Legislature(1999 - 2000)

02/03/2000 11:04 AM House O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                                                                             
                        February 3, 2000                                                                                        
                           11:04 a.m.                                                                                           
                                                                                                                                
COMMITTEE CALENDAR                                                                                                              
                                                                                                                                
Presentation by BP on Gas Commercialization                                                                                     
                                                                                                                                
TAPE                                                                                                                            
                                                                                                                                
00-9, SIDES A and B                                                                                                             
                                                                                                                                
CALL TO ORDER                                                                                                                   
                                                                                                                                
Representative  Whitaker,  Chairman,  convened the  House  Special                                                              
Committee on Oil and Gas meeting at 11:04 a.m.                                                                                  
                                                                                                                                
PRESENT                                                                                                                         
                                                                                                                                
Committee   members   present   at   the  call   to   order   were                                                              
Representatives  Dyson,   Smalley,  Porter,  Green   and  Kemplen.                                                              
Representatives    Harris,  Phillips  and  Brice  arrived  as  the                                                              
meeting was in progress.                                                                                                        
                                                                                                                                
SUMMARY OF INFORMATION                                                                                                          
                                                                                                                                
CHAIRMAN  WHITAKER announced  that this  meeting was  part of  the                                                              
committee's  continuing  effort to  determine  the  status of  the                                                              
efforts  being made  to  commercialize North  Slope  gas. He  then                                                              
introduced Mr. Ken Konrad of BP/Amoco.                                                                                          
                                                                                                                                
KEN  KONRAD,  Business  Unit Leader,  Alaska  Gas  Business  Unit,                                                              
BP/Amoco,   began   his   presentation   by   describing   British                                                              
Petroleum's  position  in the  gas  industry as  a  result of  the                                                              
merger  with Amoco.    He stated  that  BP/Amoco  is committed  to                                                              
growing its gas business, which will  be driven by a gas and power                                                              
division  with  revenues  exceeding   $5  billion  annually.    He                                                              
explained  the  company's view  of  the  overall trend  of  energy                                                              
consumption, describing  a rise of  about 2 percent per  year, and                                                              
said that  the global  gas and  power economy  is about  twice the                                                              
size  of the  global  oil economy.    As gas  is  emerging as  the                                                              
preferred  hydrocarbon  source, it  is  catching  up with  oil  in                                                              
BP/Amoco's business priorities.                                                                                                 
                                                                                                                                
MR. KONRAD said that most of BP/Amoco's  gas resources are ideally                                                              
located close to the world's major  gas markets, with Alaska being                                                              
the exception.  BP/Amoco has established  a business unit with the                                                              
sole  priority of  investigating options  to commercialize  Alaska                                                              
gas, including  export of liquefied  natural gas (LNG) to  the Far                                                              
East, gas  pipeline options  exporting gas  to the North  American                                                              
market, and  conversion to  liquids and  transport down  the Trans                                                              
Alaska Pipeline System (TAPS).                                                                                                  
                                                                                                                                
MR. KONRAD  then went on  to describe the  volumes of oil  and gas                                                              
estimated to  remain on  the North  Slope, mentioning Prudhoe  Bay                                                              
and  Point  Thomson   and  efforts  by  various   owners  to  seek                                                              
commercial solutions  to developing  the more challenging  fields.                                                              
Mr. Konrad  explained  the importance  of gas  in the recovery  of                                                              
oil, describing the  process and amounts of gas  currently used in                                                              
that effort.   He pointed out that  until they are able  to export                                                              
gas from  the North  Slope, oil producers  there will  continue to                                                              
use gas to improve oil recovery.                                                                                                
                                                                                                                                
MR. KONRAD  described efforts to  achieve a major North  Slope gas                                                              
sale,  dating  back to  the  1970's,  including  a number  of  LNG                                                              
studies,    gas-to-liquid  (GTL)   studies  and  various  pipeline                                                              
options.   He explained  that all  the options  are still  in play                                                              
because  of a  recent convergence  of  events resulting  in a  new                                                              
opportunity to commercialize Alaskan  gas.  One of those events is                                                              
a technology push that lowered overall  project costs.  The second                                                              
event  is market  pull,  and the  third  is that  governments  are                                                              
working with industry to support gas developments.                                                                              
                                                                                                                                
MR. KONRAD then moved on to where  BP/Amoco is today in its effort                                                              
to  move Alaskan  gas  to market.    He described  their  resource                                                              
position with  26 trillion  cubic feet of  known Prudhoe  Bay gas,                                                              
Alaska's   politically   stable    environment,   and   BP/Amoco's                                                              
involvement  in  the  Alaska North  Slope  Liquefied  Natural  Gas                                                              
Project  Sponsor Group.   BP/Amoco  still faces  the challenge  of                                                              
distance  from  market, resulting  in  the company's  interest  in                                                              
multiple commercialization  options  including GTL's, LNG  export,                                                              
and other pipeline projects.                                                                                                    
                                                                                                                                
MR.  KONRAD  stated  that  BP/Amoco will  locate  its  global  gas                                                              
technology  center in Anchorage  after approval  of the  company's                                                              
merger with Atlantic Richfield Company  (ARCO).  He then explained                                                              
the  work BP/Amoco  is  doing  with syngas  technology,  including                                                              
engineering for a $70 million pilot  facility in Alaska.  ARCO has                                                              
an operating GTL  pilot facility at the Cherry  Point, Washington,                                                              
refinery, and completion  of the merger would  allow the companies                                                              
to share  their technologies.   He stated  that ultimately,  a GTL                                                              
project could  be pursued  in conjunction with  an LNG  project or                                                              
gas pipeline project.                                                                                                           
                                                                                                                                
MR. KONRAD  told the committee that  BP/Amoco didn't see  a window                                                              
for LNG sales  to the Far  East, but rather, believed  there would                                                              
be a steadily  growing demand.  With  regard to a gas  pipeline to                                                              
the Lower  48, he  described two  major routes,  a southern  route                                                              
following the Alaska  Highway through Fairbanks  and continuing on                                                              
to Canada,  commonly  known as the  "ANGTS" line,  and a  northern                                                              
route following the  Alaskan coastline to the  Mackenzie Delta and                                                              
then  south  through  Canada.   He  said  the  northern  route  is                                                              
generally considered  to be  less expensive  with costs  around $6                                                              
billion,  but the  southern route  may have  existing permits  and                                                              
potential synergies with an LNG export option.                                                                                  
                                                                                                                                
MR. KONRAD  closed by  reiterating that  BP/Amoco is committed  to                                                              
growing  its  gas business,  working  to  mature  a range  of  gas                                                              
commercialization options, and driven  by a clear understanding of                                                              
what is  possible.  He then  made himself available  for questions                                                              
from committee members.                                                                                                         
                                                                                                                                
REPRESENTATIVE WHITAKER  thanked Mr. Konrad, complimenting  him on                                                              
an excellent presentation.                                                                                                      
                                                                                                                                
REPRESENTATIVE   PHILLIPS  asked  Mr.   Konrad  for   more  detail                                                              
regarding  the pilot  test  facility project  and  on whether  the                                                              
timing depended on the merger.                                                                                                  
                                                                                                                                
MR.   KONRAD  replied   that   they  were   conducting   front-end                                                              
engineering,  which  they  hoped  would  be  finished  in  several                                                              
months, and  that they would  pursue that project  upon completion                                                              
of the ARCO merger.                                                                                                             
                                                                                                                                
REPRESENTATIVE GREEN  asked whether BP/Amoco was  negotiating with                                                              
Exxon Mobil Corporation  to come together with  the two companies'                                                              
GTL  technology, and  whether  the outcome  of  the merger  effort                                                              
would have a bearing on their decision.                                                                                         
                                                                                                                                
MR. KONRAD answered  that the company was continuing  to work as a                                                              
member  of the  gas  pipeline sponsor  group,  talking with  Exxon                                                              
about their progress  with GTL, and talking with  various pipeline                                                              
project companies.                                                                                                              
                                                                                                                                
REPRESENTATIVE  DYSON  asked  that   they,  (Mr.  Konrad  and  the                                                              
committee members), not speak in  code, saying that people who are                                                              
not familiar  with the  industry vernacular  would not  understand                                                              
the information.                                                                                                                
                                                                                                                                
REPRESENTATIVE KEMPLEN  asked if it was the intent  of BP/Amoco to                                                              
contract with the university to do applied research.                                                                            
                                                                                                                                
MR. KONRAD said they were starting to do that.                                                                                  
                                                                                                                                
REPRESENTATIVE KEMPLEN asked when  the gas technology center would                                                              
be open.                                                                                                                        
                                                                                                                                
MR. KONRAD said  it was well under way, but  full completion would                                                              
not occur until the BP/Amoco merger with ARCO was complete.                                                                     
                                                                                                                                
REPRESENTATIVE HARRIS asked if there  was a time projected when it                                                              
would no longer be cost effective to re-inject gas.                                                                             
                                                                                                                                
MR.  KONRAD answered  that oil  producers will  always inject  gas                                                              
while they are producing the reservoir,  unless there were a major                                                              
gas  sale, at  which  point they  would have  to  find some  other                                                              
liquid to inject.                                                                                                               
                                                                                                                                
REPRESENTATIVE SMALLEY agreed with  Representative Dyson's comment                                                              
about the use of industry vernacular,  and requested a copy of Mr.                                                              
Konrad's presentation.                                                                                                          
                                                                                                                                
REPRESENTATIVE  PHILLIPS asked Mr.  Konrad if  he could  foresee a                                                              
pipeline going to the Lower 48 without Alaska being part of it.                                                                 
                                                                                                                                
MR. KONRAD  said conceivably  yes,  but that there  was plenty  of                                                              
resource for many different projects.                                                                                           
                                                                                                                                
REPRESENTATIVE  DYSON  asks Mr.  Konrad  to define  "netback"  and                                                              
"TAPS," then  expressed dissatisfaction  with the vernacular  used                                                              
in  Mr. Konrad's  answer.   He then  asked how  much gas  BP/Amoco                                                              
controls in  Canada, and  followed up  by asking whether  BP/Amoco                                                              
would tend  to make more money from  the sale of its  Canadian gas                                                              
than from Alaskan gas, and whether  BP/Amoco is now producing from                                                              
all of  its gas holdings.   He also  asked Mr. Konrad  whether the                                                              
production of gas  would diminish the amount of  oil production at                                                              
Prudhoe.                                                                                                                        
                                                                                                                                
MR. KONRAD  said BP/Amoco was the  largest gas producer  in Canada                                                              
and went  on to point  out that the  North American market  is not                                                              
bottomless, but  very big, indeed.   As to the  gas profitability,                                                              
he said  each project  is judged on  its independent  economics as                                                              
opposed  to comparing  economics with  another project.   He  also                                                              
said  to  the  best  of  his  knowledge,  BP/Amoco  was  currently                                                              
producing  from all  of its  gas holdings  in Canada.   As to  the                                                              
production of gas affecting oil production,  he said it would, and                                                              
that economics would drive the decision.                                                                                        
                                                                                                                                
REPRESENTATIVE  KEMPLEN  asked  if   a  project  to  develop  coal                                                              
reserves near  the North Slope would  be feasible.  He  also asked                                                              
if Mr.  Konrad thought  a pipeline coming  down to Fairbanks,  and                                                              
branching off  to the lower 48 and  then down to either  Valdez or                                                              
the Cook Inlet  was feasible.  He  also asked if it  were possible                                                              
for the "consortium" he represents  to serve as a pipeline manager                                                              
for a port  authority.  He went  on to ask if, given  the level of                                                              
risk in the security  of Indonesian gas, those  customers may look                                                              
for a more secure source of supply, such as Alaska.                                                                             
                                                                                                                                
MR.  KONRAD said  he did  not know  about the  economics of  North                                                              
Slope  coal,  and  regarding  the   feasibility  of  the  pipeline                                                              
branching off,  he thought it  could be done.   He also  said that                                                              
with regard to the market seeking  a more secure supply of gas, he                                                              
thought that it would.                                                                                                          
                                                                                                                                
COMMITTEE ACTION                                                                                                                
                                                                                                                                
The committee took no action.                                                                                                   
                                                                                                                                
ADJOURNMENT                                                                                                                     
                                                                                                                                
The meeting adjourned at 11:50 a.m.                                                                                             
                                                                                                                                
NOTE:   The meeting  was recorded and  handwritten log  notes were                                                              
taken.   A  copy of  the tape  and log  notes may  be obtained  by                                                              
contacting the House Records Office  at 129 6th Street, Suite 229,                                                              
Juneau, Alaska  99801-2197, (907)  465-2214, and after adjournment                                                              
of  the   second  session   of  the   Twenty-first  Alaska   State                                                              
Legislature  this information  may be obtained  by contacting  the                                                              
Legislative Reference Library at  129 6th Street, Suite 102, (907)                                                              
465-3808.                                                                                                                       
                                                                                                                                

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