Legislature(2009 - 2010)BUTROVICH 205
02/08/2010 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB195 | |
| SB208 | |
| SB228 | |
| SB203 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 208 | TELECONFERENCED | |
| *+ | SB 203 | TELECONFERENCED | |
| *+ | SB 228 | TELECONFERENCED | |
| += | SB 195 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 228-TAX INCENTIVES FOR GAS-TO-LIQUID
4:31:49 PM
CO-CHAIR WIELECHOWSKI announced SB 228 to be up for
consideration.
MIKE PAWLOWSKI, staff to Senator McGuire, sponsor of SB 228,
explained that he would give a brief introduction of the bill
and then address the committee substitute (CS) that members have
in their packets. He said the basic premise behind SB 228 is to
look at the end market for gas and to look at what other
jurisdictions have done to build an industrial base around their
supply and to use it to create a valued-added liquid through the
Fischer-Tropsch process. SB 228 started off with a
reauthorization of an old industrial incentive tax credit that
existed in statute for petrochemical oil and gas facilities that
expired in 1999. The sponsor updated and reauthorized it in
sections 1-6 of the original bill. The second part of the bill,
was written with the understanding that these plants might be
the downstream facility and that the upstream might be the
producer selling to the facility.
4:33:33 PM
MR. PAWLOWSKI said the definition of gas used in-state for heat
and power in the ACES bill was expanded in SB 228 to include gas
used for raw materials for producing liquids or petrochemicals.
This was the beginning of the bill and the idea was to
incentivize both the downstream and the upstream.
4:34:07 PM
He explained that after talking to the Department of Revenue and
Legislative Legal, the sponsor discovered several problems in
the approach. The first one was that the original intent was to
incentivize any Fischer-Tropsch process - looking at coal-to-
liquids, biomass-to-liquids, and gas-to-liquids. But either coal
or biomass has to first be synthesized into a gas and then
turned into a liquid and the definition of gas-to-liquids in the
original version of the bill wasn't broad enough to include the
whole world of possibilities for this type of development in
Alaska. So CSSB 228 (), version 26-LS1324\S, changes the
definition on page 1, lines 10-11 to say a facility that
produces liquids from gas, coal or biomass - thus including the
world of Fischer-Tropsch fuels.
MR. PAWLOWSKI said secondly the original industrial incentive
tax credit couldn't be reauthorized because the provisions it
referenced in federal law had changed. So, an entirely separate
industrial incentive was designed within the CS. Sections 1-6
became section 1 that simply says if you make this investment
you get a descending capital credit against your corporate
income taxes up to the first billion dollars. He said that
technical issues still need to be corrected to limit that
credit; for one thing multiple entities could claim credit on
the same investment, which is not the sponsor's intent.
4:36:10 PM
So, language on page 2, lines 24-28, has the important credit
limits to protect the state's downside, he said. The first
provision is that the tax credit can never be more than 60
percent of the tax liability in a year. This assures that the
state is accruing some revenue and that it is just foregoing
revenue when the facilities are getting built. The second part
on line 28 says that the credits cannot be carried forward past
2025.
4:37:24 PM
RICHARD PETERSON, President, Alaska Natural Gas-to-Liquids, said
he had been looking at this particular concept in Alaska since
1997. He said he didn't care who built the gas-to-liquids plant,
but the idea is to put the mechanism in place for anybody to
compete for that type of project. In this respect they
wholeheartedly support this bill. Through the years of their
looking at gas-to-liquids in Alaska, the one thing that seemed
to be apparent is that Alaska isn't interested in the Fischer-
Tropsch process. This bill is the first sign of support for
Fischer-Tropsch.
4:39:53 PM
SENATOR WAGONER asked if he is here to promote some other
company to do the Fischer-Tropsch process.
MR. PETERSON responded that he hopes to be the successful party
to do it and he has been working on it with Sasol and Shell, the
two leaders in Fischer-Tropsch technology and the only two major
companies in the world that actually have operating Fischer-
Tropsch plants. However, he said, Exxon has the ability to do
this and if they want to take advantage of the energy credits,
that's great.
He said the whole purpose in 1997 was to introduce Fischer-
Tropsch technology to the US to help it reduce its dependence on
imported energy. Most of his time has been spent putting federal
legislation in effect that would help this process.
MR. PETERSON said he also has a more personal reason. His son is
a career Marine who came back in April from his sixth tour in
Iraq, and he didn't want him to have to go back. But that won't
happen unless the US as a nation creates a national energy
policy to reduce its dependence on imported energy - "and that's
what Fischer-Tropsch can do." It can do it across natural gas,
coal, and biomass including garbage.
4:42:24 PM
SENATOR WAGONER asked how Alaska can compete in a worldwide
market when Shell can buy its gas for $0.50/mcf at tidewater for
their 140,000-barrel/day plant that is being built in Qatar.
MR. PETERSON replied that is why he worked to enact federal
legislation that would provide energy credits and lower excise
tax rates on domestic Fischer-Tropsch fuels sold in the US.
These energy credits when combined will amount to about $700
million/year towards a plant in Alaska, or in Montana or in any
other state in the US. That translates into about $4/mmbtu. The
federal legislation makes them competitive; the sole purpose of
enacting it is so that the plant is competitive around the
world.
MR. PETERSON also stated that when Senator Stevens enacted the
energy credits for Fischer-Tropsch fuels made from coal and
biomass, every coal-rich state in the United State "beat a path"
to South Africa and to Shell, every state except Alaska, and he
wants to make sure that Alaska leads this type of technology in
the US.
CO-CHAIR WIELECHOWSKI asked Mr. Peterson if he still thought
Alaska could be competitive at $24/barrel for oil - with the
federal tax credits.
MR. PETERSON replied yes - in theory - assuming a plant can get
built for $5 billion and a lot of other assumptions. The
combined credits amount to $34/barrel. So that makes these
projects competitive at $55-60/barrel. This means in theory that
even at $28-30/barrel, they can be price competitive. From a
pure marketing point of view he hoped the numbers stayed up
around $60-70/barrel.
SENATOR WAGONER asked what size plant could get built for $700
million.
MR. PETERSON answered a 70,000 barrel/day plant.
SENATOR WAGONER asked the difference between the Fischer-Tropsch
process and the Bixby-something process in Virginia.
MR. PETERSON said he didn't know, but Fischer-Tropsch is a
generic name from the two German scientists who commercialized
the process in the 1930s.
4:49:01 PM
SENATOR WAGONER said he mentioned that everyone but Alaska went
to South Africa to look at that plant and he asked how many of
those are building those plants now.
MR. PETERSON answered that at least 8 or 10 of those states
passed legislation enabling price support tax credits, loan
guarantees, municipal bond funding, et cetera. All of them are
moving forwarding, including Alaska that did a $2 million pre-
feasibility study for an 80,000 barrel/day coal-to-liquids plant
in Cook Inlet. The numbers worked, but the big issue was the
2
cost of sequestering CO and how "cap and trade" would affect it.
CO-CHAIR MCGUIRE said the idea behind this credit is much like
her geothermal production tax credit from last year that later
grew to include hydro, solar, wind, biomass, carbon capture and
sequestration, but from that Alaska has invited the world in to
talk about geothermal prospects. This bill is another attempt at
incentivizing these projects that might otherwise be marginal.
She said that she and Senator Wielechowski came back from South
Africa trying to get Fischer-Tropsch facilities built in Alaska.
She said Alaska is unique with respect to this technology
because it has all three of the natural resources that are
needed as the feed stock in spades; we have the quantities of
gas that would be needed as well, but they are stranded. The
main thing is to make sure we're not double and triple dipping
in on the tax credits. She also believed that developing
Alaska's resources was very important because of the war we are
fighting "largely over crude oil."
4:55:54 PM
SENATOR STEDMAN added that a fundamental concern a lot of people
have is that Alaska doesn't get a major export line out of the
state into Alberta, or LNG export with vast stores of gas just
sitting everywhere, or that we end up with an export line to
Alberta with no base jobs in Alaska except for a couple of
hundred compressor station operators. He didn't know if income
tax was the right thing to incentivize.
He also said that he wanted the committee to get educated on the
possible impacts this technology could have on the state in case
the big pipeline didn't go through and also in the event that we
do get a pipeline that something could be created in the state
that would generate some jobs.
CO-CHAIR WIELECHOWSKI remarked that this plant could be a big
job creator and could potentially be a huge anchor for a bullet
line or spur line into Southcentral. It has tremendous
potential.
SENATOR WAGONER asked if he had been looking at a coal plant for
gasification earlier and asked what kind of study he did in
2
terms of sequestering CO.
MR. PETERSON said they did a very preliminary study looking at
2
existing wells in Cook Inlet with the idea of using CO for
enhanced oil recovery. That was a good idea five years ago, but
as time goes on those wells in the existing oil fields are
getting to the point where it might not make any economic sense
to do that. So, they primarily looked at storing gas in the
depleted oil and gas fields as a pure cost to the project of
about $50-75 million/year, but it could be more like $500
million/year with cap and trade.
He said the two best Alaska places to sequester CO were Prudhoe
Bay and Cook Inlet. Every other place in the country would have
an issue with where to put it. Both Sasol and Shell in 1995 said
they would not consider locating a coal-to-liquids or gas-to-
liquids program in the US unless there was a viable place to put
2
CO.
CO-CHAIR WIELECHOWSKI said they heard that in South Africa, too,
2
where the plant is located next to an oil field where the CO
could be injected right into the ground.
SENATOR HUGGINS said the Pentagon wanted to get into a
cooperative effort with the state of Alaska to produce a blended
jet fuel a while ago and asked where that was and how confident
he felt they could pull it off.
5:01:50 PM
MR. PETERSON replied if they can build a GTL/CTL plant in Alaska
they can easily meet that criterion.
5:02:09 PM
2
SENATOR WAGONER said he was not sure CO injection would work in
the Cook Inlet because the fields have been water flooding for
so long.
5:03:13 PM
JIM DODSON, President, Fairbanks Economic Development
Corporation, said they have done an extensive feasibility study
on a coal/biomass/natural gas-to-liquids facility in Interior
Alaska. He noted copies of "The Hatch Report," a 2005-DOE report
2
on enhanced oil recovery using CO, and Dr. Paul Metz's paper on
2
the value of using CO for enhanced oil recovery on the North
Slope and said the issue to Alaskans is the possibility of
turning relatively low-valued natural resources including
biomass, coal and natural gas into high-value product synthetic
fuel - produced in Alaska by Alaskans. He said the size of the
plant is enormous as is the $5-6 billion to build it.
MR. DODSON said that Dr. Metz's paper states that sequestering
2
CO on the North Slope could potentially return Alaska an
additional $100 billion from existing oil fields.
5:06:23 PM
CO-CHAIR WIELECHOWSKI announced that SB 228 would be set aside
for future discussion.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 203 Bill Packet - Part 1.pdf |
SRES 2/8/2010 3:30:00 PM |
SB 203 |
| SB 203 Bill Packet - Part 2.pdf |
SRES 2/8/2010 3:30:00 PM |
SB 203 |
| SB 228 Bill Packet - Part 1.pdf |
SRES 2/8/2010 3:30:00 PM |
SB 228 |
| SB 228 Bill Packet - Part 2.pdf |
SRES 2/8/2010 3:30:00 PM |
SB 228 |
| SB 195 - Bill Packet - Part 1.pdf |
SRES 2/8/2010 3:30:00 PM |
SB 195 |
| SB 195 - Bill Packet - Part 2.pdf |
SRES 2/8/2010 3:30:00 PM |
SB 195 |