday with
the new board, inquired whether that was the first significant
action that the new board has taken.
MR. FAUSKE replied "yes, it was; that was the first gathering of
that board."
REPRESENTATIVE OLSON requested that the committee co-chairs be
provided with a copy of the meeting transcript for distribution.
MR. FAUSKE agreed to do so.
2:40:33 PM
REPRESENTATIVE JOSEPHSON commented that "the fact finding is
absolutely critical, it's our job, it's invaluable, and
important to do, and we need to do more of it." But, what he is
hearing, he continued, is that there is a new governor and a
policy change in some ways, and the committee is trying to
figure out what degree. There is "sort of this hushed tone or
almost sort of a conspiratorial sense that something's afoot."
He said he saw yesterday that there is a change in policy on
Medicaid expansion, too, so he knew there were going to be some
changes because he followed the election. Therefore, he said,
he is a little bit confused by that part of it.
2:41:23 PM
REPRESENTATIVE HAWKER said he is trying to sort through these
two new arbitrary sizes that AGDC staff is going to look at for
pricing. He understood that AGDC staff was directed to do this
by the AGDC Board yesterday. Recalling that Mr. Fauske had
[previously] talked about the open and transparent board
process, he asked whether there was any board discussion about
the rationale behind this new approach and how the board came up
with these two sizes that it has directed staff to look at.
MR. FAUSKE confirmed that there was [discussion by the board].
He continued:
I was fairly pleased with where the discussion
originally started to where we ended up in reference
to concerns that board members shared with where
exactly we were heading and what data we would end up
with ... as a result of this work. It transformed
into more meaningful. ... originally it was more of a
debate to just do pipe, but it's hard to do just pipe,
come up accurately without looking at the GTP [gas
treatment plant]. And so I thought the board in that
regard moved the resolution closer to an event that
could be far more workable, the accurate data that
would be meaningful when presented.
2:42:56 PM
REPRESENTATIVE HAWKER said that is not quite the question he
asked; he is asking whether there is a public discussion on the
board meeting record, that the committee will be receiving a
transcript of, as to the rationale behind the two pipe sizes
that staff was directed to look at. Staff was directed to look
at an ANSI 600, 1.4 - 1.6 billion cubic feet a day, and an ANSI
900, 2.4 - 2.6 [billion cubic feet] a day, both of which will
take a bunch of money to look at. He asked what the rationale
is and whether anybody has determined that those are the right
size for the market. He remarked that it seems like a backwards
bit of engineering. Noting that Mr. Richards is the engineer,
he asked whether there is a proper scoping or any evidence of a
scoping that rationalizes the state spending money on those two
particular sizes as alternatives. He maintained that these
aren't even aligned with the governor's public statement about a
42 or 48 inch, 5 billion cubic feet per day, pipeline. He said
he is a member doing his best to represent the public trust with
the real mission and objective of seeing Alaska's North Slope
natural gas get to market. However, he continued, so many data
points have suddenly been thrown into this otherwise fairly
clear process that he is now horribly confused. He asked what
the basis is for the pipe sizes that staff has been directed to
look at.
2:44:37 PM
MR. RICHARDS answered:
Since the termination agreement of the AGIA contract
with TransCanada, then AGDC has been asked repeatedly,
"What's the maximum throughput on the pipe that you
are designing?" And ... we have talked in this
committee about that. We gave [an] estimation that it
was probably 1.6 billion cubic feet on an ANSI 600
class pipeline. So, the board in their discussions,
and we have subcommittees on the board ... one of
which is the Technical Committee, which is ... where
we discuss and provide updates on the technical work
that is being done by the corporation staff, we've
discussed numerous times again what are the potential
for an ASAP Project with this design configuration.
... in order to get more flow out of ASAP, you have to
add compression, because that's how you're going to
get more gas down a pipeline. So that means if you're
going to have more volume then you're going to have to
upsize your conditioning facility. So, in those
discussions in those subcommittee hearings, we've
talked about the various how do you get flow through
the common diameter, 36-inch diameter? That was
really kind of the standard that we have kept to,
which was 36 inch. So, in those deliberations it was
a discussion on what would it take. What are general
estimates of what it would take and what that would
mean ultimately to consumers, to Alaskans, because ...
under the premises of [House Bill] 4 it's to provide
gas at the lowest possible cost. So, more volume,
lower cost. Again, just looking just at the ASAP
Project for the 36 inch. So, in those discussions,
then, we were directed to come back with ... a scope
to be able to advance this work and what that would
mean going into a Pre-FEED and FEED effort for what
would then be the critical path ovens. And that's
essentially the facilities, because as I've described
earlier, the pipeline, the ANSI 600 - and again for
those watching, ANSI is American National Standards
Institute class 600, which is a maximum pressure of
1,480 pounds per square inch - so ... for that class
pipe, we were asked to look at ... how many compressor
stations and what size conditioning facility or
additional trains would make that economic. So that's
where we were asked to come back and represent to the
board yesterday a plan, which is again coming up with
a scope, schedule, and budget to do additional
engineering work on these two class pipes ... to look
at the most economically viable project.
2:47:49 PM
REPRESENTATIVE HAWKER said the argument he is hearing is "we're
just talking about looking how much gas we can shove down a 36-
inch pipe and let's look at a couple options." However, he
continued, the word 'compression' is being used, which is a
pretty significant redesign of the project. He asked what this
dialogue, whether it is a competing project or a reconfiguration
project, has done to AGDC's ongoing environmental impact
statement work that was originally underway.
MR. RICHARDS replied that the U.S. Army Corps of Engineers, as
lead federal agency conducting the supplemental environmental
impact statement, made the decision on March 3 [2015] to
"suspend the work on the ASAP supplemental environmental impact
statement because they can see, through the newspapers, that
that there is policy questions that are being raised in the
legislature. ... rather than having the regulators continue the
work, they decided to suspend it ... for a couple months until
there is resolution and they can then ... hear from AGDC on what
project is going forward."
2:49:07 PM
REPRESENTATIVE HAWKER said he understands that the Army Corps of
Engineers doesn't want to waste its precious assets and time
when [the state] doesn't quite know what its real project is
here. He asked whether there is "a risk that that same approach
could be taken by other regulatory agencies that are currently
deeply involved and committed to doing the same work and other
regulatory approvals on the AK LNG Project because our ramping
up of this project into a competitive nature is causing doubt
about what will be the ultimate project."
MR. FAUSKE responded:
We went through a similar situation when ... we
decided to go away from the 24-inch, 2500 PSI. We
were at a point on the original bullet line concept
that we were expecting the record of decision, the
ROD, from BLM [U.S. Bureau of Land Management] and at
such time when we reconfigured going to 36-inch, that
was suspended, meaning maybe a little bit different
than the way this has been done, but meaning further
outcome of we like you guys' project continuing to
move forward, but this is different than what you were
doing. Yes, you can expect, or would not be
surprising to see other agencies, if they follow suit,
the utilization of their resources if they're not sure
what it is exactly we're doing, but so far it's been
the Corps of Engineers ... and I'm not sure who else
... might follow.
2:50:35 PM
REPRESENTATIVE HAWKER interpreted Mr. Fauske's response as
stating that "it's entirely possible that agencies involved in
regulatory permitting and review of the AK LNG Project could
become concerned and perhaps have their process disrupted as a
result of the uncertainties being introduced by our other
activities here."
MR. FAUSKE answered "that could happen, absolutely."
2:51:01 PM
REPRESENTATIVE TARR surmised that AGDC's presentation is not
going to happen today, but said she has two questions in regard
to slide 6 of the presentation. Drawing attention to the total
cost to final investment decision (FID) for each of the three
volume scenarios, she asked how this will be assessed as part of
the work now being done, or whether the reconfiguration work
will pre-suppose that that volume of gas will be made available
to meet that design. She further observed that in the total
cost to FID, all three scenarios state "$150 million expended to
date", which she said she thinks is consistent with earlier
slides that say to avoid duplication and competition [slide 3]
and to ensure complementary versus competitive orientation
[slide 4] so that the money is being considered as having been
spent for any one of these projects. She inquired what the 5
percent of capital cost [on slide 6] is referring to in the
total cost to FID [for the columns under ASAP Option 1A at 1.4
billion cubic feet a day and for ASAP Option 1B at 2.4 billion
cubic feet a day].
MR. RICHARDS took the second question first, stating:
On the slide specifically, total cost to FID is the
line, and for the left-hand column you'll see the
current ASAP and that's the 500 million standard cubic
foot a day design that we have completed. When we
were initially doing the work with the legislature
through House Bill 369 and then subsequently House
Bill 4, we identified what it would take to get
through FEED, front-end engineering and design,
through an open season to a project sanction or,
synonymously called, final investment decision. And
we represented that as approximately 5 percent of the
total installed cost. So at the time ASAP was
envisioned to be approximately an $8 billion project,
5 percent was about $400 million and the legislature
responded by appropriating $400 million for the
advancement of ASAP through to project sanction or
FID. As we discussed with the board, the two
potential concepts, then we ... haven't done the work
to define what the total installed cost would be, so
we haven't really come up with what [it] will take to
get to FID, but used our 5 percent as a representation
as work we have done and work we will do.
MR. RICHARDS, regarding the first question about gas ownership,
reiterated Mr. Fauske's earlier statement, saying "we don't have
the gas and we didn't have the gas for the ... original ASAP
concept either." So, Mr. Richards continued, AGDC is designing
a plant such that gas would be fed into the system from the
Prudhoe Bay Unit, or potentially the Point Thomson Unit, which
is now under construction and will hopefully be providing gas
for sale.
2:54:26 PM
REPRESENTATIVE HAWKER directed attention to AGDC's slide
entitled "Primary Objectives" and the first two objectives
listed:
ƒBuild a North Slope natural gas project
ƒAccelerate development of Alaska LNG
REPRESENTATIVE HAWKER noted his agreement that those were
primary objectives and to the best of his knowledge is the
objective. However, he clarified that the construction of a
natural gas project is only to be done if it's economically
advantageous and serves the greatest needs of Alaskans. He then
expressed concern with the best practices in accomplishing the
two primary objectives. He acknowledged that AGDC has
scrupulously followed the best practices of mega-project
development, including a stage-gated approach, but inquired as
to whether AGDC has utilized the Independent Project Analysis,
Inc. to review AGDC's process.
MR. RICHARDS replied yes.
2:56:02 PM
REPRESENTATIVE HAWKER, referring to the book entitled Industrial
Megaprojects, related his understanding that the AK LNG Project
is at the end of scoping or what Independent Project Analysis,
Inc. refers to as Pre-FEED reaching to the FEL2 gate [front-end
loading 2 gate] and moving into FEED. More specifically, he
surmised that AK LNG is moving from Pre-FEED to FEED.
MR. RICHARDS concurred that the AK LNG is in the Pre-FEED phase
and hopefully, a FEED decision will be made in the second
quarter of 2016.
2:56:40 PM
REPRESENTATIVE HAWKER, drawing from the book entitled Industrial
Megaprojects, related his further understanding that the closure
of shaping, which is Pre-FEED, "must mark the start of no
further changes in scope and the data clearly and strongly
support the importance of bringing the business issues to
closure in conjunction with the completion of FEL 2 [front-end
loading 2], moving into FEED or FEL 3 [front-end loading 3]."
Continuing to draw from the aforementioned book, he highlighted
that the most common reason for failure of projects is failure
to achieve full stakeholder alignment and that "at a definite
point, the option must be exercised or dropped." Representative
Hawker stressed that the evidence clearly illustrates that
megaprojects fail when those objectives and guidelines aren't
followed. He expressed concern that at the critical decision
point of the big project, a change to an entirely new scope is
being introduced for the legislature to evaluate, the world to
review, and the business partners to question why [the state] is
entering into competition with them when the project is at the
stage gate. Representative Hawker then questioned whether the
objective abandonment of the best management practices for
successful megaprojects is compromising the potential progress
of the AK LNG Project.
MR. FAUSKE characterized that as a very good point, but assured
the committee that if he is involved there will be no compromise
on those policies. Mr. Fauske noted that this is an event that
has occurred within the last 24 hours. Moving this project
forward, [AGDC] will endeavor to use those same staunch policies
and criteria with any advice that staff would provide to the
AGDC Board within a few weeks. Mr. Fauske noted his agreement
with Representative Hawker, saying:
There's no better way to move forward and you have to
stay within those guidelines. So, yes, this does
create a situation where using those guidelines
implicitly to determine what is the viability of
moving forward with this change and what is the
accurate amount of money and other issues that have to
be considered to stay within it. I think we are
living proof, by adhering to those policies, we've
been able to get where we're at today with ADAP on the
Class 3. We've been complimented by the industry and
others. I would never find myself in a position where
I would not stick to that regime.
3:00:06 PM
REPRESENTATIVE JOSEPHSON recalled discussion about the
commitment of gas and that under any revised plan in which there
was a true export project, there wouldn't be enough gas since
it's already committed. However, he related his understanding
that technically the AK LNG Project doesn't have any committed
gas. He then asked whether the aforementioned is part of the
concern that would hopefully be alleviated 18 months from now.
MR. FAUSKE replied that there might be a term difference. He
explained that, with AK LNG, all the owners of the gas are at
the table. Therefore, the owners are involved and would not
spend this amount of money without an intent to commit that gas.
Mr. Fauske stated that there is a commitment to put gas in the
line to supply an LNG project. However, ASAP is different. In
August 2011, an expression of interest, a confidential
gathering, was held in which there were nonbinding commitments
for work on that project, for gas being placed into that line.
Although the commitments were nonbinding, there was extreme
interest. He remarked that the line was oversubscribed as there
was more gas than the 500 to which it was limited.
3:01:53 PM
REPRESENTATIVE JOSEPHSON understood that without the firm
transportation services agreements, there is a hoped-for
commitment, a prospective commitment, as was discussed last year
and referenced in Senate Bill 138 and the agreements. However,
he understood that that commitment comes with FEED, and so there
is not a firm commitment of that gas.
MR. FAUSKE responded that it comes with open season, when other
commitments are made and bids come forward.
3:02:34 PM
REPRESENTATIVE HAWKER asked whether Representative Josephson is
referring to AK LNG or ASAP.
REPRESENTATIVE JOSEPHSON said he is referring to AK LNG.
MR. FAUSKE interjected that there is no open season on AK LNG.
REPRESENTATIVE HAWKER requested that the aforementioned dialogue
start over as the information is critical and very inaccurate
statements have been made.
MR. FAUSKE related his understanding that he thought the
dialogue was in reference to ASAP to AK LNG.
3:02:56 PM
REPRESENTATIVE JOSEPHSON clarified that he was referring to AK
LNG.
MR. FAUSKE clarified, then, that all the owners are there and
there would be no open season on AK LNG.
REPRESENTATIVE JOSEPHSON then asked whether there is a hoped-for
commitment or an actual commitment of gas for AK LNG.
REPRESENTATIVE SEATON interjected that the FID has not been
made.
MR. FAUSKE agreed.
3:03:25 PM
REPRESENTATIVE HAWKER inquired as to the source of gas that was
required to initiate a Federal Energy Regulatory Commission
(FERC) application.
3:03:43 PM
REPRESENTATIVE OLSON recalled from attending an "IPA program"
that Representative Hawker put on a couple years ago that the
definition of a megaproject is in excess of $1 billion.
MR. FAUSKE agreed with Representative Olson's recollection.
REPRESENTATIVE OLSON asked whether anyone on the new AGDC Board
has been involved in a significant manner with a megaproject
that came to fruition.
MR. FAUSKE answered that he does not believe so.
REPRESENTATIVE OLSON related his understanding that Mr. Fauske
has been involved in at least one megaproject that came to
fruition.
MR. FAUSKE indicated his agreement.
3:04:33 PM
REPRESENTATIVE SEATON referred to the third bullet on [slide 2],
entitled "Primary Objectives", which states "Ensure Alaska has
an economically viable alternative if Alaska LNG falters". If
that's the goal with the review of the 1.4 or 2.5 billion cubic
feet, then it seems to be in alignment with what House Bill 4
and ASAP were with the 500-million-cubic-feet-a-day constraint
removed. Representative Seaton continued:
We've kind of changed a little bit our positions here
and where we are. But I hate to put the designation
of what we were trying to do and what we're trying to
make sure that we have if final investment decision is
not reached, so that we don't have an economically
viable alternative on the table. And so, I think that
slide number 2, we need to look at all of those bullet
points. ... I think that's what I've been hearing
today is that you're looking at design on [an]
economically viable alternative if it falters. Now,
am I wrong? Should we take that bullet point off or
is that what we're really talking about?
MR. RICHARDS replied that Representative Seaton summarized it
very well. The work product that will be presented to the AGDC
Board will be an estimate to do a traunch of work, not starting
the traunch of work at that point; staff are defining what that
work effort will be at this point. Following the objectives in
line with the success factor and the strategy so that there is
no duplication of effort while meeting the intent of House Bill
4 and Senate Bill 138 and the powers that reside within AGDC.
3:07:24 PM
REPRESENTATIVE HAWKER asked whether the AK LNG Project has filed
for an export permit.
MR. FAUSKE responded yes.
REPRESENTATIVE HAWKER related his understanding that as a part
of that permit, a source of gas and commitment of that gas has
to be identified by those filing.
MR. FAUSKE answered that is correct.
REPRESENTATIVE HAWKER then surmised that AK LNG has a committed
source of gas.
MR. FAUSKE replied that is correct.
3:08:02 PM
REPRESENTATIVE HAWKER, in regard to the governor's proposal for
a competing project to race neck-and-neck to a final FID,
inquired as to whether the regulatory authorities will allow
[AGDC] to commit the same gas to a separate project
simultaneously so that [the state] can compete to FID.
MR. FAUSKE replied that although he cannot answer definitively,
it certainly will be something that will be questioned and draw
a great deal of scrutiny. While he can say probably not, he
added that he does not know that for sure.
REPRESENTATIVE HAWKER asked whether there is anyone in the room
who knows the answer to his question.
CO-CHAIR NAGEAK directed that someone be found who can answer
this question.
REPRESENTATIVE HAWKER observed that some very knowledgeable
people are in the room, including the deputy commissioner of the
Department of Natural Resources and the head of the Alaska LNG
Project. He asked whether any of them have a clear answer to
his question of whether the same gas can be committed twice.
REPRESENTATIVE TARR understood it was ExxonMobil or one of the
other partners that filed the export application.
MR. FAUSKE responded that [the three partners] formed a limited
liability company (LLC).
MS. RUTHERFORD stated she is not completely sure, but added that
she does know that the gas that was identified by the three
sponsors of the AK LNG did involve their gas but did not involve
the state's royalty or tax as gas. If in fact the State of
Alaska enters into the LLC, the state can add its gas in the
application. She said she is unsure, though, whether there is a
limitation on a competing project to identify the same gas.
But, she continued, she thinks the controlling entity on the gas
would need to make that commitment of gas or attempt to make it
to a second project.
REPRESENTATIVE HAWKER said the state doesn't have gas to commit
until the producers produce it.
MS. RUTHERFORD answered correct, the state cannot overlift.
3:11:12 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was recessed at 3:11 p.m.
until 1:00 p.m. on March 14, 2015.