Legislature(2023 - 2024)ADAMS 519

05/03/2023 01:30 PM House FINANCE

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01:34:08 PM Start
01:35:10 PM HB50
02:34:14 PM HB49
03:30:39 PM Presentation: Alaska Liquefied Natural Gas Project Update
04:03:03 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: Alaska Liquefied Natural Gas TELECONFERENCED
Project Update by Alaska Gasline Development
Corporation
+= HB 49 CARBON OFFSET PROGRAM ON STATE LAND TELECONFERENCED
Heard & Held
+= HB 50 CARBON STORAGE TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 50                                                                                                             
                                                                                                                                
     "An Act relating to the geologic storage of carbon                                                                         
     dioxide; and providing for an effective date."                                                                             
                                                                                                                                
1:35:10 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
1:35:57 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Foster continued to review the agenda.                                                                                 
                                                                                                                                
1:36:41 PM                                                                                                                    
                                                                                                                                
NICHOLAS   FULFORD,   SENIOR   DIRECTOR,  GAS   AND   ENERGY                                                                    
TRANSITION,   GAFFNEYCLINE,  introduced   himself  and   the                                                                    
PowerPoint  presentation  "CCUS  Value  Chain  and  Business                                                                    
Case" dated  May 3, 2023 (copy  on file). He shared  that he                                                                    
had worked  on around a  dozen CCS [carbon  capture storage]                                                                    
projects   worldwide,  but   predominately   in  Texas   and                                                                    
Louisiana. He began  on slide 2 and provided  the agenda for                                                                    
the presentation. He stated that  the industry was unfolding                                                                    
at a  rapid rate. He relayed  there were quite a  few useful                                                                    
lessons  that  could be  drawn  from  activities around  the                                                                    
world.  One of  the features  of  the journey  was that  the                                                                    
different sequestration  agreements had reached  an advanced                                                                    
stage  in their  discussions  so that  cost  stack and  pore                                                                    
space leasing  costs were starting  to come to  the surface.                                                                    
As  the contracts  became more  sophisticated  there were  a                                                                    
number  of commercial  considerations emerging.  He reported                                                                    
that the  environment for CCS  in Alaska was  very different                                                                    
from Texas, Louisiana, and many other parts of the world.                                                                       
                                                                                                                                
Mr. Fulford moved  to slide 3 titled  "Significance of State                                                                    
Related  Charges  in Development."  He  shared  that in  the                                                                    
context of  the CCS industry,  Alaska was in a  fairly early                                                                    
stage. He elaborated that many  of the projects in Texas and                                                                    
Louisiana had reached  fully termed sequestration agreements                                                                    
typically between  an emitter  (e.g., a  petrochemical plant                                                                    
or  power  station)  and  transportation  storage  companies                                                                    
(T&S). He  detailed that T&S  entities had to  address where                                                                    
the carbon dioxide (CO2) was  sequestered, and part of their                                                                    
contractual  framework  pertained   to  pore  space  leasing                                                                    
agreements.  He  expected  the journey  in  Alaska  to  move                                                                    
through the  same kind of  phase. He relayed that  the focus                                                                    
had been on the geology and  rock properties in the past few                                                                    
months and the  outcome of the work was  to demonstrate that                                                                    
the state had considerable potential.                                                                                           
                                                                                                                                
Mr.  Fulford  continued reviewing  stages  on  slide 3.  The                                                                    
second stage was  techno-economic project feasibility, which                                                                    
included a  high level dialogue with  potential emitters and                                                                    
people  interested  in  storing  CO2  and  a  more  advanced                                                                    
perspective  on  pore  space  leasing.  He  noted  it  would                                                                    
include the kind of regulatory  and legislative framework HB
50 was designed to address.                                                                                                     
                                                                                                                                
Mr. Fulford moved to the  third phase, which would be termed                                                                    
a   pre-financial  investment   decision  (FID)   phase.  He                                                                    
detailed  that   the  emitters  and  the   sequestering  T&S                                                                    
companies  were  finding  it  useful to  adopt  a  heads  of                                                                    
agreement  framework, which  entailed an  eight to  ten-page                                                                    
agreement  (that  was  not  typically  legally  binding)  to                                                                    
provide  some  assurance  for  lenders  and  the  industries                                                                    
looking to  sequester their carbon.  He expounded  that part                                                                    
of the agreement would likely  include a reasonably detailed                                                                    
explanation of the pore space  arrangements and location. At                                                                    
that  point, much  more  detailed  financial modeling  would                                                                    
occur,  including  levelized  cost storage  and  taxes.  The                                                                    
fourth phase    FID    would include an array  of contracts,                                                                    
which   would   be   carefully   scrutinized   by   lenders,                                                                    
particularly  if any  project  finance  was involved.  There                                                                    
would  also be  an EPC  or development  contract to  look at                                                                    
construction.                                                                                                                   
                                                                                                                                
1:42:01 PM                                                                                                                    
                                                                                                                                
Representative Hannan  asked what  the last term  [EPC] used                                                                    
by Mr. Fulford stood for.                                                                                                       
                                                                                                                                
Mr.  Fulford   replied  that  EPC  stood   for  engineering,                                                                    
procurement, and construction (EPC) contract.                                                                                   
                                                                                                                                
1:42:26 PM                                                                                                                    
                                                                                                                                
Representative Galvin  referenced the  technical feasibility                                                                    
stage  shown   on  slide  3.  She   recalled  discussion  in                                                                    
committee  the  previous  week  about  transportation  of  a                                                                    
product thousands  of miles to  another location.  She found                                                                    
it to be  a significant barrier to the  project concept. She                                                                    
remarked that  the committee  had not yet  seen the  size or                                                                    
type of  container needed. She  thought it was  an important                                                                    
part  of  the  plan.   Alternatively,  she  considered  that                                                                    
perhaps  there was  only thought  about oil  and gas  on the                                                                    
North  Slope, which  was an  entirely different  vision. She                                                                    
asked for Mr. Fulford's comments.                                                                                               
                                                                                                                                
Mr.  Fulford   responded  that  the  distance   between  the                                                                    
emitting source  and the sequestration  site was  a critical                                                                    
part  of  the  picture.  He stated  that  the  distance  was                                                                    
relatively  short  for  most of  the  existing  projects  or                                                                    
projects  in development.  He highlighted  an ammonia  plant                                                                    
where an injection  well was being drilled  within the plant                                                                    
boundary,  which created  substantial savings.  He estimated                                                                    
that for  the Gulf  Coast, the  distance the  economics were                                                                    
sustainable was about  50 miles. He elaborated  that at that                                                                    
point  the compression  in the  pipeline tariffs  started to                                                                    
encroach. He  noted it  was within  the current  envelope of                                                                    
the 45Q  tax credits of about  $85 per ton and  the capture,                                                                    
transport, and  sequestration came  out of that.  The marine                                                                    
transport of CO2  was being done between  Denmark and Norway                                                                    
and   was  a   relatively   groundbreaking  and   developing                                                                    
technology. Although  there had not been  any largescale CO2                                                                    
marine transportation  vessels built  yet, they were  on the                                                                    
drawing board.  He relayed that  to move CO2  from Southeast                                                                    
Asia to Alaska  in a large oceangoing CO2  vessel would cost                                                                    
about $50  per ton. He  stated it  would be comparable  to a                                                                    
complex CO2 capture facility.                                                                                                   
                                                                                                                                
                                                                                                                                
Representative Galvin surmised  that if the ship  were to be                                                                    
built  and the  [transportation] cost  was $50  per ton,  it                                                                    
sounded  like  the market  was  much  higher than  in  other                                                                    
places. She  remarked that  she could  be wrong  and perhaps                                                                    
Japan  and  Asia had  other  market  choices. She  asked  if                                                                    
Alaska was really a good choice for them.                                                                                       
                                                                                                                                
Mr. Fulford  responded that  there were  a number  of energy                                                                    
intensive Asian economies without  any readily available CO2                                                                    
sequestration facilities;  therefore, a number of  them were                                                                    
looking  actively at  cross border  CO2 export  projects, in                                                                    
which case  the distance  and complexity  was a  factor. The                                                                    
regulatory ability  to monitor and measure  and be confident                                                                    
in  secure  storage  was  also  particularly  important.  He                                                                    
stated that  one interesting synergy with  respect to Alaska                                                                    
was the  potential export  of LNG  [liquid natural  gas] and                                                                    
the  import  of  CO2.  There   were  a  number  of  Japanese                                                                    
companies  looking at  the concept.  Although the  economics                                                                    
and technology were yet to be  determined, it was one of the                                                                    
factors  that  made CO2  imports  more  relevant than  other                                                                    
ones.                                                                                                                           
                                                                                                                                
Representative  Galvin asked  Mr.  Fulford to  speak to  the                                                                    
economics  of  a  future   situation  where  the  technology                                                                    
existed for  Asia or another  country to ship its  carbon to                                                                    
Alaska for sequestration  and Alaska shipped out  its LNG or                                                                    
another gas product.  She asked what the  revenue would look                                                                    
like for Alaska.                                                                                                                
                                                                                                                                
Mr.  Fulford  responded that  the  strategic  scale of  CCUS                                                                    
[carbon  capture, utilization,  and storage]  in Alaska  was                                                                    
significant on  a global level.  He stated it was  useful to                                                                    
keep  in mind  that the  numbers and  volumes were  material                                                                    
when  turning them  into revenue  numbers.  He relayed  that                                                                    
moving LNG from Alaska to  Asia cost about $1.00 per million                                                                    
Btu [British thermal unit], which  corresponded to about $50                                                                    
per  ton.  He  elaborated   that  when  exporting  LNG,  the                                                                    
exporter bore the  return cost of the empty  ship. He stated                                                                    
that equally with CO2 "you'd  be doing the same." He relayed                                                                    
that in  theory, if  the activities  could be  combined into                                                                    
one business model, it would  mean the potential for halving                                                                    
the   costs,  which   would   create   much  more   economic                                                                    
opportunity. He believed  the concept was a  number of years                                                                    
away, but it was worthy  of exploration for Alaska's oil and                                                                    
gas future.  He noted there were  other strategies available                                                                    
including  processing gas  into ammonia  or another  organic                                                                    
compound,  which was  more transportable  than hydrogen  and                                                                    
could be used to export instead  of gas. He stated that CCUS                                                                    
was  a  facilitating  technology   that  would  aid  in  the                                                                    
process.                                                                                                                        
                                                                                                                                
1:51:09 PM                                                                                                                    
                                                                                                                                
Representative   Josephson   referenced  the   terms   price                                                                    
discovery and  levelized cost storage  used by  Mr. Fulford.                                                                    
He asked for an explanation of the terms.                                                                                       
                                                                                                                                
Mr. Fulford responded that there  were dozens of emitters in                                                                    
the U.S.  Gulf Coast  energy corridor  who were  all looking                                                                    
for cost effective storage of  their CO2. There were perhaps                                                                    
half a  dozen viable storage candidates.  He elaborated that                                                                    
currently  the dialogue  was going  back  and forth  between                                                                    
emitters and  storage entities and  price discovery  was the                                                                    
negotiation process  of what was  almost a  commodity price.                                                                    
Levelized cost  was a term  associated with  carbon projects                                                                    
and was  a way  of turning the  capital and  operating costs                                                                    
into a tariff. He elaborated  that the levelized cost of CO2                                                                    
storage may be  $20 per ton, which meant  that financing the                                                                    
capital and  operating expenditures would require  a $20 per                                                                    
ton tariff over a 20-year period in order to pay it off.                                                                        
                                                                                                                                
1:53:32 PM                                                                                                                    
                                                                                                                                
Co-Chair  Johnson referred  to the  CO2 backhaul.  She asked                                                                    
whether  natural  gas  was  a   liquid  that  compressed  at                                                                    
relatively the same rate [as  CO2] making it possible to use                                                                    
the same ships [for transportation].                                                                                            
                                                                                                                                
Mr. Fulford  explained that the  concept of LNG out  and CO2                                                                    
back had economic advantage, but  the technology did not yet                                                                    
exist. The  factors mentioned by  Co-Chair Johnson  were key                                                                    
and  would have  to be  addressed. He  believed it  would be                                                                    
many years before the option was available.                                                                                     
                                                                                                                                
Co-Chair   Johnson  referenced   the  number   of  different                                                                    
entities from which the CO2  might be received. She asked if                                                                    
CO2 gas was  pure or included other  chemical compounds. She                                                                    
asked if it varied by company.                                                                                                  
                                                                                                                                
Mr. Fulford  replied that for  a point to point  CCS scheme,                                                                    
the quality  of the CO2 was  much less important as  long as                                                                    
it was  in a form  that could  be easily injected  and would                                                                    
remain in  the reservoir.  He relayed  that CO2  quality was                                                                    
key for  emerging industrial hubs  in the same way  that gas                                                                    
transmission  system had  a certain  spec, which  had to  be                                                                    
adhered to. He stated in  that case, some emitters may place                                                                    
additional costs in  pretreating CO2 to get it  to the right                                                                    
quality.                                                                                                                        
                                                                                                                                
1:56:28 PM                                                                                                                    
                                                                                                                                
Mr. Fulford advanced to slide  4 and the unit technical cost                                                                    
of  some examples  of real  life sequestration  projects. He                                                                    
detailed  that the  technical cost  amounted to  the upfront                                                                    
capital   expenditures    and   20   years    of   operating                                                                    
expenditures.  He  noted the  information  was  useful as  a                                                                    
comparison  between  different  concepts,  but  it  did  not                                                                    
translate into a  tariff. For the most part,  the capture of                                                                    
CO2 was  a significantly  higher proportion of  capital than                                                                    
lease storage.  He relayed  that the  transport and  to some                                                                    
extent  the compression  were variable.  The example  on the                                                                    
left of the  slide was an industrial hub  concept and showed                                                                    
relatively  small  transport  and storage  cost,  reflecting                                                                    
economies of  scale in  the unit  technical cost.  The other                                                                    
two examples  on the slide  showed a gas  processing project                                                                    
and  an LNG  acid  gas pre-treatment  project. He  explained                                                                    
that  the  predominance  of capital  and  operating  expense                                                                    
required for the two projects  was for the capture. He noted                                                                    
he would  go into  additional detail on  the numbers  in the                                                                    
next couple of slides.                                                                                                          
                                                                                                                                
Mr. Fulford  moved to  slide 5 titled  "Example Costs  for a                                                                    
200  to 250MMscfd  Project  (3.9 to  4.8  MTPA)." The  slide                                                                    
corresponded to  the gas  processing and  LNG acid  gas pre-                                                                    
treatment  projects [shown  on slide  4]. He  noted the  two                                                                    
projects were  very similar. He  pointed out that  a certain                                                                    
amount of  compression was required  to bring the CO2  up to                                                                    
the  required critical  pressures.  The  slide showed  $77.3                                                                    
million in  compression capital expenditure and  $40 million                                                                    
for  injection   wells.  The  other   costs  were   less  in                                                                    
descending order of magnitude. The  example project was 4 to                                                                    
5 million  tons per annum  (MTPA) of CO2  with approximately                                                                    
$125  million in  upfront  capital  expenditures. The  right                                                                    
side  of the  chart listed  operating expenditures  with the                                                                    
two  key  components  being fuel  for  the  compression  and                                                                    
monitoring   cost   of   injection  wells   and   monitoring                                                                    
equipment,  which was  very expensive.  The total  operating                                                                    
expenditure was about $8 million.                                                                                               
                                                                                                                                
Mr.  Fulford  continued  to  slide  6  and  went  through  a                                                                    
potential hypothetical  scenario in  terms of what  the cost                                                                    
may be  for leasing the  pore space. The scenario  applied a                                                                    
$1 per ton  additional cost for the pore  space lease, which                                                                    
changed  the numbers  accordingly.  The  change added  about                                                                    
$4.5  million  per annum  of  operating  expenditures (a  35                                                                    
percent increase compared to the  example without pore space                                                                    
leasing).                                                                                                                       
                                                                                                                                
Mr.  Fulford moved  to slide  7 and  highlighted a  scenario                                                                    
where  the  pore  space  lease  was  capitalized  and  moved                                                                    
upfront  as  a  capacity  charge or  something  similar.  He                                                                    
detailed that at  a 10 percent discount rate  the pore space                                                                    
lease  (capital)  came to  about  $38  million, which  added                                                                    
about  30 percent  (the capital  expenditure  would go  from                                                                    
$125 million up to $163  million). The purpose of the slides                                                                    
was to  provide real life  examples to  give a sense  of how                                                                    
much projects cost and the impact of pore space.                                                                                
                                                                                                                                
2:00:12 PM                                                                                                                    
                                                                                                                                
Representative  Hannan  looked at  the  row  in the  capital                                                                    
expenditures  column of  the  examples  showing the  owner's                                                                    
cost.  She  asked  if  that   reflected  the  contractor  or                                                                    
developer cost  for Alaska. She  noted that Alaska  would be                                                                    
the owner  of the pore  space. She  asked if the  pore space                                                                    
lease  cost was  borne solely  by the  developer. She  noted                                                                    
that  in some  of  the examples  discussed,  Alaska was  the                                                                    
owner of the space and perhaps a developer in some regard.                                                                      
                                                                                                                                
Mr.  Fulford replied  that the  owner's costs  predominately                                                                    
related to  the surface  facilities and were  typically paid                                                                    
by the  developer. He  noted that  the legal  and regulatory                                                                    
arrangement  surrounding  the  ownership of  pore  space  in                                                                    
Alaska was well defined in  its constitution. He stated that                                                                    
generally  the costs  would be  sustained by  the developing                                                                    
company and not the state.                                                                                                      
                                                                                                                                
Representative  Hannan stated  her  understanding there  was                                                                    
not currently an  example of an LNG/CO2  exchange because it                                                                    
was not  happening anywhere  yet. She  noted that  under the                                                                    
concept of  the LNG project  in Alaska, the state  would own                                                                    
the project and  would invest in its  development. She asked                                                                    
for verification  that Alaska  expected to  be the  owner of                                                                    
the  sequestration   pore  space   and  the  owner   of  the                                                                    
accompanying facilities.                                                                                                        
                                                                                                                                
Mr. Fulford  replied that the  concept of the export  of LNG                                                                    
and import of  CO2 was in the distant future  and may not be                                                                    
feasible given it  was so far away; however,  in the context                                                                    
of the  LNG project,  he envisioned that  a project  of that                                                                    
scale and  complexity would require a  series of legislative                                                                    
steps to  go forward (which  was the case in  most countries                                                                    
GaffneyCline worked  with in terms of  LNG development). The                                                                    
default assumption would  be that the LNG  project would pay                                                                    
a tariff to a T&S company  to deal with its CO2. He remarked                                                                    
that it  could be done  in a  different way, which  had more                                                                    
synergies  for  the state  and  the  way its  revenues  were                                                                    
determined.                                                                                                                     
                                                                                                                                
2:03:34 PM                                                                                                                    
                                                                                                                                
Representative Stapp  observed that the examples  used a 12-                                                                    
year operating capacity  time in the formula  used. He asked                                                                    
if it  was standard in  the industry to amortize  costs over                                                                    
12  years. He  highlighted  that the  pieces of  legislation                                                                    
under discussion had a much longer timeframe.                                                                                   
                                                                                                                                
Mr. Fulford responded  that the 12 years was  a throwback to                                                                    
the previous 45Q  [tax] structure. He relayed  that 20 years                                                                    
would  be  more  typical injection  framework  and  possibly                                                                    
longer.                                                                                                                         
                                                                                                                                
Representative Stapp  asked if  a 20-year  calculation would                                                                    
reduce the cost  because there would be 20  years of capital                                                                    
expenditures versus 12.                                                                                                         
                                                                                                                                
Mr.  Fulford responded  in the  affirmative. He  stated that                                                                    
with discount  rates, the later  years started to  have less                                                                    
effect.  He  relayed  that for  most  companies  looking  at                                                                    
developments,  being able  to  secure  the longest  possible                                                                    
secured cashflow  was advantages  for everyone  and resulted                                                                    
in lower tariffs.                                                                                                               
                                                                                                                                
Representative  Stapp  asked  if  the increase  of  the  per                                                                    
tonnage fees  to the allowable  federal 45Q tax  credits was                                                                    
incorporated into  the cost assessments. He  believed it was                                                                    
$85 per  ton for standard  capture and he understood  it was                                                                    
considerably  higher for  direct-year capture  at $180  [per                                                                    
ton].                                                                                                                           
                                                                                                                                
Mr.  Fulford replied  that he  was frequently  asked how  to                                                                    
factor in 45Q and was it  considered a credit or revenue. He                                                                    
explained that GaffneyCline considered  the 45Q tax cashflow                                                                    
and the  associated direct pay  to be revenue.  For example,                                                                    
if the levelized cost was $50  per ton (which may be typical                                                                    
for  a gas  processing  plant)  and a  tax  credit could  be                                                                    
secured at $85 (for a  limited time), it would be considered                                                                    
as  a  profitable project  with  an  IRR [internal  rate  of                                                                    
return] of potentially greater than 10 percent.                                                                                 
                                                                                                                                
Representative  Stapp remarked  that  the cost  per ton  for                                                                    
carbon storage was  less than the available  45Q tax credit.                                                                    
He  remarked  on the  seven-year  period.  He asked  if  the                                                                    
difference in  the capital expenditure  cost of  the project                                                                    
was factored  in. He  stated a project  would not  be paying                                                                    
any  taxes at  a federal  level even  if it  was a  subsidy.                                                                    
Alternatively, he asked whether  the effective credit made a                                                                    
project economical or not was used as a baseline.                                                                               
                                                                                                                                
Mr.  Fulford  responded  that  the  capital  investment  and                                                                    
operating  expenditures  involved  in  a  CCUS  project  was                                                                    
purely a  cost and unless  there was a revenue  mechanism to                                                                    
compensate, no investment would happen.  He noted it was the                                                                    
reason nothing  was happening despite  the interest  in CCUS                                                                    
from  a lot  of countries.  There was  an emissions  trading                                                                    
system in  Europe, which was  about $100 per ton.  There was                                                                    
the  LCFS [low  carbon fuel  standard] in  California, which                                                                    
was  similar  depending  on  how  much  could  be  captured.                                                                    
Additionally,  there was  the federal  45Q. He  explained it                                                                    
was  providing a  very significant  financial incentive.  He                                                                    
highlighted  an LNG  pre-treatment  plant already  producing                                                                    
CO2 as  an example.  He stated it  was roughly  adequate for                                                                    
something like an ammonia or  hydrogen plant, and inadequate                                                                    
for  a gas-fired  power station.  He explained  there was  a                                                                    
merit order of projects, some  were economic and others were                                                                    
not and  the cutoff was  somewhere between a  large hydrogen                                                                    
plant and a gas-fired power station.                                                                                            
                                                                                                                                
2:08:38 PM                                                                                                                    
                                                                                                                                
Co-Chair Johnson  thought Mr. Fulford  had stated  that some                                                                    
of the carbon capture technology  was not yet available. She                                                                    
asked what  kind of carbon  emissions load existed  that may                                                                    
be transported to Alaska.                                                                                                       
                                                                                                                                
Mr.  Fulford   replied  that  the  largest   projects  being                                                                    
discussed in  Texas were  100 MPTA  (the Exxon  Houston ship                                                                    
channel project).  There was also an  existing pipeline that                                                                    
would  take  16  MTPA.  He  noted that  in  the  context  of                                                                    
industrial emissions across the  country it was minimal. The                                                                    
limitation was the economics of capture.                                                                                        
                                                                                                                                
Co-Chair  Johnson  referred   to  the  monitoring  equipment                                                                    
(capital  and   operating)  costs.  She  assumed   that  the                                                                    
standards from the registry would  drive what the monitoring                                                                    
equipment would be.                                                                                                             
                                                                                                                                
Mr. Fulford responded affirmatively.  He relayed that all of                                                                    
the  projects  had   to  obtain  a  license   from  the  EPA                                                                    
[Environmental   Protection  Agency]   or  from   the  state                                                                    
authority depending on the jurisdiction.  He stated it would                                                                    
determine  the  extensive  array   of  surface  and  surface                                                                    
monitoring to  examine what was  happening to the  plume and                                                                    
check for any leakage.                                                                                                          
                                                                                                                                
Co-Chair  Johnson  surmised it  applied  to  carbon and  the                                                                    
Alaska Gasline  Development Corporation (AGDC)  depending on                                                                    
whether  there  was  a  line or  other  types  of  equipment                                                                    
installed.  She  asked  how 404  primacy  would  impact  the                                                                    
capital  costs. She  asked if  Mr.  Fulford anticipated  any                                                                    
difference in the capital cost if the state assumed it.                                                                         
                                                                                                                                
Mr.  Fulford  replied  that  the  capital  investment  would                                                                    
probably not  change, but the  operating expenditure  may be                                                                    
reduced. He  elaborated that based  on some of  the projects                                                                    
GaffneyCline was  working on,  the cost of  an EPA  class VI                                                                    
permit  application  was  relatively high  but  expected  to                                                                    
drop. He  remarked that for  states with primacy,  the class                                                                    
VI process was perceived to be much less complex.                                                                               
                                                                                                                                
Co-Chair Johnson wondered how  familiar Mr. Fulford was with                                                                    
companies'  financing based  on zero  carbon emissions.  For                                                                    
example, project  financing where zero carbon  emissions was                                                                    
a requirement or  provided a given number  of points towards                                                                    
obtaining a loan.                                                                                                               
                                                                                                                                
Mr. Fulford  summarized that he  was very familiar  with the                                                                    
topic,  which likely  warranted  a  separate discussion.  He                                                                    
explained there  were clear examples of  low carbon projects                                                                    
attracting low  cost finance  from different  sources. There                                                                    
were an  increasing number  of financial  organizations that                                                                    
would deprioritize  or not lend  to projects  they perceived                                                                    
to be  incompatible with  their carbon  goals. Additionally,                                                                    
some of  the tech  companies with a  particularly aggressive                                                                    
net zero  target would pay  several hundred dollars  per ton                                                                    
for a CO2 removal credit.                                                                                                       
                                                                                                                                
2:14:41 PM                                                                                                                    
                                                                                                                                
Co-Chair Edgmon  stated his understanding that  three states                                                                    
had  404   primacy  including   Florida,  New   Jersey,  and                                                                    
Michigan. He  asked if  all three  states were  doing carbon                                                                    
capture.                                                                                                                        
                                                                                                                                
JOHN  CROWTHER, DEPUTY  COMMISSIONER, DEPARTMENT  OF NATURAL                                                                    
RESOURCES, responded that the  404 primacy was distinct from                                                                    
the class VI  primacy. He did not know the  status of carbon                                                                    
projects in  the three states mentioned  by Co-Chair Edgmon,                                                                    
but it was not dependent  or associated with 404 primacy. He                                                                    
clarified that the class VI  primacy through the EPA was for                                                                    
sequestration wells.                                                                                                            
                                                                                                                                
Co-Chair  Edgmon  stated  that  was  his  understanding.  He                                                                    
thought  the  exchange  between  Co-Chair  Johnson  and  Mr.                                                                    
Fulford could have been inferred differently.                                                                                   
                                                                                                                                
2:15:33 PM                                                                                                                    
                                                                                                                                
Mr. Fulford advanced  to slide 8 titled  "Supply, Demand and                                                                    
Levelized Cost." He highlighted  a scenario turning the cost                                                                    
breakdown on slide 7 into  a tariff excluding the pore lease                                                                    
cost spaces and the  other significant commercial risks, the                                                                    
levelized cost  or tariff would  likely be about $10  to $12                                                                    
per ton. He  stated there seemed to be a  price of about $20                                                                    
per ton that  would support some of the  larger T&S projects                                                                    
serving the  Gulf Coast. The  slide highlighted there  was a                                                                    
substantial amount  of sequestration potential  available in                                                                    
the U.S.  and to be  competitive it  was necessary to  be at                                                                    
the lefthand  side of the  curve shown  on slide 8.  He used                                                                    
the  ExxonMobil Houston  ship channel  project (the  largest                                                                    
envisaged  project)  as an  example  with  100 MTPA  for  20                                                                    
years, which was about 2 gigatonnes  and on the left side of                                                                    
the  chart. He  relayed that  Alaska was  perceived to  have                                                                    
about 50 gigatonnes  available in the Cook  Inlet, which was                                                                    
also still very much on the lefthand side of the chart.                                                                         
                                                                                                                                
Mr. Fulford briefly  turned to slide 9 showing  a summary of                                                                    
some of the leasing fees  other states had been securing. He                                                                    
turned  to  slide  10  titled  "Alaska  Considerations."  He                                                                    
relayed that  on a technical  level, most of the  Gulf Coast                                                                    
projects were  aimed exclusively  at saline  aquifers (water                                                                    
carrying geological formations), which  had an extensive but                                                                    
less well defined CO2 storage  capacity. The focus in Alaska                                                                    
was currently  on depleted gas  reservoirs, which  were well                                                                    
documented   and  with   very  clear   traps.  The   largest                                                                    
difference conceptually  between Alaska  and other  parts of                                                                    
the U.S.  was that Alaska  had very low state  emissions. He                                                                    
discussed  the  three benefits  of  Alaska  pursuing a  CCUS                                                                    
strategy. The  first was that  the foundation of  the Alaska                                                                    
economy continued to be the  oil and gas industry. He stated                                                                    
that  as  all  of  the recent  developments  had  served  to                                                                    
underline, to  enable the industry  to continue to  make the                                                                    
future  tax  revenues  more   resilient,  an  assertive  and                                                                    
clearly  established  carbon  management strategy  would  be                                                                    
needed  to help  go  forward. He  elaborated  that not  only                                                                    
would it  protect existing revenues  and cashflow,  it would                                                                    
potentially secure  new investments  and future  tax royalty                                                                    
that  may otherwise  be at  risk in  a world  without carbon                                                                    
management.                                                                                                                     
                                                                                                                                
2:19:37 PM                                                                                                                    
                                                                                                                                
Mr.  Fulford relayed  that the  second benefit  was the  LNG                                                                    
project (the  monetization of North  Slope natural  gas). He                                                                    
stated that  having a robust  carbon management  strategy to                                                                    
accompany  the project  would be  an essential  part of  the                                                                    
project going  forward from a "social  license" perspective.                                                                    
He  shared  that  based  on  his  experience  speaking  with                                                                    
Japanese  banks   and  others   who  could   conceivably  be                                                                    
interested,  it was  clear that  lending to  such a  project                                                                    
would be  dependent on  it being presented  in a  low carbon                                                                    
fashion. He  explained that natural  gas and  carbon capture                                                                    
were  two  foundation stones  of  the  ammonia and  hydrogen                                                                    
industry,  which   would  be  an  important   feature  going                                                                    
forward.  The  third benefit  the  potential  for Alaska  to                                                                    
participate in the large scale imports of CO2.                                                                                  
                                                                                                                                
Representative Josephson  noted that he was  a big supporter                                                                    
of the large diameter  gasline proposed in past legislation,                                                                    
SB  138  [legislation  proposed   by  former  Governor  Sean                                                                    
Parnell in 2014]  and could see how "this"  could be helpful                                                                    
to  that  endeavor.  He considered  the  subject  of  social                                                                    
license [in  regard to  CCUS projects  being a  catalyst for                                                                    
LNG/gas monetization  (shown on slide  10)]. He asked  if it                                                                    
could  potentially less  helpful  if the  goal  post on  the                                                                    
international scene  moved, which was likely  to happen. For                                                                    
example,  if the  Paris Accord  became the  Barcelona Accord                                                                    
and had  more aggressive goals  to achieve. He asked  if the                                                                    
consideration could  become outdated  because the  world was                                                                    
in crisis.                                                                                                                      
                                                                                                                                
Mr. Fulford responded  that it was a  very topical question.                                                                    
He stated that part of his  role at GaffneyCline was to take                                                                    
a  view on  gas and  LNG demand  and how  it was  unfolding.                                                                    
Currently there  was likely a  bigger gap in  LNG forecasts,                                                                    
particularly  in  the  post  2030  era.  He  considered  the                                                                    
investment required to move the  world's energy systems to a                                                                    
renewable  or net  zero  system and  the  ability of  global                                                                    
economies to  sustain the expenditure.  He explained  it was                                                                    
difficult   to   create   the   circumstance   where   rapid                                                                    
decarbonization  would  occur.  He believed  taking  a  more                                                                    
balanced view  of the role  that unmitigated natural  gas or                                                                    
low carbon  fuels like  ammonia or  hydrogen would  take and                                                                    
looking  at the  timeframe for  the Alaska  LNG project,  it                                                                    
should  be a  viable proposition  with the  right buyer  and                                                                    
contract structure. He  noted that much would  depend on the                                                                    
willingness of buyers to invest.                                                                                                
                                                                                                                                
2:23:31 PM                                                                                                                    
                                                                                                                                
Mr.  Fulford provided  conclusions on  slide 11.  He relayed                                                                    
that  the   commercial  framework   for  CCUS   was  rapidly                                                                    
evolving; however, the tariffs and  price point based on the                                                                    
hardware and required capital  expenditure were beginning to                                                                    
come  together. The  capture economics  continued to  be the                                                                    
biggest  part of  the equation  and getting  those addressed                                                                    
was  perhaps the  key to  large scale  CCUS. The  commercial                                                                    
terms   varied   significantly   depending   on   the   risk                                                                    
allocation. In  particular, currently the  biggest stumbling                                                                    
block was the ability of  an emitter to guarantee off taker.                                                                    
He explained  that an emitter  would always want its  CO2 to                                                                    
be taken,  but a storage project  may not always be  able to                                                                    
take  it.  There was  currently  a  very active  negotiating                                                                    
dialogue in the U.S., from  which there were many lessons to                                                                    
be learned  in Alaska. Much  of the same dialogue  was being                                                                    
held outside  the U.S. at  the government level, with  a bit                                                                    
slower pace and a different set of cost drivers.                                                                                
                                                                                                                                
Representative Ortiz  looked at  slide 11  and asked  for an                                                                    
explanation of  the bullet  point: "commercial  terms depend                                                                    
heavily on project structure and risk allocation."                                                                              
                                                                                                                                
Mr.  Fulford responded  with an  example. He  explained that                                                                    
once a  large industrial  emitter secured  sequestration, it                                                                    
was  able to  collect the  45Q  [tax credit]  and perhaps  a                                                                    
premium for  low carbon  fuel. However,  if the  emitter was                                                                    
unable to secure  the emissions, it may  face liabilities of                                                                    
$100 to $300 per ton for having  to vent the CO2, or not. On                                                                    
the other hand,  the storage entity may be paid  $20 per ton                                                                    
to take the  CO2. He clarified that the  emitter was ideally                                                                    
not about  to take  a $300  liability for  not doing  so. He                                                                    
explained that  the back  and forth  on short  and long-term                                                                    
liabilities could  create some large, stranded  costs, which                                                                    
had to be somehow allocated in the contract framework.                                                                          
                                                                                                                                
2:26:30 PM                                                                                                                    
                                                                                                                                
Co-Chair Edgmon asked  how Mr. Fulford would  respond to the                                                                    
viewpoint  that   the  idea  of  carbon   capture  could  be                                                                    
considered  a Ponzi  scheme. He  reasoned that  by the  time                                                                    
much of  the factors  were worked  out, particularly  on the                                                                    
sequestration  side, the  planet  may have  pivoted to  more                                                                    
carbon friendly  in terms of  emissions. He  considered that                                                                    
idea  seemed promising  in the  current environment  but may                                                                    
not bear out in the  future. He referenced the continued use                                                                    
of  the word  "emerging"  [used to  describe carbon  capture                                                                    
technology].  He  asked what  Mr.  Fulford  would say  to  a                                                                    
person who thought the idea  sounded like crypto currency or                                                                    
something similar.  He stated that  the end goal was  to not                                                                    
just provide environmental  social government (ESG) licenses                                                                    
to an emitter, but to  actually reduce carbon. He asked what                                                                    
would  happen if  it did  not pan  out and  the multibillion                                                                    
dollar emerging industry began to sputter and disappear.                                                                        
                                                                                                                                
Mr.  Fulford replied  that real  money  was currently  being                                                                    
deployed   into   CCS    from   credible   and   respectable                                                                    
institutions  including pension  funds  and  New York  based                                                                    
infrastructure funds.  Secondly, the International  Panel on                                                                    
Climate  Change   (IPCC)  was  pushing  hard   for  a  rapid                                                                    
decarbonization of  the world's economy. He  elaborated that                                                                    
the IPCC had  stated that CCUS was an essential  part of the                                                                    
transition from present  to net zero. He  considered some of                                                                    
the   transformational  energy   systems  like   fusion  and                                                                    
imagined that in  50 or so years carbon capture  would be an                                                                    
older technology; however,  there was a very  clear role for                                                                    
the  next   50  years   and  investment  was   taking  place                                                                    
currently.                                                                                                                      
                                                                                                                                
Co-Chair Edgmon thanked Mr. Fulford for the presentation.                                                                       
                                                                                                                                
Co-Chair  Foster thanked  Mr. Fulford  and set  an amendment                                                                    
deadline for May 10, 2023, at 5:00 p.m.                                                                                         
                                                                                                                                
HB  50  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
2:30:49 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:32:34 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                

Document Name Date/Time Subjects
HB 49 NEW FN DNR Forest Mngmt 042523.pdf HFIN 5/3/2023 1:30:00 PM
HB 49
HB 49 NEW FN DOR Comm Office 041923.pdf HFIN 5/3/2023 1:30:00 PM
HB 49
HB 49 NEW FN DNR Mining Land Water 4-26-23.pdf HFIN 5/3/2023 1:30:00 PM
HB 49
HB3.VerB.SupportingDocs.5.1.23.pdf HFIN 5/3/2023 1:30:00 PM
HB 3
HB49 Fiscal Picture DNR-HFIN 5-3-23 .pdf HFIN 5/3/2023 1:30:00 PM
HB 49
HB 50 2023 04 17 DNR Response to HFIN Q April 11, 2023.pdf HFIN 5/3/2023 1:30:00 PM
HB 50
HB 49 NEW FN DNR Project Mngmt 4-26-23.pdf HFIN 5/3/2023 1:30:00 PM
HB 49
AGDC HFIN 5.3.23 Presentation.pdf HFIN 5/3/2023 1:30:00 PM
AGDC - HFIN 050323
HB 49 NEW FN DNR Admin&Support $ 5-2-23.pdf HFIN 5/3/2023 1:30:00 PM
HB 49
Alaska LNG Revenue Analysis 2023.04.21 - SOA Spring Update AGDC .pdf HFIN 5/3/2023 1:30:00 PM
AGDC - HFIN 050323