Legislature(2003 - 2004)
01/28/2004 03:35 PM Senate RES
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 241-APPROP: NATURAL GAS DEVELOPMENT AUTHORITY
CHAIR SCOTT OGAN announced SB 241 to be up for consideration.
MR. HAROLD HEINZE, CEO, Alaska Natural Gas Development Authority
(ANGDA), emphasized the importance of timing right now in terms
of finishing the charge that is provided under ballot measure 3.
About four months are left in ANGDA timeline. His motives for
finishing on time have to do with the law and with the LNG
market, which is evolving dramatically. He explained:
If we're going to play, if we're going to have a
chance, we have to decide to make some movement and to
show that the project has legs.... The study in June
will provide those legs, if they are there, and then
you can look at it and make whatever judgments you
want as to whether we proceed or not. Remember, the
funding here is the funding to finish that. The rest
of the...funding would come from the financial
markets, not from the State of Alaska....If the
project is viable, we believe we can raise the money.
We are at a crucial point. Very frankly, if we don't
have funding in a matter of weeks here, our ability to
execute a quality feasibility study for you is greatly
diminished. We're up against the wall now in terms of
getting all this work done....
CHAIR SCOTT OGAN said he had worked for a gas producer and
usually gas is sold by entering into a memorandum of
understanding (MOU) or something similar. He asked Mr. Heinze
how he saw ANGDA's role in the marketplace.
MR. HEINZE replied that he has finessed ANGDA's approach to the
producers as commercial and knows he can make a deal with them.
If there is an economically viable transportation project, he
believes they would want to ship gas on it.
The first thing he would do following a determination of
feasibility is go to the open season type process where one
offers up the transportation capability. People who are
interested in it come forward. The two recent stranded gas
applications promise the exact same kind of treatment as a very
early step. It is anticipated that all three gas companies would
come forward with the stranded gas applications, but just one
company coming would make sufficient economics to make its
project work. If no one came forward during the open season, he
would offer to buy the producer's gas or work to have a down-
stream market buy it.
CHAIR OGAN asked if the Authority would be the transporter of
the gas and noted that trucking companies usually don't buy
something to sell down the line. He asked who buys and who sells
under his scenario.
MR. HEINZE replied that the ballot measure gave ANGDA broad
authority, but ideally the state would provide only a portion of
the transportation or maybe just the liquefaction plant. "We
were given a mission to help the project."
The Authority is having conversations with various down-stream
companies and hopes to continue them. On the up-stream side, the
producers have said that they would consider an offer to buy
their gas and have also said they would consider shipping it. In
fact, that would be their preference. He is not concerned about
whether they do it, but when they do it. He hadn't seen anything
from the producers' side that accelerated the timeline.
CHAIR OGAN noted that the language under "Powers of the
Authority" said "acquire natural gas supply" and asked him where
ANGDA would get the money.
MR. HEINZE replied that it is fairly normal in these types of
projects to enter into a whole series of interlinking contracts
with terms and contingencies; everything falls into place at
once.
SENATOR ELTON said he is frustrated about not getting anything
[in terms of the $2.15 million general fund appropriation from
the Department of Revenue in SB 241] and asked if removing
"ANGDA" would mitigate some of the reluctance DOR has to support
the request.
MR. HEINZE replied that is a constructive suggestion, but his
main concern is that one of the unique abilities the Authority
brings to the project is its tax-exempt status. He suggested
that putting the governor and his chief of staff in control of
the organization might neutralize that status.
SENATOR ELTON recapped that Mr. Heinze said time is of the
essence and asked if having another six months to accomplish the
job instead of three would take some of the pressure off ANGDA
and assure a better quality product.
MR. HEINZE replied that he didn't want to speak for the board,
but its members have presented themselves clearly. They would
prefer to have an answer now, even if it's the one they don't
want to hear. Second, the Authority has a broad role to play and
feel it would be best to fulfill its current mission by June so
that it could become an effective force in whatever
considerations of the other routes. He advised:
If we don't look at the LNG route through Valdez,
nobody else will and we'll never know if it offered
Alaska benefits that far exceeded the benefits of any
other project. This is the one time to look at it; the
one and only shot at it. And if we don't look, we'll
never know. If we wait until next year or the year
after to look and let the timing be driven by the
highway project, I think we will have lost the
opportunity for the LNG project to be meaningful in
that regard. There may be some things in the
Authority's structure that would fit happily with the
choice that's been made and the choice will have been
made to go down the Highway....
SENATOR ELTON asked if he plans to do a bifurcated report - one
in June and then a supplemental report on a highway route six
months later.
MR. HEINZE replied that it is his intention to meet the
statutory requirement. If [the Legislature and governor] are
undecided about whether to pursue the project by the middle of
the year, they might as well concede the LNG marketplace for an
extended period of time. Many valuable pieces of information
will be contained in the report that the Legislature may want in
front of it as it considers the Stranded Gas Act applications.
SENATOR ELTON said he is sympathetic to ANGDA's request and
wanted to know why the administration wasn't responding.
CHAIR OGAN inserted that he should ask the administration.
SENATOR ELTON retorted that he had, but had received no answer.
SENATOR SEEKINS asked if ANGDA had had any conversations with
the producers to date as to whether or not they would ship their
gas on a pipeline if it existed and was a state-owned asset.
MR. HEINZE responded that the producers had been asked that
question numerous times and have responded in the affirmative.
He has been reluctant to have that conversation with them
formally, because the Authority has not determined the
feasibility of the project and wants to be fairly certain the
answer would be yes.
SENATOR SEEKINS asked if ANGDA could at some point sell futures
to pay for construction of the line.
MR. HEINZE replied that the gas is available - about 8 bcf per
day. The only speculation would be on the cost of transport and
whether there is a market down-stream. Then ANGDA could borrow
money.
TAPE 04-4, SIDE B
4:30 p.m.
SENATOR SEEKINS asked if he would view a legislative decision to
not fund ANGDA's request now to be the will of the Legislature
to not proceed with the initiative's mandate.
MR. HEINIZE replied that he would rather hear right now if that
is the Legislature's decision. Members of the Authority could
move on, but he thought it would be a big disappointment for the
state.
You would have lost a look down a project that may
hold some very interesting benefits for Alaska that
you'll never realize any other way....You will have
lost an opportunity to look at some interactions with
another project that could represent how the states
contribute towards it with federal money rather than
state money....Very frankly, those benefits are pretty
considerable....
In June, I am not going to have spent or done the work
that the producers did with $100 million. What I would
ask you to think about is how much of the $100 million
do you know about. What do you know? I will suggest in
June; I will give probably 10 to 100 times more
information than they are going to give you. That
might be worth something to you right there to just
have the insights as to how these projects work, how
it interrelates and all those other things.
CHAIR OGAN commented that the charge of the committee is not to
necessarily see how the project fits in with all the other
finances, but whether it is necessary for the good of the people
and commercializing gas. He noted there were no further
comments.
SENATOR SEEKINS moved to pass SB 241 from committee with
individual recommendations. There were no objections and it was
so ordered.
SENATOR ELTON suggested that the Chair send a message to the
Finance Committee about Mr. Heinze's concern with timeliness.
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