Legislature(1997 - 1998)
01/23/1997 03:08 PM House WTR
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HCR 1 - NORTH SLOPE NATURAL GAS The first order of business to come before the House Special Committee on World Trade and State/Federal Relations was HCR 1, Relating to a new Alaska liquefied natural gas project. CHAIR RAMONA BARNES announced to the committee members that there was a proposed committee substitute to HCR 1 that needed to be adopted. She explained the changes were located on page 4, lines 2-6. She called for a motion to adopt the proposed committee substitute. Number 029 REPRESENTATIVE GENE KUBINA moved that the committee adopt the proposed committee substitute for HCR 1, Version 0-LS0190/H, Cook, dated 1/14/97. Hearing no objection, CSHCR 1(WTR) was adopted. CHAIR BARNES read the following sponsor statement into the record: "HCR 1 is before the House Special Committee on World Trade & State/Federal Relations today. The resolution urges the establishment of a stable fiscal and regulatory environment in order to provide the best opportunity for a new LNG project to be economically viable and attractive. To ensure economic viability, a huge volume of 14 million metric tons of gas must be sold per year. The proposed LNG project would transport and market the North Slope gas resources in the Asian Far East market. It is believed there exists an opportunity in 2005 when demand in that market will rise enough to accept the volume of gas which this project will provide. A critical element is the likelihood Alaska's huge volume of gas could be displaced from the market for many years if smaller, more easily placed projects come on line first. "HCR 1 encourages the Governor to work with North Slope leaseholders as well as the Legislature, the federal government and Congress to develop and complete the LNG project. "The Governor is asked to work with leaseholders to develop a contract for execution with those who appear likely to become sponsors of the project. The contract would point out the nature, degree and duration of fiscal terms for the project and contractually guaranteeing the terms. The contract would be submitted to the Legislature for ratification. The Governor would also provide the Legislature with enabling legislation to authorize the State of Alaska to formally enter the contract. "The Legislature encourages potential sponsors of the LNG project to find suitable measures to support and encourage Alaska businesses and residents to participate in construction and operation of the project. "If built, the project would also be constructed so as to enable the marketing of gas to Alaska communities. "The Governor is asked to work with leaseholders and Alaska's Congressional delegation to identify appropriate federal action to help expedite the project. He is also asked to identify and report to the legislature, the form of participation in the project by the State of Alaska." Number 087 JOHN T. SHIVELY, Commissioner, Office of the Commissioner, Department of Natural Resources, was the first person to testify before the committee. He explained he served on the sub-cabinet group with Commissioner Wilson L. Condon, Chair, that worked with the industry, the Yukon Pacific Corporation, and the legislature on this project. Commissioner Condon was in Anchorage today so he would testify on behalf of the Administration. He expressed commendation for the positive work and message that the interim project created. He stated the project was going to take the cooperation of the industry and the legislature/Administration to become a reality. He declared the Administration supported HCR 1. It was another positive step towards working on this project. He called the resolution a continuation of work that had been done between the Administration and the legislature last year. He reiterated the Administration supported the passage of HCR 1. MR. SHIVELY referred the committee members to page 4, lines 9-13, of the committee substitute. He stated the Administration had recognized that fiscal stability was important for this project to move forward. There were certain constitutional limits, however, that would bind future legislatures. It was possible to bind the executive branch, but the legislature had its own authority. There were ways to provide more stability, but that would require special crafting of the language. That was the main reason why the legislature would need to remain intrinsically involved in this process. He expressed this would be difficult because it interfered with the separation of powers issues. Number 141 CHAIR BARNES expressed her delight in working on this project during the interim with Mr. Shively. She also stated that everyone in the Administration had been most helpful and forthcoming and that the committee was eternally grateful. She recognized the concerns about the section on page 4 that Mr. Shively expressed. It was an issue that the legislature would address up front to ensure that this project "gets off the ground." Number 158 REPRESENTATIVE KUBINA asked Mr. Shively to explain his concerns regarding the section on page 4, lines 9-13, of the committee substitute further. He wondered about the constitutionality of the issue. Number 165 MR. SHIVELY replied that it was believed the Administration could enter into a contract with the legislature to authorize the Administration to negotiate certain contracts. The Administration did not believe, however, that there was a 100 percent possibility that a future legislature would not change that authority. How it would change it was the issue in dispute. The Administration believed it should be up front with the oil industry regarding that risk. He explained, however, there were certain attorneys working in the oil industry that believed differently. Nevertheless, this issue continued to be discussed. Number 190 REPRESENTATIVE KUBINA commented he would follow that issue with great interest. Number 201 GEORGE FINDLING, Government and Public Affairs Advisor, Arco Alaska Inc., was the next person to testify before the committee. He announced Arco's support of HCR 1 and the committee substitute. Arco now believed that an opportunity existed to make this project commercially viable. There was a positive climate within the legislature and Administration, the market was receptive to the approaches, the producers had substantial team efforts to move the project forward, and sound ideas for commercial structures were emerging. The 2005 date mentioned in the resolution did raise a matter of goals versus expectations question. Arco believed, however, that if everything went well with no setbacks, the first gas deliveries would be projected to the year 2007. That was an aggressive assumption, he declared. Furthermore, the Far East buyers did not see LNG deliveries from Alaska until after the year 2005. They believed putting the required new LNG fire powered plants, for example, into place would take at least ten years from today. Nevertheless, Arco would continue to support the resolution because it would continue to make this project economically viable as soon as possible. He reiterated Arco's support of HCR 1. CHAIR BARNES stated that the year 2005 was not cast in stone, but if there was not a goal set then it was likely that nothing would be accomplished. She explained the year 2005 was an important date to establish as a goal for contracts even if the gas was not ready for the market place until the year 2007. Number 244 JEFF LOWENFELS, President and CEO, Yukon Pacific Corporation, was the next person to testify before the committee. He announced Yukon's support of HCR 1 despite the fact that his company was not mentioned in the resolution. The lease holders of the gas were the only companies mentioned in the resolution. The Yukon Pacific Corporation had permits for this project and it would work with the lease holders in every possible way. Yukon Pacific did not view 2005 as a goal, but as a necessity to supplement some of the urgency expressed by this legislature. Mr. Lowenfels distributed to the committee members a handout titled "TAGS Best Case Development Scenario," illustrating a development time frame. He reiterated despite the fact that the Yukon Pacific Corporation was not mentioned in the resolution that did not deter its resolve to support this piece of legislation, nor did it deter its resolve to see that this project was completed on a timely basis so that Alaska could capture the liquid natural gas (LNG) market from 2005 and well beyond. The 14 million tons was just the beginning, he stated. There was a tremendous future for Alaska to produce additional quantities of natural gas and liquified natural gas forms. He reiterated the Yukon Pacific Corporation supported HCR 1. Number 271 REPRESENTATIVE KUBINA stated he was concerned about the time frame of this project. He mentioned negotiating for a sales contract took time and a lot of work when prices were not established. It appeared from the handout by Mr. Lowenfels titled, "TAGS Best Case Development Scenario," that this could be done a lot quicker. Number 279 MR. LOWENFELS responded he believed it could be done a lot quicker. He cited the countries of Australia and Malaysia whereby the Japanese had written letters of interest directly to two individual projects requesting that they move forward in developing the necessary information. And, those were instances where the gas had not been developed in comparison to Alaska. The Japanese could not do that in Alaska because the permit and gas holders were split. He agreed an exact price was needed to enter into a contract. However, the exact price was not needed to enter into a contract negotiation. Only a range was needed. MR. LOWENFELS distributed to the committee members a handout titled "Grass Roots LNG Projects-Cost Comparison." The handout illustrated that there were other projects out there that were not Alaskan. Therefore, Alaska needed to do everything it could to bring forward the Alaskan project. He stated he was not scared by any project out there. The Alaska TAGS project was far better for the markets then Indonesia, for example because Alaska was viewed as a stable country. It was often said by some Alaskans that this was a terrible place to do business. He believed, however, that Alaska was too good a place to do business and that was the problem. MR. LOWENFELS thanked the committee members for working together with the Yukon Pacific Corporation and encouraged everyone to pull together to move this project forward. Number 334 CHAIR BARNES called Mr. Lowenfels a "believer." She expressed her gratitude towards his hard work on this issue over the years. Chair Barnes believed that Alaskans could do anything that they set their minds to. She called the oil pipeline a natural wonder of the world, and if Alaska could build that, "certainly a 36 inch line could be built to get our gas to market." It should be a lot more cost effective the second time. The individuals that said Alaska had to wait were being short sighted. She truly believed that if no contracts were in place by the year 2005, the smaller projects primarily owned by Exxon would displace Alaska in the market place. Number 357 CHAIR BARNES explained to Mr. Lowenfels that the Yukon Pacific Corporation was not mentioned in the resolution because it was not an owner of the gas. It was an owner of the permits of which the legislature had no control over. The resources in the ground belonged to the people of the State of Alaska. Number 359 MR. LOWENFELS agreed that this project was extremely important for the State of Alaska. He stated he had been working on this project for 15 years. He was convinced this project would be a good legacy for the state. He called the project a "religion" because he felt so strongly about it, and Chair Barnes and Representative Kubina were high participants in this religion. Number 377 REPRESENTATIVE KUBINA called Mr. Lowenfels a great teacher in this area. He stated he had adopted Mr. Lowenfels as a constituent even though he did not live in his district. This project, however, would provide great benefits to his district and the entire state. Number 391 MARK BENDERSKY, Commercial Manager for Gas, BP Exploration (Alaska) Inc., was the next person to testify before the committee. He expressed compliments to the committee members, and stated BP endorsed and fully supported CSHCR 1(WTR). Number 400 CHAIR BARNES thanked Mr. Bendersky and stated she looked forward to working closely with BP between now and the year 2005. Number 402 BEVERLY MENTZER, Manager Business Development-Natural Gas Department, Exxon Company, U.S.A., was the next person to testify before the committee. She thanked the committee members for their efforts in supporting the issues that needed to be resolved. Exxon was very interested in commercializing the gas reserves on the North Slope and supported HCR 1. MS. MENTZER further stated that Alaska would benefit from this project. There was a strong international competition in the LNG market so a competitive price was needed. Long-term contractual relations were also needed to make the investment viable. The project should also be backed by a long-term stable and appropriate fiscal regime. MS. MENTZER agreed that there was an opportunity in the market place around the year 2005 due to the increased demand in the Far East. She further mentioned that the key to the project was that it be economical to remain competitive in the world wide market place. MS. MENTZER reiterated that Exxon agreed with the resolution. Exxon agreed that the state should work to provide a stable and appropriate fiscal and regulatory environment so that the best LNG project would remain competitive and attractive. Exxon looked forward to working with the legislature and the Administration. Number 432 CHAIR BARNES announced for the record that Representatives Gail Phillips and Irene Nicholia were present. Number 433 REPRESENTATIVE IRENE NICHOLIA moved that CSHCR 1(WTR), Version 0- LS0190/H, Cook, dated 1/14/97, move from the committee with individual recommendations. Number 435 REPRESENTATIVE GAIL PHILLIPS asked Chair Barnes to briefly explain the amendment to the committee substitute. CHAIR BARNES explained the committee substitute added lines 2-6, on page 4, to include the year 2005. CHAIR BARNES further stated, hearing no objection to the motion by Representative Nicholia, CSHCR 1(WTR), Version 0-LS0190/H, was so moved from the House Special Committee on World Trade and State/Federal Relations.
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