Legislature(2003 - 2004)
05/16/2003 03:35 PM Senate RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
4:00 p.m.
HB 283-ACREAGE FOR COAL LEASES
REPRESENTATIVE HUGH FATE, sponsor of HB 283, explained to
members that HB 283 will more than double the amount of state
acreage that can be leased to allow the coal industry to compete
outside of the State of Alaska. The U.S. Department of Interior
has recently opened up a lot of western lands to coal
exploration. Those areas are much closer to transportation
infrastructure, where it is much easier to get coal to market.
HB 283 increases the acreage available to coal mining in Alaska
from 46,000 acres to 92,000 acres and from two to four
townsites. In addition, the state's income should increase with
more land leased. The leased acreage does not have to be
contiguous. He said it is a simple bill and he encouraged
members to support it.
CHAIR OGAN noted the presence of Senator Elton. He then asked
what the language on lines 11-12 refers to that reads, "the coal
deposits in the land covered by the application shall be
temporarily set aside and withdrawn from all other forms of
disposal provided under AS 38.05.135-181."
MR. JIM POUND, staff to Representative Fate, told members that
language is in existing statute. It sets aside the subsurface
rights of the land used for coal exploration and, in some cases,
it also affects the surface rights, probably with restrictions
similar to any other privately owned land.
CHAIR OGAN said he believes it does not allow for oil and gas
leases, shallow natural gas leases, or leases for potassium,
sulphur, oil shale, sodium, or phosphate. He said it basically
prevents the land from being leased for any other purpose but it
does not touch the surface rights. He asked if a person wanted
to enter into a shallow gas lease, whether he or she could lease
it from the coal lessee.
REPRESENTATIVE FATE said it is his understanding this is
strictly limited to coal but other permits may be obtained to
search for other substances.
CHAIR OGAN stated, "You're right, it's existing law, but we need
to understand when we expand these leases that we're also saying
no to these other subsurface uses that I listed, just for the
committee's edification because I know currently, current
existing coal leases aren't subject to lease for shallow gas,
for example."
REPRESENTATIVE FATE said it is his understanding this does not
alter any statute relative to the exploration and development of
shallow well gas.
CHAIR OGAN clarified that it withdraws the acreage from being
available for a shallow gas lease.
REPRESENTATIVE FATE agreed.
SENATOR SEEKINS asked what the time period would be for land
temporarily set aside.
REPRESENTATIVE FATE said he could not answer but guessed the
commissioner probably sets the time period.
MR. STAN FOO, Division of Mining, Land and Water, Department of
Natural Resources (DNR), told members that his read of the
language on line 12 is that the land would be temporarily set
aside for the duration of the coal lease.
CHAIR OGAN asked Mr. Myers about the time period.
MR. MARK MYERS, Director of the Division of Oil and Gas, DNR,
said he believes that "temporarily set aside and withdrawn"
would mean for the period of the existing coal lease. He said a
lessee has not been given the right to produce the other
substances but that means those substances cannot be disposed of
to another party.
CHAIR OGAN asked if it would make sense to allow a company with
a coal lease to develop shallow gas on the property if it is
incidental, perhaps because the company wants to extract the gas
for safety reasons.
MR. MYERS said DNR has broached this subject and its
recommendation is that if the coal lessee is going to use the
gas, the lessee should apply for a shallow gas lease. One
advantage is that the lessee can get the overlying lease. He
said the issue of safety brings up an untested part of current
law.
CHAIR OGAN said some of the coal shoals on the west side of Cook
Inlet in the Tyonek Basin are fairly close to tidewater and lie
within the areawide leasing area. He asked Mr. Myers to comment
on that overlap.
MR. MYERS said a lot of work has been done on the coal beds near
[indisc.] Glacier on the west side of Cook Inlet. Core holes
have been drilled. He is not sure whether the coal leases in
that area are still active but there is a potential conflict for
gas directly associated with the coal. However, other states,
such as Pennsylvania, have resolved that common legal problem
and federal law contains opinions on that issue.
CHAIR OGAN commented that in general, shallow gas will not be
exploited where there's surface mining of coal or where shallow
subsurface mining occurs because that gas is probably already
vented out. He asked if there is any overlap on the areawide
leasing for conventional [oil and gas development], for example,
in the Tyonek Basin.
MR. MYERS said there is.
CHAIR OGAN said therein lies his concern, figuring out who filed
first. He said if this bill doubles the acreage available for
coal leasing, and a company comes in wanting a conventional oil
and gas lease for deep hold high pressure oil and gas, that
could cause a problem.
MR. MYERS said Chair Ogan has pointed out a concern, however, AS
38.05.150(f) addresses that issue.
CHAIR OGAN said that assures the safety of coal mining
operations but it does not cover commercial sale. He asked, "It
says 'notwithstanding AS 38.05.177' so that's not a shallow gas
lease for gas production for commercial sale though, right?"
MR. MYERS said that is correct. He said, regarding commercial
sales, he believes Alaska law would give the credit to the
shallow gas lease but it would have to be for safe operations.
MR. CHARLIE BODDY, Vice President of Government Relations for
Usibelli Mine, told members that Usibelli brought this issue to
Representative Fate. Usibelli finished some major leasing of
coal in November of 2000. That brought Usibelli's total
leaseable holdings to 37,592 acres. The majority of Usibelli's
holdings are in the Interior of Alaska where, in the past, it
has supplied military power plants, the University of Alaska and
the City of Fairbanks. In addition, half of its production went
overseas to South Korea. Usibelli has not been able to compete
in the export coal market so it is no longer in that market.
Usibelli must start looking elsewhere for coal. This legislation
will give Usibelli the ability to take on additional acreage
that may be competitive. Last year, the legislature saw fit to
increase shallow gas leasing acreage from 46,080 acres to
136,000 acres. With the national acreage moving up on BLM lands,
Usibelli's primary competition in the Western United States, he
feels Usibelli needs the ability to lease more land, which is
the reason it is seeking this legislation.
SENATOR SEEKINS asked if Usibelli is the only operating coal
mine in Alaska.
MR. BODDY said it is.
SENATOR SEEKINS said Usibelli's request seems reasonable and
that he supports it.
SENATOR DYSON asked when the Alaska Coal Industry report was
produced.
MR. BODDY said about two years ago.
SENATOR DYSON asked if the Healy clean coal power plant was not
operating at that time.
MR. BODDY said that is correct.
SENATOR DYSON asked Mr. Boddy if he is free to discuss the
possibility of selling more coal to [South] Korea.
MR. BODDY said two things occurred when the Korean contract
stopped. Usibelli was very generous with severance packages when
it reduced its workforce. It had to completely retool its
business to go back to an 800,000 ton per year reduction in coal
sales. The Alaska Railroad Corporation (ARRC) had to undergo not
only staff reductions, but it also got rid of a lot of its older
coal cars that were harder to maintain. Usibelli always competed
for rail cars in the early spring through late fall that with
the gravel haul that comes into Anchorage. Trying to resurrect
shipments to Korea entails logistical problems. ARRC and Hyundai
are working on the logistics of getting the port rectified,
while Usibelli is negotiating with the Koreans to resurrect the
contract for at least two years with a tonnage that is reduced
to half of what it once was. Production will be between 350,000
and 400,000 tons per year. He said he does not know the status
of the negotiations between ARRC and the port agency.
SENATOR DYSON asked if a closer port and shorter railroad link
would make Usibelli coal more competitive in the international
market.
MR. BODDY said Usibelli is very removed from the international
marketplace. Usibelli would have to be at tidewater and other
things would have to shake out internationally before it could
be competitive again.
SENATOR DYSON asked if there is competition from the Russian Far
East.
MR. BODDY said yes, but more so from Indonesia. Alaska has a
very low sulphur, highly compliant coal, but Indonesia's coal is
better. He said part of Usibelli's challenge is the market in
Mexico, where companies no longer sign contracts, they ask for
tenders. They will bid for a three-month time period. That is
frustrating for Usibelli because it cannot get the logistics
together for that time period for that amount of tonnage.
SENATOR SEEKINS asked how much coal Usibelli sold to Korea.
MR. BODDY said 800,000 tons per year.
SENATOR SEEKINS asked how many rail cars were required.
MR. BODDY said there are 70,000 and 100,000 pound rail cars.
SENATOR BEN STEVENS asked the FPO price.
TAPE 03-47, SIDE B
MR. BODDY did not have that number. He said the average per ton
price in the United States varies because some power plants are
located at the mine mouth, such as the plant tied to Usibelli at
Healy, while others ship coal over long distances, for example
from Colorado to Washington State.
CHAIR OGAN asked Mr. Foo to testify.
MR. STAN FOO, Mining Section Chief for DNR, stated support for
HB 283. DNR sees this change as consistent with the recent
change in federal law that increased the allowable aggregate
acreage of federal coal leases held by one company.
CHAIR OGAN said he intended to pass this legislation from
committee today until he discovered the conflict with the
overlay of other leases. He said he is familiar with the basin
in Cook Inlet and sees a potential conflict with deep hole oil
and gas development. He said he is willing to try to find a
solution and get this legislation passed this session.
SENATOR DYSON asked that Mr. Myers elaborate on how other states
deal with those competing developers.
CHAIR OGAN asked Mr. Boddy if Usibelli has leased the maximum
amount of acreage.
MR. BODDY nodded affirmatively.
CHAIR OGAN said he is concerned that the Tyonek coal basin
overlays some potential acreage for areawide oil and gas leases.
He asked Mr. Myers to address that concern.
[MR. MYERS was not available.]
SENATOR BEN STEVENS asked if Usibelli is at capacity with its
current acreage.
MR. BODDY said Usibelli currently has 37,592 acres leased so it
has about 8,400 acres, or 13 sections of land, available for
lease.
SENATOR BEN STEVENS asked if Usibelli anticipates leasing the 13
sections immediately if it found coal.
MR. BODDY said based upon Usibelli's last increments of lease
that would be an insufficient amount to start anywhere. If HB
283 does not pass, Usibelli will have to look at its existing
leases, hope that all of its geological data is sound, try to
start carving off acreage and give it back to the state so that
its leaseable acreage will increase.
SENATOR BEN STEVENS asked if Usibelli would swap land back to
continue operations.
MR. BODDY said it would. He said an example is that Usibelli
just secured an additional 12,400 acres in November of 2000.
That acreage was specifically tied to a project that it just
released two weeks ago for a 200-megawatt coal fired generation
system northeast of where Usibelli currently mines. Those leases
were selected for their proximity to the power project. The real
advantage is there is no unknown coal in the state. The coal map
is as good as gold because there will be no more non-competitive
coal leasing in the state. Companies will have to bid.
SENATOR BEN STEVENS asked why Usibelli is competitively bidding
for a lease if it is the only coal producer in the state.
MR. BODDY said the lease only gives Usibelli the right to the
resource. Beyond that, Usibelli has to do a Surface Mine Control
and Reclamation Act lease for a permit, which allows Usibelli to
mine the coal. Besides Usibelli, there is one other permitted
coal mine in the Tyonek area, owned by Bob Stiles. He added,
"Anytime someone puts up a piece of coal that they would like to
lease, the state then has to go into a competitive lease sale
because the resource is known."
SENATOR SEEKINS commented that this legislation only allows a
company with existing coal leases to expand the number of acres
it can lease. However, because anyone could get a lease to
develop coal right now unless that person has the maximum amount
allowed, he does not see any conflict between the uses of the
land, regarding shallow gas or other substances. He sees that a
successful coal mining company is being constrained from being
able to competitively lease other coal mining land in the state.
CHAIR OGAN said Senator Seekins is correct but explained that
his concern is if Usibelli leases land for coal, other resource
development cannot occur.
SENATOR SEEKINS said anyone else could do the same thing. He
said, "What we're saying is if you're not a successful coal
miner you can do it but, if you are, you can't, if we don't do
this."
CHAIR OGAN said he is saying if the amount of acreage for coal
leases is expanded, it could have the unintended effect of
taking land available for deep hole oil and gas leasing off of
the table. It would also take land off of the table for shallow
gas development. He said he would like to work on a way to
accommodate those concerns.
SENATOR SEEKINS said he understands that concern and thinks the
legislature should develop multiple use on any piece of state
land that might contain more than one type of harvestable
resource.
CHAIR OGAN said he does not want to set land aside for one type
of lease at the expense of using it for a more valuable
resource.
SENATOR BEN STEVENS asked Mr. Boddy if Usibelli has encountered
any conflict with the development of any other resource within
its holdings.
MR. BODDY said it has not.
SENATOR BEN STEVENS asked Mr. Stiles the same question.
MR. BOB STILES, President of the Alaska Coal Association, said
his company controls 20,000 acres of state coal leases in the
Beluga region. He corrected a previous speaker and said that
there are portions of his company's leases, south of the
Chulitna River, that are included as tracks in the areawide
lease sale in the Cook Inlet. There have been no conflicts. He
sees no conflict if another company wanted to lease oil and gas
within his lease area. His company has a preferential right use
and the company can work out severable property interests with
the state. He said the important thing is that Placer Dome/CIRI
has 20,000 acres immediately adjacent to his 20,000 acres.
[Without] the current limitation, his company would entertain
the idea of combining those properties into a single property.
SENATOR BEN STEVENS said these companies have been in operation
for 60 years and there has never been a conflict with multi-use
resource development. He questioned the need to hold up the
legislation when there has never been a conflict.
CHAIR OGAN said they are not currently operating in a
prospective area for oil and gas development, other than
possibly shallow gas. If the lease area is expanded, they very
well could be.
CHAIR OGAN noted that Mr. Stiles said he has had no conflict
with his lease but asked Mr. Myers if, by virtue of holding the
lease, that land is not available for other oil or gas
development.
MR. MYERS said one has to differentiate between a shallow gas
lease and a conventional oil and gas lease. The mineral right of
the coal does not preclude a conventional lease. Additionally, a
conventional lease trumps a shallow gas lease. A conflict would
only occur if the coal miner was actually producing coal in the
same zones that might be prospective for oil and gas. However,
that means the coal mine is fairly deep or the shallow gas is
very, very shallow. He noted one is able to produce coal bed
methane off a conventional lease as well, as Evergreen is
attempting in the Mat-Su Valley. He concluded there are areas of
potential conflict but they will not preclude DNR from leasing
oil and gas rights underneath areas with current coal leases.
CHAIR OGAN referred to the language on page 1, line 11, and
read, "the coal deposits in the land...shall be temporarily set
aside and withdrawn from all other forms of disposal provided
under AS 38.05.135-.181," which includes oil and gas leases.
MR. MYERS asked Mr. Banks to walk members through the process.
CHAIR OGAN asked Mr. Banks if once a coal lease is signed, no
one can lease for oil and gas under it.
MR. KEVIN BANKS, DNR, agreed with Chair Ogan's interpretation.
SENATOR ELTON asked if, on an existing coal lease, the holder of
the preferential lease can charge rent for additional use.
MR. MYERS said his understanding is that the leaseholder would
not be able to under current statute. He said it sounds like the
coal lease deposits themselves are in question. He said the
conflict would enter if, throughout some of the formations in
the Cook Inlet, the coal is at a significant depth. He said he
has never seen a case in conflict so the division has never
addressed the issue. He repeated that problem has occurred in
other states.
SENATOR ELTON asked Mr. Boddy how much of the 37,000 acres
leased by Usibelli is under production and how long it has held
the leases for the acreage not in production.
MR. BODDY said at any one time Usibelli has had anywhere from
700 to 1200 acres in some phase of mining reclamation or other
use. For every one acre of land mined, about 25 acres are used
for support. On the additional acreage, there is exploration and
other pre-permitting activities that occur continuously. On the
12,000 acres that Usibelli recently leased, where the power
plant will be located, Usibelli will have to do exploratory
drilling, water work, and other activities. He said the
environmental laws are endless, regarding the information that
will have to be gathered pre-mining. He said Usibelli has just
made a major move from Poker Flats to Tubo (ph) Ridge. This new
mine will be active for about 25 years.
SENATOR ELTON asked if Usibelli has about 20,000 of its 37,000
acres tied up.
MR. BODDY said the amount is less than that but close. He said
for the majority of the acreage held in Healey, the market
directs how much acreage will be under exploration in one given
year.
SENATOR ELTON said he hopes the committee gets an answer from
DNR very quickly on the lease question.
CHAIR OGAN agreed. He then recessed the meeting to a call of the
Chair at 4:55 p.m.
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