Legislature(2011 - 2012)BUTROVICH 205

03/23/2012 03:30 PM Senate RESOURCES


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 209 DEVELOPMENT PLANS FOR OIL & GAS LEASES TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= SB 215 GASLINE DEV. CORP: IN-STATE GAS PIPELINE TELECONFERENCED
Heard & Held
        SB 215-GASLINE DEV. CORP: IN-STATE GAS PIPELINE                                                                     
                                                                                                                                
4:32:35 PM                                                                                                                    
CO-CHAIR PASKVAN announced consideration of SB 215.                                                                             
                                                                                                                                
4:32:38 PM                                                                                                                    
SENATOR JOE THOMAS,  sponsor of SB 215, said the  route in SB 215                                                               
has been studied by Enstar,  ANGDA, the ASAP pipeline and others.                                                               
It  is nothing  new. It  is the  southern route  using the  Parks                                                               
Highway, which  is the route  preferred by Enstar and  the Alaska                                                               
Gasline   Development  Corporation   (AGDC)  and   it  could   be                                                               
reconfigured to  serve the AGIA line  if it ever went  to Valdez.                                                               
Last week,  Buccaneer and  Furie indicated that  a line  going to                                                               
the Interior  would be good  for the market  and that it  is also                                                               
the  shortest  route.  It  also has  the  shortest  timeline  and                                                               
probably the most reasonable cost.                                                                                              
                                                                                                                                
He said that the Resources  Committee knows exactly what is going                                                               
on  in  the  state  with  gas and  this  southern  portion  would                                                               
dramatically  increase the  opportunity for  gas exploration  and                                                               
development  in  the Interior  basins  some  of which  have  been                                                               
explored for  decades. There is  a fair amount of  potential, but                                                               
no way  to move the gas.  This route would also  reduce costs for                                                               
natural  resource  development  in Southcentral,  and  the  Upper                                                               
Kuskokwim and Interior regions of the state.                                                                                    
                                                                                                                                
SENATOR  THOMAS  said  the  Donlin  Creek  Mine  is  planning  on                                                               
building  a pipeline  which would  almost parallel  this one  and                                                               
there  is some  potential  for a  partnership  there even  though                                                               
their line  would veer to the  west at some point.  There is also                                                               
great potential in the Interior  with the new International Tower                                                               
Hills Mine. If the gas does prove  up in the Cook Inlet, it would                                                               
only make  sense to build  at least  the southern portion  of the                                                               
line.                                                                                                                           
                                                                                                                                
4:35:45 PM                                                                                                                    
JOE DUBLER,  Vice President and  CEO, Alaska  Gasline Development                                                               
Corporation  (AGDC), said  he prepared  a precursor  to a  fiscal                                                               
note, a  rough thumbnail  shot at  what the cost  would be  on SB
215.  He  said Black  and  Vetch  provided a  very  sophisticated                                                               
tariff model  that cost $50,000 to  run. For it he  estimated the                                                               
capital  expenditures   that  a  tariff  would   support  in  two                                                               
different scenarios.  One was just  the tariff and the  other was                                                               
tariff plus  the gas. It  compared Cook Inlet to  Fairbanks route                                                               
(southern)  and the  North Slope  to Fairbanks  route. The  North                                                               
Slope to Fairbanks  numbers came from their July 1  report as did                                                               
the southern  route numbers to  make it  easy for the  readers to                                                               
determine  what  costs  went  towards  which  tariffs  and  which                                                               
destinations.                                                                                                                   
                                                                                                                                
For the tariff in the first  column they used the estimated costs                                                               
from the  North Slope to  the Fairbanks City Gate  (including the                                                               
lateral from  the main line and  the straddle plant) and  came up                                                               
with $6.45 (not including the estimated  cost of gas at $2 or the                                                               
estimated $2 distribution cost).                                                                                                
                                                                                                                                
4:38:28 PM                                                                                                                    
SENATOR FRENCH  asked why they used  that number and if  it would                                                               
be the same amount going south to north.                                                                                        
                                                                                                                                
MR.  DUBLER replied  that they  were trying  to come  up with  an                                                               
estimated CAPEX that could be supported by that tariff.                                                                         
                                                                                                                                
CO-CHAIR PASKVAN said  he understood that the tariff  in the ASAP                                                               
report to Fairbanks was $10.80 and asked he came up with $6.45.                                                                 
                                                                                                                                
MR. DUBLER responded that adding the  $2 cost of gas on the North                                                               
Slope and the  $2 distribution cost in the Fairbanks  area to the                                                               
$6.45 gets  you $10.45.  Then they figured  an average  60 mmcf/d                                                               
and number  of days per  year (adding a  quarter of day  for leap                                                               
years) and  came up with an  allowable cost recovery per  year of                                                               
$141,351,750 and  when that is multiplied  by 20 years you  get a                                                               
CAPEX of $2.827 billion.                                                                                                        
                                                                                                                                
The  bottom of  the spreadsheet  showed the  pipeline would  cost                                                               
$1.565 billion to  build from Big Lake to Dunbar.  The report had                                                               
$1.999 billion  but he backed  out the Cook Inlet  NGL extraction                                                               
plant  because  that didn't  belong  there  and some  compression                                                               
station costs.                                                                                                                  
                                                                                                                                
CO-CHAIR PASKVAN said  he thought the fractionation  plant in the                                                               
ASAP report was $954 million by itself.                                                                                         
                                                                                                                                
MR. DUBLER  replied he got  those numbers  from page 5-35  of the                                                               
report;  and the  Cook  Inlet NGL  extraction  facility was  $410                                                               
million.                                                                                                                        
                                                                                                                                
CO-CHAIR PASKVAN said  something at the southern end  of the line                                                               
was $954 million.                                                                                                               
                                                                                                                                
MR. DUBLER said he would help him figure it out.                                                                                
                                                                                                                                
SENATOR WIELECHOWSKI  asked if the  gas is different  coming from                                                               
Cook Inlet such that it doesn't  have to be processed in the same                                                               
way gas from the North Slope does.                                                                                              
                                                                                                                                
MR. DUBLER replied yes; that is  why the North Slope facility (to                                                               
extract  HS,  HO  and COat    a cost  of $1.840  billion) is  not                                                               
          222                                                                                                                   
included in any of these costs.                                                                                                 
                                                                                                                                
SENATOR STEDMAN said he found  the spreadsheet a little confusing                                                               
and  asked if  it compares  two alternatives  why a  conditioning                                                               
plant wouldn't be included on the North Slope if one was needed.                                                                
                                                                                                                                
MR. DUBLER  replied that  the conditioning  plant is  included in                                                               
the  $6.45  number going  from  the  North  Slope down,  but  the                                                               
conditioning facility  isn't relevant on  the Big Lake  to Dunbar                                                               
route.                                                                                                                          
                                                                                                                                
4:43:14 PM                                                                                                                    
SENATOR WIELECHOWSKI  asked what  the equivalent tariff  would be                                                               
to build a line from Cook Inlet to Fairbanks.                                                                                   
                                                                                                                                
MR. DUBLER  replied that he  didn't run  that number, but  he had                                                               
converted tariffs to CAPEX for  comparison. He offered to pay the                                                               
consultant  to  do  another  run if  that's  what  the  committee                                                               
wanted.                                                                                                                         
                                                                                                                                
4:43:57 PM                                                                                                                    
CO-CHAIR PASKVAN  said he  was looking for  the tariff  figure to                                                               
the Big Lake area.                                                                                                              
                                                                                                                                
MR. DUBLER  said the total  tariff at Big  Lake was $5.63  and he                                                               
didn't include  the straddle plant  in Fairbanks and  the lateral                                                               
line.                                                                                                                           
                                                                                                                                
CO-CHAIR PASKVAN asked the tariff between Big Lake and Dunbar.                                                                  
                                                                                                                                
MR. DUBLER  replied the capital  cost for a pipeline  from Dunbar                                                               
to Big  Lake is $1.99 billion  and he didn't have  the tariff for                                                               
that number handy, but said he would get it.                                                                                    
                                                                                                                                
4:48:11 PM                                                                                                                    
MR. DUBLER said page 3-10 of  the report had the estimated tariff                                                               
build up  case with no  inflation: the gas  conditioning facility                                                               
was  $1.42, the  pipeline  from  the North  Slope  to Dunbar  was                                                               
$2.56, and the pipeline from Dunbar  to Big Lake was $1.65. These                                                               
equal the $5.63.                                                                                                                
                                                                                                                                
CO-CHAIR  PASKVAN said  he assumed  the tariff  from Big  Lake to                                                               
Interior Alaska would be the same under either pipeline.                                                                        
                                                                                                                                
MR. DUBLER  replied that is  not a valid assumption;  many things                                                               
go  into a  tariff  and  capital expenditures  is  only one.  His                                                               
spreadsheet showed  that it's  $412 million  cheaper to  run from                                                               
south to  north, because  you don't have  the straddle  plant, an                                                               
off-take  facility  or  the  conditioning  on  the  North  Slope.                                                               
Throughput on the line is  another consideration. Gas going south                                                               
is 500  mmcf/d and on  gas going north  is only 60  mmcf/d. While                                                               
the numerator gets  smaller, the denominator gets  a lot smaller;                                                               
so, the tariff gets bigger.                                                                                                     
                                                                                                                                
CO-CHAIR  PASKVAN asked  if  the  ASAP tariff  of  $1.60 and  the                                                               
tariff from Big Lake to Dunbar  of $1.65 was accurate (on page 3-                                                               
10).                                                                                                                            
                                                                                                                                
MR. DUBLIER replied that was correct.                                                                                           
                                                                                                                                
4:50:34 PM                                                                                                                    
SENATOR FRENCH  asked how  big of  a pipe is  needed to  carry 60                                                               
mmcf/d.                                                                                                                         
                                                                                                                                
MR. DUBLER replied  their engineers estimated getting  by with 12                                                               
inches and  maybe smaller. The issue  with the wording in  SB 215                                                               
is that  they are prebuilding  for an  in-state line so  it would                                                               
have to be bigger and more expensive.                                                                                           
                                                                                                                                
SENATOR STEDMAN  said the  spreadsheet is hard  to follow  and he                                                               
wanted more footnotes or explanations.                                                                                          
                                                                                                                                
MR. DUBLER replied this is just a  brief shot at coming up with a                                                               
thumbnail  sketch of  where they  are. He  asked for  a few  more                                                               
minutes to explain the rest of the spreadsheet.                                                                                 
                                                                                                                                
4:52:48 PM                                                                                                                    
CO-CHAIR PASKVAN said  they wanted him to do that,  but the point                                                               
is that at 24 inches this  line going from Cook Inlet north could                                                               
operate as  the lateral serving  Southcentral if there ever  is a                                                               
48-inch line that  would go to Valdez and if  Cook Inlet goes dry                                                               
in the future. Otherwise the line could be smaller.                                                                             
                                                                                                                                
MR. DUBLER said he was correct.                                                                                                 
                                                                                                                                
He continued  the report's listing  of costs: $1.565  billion for                                                               
the  pipeline less  the  noted deductions;  $60  million for  the                                                               
lateral line;  $80 million  for a  Cook Inlet  compressor station                                                               
(less than the  $140 million compressor station  for the 24-inch,                                                               
2500 psi line).                                                                                                                 
                                                                                                                                
Going from  south to north with  a smaller volume of  gas instead                                                               
of  going from  the  North Slope  south (where  the  500 mmcf  is                                                               
chilled  to   well  below  freezing   so  it  doesn't   melt  the                                                               
permafrost)  they had  to add  a chilling  unit at  Cantwell (the                                                               
limit where  engineers estimated the permafrost  would begin) for                                                               
a cost of  $20 million; annual operating costs  were estimated at                                                               
$690 million over the 20 year  term (roughly 2 percent of CAPEX);                                                               
that was a total cost of  $2.4 billion (south to north). Compared                                                               
to the estimated $2.8 billion for  the north to south route, it's                                                               
$412 million cheaper.                                                                                                           
                                                                                                                                
4:55:26 PM                                                                                                                    
CO-CHAIR PASKVAN asked if the  $954 million for the fractionation                                                               
plant was  included in the  2 percent  annual CAPEX for  the ASAP                                                               
project.                                                                                                                        
                                                                                                                                
MR. DUBLER  replied no; a  fractionation plant would  process the                                                               
liquids in  Cook Inlet; it  would be built  by a third  party and                                                               
would not  be included in the  cost of this project.  It would be                                                               
at Big Lake closer to the pipeline.                                                                                             
                                                                                                                                
CO-CHAIR PASKVAN asked  if there would be no  liquids shipped out                                                               
of the Cook Inlet facility under the ASAP project.                                                                              
                                                                                                                                
MR. DUBLER  replied that was  correct and it would  alleviate the                                                               
need for a straddle plant in Fairbanks.                                                                                         
                                                                                                                                
4:57:17 PM                                                                                                                    
SENATOR  STEDMAN  asked if  the  $6.45  tariff includes  the  gas                                                               
processing plant on the North Slope.                                                                                            
                                                                                                                                
MR. DUBLER replied  yes. He estimated the total  capital costs to                                                               
be recovered through  the tariff at $2.8 billion  (North Slope to                                                               
Fairbanks including a pro-rata portion of the processing plant).                                                                
                                                                                                                                
SENATOR  STEDMAN asked  if the  $2.8  billion line  goes just  to                                                               
Fairbanks and where the line goes south stops in his analysis.                                                                  
                                                                                                                                
MR. DUBLER replied  the $2.8 billion is just for  the North Slope                                                               
to  Fairbanks' "city  gate" and  all the  facilities in  between.                                                               
That  includes  the processing  plant  on  the North  Slope,  the                                                               
pipeline from  North Slope  to Dunbar and  the straddle  plant at                                                               
Dunbar to  take the liquids  off and  re-inject them in  the main                                                               
line that runs into Fairbanks.                                                                                                  
                                                                                                                                
SENATOR STEDMAN  said it would be  nice to see a  summary so they                                                               
could understand it two months from now.                                                                                        
                                                                                                                                
MR. DUBLER said he would do that in the coming days.                                                                            
                                                                                                                                
CO-CHAIR  PASKVAN said  Mr. Dubler  had been  very busy  and they                                                               
appreciated  him  putting  this presentation  together,  but  the                                                               
committee needed more information in a clearer format.                                                                          
                                                                                                                                
[SB 215 was held in committee.]                                                                                                 

Document Name Date/Time Subjects
SB 209 Hearing Request SEN RES.pdf SRES 3/23/2012 3:30:00 PM
SB 209
SB 209 Sponsor Statement.pdf SRES 3/23/2012 3:30:00 PM
SB 209
SB 209 OG Leasing Fact Sheet.pdf SRES 3/23/2012 3:30:00 PM
SB 209
SB 209 Bill Version A.pdf SRES 3/23/2012 3:30:00 PM
SB 209
SB 209 Oil and Gas Leasing Statute.pdf SRES 3/23/2012 3:30:00 PM
SB 209
SB 209 Sample Lease_OGL-DL-1-01Feb74(ADL63059)P.pdf SRES 3/23/2012 3:30:00 PM
SB 209
SB 209 Sample Lease 2_OGL#DOG 200204RevOct03PB.pdf SRES 3/23/2012 3:30:00 PM
SB 209
SB 215_DRAFT AGDC Cost Estimates.pdf SRES 3/23/2012 3:30:00 PM
SB 215
SB 209 Slide Presentation_Oil and Gas Leasing.pdf SRES 3/23/2012 3:30:00 PM
SB 209