Legislature(2023 - 2024)BUTROVICH 205

03/10/2023 03:30 PM Senate RESOURCES

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Audio Topic
03:31:50 PM Start
03:32:37 PM SB49
04:59:15 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
**Streamed live on AKL.tv**
                        SB  49-CARBON STORAGE                                                                               
3:32:37 PM                                                                                                                    
CO-CHAIR  GIESSEL  announced  the  consideration   of SENATE  BILL  NO.                                                         
49  "An Act  relating  to  the geologic   storage  of carbon  dioxide;                                                          
and providing for an effective date."                                                                                           
3:34:04 PM                                                                                                                    
JOHN   BOYLE,    Commissioner-Designee,     Department    of   Natural                                                          
Resources,   Anchorage,    Alaska,   stated   that  his   introductory                                                          
remarks   on  SB   49  were  based   on   his  recent   experience   at                                                         
CERAWeek.    In   that   venue    he   was    able   to   speak    with                                                         
representatives   from  some of  the  largest  oil  and gas  companies                                                          
that  operate  in  Alaska,  private  equity  groups,  financiers,   and                                                         
infrastructure   investment   firms.   Overall,   he  said  there   was                                                         
incredible   excitement   about   Alaska's   intention   to  create   a                                                         
statutory  framework   to  enable  carbon  capture,  utilization,   and                                                         
storage   projects.   He  characterized    hydrogen   as  critical   in                                                         
assisting   energy   transformation   and   highlighted   that  a   key                                                         
component  to  these  activities   is  managing  the  CO  output   from                                                         
industrial processes.                                                                                                           
COMMISSIONER-DESIGNEE   BOYLE  explained  that SB  49 seeks  to create                                                          
a broad  framework  for the  state  to develop  a program  that allows                                                          
leasing,   injection,   and   regulation   of   carbon   dioxide   into                                                         
underground  reservoirs.  There  is  great interest  from  the broader                                                          
investment  community   and  also industry   who see  the  opportunity                                                          
to  capitalize   on   the  IRS  Section   45Q  tax   credits  to   help                                                         
incentivize   new enhanced   oil  recovery  methods  utilizing  carbon                                                          
dioxide   while   also   enabling    them   to  meet   the   stringent                                                          
environmental   benchmark   of  net  zero.  The  administration    sees                                                         
this  as  a critical   need  for  the state  to  address.   Having  the                                                         
framework   for  this   carbon  capture,   utilization,   and  storage                                                          
program  in  place  will put  the  state  at a  competitive  advantage                                                          
and in prime position to attract capital.                                                                                       
COMMISSIONER  DESIGNEE   BOYLE stated  that  the  committee  will  hear                                                         
from  experts  who can  talk  about Alaska's  strategic   advantage  in                                                         
its  ownership  of  broad swaths  of  state  land  and the  underlying                                                          
mineral  estate,  which makes  it simple  for  companies  because  it's                                                         
a one-stop-shop.   It won't  be  necessary  to deal  with  a myriad  of                                                         
private  landowners,  which  is  often the  case  in other  states  and                                                         
COMMISSIONER   DESIGNEE   BOYLE  highlighted   the   opportunities   in                                                         
Cook  Inlet and  on the  North Slope  for carbon  storage  in depleted                                                          
reservoir   space;  in  the  Interior  that  is  very  attractive   for                                                         
carbon   capture   projects;   to  extend   the  life   of  coal-fired                                                          
plants;   and   for  new   investors   and  existing    producers   and                                                         
companies  interested   in lowering   the carbon   intensity  of  their                                                         
operations.   He   also   pointed   out  that   because   the  state's                                                          
underground   pore  space  is  a  mineral   asset  of  the  state,   25                                                         
percent  of  the  revenue  collected  from  CCUS  would  be  deposited                                                          
into  the  permanent  fund.  He  said  this  process  will  take  time,                                                         
but  the administration   believes  that  it  is in  the  state's  best                                                         
interest to pursue this opportunity.                                                                                            
3:44:06 PM                                                                                                                    
HALEY   PAINE,   Deputy   Director,    Division   of   Oil   and   Gas,                                                         
Department  of  Natural Resources,   Anchorage,  Alaska,  reviewed  the                                                         
outline for the presentation.                                                                                                   
     1. Introduction                                                                                                            
     2. CCUS project overview                                                                                                   
     3. Funding collection and revenue                                                                                          
     4. High-level sectional summary                                                                                            
     5. Section 14 Detail of DNR/DOG statutes                                                                                   
     6. Sections 1531 summary                                                                                                   
     7. Section 31 Detail of AOGCC statutes                                                                                     
     8. Section 3239 summary                                                                                                    
MS.  PAINE  reviewed   the  constitutional   directive  under  Article                                                          
VIII of the Constitution of the State of Alaska.                                                                                
     •  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.                                                                                    
     •  The  legislature  may  provide  for the  leasing  of, and                                                               
        the issuance of permits for exploration of, any part                                                                    
        of the public domain or interest therein, subject to                                                                    
        reasonable concurrent uses.                                                                                             
3:46:37 PM                                                                                                                    
MS. PAINE described how SB 49 adheres to the constitutional                                                                     
directive in art VIII. She spoke to the following:                                                                              
     •  Enables  the  State to  maximize  use of  its pore  space                                                               
        resource consistent with public interest.                                                                               
     •  Provides    for    reasonable    concurrent    uses   and                                                               
        protection of all parties.                                                                                              
     •  Empowers  the  Department   of  Natural  Resources  (DNR)                                                               
        and Alaska Oil and Gas Conservation Commission                                                                          
        (AOGCC) to utilize existing authorities and                                                                             
        expertise on carbon dioxide geologic storage                                                                            
3:47:50 PM                                                                                                                    
MS. PAINE displayed the diagram on slide 5 and recapped the                                                                     
description of carbon capture, use, and storage (CCUS):                                                                         
     Capturing    CO   from  fossil   or   biomass-fueled   power                                                               
     stations,   industrial  facilities,   or directly  from  the                                                               
     Using  captured  CO   as an  input  or feedstock  to  create                                                               
     products or services.                                                                                                      
     Moving   compressed   CO  by  ship   or  pipeline  from  the                                                               
     point of capture to the point of use or storage.                                                                           
     Permanently    storing    CO    in   underground    geologic                                                               
     formations, onshore or offshore.                                                                                           
She noted that the target reservoirs would be depleted oil                                                                      
and gas reservoirs, saline aquifers, and potentially                                                                            
unmineable coal seams.                                                                                                          
SENATOR  KAWASAKI  asked  how  DNR  knows there  is  enough  space  for                                                         
sequestration in any of those geologic formations.                                                                              
3:49:37 PM                                                                                                                    
MS.  PAINE  answered   that  it's  possible   to  do  predictions   and                                                         
engineering   calculations   based  on  the  well  data  and  pressure                                                          
logs  to  determine   how   much  oil  and  gas   the  formation   held                                                         
originally,   and  extrapolate   the   size  of  the   container.   She                                                         
agreed  that  DNR had  not spent  much  time assessing   either saline                                                          
aquafers  or unmineable   coal seams.  However,  they've  learned  from                                                         
other   jurisdictions   that   saline   aquafers   tend   to  be   more                                                         
expansive  than  oil  and  gas reservoirs   and have  more  potential.                                                          
She acknowledged that further study and analysis was required.                                                                  
3:50:41 PM                                                                                                                    
JOHN   CROWTHER,   Deputy   Commissioner,    Department    of  Natural                                                          
Resources,   Anchorage,   Alaska   offered   his  understanding    that                                                         
Alaska  has the  geology  and formations  to  scale that  are required                                                          
for  sequestration   and   long  term  storage.   He  added  that   any                                                         
project  would  need to  move through  the characterization   stage  to                                                         
confirm  the  geology,  but  Alaska  generally  has  very  prospective                                                          
and encouraging geology.                                                                                                        
3:51:36 PM                                                                                                                    
MS.  PAINE  reviewed  slide  6 that  highlights  the  reasons  to  move                                                         
forward now with CCUS. It read as follows:                                                                                      
     Why Now?                                                                                                                   
         • The CCUS market is rapidly expanding, both within                                                                    
        the U.S. and worldwide                                                                                                  
           • Federal legislation in the prior 18 months has                                                                     
        included direct grants and tax incentives for CCUS,                                                                     
        increasing industry interest, including outreach to                                                                     
        the Department of Natural Resources (DNR)                                                                               
        • Federal funds are available for states seeking Class                                                                  
        VI well permitting, showing federal support for                                                                         
        state primacy                                                                                                           
     • Protracted      project     timelines    and     milestone                                                               
        requirements in the tax credit structure necessitate                                                                    
        prompt action                                                                                                           
        • Sets the stage for continued development of Alaska's                                                                  
          oil resources, and potential major gas development                                                                    
         • Corporations are actively seeking opportunities to                                                                   
        meet their own carbon management goals                                                                                  
3:53:31 PM                                                                                                                    
MS.  PAINE  explained  that  the  Safe  Drinking   Water  Act  of  1974                                                         
established  the  Underground   Injection  Control  (UIC)  Program.  To                                                         
implement  the  program,   the  EPA  developed  classes  of  injection                                                          
wells  based on  the characteristics   of the  injected  fluid and  the                                                         
depth  to which  it was injected.   In 2010 the  EPA created  Class  VI                                                         
wells  exclusively  for the  injection  of critical  CO.  She directed                                                          
attention  to  the  diagram  on slide  8  that describes   the project                                                          
phases of CCUS.                                                                                                                 
MS. PAINE  said  the EPA  is keen to  have states  assume  primacy  and                                                         
take  charge  of  permitting   for  specific   wells,  especially   for                                                         
Class  II and Class  VI  wells. AOGCC  already  has primacy  for  Class                                                         
II wells  for  oil and  gas  injection  and has  experience  with  more                                                         
than  950 injection   wells,  so the  expertise  to  take on  Class  VI                                                         
wells is already well within their wheelhouse.                                                                                  
3:56:37 PM                                                                                                                    
SENATOR  KAWASAKI  asked  about  the consequence   if the  legislature                                                          
were to decide not to fund 404 primacy.                                                                                         
MS.  PAINE answered  that  a  project  operator  could apply  directly                                                          
to the  EPA  for a Class  VI  well permit  if the  state  doesn't  move                                                         
forward  to  assume  primacy.  The  main difference   will be  that  it                                                         
takes  EPA longer  to conduct  the  review and  issue a  permit.  North                                                         
Dakota  has  primacy   and  is  able  to  review  an  application   and                                                         
issue  a permit  in  about  eight  months,  whereas  the  timeline  for                                                         
the EPA  is about  three  years. To  date the  EPA has  only permitted                                                          
two  Class  VI wells.  It  has  about  40  permits  pending,  but  none                                                         
are in Region 10.                                                                                                               
3:58:15 PM                                                                                                                    
SENATOR  GIESSEL   asked  whether  404  primacy  and  Class   VI  wells                                                         
were  intertwined,  because  the  question  was about  the  former  and                                                         
the answer was about the latter.                                                                                                
MR. CROWTHER  clarified  that  404  primacy and  primacy  for Class  VI                                                         
wells  were separate  authorities,   both of  which were  eligible  for                                                         
assumption   by the  state.   SB  49 is  focused   on  Class  VI  wells                                                         
under  the Safe  Drinking  Water  Act  Underground  Injection  Control                                                          
3:59:02 PM                                                                                                                    
SENATOR  KAUFMAN   commented  that  slides  8  and  9  about  the  CCUS                                                         
project  stages  and the  project  timeline  were  creeping  towards  a                                                         
level  one,   master  control   schedule  that   shows  the  necessary                                                          
tasks.  He  asked  if there  was  good  clarity  about  what  and  when                                                         
everything needs to occur. He also expressed interest in a more                                                                 
detailed schedule and knowing about anything that could be done                                                                 
with existing authorizations.                                                                                                   
CO-CHAIR GIESSEL said she'd like Ms. Paine to wait to respond                                                                   
until all the questions about slide 8 were answered.                                                                            
4:00:31 PM                                                                                                                    
SENATOR CLAMAN asked for an explanation of the different                                                                        
injection well classes.                                                                                                         
MR. CROWTHER paraphrased from EPA website.                                                                                      
     The  Underground   Injection  Control  program  consists  of                                                               
     six   classes  of  injection   wells.  Each  well  class  is                                                               
     based  on  the type  and depth  of the  injection  activity,                                                               
     and   the  potential   for   that  injection   activity   to                                                               
     result in endangerment of a USDW.                                                                                          
     Class   I wells  are  used  to  inject  hazardous  and  non-                                                             
     hazardous wastes into deep, isolated rock formations.                                                                      
     Class  II  wells  are  used  exclusively  to  inject  fluids                                                             
     associated with oil and natural gas production.                                                                            
     Class  III  wells  are used  to inject  fluids  to  dissolve                                                             
     and extract minerals.                                                                                                      
     Class   IV  wells   are   shallow  wells   used   to  inject                                                             
     hazardous    or  radioactive    wastes  into   or   above  a                                                               
     geologic formation that contains a USDW.                                                                                   
     Class  V  wells  are used  to  inject non-hazardous   fluids                                                             
     underground.   Most Class  V wells  are  used to  dispose of                                                               
     wastes   into  or above  underground   sources  of  drinking                                                               
     Class  VI  wells  are wells  used  for injection  of  carbon                                                             
     dioxide    (CO)    into    underground    subsurface    rock                                                               
     formations     for   long-term    storage,    or    geologic                                                               
SENATOR CLAMAN asked over which wells Alaska currently has                                                                      
MR. CROWTHER answered that the state has primacy for Class II                                                                   
MS.  PAINE added  that  the EPA  allows  states to  assume  a la  carte                                                         
primacy  for  Class  II and  Class  VI wells,  but  all other  classes                                                          
have  to be  assumed  together.  She  noted  an earlier   reference  to                                                         
AOGCC   having  the   authority   to  assume   Class   I  primacy   but                                                         
deciding  it didn't  need  the breadth  of the  other classes  at  that                                                         
4:03:24 PM                                                                                                                    
MS.  PAINE  directed   attention   to  slide  9  and  the  generalized                                                          
project  timeline   to  implement  geologic   CO  storage.   She  noted                                                         
that  it was adopted  from  North Dakota  so  the estimated  times  are                                                         
based on that jurisdiction. She made the following points:                                                                      
similar The screening phase is a desktop exercise that looks at legacy                                                          
   data,  the   CO   source,   whether  the   capture   technology   is                                                         
   reasonably  priced,  and  the  distances   between  the  source  and                                                         
   sink to estimate transportation costs.                                                                                       
similar Feasibility is the phase where site-specific data is acquired.                                                          
   This   could  include    additional   seismic   surveys,   drilling                                                          
   stratigraphic  test  wells to  get a sense  of the  subsurface,  and                                                         
   collecting  core  data.  Monitoring   stations  will  be  needed  to                                                         
   get baseline  data  on the conditions  in  the groundwater  and  the                                                         
   atmosphere  to   inform  things  as  the  project   moves  forward.                                                          
   North Dakota estimates this to take 9-18 months.                                                                             
similar Project design and permit application is the  phase  where  the                                                         
   site-specific  information   is used  to  do modeling.   The models                                                          
   look  beyond  the  first  injection  to  estimate  the  plume  at  a                                                         
   particular  rate  after  10-20  years of  injection,  and  how  long                                                         
   it  will  take   for  the  plume   to  stabilize   after  injection                                                          
   ceases.  Data continues  to come  in to  inform the  models. Vendor                                                          
   contracts,    designing    the   permit,    and    submitting    the                                                         
   application  for  the  Class  VI well  permit  come  at the  end  of                                                         
   this phase.                                                                                                                  
similar Regulatory review of the permit is estimated to take from  7-12                                                         
   months in  North Dakota,  with  permit approval  at  the end of  the                                                         
   process. This timeline could be extended in other states.                                                                    
similar The investment and construction phase  has the  important   IRS                                                         
   marker for  construction  to begin  by January  1,  2033 to qualify                                                          
   for the 45Q tax credit.                                                                                                      
similar The overall timeline can easily extend beyond four years.                                                               
4:07:10 PM                                                                                                                    
CO-CHAIR   GIESSEL  noted   that  Alaska  always   takes  longer,   and                                                         
asked  if  there  were  any  lawsuits  objecting  to  states  applying                                                          
for Class VI primacy.                                                                                                           
MR.  CROWTHER  responded  that  there  is  a  diverse  suit  of groups                                                          
nationally   that  support   CCUS,  including   environmental   groups                                                          
that  believe   it  is  appropriately   part  of   carbon  management.                                                          
There  are  also  groups  that  argue  that  CCUS  isn't  enough  of  a                                                         
solution    because    it   doesn't    reduce   emissions    to    zero                                                         
immediately.   To the  question   about  litigation,  he  said  it  has                                                         
focused   primarily   on   the  transportation    of   CO   over   long                                                         
distances,   often   interstate.    DNR   doesn't   anticipate    legal                                                         
challenges   in  the  near  term   and  it  would  not  be  over   long                                                         
distance transport.                                                                                                             
4:09:09 PM                                                                                                                    
SENATOR  CLAMAN   asked  how  the  Class  VI  primacy  fits   into  the                                                         
timeline and whether that should be part of the evaluation.                                                                     
MR.  CROWTHER  responded   that  primacy  should   be  pursued  on  the                                                         
front  end, but  it could  be at the  same time  as the  screening  and                                                         
feasibility   phases.   He  added   that   the  value   of  the   state                                                         
assuming  primacy  at  the start  is that  the  estimated  7-12 months                                                          
for  the regulatory   review  of the  permit  could  easily  take  more                                                         
than 24 months if the EPA were to do the review.                                                                                
SENATOR  CLAMAN  summarized  that  starting  the  primacy  at the  same                                                         
time  as  the screening   phase  would  ideally  result  in  the  state                                                         
having  primacy   by the  time  the  permits   need  to  be  filed.  If                                                         
primacy  hasn't  been  approved,   then  the  applications  go  to  the                                                         
EPA, which is a longer timeframe.                                                                                               
MR.  CROWTHER  said  he  agreed  generally.  The  timeline  was  for  a                                                         
private   sector  project   developer,   so  it's  a  guess  how   they                                                         
choose  to  proceed  as  the  state   initiates  the  primacy  effort.                                                          
Given  the   EPA  statement   to  support  state   efforts  to  assume                                                          
primacy,     a     developer     might     initiate     some    things                                                          
Speaking  to Senator  Kaufman's  question  about  what more  the  state                                                         
could  do  to promote  CCUS  developments   and investments,   he  said                                                         
there  probably  are  other  opportunities   the state  could  pursue,                                                          
but  it  is focused  on  the  three  components   in SB  49  to assume                                                          
Class  VI   primacy,  make   state  land  available,   and  provide   a                                                         
regulatory framework through AOGCC.                                                                                             
4:13:08 PM                                                                                                                    
MS.  PAINE continued  to  slide  10 and  the Red  Tail  Energy Project                                                          
to provide  context  for  the timeline.  She  explained  that this  was                                                         
the  first project  North  Dakota  approved  under  Class  VI primacy.                                                          
It is  an ethanol  facility  that  has  a very  high concentration   of                                                         
CO  as  a  byproduct  of  the fermentation   process  associated   with                                                         
producing   ethanol.  The  emissions   are  180,000  metric  tons/year                                                          
and  the project  surface  area  is about  3,480  acres.  She said  the                                                         
green  dot  in the  image  on  the left  is  the  injection  well,  the                                                         
white  dot  to  the northwest   is the  monitoring   well  that tracks                                                          
the  plume  migration,  the  purple  outline  represents   the modeled                                                          
area  for the  CO  plume  to spread  over  the life  of  the facility,                                                          
and  the white  dotted  outline  reflects  the extent  of  the storage                                                          
facility  permit  area  that can  be used.  The  black dotted  outline                                                          
reflects  the area  of review.  This  is the  extent of  the area  that                                                         
is examined   and monitored  for  a Class  VI permit.  She  noted  that                                                         
the picture on the right was of the exploration well.                                                                           
4:15:20 PM                                                                                                                    
MS.  PAINE provided   the following  information   about  North Dakota                                                          
and the Red Tail Energy Project:                                                                                                
similar North Dakota applied for Class VI primacy in 2013.                                                                      
similar The Red Tail Energy Project started in 2016.                                                                            
similar  It took 5 years for the project to go from site  screening  to                                                         
similar Starting the process was the signal to industry   that enabled                                                          
   the investment decisions to drill the wells, conduct the                                                                     
   seismic, and collect the cores.                                                                                              
similar This shows that some activities  can  be  ongoing  during   the                                                         
   primacy application process.                                                                                                 
similar North Dakota was granted primacy authority for Class  VI  wells                                                         
   in 2018.                                                                                                                     
similar The Red Tail Energy Project was permitted in 2021.                                                                      
similar Commercial operation commenced in June, 2022.                                                                           
She noted  that  the graphic  on the  left not  only shows  the phases                                                          
but also provides a feedback loop.                                                                                              
4:16:53 PM                                                                                                                    
MS.  PAINE explained   that slide  12 identifies   the sections  of  SB
49  that   correspond   to  the   different   phases.   It  shows   the                                                         
sections  associated   with  exploration  and  delineation,   well  and                                                         
facility   permitting,    leasing,   storage    operations,   facility                                                          
closure,  and post-closure.   She noted  that  Sections 14  and 31  are                                                         
the  primary   sections,   but  overall   the  legislation   addresses                                                          
everything an investor needs to know throughout the process.                                                                    
4:17:49 PM                                                                                                                    
MS.  PAINE   advanced  to   slide  13  to  review   the  four  project                                                          
authorizations included in SB 49. She spoke to the following:                                                                   
     Carbon Storage Exploration License - issued by DNR                                                                       
        • Grants exclusive right to explore area for carbon                                                                     
           storage site                                                                                                         
        • 5-year term                                                                                                           
        • Work commitment and annual rental requirements                                                                        
        • Conversion to lease based on obtaining Carbon                                                                         
           Storage Permit and completion of work commitment                                                                     
        • Does not authorize specific activities  require                                                                       
           further permits                                                                                                      
SENATOR  WIELECHOWSKI  said  he assumes  the wells  that  will be  used                                                         
to  store  the  CO  are  those  whose  leases   have  expired,  so  the                                                         
state would not be faced with buying back leases.                                                                               
MS.  PAINE  answered  that  buying  back  leases  is not  anticipated.                                                          
There  are  opportunities    for  existing  lessees   to  use  CO   for                                                         
enhanced  oil  recovery   and  transition   to carbon   sequestration,                                                          
and  for  an  existing   oil  and  gas   lessee  to  obtain  a  carbon                                                          
storage   license.  Carbon   storage  does   not  condemn  or   end  an                                                         
existing property right or lease.                                                                                               
SENATOR  WIELECHOWSKI  asked  if  the expectation   was for  the  state                                                         
to  lease the  carbon  storage  sites  to  private  entities  who  will                                                         
run and manage them.                                                                                                            
MS. PAINE  confirmed  that  the state,  through  DNR, would  be acting                                                          
as  the landowner   who leases  the  land  for  a fee.  AOGCC  will  be                                                         
the regulator on the project to ensure subsurface protections.                                                                  
SENATOR   WIELECHOWSKI   mentioned  $2.50   and  asked  how  much   the                                                         
state might be expected to receive.                                                                                             
MS.  PAINE  requested  clarification   that he  was  asking  about  the                                                         
overall revenue from a CCUS project.                                                                                            
SENATOR  WIELECHOWSKI  mentioned  the  $85 45Q  tax credits  and  asked                                                         
whether the state would receive $2.50 and the lessee $82.50.                                                                    
MS.  PAINE   said  $2.50   is  a  floor;   the  actual   fee  will   be                                                         
negotiated  as  part  of the  exploration  license   and based  on  the                                                         
size  of the area.  She also  pointed  out that  the lessee  has  costs                                                         
associated   with  capture,  transportation,   and  operation   of  the                                                         
injection  facility.   She said  the  per ton  injection  fee  is  just                                                         
one  way to  realize  revenue;  others  include  sharing  the  45Q  tax                                                         
credits, bonus bids, and gross revenues.                                                                                        
SENATOR  WIELECHOWSKI   asked  if  the  expectation  was  that  an  oil                                                         
and  gas company  could  lease out  a well  and  write that  off  their                                                         
corporate income taxes.                                                                                                         
4:24:23 PM                                                                                                                    
MR.  CROWTHER  suggested  the Department   of Revenue  (DOR)  speak  to                                                         
the   question   specifically,   but   his  understanding    was   that                                                         
allowable   lease  expenditures   under   existing  law  are   for  the                                                         
production   of  oil   and  gas.  In   some  circumstances   that   can                                                         
include   enhanced  oil   recovery,   but  not  projects   solely   for                                                         
carbon storage and sequestration.                                                                                               
CO-CHAIR  GIESSEL   said  the committee   could  have  DOR  testify  to                                                         
that specifically.                                                                                                              
4:25:34 PM                                                                                                                    
MS.   PAINE  continued    to  discuss   the   project   authorizations                                                          
described on slide 13:                                                                                                          
     Carbon Storage Facility Permit - issued by AOGCC                                                                         
           • Approves use of subsurface storage "container"                                                                     
        • Amalgamates pore space based on geological and                                                                        
           engineering data                                                                                                     
        • Provides for protection of other mineral and                                                                          
           property interests                                                                                                   
          • Establishes monitoring and bonding requirements                                                                     
          • Guides operations over the life of the project.                                                                     
     Carbon Storage Lease - issued by DNR                                                                                     
        • Exclusive right to store CO in reservoir on state                                                                     
           lands as defined under the Storage Facility                                                                          
        • Includes terms for revenue to the state                                                                               
        • Valid over life of injection and site closure                                                                         
        • Required for EOR reservoirs that transition to                                                                        
     Closure Certificate - issued by AOGCC                                                                                    
        • Operator may apply at least 10 years post-                                                                            
        • Public notice & hearing                                                                                               
        • Must demonstrate stabilization of CO plume and                                                                        
           remediation activities complete                                                                                      
        • Title to CO and long-term monitoring and                                                                              
           maintenance transfer to state                                                                                        
        • Funded by carbon storage trust fund over life of                                                                      
4:29:16 PM                                                                                                                    
MS. PAINE advanced to slide 14 and described the ongoing                                                                        
oversight during the CO injection phase to ensure it is behaving                                                                
as modeled:                                                                                                                     
        • Onsite inspection program                                                                                             
        • Wellwork sundries                                                                                                     
        • Drilling permits                                                                                                      
        •  Monthly  reports                                                                                                     
           • Metering                                                                                                           
           • Injection                                                                                                          
           • Volumes                                                                                                            
        • Pressure surveys                                                                                                      
        • Well logs                                                                                                             
        • Data from monitoring wells                                                                                            
        • Plume monitoring                                                                                                      
4:30:07 PM                                                                                                                    
MS. PAINE advanced to slide 16 to describe funding sources:                                                                     
     Regulatory Program                                                                                                       
        • Carbon Dioxide Storage Facility Administrative                                                                        
           • Sec. 31: AS 41.06.165                                                                                              
           • Creates fund to cover AOGCC operating costs                                                                        
              associated with oversight of carbon storage,                                                                      
              like fees collected for oil and gas oversight                                                                     
           • Income account revenue sources:                                                                                    
              • Fees received under AS 41.06.165(a) - per                                                                       
                ton fee                                                                                                         
              • Fees received under AS 41.06.125 (permit                                                                        
                review) and 41.06.200 (determining storage                                                                      
              • Earnings on the fund                                                                                            
     Leasing & Licensing State Lands                                                                                          
           • Carbon storage exploration licenses and leases                                                                     
           • Sec. 14: AS 38.05.710 & AS 38.05.720                                                                               
              • Establishes a minimum rental rate of $20 per                                                                    
              • Establishes a minimum injection charge of                                                                       
                $2.50 per ton of carbon dioxide                                                                                 
                • Other commercial terms as applicable                                                                          
           • Sec. 14: AS 38.05.735                                                                                              
              • Payments from carbon storage exploration                                                                        
                licenses and carbon storage leases flow to                                                                      
                the general fund and Alaska Permanent Fund                                                                      
                (Art. IX, Sec. 15, Alaska Constitution)                                                                         
4:32:07 PM                                                                                                                    
SENATOR  WIELECHOWSKI  asked  1) where  the $20  and $2.50  rates  came                                                         
from   and  2)  is   there  a   legal  requirement    to  deposit   the                                                         
percentage into the permanent fund.                                                                                             
MS.  PAINE answered  that  DNR  established  the  $20 rental  rate  and                                                         
$2.50  injection  charge  as minimums   after surveying   the publicly                                                          
available   data.   They're   floors   similar   to  what   the   state                                                         
established  for  the  oil and  gas regime.  She  deferred  the second                                                          
question to Mr. Crowther.                                                                                                       
MR. CROWTHER  said  DNR understands   the pore  space to  be a mineral                                                          
resource,   which  is  obligated  to  be  deposited  into  the  Alaska                                                          
Permanent  Fund.  A  Supreme  Court  case related  to  the  Cook  Inlet                                                         
Natural  Gas Storage  (CINGSA)  facility  also  identified  pore  space                                                         
used for storage as a mineral resource.                                                                                         
4:34:25 PM                                                                                                                    
MS.  PAINE  advanced  to  slide  17 to  discuss  the  funding  for  the                                                         
carbon storage closure trust fund:                                                                                              
          Sec. 4: AS 37.14.850. Carbon storage closure trust                                                                  
        • Industry-funded and state-administered trust fund                                                                     
           to be used solely for long-term monitoring of the                                                                    
           site during the Post-Closure Period                                                                                  
        • Income account revenue sources:                                                                                       
           • Payments received under AS 37.14.850(c)                                                                            
           • AS 41.06.180. Carbon storage facility injection                                                                    
              surcharge (Bill Sec. 31)                                                                                          
              • Amount set by AOGCC on issuance of storage                                                                      
                facility permit                                                                                                 
              • Based on anticipated expenses to be incurred                                                                    
                post-closure phases                                                                                             
           • Earnings on the account                                                                                            
        • State may utilize funds directly or purchase                                                                          
           policies as markets mature                                                                                           
4:35:54 PM                                                                                                                    
MS.  PAINE  advanced   to slide   18  to discuss   three  hypothetical                                                          
revenue opportunities:                                                                                                          
     1. Regional Power Facility                                                                                               
           • 250,000 metric tons/year, $2.50 metric ton/year                                                                    
           • 20-year life                                                                                                       
           • Acreage ~1200 acres during injection, $20                                                                          
     2. North Slope Emitting Facility                                                                                         
           • 2,000,000 metric tons/year (50/50 EOR &                                                                            
              Storage), $2.50 metric ton/year (Storage)                                                                         
           • 20-year life                                                                                                       
           • Acreage ~10,000 acres during injection, $20                                                                        
     3. CO Import & Sequestration Facility                                                                                    
           • 10,000,000 metric tons/year, $2.50 acre/year                                                                       
           • 40-year life                                                                                                       
           • Acreage ~ 50,000 acres during injection, $20                                                                       
MR.  CROWTHER   restated   that   the  foregoing   were   hypothetical                                                          
projects   so  they   do  not  forecast   the  cost   to  capture   the                                                         
emissions.  The  intention  was to  show that  if the  project occurs,                                                          
these  were the  kinds  of revenue  that  could  be expected  under  SB
49 as currently drafted.                                                                                                        
4:38:42 PM                                                                                                                    
SENATOR  CLAMAN  asked if  the idea  in  the third  example  was for  a                                                         
third  party  to capture  the  carbon,  transport  it  to  Alaska,  and                                                         
pay the state for storage.                                                                                                      
MR. CROWTHER responded in the affirmative.                                                                                      
SENATOR  CLAMAN  asked   whether  the  department  had  identified   an                                                         
entity  that  would capture  the  carbon  and transport  it  to Alaska                                                          
for  storage,  because  the cost  of  transportation  could  be rather                                                          
MR.  CROWTHER  agreed  that in  that  scenario  the transportation   of                                                         
the  CO  would  be  a major  cost.  He also  mentioned  the  presenter                                                          
earlier  in  the  week   who  talked  about  barging   CO  over   short                                                         
distances  as  well  as trans-ocean   shipping  and  the  potential  to                                                         
drive the cost of transport down.                                                                                               
4:41:32 PM                                                                                                                    
MS.  PAINE   advanced  to  slide   19  and  described   the  following                                                          
hypothetical revenue opportunities:                                                                                             
        • Not all CO emissions are feasibly captured                                                                            
           technology continues to rapidly develop                                                                              
        • Capital     expenditures     to    retrofit    existing                                                               
           facilities cannot be met by existing incentives                                                                      
           in some cases                                                                                                        
        • Import of CO is dependent on further development                                                                      
           of shipping technology and infrastructure                                                                            
        • Timing from bill passage, if project through                                                                          
           screening phase:                                                                                                     
           • Licensing Revenues < 2 years                                                                                       
           • Leasing Revenues < 5 years                                                                                         
CO-CHAIR  GIESSEL  asked  if  she previously   said  a project  had  to                                                         
start by 2032                                                                                                                   
MS. PAINE  confirmed  that  construction  has to  start by  the end  of                                                         
2032 to qualify for the 45Q tax credit.                                                                                         
CO-CHAIR  GIESSEL  commented   that sooner  was  better  to  pass  this                                                         
MS. PAINE agreed.                                                                                                               
4:43:49 PM                                                                                                                    
MS. PAINE  directed  attention  to the  chart  on slide  20 that  shows                                                         
the  hypothetical  revenue  opportunities  in  the three  hypothetical                                                          
scenarios  for  the use  of the  state's  pore space  She  opined  that                                                         
the  numbers  were a  fair representation   of  lifetime  revenues  for                                                         
both a small and large project.                                                                                                 
CO-CHAIR  GIESSEL  asked  whether the  state  or producer  would  incur                                                         
the cost of insurance.                                                                                                          
MR.  CROWTHER   answered  that  the   chart  focuses  on  the  acreage                                                          
rental  fee and  the  injection  fee, which  would  be deposited   into                                                         
the administrative   fund.  That revenue  would  accumulate  over  time                                                         
for  the   long-term   liability   of  the   state,   so  DNR  doesn't                                                          
envision   the  state   needing  to   participate   in  the  insurance                                                          
market.  However,  an  operator  might  choose  to purchase  insurance                                                          
to cover its operations.                                                                                                        
4:45:47 PM                                                                                                                    
SENATOR   KAUFMAN   offered  his   understanding   that   hypothetical                                                          
scenario  2  (North  Slope  Facility   Standalone  CCUS  Project)   did                                                         
not anticipate shipping CO to the North Slope.                                                                                  
MR.  CROWTHER   confirmed   that   the  example   was   based  on   the                                                         
existing North Slope Central Gas Processing Facility.                                                                           
4:46:39 PM                                                                                                                    
MS.  PAINE   transitioned   to  the   sectional   summary  of  SB   49,                                                         
starting  with   Sections  1-14  on  slide  22.  She  noted   that  she                                                         
would provide more detail on sections 14 and 31.                                                                                
Section 1                                                                                                                     
Short  title  of  bill:  Carbon  Capture,   Utilization,  and  Storage                                                          
Section 2 (AOGCC)                                                                                                             
Grants   AOGCC   jurisdiction   to   regulate   carbon   storage   unit                                                         
operations in the state like oil and gas (bill Sec. 14)                                                                         
Section 3 (AOGCC)                                                                                                             
Authorizes   AOGCC   to  seek   primary   enforcement   authority   for                                                         
permitting and regulating Class VI injection wells for CO                                                                       
Section 4 (DNR/AOGCC)                                                                                                         
Creates   Carbon   Storage  Closure   Trust   Fund  to   provide   non-                                                         
sweepable   fund  for  post-closure   operations   of  State  agencies                                                          
(bill Sec. 31, proposed AS 41.06.180)                                                                                           
Section 5 (DNR)                                                                                                               
Adds  carbon  storage  (bill  Sec.  14)  to  mineral  estate  disposal                                                          
exemption for agricultural lands disposal in AS 38.05.069(e)                                                                    
Section 6 (DNR)                                                                                                               
Adds  carbon  storage  (bill Sec.  14)  exemption  to AS  38.05.070(a)                                                          
for   when  state   lands   are  leased   for   purposes   other   than                                                         
extrication of natural resources                                                                                                
Section 7 (DNR)                                                                                                               
Adds  carbon   storage   to  provisions   requiring   lessees  to   pay                                                         
damages  to  landowners  and  to  post  bonds  for  that purpose;   and                                                         
providing  lessee   access  to  access  to  the  mineral  estate  if  a                                                         
surface  owner  refuses to  engage  in a surface  use  agreement;  this                                                         
is  the  same  statutory   process  that   exists  for  other  mineral                                                          
estate development of split estate created by AS 38.05.125                                                                      
4:49:00 PM                                                                                                                    
SENATOR  WIELECHOWSKI  paraphrased  the  first  sentence  of Section  7                                                         
and asked  what  kind of  liability  SB 49 exposes  the  state to  in a                                                         
worst  case scenario,   and whether  the  state  expected  to purchase                                                          
insurance for such damages.                                                                                                     
MS. PAINE  responded  that  it was  an existing  provision  in all  oil                                                         
and  gas leases  and  it  had  never  been used.  As  a general   rule,                                                         
the  surface  owners  and  project  operators  resolve  any  issues  to                                                         
their  mutual  benefit.  She  also  pointed  out  that  this  was  just                                                         
for  the  surface   estate   and  that  the  footprint   of  a  carbon                                                          
storage facility was very small.                                                                                                
4:50:45 PM                                                                                                                    
MS. PAINE continued the sectional summary.                                                                                      
Sections 811 (DNR/DOG)                                                                                                        
Adds  carbon  storage  program   (bill  Sec.  14) to  mineral  leasing                                                          
statutes   under  AS  38.05.135,   primarily   providing  for  revenue                                                          
Section 12 (DNR)                                                                                                              
Adds  carbon storage  provision  to  exemptions  for coal  bed methane                                                          
under   AS   38.05.180(gg)    and   unconventional    gas    under   AS                                                         
38.05.180(ff)   because  carbon  storage  leasing   might  be possible                                                          
on unmineable coal seams                                                                                                        
Section 13 (DNR)                                                                                                              
Adds  carbon  storage  leases  to  prohibition   in  the Kachemak   Bay                                                         
oil and gas closure area                                                                                                        
4:51:53 PM                                                                                                                    
SENATOR   WIELECHOWSKI   asked   if  other   refuges   or  areas   that                                                         
prohibit  oil  and gas  exploration  or  development  could  be leased                                                          
MS. PAINE  answered  that  nothing  was different  for  carbon storage                                                          
leasing  than  what  is  allowed  for oil  and  gas  leases.  Later  in                                                         
the   bill  several   other   areas   are  excluded,   but   the   same                                                         
exclusion  applies  for  oil and  gas leases.  She  restated  that  the                                                         
carbon  storage  leases are  intended  to mirror  the permissions   for                                                         
oil and gas leases.                                                                                                             
SENATOR  WIELECHOWSKI   noted  the  controversy  in  the MatSu  Valley                                                          
years  ago  when   drilling  for  coal  bed   methane  extended   under                                                         
private  property.  He  asked  whether  the bill  envisions  CO   being                                                         
stored under private property.                                                                                                  
MR. CROWTHER  answered  that  provisions  later  in the  bill speak  to                                                         
AOGCC's    authority   to   amalgamate    property    interests    from                                                         
unconsenting   parties,  which  is  similar  to the  authority  that's                                                          
available for oil and gas.                                                                                                      
4:54:22 PM                                                                                                                    
SENATOR  WIELECHOWSKI  asked  about  the liability  associated  with  a                                                         
storage   facility  extending   under   an  unconsenting   landowner's                                                          
MR.  CROWTHER  said he's  neither  a geologist  nor  an  engineer,  but                                                         
DNR  envisions   that  the  damages   for  an  unconsenting   property                                                          
owner  would   be  financial.   He  continued   to  explain  that   the                                                         
injections  would  be  very deep  and  into geologic  structures   that                                                         
make  them  secure  for containing   oil and  gas  or carbon  dioxide,                                                          
and  generally   secure   from   affecting   surface   properties.   He                                                         
clarified that there is no relationship to the fracking process.                                                                
4:56:28 PM                                                                                                                    
SENATOR   WIELECHOWSKI   asked   whether   property   owners  who                                                               
might  not  want  any  pipes  or  drilling   equipment  on  their                                                               
land would be protected.                                                                                                        
MR.  CROWTHER  said  Section  7 speaks  to  that  concern,  and a                                                               
surface   owner  can   be  affected.   In  Alaska,   the  mineral                                                               
estate  is  dominant  so the  mineral  estate  owner,  often  the                                                               
state,  has  the  right  to  lease  for  the  exercise  of  those                                                               
rights.  The  existing  statute  doesn't  prohibit  the  use, but                                                               
the  operator  would  be liable  for  damages  incurred   by that                                                               
use.  This might  require  the  operator  to proactively   post a                                                               
bond to prepare for such a conflict.                                                                                            
CO-CHAIR  GIESSEL  stated  that  the  discussion  would  continue                                                               
on Monday. She held SB 49 in committee.                                                                                         

Document Name Date/Time Subjects
SB 49 DNR CCUS Presentation 03.10.2023.pdf SRES 3/10/2023 3:30:00 PM
SB 49
SB 49 Bill Packet.pdf SRES 3/10/2023 3:30:00 PM
SB 49
SB 49 Transmittal Letter 01.26.2023.pdf SRES 3/10/2023 3:30:00 PM
SB 49
SB0049A.PDF SRES 3/10/2023 3:30:00 PM
SB 49
SB0049-1-3-012723-DNR-Y.PDF SRES 3/10/2023 3:30:00 PM
SB 49
SB0049-2-2-012723-CED-Y.PDF SRES 3/10/2023 3:30:00 PM
SB 49
SB0049-3-2-012723-REV-Y.PDF SRES 3/10/2023 3:30:00 PM
SB 49
SB0049-4-2-012723-DEC-Y.PDF SRES 3/10/2023 3:30:00 PM
SB 49
SB 49 Sectional Analysis 2.1.2023.pdf SRES 3/10/2023 3:30:00 PM
SB 49
SB 49 DNR DOG CCUS Bill One-Pager 2.1.2023.pdf SRES 3/10/2023 3:30:00 PM
SB 49
SB 49 Stantec - CCUS Peer-State Review Report January 30, 2023.pdf SRES 3/10/2023 3:30:00 PM
SB 49
SB 49 University of Alaska - Issue and Policy Review for CCUS in the State of Alaska.pdf SRES 3/10/2023 3:30:00 PM
SB 49