Legislature(2023 - 2024)BARNES 124
03/04/2024 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Cook Inlet Options | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 92 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | HB 223 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 4, 2024
1:04 p.m.
MEMBERS PRESENT
Representative Tom McKay, Chair
Representative George Rauscher, Vice Chair
Representative Dan Saddler
Representative Stanley Wright
Representative Jennie Armstrong
Representative Donna Mears
Representative Maxine Dibert
MEMBERS ABSENT
Representative Thomas Baker
Representative Kevin McCabe
COMMITTEE CALENDAR
PRESENTATION(S): COOK INLET OPTIONS
- HEARD
COMMITTEE SUBSTITUTE FOR SENATE BILL NO. 92(2D RES)
"An Act relating to state ownership of submerged land underlying
navigable water within the boundaries of federal areas; and
providing for an effective date."
- BILL HEARING RESCHEDULED TO 03/06/2024
HOUSE BILL NO. 223
"An Act relating to the production tax and royalty rates on
certain gas; and providing for an effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
ED KING, Staff
Representative Tom McKay
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Co-offered the Cook Inlet Options
presentation.
TREVOR JEPSEN, Staff
Representative Tom McKay
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Co-offered the Cook Inlet Options
presentation.
ACTION NARRATIVE
1:04:15 PM
CHAIR MCKAY called the House Resources Standing Committee
meeting to order at 1:04 p.m. Representatives Baker, McCabe,
Rauscher, McKay, Dibert, Mears, Armstrong, Wright, and Saddler
were present at the call to order.
^PRESENTATION(S): Cook Inlet Options
PRESENTATION(S): Cook Inlet Options
1:05:29 PM
CHAIR MCKAY announced that the only order of business would be
the Cook Inlet Options presentation.
1:07:46 PM
TREVOR JEPSEN, Staff, Representative Tom McKay, Alaska State
Legislature, on behalf of Representative Tom McKay, began the
Cook Inlet Options presentation via a PowerPoint [hard copy
included in the committee packet], titled "Cook Inlet Gas
Shortage." He began on slide 2, which defines the problem as
follows [original punctuation provided]:
State is facing a looming and increasing shortage of
Cook Inlet natural gas production
• Legislature has tools at its disposal to increase
Cook Inlet gas production
• No "silver-bullet" solution
MR. JEPSEN said the state needs to keep at a 70 bcf level. The
chart on slide 2 shows a deficit of "firm gas contracts" offered
by producers as early as 2027. He explained that the blue
portion shows proved developed reserves expected to be recovered
through existing wells and facilities; and the orange portion
indicates incremental crude undeveloped. He said the import of
liquified natural gas (LNG) could be significantly more
expensive than current Cook Inlet gas prices. He said the [gas]
shortage will happen over a period of approximately 20 years,
which will drive the price of gas up and possibly result in
outward migration of residents. He emphasized that [the
legislature] needs to act now "to control the future of the
state."
1:11:11 PM
MR. JEPSEN responded to a question from Representative Rauscher
regarding the amount of undeveloped reserves by deferring to the
Department of Natural Resources (DNR).
1:12:03 PM
CHAIR MCKAY clarified the terms "proved" and "proved
undeveloped" and explained the different "levels" of development
that an oil deposit might go through to the committee.
1:12:55 PM
MR. JEPSEN resumed the presentation on slide 3, which
highlighted a survey given to Alaska Residents' opinion on how
the Cook Inlet Region's gas shortage should be resolved. He
continued to slide 4, which outlined the results of that survey
and moved to slide 5, which emphasized that a majority of
respondents to the survey would prefer to have a locally
produced LNG product rather than an imported one.
1:16:06 PM
CHAIR MCKAY pointed out that a locally produced LNG product
would be cheaper and more reliable than an imported LNG product
and emphasized that the legislature should not "gamble" on
imported LNG products.
1:17:32 PM
REPRESENTATIVE MEARS commented that the cost of imported LNG is
an understood risk that is constantly evaluated by gas
developers in the Cook Inlet Region.
1:19:03 PM
CHAIR MCKAY responded by offering his understanding that
Alaskans want "local solutions" and work done in Alaska, and he
indicated that imported LNG does not provide for that.
1:19:36 PM
MR. JEPSON resumed the presentation on slide 6, which summarized
the results of a survey addressed in previous slides. Slide 6
read as follows [original punctuation provided]:
Poll Results: Summary
• Strong support for Cook Inlet incentives to spur
exploration and production
• Strong opposition to importing gas
• Strong support for a natural gas pipeline
1:19:55 PM
REPRESENTATIVE MEARS commented that the statement of Alaskans'
opinion on slide 6 was taken out of context.
MR. JEPSEN specified the wording of the questionnaire given to
Alaskans who participated in the poll and offered his
understanding that Alaskans would rather not import LNG
regardless of the wording of the statistic cited on slide 6.
1:21:32 PM
ED KING, Staff, Representative Tom McKay, Alaska State
Legislature, picked up the presentation on slide 7, titled
"Energy Economics 101" and continued to slide 8, which displayed
a graphic that outlined specific costs related to natural gas
development in Alaska, including: annual production, operating
costs, development costs, exploration costs, and "R&D" costs.
1:25:48 PM
MR. KING, in response to Representative Mears, explained that
the intention of royalty relief in the gas industry is to "get
production that would not otherwise be produced into
production." He said that the royalty relief bill would apply
to the "proved undeveloped" box displayed on the graph on slide
7. In response to Representative Saddler, he brought attention
to slide 9 and said that the volume of gas is relatively similar
throughout the graph's projections. He then resumed the
presentation on slide 10 to further explain gas price market
fluctuations. He affirmed that the price of gas would inflate
with a higher amount of gas in circulation.
1:33:51 PM
MR. KING, in response to Representative Armstrong, confirmed
that the prospect of gas not being economically viable to use or
produce is a real possibility after 2029. In response to a
comment by Representative Mears that any reduction in yearly gas
demand would be beneficial to energy supply as a whole, he
remarked that there could be a discovery of a development
somewhere that could nullify the need for any reduction in
demand of gas. He then resumed the presentation on slide 11,
which further elaborated on the dynamic relationship between gas
supply, demand, and price. In response to Representative Mears,
he explained that the term "patient capital" referred to public
money being used as an investment in energy infrastructure. He
then confirmed Chair McKay's comment that any decrease in demand
would have a positive impact on Alaska and allow it to be more
like Iceland.
1:39:32 PM
MR. JEPSEN emphasized that the point of the presentation was not
to dismiss the idea of importing LNG, rather it was to highlight
the possibility of producing LNG locally in Alaska. He resumed
the presentation on slide 13, titled "Short term options," and
listed a few possibilities of options that may be taken to help
alleviate the Cook Inlet Gas Region's gas shortage. In response
to Representative Saddler, he shared his understanding that
Marathon Petroleum Corporation (MPC) should be capable of
storing gas if the Alaska State Legislature were to invest in
the company.
1:43:54 PM
MR. KING, in response to Representative Armstrong as to how an
increase in LNG production in Alaska would impact global LNG
prices, answered that prices would generally go down if Alaska
were to start producing its own LNG.
1:46:04 PM
MR. JEPSEN pointed out that 10 Bcf of LNG is not a huge volume
for "something that is a global commodity."
MR. KING added that an increase in demand for LNG would probably
be due to an increase in population rather than an increase in
proportionate use per person.
1:46:48 PM
MR. JEPSEN continued on slide 14, which listed a series of
short-term improvements that could be made in the Cook Inlet
Region to allow for the importation of LNG.
1:47:41 PM
CHAIR MCKAY shared his understanding that locally produced LNG
would be forever cast aside if importing LNG was to become the
preferred method of acquiring LNG.
1:49:09 PM
REPRESENTATIVE MEARS made the point that the largest producer of
natural gas in the Cook Inlet Region is already meeting its
contractual obligations of production.
1:50:17 PM
MR. JEPSEN resumed speaking on slide 14 and addressed the
question of LNG storage capacity. He continued to slide 15,
which touched on the House Resources Standing Committee's
proposed HB 387 and explained how it would work to improve gas
exploration capabilities in the Cook Inlet Region. He then
moved to slide 16, which detailed the House Resources Standing
Committee's proposed HB 388 and explained how it would direct
funds to gas exploration and development in the Cook Inlet Gas
Region. He continued to slide 17, which emphasized how a
decrease in the current royalty and tax rate would help
stimulate investment in the Cook Inlet Gas Region. In response
to Representative Mears, he confirmed that DNR or Hilcorp, Inc.
is able to assess royalty relief on late-in-life wells in the
Cook Inlet Region. Back to slide 17, he highlighted the
possible positive outcomes of a royalty and tax relief program
in the Cook Inlet Region. He continued to slide 18, which
pointed out the financial implications of a royalty and tax
increase in the Cook Inlet Region. He said these were rough
numbers on slide 18.
2:05:24 PM
MR. KING skipped to slide 20, which displayed a graph that
outlined basic petroleum economics. He explained specific
portions of the graph and detailed how each statistic
highlighted in the graph was affected by changes in supply,
demand, and price of LNG.
2:07:58 PM
CHAIR MCKAY emphasized that the graph on slide 20 includes
projects like the Pikka development project and the Willow
project, both of which are still in the "red" portion of the
graph. He added that those specific projects each took over ten
years to come to fruition and said that oil development projects
take time.
2:11:02 PM
MR. KING directed the committee's focus to the green bars of the
graph displayed on slide 20 and explained how total company
profits are calculated.
2:13:51 PM
MR. JEPSEN made the distinction between an exploration's
profitability and a company's overall profitability.
2:14:31 PM
MR. KING returned to slide 20 to elaborate on the distinction
made by Mr. Jepson. He moved on to slide 21, which discussed
the overall impact of changes in royalties on both gas producers
and developers. He showed slide 22, which displayed two graphs
that compared and discussed the current net present value (NPV)
of legislative options currently being considered by the
committee.
2:23:09 PM
CHAIR MCKAY commented that a 3 percent reduction in oil and gas
royalties could be utilized by the Alaska Industrial Development
and Export Authority (AIDEA) to kickstart a new development
project.
2:23:33 PM
MR. KING, in response to Representative Mears, stated that the
interest rate of a certain project is specific to a projects
risk factor. To a follow-up question, he replied that the 20
percent explore subsidy is already applied to all projects, it
just differs in when it is applied to a given project.
2:26:10 PM
MR. JEPSEN resumed the presentation on slide 24, which
highlighted the role that energy diversification could play in
energy security in the Cook Inlet Region after the year 2030.
In response to Representative Armstrong, he explained that the
"clean coal" facility the presentation was referring to was a
proposed facility to be built along the proposed West Susitna
Access Road and said that the facility would be fueled by a
local supply of coal. He then returned to slide 24 to elaborate
on the proposed Susitna-Watana Hydroelectric project and the
proposed Little Mount Susitna Wind Farm. He continued to slide
25, which detailed the proposed LNG pipeline to be built in the
Cook Inlet Gas Region.
2:32:17 PM
MR. KING skipped to slide 27, which displayed a graph that
highlighted the Southcentral Energy Market's current structure
and makeup. He continued to slide 28, which detailed three
proposed policy considerations that could be made when
considering oil and gas policy in the Cook Inlet Gas Region. In
response to Representative Saddler, he confirmed there was a
typographical error on slide 28 and that every $1 increase in
gas taxes by a local government is another $70 million out of
the pockets of Alaskans. He then explained the risks of
investing in natural gas development projects in Alaska.
2:39:46 PM
CHAIR MCKAY explained the specific pathways of future
development that Alaska could take and explained the current
philosophy of development as "all of the above."
2:41:01 PM
MR. KING moved to slide 30, which detailed a list of solutions
to be made by the Alaska State Legislature to alleviate the
energy crisis in the Cook Inlet Region.
2:42:36 PM
MR. JEPSEN continued to slide 31, which brought up a series of
efforts being made by the Alaska State Legislature to forward
energy development across the State.
2:43:31 PM
CHAIR MCKAY thanked Mr. King and Mr. Jepson for their
presentation.
2:45:59 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:46 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 223 HRES Amendment Packet.pdf |
HRES 3/1/2024 1:00:00 PM HRES 3/4/2024 1:00:00 PM |
HB 223 |
| Addressing the Cook Inlet Gas Shortage.pdf |
HRES 3/4/2024 1:00:00 PM |