Legislature(2009 - 2010)BARNES 124
01/26/2009 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Overview(s) | |
| Alaska Gas Pipeline Presentation by Transcanada | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
January 26, 2009
1:01 p.m.
MEMBERS PRESENT
Representative Mark Neuman, Co-Chair
Representative Craig Johnson, Co-Chair
Representative Bryce Edgmon
Representative Kurt Olson
Representative Paul Seaton
Representative Peggy Wilson
Representative David Guttenberg
Representative Scott Kawasaki
Representative Chris Tuck
COMMITTEE CALENDAR
OVERVIEW(S):
ALASKA GAS PIPELINE PRESENTATION BY TRANSCANADA
- HEARD
ALASKA GAS PIPELINE PRESENTATION BY DENALI - THE ALASKA GAS
PIPELINE
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
No previous action to report
WITNESS REGISTER
A. M. (TONY) PALMER, Vice President
Alaska Development
TransCanada
Calgary, Alberta, Canada
POSITION STATEMENT: Presented information on construction of
the proposed Alaska Gas Pipeline.
ACTION NARRATIVE
1:01:41 PM
CO-CHAIR MARK NEUMAN called the House Resources Standing
Committee meeting to order at 1:01 p.m. Representatives Neuman,
Olson, Seaton, Edgmon, Guttenberg, Kawasaki, Tuck, and Wilson
were present at the call to order. Co-Chair Neuman said
Representative Johnson is excused because his flight was
weathered out of Juneau. [Co-Chair Johnson joined the meeting
later via teleconference from Sitka].
^OVERVIEW(S)
1:02:15 PM
CO-CHAIR NEUMAN announced that the only order of business is an
overview on the Alaska Gas Pipeline. He noted that the
scheduled speaker for Denali - The Alaska Gas Pipeline
("Denali") is on the same plane as Representative Johnson, so
only TransCanada will be making a presentation today. Co-Chair
Neuman urged members to meet with TransCanada and Denali
representatives for updates since there have been many changes.
He requested committee members to limit their questions to
construction of the pipeline.
^ALASKA GAS PIPELINE PRESENTATION BY TRANSCANADA
1:04:06 PM
A. M. (TONY) PALMER, Vice President, Alaska Development,
TransCanada, displayed a map of the pipeline route through
Alaska and Canada (slide 2). He drew attention to a photograph
beside the map depicting a grass-covered right-of-way through a
forest. He explained that unlike the Trans-Alaska Pipeline
System (TAPS) for oil, the gas pipeline will be buried so that
the top of the pipe is four feet underground, and the right-of-
way will be revegetated and delineated by signs.
MR. PALMER, in response to Representative Guttenberg, explained
that during construction the right-of-way will be a few hundred
feet wide. However, once the pipeline is completed and in
operation, the right-of-way will be about 120-150 feet wide. He
said the photograph [on slide 2] depicts what will be seen for
normal enjoyment of the right-of-way for the 25-50 years
following construction.
1:06:52 PM
MR. PALMER, in response to Co-Chair Neuman, said the gas
pipeline will be buried where it follows the TAPS corridor. In
certain cases, it will be very close to the TAPS line, although
TransCanada is still specifying the precise route. Because it
is buried the natural gas pipeline will not be seen, but the
compressor stations and any offtakes will be above ground and
visible. There will initially be six compressor stations spaced
about 120 miles apart, and they will be industrial sites.
CO-CHAIR NEUMAN announced that Co-Chair Johnson has joined the
hearing via teleconference.
1:08:09 PM
MR. PALMER moved to slide 3 and began describing the elements of
a successful pipeline project. [In relation to attractive
project economics], he noted that natural gas prices are
volatile and difficult to forecast. Six months ago gas prices
were $10 and $12, but this morning they were $4.50, he said. As
a pipeline company, TransCanada has no impact or control on
natural gas prices, he continued. Prices are set in the
marketplace and are often influenced significantly by political
and economic events and by the price of oil. He further noted
that conventional Lower 48 gas, Western Canadian Sedimentary
Basin (WCSB), liquefied natural gas (LNG), shale, and coal bed
methane are all competing for market share. This is also beyond
TransCanada's control, he said, and while TransCanada remains
cognizant of it, it is not something that TransCanada is focused
on during project advancement.
MR. PALMER conveyed TransCanada's view that to be successful,
project sponsors and supporters must focus on costs and
schedule. In regard to commercial and regulatory risk
management, schedule, and cost control, he said that a price
difference of just one penny will cause customers to switch
pipelines when there are multiple lines going to the same
market. For new projects customers swing on several pennies, so
it is critical to focus on costs, he explained. A capital cost
change of $1 billion changes the pipeline toll by 10 cents per
million British Thermal Units (MMBTU), which equates to $160
million a year in tolls. That share comes out of the producer's
hide as well as the government's because that is where
government gets the value, he said. Over a 25-year contract,
$160 million per year adds up to $4 billion, which shows how
critical costs are for this project. He noted that the toll
estimate in TransCanada's 2007 Alaska Gasline Inducement Act
(AGIA) application was for $2.76 per MMBTU in 2018 to the
Alberta Hub. That estimate will be updated as TransCanada
prepares for the open season over this next year, he said, but
it is critical to keep the toll under $3 per MMBTU.
1:12:05 PM
MR. PALMER, in response to Co-Chair Neuman, stated that in 2008
TransCanada put forth a couple of proposals to the legislature.
One proposal specifies that TransCanada will bear some of the
risk of any cost overruns by taking a reduction of up to 2
percent, 200 basis points, in its rate of return. The other
proposal, if acceptable to the U.S. government, specifies that
the loan guarantee structure will be adapted so that the U.S.
government would bear some of the capital cost overrun risk in
certain circumstances and some would reside with the shippers.
MR. PALMER, in response to Representative Kawasaki, advised that
TransCanada is cognizant of what is currently happening in the
world, both with competitors for this project as well as prices
for natural gas and oil. However, TransCanada's focus is on
cost and schedule for this project because that is how
TransCanada thinks it will succeed. He said that when prices
were $10 and $12 last year he personally did not think they were
sustainable, nor does he think that $4.50 is sustainable going
forward. What is critical is what the price of natural gas will
be during the 25-50 year timeframe that the pipeline is in
service. Forecasts are always centered on the current price.
For example, whether the current price is $12 or $4 the forecast
will be for a higher price.
1:15:28 PM
MR. PALMER acknowledged that if parties believe natural gas
prices will fall to $2, then this pipeline clearly is not a
viable project since the toll estimate is more than that. The
low price of gas is the reason this project did not go forward
for many decades. However, most parties are predicting that gas
prices will rise from here, although no one knows at what point
they will turn. On a pipeline project, schedule often drives
cost and a delay will most likely cause a cost increase, he
said. Therefore, TransCanada will look to regulatory agencies
and governments to maintain its schedule. If gas price is
sustained at $6-$7, which most parties are forecasting, and if
TransCanada can keep the tolls under $3, there remains a
substantial margin for producers and for governments. A $6-$7
gas price probably means an oil price of $40-$60 and most
parties believe that beyond 2009 that is a sustainable oil
price. He allowed there has been a reaction in the marketplace
to these low prices, such as reduction in a number of projects
and layoffs in exploration and production. TransCanada takes
the long view, he continued, and the price of natural gas has
not altered TransCanada's proposal in any way.
CO-CHAIR NEUMAN reminded members that the committee will be
looking in depth at price forecasting at a later date.
1:18:05 PM
MR. PALMER, in response to a further question from
Representative Kawasaki, proffered that the potential customers
on this project are very sophisticated and TransCanada believes
that they take the long view. Shippers will look at the price
of gas during the open season in 18 months and will look forward
at the future forecast. TransCanada's commercial terms are open
and transparent, he emphasized. TransCanada is going into
discussion with potential customers with the commercial terms
already identified and public, a highly unusual situation. He
said TransCanada thinks its commercial terms are competitive and
if capital costs can be kept down, TransCanada will be able to
keep the tolls under $3. He pointed out that there would still
be a positive net-back at today's natural gas price, although it
would be small.
CO-CHAIR NEUMAN commented that to bring this all together, look
at what has happened in the past year and this is a 25-year
project.
1:20:45 PM
REPRESENTATIVE SEATON inquired whether the tariff is solely
dependent on the construction costs so that no matter what
happens in the future in regard to inflation or deflation, the
tariff is fixed for a long time.
MR. PALMER answered that TransCanada's proposal is based on a
capital cost estimate as well as an inflation factor that was
provided by the state of Alaska. The bulk of the toll is driven
off capital cost which would be the construction phase between
now and the next nine and one-half years; the lower the
inflation, the lower the tolls. Beyond the construction phase
the only real inflationary factor is on operating cost which is
a really small component of the ultimate tolls. The best
scenario is to build in a low cost environment and flow gas in a
high cost environment, and the worst case is the opposite; over
time one hopes for some balance.
1:23:06 PM
REPRESENTATIVE OLSON noted that during the AGIA process
TransCanada's estimate for pipeline construction was $26
billion, but in November 2008 the administration started using
$40 billion. He asked where this [$14] billion increase is
coming from given that the prices for steel and labor have
dropped.
MR. PALMER replied that TransCanada's forecast of capital cost
remains at its summer/fall 2007 estimate of $26 billion.
TransCanada will be completing a new cost estimate over the next
12 months, and hopes to hold the estimate at $26 billion. While
steel prices have fallen, the price of rolled pipe has not
fallen much due to the great number of pipeline projects
currently underway in North America, he explained. If steel
prices remain down after those projects are completed in the
next 12-18 months, then the price of rolled pipe will likely
fall. This will be examined during the update of TransCanada's
estimate which will become public information in the open season
proposal in spring 2010.
1:25:36 PM
REPRESENTATIVE OLSON inquired why TransCanada has asked Congress
for an increase in the loan guarantees if it is still using an
estimate of $26 billion.
MR. PALMER responded that TransCanada has not asked Congress for
an increase in the loan guarantees. The U.S. government loan
guarantee is $18 billion plus Consumer Price Index (CPI), but
from 2004-2008 the costs of oil and gas projects increased more
than the CPI, he explained. During a year-end interview,
TransCanada's CEO [Harold Kvisle] was asked what support the
U.S. government could provide for this project. Mr. Kvisle
suggested that the U.S. government may wish to consider applying
an oil and gas inflator rather than a consumer price inflator,
Mr. Palmer related. He said he wants to make it clear that
TransCanada has not requested Congress or the Obama
Administration to increase the $18 billion.
1:27:17 PM
REPRESENTATIVE WILSON asked how cost overruns would affect the
tariff.
MR. PALMER answered that under its AGIA proposal, one component
of a capital cost overrun is that TransCanada would get a lower
rate of return. If the U.S. government approves the AGIA
proposal, another component is that any capital cost overruns
would be funded through the U.S. Government Loan Guarantee
Program. Those costs would then be separated and collected in a
surcharge when gas prices were good. But, if the U.S.
government does not accept the proposal there would be a change
in TransCanada's rate of return - which will always take place -
and the remainder would increase the toll to customers.
1:28:44 PM
CO-CHAIR NEUMAN remarked that the committee may want to look
into this question in more depth.
MR. PALMER stated that the sharing of the risk of this project
by the U.S. government is a concept that TransCanada put forward
to the legislature last year. At the moment there is
legislation for the loan guarantee but there are no regulations,
he said. TransCanada has indicated its support of this and will
inquire as to whether Congress and the Obama Administration
would also be supportive because that would mitigate risk for
customers.
REPRESENTATIVE WILSON agreed that the committee needs to talk
about this more on another day.
1:29:41 PM
REPRESENTATIVE SEATON recalled that the reason for asking that
the loan guarantee be applied was because then there would be
security and the interest rate would be lower on the money that
is borrowed for cost overruns.
MR. PALMER recollected that the concept was that the loan
guarantee would lower the cost for customers "because you would
have debt 100 percent financing for overruns rather than debt
and equity." This benefits customers because the cost of debt
is lower than the cost of equity, he explained. One hundred
percent financing with debt means that TransCanada would not
receive one dime extra as a result of cost overruns. Therefore,
it is "hogwash" that TransCanada would not be motivated to
prevent cost overruns, he said. The loan guarantee would be a
structure that allows the U.S. government to bear some of the
risk of recovery instead of recovery from a surcharge by
TransCanada if gas prices were higher rather than lower.
1:31:24 PM
MR. PALMER commenced to slide 4 of his presentation and
continued discussing the elements of a successful project. Like
any commercial party, he said, TransCanada needs the support of
governments and communities [listed on slide 4 as the U.S.,
Canada, Alaska, Yukon, British Columbia, Alberta, Alaska
Natives, Canadian First Nations, landowners, and other
stakeholders]. Of course TransCanada also needs commercial
contracts with shippers, he continued. He said the photograph
of prairie land on slide 4 shows that the revegetation makes it
hard to tell that this is a pipeline right-of-way.
CO-CHAIR NEUMAN interjected that Mr. Palmer told him earlier
that hunters will not have access up and down the right-of-way.
1:32:16 PM
MR. PALMER said the final element for success is measured and
focused project planning, structure, and performance, along with
a proven project developer. TransCanada has a 50-year track
record of success in multi-jurisdictional pipeline projects, he
opined. TransCanada currently has a $12 billion oil pipeline
under construction that will move more than a million barrels of
oil from western Canada to Illinois and ultimately to Houston.
He noted that the photograph on slide 5 depicts the construction
phase of the revegetated right-of-way that was shown on slide 4.
He explained that the pipeline is first strung alongside the
trench and then buried a few days later.
MR. PALMER, in response to Co-Chair Neuman, stated that
TransCanada's current proposal is for a 48-inch diameter steel
pipeline with just over one inch of wall thickness. Since it is
X80 it will withstand 80,000 pounds of pressure per square inch
(PSI), he explained. The pipeline will be at 2500 PSI in Alaska
and 2600 PSI in Canada. Stringing of the pipeline along the
right-of-way will occur in one year and actual construction will
occur for two years following. Thus, the pipeline will look
like the photograph on slide 5 for a period of 6-12 months in
each location.
1:35:16 PM
CO-CHAIR NEUMAN inquired how TransCanada plans to deal with the
social pressures that could occur during the construction phase
of the gas pipeline.
MR. PALMER replied that TransCanada expects to locate
construction staff in enclosed camps. He said there will be
6,000-8,000 workers on the construction teams in Alaska during
the two-year construction phase, a more modest amount during the
pre-construction phase, and a very small number of people at
post-construction which is also the case right now. The teams
will be moving and located in different spreads. He
acknowledged that socio-economic impacts could happen because
this is industrial development. However, TransCanada is well
experienced in managing this and will work with the appropriate
state and federal agencies to manage those to the best of
everyone's ability. Once completed, there will be a massive
financial benefit as well as access to gas off and on for
Alaskans. That is the trade-off with any industrial
development, he opined, although natural gas pipelines are
relatively benign.
1:37:19 PM
MR. PALMER, in response to Representative Wilson, said he does
not yet know specifically how far apart the staging areas will
be along the pipeline because that is still in development. The
pipeline is approximately 750 miles from Prudhoe Bay, whether
measured to the Canadian border or to Valdez, and four to six
locations of workers could be expected. Pipeline would be
strung the year before all along the right-of-way in central
locations that are accessible so pipe does not have to be hauled
for hundreds of miles. If the pipeline goes to the Lower 48
through Alberta, TransCanada contemplates six compressor
stations spaced about 120 miles apart along the 750 mile
distance, and each of these would be an industrial site.
1:39:11 PM
REPRESENTATIVE KAWASAKI commented that one of the biggest
elements for a successful project has to be the commercial
contracts. How far has TransCanada gotten with potential
shippers at this time, he inquired.
CO-CHAIR NEUMAN interjected that the committee will be getting
into this in a lot more depth and requested that Mr. Palmer keep
his response brief.
MR. PALMER advised that discussions between a pipeline company
and potential customers are confidential until a deal is struck.
Results of negotiations are normally seen at the end of an open
season and at this point one would see who the potential
customers are and what their volumes are. He said he can share
with the committee that TransCanada has had discussions with
potential customers that want delivery within Alaska, that want
delivery on the way to the Lower 48 through Alberta, and that
want delivery to Asia.
1:40:55 PM
CO-CHAIR NEUMAN asked what TransCanada is doing to ensure that
Alaska's small construction companies have an opportunity to
participate in the project.
MR. PALMER responded that some small contractors have already
participated in the project. He said there will be a general
contractor that may or may not be a party as described by Co-
Chair Neuman, but there will be subcontracting opportunities
that TransCanada will be enforcing to allow parties to
participate. TransCanada is committed to that on all of its
projects, he added.
1:42:11 PM
MR. PALMER resumed his presentation, noting that most members
are familiar with the project schedule depicted on slide 6. He
said the only exception to the schedule is that the AGIA license
was issued on December 5, 2008, rather than the assumed date of
August 2008. Despite this four-month delay, July 2010 remains
TransCanada's target date for concluding the open season. At
that point TransCanada will know who the potential customers
are, whether they have committed their gas, and for what
volumes.
CO-CHAIR NEUMAN recalled that last year TransCanada testified
the project could be delayed up to a year if the license was not
received by the end of July or summer working season. What has
changed to make it possible for TransCanada to still meet its
completion date, he asked.
MR. PALMER replied, "Note that I was careful to say our 'target
date' is July of 2010." Following legislative approval, he
continued, TransCanada advanced the project in August [2008]
using its own monies that will not be reimbursed under AGIA
because they were expended prior to December 5, [2008]. This
was done to try to maintain the targets in that schedule.
1:44:25 PM
MR. PALMER commenced to slide 7 and outlined TransCanada's key
objectives for the next 18 months: develop a Class IV cost
estimate to support the open season; identify the pipeline
routing within a corridor to be more specific and provide the
ability to respond to questions; execute the preliminary
environmental work to prepare for pre-filing; and conduct a
successful open season.
MR. PALMER, in response to Co-Chair Neuman, explained that at
this phase in an open season the engineering standard is to have
a Class IV cost estimate. For the AGIA application, TransCanada
provided a Class V estimate. At the time of filing with the
Federal Energy Regulatory Commission (FERC) in 2014, TransCanada
will have a Class III cost estimate. A Class I estimate only
occurs when the pipeline project is complete and ready to go
into service. This engineering standard provides a high quality
estimate at certain stages of a project.
1:46:49 PM
CO-CHAIR NEUMAN offered his belief that Denali wanted to have a
Class II proposal at open season.
MR. PALMER said he can only speak to TransCanada's standard. He
reiterated that the industry standard at this stage for open
season is a Class IV estimate and a Class III estimate when
going to FERC.
MR. PALMER, in response to Representative Wilson, further
explained that accuracy is gradually increased as one goes
forward. Any cost estimate prepared today cannot be completely
accurate for costs that will not be incurred for another five
years, he said. No one can get an accurate price today without
pre-committing or pre-ordering. Pre-committing for steel today
means prepaying today. He assured members that TransCanada has
been very focused on spending money on things that will improve
the accuracy.
1:49:06 PM
MR. PALMER returned to his presentation and reviewed the
engineering work completed by TransCanada to date (slide 8):
aerial photography [for Alaska], plans, logistics, commencement
of terrain mapping [in Alaska], completion of 360 degree video
in Canada, and collection of frost heave research. In the first
two quarters of 2009, he continued, TransCanada expects to:
complete the terrain mapping and winter geotechnical field
program in Alaska, continue route reconnaissance and corridor
selection [in Alaska], and begin the pre-front-end engineering
and design (Pre-FEED) for the gas treatment plant (GTP). He
said the picture on slide 8 shows a two-man team at work
drilling bore holes for the winter geotechnical program to
provide a good understanding of the soil in Alaska. This
information has already been obtained for Canada, he added.
MR. PALMER, in response to Representative Seaton, explained that
a camera is put on the bottom of a helicopter and a 360 degree
video is shot as the helicopter flies the length of the right-
of-way. This video can be played on a computer and stopped at
any location for a 360 degree look. As the engineers develop
the design, they can then play the video to view the elevation,
terrain, and structures at any location without having to go
back into the field.
1:52:00 PM
MR. PALMER, in response to Representative Wilson, said that
TransCanada's proposal is for a chilled natural gas system. The
gas will be kept near the freezing point and the pipeline will
be set on a bed of gravel to minimize potential movement from
permafrost.
MR. PALMER, in response to Co-Chair Neuman, defined some
acronyms: GTP is the gas treatment plant at Prudhoe Bay where
carbon dioxide and other impurities will be removed to make the
gas into pipeline quality; and FEED is front-end engineering and
design, so Pre-FEED is the preliminary work on the gas treatment
plant. That contract will be let before the end of second
quarter 2009, he added.
1:53:46 PM
REPRESENTATIVE SEATON recalled that the preferred scenario would
have had the producers owning the GTP instead of the pipeline
owner.
MR. PALMER answered that it remains TransCanada's wish for
producers to own the gas treatment plant. Because TransCanada
has an obligation to meet a timeframe for the open season it
must advance the project without an arrangement for the plant
with producers. TransCanada will transition if successful in
arranging for other parties to take over the GTP prior to the
open season.
1:55:15 PM
MR. PALMER, in response to Co-Chair Neuman, specified that the
$26 billion project cost estimate includes the gas treatment
plant. He recalled that about $6 billion of the $26 billion is
for this massive gas treatment plant. Since TransCanada has no
ownership of any existing facilities at Prudhoe Bay, the GTP
will be a stand-alone facility. The GTP could probably be built
at less cost if it was constructed and owned by the parties
already at Prudhoe Bay, he said, which is one reason why
TransCanada's proposal included ownership of the GTP by third
parties such as those producers. TransCanada plans to construct
the GTP on a similar schedule as the gas pipeline and is
examining whether this will require a two-year or a three-year
sealift.
CO-CHAIR NEUMAN surmised that TransCanada is prepared to go
forward with anything it needs to do to get a gas pipeline
flowing.
MR. PALMER replied, "Yes, we clearly believe that our particular
skill set is focused on the gas pipeline, but ... we have owned
very large gas plants before and in the event that we have to
again we will do so."
1:57:04 PM
MR. PALMER resumed his presentation and outlined the status of
TransCanada's environmental work (slide 9). To date, the Global
Information System (GIS) needs have been established to support
environmental planning and permitting, he said. The preliminary
environmental constraints report [for Alaska routing] has been
completed and so has the initial route update review in Canada.
During the first two quarters of 2009, he continued, TransCanada
will complete the environmental information needs analysis with
regulatory agencies and commence development of a request for
proposals (RFP) for the environmental contractor which will be
issued in third quarter 2009. He noted that the two photographs
on slide 9 show a pipeline right-of-way at a river crossing.
The photograph on the left was taken during construction and the
one on the right was taken after reclamation and revegetation.
River crossings in Alaska will be directional drilled when it is
economical and open cut when it is not.
MR. PALMER, in response to Co-Chair Neuman, stated that
TransCanada's current contractor for the current stage of the
project is an Alaska Anchorage-based contractor. He said
TransCanada expects that Alaskans will also be competitive in
third quarter 2009 for the longer term.
1:59:51 PM
MR. PALMER continued his presentation. Regarding the status of
regulatory and permitting work (slide 10), he said TransCanada
has completed the preliminary environmental permitting strategy
for Alaska and Canada and has submitted all permit applications
to the appropriate agencies for the winter geotechnical program.
During first and second quarters 2009, TransCanada will complete
the permitting for the winter geotechnical field program, will
continue discussions with FERC, and will commence discussions
with individual agencies to update the Environmental Information
Needs Analysis. He said slide 11 lists the U.S. multi-agency
meetings that TransCanada has already kicked off this month in
Alaska and Washington, D.C.
MR. PALMER, in response to Representative Guttenberg, advised
that TransCanada has to date been able to move the project
forward and stay on schedule without a State of Alaska gas
pipeline coordinator in place. He said TransCanada is pleased
to see that the position is now filled and looks forward to
working with Mr. [Mike] Myers. In further response to
Representative Guttenberg, Mr. Palmer said he has not yet met
with Mr. Myers.
2:02:30 PM
MR. PALMER, in response to Representative Seaton, said that he,
too, recalls that FERC requested TransCanada to prefile earlier
than the currently scheduled date [of April 2011]. And FERC
continues to keep this position, he added. TransCanada is
continuing discussions with the agency to see if the objectives
for both FERC and TransCanada can be met by having an earlier
prefiling. TransCanada's focus is cost and schedule, something
that at this stage it has control over; once there is a
prefiling some of that control shifts to FERC. He said he
cannot tell the committee that TransCanada is ready to change
its prefiling date at this point, but TransCanada hopes a
solution can be found that works for both parties. In further
response to Representative Seaton, Mr. Palmer explained that
TransCanada is currently directly involved in stakeholder
engagement. Once prefiled that is something that FERC would
have a greater involvement with and FERC would normally retain a
third party contractor which the applicant, TransCanada, would
pay for. Also, FERC would coordinate federal agencies and work
with the federal coordinator. There are a number of matters
that TransCanada is open to discussing with FERC, he said, and
discussions to date have been positive.
2:06:00 PM
REPRESENTATIVE SEATON surmised that the responsibilities of the
federal coordinator and FERC are not yet resolved in Mr.
Palmer's mind.
MR. PALMER answered that he did not mean to imply that.
TransCanada has met with both agencies and they should speak for
themselves as to how they would coordinate with each other once
TransCanada prefiles, he said. At the moment FERC's role is
less specific than it would be after TransCanada has prefiled.
To date that has not affected TransCanada's schedule and there
have been no negative implications for the schedule.
TransCanada is very pleased with the relations it has with both
entities.
2:08:11 PM
MR. PALMER, in response to Representative Wilson, said
TransCanada has 12,000 miles of pipeline in the United States,
so it is very familiar with dealing with the U.S. government and
regulatory agencies, including FERC. It has been TransCanada's
experience that prefiles for gas pipeline projects occur post
open season which is the norm, he continued. So that is the
basis on which TransCanada developed this schedule. In further
response to Representative Wilson, Mr. Palmer said he is unaware
of FERC asking for a prefiling before the open season on any of
TransCanada's other gas pipelines under construction in the
U.S., but FERC is asking for that on the Alaska gas pipeline.
MR. PALMER, in response to Representative Seaton, stated that
the third-party contractor would generally be FERC's party for
overseeing the Environmental Impact Statement (EIS). That would
be a substantial contract and it would be in FERC's control once
there is a prefiling by TransCanada. That is something
TransCanada will be discussing with FERC, he said.
2:12:01 PM
MR. PALMER, in response to Representative Olson, confirmed that
the volume for the pipeline proposed by TransCanada to go
through Alaska and Alberta would be 4.5 billion cubic feet (BCF)
per day. The ultimate volume will be determined by what
TransCanada receives in the open season, either volumes to the
Lower 48 or volumes to LNG.
REPRESENTATIVE OLSON recalled that either the Department of
Natural Resources (DNR) or TransCanada said the approximate 4
BCF per day could be reached without Point Thomson gas or
"Foothill" gas.
MR. PALMER replied he did not think that was his testimony, so
it must have been the administration's. TransCanada will seek
access to all potential gas, he said, but TransCanada is clearly
not in control of what gas will be available because that is
something that governments and producers do.
2:12:57 PM
REPRESENTATIVE OLSON inquired whether a 1 BCF/day bullet line to
Cook Inlet would impact the TransCanada pipeline if
TransCanada's gas is solely from the Foothills, other than the
ramifications that might be triggered under the AGIA contract.
MR. PALMER said he will not speak to the ramifications under the
AGIA contract since those are well known to the committee.
TransCanada believes that the State of Alaska wants to have in-
state gas deliveries as well as a large line to export the
surplus gas to the marketplace. There is a lot of proven gas at
Prudhoe Bay, Point Thomson, and other locations, he said.
However, there is not sufficient gas for 25 years from those
existing fields based on today's information. TransCanada does
expect to draw on exploration and thinks that encouraging
exploration is one of the goals of AGIA. TransCanada certainly
hopes that future gas found on the North Slope or the Foothills
would be available to the pipeline that exports gas out of
Alaska and that TransCanada will have the chance to compete for
that gas.
2:15:04 PM
CO-CHAIR NEUMAN asked whether 4 BCF/day is the minimum amount of
gas necessary for making the pipeline financially viable.
MR. PALMER said he thinks what he has testified to is that
TransCanada expects that customers wanting to go through Alberta
on the way to the Lower 48 would want to see a pipeline that
would move at least 3.5 BCF/day because of economies of scale.
He said the LNG project would probably be economic for a much
lower volume than that and he thinks TransCanada has looked at a
2 BCF/day potential volume for that project. TransCanada could
construct a 2 BCF/day pipeline through Alaska on the way to
Alberta, but the economics would be much less attractive than
the $2.76 that the committee was shown earlier.
CO-CHAIR NEUMAN opined that it is critical for Alaska to not put
all of its eggs in one basket and to diversify through such
things as added-value processing, especially given all the
competition from other gas production projects in the Lower 48.
He understood the economy of scale for a pipeline to
Southcentral Alaska to be a minimum of 1 BCF/day or the tariffs
would be too high.
2:18:28 PM
MR. PALMER moved to slide 12 and reviewed the status of
TransCanada's work regarding the commercial side of the project.
He said TransCanada has continued discussions with potential
shippers and in first and second quarter 2009 TransCanada will:
select a contractor for an in-state gas study, continue
discussions with potential shippers, and continue to develop
plans for an open season. He noted that the left picture on
slide 12 depicts what the haul road along the pipeline right-of-
way would look like during construction and the right picture is
of a compressor station. Initially, for a 4.5 BCF per day
system, there would be six compressor stations spaced about 120
miles apart along the pipeline in Alaska. A compressor building
is two times the height of a two-story house and about one-sixth
the height of a 1.5 megawatt wind tower. The industrial site
for a compressor station is about 1,000 feet by 1,000 feet which
is one-sixth to one-eighth the footprint between two 1.5
megawatt wind towers.
MR. PALMER, in response to Representative Seaton, explained that
AGIA requires TransCanada to look at what Alaska's needs are for
gas consumption within the state. Thus, TransCanada will be
contracting a party that is expert in forecasting in this
regard.
2:21:43 PM
MR. PALMER delineated the project's administrative status (slide
13). An Anchorage office was leased on December 1, 2008, and
TransCanada has dedicated project office space in Calgary,
Alberta, he said. Regarding reimbursement under AGIA,
TransCanada has had initial discussions with the Palin
Administration regarding the process and mechanics. TransCanada
has also initiated the required cost reimbursements with the
State of Alaska and with the U.S. Bureau of Land Management
(BLM) for open season field activities, including the winter
2009 geotechnical program. The reimbursement agreements must be
in place with both the state and BLM in order for TransCanada to
be allowed to do the winter 2009 geotechnical work, he said.
The Anchorage office will be in place in early February 2009 and
TransCanada expects to have the office manager hired by next
week. Discussions with the state on AGIA reimbursement details
must be finalized by the end of March because that is the end of
the first quarter and subsequently TransCanada must submit its
invoices to the state for reimbursement. TransCanada must also
finalize its reimbursement agreements with BLM and DNR for
access and permits, which it hopes to do very shortly because
that work needs to be done this winter.
2:23:43 PM
MR. PALMER, in response to Co-Chair Neuman, said the majority of
work to date has been done by contractors and will continue to
be done by contractors, and the office manager will be employed
directly by TransCanada. He outlined the contractors that
TransCanada has retained (slide 14): Aero-Metric, Inc. of
Anchorage for the aerial photography, five full-time equivalents
(FTEs) for seven weeks, subcontractor Lounsbury & Associates,
Inc. of Anchorage, three FTEs for three weeks; R&M Consultants,
Inc. of Anchorage for the terrain mapping, six FTEs; Golder
Associates, Inc. of Anchorage for the geotechnical fieldwork,
six FTEs for sixteen weeks, subcontractor Discovery Drilling,
Inc. of Anchorage, seven FTEs for twelve weeks; ENSR AECOM of
Anchorage for the environmental planning and permitting,
subcontractor Clarus Technologies, LLC of Eagle River, two and
one-half FTEs; Northern Engineering and Scientific of Anchorage
for the geothermal modeling and support, one and one-half FTEs;
and Jade North of Anchorage for external relations, one FTE.
2:26:23 PM
CO-CHAIR NEUMAN inquired what TransCanada will be doing outside
of Anchorage to ensure that smaller companies located in other
Alaska communities will be included.
MR. PALMER replied that TransCanada looked at both Anchorage and
Fairbanks for locating its Alaska office and decided that
Anchorage was the most appropriate place for the early phase of
the project. It is likely there will be other office locations
as the project proceeds, particularly in Fairbanks, he said. As
TransCanada goes forward it will look at other locations while
always assessing the benefits to Alaska, but keeping in mind the
project costs and project schedule.
CO-CHAIR NEUMAN offered his belief that Fairbanks legislators
will be making sure that their constituents are represented.
MR. PALMER responded that TransCanada is very cognizant of that,
but must focus on the type of work proceeding at this stage
during the open season relative to the more active right-of-way
work which will occur after open season.
2:28:40 PM
MR. PALMER next discussed the project status for alignment
meetings (slide 15). He said TransCanada has met with Alyeska
Pipeline Service Company ("Alyeska"), Alaska Natural Gas
Development Authority (ANGDA), ENSTAR Natural Gas Company
("ENSTAR"), Alaska Department of Transportation & Public
Facilities (DOT&PF), and Alaska Department of Labor & Workforce
Development (DLWD). TransCanada has started addressing Alaska
Natives and socio-economic issues, he continued, and will be
meeting with the North Slope Borough later this week.
MR. PALMER, in response to Co-Chair Neuman, explained that the
discussions with Alyeska are in regard to how TransCanada will
be accessing Alyeska's current right-of-way. Discussions with
ANGDA and ENSTAR are solely for interface and information-
sharing purposes so that all parties can stay abreast of the
progress on each other's respective pipeline projects.
2:31:07 PM
MR. PALMER, in response to Co-Chair Neuman, said TransCanada has
been attending the AGIA Training Plan Steering and
Implementation Committee seminars, but has not committed at this
point to investing [workforce] training dollars, although the
State of Alaska has done so. Training of individuals for this
project is something that normally governments would undertake,
not proponents.
CO-CHAIR NEUMAN commented that it is nice to have a training
partnership between industry and the government on these
projects.
MR. PALMER agreed with Co-Chair Neuman and noted that
TransCanada continues to meet its obligations and has clearly
shown its intention of having Alaskans engaged on this project.
The government of Alaska has indicated that it will be making
contributions and there have been indications over time as to
what the federal government will do, he said. The majority of
the several thousand workers needed for the pipeline's two-year
construction phase will need to be redeployed into other
industries, hopefully gas exploration and production, because
only 50-75 people will be needed to operate the pipeline once it
is in service.
2:33:54 PM
REPRESENTATIVE SEATON understood that ANGDA is trying to
complete its pipeline construction prior to the start of
TransCanada's project in order to avoid competition for the
workforce. Has there been any coordination for moving workers
from ANGDA's project to TransCanada's, he asked.
MR. PALMER answered that there is no formal process at the
present time, but that clearly those employees would be very
attractive to other contractors and TransCanada. Coordinating
plans is one of the reasons TransCanada is talking with ANGDA
and ENSTAR.
2:35:26 PM
MR. PALMER, at Representative Olson's request, updated members
regarding the status of Canada's First Nations. He said that
for the past 25 years TransCanada has held a valid right-of-way
through the entire Yukon for this project, and no other party
has that. Within the Yukon, six of the eight right-of-way First
Nations have settled their land claims and TransCanada's right-
of-way is specifically recognized in each of the six final land
claims. He said that despite there being two unsettled land
claims, the umbrella final agreement established between the
government of Canada, the government of Yukon, and all Yukon
First Nations in 1993, 10 years after the right-of-way was
established, specifically highlights and identifies
TransCanada's right-of-way and specifically says that this
right-of-way will be recognized in every completed First Nation
land claim. Although, TransCanada has no control over when the
remaining two land claims will be completed, it can proceed
under its right-of-way. In British Columbia, TransCanada does
not have a right-of-way, but it does have what is called a map
reserve. Given that there are already thousands of miles of
pipe in the ground moving gas, TransCanada is confident it can
achieve [a right-of-way] as well. He said he cannot speak for
First Nations as to whether they support the project, but
TransCanada will be seeking their support very soon this year.
In further response to Representative Olson, Mr. Palmer said he
is optimistic regarding the First Nations.
2:38:08 PM
REPRESENTATIVE GUTTENBERG offered his belief that Alaska's
people got the short end of the stick during construction of the
Alyeska pipeline and North Slope infrastructure. He pointed out
that the subcontractors named by Mr. Palmer are predominantly
from Southcentral Alaska, but that he imagines there will be
field offices somewhere along the pipeline route. He warned
that at some point Mr. Palmer will be asked whether the people
filling the subcontractor's FTE's have received a permanent fund
dividend within the past year or two. Representative Guttenberg
urged that TransCanada have hiring halls or facilities within
the state and said that legislators will be looking over
TransCanada's shoulder to see who gets these opportunities. He
related that his generation of Alaskan workers usually had as
many as six different skills, yet people with no skills were
brought up from other states because they knew somebody.
MR. PALMER said he appreciated Representative Guttenberg's
comments and noted that TransCanada is only seven weeks into the
AGIA license. He assured members that as TransCanada ramps up
its work, it will do its utmost to be responsive in this regard.
2:42:12 PM
REPRESENTATIVE EDGMON inquired as to when the AGIA provisions
for a project labor agreement kick in.
MR. PALMER said he is unsure, but thinks TransCanada must do
that before getting to project sanction.
CO-CHAIR NEUMAN, in response to Representative Edgmon, suggested
that the administration could be brought in to address the
project labor agreement.
2:43:25 PM
MR. PALMER summarized his presentation (slide 16): the AGIA
bill was approved and the license issued December 2008;
significant work is underway; commercial and regulatory
engagement has been commenced; Alaska contractors have been
retained, an Anchorage office is in place; conclusion of open
season is targeted for summer 2010; and TransCanada is focused
on costs, schedule, and attracting customers.
MR. PALMER, in response to Representative Edgmon, said that
TransCanada presently plans to fuel the compressor stations with
natural gas. Some of TransCanada's compressor stations across
North America are fueled with natural gas and some are fired
with electricity depending on the economics. In some instances,
he continued, TransCanada generates electricity from those
compressor stations fueled with natural gas, however this
requires proximity to a user or access to economical
transmission. TransCanada does not yet know if this is a
possibility, but it is something that will be looked at.
2:47:40 PM
MR. PALMER, in response to Representative Kawasaki, stated that
in Canada there are 10-15 TransCanada employees currently
dedicated to the Alaska project, as well as some employees who
are called upon when their skills are needed. TransCanada is
structured so that each of its projects has dedicated employees
as well as part-time employees who work on multiple projects.
This integration provides low cost service and efficient, high
level skills to TransCanada's projects.
CO-CHAIR NEUMAN requested Mr. Palmer to submit to the committee
an idea of the employment opportunities that will be available
on the Canadian side for Alaskans.
MR. PALMER, in response to Representative Seaton, related that
TransCanada proposed in its AGIA application to expend $84
million by the conclusion of the open season in July 2010, and
that this is still TransCanada's estimate. He understood that
last year the legislature appropriated $30 million in AGIA
reimbursements, and that this year's budget request is for $20
million. He said he thinks TransCanada's estimate through the
FERC certificate was for $611 million, which includes the $84
million, and TransCanada will update these estimates as time
goes forward.
2:51:51 PM
MR. PALMER, in response to Representative Olson, reiterated that
at the present time TransCanada believes its current project
schedule is achievable. The license was received four months
later than expected so some time was lost, he said, but
TransCanada did some preliminary work at its own cost and is
doing its utmost to maintain this schedule. However, he said he
will not represent to members that there is zero possibility of
the open season slipping from July 31, 2010, given that the
license was received four months later than expected.
REPRESENTATIVE OLSON recalled that in July 2008, Mr. Palmer had
indicated that not getting the contract immediately would
probably not have an impact.
MR. PALMER recollected that "at that time we did not know the
final date for the schedule." He said that if he did say at the
time that it was probably not going to have an impact, then he
will continue to say it is probably not going to have an impact.
That is quite different than saying "I can't foresee any
scenario," he contended. "I would absolutely say today that it
is probably not going to have an impact."
2:54:05 PM
REPRESENTATIVE GUTTENBERG offered his observation that the world
has been upside down since last summer when this was being
worked on. TransCanada only signed the contract in December
2008 and members are asking Mr. Palmer why pipe is not being
ordered.
CO-CHAIR NEUMAN welcomed Representative Tuck to the committee
and urged him to get as up-to-date as possible on the gas
pipeline issue.
2:55:55 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:55 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| TransCanada Presentation 1.26.09.pdf |
HRES 1/26/2009 1:00:00 PM |