Legislature(2003 - 2004)

01/28/2004 03:35 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
        SB 241-APPROP: NATURAL GAS DEVELOPMENT AUTHORITY                                                                    
CHAIR SCOTT OGAN announced SB 241 to be up for consideration.                                                                   
MR. HAROLD HEINZE, CEO, Alaska  Natural Gas Development Authority                                                               
(ANGDA), emphasized the  importance of timing right  now in terms                                                               
of finishing the charge that  is provided under ballot measure 3.                                                               
About four  months are  left in ANGDA  timeline. His  motives for                                                               
finishing  on time  have to  do  with the  law and  with the  LNG                                                               
market, which is evolving dramatically. He explained:                                                                           
     If  we're going  to  play,  if we're  going  to have  a                                                                    
     chance, we have to decide  to make some movement and to                                                                    
     show that  the project has  legs.... The study  in June                                                                    
     will provide  those legs, if  they are there,  and then                                                                    
     you  can look  at it  and make  whatever judgments  you                                                                    
     want as  to whether  we proceed  or not.  Remember, the                                                                    
     funding here  is the funding  to finish that.  The rest                                                                    
     of   the...funding  would   come  from   the  financial                                                                    
     markets,  not  from  the   State  of  Alaska....If  the                                                                    
     project is viable, we believe we can raise the money.                                                                      
     We are  at a crucial  point. Very frankly, if  we don't                                                                    
     have funding in a matter  of weeks here, our ability to                                                                    
     execute a quality feasibility study  for you is greatly                                                                    
     diminished. We're up  against the wall now  in terms of                                                                    
     getting all this work done....                                                                                             
CHAIR  SCOTT OGAN  said  he had  worked for  a  gas producer  and                                                               
usually  gas   is  sold   by  entering   into  a   memorandum  of                                                               
understanding  (MOU) or  something similar.  He asked  Mr. Heinze                                                               
how he saw ANGDA's role in the marketplace.                                                                                     
MR. HEINZE replied  that he has finessed ANGDA's  approach to the                                                               
producers as commercial  and knows he can make a  deal with them.                                                               
If  there is  an economically  viable transportation  project, he                                                               
believes they would want to ship gas on it.                                                                                     
The  first  thing  he  would  do  following  a  determination  of                                                               
feasibility  is go  to the  open  season type  process where  one                                                               
offers  up   the  transportation   capability.  People   who  are                                                               
interested  in  it come  forward.  The  two recent  stranded  gas                                                               
applications promise the  exact same kind of treatment  as a very                                                               
early step. It is anticipated  that all three gas companies would                                                               
come forward  with the  stranded gas  applications, but  just one                                                               
company  coming  would  make sufficient  economics  to  make  its                                                               
project work. If  no one came forward during the  open season, he                                                               
would offer  to buy the  producer's gas or  work to have  a down-                                                               
stream market buy it.                                                                                                           
CHAIR OGAN  asked if  the Authority would  be the  transporter of                                                               
the  gas and  noted  that trucking  companies  usually don't  buy                                                               
something to sell down the line.  He asked who buys and who sells                                                               
under his scenario.                                                                                                             
MR.  HEINZE replied  that  the ballot  measure  gave ANGDA  broad                                                               
authority, but ideally the state  would provide only a portion of                                                               
the  transportation or  maybe just  the  liquefaction plant.  "We                                                               
were given a mission to help the project."                                                                                      
The Authority  is having  conversations with  various down-stream                                                               
companies and hopes to continue  them. On the up-stream side, the                                                               
producers  have said  that they  would consider  an offer  to buy                                                               
their gas and have also said  they would consider shipping it. In                                                               
fact, that would  be their preference. He is  not concerned about                                                               
whether they do it, but when  they do it. He hadn't seen anything                                                               
from the producers' side that accelerated the timeline.                                                                         
CHAIR  OGAN  noted  that  the   language  under  "Powers  of  the                                                               
Authority" said "acquire natural gas  supply" and asked him where                                                               
ANGDA would get the money.                                                                                                      
MR. HEINZE  replied that it  is fairly  normal in these  types of                                                               
projects to enter  into a whole series  of interlinking contracts                                                               
with  terms and  contingencies;  everything falls  into place  at                                                               
SENATOR ELTON  said he is  frustrated about not  getting anything                                                               
[in terms  of the $2.15  million general fund  appropriation from                                                               
the  Department of  Revenue  in  SB 241]  and  asked if  removing                                                               
"ANGDA" would mitigate some of  the reluctance DOR has to support                                                               
the request.                                                                                                                    
MR. HEINZE  replied that  is a  constructive suggestion,  but his                                                               
main concern  is that one  of the unique abilities  the Authority                                                               
brings  to the  project is  its tax-exempt  status. He  suggested                                                               
that putting  the governor and his  chief of staff in  control of                                                               
the organization might neutralize that status.                                                                                  
SENATOR  ELTON recapped  that  Mr.  Heinze said  time  is of  the                                                               
essence and asked if having  another six months to accomplish the                                                               
job instead  of three would take  some of the pressure  off ANGDA                                                               
and assure a better quality product.                                                                                            
MR. HEINZE  replied that he didn't  want to speak for  the board,                                                               
but  its members  have presented  themselves clearly.  They would                                                               
prefer to  have an answer  now, even if  it's the one  they don't                                                               
want to hear. Second, the Authority  has a broad role to play and                                                               
feel it would  be best to fulfill its current  mission by June so                                                               
that   it   could  become   an   effective   force  in   whatever                                                               
considerations of the other routes. He advised:                                                                                 
     If  we don't  look  at the  LNG  route through  Valdez,                                                                    
     nobody else  will and  we'll never  know if  it offered                                                                    
     Alaska benefits  that far exceeded the  benefits of any                                                                    
     other project. This is the one  time to look at it; the                                                                    
     one and  only shot at it.  And if we don't  look, we'll                                                                    
     never  know. If  we wait  until next  year or  the year                                                                    
     after  to look  and let  the  timing be  driven by  the                                                                    
     highway  project,  I  think   we  will  have  lost  the                                                                    
     opportunity  for the  LNG project  to be  meaningful in                                                                    
     that  regard.   There  may  be   some  things   in  the                                                                    
     Authority's structure  that would fit happily  with the                                                                    
     choice that's been  made and the choice  will have been                                                                    
     made to go down the Highway....                                                                                            
SENATOR ELTON asked  if he plans to do a  bifurcated report - one                                                               
in June  and then a  supplemental report  on a highway  route six                                                               
months later.                                                                                                                   
MR.  HEINZE  replied  that  it  is  his  intention  to  meet  the                                                               
statutory  requirement. If  [the  Legislature  and governor]  are                                                               
undecided about  whether to pursue  the project by the  middle of                                                               
the year, they  might as well concede the LNG  marketplace for an                                                               
extended  period of  time. Many  valuable  pieces of  information                                                               
will be contained in the report  that the Legislature may want in                                                               
front of it as it considers the Stranded Gas Act applications.                                                                  
SENATOR  ELTON said  he  is sympathetic  to  ANGDA's request  and                                                               
wanted to know why the administration wasn't responding.                                                                        
CHAIR OGAN inserted that he should ask the administration.                                                                      
SENATOR ELTON retorted that he had, but had received no answer.                                                                 
SENATOR SEEKINS  asked if  ANGDA had  had any  conversations with                                                               
the producers to date as to  whether or not they would ship their                                                               
gas on a pipeline if it existed and was a state-owned asset.                                                                    
MR.  HEINZE responded  that  the producers  had  been asked  that                                                               
question numerous  times and have  responded in  the affirmative.                                                               
He  has  been  reluctant  to have  that  conversation  with  them                                                               
formally,   because  the   Authority  has   not  determined   the                                                               
feasibility of  the project  and wants to  be fairly  certain the                                                               
answer would be yes.                                                                                                            
SENATOR SEEKINS asked  if ANGDA could at some  point sell futures                                                               
to pay for construction of the line.                                                                                            
MR. HEINZE  replied that the gas  is available - about  8 bcf per                                                               
day. The only  speculation would be on the cost  of transport and                                                               
whether there  is a market  down-stream. Then ANGDA  could borrow                                                               
TAPE 04-4, SIDE B                                                                                                             
4:30 p.m.                                                                                                                       
SENATOR SEEKINS asked if he  would view a legislative decision to                                                               
not fund  ANGDA's request now to  be the will of  the Legislature                                                               
to not proceed with the initiative's mandate.                                                                                   
MR. HEINIZE replied  that he would rather hear right  now if that                                                               
is  the Legislature's  decision. Members  of the  Authority could                                                               
move on, but he thought it  would be a big disappointment for the                                                               
     You  would have  lost a  look down  a project  that may                                                                    
     hold  some very  interesting benefits  for Alaska  that                                                                    
     you'll  never realize  any other  way....You will  have                                                                    
     lost an  opportunity to look at  some interactions with                                                                    
     another  project that  could represent  how the  states                                                                    
     contribute towards  it with  federal money  rather than                                                                    
     state money....Very frankly,  those benefits are pretty                                                                    
     In June, I am not going  to have spent or done the work                                                                    
     that the producers did with  $100 million. What I would                                                                    
     ask you to think about is  how much of the $100 million                                                                    
     do you know about. What do  you know? I will suggest in                                                                    
     June;  I  will  give  probably 10  to  100  times  more                                                                    
     information  than  they are  going  to  give you.  That                                                                    
     might be  worth something  to you  right there  to just                                                                    
     have the  insights as to  how these projects  work, how                                                                    
     it interrelates and all those other things.                                                                                
CHAIR OGAN commented  that the charge of the committee  is not to                                                               
necessarily  see how  the  project  fits in  with  all the  other                                                               
finances, but whether it is necessary  for the good of the people                                                               
and  commercializing   gas.  He  noted  there   were  no  further                                                               
SENATOR  SEEKINS  moved  to  pass  SB  241  from  committee  with                                                               
individual recommendations.  There were no objections  and it was                                                               
so ordered.                                                                                                                     
SENATOR  ELTON suggested  that the  Chair send  a message  to the                                                               
Finance Committee about Mr. Heinze's concern with timeliness.                                                                   

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