Legislature(2009 - 2010)BUTROVICH 205
03/18/2010 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB287 | |
| SB243 | |
| SB242 | |
| SB228 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 294 | TELECONFERENCED | |
| *+ | SB 287 | TELECONFERENCED | |
| += | SB 228 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | SB 242 | ||
| = | SB 243 | ||
SB 287-IN-STATE GAS PIPELINE
3:35:04 PM
CO-CHAIR MCGUIRE said the committee would be talking about the
issue of in-state gas and the dire need to get gas to Alaskans
for residential and commercial use. She introduced U.S. Senator
Ted Stevens.
U.S. SENATOR TED STEVENS said countries such as India, Korea,
China and Japan will have an increasing gas shortage. Alaska
could compete in the LNG market if the gas can be moved. Once a
transportation mechanism is in place to take the gas to market,
he believes more gas will be discovered. The state has to put up
the money and demonstrate that it will help finance an in-state
line. The key is to get gas to the Kenai to keep the LNG plant
going.
3:38:24 PM
Acute shortages will happen by 2013 or 2014. He urged the
Legislature to make an offer on behalf of the state to invest in
an in-state line and not to wait for an open season or
bureaucratic analysis. The state should finance the line, not
build it. Substantial revenue will come to the state through
royalties and severance taxes.
The future for Alaska's gas lies in the conversion process.
Marketing Alaska's gas to the Pacific Rim could provide the
money to finance the development of coal or gas conversion to
liquids. The state should show the gas industry that it wants
gas moved now; he producers will come forward and cooperate. He
envisions two LNG ports in Alaska: one is already at Kenai and
the other will be at Valdez.
3:41:12 PM
U.S. SENATOR TED STEVENS said Alaska's economy will go downhill
rapidly if something is not started this year. The oil pipeline
used to carry 2.1 million barrels a day and now carries about
600,000 barrels a day. Alaska cannot survive on a one-third full
pipeline; gas must start moving. As people drill for more gas,
they will also find more oil and the oil pipeline could come
back to its former production levels.
CO-CHAIR MCGUIRE thanked him and said all members have a copy of
the presentation he made to Commonwealth North. She asked about
his concerns about the Alaska Gasline Inducement Act (AGIA) with
respect to shale discoveries.
U.S. SENATOR TED STEVENS replied that AGIA does not need to be
abandoned, but put aside. Canada and the Lower 48 will bid on
gas going to the Alberta hub but no one will rush to put gas in
that line with the prices that exist for the Alberta hub now.
LNG in the Pacific Rim is sold at $2 to $4 more per million
cubic feet (Mcf) than in the U.S. The delay on the Canadian line
has put Alaska at a standstill.
3:44:41 PM
SENATOR HUGGINS asked U.S. Senator Ted Steven's for his thoughts
on gas to liquids.
U.S. SENATOR TED STEVENS replied that an additional source of
jet fuel is needed to retain the air bases in Alaska. Coal to
liquids or gas to liquids is part of the future of Alaska. The
process is expensive and development will not progress without
substantial public funding which could come from the sale of LNG
to the Pacific Rim.
CO-CHAIR WIELECHOWSKI asked for U.S. Senator Ted Steven's
thoughts on the ability to get an export license to ship gas
overseas.
U.S. SENATOR TED STEVENS replied that the prohibition against
export was for oil brought about by Senator Mondale's feeling
that oil, in short supply at the time, should not be exported.
Exporting Alaska's gas is not prohibited; it was always
contemplated that if the LNG got to Valdez, it could be put into
the world market. He urged the committee to study LNG marketing
in India, Korea, China and Japan. Korea is almost exclusively
dependent on LNG for its gas. They would welcome Alaska's gas if
they can get it.
CO-CHAIR WIELECHOWSKI under AGIA, TransCanada was specifically
requested to do an open season down to Valdez to test and see
what the market was for a gas pipeline from the North Slope to
Valdez. Do you think going through with that open season is
sufficient or do you think we should be doing something other
than that.
U.S. SENATOR TED STEVENS replied that an open season is another
delay is not needed to find out if those four nations want to
buy gas. They are already competing with each other to get LNG.
He reiterated that private funding is needed to get the gas
lines built; producers want to see some money come forward.
3:48:52 PM
The Pacific Rim is a competitive but high price market. Taxes
are not needed if the gas is selling at $2 to $4 above U.S.
prices. Alaska can invest in a gas line and be co-owner, getting
money from severance taxes, royalties and profits.
CO-CHAIR MCGUIRE said she appreciated his knowledge and remarks.
U.S. SENATOR TED STEVENS said his comments are not for or
against any bill, nor is he representing anyone or being paid.
3:51:00 PM
BILL SHEFFIELD [Former Alaska Governor] said that besides
exporting, a gas line to Southcentral Alaska through Fairbanks
would get gas to 500,000 people and provide a lower the cost of
living. Alaska can either build a gas line for $4 or $5 billion
and not get money back or buy in at 49 percent and provide the
form for a contractor who might want to build and own the line.
This would create jobs, a lower cost of living, enterprises and
new businesses.
3:55:44 PM
If the legislature and governor would commit the money, a line
could be ready in two or three years that would pay for itself
through revenue.
CO-CHAIR MCGUIRE said she put the gas team with the Alaska
Railroad, in part, because the Railroad is quasi public but
deals with building things with the private sector. She asked
what Mr. Sheffield thinks about the bonding ability and the
interplay between public and private at the Railroad.
MR. SHEFFIELD replied that the Alaska Railroad has an
extraordinary ability to bond. The Railroad would have to hire
people for pipeline construction as a separate operation.
CO-CHAIR MCGUIRE asked General Pat Gamble how he envisions the
Railroad's role - its bonding ability and interplay with the
private sector.
3:59:29 PM
GENERAL PAT GAMBLE, president and CEO, Alaska Railroad
Corporation, said Alaska Railroad's purpose is transportation
but it is also a tool for economic development. A gas pipeline
would create a lower cost of living in Alaska that would create
an attractive economic climate for businesses that need to see
affordable energy and potential for economic development.
Investment in coal to gas would also help environmental
improvements, such as air quality.
He said the state is spending a million here and there to fix
something that is not quite right instead of spending several or
tens of millions on a large project that will return investments
for years to come. From the Railroad's point of view as an
economic developer, the recommendations from the previous two
speakers about the gas line could be what is best for all
Alaskans and turn the state around quickly. He said the railroad
does have the bonding capability, is available with a great
engineering team and knows permitting and licensing.
4:03:49 PM
CO-CHAIR WIELECHOWSKI said he has heard tariff estimates ranging
from $6 to $7 for an in-state gas line without an anchor tenant,
potentially doubling the cost of gas for consumers in
Southcentral. He asked General Gamble if the state should build
the gas line and industries will develop or wait for industry to
say there is demand and the line can be built with a lower
tariff.
GENERAL GAMBLE replied that at least one major anchor customer
is needed. He recalled Governor Frank Murkowski going to Korea
about seven years ago for meetings with potential energy
customers who said "as soon as you all get serious about
actually producing the gas, come see us because we are very,
very interested". A major state marketing effort is needed to
show the state's commitment and start getting buyer's commitment
for the product.
SENATOR HUGGINS noted that a recent letter from the Governor
shows his commitment to an in-state gas project. He asked
General Gamble if an instate gas project would help the Alaska
Railroad's business plan.
4:07:50 PM
GENERAL GAMBLE replied that the Railroad, attached to many parts
of the economy, is cost cutting, making a tight budget and
keeping lines of service open while preserving capitol until the
future can be determined. The Railroad is in a position to fit
with operations or the financial side [of a gas line project].
All earnings go back into capitol which goes back in to making
the Railroad more efficient and safe and working with
communities. That means jobs, contracts and all good things for
the state.
CO-CHAIR MCGUIRE asked General Gamble about the two bonding
cycles he has gone through and what that unique bonding
authority brings to the table.
4:10:40 PM
GENERAL GAMBLE said the Railroad's experience in medium-sized
sale comprised $165 million worth of bonds that the Railroad
sold to accelerate the rebuild of a track between Anchorage and
Fairbanks. The first time in the market, the bonds sold out in
the first or second day of the first and second rounds.
CO-CHAIR MCGUIRE said the Governor has given his support to a
gas line project and will lend cabinet members to work on right-
of-way and other issues.
SENATOR FRENCH asked General Gamble how the state balances its
desire to get started right now, with or without the cooperation
of the producers.
4:13:50 PM
GENERAL GAMBLE replied that as a business person, trying to
develop a business case, he is not as risk adverse as [the state
or Legislature] might be. In order to do a risk assessment, he
would start making contact with customers and get early
indications that his actions will get the right kind of
reactions and even early commitments. That reduces risk to the
business case and gives the confidence to go forward.
MR. FRANK MURKOWSKI [former governor of Alaska] said the need
for an instate gas project must be based on sound economics. He
mentioned his belief that any liability the state may have for
damages with TransCanada should not be a deciding factor in the
gas line debate.
4:18:14 PM
He said he is in favor of an aggressive policy to achieve a
bullet line project by mid-decade when shortages will be far
more severe. The gas is needed by residential and commercial
consumers in Alaska. Bullet line construction will provide jobs,
bring about secondary development projects and spur new capital
investment on the North Slope. A gas line could also offset the
revenue decline associated with the decline in the flow of oil.
4:21:23 PM
MR. MURKOWSKI said that in 2006, Exxon, BP and Conoco Phillips
initialed a proposal to proceed with the gas line project to the
Lower 48, subject to legislative approval, which never came. The
state was going to take a 20-percent equity in the project and
have a seat at the table. He mentioned a few other details
related to this former proposal. The Palin Administration
abandoned these efforts and proceeded with a proposal to have a
non-producer owned pipeline. TransCanada placed one bid and the
Palin Administration worked with TransCanada to urge an
agreement with the producers. TransCanada still does not have a
gas supply. The market dimension has changed. An abundance of
shale gas is close to market without a pipeline cost and more
gas is being discovered all the time.
4:25:19 PM
Alaska has to change with the economics that will drive the
project. In the meantime, the bullet line is important. He has
asked producers if they would make gas available to the state on
a long-term contract and the response was yes. The question is
if the project is economically viable. A detailed business plan
should be finished covering the market potential, the cost
pricing of the gas, debt reduction and the value of a long-term
sustainable supply for Alaska's Railbelt. He sees a huge
potential return to the state and does not see an inconsistency
between the bullet line and a gas line to the Lower 48. The
bullet line could provide first gas by 2016 to 2018 as opposed
to at least ten years before a bigger line is operational.
4:29:09 PM
Constructing a bullet line would provide emphasis for gas
exploration that could supply both projects. The bullet line
should be scheduled with a series of milestones. If the main gas
line appears ready to go at any milestone, the bullet line would
be halted. However, he said he thinks enough gas exists for both
lines. The legislation should be set up with the opportunity to
achieve the ideal business model for the bullet line project: to
be privately financed, constructed and owned. Bullet line
legislation could include provisions designating right-of-way,
streamlining permitting and providing for a strong project
manager whose main objective is to maximize demand by obtaining
commercial letters of intent to buy gas, thus reducing the cost
of gas to gas users.
4:32:25 PM
The state could then put the project out to competitive bids. If
the project is not economical, the project manager will let the
governor and Legislature know and terminate the project.
4:35:02 PM
SENATOR WAGONER asked about marketing the state's gas overseas.
He asked if the gas users in the Orient already know about
Alaska's gas reserves.
MR. MURKOWSKI replied yes but until infrastructure is put in
place to move the gas to tidewater, the discussion is
hypothetical.
SENATOR WAGONER said he thinks interested gas users in the
Orient can take capacity in the TransCanada line; then a spur
line would come off that. He sees that as the best opportunity
but is unsure if people are willing to take capacity and
negotiate with the producers for the gas.
MR. MURKOWSKI replied that the economics change at any given
time and the problem with trying to get commitments on volumes
of gas for LNG is that nobody is compiling a detailed cost
analysis for delivering gas to Valdez or Kenai for export. He
said he doesn't expect anything dramatic at open season because
major companies have gas all over the world and are moving gas
that is most profitable and closest to market, such as shale
gas. In the meantime, a bullet line is a worthwhile
consideration because the Railbelt is not a huge market but it
is a known and expanding market. Conoco Philips will probably
continue to export out of Kenai if they can get a sustained or
expanding supply.
4:40:51 PM
SENATOR FRENCH asked what level of state investment Mr.
Murkowski would advocate for in building the bullet line.
MR. MURKOWSKI suggested something similar to the previous
proposal that producers had agreed upon: the state taking 20
percent equity and having a seat at the table. When the oil
pipeline was in the planning stages, Governor Egan proposed that
the state take an equity interest but the Legislature was
reluctant to do so, feeling that the state should not be in the
business. Time and legal bills have proven it would have been
best for the state to have an interest in the oil line and that
the royalties would have been significant returns on the
investment. It makes sense to take a proportional risk and have
a seat at the table.
4:44:10 PM
SENATOR STEVENS moved to adopt the proposed committee substitute
(CS) for SB 287, labeled 26-LS1467\R, as the working document.
There being no objection, version R was before the committee.
MICHAEL PAWLOWSKI, Staff to Senator McGuire, said references to
Alaska Housing Financing Corporation (AHFC) have been removed
from SB 287. Section 1, beginning on page 1, acknowledges the
role that the Alaska Natural Gas Development Authority (ANGDA)
has had in the in-state gas picture. Minor changes were made in
language and a new subsection was added clarifying that the
purpose of the SB 287 is in the best interest of Alaska. On page
3, Section 3 of SB 287, [amending AS 42.40.560] new language
gives broader authorization for Alaska Railroad to move beyond
financing into construction if needed. On page 5, Section 5
[amending the uncodified law] says that in the event of an
agreement on the AGIA project, the governor and the Legislature
together could decide to stop work on this project.
4:46:49 PM
CO-CHAIR MCGUIRE said she would offer two amendments. She moved
to adopt conceptual amendment 1.
SENATOR STEVENS objected for the purpose of discussion.
CO-CHAIR MCGUIRE explained that conceptual Amendment 1 changes
the immediate effective date on page 7, line 2, to July 1, 2010.
This would allow for a smooth transition and for the governor
and his gas team to complete their work as targeted.
SENATOR STEVENS removed his objection.
CO-CHAIR MCGUIRE announced that with no further objection,
Amendment 1 was adopted.
CO-CHAIR MCGUIRE moved to adopt conceptual Amendment 2.
SENATOR STEVENS objected for purpose of discussion.
CO-CHAIR MCGUIRE said conceptual Amendment 2 addresses page 1,
lines 4-5 and removes the language about removing the authority
"from the Office of the Governor and the Department of Natural
Resources" (DNR) and placing it in the Railroad. The Office of
the Governor has authority over the Railroad and she clearly
envisions a role for the governor who has come on board in the
form of a letter.
4:49:42 PM
SENATOR STEVENS asked if conceptual Amendment 2 removes placing
[an in-state gas project] in the Railroad.
CO-CHAIR MCGUIRE replied no, the amendment still allows [an in-
state gas project] to be placed in the Railroad but deletes the
specific reference to removing the project from the Office of
Governor and DNR and says simply, in the positive, that we are
placing [an in-state natural gas project] in the Railroad. She
explained that her intent was to place [an in-state gas project]
in a new entity but she was concerned that the current language
would unintentionally prevent the Office of the Governor from
having any role.
SENATOR FRENCH said attention is still drawn to the word
"exclusive" [page 1, line 3]. He asked if using the word
"exclusive" creates friction about who is in charge.
CO-CHAIR MCGUIRE replied that she does envision other parties'
participation but would hesitate to remove "exclusive" and end
up with multiple gas teams without any clear authority over the
initiation and development of the project. The initiation and
development of the project is at the Alaska Railroad
Corporation.
SENATOR FRENCH asked if the administration has a position on it.
CO-CHAIR MCGUIRE she said the administration is aware of the
conceptual amendment and is working with her office.
SENATOR WAGONER asked how long it will be before the Alaska
Railroad can take on exclusive and primary responsibility for
initiation and development of the project. He does not feel that
the Railroad is ready to go on this project.
4:53:16 PM
CO-CHAIR MCGUIRE said the in-state gas caucus spent a lot of
time thinking about the appropriate place to house the project.
She envisions the work that Harry Noah [former project manager
for the in-state gas line project] has done already, his
engineers, the project permitting, data collection, etc. to
transfer with the authority and continue. Where to house the gas
team is an ongoing question but it must have a chance of
survival and an opportunity to consider bonding. AHFC is the
only other place with bonding authority and they don't build
things. People at the Railroad are confident they can bring a
team on. SB 287 has milestones and if the Railroad cannot meet
those milestones, they would communicate with the Legislature.
SENATOR WAGONER asked if Mr. Noah is still heading up the in-
state gas project.
CO-CHAIR MCGUIRE replied no, he has resigned, but his work is
still there and Bob Swenson has continued some of it. A team
needs to come in and take up the work.
4:56:49 PM
CO-CHAIR MCGUIRE said the Legislature cannot leave this session
without putting this project where it can be evaluated in the
event that AGIA goes sideways. Alaska needs to have control over
its own destiny with respect to an in-state line.
CO-CHAIR MCGUIRE announced that with no further objection,
Amendment 2 was adopted.
SENATOR FRENCH said Amendment 3, labeled 26-LS1467\R.1, would be
taken up Monday.
4:59:09 PM
CO-CHAIR MCGUIRE opened public testimony.
BILL WALKER, project manager and general counsel, Alaska Gasline
Port Authority, thanked the committee for taking action and for
acknowledging the decline in oil. He said the world market
opportunity will make a difference to Alaska. He favors a large
volume pipeline as opposed to a low volume pipeline. He
encouraged the committee not to start over but to walk through
the Yukon Pacific Corporation's permits and data. He liked the
language in SB 287 allowing the acquisition of permits and said
the Port Authority had permits at one time which are still
available. He asked the committee to look at the difference
between a state subsidy on a low volume pipeline versus state
investment on a high volume pipeline: the state would put in
roughly the same amount of money but would get a 12 percent
return on a larger line.
CO-CHAIR WIELECHOWSKI asked if Mr. Walker agreed with putting
this project into the Railroad's jurisdiction or if he thinks
there is a better place.
MR. WALKER replied he does not have a strong opinion on that.
The Railroad has incredible bonding opportunities tied in with a
loan guarantee. He said ANGDA is another option and he sees
ANGDA is blended into SB 287.
SENATOR WAGONER asked if any people, companies or corporations
in the Orient are looking for an LNG project to Valdez and
looking at the open season.
MR. WALKER replied that there have been previously. Mitsubishi
was a partner with the Port Authority. He has met with Tokyo
Gas, Tokyo Electric and Korean Gas. There is a strong interest
in the Orient but they need to see that Alaska is serious about
moving a project forward.
5:05:56 PM
[Audio stopped due to technical difficulties from 5:05 p.m. to
5:09 p.m. CO-CHAIR MCGUIRE called an at ease during this time.]
5:09:38 PM
CO-CHAIR MCGUIRE called the meeting back to order and said the
LIO would be dialing back in. SB 287 would be brought back up on
Monday with further testimony.
MR. WALKER said the new chairman of Federal Energy Regulatory
Commission (FERC) has said he can't imagine FERC standing in the
way of exporting gas.
CO-CHAIR MCGUIRE said the chairman of FERC has said that to her
in person.
[SB 287 was held in committee.]
SB 287-IN-STATE GAS PIPELINE
5:23:32 PM
CO-CHAIR MCGUIRE returned to SB 287 to allow further testimony.
BERNIE KARL, owner, Chena Hot Springs Resort, Fairbanks,
supported SB 287. He has worked with the Alaska Railroad as a
customer for 26 years and said it is a good place for a gas line
project. The state should finance the line without looking for a
return at the start but building it in later. If the pipeline is
built and we have cheap energy, hearings will be held to see
what businesses and people are wanted to work here in Alaska.
Alaska has the best record of any state or country for shipping
LNG. Having the largest fertilizer plant in the world sitting
idle does not make sense; it would start up with reasonable gas.
He said the oil companies will sell gas; they sell gas on the
North Slope now and sell gas to themselves. They have already
set a good rate. He said SB 287 takes Alaska into the next
centuries with cheap, clean energy for everyone. "The state
should bite the bullet and build the bullet."
[SB 287 was held in committee.]
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