Legislature(1999 - 2000)
03/07/2000 10:10 AM House O&G
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
March 7, 2000
10:10 a.m.
COMMITTEE CALENDAR
PRESENTATIONS: FOOTHILLS PIPE LINES
ALASKA UNDERGROUND TANK OWNERS & OPERATORS ASSOC.
TAPE 00-18, SIDES A AND B
CALL TO ORDER
REPRESENTATIVE JIM WHITAKER reconvened the House Special
Committee on Oil and Gas meeting at 10:10 a.m.
[Note: Please refer to Tape 00-17 for the separate tape recording
and corresponding minutes that were created for the meeting on HB
414, which was held on the same day at 10:01 a.m.]
PRESENT
Members present at the reconvening were: Representatives
Whitaker, Dyson, Green, Harris, Porter, Kemplen and Smalley.
SUMMARY OF INFORMATION
CHAIRMAN WHITAKER announced that the presentation was related to
"what should be the legislature's highest priority, taking
Alaska's North Slope gas to market." He then introduced the
presenters from Foothills Pipe Lines, Ltd.: Bob Pierce, Chairman;
John Ellwood, Vice President of Engineering, and Harry Hobbs,
Vice President of Transportation. Mr. Pierce then introduced
Curtis Moffatt of the Van Ness Feldman firm of Washington.
MR. PIERCE stated that he had participated in the original
hearings on this gas line project before the Federal Trade
Commission and the National Energy Board, when then-Secretary of
Energy Jim Schlessinger and the Canadian Prime Minister
negotiated the deal that was then ratified by legislation and
executive orders, and is still in effect.
MR. PIERCE explained that Foothills is the chair of the Alaska
partnership. It has two active members, Foothills and Trans
Canada Pipelines, and they think the time is right to complete
the Alaska Highway Pipeline. He stated that the pipeline is cost
effective, environmentally sound and politically palatable.
MR. PIERCE described the three original proposals to move Alaska
gas. The "El Paso" project would pipeline gas to a liquefied
natural gas (LNG) facility at Valdez and then ship it to
California. The "Arctic Gas" project would pipeline it across
the North Slope to the Mackenzie Valley and through Canada to the
United States. The third project, Foothills, calls for an
overland pipeline along the Dalton and Alaskan Highway through
Alaska and Canada to the Lower 48.
MR. PIERCE said that the U.S. and Canada had agreed that, all
things considered, the Alaska Highway route was the best option.
Certificates were issued, international agreements were signed by
the President of the U.S. and the Prime Minister of Canada,
agreements were ratified by Congress and by Parliament. The
decisions, the agreement and the legislation selecting the
highway route have the force and effect of a treaty between the
two countries.
MR. PIERCE discussed the latest proposal to take Alaskan gas via
the Mackenzie valley to join the Canadian pipeline route, saying
the only difference between this one and the earlier proposal is
that the pipeline will be laid under the ocean ice. He predicted
that this proposal will fail for the same reasons as before:
economics, environment and politics.
MR. PIERCE stated that the renewed interest in a gas pipeline
project is based upon rising U.S. demand and escalating gas
prices, driven primarily by the demand for gas-fired electrical
generation. Most analysts predict a 30 TCF U.S. market and a $3
mcf price by the second half of this decade.
MR. PIERCE said that recently, the chairman of the National
Energy Board of Canada warned of a 2 bcf per day shortfall in
Canada by 2001. He pointed out that Alaska is the largest
unconnected gas reserve in North America and described how
Alberta solved its stranded gas problem. Capital investments in
the petrochemical industry there are now approaching $7 billion
(Canadian), with more than 400 construction jobs created for each
$1 billion investment.
MR. PIERCE said he believes that Chicago gas prices will allow
for the profitable movement of Alaska gas. He believes the
Alaska Highway project is the best option. Mr. Pierce said the
projected capital cost to build the 1,700 mile pipeline from the
North Slope to the Canadian grid is approximately $6 billion
(U.S.). It would be a high-pressure pipeline, with a beginning
capacity between 2.5 and 3 bcf per day. Because Foothills has
many of the key approvals in hand, its pipeline could be in
operation as early as 2006.
MR. PIERCE, answering why the cost is so much lower now than in
previous estimates, stated that a sizeable portion has already
been pre-built. Also, Foothills is using smaller diameter pipe,
and new welding techniques increase productivity in the
construction phase.
MR. PIERCE described throughput volumes, discussing market and
transportation tolls. He went on to say that the Alaska North
Slope LNG project and the Alaska Highway project could work
together. He concluded by comparing the Foothills project
favorably with the proposal to go under the ocean ice, citing
costs, environmental concerns and the political factor. And, he
said, the Alaska pipeline project would produce more jobs in
Alaska than a project that ran predominantly through Canada.
JOHN ELLWOOD answered a question from Representative Green,
describing plans to move gas liquids as well as gas through the
stream.
HARRY HOBBS answered a question from Representative Dyson about
the environmental objection to a pipeline under the Beaufort Sea,
stating that he believes there would be the same objections in
Canada.
MR. PIERCE added that one would have to start from scratch to
take a gas line through the Mackenzie Delta, and that the
Foothills project has a distinct advantage in its permits.
REPRESENTATIVE KEMPLEN asked what needs to happen in order to
meet Foothills' target date of 2006 for the pipeline. Mr. Pierce
stated it would require an agreement between the people who own
the gas and the pipeline company, "and once you've got that
agreement, then you can proceed to the other things." He added
that those discussions are now in progress. In response to
Representative Kemplen's follow-up question as to whether
Foothills would be willing to commit to a project large enough to
handle LNG as well, Mr. Pierce said one always builds in excess
capacity. He added that people do not drill for gas unless there
is a pipeline to take it to market, and that Alaska might be
surprised to discover how much gas it really has if people
started looking for it.
REPRESENTATIVE SMALLEY ASKED about the opportunity for tax-free
revenue bonding and tax free revenues. Mr. Pierce stated that
they have no tax free revenue bonding, that Canada is quite the
opposite.
REPRESENTATIVE GREEN asked if $3 netback at the wellhead would be
enough. Mr. Pierce said they think it would be.
MR. ELLWOOD described the demand and supply for the Lower 48
market, and said Alaskan gas will be required to meet the demand.
CHAIRMAN WHITAKER commented that the 30 tcf might be a
conservative number due to a restricted supply, and Mr. Pierce
agreed. In answer to a subsequent question by Chairman Whitaker,
Mr. Hobbs stated that to his knowledge the leaseholders in the
Mackenzie Delta are, Imperial Oil(Exxon), Shell Canada, Gulf
Canada, Petro Canada and Anderson Exploration.
CHAIRMAN WHITAKER observed that the market is growing, the supply
is restricted, and a huge supply exists in Alaska. He asked what
it will take to "break that log jam."
MR. HOBBS said Foothills thinks it is a matter of getting
together the producers, the shippers and the players in the
marketplace.
MR. PIERCE stated that historically, it is the buyer that one
needs to "get on the hook," but utility companies (in the U.S.)
have begun to enter into purchase agreements themselves, and
producers are now in a position to deal with the buyers directly.
To REPRESENTATIVE DYSON'S question regarding the effect of North
American National security concerns on supply decisions, Mr.
Pierce commented that Jim Schlessinger had testified before U.S.
Senator Frank Murkowski's committee that the high cost of crude
oil was to be blamed on the administration, and that the time has
come to move gas from Alaska down the highway project that
Congress had approved.
CHAIRMAN WHITAKER announced a brief at-ease, while the next group
came forward to give a presentation on the Storage Tank Board of
Assistance.
CHAIRMAN WHITAKER reconvened the meeting at 11:09 a.m. and
introduced Mr. John Barnett of the Storage Tank Board of
Assistance, stating that the committee hoped to gain enough
information to waive a bill that would extend the sunset of the
Board of Assistance, should one be introduced and referred to the
committee.
JOHN BARNETT described the history, purpose and authority of the
Storage Tank Board of Assistance. It was originally established
as an appeals board and to provide oversight to the Department of
Environmental Conservation (DEC) regulations pertaining to
storage tanks. The storage tank fund, which provided grants and
loans to owners of tanks that faced cleanup issues, was
established at the same time as the board. The idea behind the
grant and loan fund was that if the state did not provide some
type of program to help those businesses, they would not be able
to pay for the cleanup, and the state would be left holding the
bag.
The program operated fairly successfully for nine years, but last
year, due to budget constraints, Senate Bill 128 changed the
grant program to a loan program and reduced the amounts available
to tank owners. The Board has acted as an appeals board for
disputes over what qualified for the program and has reviewed
regulations put forth by DEC with regard to storage tanks.
There are now tank owners waiting for loans, and the Board feels
there are going to be disputes over the qualifications. If the
board is dissolved on June 30, there will still be grants
available and unfinished loan applications. Mr. Barnett would
like to keep the board in place for at least three more years to
keep tank-related disputes out of the court system.
Another concern of the Tank Owners and Operators Association is
that there are currently over 2,000 sites waiting to be certified
as "clean" by DEC, and there is no recourse for the owners. He
suggested that the board could help with that.
CHAIRMAN WHITAKER asked Mr. Barnett to clarify points in his
testimony about the number of sites awaiting "no further action"
letters and the ability of the board to act as a mediator.
MR. BARNETT, in response to a question from Representative Green,
said that to issue a "no further action" letter, the department
has to be satisfied that all contamination at the site has been
identified and a means is in place to monitor and assure that no
further contamination is taking place or that all of the
contamination has been removed. Because the board can only deal
with sites that have participated in the loan program, it would
be able to mediate only about 200 of the 2,000 outstanding claims
unless the board's authority were expanded. He also pointed out
that many of the 2,000 sites had not been identified during the
window of opportunity for them to qualify for the loan program,
thereby leaving them outside the authority of the board.
JIM HAYDEN, Manager, Underground Storage Tank Program, Department
of Environmental Conservation, answered a question from
Representative Green. He stated that the monies repaid from the
loan program will come back into the loan fund account and could
be loaned out again. He also pointed out that other money for
the loan fund comes from registration fees paid by the tank
owners.
Following a request by Representative Porter, John Barnett went
through the draft legislation that will be introduced by the
Resources Committee to extend the sunset date of the board as
well as its authority to act as mediator and to review cleanup
decisions and plans.
COMMITTEE ACTION
The committee took no action.
ADJOURNMENT
CHAIRMAN WHITAKER adjourned the meeting at 11:41 a.m.
NOTE: The meeting was recorded and handwritten log notes were
taken. A copy of the tape(s) 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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