Legislature(2015 - 2016)BUTROVICH 205
03/25/2015 03:30 PM Senate RESOURCES
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| HB132 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 132 | TELECONFERENCED | |
| *+ | SB 68 | TELECONFERENCED | |
| *+ | SB 48 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 132-AGDC SUPPORT OF NATURAL GAS PROJECTS
3:33:51 PM
CHAIR GIESSEL announced HB 132 to be up for consideration. She
invited Representative Chenault to the table.
REPRESENTATIVE CHENAULT, Alaska State Legislature, Juneau,
Alaska, prime sponsor of HB 132, said HB 132 affirms a policy
direction for the Alaska Gasline Development Corporation (AGDC)
set by the legislature in 2013 when AGDC was created and also
again in 2014 when the legislature approved AGDC's involvement
with the Alaska Natural Gas pipeline Project (AKLNG) in
conjunction with SB 138.
HB 132 recognizes that AGDC is already engaged as a partner on
behalf of the State in the Alaska LNG Project, which is the
project most likely to deliver the greatest benefit to Alaskans.
3:35:12 PM
SENATOR WIELECHOWSKI joined the committee.
REPRESENTATIVE CHENAULT continued that because the AKLNG Project
is most likely to deliver the greatest benefits to Alaskans,
House Bill 132 ensures that AGDC maintains its commitment to
this project and does not embark on a duplicative, competing
project until the future of the AKLNG Project is more certain.
Per House Bill 132, AGDC would be free to pursue other projects
at the earliest of three dates: 1) if a party to the AKLNG
Project withdraws, 2) if the AKLNG Project proceeds into the
Front-End Engineering and Design (FEED) phase, and 3) if there
is no agreement by July 1, 2017.
3:36:11 PM
The legislation further recognizes that the state is prudent to
maintain its back-up plan, the ASAP project, in case its
partners in the AKLNG Project fail to commit to the next
development phase. Should that occur, AGDC is poised to re-
solicit gas buyers and gas sellers and to upgrade the ASAP
proposal as supported by the market.
3:37:22 PM
REPRESENTATIVE CHENAULT said keys to megaproject success include
the elimination of competing objectives and the alignment of
stakeholders along a single project. With the unprecedented
momentum to date of the aligned AKLNG Project, contemplation of
competing projects increases risk and uncertainty that threaten
success. This legislation ensures that AGDC retains the course
set by the Legislature in creating it and provides a framework
for it to advance the state's interests as a full participant in
the AKLNG Project.
3:37:27 PM
RENA DELBRIDGE, staff to Representative Hawker, Alaska State
Legislature, Juneau, Alaska, said she is working with the
speaker on HB 132 and would explain the sections.
3:39:35 PM
Section 1 is conforming language.
Section 2 adds a new subsection to AS 31.25.005, AGDC's purpose,
to place temporary restrictions on AGDC's abilities by
prohibiting AGDC from developing a natural gas pipeline project
in which more than half the gas transported is intended for
export as liquefied natural gas, and prohibits AGDC's
involvement in a liquefied natural gas project that competes
with the AKLNG Project in which AGDC is already contractually
involved.
These prohibitions terminate at the earliest of three dates: the
time at which the state and other AKLNG Project parties that
have contractual rights to gas withdraw from the AKLNG Project
or when the state and the other AKLNG parties progress the
project into the next phase, Front End Engineering and Design
(FEED); or the time at which the state or another party
withdraws from the Alaska LNG Project, or as final backstop,
July 1, 2017.
Section 3 adds a new subsection to AS 31.25.080, AGDC's powers
and duties, to require AGDC to obtain written consent from an
entity controlling or owning gas before it can market that gas.
It does not prohibit AGDC from marketing. The legislature
created statutory authority for them to create a marketing
subsidiary at some point in the future if DNR or other resource
controllers ask them to help market that gas.
Section 4 amends AS 31.25.100, the In-state Natural Gas Pipeline
Fund, to restrict AGDC from using the monies for a project that
competes with the AKLNG Project or for a natural gas pipeline
project through which a majority of gas is intended for export.
These restrictions expire at the earliest of the same three
dates.
3:40:30 PM
Section 5 amends AGDC's definitions to conform the statutory
reference in the definition of "Alaska liquefied natural gas
project" to reflect the addition of the new subsection in AS
31.25.005.
Section 6 adds a new term, "front-end engineering and design
study," to AS 31.25.390, AGDC definitions. The definition
replicates the language in the Heads of Agreement (HOA) document
for the AKLNG Project, dated Jan. 14, 2014, between AGDC, the
State of Alaska, BP, Conoco, TransCanada, and Exxon Mobil.
Section 7 sets an immediate effective date.
3:42:59 PM
CHAIR GIESSEL asked the intent of the legislation.
REPRESENTATIVE CHENAULT replied that it is to make sure the
legislature's issues are protected. Roughly $180-200 million is
sitting in the fund. Since AGDC was incorporated they were
prohibited from doing duplicate services and that is probably
the main reason. Competition is seen as bringing uncertainty to
a project that he thinks will go forward and he didn't want the
AGDC to get in the way of that project. This keeps some of that
from happening.
3:46:28 PM
SENATOR WIELECHOWSKI said he didn't support HB 4 or SB 138, but
he respects the democratic process and appreciates his
perspective, but HB 132 creates more market chaos. He asked if
he could envision a compromise with the governor.
REPRESENTATIVE CHENAULT said that is exactly what they are
looking for. The last thing he wants to do is fight with the
governor.
3:51:25 PM
SENATOR MICCICHE said he views this bill as asking the governor
to step back and come to the table. He wanted to know how
Representative Chenault defines competing with ourselves. What
are the limits of where AGDC and the ASAP Project would compete
with AKLNG?
MS. DELBRIDGE answered without additional clarity on what ASAP
might become it's difficult to be too precise. But the governor
expressed a desire to have parallel projects of generally the
same size; both would terminate in an LNG facility. They would
keep going at the same time until they reached final investment
decision (FID) at which point the one that delivered the most
benefits to the state would get the state's full support. That
indicates a sense of competition. The Army Corps of Engineers
has already paused its work on the ASAP supplemental
Environmental Impact Statement (EIS), because if it turns into a
bigger line it might become regulated by FERC.
Additionally, there is a lot of potential for market uncertainty
and all of the gas contracts need to be in place before FID. So,
two different projects presumably carrying the same gas need to
go out to secure market at the same time would create confusion
but also would potentially give the markets some ability to
leverage the two projects against each other potentially driving
down the price that the state ultimately receives for its gas.
MS. DELBRIDGE explained that there is also the chance of an
unfair advantage to one project or the other if anyone wants to
pick that winner and try to make it happen. In particular,
special terms are granted to an ASAP pipeline under HB 4 that
give it preferential and priority treatment for permits and
authorizations from the state.
3:56:45 PM
SENATOR MICCICHE asked if language on page 4, line 10, saying
"the corporation may not expend money" is what they are calling
competition.
MS. DELBRIDGE answered that the sponsor had to somehow define
what a competing pipeline might be and, respecting the need for
the state to maintain a viable backup instate option, the export
limit was the logical place to turn.
3:57:54 PM
SENATOR COSTELLO said many Alaskans see this as a disagreement
and asked Representative Chenault to talk about why this
legislation is necessary.
REPRESENTATIVE CHENAULT answered that it's about supporting the
pipeline project that is most likely to succeed, the AKLNG
Project. If it doesn't go forward, why it failed would have to
be determined along with why three of the biggest producers in
the world and the State of Alaska with all of their interests
aligned could not put a project together before moving forward
on any type of new project. There has to be an export component,
because the amount of gas that Alaskans use is fairly trivial in
the big picture.
4:02:59 PM
SENATOR MICCICHE commented that the project had purchased about
540 acres in Nikiski. The place is abuzz all the time. This is
the real thing and he is excited about it.
REPRESENTATIVE CHENAULT confirmed that they had purchased 540
acres and are looking for as total of 800 acres, but that
doesn't necessarily mean they are bringing the project to
Nikiski. The amount of the money they have spent there is a
small piece of an overall $65 billion project.
CHAIR GIESSEL asked how Alaska's project ranks with others that
have shut down around the world.
REPRESENTATIVE CHENAULT answered that he didn't have a ranking
system and that there are about 17 or 18 projects up and down
the West Coast, mostly in B.C. Alaska's is a little bit
different. It has the people with the gas making the investment.
Buyers are buying into those other projects, not producers. Only
one of our producers is involved in any of those projects.
Alaska has the producers of the gas in partnership with the
State of Alaska, which is the alignment needed to move a project
forward. AGIA was tried and it kept the producers out. Although
the market changed, the suppliers of gas need to be involved in
any project of this magnitude or you're just spinning your
wheels.
4:07:49 PM
SENATOR COGHILL thanked him for his tenacity, but cautioned when
speaking about "the project" that people don't know which one he
is referring to. He asked what it will take to get the AKLNG
Project to the FID point and why hold this ASAP up to see if
they can get there.
MS. DELBRIDGE responded that there is a concern that export
grade gas and a higher pressure in the pipe would cost more to
take off at different points along the line. That is a factor
that everyone is waiting for more detail on if a new approach
becomes an LNG export line.
The AKLNG Project's front end engineering and designed (FEED)
decision is expected in 2nd quarter 2016. This is when
essentially the project parties look at the huge body of work
and preliminary engineering done during the pre-FEED in the past
two years and work out some commercial and governing type
agreements and look at internal marketing efforts to decide if
the project was shaping up in such a manner that it warranted
them moving forward into that next stage gate.
She said that enalytica, the consulting firm hired by LB&A, has
an excellent overview of the various components that the AKLNG
parties will need to have before them in order to make that FEED
decision. Then it will be another couple of years of fine-tuning
the engineering and studying and making sure that permits are in
place. The EPA's EIS process has been initiated and that is when
FERC will do the bulk of the permitting analysis and hopefully
deliver a permit.
4:14:43 PM
That phase will take several years and require a $2.5 billion
amongst the parties. Some long lead time items for construction
might also be ordered. FEED culminates in the final investment
decision (FID), the final stage gate where everyone can check
off that things have gone as they needed to in order to go to
construction.
4:15:17 PM
SENATOR COGHILL asked if this bill holds the ASAP Project at
bay.
MS. DELBRIDGE answered yes.
SENATOR STOLTZE asked to what degree the producers had
participated in the hearing process.
MS. DELBRIDGE answered that the other parties to AKLNG have not
participated in the legislative process on HB 132.
SENATOR STOLTZE asked the name of those parties.
MS. DELBRIDGE replied ExxonMobil, ConocoPhillips BP, as well as
the State of Alaska through the Department of Natural Resources
(DNR), AGDC, and TransCanada. ExxonMobil owns a majority of the
project at 33 percent; the state is the second highest owner at
25 percent, ConocoPhillips has around 22 percent and BP as 21
percent.
4:17:47 PM
SENATOR WIELECHOWSKI said he hoped to hear from the partners,
the DNR and the governor's office. Section 3 gives him
heartburn, because it says the corporation may not market gas
owned or controlled by any entity other than itself without
express written consent from that entity. He didn't see a sunset
date and he worried that if AGDC ultimately builds the line that
language will give veto power to the producers who don't own the
gas but control it.
MS. DELBRIDGE explained that the entity that has the gas is the
entity that is going to need to market it; AGDC, as ASAP, was
always conceived as a transportation mechanism. AGDC under the
ASAP framework never took possession of the gas; it simply took
temporary custody to move it from one place to the next. The
same type of principle applies: if somebody owns something,
somebody else can't market it to sell it at a price that the
person that doesn't own it hasn't asked that person to go sell
it. Title is generally required to sell something. So, AGDC
under the old framework, whether in AKLNG or in ASAP, has never
had title to gas. If DNR, who does carry the state's gas share,
wants AGDC's assistance or for them to set up a marketing
subsidiary to make the deals and look for the potential buyers,
they can still do that.
SENATOR WIELECHOWSKI said the duty to produce and market gas is
the legal obligation a lessee has and asked if this is saying if
one of the majors decides they didn't like the project that he
could kill the gas line.
MS. DELBRIDGE replied that duty to produce is not necessarily a
duty to market and that legal counsel should follow through on
the question.
4:22:29 PM
CHAIR GIESSEL thanked her and opened public testimony.
4:22:39 PM
MERRICK PIERCE, representing himself, Fairbanks, Alaska, said he
serves on the board of the Alaska Gasline Port Authority and
that Governor Walker has consistently explained the correct
approach for getting a gasline built. He has already said it
needs to be a large diameter, economy-of-scale pipeline for LNG
export. With HB 132, a few legislators are having a hard time
accepting that Alaskans picked a new governor, one who knows how
to get a gasline built. If HB 132 is passed, the state has two
options. They can either do a project that is not economic or
one that is controlled by those who have projects that compete
with Alaska.
The question is who should we trust? The Governor or those who
have consistently gotten it wrong? He recounted the many failed
attempts to get a gasline that made no economic sense.
Further, Mr. Pierce said, the HOA does not require any player to
build anything. AKLNG only gets a project if the global
corporations who have competing projects decide to go forward.
He cautioned that the AKLNG partners have defrauded Alaskans
with fraudulent tariffs on TAPS designed to limit North Slope
competition and defraud the state of billions of dollars in
revenue.
In 2011 and 2012 when the markets came to Alaska looking for
enough gas to build the gasline, ExxonMobil's response was to
ignore it. If they wanted a project they never would have
ignored that significant development.
4:26:02 PM
HAROLD HEINZE, representing himself, Anchorage, Alaska,
suggested amendments to HB 132. He said he has pipeline
experience spanning a half century; he followed the rebirth and
development of the AKLNG Project over the last few years. In SB
138 the 28th Legislature firmly committed to the state's partner
participation in the producer sponsored pre-FEED evaluation of
the AKLNG Project. Work is continuing under the associated
agreements in preparation for a special legislative session this
fall. He hoped that the legislature will fulfill its role as the
Board of Directors for the state participation in the AKLNG
Project. Given the magnitude of the decision, each member is
acting as a fiduciary and responsible to assure that he or she
has exercised a high level of due diligence. He observed,
however, that while much information has been gathered and
generated, the legislature still lacks major information under
several categories of importance to a fiduciary.
He said the current instructions in HB 132 appear to narrow
considerations that will be brought forward to the legislature
and the public, but it could be expanded to a vehicle signaling
the need for fuller evaluation of rewards, alternative
approaches and benefits in alternative projects and make them
publicly available before the decision rather than after.
4:29:21 PM
BILL WARREN, representing himself, Nikiski, Alaska, opposed HB
132. It is unnecessary and a slap to the governor. The feud
going on between the House and the Governor ought to cease. This
is a needless fight. Strategically it's bad, because it signals
that Alaska will make major concessions to secure AKLNG.
He said HB 132 will muzzle the ASAP Project when to really be a
Plan B it should be up and running at curbside. AGDC should have
the full configuration of pipe sizes and capacities they want,
some data on their gas handling and on the LNG component. He
said everyone has high hopes that AKLNG will succeed, but Las
Vegas odds give it 50 percent.
4:32:16 PM
REED CHRISTENSEN, representing himself, Anchorage, Alaska,
supported HB 132. He said that as part of his job he interfaces
with oil and gas industry people on a regular basis and keeps
hearing the same thing about the potential gas line from the
North Slope: that Alaska is closer that it has ever been. A key
component of the AKLNG Project's success has to do with the
alignment of all the parties. Setting up another project at this
time doesn't make sense.
4:35:27 PM
PAMELA THROOP, representing herself, Fairbanks, Alaska, opposed
HB 132. Don't tie the governor's hands, she said, and make sure
Alaska gets the plan that is best for the state. Chenier Energy
in Texas got permission to sell gas to China. Since then, they
have built four trains and have sold all the gas they can find.
If a small company who doesn't own any gas can sell it all over
the world, Alaska can, too.
4:38:28 PM
DOUG SMITH, Alaska Support Industry Alliance, Anchorage, Alaska,
supported HB 132. He can speak for service companies: they have
been planning for investing and making adjustments to be
meaningful participants in AKLNG. Right now they are concerned
the project is being killed. The producer's have to be
concerned, too. Give it time to work and if it doesn't, there is
a backup plan. At .5 bcf/day throughput, the ASAP seems
reasonable, but now they are talking about something that is
four times that size and clearly stirs the concern of
competition.
4:40:31 PM
GEORGE PIERCE, representing himself, Kasilof, Alaska, opposed HB
132. It ties Alaskans' hands. The same legislators have proposed
pipelines for 10 years with no results. The governor is making
sure Alaska gets a pipeline built. The Japanese said they have
been ready to buy Alaskan gas for over 40 years and they prefer
a large diameter line to Valdez.
4:43:15 PM
JIM PLAQUET, representing himself, Fairbanks, Alaska, supported
HB 132. He said he worked on the TAPS when he was 18 years old
and remembered workers telling him then - 41 years ago - that a
gasline would be built next. The governor's backup plan seems to
be in competition with the AKLNG Project that provides Alaska
with the best chance of having a viable project.
CHAIR GIESSEL finding no further comments, closed public
testimony on HB 132.
4:46:02 PM
REPRESENTATIVE CHENAULT commented that he and Representative
Hawker created AGDC and he would be remiss if he didn't have all
the faith in the world that Dan Fauske, the head of AGDC, could
put a project together. That is what it was tasked with in the
beginning. He still has faith in him and his team.
CHAIR GIESSEL added that AS 31.25.005 states the Alaska Gasline
Development Corporation (AGDC) shall:
For the benefit of the state to the fullest extent
possible: 1) develop and have primary responsibility
for developing natural gas pipelines, an Alaska
liquefied natural gas project and other transportation
mechanisms to deliver natural gas in-state for the
maximum benefit of the people of Alaska.
She said that a couple of people mentioned the Alaska Gasline
Port Authority, the group that Governor Walker was part of and
working with, and asked if he thought the governor is changing
the plan to export from Valdez.
REPRESENTATIVE CHENAULT replied that he had no idea.
4:50:23 PM
SENATOR MICCICHE stated that the governor's intentions are
honorable. On two separate occasions in his district he promised
folks of the Kenai that his drive was for a large diameter
pipeline with its terminus in Nikiski, and he expects him to
keep that promise. The governor is just looking at creative ways
to get there.
SENATOR MICCICHE said he thought it was important to give the
governor the opportunity to step back and work together with the
two bodies toward something that works with AKLNG as the primary
project and a second project clearly secondary.
SENATOR COSTELLO asked Representative Chenault when AGDC was put
together what he envisioned the governor's role would be.
REPRESENTATIVE CHENAULT replied that the governor is the
administrator for the State of Alaska and is in charge of
working with the legislature to make sure Alaskans get the
greatest benefit from the natural resources they have.
CHAIR GIESSEL held HB 132 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB132 ver G.pdf |
SRES 3/25/2015 3:30:00 PM |
HB 132 |
| HB132 Sponsor Statement.pdf |
SRES 3/25/2015 3:30:00 PM |
HB 132 |
| HB132 Sectional Analysis.pdf |
SRES 3/25/2015 3:30:00 PM |
HB 132 |
| HB132 Fiscal Note-DCCED-AGDC-03-05-15.pdf |
SRES 3/25/2015 3:30:00 PM |
HB 132 |
| HB132 Backup - Letter from Gov to House 3-2-15.PDF |
SRES 3/25/2015 3:30:00 PM |
HB 132 |
| HB132 Summary of Changes ver A to ver G.pdf |
SRES 3/25/2015 3:30:00 PM |
HB 132 |
| HB132 Support and Opposition.pdf |
SRES 3/25/2015 3:30:00 PM |
HB 132 |
| HB132 Backup - Letter from House to Gov 2-20-15.pdf |
SRES 3/25/2015 3:30:00 PM |
HB 132 |
| CSHB132(L&C) AGDC Fiscal Note.pdf |
SRES 3/25/2015 3:30:00 PM |
HB 132 |
| HB132 Backup-Oped Heinze.pdf |
SRES 3/25/2015 3:30:00 PM |
HB 132 |
| HB 132 Testimony Harold Heinze.pdf |
SRES 3/25/2015 3:30:00 PM |
HB 132 |