Legislature(2009 - 2010)Anch LIO Rm 220

06/16/2010 01:30 PM House RESOURCES


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01:43:15 PM Start
01:43:41 PM Presentation and Update from Denali-the Alaska Gas Pipeline, Llc's Open Season
03:46:17 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Joint w/Senate Resources Committee TELECONFERENCED
Presentation and Update from Denali-
The Alaska Gas Pipeline, LLC's Open
Season
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                       Anchorage, Alaska                                                                                        
                         June 16, 2010                                                                                          
                           1:43 p.m.                                                                                            
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
HOUSE RESOURCES                                                                                                                 
                                                                                                                                
 Representative Craig Johnson, Co-Chair                                                                                         
 Representative Mark Neuman, Co-Chair                                                                                           
 Representative Paul Seaton (via teleconference)                                                                                
 Representative Peggy Wilson (via teleconference)                                                                               
 Representative David Guttenberg (via teleconference)                                                                           
 Representative Scott Kawasaki (via teleconference)                                                                             
 Representative Chris Tuck (via teleconference)                                                                                 
                                                                                                                                
SENATE RESOURCES                                                                                                                
                                                                                                                                
 Senator Lesil McGuire, Co-Chair                                                                                                
 Senator Bill Wielechowski, Co-Chair                                                                                            
 Senator Hollis French                                                                                                          
 Senator Bert Stedman                                                                                                           
 Senator Gary Stevens (via teleconference)                                                                                      
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
HOUSE RESOURCES                                                                                                                 
                                                                                                                                
 Representative Bryce Edgmon                                                                                                    
 Representative Kurt Olson                                                                                                      
                                                                                                                                
SENATE RESOURCES                                                                                                                
                                                                                                                                
 Senator Charlie Huggins, Vice Chair                                                                                            
 Senator Thomas Wagoner                                                                                                         
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
 Representative Carl Gatto                                                                                                      
 Representative Jay Ramras                                                                                                      
 Senator Joe Thomas (via teleconference)                                                                                        
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION  AND UPDATE  FROM  DENALI-THE  ALASKA GAS  PIPELINE,                                                               
LLC'S OPEN SEASON                                                                                                               
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
BUD FACKRELL, President                                                                                                         
Denali - The Alaska Gas Pipeline, LLC                                                                                           
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Provided a  presentation entitled  "Denali                                                             
Project Update."                                                                                                                
                                                                                                                                
ROBERTO REICHARD, Vice President                                                                                                
Gas Treatment Plant                                                                                                             
Denali - The Alaska Gas Pipeline, LLC                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Reviewed the Gas Treatment Project.                                                                      
                                                                                                                                
KRIS FUHR, Vice President                                                                                                       
Project Mainline                                                                                                                
Denali - The Alaska Gas Pipeline, LLC                                                                                           
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Continued the  presentation regarding  the                                                             
mainline and transmission lines.                                                                                                
                                                                                                                                
SCOTT JEPSEN, Vice President                                                                                                    
Business Services                                                                                                               
Denali - The Alaska Gas Pipeline, LLC                                                                                           
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:    During the  presentation,  discussed  the                                                             
commercial offer.                                                                                                               
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:43:15 PM                                                                                                                    
                                                                                                                                
CO-CHAIR LESIL  MCGUIRE called  the joint  meeting of  the Senate                                                             
and Senate  Resources Standing Committees  to order at  1:43 p.m.                                                               
Representatives Johnson, Neuman,  P. Wilson (via teleconference),                                                               
Seaton  (via  teleconference), Guttenberg  (via  teleconference),                                                               
and   Kawasaki  (via   teleconference)   and  Senators   McGuire,                                                               
Wielechowski, French,  Stedman, and Stevens  (via teleconference)                                                               
were  present at  the call  to order.   Representative  Tuck (via                                                               
teleconference) arrived as the meeting  was in progress.  Also in                                                               
attendance  were Representatives  Gatto  and  Ramras and  Senator                                                               
Thomas.                                                                                                                         
                                                                                                                                
^Presentation  and Update  from Denali-The  Alaska Gas  Pipeline,                                                               
LLC's Open Season                                                                                                               
  Presentation and Update from Denali-The Alaska Gas Pipeline,                                                              
                       LLC's Open Season                                                                                    
                                                                                                                                
1:43:41 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON announced that the  only order of business would                                                               
be  the presentation  and update  from  Denali -  The Alaska  Gas                                                               
Pipeline, LLC's open season.                                                                                                    
                                                                                                                                
1:44:20 PM                                                                                                                    
                                                                                                                                
BUD FACKRELL, President,  Denali - The Alaska  Gas Pipeline, LLC,                                                               
said he  would begin with a  summary of the technical  offer from                                                               
Denali - The Alaska Gas  Pipeline, LLC, ("Denali").  Referring to                                                               
slide 3, Mr. Fackrell reminded  the committees that Denali's open                                                               
season  plan  was  approved  by  the  Federal  Energy  Regulatory                                                               
Commission (FERC) and open season  will begin July 6 and conclude                                                               
on October 4,  2010.  The open season plan  was before the public                                                               
and comments  were received for  90 days  prior to that.   During                                                               
open  season, Denali  will seek  binding agreements.   To  move a                                                               
pipeline  of this  size forward  firm transportation  commitments                                                               
are  required,  which  begins  with  precedent  agreements  being                                                               
signed during open season.                                                                                                      
                                                                                                                                
1:48:51 PM                                                                                                                    
                                                                                                                                
MR. FACKRELL,  in response to  Co-Chair Neuman, explained  that a                                                               
nonbinding open season  is one in which interest  is solicited in                                                               
a  project, but  no commitment  is being  requested.   Whereas, a                                                               
binding open season is one  in which signatures are obtained such                                                               
that both parties, the transporter  and shippers, are bound to an                                                               
agreement.   An  agreement at  this stage  would have  conditions                                                               
precedent.  During  the 90-day period [prior to  the open season]                                                               
the  work focuses  on identifying  those conditions  precedent by                                                               
the transporter and  the shipper.  Denali  has already identified                                                               
its conditions precedent  in the offer forwarded  during the open                                                               
season  plan.   Therefore, as  Denali proceeds  through the  open                                                               
season,  it  will determine  the  conditions  precedent with  the                                                               
shippers  if  they decide  to  sign  something.   After  that,  a                                                               
timeframe is  established to resolve the  conditions precedent in                                                               
order to achieve  a binding agreement.  The next  step is then to                                                               
sign a firm transportation service agreement.                                                                                   
                                                                                                                                
1:50:18 PM                                                                                                                    
                                                                                                                                
MR.  FACKRELL, returning  to slide  3, opined  that Denali  has a                                                               
high quality  design and project  execution plan as  is evidenced                                                               
by the following.  Denali  invested over $140 million and 670,000                                                               
man-hours [since  2008].  Furthermore,  Denali brings  decades of                                                               
arctic, mega-project  pipeline experience and has  engaged world-                                                               
class  engineering firms,  such as  Bechtel, Fluor/WorleyParsons,                                                               
and  CH2MHILL.   Additionally,  Denali  has  gathered field  data                                                               
during  this  two-year  period   of  time  and  incorporated  the                                                               
numerous  studies  that have  been  performed  over the  last  30                                                               
years.   He related that Denali  is confident that it  has a high                                                               
quality  design,  which  is  important as  Denali  is  trying  to                                                               
convince shippers  that they  know the cost  of the  pipeline and                                                               
the  risk and  uncertainties of  it.   Mr. Fackrell  acknowledged                                                               
that  the Alaska  gas pipeline  is an  enormous undertaking  with                                                               
significant risk.   In the  commercial offering, Denali  tried to                                                               
address those  risks in  order to avoid  asking shippers  to take                                                               
unreasonable risks too early in the life of the project.                                                                        
                                                                                                                                
1:52:12 PM                                                                                                                    
                                                                                                                                
MR. FACKRELL, referring to slide  4, informed the committees that                                                               
the project is  designed to deliver 4.5 billion cubic  feet a day                                                               
(bcfd) of  gas from the North  Slope to North America.   The plan                                                               
is to have  six delivery, off-take, points in Alaska  and four in                                                               
Canada.   The  process starts  with a  large gas  treatment plant                                                               
(GTP) that  will remove  CO  and impurities  on the  North Slope,                                                               
                           2                                                                                                    
compress and chill the gas.   He noted that the GTP has unbundled                                                               
services such  that various services  can be chosen when  the gas                                                               
is processed.  The project  also includes transmission lines from                                                               
Prudhoe Bay  to the  GTP and  from Pont Thomson  to the  GTP. The                                                               
shippers can  decide whether to utilize  those transmission lines                                                               
or build them.   There is also a mainline  that goes from Prudhoe                                                               
Bay  to  Delta Junction  down  the  Trans-Alaska Pipeline  System                                                               
(TAPS)  highway  right-of-way  and  through  the  Yukon,  British                                                               
Columbia, and  into Western Alberta.   The Alaska portion  of the                                                               
mainline is over 700 miles long  while the Canada portion is over                                                               
1,000 miles long.  Mr.  Fackrell highlighted that there are three                                                               
off-take  points  in Alberta  to  feed  gas  to the  U.S.,  which                                                               
include  the  Spectra  Energy  Pipeline   System,  the  Nova  Gas                                                               
Transmission Ltd. system, and the  Alliance Pipeline Ltd. system.                                                               
Denali's project allows shippers to  nominate gas on any three of                                                               
those options.                                                                                                                  
                                                                                                                                
1:54:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON  inquired as to the location  of the six                                                               
delivery points in Alaska.                                                                                                      
                                                                                                                                
MR. FACKRELL informed  the committees that an  in-state gas study                                                               
was completed.   The study identifies the  delivery points within                                                               
the state,  including Fairbanks,  Delta Junction,  Livengood, and                                                               
at the GTP on the North Slope.                                                                                                  
                                                                                                                                
1:54:58 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN  recalled that TransCanada  is considering  a 48-                                                               
inch  line,  which   carries  5.5  bcf  a  day,   maximum.    The                                                               
aforementioned would  leave 1.0 bcf  a day since  TransCanada has                                                               
said it  needs 4.5 bcf  a day to  amortize its expenditures.   He                                                               
then inquired as to the size of pipe Denali is considering.                                                                     
                                                                                                                                
MR. FACKRELL answered a 48-inch pipe that's expandable.                                                                         
                                                                                                                                
1:55:47 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON inquired as to  what selection of services would                                                               
be available at the GTP.                                                                                                        
                                                                                                                                
MR.  FACKRELL explained  that part  of the  process requires  the                                                               
pipeline  company  to  offer unbundled  services  such  that  the                                                               
services  can't be  bundled  for one  tariff.   At  the GTP,  gas                                                               
treating services,  removing CO  and HS,  as well  as compression                                                               
                               22                                                                                               
and chilling services are being  offered.  A company could choose                                                               
to bypass  the gas treating portion  of the GTP if  there's sweet                                                               
gas, whereas a  company would elect to use both  services for gas                                                               
with CO at Prudhoe Bay.                                                                                                         
       2                                                                                                                        
                                                                                                                                
CO-CHAIR  JOHNSON  inquired  as   to  the  impact  of  [unbundled                                                               
services]  on the  tariff, particularly  for a  company that  has                                                               
sweet gas and can bypass the GTP.                                                                                               
                                                                                                                                
MR. FACKRELL  answered that it  would reduce the tariff  if there                                                               
is sweet gas that the company chooses not to process.                                                                           
                                                                                                                                
CO-CHAIR JOHNSON  related his understanding  that the  tariff for                                                               
the company  with the sweet  gas would  be reduced, but  he asked                                                               
whether those companies that have  gas requiring processing would                                                               
face an increased tariff.                                                                                                       
                                                                                                                                
MR. FACKRELL clarified  that the gas is processed on  a Btu value                                                               
and the  tariffs are based  on a Btu  value.  Therefore,  the Btu                                                               
value is measured, which excludes the sour gas.                                                                                 
                                                                                                                                
CO-CHAIR JOHNSON  surmised then  that a  producer with  the sweet                                                               
gas  will have  a lower  tariff than  a producer  with a  dirtier                                                               
product.                                                                                                                        
                                                                                                                                
MR. FACKRELL replied  yes, adding that's because  a producer with                                                               
the sweet gas doesn't have to  perform gas treating to remove it.                                                               
In further  response to Co-Chair Johnson,  Mr. Fackrell confirmed                                                               
that unbundled services are a FERC requirement.                                                                                 
                                                                                                                                
1:58:03 PM                                                                                                                    
                                                                                                                                
MR.  FACKRELL,  returning  to his  presentation,  continued  with                                                               
slide  5 entitled  "Key Metrics."   He  highlighted that  all the                                                               
costs  are in  2009  U.S.  dollar estimates.    There  is a  high                                                               
quality Class 4 cost estimate  of $35 billion, which includes the                                                               
GTP in  the portions of  the pipeline in  Canada and Alaska.   He                                                               
explained that the  project is referred to as  high quality Class                                                               
4 because  the project has met  all Class 4 requirements  as well                                                               
as  almost  all of  Class  3  cost  estimate requirements.    Mr.                                                               
Fackrell said that  Denali feels very confident  in its estimate.                                                               
He then related that the estimated  tariff from GTP to Alberta is                                                               
$2.67   per  million   Btus   (MMBtu).     He   noted  that   the                                                               
aforementioned  is in  today's  dollars.   When  the pipeline  is                                                               
built  and online  in  2020,  the estimated  tariff  from GTP  to                                                               
Alberta would  likely be $3.25 per  MMBtu.  That future  price is                                                               
based on  which prices escalate  as well  as other factors.   Mr.                                                               
Fackrell directed attention  to the cost and rate  summary of the                                                               
$35  billion.   The  GTP  cost $12.2  million,  which  is a  mega                                                               
project itself,  for which the  tariff for all its  services will                                                               
be $.90.   The cost of  the Alaska Mainline is  $10 billion while                                                               
the Canada Mainline is $12.5 billion, which totals $35 billion.                                                                 
                                                                                                                                
2:00:03 PM                                                                                                                    
                                                                                                                                
MR. FACKRELL then directed attention  to the timeline on slide 5.                                                               
He pointed out that the open  season will start in early July and                                                               
end  in early  October.   In the  success case,  Denali forecasts                                                               
that  it will  file  its certificate  of  public convenience  and                                                               
necessity (CPCN)  applications at the  end of 2014,  receive FERC                                                               
approval in  2013, and sanction the  project in early 2016.   The                                                               
aforementioned would result in first  delivery of gas in 2020 and                                                               
thereafter  the  trains  on  the  GTP will  be  ramped  up.    He                                                               
explained  that  currently  Denali   is  trying  to  provide  the                                                               
shippers confidence  in the cost  estimate.  The  underpinning of                                                               
such  is having  a high  quality team.   As  related on  slide 6,                                                               
Denali has leveraged over 30  years of historical technical work.                                                               
Furthermore,  Denali  has  a  very  experienced  core  team  with                                                               
decades of  projects and engineering experience  around the world                                                               
as  well  as  in  Alaska.     Moreover,  Denali  had  world-class                                                               
capabilities  and experienced  and  highly regarded  contractors.                                                               
He noted  that virtually every  major project constructed  on the                                                               
North  Slope was  built by  one of  Denali's owners.   Therefore,                                                               
Denali  has  the benefit  of  people  who  have worked  on  those                                                               
projects being  on this team  as well  as the processes  that the                                                               
two  owners  utilized.   Mr.  Fackrell  related that  Denali  has                                                               
already  had  many  conversations  with  the  shippers  who  have                                                               
expressed that they  are impressed by the  level of understanding                                                               
and the identified risk.                                                                                                        
                                                                                                                                
2:02:45 PM                                                                                                                    
                                                                                                                                
SENATOR FRENCH  inquired as  to how  many full-time  or full-time                                                               
equivalent staff are working on the Denali project.                                                                             
                                                                                                                                
MR. FACKRELL answered  that it varies depending  upon what Denali                                                               
is doing.   He related that at the peak  Denali employed about 90                                                               
employees, which  it referred  to as  its core  team, as  well as                                                               
dozens of  contractors.   He noted  that additionally  Denali has                                                               
engineering offices in Long Beach,  California, that employed 40-                                                               
50 employees.   There was also an engineering  office in Houston,                                                               
Texas,  where there  were 15-20  employees.   Denali also  has an                                                               
office in Canada as well as  the core team in Anchorage.  Turning                                                               
to slide  7, Mr. Fackrell  pointed out  that the slide  shows the                                                               
logos of  the many companies  that have or are  currently working                                                               
for Denali.  The important  take-away is that Denali has employed                                                               
large  engineering  contractors  and small  boutique  contractors                                                               
with  experience in  handling particular  parts of  the pipeline.                                                               
For example, Denali  has a contractor who has  handled almost all                                                               
of the sealifts on the North Slope over its history.                                                                            
                                                                                                                                
2:04:47 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NEUMAN  said he  hadn't  seen  information from  Denali                                                               
regarding  the  $18 billion  federal  loan  guarantee.   However,                                                               
TransCanada  is seeking  a doubling  of the  federal government's                                                               
loan  guarantees and  thus there  would be  $36 billion  worth of                                                               
federal  loan  guarantees  for  a  $40  billion  pipeline,  which                                                               
amounts to 90 percent loan guarantees on the project.                                                                           
                                                                                                                                
MR. FACKRELL  remarked that  loan guarantees are  going to  be an                                                               
important part  of financing  the project, but  that has  not yet                                                               
been the  focus as the  [company] is currently  reviewing whether                                                               
Denali has a commercial venture or  not.  He pointed out that the                                                               
project is $35 billion and thus  an $18 billion loan guarantee is                                                               
much smaller  than the  project today.   There are  numerous loan                                                               
guarantee bills before  Congress, he noted.  As  part of Denali's                                                               
open season plan Denali has to provide a financing plan.                                                                        
                                                                                                                                
2:06:37 PM                                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI  informed the  committees that today  BP put                                                               
out  a press  release relating  that  it intends  to implement  a                                                               
significant reduction in  organic capital spending.   He asked if                                                               
that will impact this project at all.                                                                                           
                                                                                                                                
MR. FACKRELL  responded that  Denali has a  budget that  has been                                                               
approved  by both  of the  project's owners,  who have  indicated                                                               
that they  will support it.   Therefore, Denali feels  good about                                                               
moving through the open season with the budget it has today.                                                                    
                                                                                                                                
2:07:14 PM                                                                                                                    
                                                                                                                                
MR. FACKRELL,  returning to his presentation,  directed attention                                                               
to  slide 8.   This  slide  illustrated the  manpower outlook  in                                                               
Alaska  during  the  construction   phase  of  the  project,  and                                                               
therefore for  the [construction]  of the  pipeline and  the GTP.                                                               
However, it  doesn't include the  manpower in Canada.   The chart                                                               
illustrates   that  during   the  height   of  construction   the                                                               
construction manpower in Alaska peaks  at 9,000 people, but drops                                                               
off very  rapidly.  Once  the pipeline  is up and  operating, the                                                               
operating  expense  and  manpower   required  totals  about  $400                                                               
million annually of  which about $290 million is in  Alaska.  The                                                               
forecast  is  that  Denali  will  have a  company  of  about  440                                                               
personnel of which 310 will be in Alaska.                                                                                       
                                                                                                                                
2:08:39 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON, referring to the  chart on slide 9, pointed out                                                               
that the  drop off between  2019 and 2020 is  a huge number.   He                                                               
interpreted that  drop off to illustrate  7,000 unemployed people                                                               
over the period  of one year, which will be  a significant number                                                               
requiring  review.   Are  the skills  of  these employees  during                                                               
construction transportable, he asked.   He recalled that when the                                                               
construction of the oil pipeline  ended, there were problems with                                                               
the  decrease  in employees.    Therefore,  he further  asked  if                                                               
Denali  is reviewing  the aforementioned  socio-economic side  of                                                               
[the completion of the gasline].                                                                                                
                                                                                                                                
MR. FACKRELL said that it's a  number of years before the process                                                               
reaches  the point  at which  there's a  drop off  in employment.                                                               
Still,  it's important  that Denali  has a  cost estimate  and an                                                               
execution  plan.    Since  there  are  many  details  behind  the                                                               
numbers, Denali knows the types  of crafts that will be involved.                                                               
This   manpower  is   primarily   pipeline-related  crafts,   and                                                               
therefore as  the pipeline  is completed the  jobs will  go away.                                                               
He highlighted that  it will be a different skill  set and thus a                                                               
different group  of people who  will be  left to run  the project                                                               
after construction.   It's important, as manpower  is planned, to                                                               
recognize the aforementioned, he opined.                                                                                        
                                                                                                                                
2:10:38 PM                                                                                                                    
                                                                                                                                
ROBERTO REICHARD,  Vice President, Gas Treatment  Plant, Denali -                                                               
The Alaska Gas Pipeline, LLC,  referring to slide 9, informed the                                                               
committees  that  the  GTP  is  a  world  class  treatment  plant                                                               
designed to condition the gas in  the mainline.  The GTP consists                                                               
of four processing  trains to remove the acid gases  from the gas                                                               
in order  that it's conditioned  for transportation.  The  gas is                                                               
then  dehydrated, compressed,  and  chilled to  30° before  being                                                               
placed  in the  pipeline.   As  mentioned earlier,  the plant  is                                                               
designed to  have a  nominal output of  4.5 bcfd  while providing                                                               
0.3 bcfd of clean gas for  users on the North Slope.  The CO  and                                                               
                                                            2                                                                   
HS  removed from  the gas  will be returned  to the  shippers for                                                               
 2                                                                                                                              
their use for  enhanced oil recovery or sequestration.   He noted                                                               
that with the  addition of one more treatment train,  the GTP can                                                               
be expanded to 5.8 bcfd.   As was also mentioned earlier, the GTP                                                               
has unbundled  services and  thus the shipper  has the  option to                                                               
treat the  gas or compress it  and chill it.   Additionally, some                                                               
of the gas can be returned as clean gas.                                                                                        
                                                                                                                                
2:12:32 PM                                                                                                                    
                                                                                                                                
MR. REICHARD, referring to slide  10, highlighted that the design                                                               
of the GTP  emphasizes safety and the  environment, and therefore                                                               
will  implement   the  latest  safer  design   norms  and  energy                                                               
efficiency strategies.   The GTP is highly reliable  and in fact,                                                               
simulations illustrate  that the plant  will be at  full capacity                                                               
over  98 percent  of the  time.   The  aforementioned, he  noted,                                                               
includes  time for  plant maintenance.    The design  of the  GTP                                                               
incorporates the  lessons learned  about operating gas  plants on                                                               
the North  Slope as  well as  other Arctic areas.   Moving  on to                                                               
slide  11, Mr.  Reichard reviewed  some of  the key  studies that                                                               
have  been  completed,  such   as  energy  optimization  studies,                                                               
constructability, logistics,  and risk analysis.   He  noted that                                                               
the  studies   include  design  studies  and   project  execution                                                               
planning  studies.   These studies,  he explained,  were used  to                                                               
develop the key deliverables, which  are used to develop the cost                                                               
estimates, schedules,  and execution plans.   Slide 12  depicts a                                                               
fly-over of a  three-dimensional (3D) model of the  GTP, which is                                                               
comprised of the individual layouts made  for each of the over 90                                                               
modules that makeup the plant.   He reviewed the functions of the                                                               
various portions  of the GTP  as well  as the key  components and                                                               
equipment in the various buildings of the GTP.                                                                                  
                                                                                                                                
2:16:20 PM                                                                                                                    
                                                                                                                                
MR.  REICHARD, continuing  with slide  13, showed  the committees                                                               
the plot  plan of the  GTP, which has some  aircraft superimposed                                                               
for scale purposes.  The larger  aircraft are 747s.  Moving on to                                                               
slide  14, which  outlines  the  sequence that  will  be used  to                                                               
fabricate, transport, and  install the modules for the  GTP.  The                                                               
current planning basis is that  the modules will be fabricated in                                                               
the U.S. Gulf  Coast.  The plan calls for  five major fabrication                                                               
yards in  the U.S. Gulf Coast.   The first modules  will be ready                                                               
to  leave   the  fabrication  plant  within   2.5-3  years  after                                                               
receiving the  CPCN from FERC.   The modules will be  loaded onto                                                               
ocean-going barges and  transported to the North Slope.   Once in                                                               
Prudhoe Bay,  the modules will  be offloaded on existing  Dock 2.                                                               
However, Dock  2 needs to  be upgraded  and expanded in  order to                                                               
birth at least  four sets of barges  at a time.   The modules are                                                               
then offloaded  onto specially  designed, multi-axel  vehicles to                                                               
be transported to the final location  where they will sit on pre-                                                               
installed  piles.   Referring to  slide 15,  he related  that the                                                               
plant will require three consecutive  yearly sealifts in order to                                                               
move the over 90  modules from the Gulf to the  North Slope.  The                                                               
modules need to  be near Wainwright by late  July/early August of                                                               
each year to  take advantage of the ice-free  window.  Therefore,                                                               
the modules have  to depart from the Gulf  Coast by mid-May/early                                                               
June.   The modules then  head south to  the Panama Canal  and up                                                               
the West Coast  to Alaska.  In fact, the  bridges over the Panama                                                               
Canal determine the height limitations of the modules.                                                                          
                                                                                                                                
2:19:29 PM                                                                                                                    
                                                                                                                                
SENATOR FRENCH recalled  that the chart on slide  8 illustrates a                                                               
jump in  employment in 2017-2019.   He asked if that  increase in                                                               
employment reflects the three consecutive years of sealifts.                                                                    
                                                                                                                                
MR. REICHARD  reminded the committees  that the chart on  slide 8                                                               
illustrates the manpower  in Alaska.  The  modules, he clarified,                                                               
will be  fabricated in the Gulf  Coast.  However, he  pointed out                                                               
that  the manpower  required to  install the  GTP modules  on the                                                               
North Slope peaks at about 2,000 in 2019.                                                                                       
                                                                                                                                
MR. FACKRELL interjected  that the remainder of the  curve is the                                                               
pipeline personnel.   The curve, he related,  is mainly dominated                                                               
by the pipeline in Alaska.                                                                                                      
                                                                                                                                
2:20:36 PM                                                                                                                    
                                                                                                                                
SENATOR FRENCH  surmised that the  final year of  construction is                                                               
2019, with some wrap up in 2020.                                                                                                
                                                                                                                                
MR. REICHARD said that's correct.                                                                                               
                                                                                                                                
SENATOR FRENCH  asked then if the  first year of the  sealift for                                                               
the GTP would be 2017.                                                                                                          
                                                                                                                                
MR. REICHARD  clarified that  it would be  2019.   Therefore, the                                                               
modules arrive  on the  North Slope  in the summer  of 2019.   In                                                               
further response to Senator French,  Mr. Reichard stated that the                                                               
last train would be  completed in 2021.  Gas would  be able to be                                                               
produced in 2020  from the first train and then  the other trains                                                               
would be brought online and  thus ramp up the (indisc.) capacity.                                                               
The pipeline's flow rate in 2020 would be approximately 1 bcfd.                                                                 
                                                                                                                                
2:21:36 PM                                                                                                                    
                                                                                                                                
SENATOR  STEDMAN  requested a  brief  summary  of the  employment                                                               
impact this  would have in  the Gulf Coast states,  including any                                                               
alterations that  would have to be  made to work on  a project of                                                               
this size.                                                                                                                      
                                                                                                                                
MR. REICHARD pointed out that  the aforementioned is addressed in                                                               
the  next  slide,  slide  16.    He  directed  attention  to  the                                                               
estimated job-hours  and noted  that a large  number of  the job-                                                               
hours,  approximately  43  million  man  hours,  are  for  module                                                               
fabrication and assembly.                                                                                                       
                                                                                                                                
2:22:51 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON inquired  as to the number of  people 43 million                                                               
man hours  would employ, particularly  in terms of the  impact on                                                               
the job market in Louisiana.                                                                                                    
                                                                                                                                
MR.  REICHARD answered  that [the  project] would  peak at  about                                                               
5,000  full-time equivalents  for  direct  craft.   Additionally,                                                               
there would be several hundred  people employed in management and                                                               
supervisory  capacities.     In  further  response   to  Co-Chair                                                               
Johnson,  Mr.  Reichard  confirmed   that  [construction  of  the                                                               
pipeline]   would   potentially   employ   about   5,500   people                                                               
nationwide.  He noted that the  employment would be for a limited                                                               
period of around three years.                                                                                                   
                                                                                                                                
2:23:44 PM                                                                                                                    
                                                                                                                                
SENATOR STEDMAN asked if Alaska's  pipeline construction would be                                                               
a disruption in the work flow for those in the Gulf Coast.                                                                      
                                                                                                                                
MR.  REICHARD informed  the committees  that Denali  performed an                                                               
extensive survey during which staff  visited a dozen of the major                                                               
fabrication yards  in the  Gulf Coast area.   The  staff assessed                                                               
their  manpower  and  projected capacities  and  work,  which  he                                                               
acknowledged can  change dramatically  over the next  five years.                                                               
The survey  determined that [the  Alaska project] will  use about                                                               
one-third of the total capacity of the Gulf Coast.                                                                              
                                                                                                                                
2:24:39 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON  inquired   as  to  where  else   this  can  be                                                               
completed.   He reminded everyone  that Alaska is  in competition                                                               
with another pipeline that will  travel through Canada.  He asked                                                               
if Alaska  will be competing  with Canada  in terms of  [the Gulf                                                               
Coast workforce.]                                                                                                               
                                                                                                                                
MR.  REICHARD said  that although  it's difficult  to know  these                                                               
many  years in  advance, the  expectation is  that there  will be                                                               
competition  from other  pipeline projects  as well  as potential                                                               
offshore projects.   The aforementioned  is why  Denali performed                                                               
the  assessment to  determine the  resources that  are available.                                                               
He estimated  that Denali  will use about  one-third of  the Gulf                                                               
Coast's  [workforce]   capacity.    Mr.  Reichard   informed  the                                                               
committees that  there are opportunities  to build  these modules                                                               
outside  the  U.S., such  as  in  the  Far  East.   However,  the                                                               
assumption  is that  the module  construction will  occur in  the                                                               
U.S.   Still,  the situation  will  likely depend  upon what  the                                                               
market is  like when the facilities  are being bid upon.   If the                                                               
Gulf  Coast  yards are  very  busy,  they  may  not make  a  very                                                               
competitive  bid or  vice  versa.   Many  factors, including  the                                                               
effect of loan guarantees, will have to be weighed, he said.                                                                    
                                                                                                                                
2:26:38 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NEUMAN  remarked that  with  the  global economy  in  a                                                               
slump, the  industry is hungry.   Therefore, he predicted  that a                                                               
better  value for  the [construction  of these  modules] will  be                                                               
obtained.  He inquired as  to how the aforementioned is accounted                                                               
for in the class 4 engineering report.                                                                                          
                                                                                                                                
MR.  FACKRELL explained  that although  the  assumption with  the                                                               
execution plan was  that the platforms will be built  in the Gulf                                                               
Coast, it  is possible  that due to  market circumstances  at the                                                               
time  the bids  are let  some will  have to  be built  elsewhere.                                                               
Going into [the planning] Denali  was concerned regarding whether                                                               
the Gulf Coast would have  the capacity to build [the platforms].                                                               
The positive  result of the  study is  that the Gulf  Coast could                                                               
build these  platforms, if everything  falls into place.   He did                                                               
point out;  however, that part of  this will be getting  into the                                                               
cue early  at the  fabrication yards and  even Denali  setting up                                                               
some new  fabrication yards.  "So,  we do play the  global market                                                               
in the  end.  They'll  be built where  they will be  the cheapest                                                               
and the  manpower exists at  the time you  put out the  bids," he                                                               
said.                                                                                                                           
                                                                                                                                
2:28:25 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN,  regarding the sealift, highlighted  that it's a                                                               
two-month window in  Alaska.  By not making the  sealift, the $35                                                               
billion project could face  a setback of a year.   A setback of a                                                               
year on any netback increases risk analysis and cost.                                                                           
                                                                                                                                
MR.  REICHARD said  that Denali  will try  to position  itself to                                                               
take  advantage of  every ice-free  day that  it's able  to enter                                                               
Prudhoe Bay.   Therefore, Denali  wants to be positioned  at Fort                                                               
Wainwright early  enough to  take advantage  of a  possible early                                                               
breakup.   Furthermore, the  amount of time  required to  move in                                                               
the sealift, off  load the sealift, and move the  barges out is a                                                               
small proportion  of the  average ice-free  time period.   Denali                                                               
will  require about  20 percent  of  the typical  window that  is                                                               
usually available.                                                                                                              
                                                                                                                                
2:29:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   GUTTENBERG   pointed   out   that   a   lot   of                                                               
infrastructure in  Prudhoe Bay, Kuparuk, and  the outlying fields                                                               
will have to  be modified for gas.  He  asked if those employment                                                               
and timelines  have been  built into  Denali's numbers  that have                                                               
been presented thus far.                                                                                                        
                                                                                                                                
MR. REICHARD  replied no,  adding that  Denali has  only reviewed                                                               
the  facilities that  it would  be responsible  for implementing.                                                               
Denali hasn't assessed the  modifications that potential shippers                                                               
would  have to  do  to their  facilities to  deliver  the gas  to                                                               
Denali.    However,  Denali is  in  conversation  with  potential                                                               
shippers  and have  had meetings  with the  operators in  Prudhoe                                                               
Bay, all of which are aware  of Denali's plans and what they need                                                               
to do.                                                                                                                          
                                                                                                                                
MR. FACKRELL added that currently  Denali is reviewing two fields                                                               
being the primary source of gas  - Prudhoe Bay and Point Thomson.                                                               
Point Thomson is currently under  development and thus there will                                                               
be  facilities  constructed.   Prudhoe  Bay  already  produces  a                                                               
significant  amount  of  gas that  it's  reinjecting.    Although                                                               
modifications will undoubtedly be  necessary, Prudhoe Bay already                                                               
has a very large gas recovery process and reinjects the gas.                                                                    
                                                                                                                                
2:31:50 PM                                                                                                                    
                                                                                                                                
SENATOR FRENCH mentioned  that the Dalton Highway needs  a lot of                                                               
funds invested in  it prior to the construction  of this project.                                                               
It's possible that the State of  Alaska may not be in a financial                                                               
position  to  make  that  sort  of  investment.    Therefore,  he                                                               
questioned what would happen if  the state doesn't have the funds                                                               
to invest in the necessary roads.                                                                                               
                                                                                                                                
MR. FACKRELL  informed the  committees that  Denali has  had many                                                               
conversations with  the state  on this  matter.   He acknowledged                                                               
that roads,  bridges, and ports  will be integral to  moving pipe                                                               
down the line.                                                                                                                  
                                                                                                                                
MR. REICHARD  explained that the pipeline  component will involve                                                               
a lot  more land  logistics than the  GTP.  The  GTP is  a mainly                                                               
sealifted operation, and  thus for the GTP not  many upgrades are                                                               
being required.                                                                                                                 
                                                                                                                                
2:33:21 PM                                                                                                                    
                                                                                                                                
MR.  REICHARD, referring  to slide  16, pointed  out that  on the                                                               
North Slope  the GTP  installation will  require 3.4  million man                                                               
hours,  which amounts  to  about  $1 billion  of  labor costs  in                                                               
today's wage  rates.   Turning to slide  17, Mr.  Reichard stated                                                               
that  the GTP  alone is  a mega  project, which  Denali estimates                                                               
will cost $12.2 billion in 2009 dollars.                                                                                        
                                                                                                                                
2:34:31 PM                                                                                                                    
                                                                                                                                
KRIS FUHR, Vice President, Project  Mainline, Denali - The Alaska                                                               
Gas Pipeline, LLC, began by directing  attention to slide 18.  He                                                               
explained  that the  current basis  of Denali's  commercial offer                                                               
for  the  transmission  lines is  a  conventional,  above  ground                                                               
pipeline  system for  both Point  Thomson and  Prudhoe Bay.   For                                                               
Point Thomson, the line will be  62 miles long using 36-inch pipe                                                               
and the  initial design is to  move 1 bcfd from  Point Thomson to                                                               
the inlet  and the GTP.   The design  is expandable to  1.5 bcfd.                                                               
The [Prudhoe Bay  transmission line] is a 60-inch  line that runs                                                               
about 1  mile long  and links  the GTP inlet  to the  central gas                                                               
facility  (CGF)  that  currently  exists at  Prudhoe  Bay.    The                                                               
central gas  facility currently  moves between 7-8  bcf of  gas a                                                               
day.   Mr. Fuhr related that  Denali has a good  idea with regard                                                               
to the tie-in  requirements to tie the 60-inch  pipeline into the                                                               
CGF to  supply the vast  portion of the  4.5 bcf to  the pipeline                                                               
from Prudhoe Bay.                                                                                                               
                                                                                                                                
MR.  FUHR   then  related  that   for  the  mainline   Denali  is                                                               
apprenticing a 48-inch line with  a maximum operating pressure of                                                               
2,500 pounds.   The mainline will be a buried  pipeline that will                                                               
be  chilled   in  Alaska,   which  means   that  there   will  be                                                               
refrigeration at the compressor  stations that allow reduction of                                                               
the  gas   temperature  to  below   32°  Fahrenheit.     The  gas                                                               
temperature  will  remain below  32°F  as  it transverses  across                                                               
Alaska in order  to ensure no permafrost is thawed.   To move the                                                               
4.5  bcf of  gas a  day to  Alberta, 15  compressor stations  are                                                               
necessary  of which  6  will  be located  in  Alaska.   Mr.  Fuhr                                                               
emphasized that  this pipeline system  will be expandable.   With                                                               
the addition  of 16 compressor  stations between Prudhoe  Bay and                                                               
Alberta, the capacity  can be increased to 5.6 bcf  of gas a day,                                                               
which is consistent with an  additional acid gas removal train at                                                               
the GTP.   As mentioned earlier,  the mainline is a  bit over 700                                                               
miles in Alaska  and over 1,000 miles in Canada.   There would be                                                               
three   termination  points,   primarily  to   existing  pipeline                                                               
infrastructure in  Alberta.  Denali  will [offer] tie-ins  to the                                                               
Nova, Alliance,  and the  Spectra systems.   Of the  six delivery                                                               
points currently  planned in Alaska,  one will be at  Prudhoe Bay                                                               
to provide  sweet fuel  gas for consumption  on the  North Slope.                                                               
Other  delivery  points  include Livengood,  the  Brooks  Highway                                                               
spur, Fairbanks, Tok, and Delta  Junction.  Those delivery points                                                               
are  consistent  with the  recommendations  of  the in-state  gas                                                               
study  performed by  Northern  Economics in  January  2010.   The                                                               
[transmission  lines] are  initially sized  to provide  about 338                                                               
million  standard cubic  feet  per day  to  initial customers  in                                                               
Alaska.    Four delivery  points  are  planned in  Canada,  which                                                               
include the  three termination points  described earlier  as well                                                               
as the expectation to provide gas  to Whitehorse.  Denali is open                                                               
in terms  of shippers  providing gas to  other clients  along the                                                               
right-of-way and is willing to evaluate such within the design.                                                                 
                                                                                                                                
2:38:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAMRAS inquired as  to the cost communities should                                                               
expect between the  take-off point of the line  and connecting to                                                               
the local transmission line.                                                                                                    
                                                                                                                                
MR. FACKRELL  said that the  presentation will relate  the tariff                                                               
rate of  the different locations  later in the presentation.   He                                                               
noted  that Denali's  offer includes  a distance-sensitive  rate,                                                               
such that  there would  be a different  rate in  Fairbanks versus                                                               
Delta  Junction, for  example.   Additionally,  there  will be  a                                                               
distribution system charge  to take the gas from  the pipeline to                                                               
the customer.  Denali doesn't  have a figure for the distribution                                                               
system charge since it's not under  its purview.  He reminded the                                                               
committees that  this gas has  liquids in it, and  therefore when                                                               
the  pressure   is  dropped  propane   will  be  created.     The                                                               
aforementioned will also result in a charge.                                                                                    
                                                                                                                                
2:40:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAMRAS expressed  concern that if the  cost is $10                                                               
million  and it's  divided  amongst 300  customers  at the  Yukon                                                               
River  bridge, no  one  will  be able  to  afford  the off  ramp.                                                               
However,  if  that  same  $10 million  cost  is  divided  amongst                                                               
110,000 nozzles in  South Central, it's an  affordable conduit to                                                               
local distribution.                                                                                                             
                                                                                                                                
MR.  FUHR remarked  that Representative  Ramras's observation  is                                                               
correct.   He explained  that Denali is  offering a  tie-in point                                                               
with gas that is not utility  quality gas and will likely require                                                               
a significant amount of capital  to reduce the pressure, liquids,                                                               
and provide a safe supply of the utility to the end user.                                                                       
                                                                                                                                
2:42:34 PM                                                                                                                    
                                                                                                                                
MR.  FUHR, referring  to slide  19, highlighted  that Denali  has                                                               
spent a  lot of  time ensuring the  pipeline is  fully integrated                                                               
with  the GTP,  which  is a  complex facility.    With regard  to                                                               
engineering  a pipeline,  it really  starts with  identifying the                                                               
route.  Therefore,  Denali has spent extensive time  in the field                                                               
evaluating what it believes to  be the optimized route.  However,                                                               
he noted  that the route won't  be finalized until the  last foot                                                               
of ditch  is dug.  Much  of the work performed  by Denali's owner                                                               
companies has been leveraged and  there are over 12,000 boreholes                                                               
to identify the soil conditions along  the route.  Once the route                                                               
is determined,  the pipeline  design can  be determined.   Denali                                                               
has its  own proprietary thermal hydraulic  model that identifies                                                               
the number  of compressor stations, the  horsepower requirements,                                                               
and the  physical locations  [of the  compressor stations].   The                                                               
aforementioned  technical  work  is   then  integrated  with  the                                                               
environmental,  regulatory, and  land personnel  to optimize  the                                                               
location of the compressor stations.                                                                                            
                                                                                                                                
2:44:29 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NEUMAN  assumed  that   the  gas  pipeline  route  will                                                               
basically follow the TAPS route.   At pinch points such as Atigun                                                               
Pass  where there  is limited  distance between  the pipes,  will                                                               
there be any concern with regard  to the explosiveness of the gas                                                               
and oil pipelines, he asked.                                                                                                    
                                                                                                                                
MR.  FUHR responded  that he  absolutely believes  there will  be                                                               
issues with  regard to pinch  points, with Atigun Pass  being one                                                               
of the  most critical in  Alaska.  There  are three to  four more                                                               
pinch  points  located   in  Canada  that  will   be  as  equally                                                               
challenging.    He  noted  that   Denali  has  had  some  initial                                                               
conversations with  Alyeska.   Denali's base  approach is  to not                                                               
place the pipeline  right-of-way any closer than 250  feet to the                                                               
existing TAPS pipeline.   However, there will be  areas where the                                                               
gas pipeline will cross underneath TAPS.                                                                                        
                                                                                                                                
2:45:48 PM                                                                                                                    
                                                                                                                                
MR.  FUHR,  continuing  with slide  19,  turned  the  committees'                                                               
attention  to compressor  station design.   He  related that  the                                                               
premise  is  that  the compressor  stations  will  be  truckable,                                                               
fabricated   modules  that   Denali  intends   to  construct   in                                                               
Fairbanks, Anchorage, and  Kenai.  The desire is  to maximize the                                                               
amount  of   truckable  models  for  each   of  these  compressor                                                               
stations.  He  recalled that the refrigerated  stations in Alaska                                                               
are 38-40  truckable modules each.   Denali, he  further related,                                                               
will  assemble  on  the  compressor station  sites  in  order  to                                                               
maximize local content  where the fabrication yards  exist.  With                                                               
regard to  the total staffing  requirements, there will  be about                                                               
250-300 jobs in fabrication yards  from 2017-2020.  Mr. Fuhr then                                                               
pointed out that there are  some significant river crossings that                                                               
need to  be engineered.  For  example, the premise for  the Yukon                                                               
River is that Denali will  horizontally directionally drill under                                                               
the Yukon River.   The base case on most of  the major rivers, of                                                               
which there  are about 80  major river crossings  between Prudhoe                                                               
Bay and Alberta, will  require significant additional engineering                                                               
as the process continues.   Alaska does have active faults, which                                                               
will  require detailed  engineering  to ensure  the pipeline  can                                                               
take  the type  of stress  and  strain resulting  from a  seismic                                                               
event.  Denali  is premising the use of high  strength steel; the                                                               
weld-ability  of the  steel as  well as  the ability  to identify                                                               
defects  in the  welds  must  be finalized  as  Denali permits  a                                                               
"strain-based  design"  for  the  pipeline.   This  pipeline,  he                                                               
related,  needs  to   be  able  to  absorb   frost  heaves,  thaw                                                               
settlement, and  elements associated with some  of the permafrost                                                               
issues  in Alaska.   Denali  has also  developed its  proprietary                                                               
geospatial   system,  which   is  a   data-based  system   that's                                                               
geospatially oriented and contains  all the technical information                                                               
for the 1,750 miles of the pipeline.                                                                                            
                                                                                                                                
2:48:15 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON asked  if the  48-inch high  strength steel  is                                                               
readily available.                                                                                                              
                                                                                                                                
MR. FUHR  answered no,  it's not  readily available.   Currently,                                                               
there are  seven mills globally  that can make 80,000  psi stress                                                               
capable  pipe.   The  mills  are  in  Europe, India,  Japan,  and                                                               
Russia.   After  obtaining quotes  for  the pipe,  the India  and                                                               
Russia sources  were eliminated.   The current basis  of Denali's                                                               
cost estimate  is focused on  Japan.   He opined that  Denali can                                                               
wait about  three years  before one must  finalize the  mill with                                                               
which  the  orders  will  be  placed in  order  to  complete  the                                                               
pretesting and  certification work to facilitate  the delivery of                                                               
the pipe.                                                                                                                       
                                                                                                                                
2:49:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GATTO  asked if  it's possible  to make  a thicker                                                               
pipe and make it in North America.                                                                                              
                                                                                                                                
MR. FUHR responded that currently  there aren't capabilities with                                                               
U.S.  mills,  which  he  attributed   to  a  combination  of  the                                                               
specifications  of  the materials,  its  diameter,  and its  wall                                                               
thickness.   Currently,  there isn't  the infrastructure  in U.S.                                                               
mills to make such a product.                                                                                                   
                                                                                                                                
2:50:24 PM                                                                                                                    
                                                                                                                                
MR.  FUHR returned  to the  presentation, specifically  slide 20.                                                               
Slide 20 is an alignment sheet that  is a plan view of the right-                                                               
of-way for the pipeline route.   Denali has described and defined                                                               
the  slopes,  both  longitudinal   and  cross  slopes,  which  is                                                               
important when  determining how  much dirt has  to be  moved; how                                                               
much pad  or gravel  has to be  moved in; and  what type  of work                                                               
pads are  necessary.  The  [characterization] also  describes the                                                               
type of terrain that ultimately  determines how the ditch will be                                                               
dug, with what it will be dug, and  how fast it will be dug.  All                                                               
of the aforementioned ultimately speaks  to how much it will cost                                                               
to build  [the gas pipeline].   Moving on  to slide 21,  Mr. Fuhr                                                               
expressed  the  hope   that  the  slide  relates   the  level  of                                                               
definition Denali has  with regard to its execution  plan and the                                                               
requirements  or quantities  that will  need to  be purchased  to                                                               
deliver construction.   The 90  mainline block valves  amounts to                                                               
about  $50 million,  which  would  be used  from  Prudhoe Bay  to                                                               
Alberta.   The  mainline will  require  2.2 million  tons of  X80                                                               
steel, which  amounts to  roughly $4 billion  worth of  a capital                                                               
purchase  just for  the  pipeline steel.    Furthermore, over  20                                                               
million cubic  yards of gravel will  need to be mined  and spread                                                               
for pads for  camp, access roads, storage yards, et  cetera.  Mr.                                                               
Fuhr,  referring  to  slides 22-23,  explained  that  Denali  has                                                               
evaluated all  the various activities, determined  when they need                                                               
to be performed,  the season in which they need  to be performed,                                                               
the crews  that need to be  used, including the number  of people                                                               
and equipment  requirements.  All  of the aforementioned  is done                                                               
in  building a  comprehensive  construction  execution plan  that                                                               
ultimately manifests into the cost  and timeframe of the project.                                                               
The  next  step is  to  talk  with  those  who do  these  various                                                               
activities for a living.  He  noted that Denali has received over                                                               
200  requests  for  information  from a  myriad  of  vendors  and                                                               
suppliers  regarding the  various  timeframes and  costs for  the                                                               
various aspects of  building the gas pipeline.   Mr. Fuhr pointed                                                               
out that Denali  has talked with every vendor listed  on slide 24                                                               
in order to obtain real-time data on their areas of expertise.                                                                  
                                                                                                                                
2:54:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  RAMRAS  highlighted  that  this  morning  one  of                                                               
Denali's owners suspended its $10  million dividend for 2010.  He                                                               
then  inquired  as to  how  the  aforementioned impacts  Denali's                                                               
ability to put capital together and obtain vendors.                                                                             
                                                                                                                                
MR. FACKRELL  stated that at  this point, the open  season stage,                                                               
Denali has full funding from both  owners.  The immediate goal is                                                               
to get  through open season  and determine  if there are  bids on                                                               
the project.                                                                                                                    
                                                                                                                                
2:55:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GATTO asked  if the cost of  construction would be                                                               
increased  in   a  scenario  in  which   the  federal  government                                                               
implemented a cap and trade program.                                                                                            
                                                                                                                                
MR. FACKRELL related  that when reviewing emissions  on the North                                                               
Slope Denali  has tried  to take  an approach  that some  sort of                                                               
trading will take place.   He reminded the committees that Denali                                                               
will be  taking CO  out of the  gas and reinjecting it,  which is                                                               
                  2                                                                                                             
positive.    He  indicated  that highly  efficient  turbines  and                                                               
machinery  on the  North  Slope  will be  used.    By using  more                                                               
efficient  equipment emissions  will  be  reduced.   Furthermore,                                                               
Denali will  be offering 300  million cubic  feet a day  of clean                                                               
gas to  operators on the North  Slope.  Those operators  who take                                                               
that  clean gas  will  reduce their  CO  footprint  on the  North                                                               
                                       2                                                                                        
Slope.   Mr.  Fackrell opined  that Denali  is doing  some things                                                               
with  this  project  that  could  be  viewed  as  environmentally                                                               
friendly.                                                                                                                       
                                                                                                                                
2:56:43 PM                                                                                                                    
                                                                                                                                
MR. FACKRELL,  in response to Representative  Gatto, acknowledged                                                               
that  there are  a number  of different  pieces of  environmental                                                               
legislation that are being discussed.   Therefore, it's difficult                                                               
to determine what will be approved  in the end.  Denali is trying                                                               
to be  aware of the  aforementioned and realize they  will impact                                                               
the project.  However, from  a larger perspective, the [national]                                                               
administration views gas  as a clean burning fuel  and a bridging                                                               
fuel to renewables.   In fact, [the  national administration] has                                                               
said that  the Alaska  gas project  is in the  top of  its energy                                                               
list.    Still,  he  acknowledged  that  the  legislation  that's                                                               
ultimately adopted could impact the project.                                                                                    
                                                                                                                                
2:58:07 PM                                                                                                                    
                                                                                                                                
MR. FUHR,  returning to the  presentation, directed  attention to                                                               
slide 25.  Slide 25 lists  the various service providers of which                                                               
Denali  has  inquired  to  obtain  real-time  data  on  areas  or                                                               
activities that are  critically important to the  delivery of the                                                               
construction of the pipeline.   Information has been requested of                                                               
vendors  from the  U.S. as  well as  Canada.   With regard  to an                                                               
earlier  question about  the resourcing  of the  pipeline crafts,                                                               
Mr.  Fuhr informed  the committees  that Denali's  execution plan                                                               
has   seven  major   pipeline  spreads   that  will   impact  the                                                               
construction  over a  two-year period.    The plan  is to  become                                                               
mechanically complete with the pipeline  in 2019.  Of those seven                                                               
spreads, three  are in Alaska  and four  are in Canada.   Through                                                               
Denali's  initial  evaluation,  they  pre-qualified  23  big-inch                                                               
pipeline  contractors  in the  U.S.  and  Canada.   Denali  would                                                               
require seven  of those.   He  then moved on  to slide  26, which                                                               
specifies  the various  material vendors  who were  contacted for                                                               
material quotes.  Mr. Fuhr  played an animated 60-second video of                                                               
a flyover along  the entire gasline from Prudhoe  Bay to Alberta.                                                               
He  reviewed  the  various  aspects   of  the  pipeline  and  the                                                               
infrastructure   the  pipeline   will  need,   which  the   video                                                               
illustrates.  In summary, he  referred to slide 28 and emphasized                                                               
that  Denali feels  good about  the mainline  cost estimate.   He                                                               
explained that  [the mainline cost]  estimate isn't  factored; it                                                               
is resource loaded;  the number of [employees] and  the amount of                                                               
equipment  are known  as is  how long  the employees  need to  be                                                               
employed   and  the   activities  that   need  to   be  executed.                                                               
Furthermore, the estimate is quantity  based; uses a mile-by-mile                                                               
design; has industry benchmarks  and real-time data; and utilizes                                                               
a world  class team to develop  the estimate.  Mr.  Fuhr informed                                                               
the committees  that the  [mainline] cost  estimate is  about $23                                                               
billion.                                                                                                                        
                                                                                                                                
3:03:29 PM                                                                                                                    
                                                                                                                                
SCOTT  JEPSEN, Vice  President, Business  Services, Denali  - The                                                               
Alaska  Gas Pipeline,  LLC, echoed  earlier  statements that  the                                                               
cost estimate for this project, the  GTP and the mainline, is $35                                                               
billion,  in constant  2009 dollars.   He  noted all  the numbers                                                               
he'll be  using will be in  constant 2009 dollars.   Referring to                                                               
slide 29, Mr. Jepsen pointed  out that the first table summarizes                                                               
the cost breakdown for the  various components of the project and                                                               
the cost  to move the  gas through the GTP  or the mainline.   He                                                               
then  turned  to  the  fact that  Denali  is  offering  unbundled                                                               
services,  which means  customers  can select  only the  services                                                               
they  require.    The  cost  to   the  shipper  for  use  of  the                                                               
transmission lines  between Prudhoe  Bay and Point  Thomson would                                                               
be $0.4  per MMBtu while  it will be  an estimated cost  of $0.26                                                               
per MMBtu  to move  gas from Point  Thomson to the  GTP.   At the                                                               
GTP, the  services will  be unbundled  and thus  there will  be a                                                               
rate for  treating and  a rate  for compression.   The  rates are                                                               
also  based   on  distance  and  the   table  entitled  "In-State                                                               
Deliveries" relates the estimated cost  to move gas to Fairbanks,                                                               
$0.50 per  MMBtu, and Delta  Junction, $0.59  per MMBtu.   If the                                                               
gas needs  to be treated  prior to  it entering the  pipeline, of                                                               
course the  appropriate GTP cost would  have to be paid.   If all                                                               
of the  services of the  GTP are needed,  one would add  $0.90 to                                                               
those delivery rates.                                                                                                           
                                                                                                                                
3:05:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GATTO asked  if it's  possible to  send gas  that                                                               
isn't chilled down the line.                                                                                                    
                                                                                                                                
MR.  JEPSEN replied  no,  adding that  the gas  will  have to  be                                                               
chilled.    In  further  response to  Representative  Gatto,  Mr.                                                               
Jepsen confirmed that  compression and chilling are  options.  If                                                               
a customer  wants to deliver  cold gas  to the pipeline  at 2,500                                                               
psi and its  sweet gas with no impurities, the  entire GTP can be                                                               
bypassed.   As mentioned earlier,  FERC required that  the entire                                                               
project  not  be  bundled  into   one  tariff/rate.    Individual                                                               
services  and  options have  to  be  offered  for shippers.    In                                                               
further response  to Representative Gatto, Mr.  Jepsen emphasized                                                               
that a shipper would have to  provide cold gas, otherwise the gas                                                               
wouldn't be accepted.                                                                                                           
                                                                                                                                
3:06:59 PM                                                                                                                    
                                                                                                                                
MR. JEPSEN,  in response to  Co-Chair Neuman, stated  that Denali                                                               
is   providing  a   delivery  service   that  is   gas  treating,                                                               
compression,  and transportation.   The  actual selling  price of                                                               
the  gas would  be determined  by the  owner of  the gas  and the                                                               
purchaser of the  gas.  He clarified that Denali  doesn't own the                                                               
gas or  sell the gas.   Therefore, the  selling price of  the gas                                                               
will be dependent upon what the market demands at that time.                                                                    
                                                                                                                                
CO-CHAIR NEUMAN  surmised then  that the  [selling price]  of the                                                               
gas  would  be $1.40  to  Fairbanks  plus  whatever it  costs  to                                                               
purchase the gas.                                                                                                               
                                                                                                                                
MR.  JEPSEN explained  that typically  the $1.40  is going  to be                                                               
encompassed in the end price for which the gas is sold.                                                                         
                                                                                                                                
MR.  FACKRELL  interjected  that   Denali  will  charge  the  gas                                                               
shipper/producer   $1.40  to   move  gas   to  Fairbanks.     The                                                               
shipper/producer  will  charge  a  price, which  will  take  into                                                               
account taxes,  profit, et cetera,  to the consumer.   Therefore,                                                               
the tariff to move the gas will  be $1.40, and then there will be                                                               
taxes  and development  costs  that  [the shipper/producer]  will                                                               
charge the consumer.                                                                                                            
                                                                                                                                
3:08:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON pointed out that  on slide 29 the estimated                                                               
rate of gas delivered from the  GTP to Alberta is $2.67 per MMBtu                                                               
excluding fuel.  He asked if  the estimated rate of gas delivered                                                               
to Fairbanks  also excludes  fuel.   He also  asked how  the fuel                                                               
cost is handled, in general.                                                                                                    
                                                                                                                                
MR.  JEPSEN  confirmed  that the  deliveries  to  Fairbanks  also                                                               
exclude fuel.  Basically, the  shipper/customer supplies fuel in-                                                               
kind  for  transporting  their  gas.    In  further  response  to                                                               
Representative Seaton, Mr.  Jepsen stated that a  little over 6.5                                                               
percent of the  gross volume is fuel gas with  an estimated $2.67                                                               
rate, which the shipper would  incorporate into the selling price                                                               
of the gas.                                                                                                                     
                                                                                                                                
3:10:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  recalled  that  [TransCanada's]  pipeline                                                               
project  has  a  condition  specifying how  the  compression  and                                                               
transmission, carbon  dioxide output, is handled.   The reasoning                                                               
is that  the 6.5 percent  is more than  the total of  all current                                                               
carbon dioxide  from all commercial  and residential  uses within                                                               
the state.   He  asked if  Denali has a  plan for  minimizing and                                                               
handling carbon dioxide emissions.                                                                                              
                                                                                                                                
MR. JEPSEN reminded  the committees that the goal is  to build as                                                               
efficient  a compression  project  above the  GTP and  compressor                                                               
stations, which will minimize  the CO emissions.   With regard to                                                               
                                     2                                                                                          
COscrubbed   from  the gas  at the  GTP, it  will be  returned to                                                               
  2                                                                                                                             
Denali's  customers who  will presumably  handle the  gas through                                                               
reinjection.                                                                                                                    
                                                                                                                                
3:11:47 PM                                                                                                                    
                                                                                                                                
MR. JEPSEN, continuing  the presentation, turned to  slide 30 and                                                               
opined that  Denali has crafted  a distinctive  commercial offer.                                                               
The offer has been crafted such  that it will allow a broad group                                                               
to participate  as foundation shippers.   Foundation shippers are                                                               
the  group that  makes  the long-term  commitments  to allow  the                                                               
pipeline to move forward.   Although the foundation shippers take                                                               
a lot  of the risk, they  receive certain benefits.   In order to                                                               
be  a  foundation  shipper,  the shipper  must  meet  the  credit                                                               
worthiness standards,  which require  a credit  rating of  BBB by                                                               
Standard  &  Poors  or  BAA2  by  Moody's;  meet  the  net  worth                                                               
requirements, which means the shipper  must have net worth that's                                                               
commiserate  with  its  commitment  to  the  project;  execute  a                                                               
precedent  agreement  during  the  initial  open  season  with  a                                                               
minimum term  of 20  years.   He noted that  there is  no minimum                                                               
volume requirement.   Mr. Jepsen  opined that  the aforementioned                                                               
requirements for  foundation shippers  will make it  possible for                                                               
small   leaseholders,  the   state,  explorers,   and  users   to                                                               
potentially  participate  in  the  open season  as  a  foundation                                                               
shipper.   He then  informed the  committees that  the foundation                                                               
shipper benefits include:  the  option to extend the primary term                                                               
by five years; access to  negotiated, levelized rates or recourse                                                               
rates; and the  "most favored nation" clause,  which ensures that                                                               
customers  will  have access  to  the  lowest rates  that  Denali                                                               
offers.  Mr.  Jepsen acknowledged the uncertainty  of the project                                                               
and related  that Denali will  offer decision points  that settle                                                               
specific points in  time during the early stages  of the project.                                                               
In fact, a decision point will  be offered when a [shipper] files                                                               
for a  CPCN and  later when Denali  receives approvals  from U.S.                                                               
and  Canadian  governments  to move  forward  with  construction.                                                               
Returning to negotiated, levelized  rates, he explained that they                                                               
will be offered at several  hundred basis points below the return                                                               
on equity that's estimated on  the recourse rates.  The levelized                                                               
portion means that  the rates for moving the gas  to the GTP will                                                               
be constant on the term of the commitment.                                                                                      
                                                                                                                                
MR.  JEPSEN noted  that Denali,  too, will  be taking  some risk.                                                               
Denali will  take its depreciation  over 25 years,  although it's                                                               
only seeking commitments  for about 20 years.   Therefore, Denali                                                               
is assuming that  it can recover the remaining 20  percent of the                                                               
depreciation over  the end of the  life of the project.   He then                                                               
informed the committees that Denali  has constructed a commercial                                                               
offer that's  responsive to  shipper concerns.   In the  event of                                                               
expansion  and subject  to FERC  regulations and  National Energy                                                               
Board  (NEB)  regulations, Denali  isn't  going  to require  that                                                               
existing  shippers subsidize  expansion shippers.   Additionally,                                                               
if  during  the  initial  open   season  Denali  doesn't  receive                                                               
commitments  for at  least  85 percent  of  its design  capacity,                                                               
Denali  has established  a framework  to work  with customers  in                                                               
terms of redesigning the project with  a smaller volume of gas to                                                               
Alberta, building  a pipeline to  an liquefied natural  gas (LNG)                                                               
plant at  the location  of the customer's  choice, or  seeking to                                                               
garner  additional  support to  move  forward  with the  original                                                               
project.                                                                                                                        
                                                                                                                                
3:15:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked if  that means Denali  won't utilize                                                               
rolled-in tariffs.                                                                                                              
                                                                                                                                
MR. JEPSEN answered  that Denali will use rolled-in  rates to the                                                               
extent allowed by FERC and the  NEB.  However, Denali won't argue                                                               
that  rolled-in   rates  should  require  existing   shippers  to                                                               
subsidize expansion  shippers.   He opined  that most  likely the                                                               
initial  expansions  would  result  in a  reduced  rate  for  all                                                               
shippers.   Ultimately, it's  up to  the FERC and  the NEB  as to                                                               
what will be allowed.                                                                                                           
                                                                                                                                
3:16:06 PM                                                                                                                    
                                                                                                                                
MR. JEPSEN then moved on to  slide 31 entitled "Open Season."  He                                                               
related  that Denali  intends to  start its  open season  July 6,                                                               
2010,  which will  run  through  October 4,  2010.   During  that                                                               
timeframe,  Denali will  offer  open access  to  capacity on  the                                                               
pipeline  and discuss  with customers  regarding signing  binding                                                               
precedent agreements in  order to move forward  with the project.                                                               
The open season will be overseen by  the FERC in the U.S. and the                                                               
NEB in Canada.   He noted that there will  be a simultaneous open                                                               
season in the U.S. and Canada.   Denali sent out an expression of                                                               
interest  to potential  leaseholders, producers,  and governments                                                               
in  Canada   to  elicit  whatever   interest  they   might  have.                                                               
Recently, Denali  sent out 250  letters announcing  the timeframe                                                               
of the  open season.   He directed attention to  the illustration                                                               
that  specifies  170 days  after  the  open season  during  which                                                               
precedent agreement  conditions will have  to be resolved.   Once                                                               
the precedent  agreements are executed,  they will be  filed with                                                               
FERC and move forward with the project.                                                                                         
                                                                                                                                
3:18:02 PM                                                                                                                    
                                                                                                                                
CO-CHAIR   JOHNSON  requested   an   explanation   of  the   FERC                                                               
confidentiality requirements  and inquired  as to the  access the                                                               
legislature would have to that confidential information.                                                                        
                                                                                                                                
MR. JEPSEN  explained that  in the first  10 days,  [Denali] must                                                               
report  with whom  they have  a contract  and for  how much  gas.                                                               
However, the details of the  commercial arrangement don't have to                                                               
be  revealed.    The  aforementioned will  be  kept  confidential                                                               
unless both parties  agree to release it, which is  the case with                                                               
any  confidential agreement.   In  further  response to  Co-Chair                                                               
Johnson, Mr. Jepsen  said that he didn't believe  FERC would care                                                               
if  both the  customer and  the transporter  decided to  make the                                                               
aforementioned information public.                                                                                              
                                                                                                                                
3:19:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON inquired  as to whether there  is a listing                                                               
of  Denali's conditions  precedent, especially  those that  would                                                               
involve the state  and its relationship with the  pipeline or the                                                               
producers.                                                                                                                      
                                                                                                                                
MR. FACKRELL stated that the  main conditions precedent have been                                                               
discussed.   The conditions precedent  relative to the  state and                                                               
resource  base is  anticipated to  be  from the  shipper/customer                                                               
side.   From Denali's side  the aforementioned isn't  a condition                                                               
precedent that  it lists.   He offered to provide  the committees                                                               
with a  list of the  conditions precedent, which  will definitely                                                               
be laid out when the open season package is submitted.                                                                          
                                                                                                                                
REPRESENTATIVE SEATON remarked  that it would be  helpful to have                                                               
a listing  of the  conditions precedent.   He then  asked whether                                                               
there  is  any other  conditions  precedent  besides the  20-year                                                               
term, the  rate portion, and  obtaining approval from  the owners                                                               
that would impact the state's  relationship with the producers of                                                               
the pipeline.                                                                                                                   
                                                                                                                                
MR. JEPSEN offered  to provide the committees  with the precedent                                                               
agreement,  which  lists  them.    Most  of  Denali's  conditions                                                               
precedent don't  relate to Denali's relationship  with the state.                                                               
As mentioned earlier,  the issues that would relate  to the state                                                               
are shipper/customer issues not  transporter issues.  He informed                                                               
the  committees  that  Denali won't  start  construction  of  the                                                               
pipeline until a CPCN is obtained  [in Alaska and Canada] and the                                                               
right of  eminent domain  through Canada to  build a  pipeline is                                                               
obtained.                                                                                                                       
                                                                                                                                
3:22:31 PM                                                                                                                    
                                                                                                                                
MR.  FACKRELL, referring  to  slide 32,  related  that there  are                                                               
seven key  elements for  a successful project.   First,  the cost                                                               
has to be  understood and managed as well as  the execution plan.                                                               
Although  Denali   believes  it  has  the   aforementioned  under                                                               
control, it  recognizes that it's  a dynamic situation.   Second,                                                               
there must be a defined regulatory  process.  He said that Denali                                                               
understands  the regulatory  process in  the U.S.  as well  as in                                                               
Canada.    Third,  there  must   be  commercial  agreements  with                                                               
customers.    He characterized  the  agreements  as creative  and                                                               
distinctive.   Fourth,  there must  be resolution  of stakeholder                                                               
issues on the  pipeline route.  The aforementioned,  he noted, is                                                               
still in  process.   Fifth, there  must be  attractive financing,                                                               
which  will  most  likely  require  the use  of  a  multitude  of                                                               
[financial]   instruments.      In  order   to   accomplish   the                                                               
aforementioned,  there  need  to be  agreements  and  collateral.                                                               
Sixth, there  must be  resolution of  a series  of issues  in the                                                               
State of Alaska,  including resource uncertainty.   He noted that                                                               
Point  Thomson remains  in litigation,  and thus  the concern  is                                                               
what  shippers will  do  in terms  of  nominating Point  Thomson.                                                               
Denali encourages  the parties' to  resolve the issue  because at                                                               
this point,  it seems that  Denali's open season will  be heavily                                                               
conditioned  on that  item, which  is  outside the  realm of  the                                                               
pipeline  company  itself.    Another  issue  that  needs  to  be                                                               
resolved is  the fiscal  regime for  gas in the  state.   He said                                                               
that Denali anticipates that there  will be a condition precedent                                                               
in that  regard.  Seventh,  there must  be a natural  gas market.                                                               
At this point,  what's known is that there's a  very volatile gas                                                               
market in North America.   Furthermore, since the project started                                                               
two years  ago, shale gas has  entered the scene.   Therefore, an                                                               
Alaska pipeline will  have to compete with other  sources of gas,                                                               
which means  that [Alaska]  will have to  have the  lowest tariff                                                               
possible, manage  the costs,  and compete  with other  sources of                                                               
gas.    Resolving the  aforementioned  issues  will be  extremely                                                               
important  to building  the  pipeline.   As  a pipeline  company,                                                               
Denali has  worked on  those issues over  which it  has influence                                                               
and control.                                                                                                                    
                                                                                                                                
3:26:49 PM                                                                                                                    
                                                                                                                                
MR. FACKRELL, referring to slide  33, summarized by reminding the                                                               
committees that  Denali's open season  plan was approved  by FERC                                                               
and  is scheduled  to start  July 6,  2010.   Furthermore, Denali                                                               
believes it  has a high  quality cost estimate that  will provide                                                               
shippers confidence in the cost  of the project and its execution                                                               
plan.    Denali  also  believes   that  it  has  some  attractive                                                               
commercial terms that are distinctive  as well as the great risks                                                               
that  exist on  the  project.   The  open  season results  should                                                               
signal  the  market's  assessment  of Alaska's  North  Slope  gas                                                               
competitiveness.  Although  the hope has been that  at this point                                                               
the issues with Point Thomson and  the gas fiscal regime would be                                                               
resolved, he  acknowledged that most  likely going into  the open                                                               
season those issues  will remain.  Therefore, the  next steps for                                                               
Denali will  be to  evaluate the  open season.   Since this  is a                                                               
market  driven project,  the customer  will  dictate what  Denali                                                               
does after  the open season.   At  this point, all  the technical                                                               
work for  the project has been  completed and thus the  focus now                                                               
is on  commercial arrangements  and the open  season in  order to                                                               
determine what shippers will do next.                                                                                           
                                                                                                                                
3:28:32 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON posed  a situation in which say  a legislator in                                                               
Louisiana agrees to increased loan  guarantees if the modules are                                                               
built in Louisiana.  He asked  if FERC has any allowance for that                                                               
type of  increased cost  to not  be included in  the tariff.   He                                                               
asked if FERC  would allow Alaska not to  take the aforementioned                                                               
into  consideration in  terms of  the  tariff.   Since the  state                                                               
can't seek  the lowest  bidder, will  the state  have to  pay the                                                               
price for that, he asked.                                                                                                       
                                                                                                                                
MR.  FACKRELL said  that he  was unsure  as to  whether he  could                                                               
answer  that.   He explained  his understanding  that a  pipeline                                                               
company  must  justify  its  tariff   and  the  associated  cost.                                                               
[Denali] can't  forecast what other  parties will do  relative to                                                               
loan guarantees.  He related that  Denali has tried to assess the                                                               
market.  At this point,  Denali doesn't know whether it's cheaper                                                               
to  build  the  pipeline  in   Louisiana  as  opposed  to  Korea.                                                               
However,  Denali believes  that  physically the  pipeline can  be                                                               
built in the Gulf coast.   Therefore, it's being used as the base                                                               
case.  He suggested that the question be directed to FERC.                                                                      
                                                                                                                                
3:30:53 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NEUMAN  asked  what  the  state can  do  to  assist  in                                                               
ensuring as many jobs as possible stay in Alaska.                                                                               
                                                                                                                                
MR.  FACKRELL  specified  that  one  of the  best  things  is  to                                                               
understand the  execution schedule in  order to get ahead  of it,                                                               
which is  commonly referred to  as front-end loading.   Front-end                                                               
loading  can be  done in  terms of  the workforce.   Furthermore,                                                               
there needs  to be a clear  understanding of where the  jobs will                                                               
be  in  order to  manage  expectations.    For example,  the  GTP                                                               
modules can't be  built in Alaska because the  state doesn't have                                                               
the  fabrication  yards  to  do  so.    However,  the  compressor                                                               
stations  and the  modules associated  with  it can  be built  in                                                               
Alaska, which is why Denali focused  on those.  The other portion                                                               
of the workforce that will be  in Alaska is the construction jobs                                                               
associated  with the  pipeline itself.   Now  that Denali  has an                                                               
execution plan, the numbers can be better detailed.                                                                             
                                                                                                                                
CO-CHAIR NEUMAN  remarked that  he wanted  to ensure  that Alaska                                                               
has  the  highest  opportunity   possible  to  ensure  that  [the                                                               
aforementioned jobs] go to Alaskan companies.                                                                                   
                                                                                                                                
3:34:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON inquired  as to  the degree  Denali has                                                               
met with the Department of  Labor & Workforce Development (DLWD).                                                               
She further  inquired as  to whether there  is anything  that the                                                               
legislature needs to  change in relation to  the training offered                                                               
in the state.                                                                                                                   
                                                                                                                                
MR. FACKRELL  related that Denali  has had  extensive discussions                                                               
with  Commissioner Click,  DLWD, and  has  met with  most of  the                                                               
labor  union representatives.   He  said that  it's important  to                                                               
keep up to  date and for folks to understand  where the jobs are.                                                               
As mentioned earlier,  Denali has an execution  plan that details                                                               
the  crafts  that will  be  used  and  when  they will  be  used.                                                               
Therefore, Denali  is in a  good position  in terms of  what jobs                                                               
will  be   necessary  and  when   they'll  be  necessary.     The                                                               
aforementioned  helps DLWD  dictate the  training.   However, the                                                               
current question is regarding when the training should begin.                                                                   
                                                                                                                                
3:37:01 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN  asked if the  Denali project would have  an open                                                               
bidding process or project labor agreements.                                                                                    
                                                                                                                                
MR.  FACKRELL  replied that  the  project  will require  as  many                                                               
laborers  as can  be found  and  there will  be multiple  project                                                               
labor agreements for this project.                                                                                              
                                                                                                                                
3:37:39 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON related  his understanding  that there  will be                                                               
only one pipeline.  He then  asked if there are any conversations                                                               
ongoing between TransCanada, Denali, and Exxon.                                                                                 
                                                                                                                                
MR. FACKRELL said it's clear that  there isn't enough gas for two                                                               
pipelines, and thus  there will only be one pipeline.   The state                                                               
is in  a dilemma because  TransCanada is an AGIA  licensee, which                                                               
the  state  is   paying.    Furthermore,  there   are  terms  and                                                               
conditions the  state must honor.   The owners of Denali,  BP and                                                               
ConocoPhillips,  don't agree  with  the terms  and conditions  of                                                               
AGIA, nor does ExxonMobil as it  has not signed.  Therefore, it's                                                               
problematic for  the two projects  to come together and  form one                                                               
project.    Mr.  Fackrell  emphasized that  the  state  needs  to                                                               
resolve and  unravel the issues  that exist  in AGIA in  order to                                                               
move forward.   "It's compounded now from where it  was two years                                                               
ago.    We have  a  extremely  competitive  gas market  in  North                                                               
America, it's  been depressed, demand  is down.  Alaska  needs to                                                               
get all parties  together so that we can compete  in that market.                                                               
But there are issues ... that  are outside of Denali's control to                                                               
resolve," he related.                                                                                                           
                                                                                                                                
CO-CHAIR JOHNSON  asked if  AGIA is  standing in  the way  of the                                                               
construction of this pipeline.                                                                                                  
                                                                                                                                
MR.  FACKRELL opined  that some  of the  terms and  conditions of                                                               
AGIA  are  standing  in  the  way  of  the  construction  of  the                                                               
pipeline.                                                                                                                       
                                                                                                                                
3:40:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GATTO  highlighted that TransCanada  has indicated                                                               
that it  holds lots,  if not  all of  the First  Nations' permits                                                               
from  the Crown  40 years  ago.   TransCanada has  also indicated                                                               
that  the aforementioned  permits would  be impossible  to obtain                                                               
now.  He asked if those statements are true.                                                                                    
                                                                                                                                
MR.  FACKRELL said  he has  talked with  the high  level industry                                                               
folks in  Canada, including the  Minister of Energy, the  head of                                                               
the EPA in  Canada, and the chairman  of the NEB.   Canada has an                                                               
open process  for building a  pipeline and there is  no exclusive                                                               
right for  any party to build  a pipeline in Canada.   Under NPA,                                                               
TransCanada  has that  right  [to build  a  pipeline].   However,                                                               
there's a  parallel process through  NEB for the  construction of                                                               
any project.  In fact,  the Department of Natural Resources (DNR)                                                               
has  established  a special  office  for  Denali, Major  Projects                                                               
Management Office, and  NPA reports to a department  such as DNR.                                                               
Therefore,  the process  is  present for  both  projects to  move                                                               
forward.     Denali   has   had   extensive  conversations   with                                                               
stakeholders,  including  aboriginal  groups along  the  pipeline                                                               
route, some  of who say  that no one has  a right to  cross their                                                               
land.   Furthermore, some of  the land is unsettled  land claims,                                                               
which  means that  it  hasn't  been resolved  with  the Crown  or                                                               
anyone else.   Mr.  Fackrell opined  that he  has taken  away the                                                               
understanding  that  there  is  no exclusive  right  to  build  a                                                               
pipeline in Canada  and Denali's process is just as  valid as the                                                               
competition's process.   Furthermore, there are  issues that both                                                               
projects need to resolve in order  to move the project forward in                                                               
Canada.                                                                                                                         
                                                                                                                                
3:42:53 PM                                                                                                                    
                                                                                                                                
CO-CHAIR NEUMAN  questioned what it  will take to bring  this all                                                               
together because  the problem can't  be solved until  the problem                                                               
is known.   He  further questioned whether  Denali is  willing to                                                               
talk to  legislators in  private or  public regarding  the issues                                                               
needing resolution for this project to move forward.                                                                            
                                                                                                                                
MR.  FACKRELL  said that  he  isn't  hesitant  to talk  about  it                                                               
publically  because  the issues  are  known.   Furthermore,  open                                                               
season will clearly  relate what the conditions  precedent are on                                                               
the shipper's  side, in the event  the shipper decides to  sign a                                                               
precedent  agreement.   If the  shipper decides  not to  sign the                                                               
precedent agreement, even larger issues would be indicated.                                                                     
                                                                                                                                
3:44:44 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOHNSON said  that at some point this  problem will have                                                               
to be addressed and hopefully  it will be with the [legislators].                                                               
If  the [legislators]  don't  know the  problems,  they can't  be                                                               
fixed.     Therefore,  he  said  the   sooner  the  [problematic]                                                               
conditions are known, the sooner  the legislature can address the                                                               
problems.      The  aforementioned   is   in   relation  to   the                                                               
confidentiality clause FERC uses as  a protection.  He noted that                                                               
if   the   aforementioned    requires   signing   confidentiality                                                               
agreements, so be it as that's occurred in the past.                                                                            
                                                                                                                                
3:45:37 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHNSON  related  his   intention  to  ask  either  the                                                               
Legislative  Budget  and  Audit   Committee  or  the  Legislative                                                               
Council to have  an independent analysis of the  two open seasons                                                               
in order to have a side-by-side comparison.                                                                                     
                                                                                                                                
3:46:17 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business  before the committees, the joint                                                               
meeting  of the  House and  Senate Resources  Standing Committees                                                               
was adjourned at 3:46 p.m.                                                                                                      

Document Name Date/Time Subjects
House&Senate Resources Denali Update 6.16.10.pdf HRES 6/16/2010 1:30:00 PM