Legislature(2001 - 2002)

01/30/2001 10:02 AM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 83 - NATURAL GAS RESOURCES DEVELOPMENT                                                                                     
[Contains testimony relating to HB 9]                                                                                           
Number 1832                                                                                                                     
CHAIR OGAN  announced the  next order of  business would  be HOUSE                                                              
BILL  NO.  83,   "An  Act  relating  to  natural   gas  pipelines,                                                              
providing  a   statutory  definition   for  the  portion   of  the                                                              
constitutional  statement  of policy  on resource  development  as                                                              
applicable to  the development and  transportation of  the state's                                                              
natural gas  reserves, amending  Acts relating to  construction of                                                              
natural gas pipelines  to require conformance to  the requirements                                                              
of   the  statutory   definition,  and   amending  the   standards                                                              
applicable  to  determining  whether  a  proposed  new  investment                                                              
constitutes  a  qualified  project  for  purposes  of  the  Alaska                                                              
Stranded  Gas Development  Act;  and  providing for  an  effective                                                              
CHAIR OGAN  noted that HB  83 was sponsored  by the  House Special                                                              
Committee  on Oil and  Gas.   He informed  members that  he didn't                                                              
intend  to  move  the legislation  from  committee  anytime  soon.                                                              
Instead, he wished  to get the issue before the public  and have a                                                              
thorough  discussion before  moving  any legislation  relating  to                                                              
the gas pipeline.                                                                                                               
CHAIR  OGAN  explained   that  HB  83  interprets   Article  VIII,                                                              
Sections  1 and 2,  of the  Constitution of  the State  of Alaska.                                                              
Section 1 of the constitution reads:                                                                                            
     It  is  the  policy  of  the   State  to  encourage  the                                                                   
     settlement  of  its  land and  the  development  of  its                                                                   
     resources  by  making  them available  for  maximum  use                                                                   
     consistent with the public interest.                                                                                       
Section 2, the general authority section, reads:                                                                                
     The  legislature  shall  provide  for  the  utilization,                                                                   
     development, and  conservation of all  natural resources                                                                   
     belonging to  the State, including land and  waters, for                                                                   
     the maximum benefit of its people.                                                                                         
CHAIR OGAN  informed members that  Section 1 of HB  83 articulates                                                              
those sections  of the  constitution.   It provides a  development                                                              
strategy  and some  policy  guidance  for the  administration,  to                                                              
ensure  that the  transportation of  natural gas  is designed  and                                                              
located to be  responsive to those requirements,  by talking about                                                              
both short- and long-term job opportunities in the state.                                                                       
CHAIR OGAN  pointed out that  subparagraph (C) [page  2, beginning                                                              
at line  22] talks about significant  long-term property  value to                                                              
the tax  base and  other things  to provide  for local  government                                                              
support.  Under  paragraph (2) [page 2, beginning at  line 26], it                                                              
says  that the  gas  pipeline from  the  state  to North  American                                                              
markets does  not foreclose  any other options.   This is  to keep                                                              
the  options  open,  not  only  for  a  pipeline  route  but  also                                                              
possibly  for an LNG  [liquefied  natural gas]  line to Valdez  or                                                              
CHAIR  OGAN referred  to testimony  at another  meeting about  the                                                              
availability  of natural gas  reserves in  Anchorage; he  said the                                                              
known  reserves are  estimated to  last about  12 years.   Despite                                                              
optimism  that there  is more  gas  out there,  nobody has  really                                                              
drilled for  it yet  or found it.   "And 90  percent of  those gas                                                              
reserves were found in the 1960s," he added.                                                                                    
CHAIR  OGAN  said  the  bill  addresses   environmental  concerns.                                                              
However,  it also  says  the commissioner  shall  issue a  written                                                              
finding that  this project will  comply with the  overall strategy                                                              
for development,  use, and control  of the project or  projects to                                                              
develop and  transport the  state's natural gas  resources.   In a                                                              
nutshell, this  says that the gas  pipeline must be  developed for                                                              
the maximum  benefit of  the people.   He asked:   What  does that                                                              
mean?    Does it  mean  a  northern route  and  simply  generating                                                              
revenues?    Or a  southern  or  Alaskan  Highway route  by  which                                                              
Alaskans  can not  only get  the jobs  to build it,  but also  get                                                              
access to the  gas to enhance lifestyles and  keep low-cost energy                                                              
for  Alaskans?   Chair Ogan  indicated his  own interpretation  of                                                              
maximum use would be the latter.                                                                                                
Number 2143                                                                                                                     
LARRY PERSILY,  Deputy Commissioner,  Department of  Revenue, came                                                              
forward to  testify on both  HB 83 and HB  9.  He noted  that when                                                              
the  Alaska  Stranded Gas  Development  Act  (HB 393)  was  passed                                                              
three  years ago,  a  section  in that  bill  set  a deadline  for                                                              
applications  under  the law:    June 30,  2001.    The two  bills                                                              
before  the committee  [HB  83 and  HB 9]  would  not change  that                                                              
deadline.   He  pointed out  that the  governor's legislation  [HB
38] suggests extending  that deadline to December  2001, which may                                                              
be something  the committee might  want to consider.   Mr. Persily                                                              
added  that  he doesn't  think  anyone  realistically   expects  a                                                              
project  application by  June.   He offered  to give  input as  to                                                              
what an appropriate deadline would be.                                                                                          
[Tony  Braden  and   Jim  Cowan  of  the  Department   of  Natural                                                              
Resources  informed the chair  via teleconference  that they  were                                                              
available to answer questions.]                                                                                                 
Number 2291                                                                                                                     
MARK  MYERS,  Director,  Division  of Oil  &  Gas,  Department  of                                                              
Natural Resources  (DNR), testified  via teleconference  regarding                                                              
the  technical   analysis.    In   terms  of  the   commissioner's                                                              
findings,  he  said a  couple  of  things  would be  of  interest.                                                              
First,  the division  believes  a  study should  be  done in  Cook                                                              
Inlet  to  determine  the  demand  for gas  in  the  future;  that                                                              
relates  to  the  development  strategy   and  requirements  under                                                              
subparagraph (A) [page 2] of the bill.                                                                                          
MR. MYERS  discussed the second  issue:  placement of  a pipeline.                                                              
A  route depends  on  alternate  gas fields  that  might be  found                                                              
along that  route.   Therefore, the  division believes  additional                                                              
work would be well  warranted in terms of looking  at the pipeline                                                              
route  and what  additional resources  might be  available to  put                                                              
into the system later.                                                                                                          
CHAIR  OGAN asked  whether  that  was a  capital  request for  the                                                              
study in Cook Inlet.                                                                                                            
MR.  MYERS said  the division  is  submitting a  fiscal note  with                                                              
that in  there.  It  duplicates a capital  request already  in the                                                              
governor's gas line CIP [capital improvement project].                                                                          
CHAIR OGAN  noted that a  sectional analysis  for HB 83  was being                                                              
handed out  to members [see  memorandum from Jack  Chenoweth dated                                                              
January 22, 2001].                                                                                                              
Number 2379                                                                                                                     
REPRESENTATIVE  GUESS asked  whether there  was a positive  fiscal                                                              
note because of those two things that the division wants to do.                                                                 
MR.  MYERS  answered   that  in  looking  at   the  commissioner's                                                              
finding, [the  commissioner] is  required to determine  that there                                                              
is, under  this bill, sufficient  gas for a low-cost  domestic and                                                              
industrial source;  that is the demand  side.  The second  part is                                                              
the routing.   That issue is  directly involved with  the language                                                              
in the bill, but  is also generic to the pipeline  routes in other                                                              
gas bills, which is why the governor's CIP gas line (indisc.).                                                                  
Number 2424                                                                                                                     
CHAIR  OGAN asked Mr.  Myers what  the governor's  position  is on                                                              
this bill.                                                                                                                      
MR.  MYERS  responded  that  it  wasn't  appropriate  for  him  to                                                              
comment on  that; he was there  to provide technical support.   He                                                              
added,  however, that  he  had heard  that  the  governor is  very                                                              
supportive of a gas line.                                                                                                       
CHAIR  OGAN asked  Mr. Myers  about  the part  of the  legislation                                                              
that  would require  enough capacity  to be  provided to  whatever                                                              
point  where  this  [pipeline]  might "Y"  for  either  Valdez  or                                                              
Anchorage.    He  mentioned  a  recent  newpaper  article  by  Ken                                                              
Thompson (ph) about a gas hub.                                                                                                  
MR. MYERS  answered  that the  concept of  a gas  hub itself  is a                                                              
sound  idea, but  it depends  on  the implementation.   There  are                                                              
many issues,  including  the best  use of the  state royalty  oil,                                                              
which he indicated were also mentioned in the article.  He said:                                                                
     We're certainly  not opposed  to looking at  the issues.                                                                   
     But  ...  I   think  we  actually  have  to   have  some                                                                   
     proposals on  the table by  the producers as to  ... how                                                                   
     much  gas they're  selling,  in  what form  they're  all                                                                   
     offering  it  for  sale,  et cetera.  ...  So,  at  this                                                                   
     point,  ... conceptually it  sounds great.   But  how it                                                                   
     would be  implemented and the  sources of all  that gas,                                                                   
     again, would  be issues that  ... we would need  to work                                                                   
     out  ....   I  guess I'm  basically  being fairly  vague                                                                   
     until  we have  a little  more  on the  markets and  the                                                                   
MR. MYERS mentioned  the "Alliance" meeting and  discussion of gas                                                              
demand.   He said  demand is  a real part  of it,  as well  as the                                                              
costs of various versions and of producing the gas.  The gas-to-                                                                
liquids  (GTL) process  at  this  point is  a  lot less  efficient                                                              
internally  than  producing  and   shipping  gas  farther  up  the                                                              
pipeline.  One must  compare the price for the  GTL process versus                                                              
a  straight  gas line.    For  numerous  issues there  aren't  yet                                                              
Number 2560                                                                                                                     
REPRESENTATIVE  CHENAULT   asked  Mr.  Myers  what   he  hopes  to                                                              
accomplish out  of this $88,000  to study  the demand for  gas and                                                              
the declining Cook Inlet reserves.                                                                                              
MR. MYERS  answered that  it is basically  to understand  what the                                                              
demand is  and how  much that  demand can  be met locally,  within                                                              
Cook Inlet.  He deferred to Kevin Banks for details.                                                                            
Number 2591                                                                                                                     
KEVIN  BANKS, Petroleum  Market Analyst,  Division of  Oil &  Gas,                                                              
Department  of Natural Resources,  spoke  via teleconference.   He                                                              
indicated the  division proposed  a study  last summer  to examine                                                              
the market  - specifically, the  potential growth of demand  - for                                                              
gas in  the Cook Inlet  and Southcentral  regions.  On  the supply                                                              
side  of  this  study  has  been   considerable  research  by  the                                                              
producers  in Cook  Inlet.   There  doesn't seem  to be  a lot  of                                                              
dissention  among those  producers  as to  how  much in  potential                                                              
reserves is now in place in Cook Inlet.                                                                                         
MR.   BANKS  said   there   may  be   some   issues  relating   to                                                              
deliverability that  the division would  like to examine.   On the                                                              
other hand,  the division doesn't have  a very good handle  yet on                                                              
what  kind of  demand growth  will be  seen in  Cook Inlet,  which                                                              
depends on  the future price  of gas; the  division wants  to look                                                              
at that because  it shows how the  North Slope gas might  fit into                                                              
meeting that demand in another couple of decades.                                                                               
Number 2670                                                                                                                     
CHAIR  OGAN  asked   whether  there  were  further   questions  or                                                              
additional testifiers;  there was no response.   He announced that                                                              
HB 83 would be held for further consideration.                                                                                  
HB 9 - STRANDED GAS DEVELOPMENT PROJECT                                                                                       
CHAIR OGAN  announced the final  order of business would  be HOUSE                                                              
BILL  NO.  9,  "An  Act  amending   the  standards  applicable  to                                                              
determining  whether  a  proposed  new  investment  constitutes  a                                                              
qualified  project  for  purposes   of  the  Alaska  Stranded  Gas                                                              
Development Act; and providing for an effective date."                                                                          
Number 2740                                                                                                                     
JEFFREY LOGAN,  Staff to  Representative  Joe Green, Alaska  State                                                              
Legislature,  presented HB  9 on behalf  of Representative  Green,                                                              
sponsor.   He explained  that HB  9 proposes  to amend  the Alaska                                                              
Stranded Gas  Development Act (ASGDA),  enacted in 1998.   Section                                                              
1, page 1,  lines 9 and 10,  proposes to delete  current statutory                                                              
language  that restricts  the Act  to projects  for the export  of                                                              
liquefied natural gas [LNG].                                                                                                    
MR. LOGAN explained  that the ASGDA establishes a  framework for a                                                              
sponsor or  group of sponsors  - who seek  to develop  North Slope                                                              
natural gases and  transport it - to approach  the commissioner of                                                              
the  Department  of  Revenue  with  a proposal  for  a  system  of                                                              
payments to  the state in lieu  of other taxes.   It is a  way for                                                              
the state  to extract its economic  "rent" outside of  current tax                                                              
statutes.   Before  the  commissioner  considers  such a  project,                                                              
there has  to be a threshold  so that the commissioner  knows that                                                              
the   proposal  is   viable;  this   was  agreed   upon,  by   the                                                              
commissioner  and the  legislature, when  this particular  statute                                                              
was written.  Therefore, these specifications were established.                                                                 
MR.  LOGAN noted  that  the first  specification,  which is  being                                                              
proposed for  deletion, states  that the project  must be  for the                                                              
export of  LNG.   At the  time, he explained,  it was  anticipated                                                              
that a  transportation system for  the gas would be  to tidewater,                                                              
where the  gas would  be liquefied and  exported overseas.   Since                                                              
then, however,  a tremendous  upheaval in  the natural  gas market                                                              
has indicated  to many people -  including the sponsor  - that the                                                              
market  for  Alaska's  North  Slope  gas may  be  found  in  North                                                              
America  or the  northern  United  States.   Representative  Green                                                              
proposes  deleting the language  on lines  9 and  10 to  allow the                                                              
other two  standards in statute  to apply without  restricting the                                                              
applicability of the ASGDA to a project for the export of LNG.                                                                  
MR.  LOGAN  referred  to  Mr.  Persily's  comments  regarding  the                                                              
deadline for  applications made  during the  hearing this  date on                                                              
HB 83.  Mr. Logan stated:                                                                                                       
     We, indeed,  had considered that.   Representative Green                                                                   
     is  still  speaking  with  some  of  the  producers  and                                                                   
     others  who  might  be potential  sponsors  to  see  if,                                                                   
     indeed,  December 31  would be  a better  date than  the                                                                   
     current date  in statute, or a date extended  past that,                                                                   
     so  we don't  have  to come  back  every  year or  every                                                                   
     other year  and extend that  thing out until  someone is                                                                   
     ready  to  step  up to  the  plate.    So, he  is  still                                                                   
     considering  the date.   It  may  be a  later time  than                                                                   
     December 31.                                                                                                               
MR.  LOGAN noted  that Representative  Green  is a  member of  the                                                              
House Resources Standing  Committee, where HB 9  is referred next;                                                              
he anticipates  taking care of it  there, but obviously  it is the                                                              
current committee's prerogative to address that.                                                                                
TAPE 01-7, SIDE B                                                                                                               
Number 2950                                                                                                                     
REPRESENTATIVE  JOULE  referred  to  the  section  that  talks  to                                                              
payment  in lieu  of  taxes.   He  asked  whether  another way  of                                                              
interpreting that is  as a kind of incentive for  the producers to                                                              
develop it.                                                                                                                     
MR. LOGAN  responded that HB  9 doesn't  speak to that  section of                                                              
the  Alaska Stranded  Gas Development  Act.   He  said he  thinks,                                                              
however, that it would be a fair characterization.                                                                              
REPRESENTATIVE JOULE  stated his  understanding that it  was based                                                              
on prices prior  to the current  situation.  He asked  for more of                                                              
that kind of information to be provided to the committee.                                                                       
Number 2890                                                                                                                     
CHAIR  OGAN  said  the  existing   legislation,  in  his  opinion,                                                              
delegates legislative  duties to  the governor.   The constitution                                                              
is  pretty   clear  that   the  legislature   has  the   oversight                                                              
responsibility  for  the  development   of  the  resources.    The                                                              
administration  is charged  with  carrying out  the policies  that                                                              
the  legislature   sets  in  statute.     He  indicated   Alaska's                                                              
governor,  whoever is  elected,  has a  lot of  power compared  to                                                              
governor's  in   other  states.     Although  he   supported  this                                                              
legislation  in the  past, it  essentially says  to the  governor,                                                              
"The legislature doesn't  want to deal with this.   We're going to                                                              
let you deal  with this, but then  you come back to us  and let us                                                              
vote  it   up  or  down,  basically."     Chair  Ogan   asked  for                                                              
confirmation  that the  legislative approval  is a  "yes" or  "no"                                                              
vote on whatever the governor negotiates.                                                                                       
MR. LOGAN emphasized  that HB 9 doesn't address  any other section                                                              
of  the  Act.    However,  he  agreed  to  come  back  before  the                                                              
committee with  more information on the  rest of what was  then HB
393.  He said he didn't want to get too far afield.                                                                             
CHAIR  OGAN indicated  a thorough  discussion of  the former  bill                                                              
and current law  is imperative for committee members,  in order to                                                              
make a  good judgment  about HB  9; he  suggested scheduling  that                                                              
for a  future date.   Although  HB 9  looks simple,  he said,  the                                                              
original  legislation was  not.   This would  expand not only  for                                                              
LNG, but also  for gas-to-liquids and an overland  pipeline route,                                                              
for  example.   Chair Ogan  stressed  the need  for discussion  of                                                              
gas-to-liquids and  the related process,  in order to make  a good                                                              
policy call.   He said it is a  major shift in policy,  as well as                                                              
a  major delegation  of  legislative  authority to  the  executive                                                              
branch, which he always wants to do cautiously.                                                                                 
MR. LOGAN  noted that he had  saved his materials from  the debate                                                              
on HB 393.                                                                                                                      
CHAIR  OGAN asked  whether anyone  else wished  to testify;  there                                                              
was  no response.   He  indicated  there would  be numerous  other                                                              
meetings relating to these policy calls.  [HB 9 was held over.]                                                                 

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