Legislature(2015 - 2016)BARNES 124
01/30/2015 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Update: Alaska Lng Project by Steve Butt, Exxonmobil | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
January 30, 2015
1:00 p.m.
MEMBERS PRESENT
Representative Benjamin Nageak, Co-Chair
Representative David Talerico, Co-Chair
Representative Mike Hawker, Vice Chair
Representative Craig Johnson
Representative Kurt Olson
Representative Paul Seaton
Representative Andy Josephson
Representative Geran Tarr
MEMBERS ABSENT
Representative Bob Herron
COMMITTEE CALENDAR
UPDATE: ALASKA LNG PROJECT BY STEVE BUTT, EXXONMOBIL
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
STEVE BUTT, Senior Project Manager, Alaska LNG Project
ExxonMobil Development Company
Houston, Texas
POSITION STATEMENT: Provided a PowerPoint update on the Alaska
Liquefied Natural Gas (LNG) Project.
ACTION NARRATIVE
1:00:31 PM
CO-CHAIR BENJAMIN NAGEAK called the House Resources Standing
Committee meeting to order at 1:00 p.m. Representatives Tarr,
Hawker, Johnson, Olson, Josephson, Talerico, and Nageak were
present at the call to order. Representative Seaton arrived as
the meeting was in progress.
^UPDATE: Alaska LNG Project by Steve Butt, ExxonMobil
UPDATE: Alaska LNG Project by Steve Butt, ExxonMobil
1:01:30 PM
CO-CHAIR NAGEAK announced that the only order of business is an
update on the Alaska Liquefied Natural Gas (LNG) Project to be
presented by Mr. Steve Butt.
CO-CHAIR NAGEAK explained that this update is required under
Senate Bill 138 [passed and signed into law in 2014]. The
review will focus on how the integrated project is progressing.
Facility and infrastructure design work are progressing while
securing permits required to ensure the project is successful
and ready to evaluate the front-end engineering and design
(FEED) decision in 2016. The review represents joint work by
all the parties involved in the project, including the State of
Alaska through the Alaska Gasline Development Corporation
(AGDC), [TransCanada], BP, ConocoPhillips, and ExxonMobil. The
integrated project is separate from work the individual parties
are completing on related issues defined under Senate Bill 138,
such as property tax, royalty structures, and fiscal issues,
including durability. These separate issues will be the subject
of subsequent updates that the committee will hear within the
next three weeks. The committee looks forward to that phase of
updates with appropriate representatives of the parties, as well
as the right people from the state's departments of revenue and
natural resources, to ensure the legislature and the public are
fully informed on the path forward.
1:03:38 PM
STEVE BUTT, Senior Project Manager, Alaska LNG Project,
ExxonMobil Development Company, noted that this is the second
update for the Alaska LNG Project, the first update occurred in
September 2014. Senate Bill 138 requires the project to provide
three updates a year and therefore he is before the committee on
behalf of the project. In his role as project lead he works
with people from all the parties, so the work that he will be
talking about is the work done by all the entities involved:
AGDC, BP, ConocoPhillips, ExxonMobil, and TransCanada. He
explained that about 130 people have been joined as a team from
all the entities and it is the work done by those people that he
will be showing the committee. The integrated team is supported
by hundreds of contractors all over the U.S., and it is that key
work that creates this project that he will be talking about.
1:05:23 PM
REPRESENTATIVE HAWKER referenced Mr. Butt's statement that his
presentation is a statutorily required quarterly update. He
inquired whether today's presentation comprises the entire
quarterly update that legislators are to receive.
MR. BUTT replied that this is the project's quarterly update
under Senate Bill 138, but said he understands the question
around the parties and the language in the bill and he is
confident the parties are happy to come answer any questions.
As he goes through the presentation he can talk about some of
the issues and how that would work. He said he would like to
differentiate the project's work that he will be talking about
from the owners' work where the entities have another 100 people
working on very complex commercial, royalty, property tax
structure, and fiscal issues. It is all part of how to make the
project work, but there are some things that the entities do
together on an integrated basis because it helps the entities to
reduce their costs. He clarified that he will be focusing on
the integrated project work. The owner issues, which he will
mention, require different groups of people to come before the
committee to speak on behalf of the owners, and he would be
happy to help facilitate that. He said he will deflect any
questions that are not best answered by him.
1:07:06 PM
REPRESENTATIVE HAWKER stressed that this is a very important
point to him. He recalled that last year the committee debated
at length an amendment by Representative Saddler to Senate Bill
138. The committee had a very lengthy on-the-record
conversation about what was contemplated in these quarterly
updates. The committee's point was that the legislature was not
expecting just the project work update as Mr. Butt has defined
it. It is important to have on the record, for the public and
legislators, a dialog with the owners as regards the work of the
owners. He stated he is not comfortable with characterizing
today's meeting - limited to the project work - as the
statutorily required briefing. While he can see it as being a
component of that briefing, he is not prepared to cede to anyone
that this fully satisfies [the legislature's] expectations and
requirements for these quarterly briefings.
MR. BUTT understood and offered to help facilitate additional
discussions. He said this is the first piece of others over the
next few weeks, as was stated by Co-Chair Nageak, and he will
work with the committee to ensure that the right people are in
the room to answer questions.
REPRESENTATIVE HAWKER stated this is an important clarification
for the record.
CO-CHAIR NAGEAK requested that the people that the committee
wants to hear from are at the next briefing.
1:09:02 PM
MR. BUTT began his presentation, noting that he will focus on
the progress made since September [2014], not a review of the
fundamentals of the project. He said the project's scope as
defined is to figure out how to commercialize North Slope gas.
Between Prudhoe Bay and [Point Thomson] about 35 trillion cubic
feet of gas is known and discovered. The project team has
worked on the concept to commercialize that gas and it is
thought that it will take $45-$65 billion of investment to move
and treat that gas, transport it from north to south, then
liquefy it and make it accessible to markets.
MR. BUTT addressed slide 2, noting that since the September
update there are no health, safety, or environmental issues to
report. The project is continuing to build its "culture of
caring" to ensure that everyone goes home safely and treats the
environment responsibly. The work being done now is viewed as
the first steps toward a much bigger project, so the desire is
to get started on the right foot on safety, health, and the
environment. Some of the key contracting items [for pre-front-
end engineering and design (Pre-FEED)] are complete and all the
teams are working well. Contracts are in place with some of the
largest global LNG companies. About $82 million was spent in
the second half of 2014 to do this. The state, through Senate
Bill 138 and its representatives TransCanada and AGDC, carries
the midstream and downstream portions of that investment, so
about 25 percent of that money is carried either through
TransCanada or AGDC. It is not exactly a 50/50 split because a
little bit more money was spent on the midstream. He said that
today he will help committee members understand how that money
has been used and try to create a sense of comfort that the
money has been used well and the project is progressing well.
1:12:07 PM
MR. BUTT related that the first drafts of the Resource Reports
have been completed. These reports go to the Federal Energy
Regulatory Commission (FERC) and are required to get an
environmental impact statement (EIS), which is the key precedent
to getting construction permits. Each report is very detailed,
from hundreds of pages to over a thousand pages. Reports 1 and
10 were provided to FERC in 2014 and the balance of the first 12
reports will be provided to FERC eminently. These reports are
very important to the project because the regulatory risk and
the regulatory timeline drive everything. An investment
decision cannot be evaluated until it is known whether the
project will have a construction permit. It is the "critical
path" - the work that must be done as precedent to all other
work. Finishing the first drafts of these Resource Reports is
the first step. In about a year the more detailed, defined, and
complete second drafts will be submitted to FERC. He explained
that today's presentation covers the time period between the
first draft and completion of the second draft.
MR. BUTT reported that export authorization from the Department
of Energy (DOE) for Free Trade Agreement (FTA) nations was
received in November 2014, giving the project the right to
export LNG from Alaska to countries with which the U.S. has Free
Trade Agreements. However, since that is only a portion of the
Asian market, work is continuing on an application that was
provided to the Department of Energy in second quarter 2014 to
secure non-FTA nation export authorizations. This is important
because it is illegal to export crude oil products from the U.S.
In the Lower 48, only a couple of projects currently have the
right to export gas. The "Kenai LNG Project" has had a long-
standing export authorization from Alaska. The Alaska LNG
Project is seeking an export authorization larger than anything
that has been approved. A federal permit through DOE is
fundamental in helping to make forward investment decisions
because if the project is moved to construct it must be ensured
that the LNG can actually be exported.
1:14:56 PM
MR. BUTT said the public was kept informed via 14 open-house
sessions with FERC participation. People coming to the sessions
were able to talk directly to FERC to help FERC decide how the
environmental impact statements should be written and what
impacts should be considered. Once the first draft Resource
Reports are submitted to FERC, FERC will take over and lead that
engagement process. The intent is to create an environment
where all the stakeholders and the communities can come to these
discussions. A transparent environment ensures that people's
concerns are addressed now rather than later.
MR. BUTT, in regard to a transparent environment, took a moment
to address the issue of confidentiality. He explained the
project has a "sponsors group" which is leadership members from
each of the participating equity companies and entities,
including representatives from the Department of Natural
Resources (DNR) and the Department of Revenue (DOR). Group
members have talked about how to do better at managing and
simplifying confidentiality and agree that a way needs to be
found to create an environment in Alaska where Alaskans have
enough information to support the decisions that need to be made
over time. Sometimes, however, the words get used with certain
context. He said he would suggest that the only information the
project is trying to hold a little bit more confidential defines
the project's competitiveness. The whole future of the Alaska
LNG Project is dependent on the ability to develop the project
at a low enough cost of supply that it can compete with the more
than 100 other LNG projects currently under development
[worldwide]. The U.S. Energy Information Administration (EIA)
recently estimated that there are two molecules of gas under
development for supply for every molecule of forecast demand
over the next 20 years. This means that half the projects being
evaluated and pursued do not have a market and will be
unsuccessful because they cannot compete. It is important to
find ways to work together to keep the Alaska LNG Project's
costs down so it can be competitive. To move this project
forward will take a low enough cost in a structure that works
for all the owner parties to be competitive with all those other
projects. For every project built, at least one will not.
Since this is a very big project, it will displace more than one
or two of the others. He expressed his confidence that ways can
be found to address confidentiality in a constructive manner
that works for everyone.
1:18:45 PM
MR. BUTT returned to slide 2, noting the project is progressing
its [2015] summer field season. He explained this is how the
required regulatory data is gathered to demonstrate to the
federal government that the project will not adversely impact
the environment.
MR. BUTT continued on slide 2, discussing several messages.
First, he emphasized, the Alaska LNG Project is an integrated
LNG project. Over the past several decades the language has
focused on using pipelines to move gas. However, pipelines are
a very different business model than the Alaska LNG Project.
Pipelines move gas from Point A to Point B, whereas LNG projects
liquefy the gas, shrinking [the volume] by a factor of 600, and
then putting the LNG on the water to access markets anywhere.
Liquefied natural gas has a much different market flexibility
which changes the risks and the business model. Also, LNG falls
under a different federal regulatory statute - Section 3 rather
than Section 7 [of the Natural Gas Act, under which FERC is the
reviewing agency]. This is important because it allows
integrated work on this project. Previous iterations of this
project were pursued under Section 7 and had restrictions on the
ability to talk between the project elements and the upstream
entities. The Prudhoe Bay entity and the Point Thomson entity
are managed under the joint operating agreements that are signed
by those unit owners, and those agreements are separate from
anything that is done under the Alaska LNG Project.
Historically under Section 7 there were restrictions on the data
that could be shared, but under Section 3 as an integrated LNG
project there are no restrictions, which means design of this
project can be done by working together as a team. So, the
Alaska LNG Project is much more than a pipeline. On a financial
commitment level, a pipeline is about 25 percent of the cost of
the project; the rest of the project cost is the plants - making
the gas ready to move and making the gas liquid so it can be
exported. That is what drives the ability of this project to be
successful. It gives the economy of scale to move gas and
connect with enough markets so that this kind of investment can
be made and the cost driven down to where the gas can be
delivered to buyers at a price less than other sellers' gas but
still enough after cost to create a margin that generates a
return for all the people to make the investment. With the
state as an investor, [legislators] want to know that the
state's resources are being used well.
1:22:11 PM
MR. BUTT addressed the second key message, explaining that the
"ARC of Success" is shorthand for three ideas that can help
answer almost any question about the project - alignment, risk
reduction, and cost reduction. When asking questions about the
project, he advised, think about how a buyer looks at the
project and how an investor looks at a project in terms of
alignment, risk, and cost. Alignment is about having the
resource owners working together in an integrated team: the
producers have a right to produce the gas that they purchased
through leases, and the state is an owner as a derivative of
those leases and has the right to receive revenues in the form
of taxes and other elements of payment. So, the owners of the
gas are the State of Alaska on behalf of Alaskans through the
constitution, plus the three companies that own the right to
produce the gas from Prudhoe Bay and Point Thomson through the
original leases. Those four entities have about 98 percent of
the known resource between Prudhoe Bay and Point Thomson. It
creates an opportunity for alignment between those four entities
that is very unique. It also creates a business model that is
very unique because when thinking about all the other really
large projects in the world, and in the U.S. in particular,
nowhere is the state an owner of a project to develop resources
like this and certainly not in this scale. That creates a lot
of challenges and creates an environment where the owners need
to work together in an aligned manner. The challenge comes if
there is any unilateral objective with one owner out of sync
with any of the other owners; anything that compromises
alignment creates challenges for the project. All benchmarking
of all megaprojects in the world always recognizes the alignment
of the parties as the most critical factor of success. Any
challenge can be overcome by working together. Regarding risk
reduction, Mr. Butt pointed out that everything in Pre-FEED and
FEED is about risk reduction - identifying and addressing the
uncertainties and knowing today what might come up in 10 years
and how to mitigate it now. If the project can work together to
mitigate things now, it will be much more successful than if it
is unexpected or a risk that cannot be controlled. Regarding
cost reduction, he stressed that the most important element of a
resource development project like this is cost. Because gas is
a commodity nobody pays extra for it. People only want the
utility value of the gas. People want the same standard of
living as had in the U.S. Buyers are thinking generations down
the line. If a buyer risks its economy, will it be at a low
enough cost that its economy can grow? Everything in this
project comes down to cost of supply and competitiveness. At
least half the projects out there are not going to go forward,
and the project's goal is do everything possible to make Alaska
LNG be one of the projects that does go forward.
1:26:36 PM
MR. BUTT reported that much of the technical work [Pre-FEED] is
expected to be completed by late 2015/early 2016. Many elements
are outlined in Senate Bill 138, he said, such as issues that
need to be defined around fiscal structures, royalty framework,
property tax, and creating predictable durable environments.
These are going to be important to the investors to move into
those next stages.
MR. BUTT outlined the project's Pre-FEED work schedule [slide
3]. He said the schematic bar at the top the slide is the same
one shared with legislators since 2012 about the gated project
management approach, which all large projects use to reduce
uncertainty as resources are increased. Concept selection work
was completed in 2012, 2013, and early 2014, he reported. Over
$100 million was spent on work to define how the system would be
structured and built, of which about $28 million was reimbursed
through the Alaska Gasline Inducement Act (AGIA). Many
fundamental questions were answered, such as where to put the
gas treatment plant, how to size the facility, where to put the
LNG plant. The ability to move forward was evaluated in mid-
2014. The question was whether enough was known about the
concept to think it had a chance of being successful. In a
gated process a gate is not gone through unless it is thought
that all of the gates can be gone through and that the risks and
uncertainty can be reduced enough to be successful. In June
2014 the project completed an agreement that enabled Pre-FEED.
In the second half of 2014 about $80 million was spent on Pre-
FEED work to develop more detail in the design. To move through
Pre-FEED, the project will probably spend another $350-$400
million. Added together, over $500 million will have been spent
for Concept and Pre-FEED. Front-end engineering and design
(FEED) will cost between $1 billion and $3 billion, depending on
how much equipment is purchased and the decisions made about
timing. The transition between Pre-FEED and FEED is where the
spend really escalates. For example, during Concept the project
spent about $3-$4 million per month; now the project is spending
about $25-$30 million per month in gross dollars shared by all
the parties. In [FEED] that spending will jump to over $100
million per month, and all of that only gives the right to make
a decision to build the project, called the final investment
decision (FID). At the point of FID, spending will have been in
excess of $2 billion and that only gives the right to spend
another $45-$65 billion and then hope this project can be
successfully operated over the next 30 years.
1:30:28 PM
MR. BUTT stressed that each gate is really important. Before
moving through the gates it needs to be known that there is
enough confidence and enough capability to reduce the risks to
merit the resources. Key risks that the project needs to move
through for Pre-FEED are in the regulatory department. It must
be known that the project has the right to export this gas, that
it will be getting an FTA permit as well as a non-FTA permit.
After the first and second draft Resource Reports are provided,
there needs to be a lot of confidence in working with FERC that
the project is going to be able to successfully secure an
environmental impact statement and subsequent construction
permits. It must also be known that commercial issues and
fiscal issues are resolved because at that juncture all parties
will have the opportunity to increase their spend by a factor of
three to four times. Thus, moving from Pre-FEED to FEED is a
very important gate.
MR. BUTT described what happens in [Pre-FEED], noting slide 3
depicts a timeline from 2014 through 2016 and the dotted line
extending downward from the end of January 2015 indicates where
the project is at the moment. Since 2014 the project has
completed building its teams, getting the engineering work done,
and starting many of the engineering deliverables. Those things
help in deciding the size of the machines for the compression
work. Between 9 and 16 machines will be needed. They will be
larger than anything in the utility industry in Alaska and will
be some of the largest machines in the world. It is years of
work to build these machines. The 1.2 million tons of steel
pipe will also require years of manufacturing capability from
mills. It must be ensured that all of this work can be done.
Delivery of these work products is estimated for fourth quarter
[2015], at which point the Optimization Phase will be entered to
make sure all the pieces fit. At this point there will also be
Owner Reviews to ensure that everybody is understanding how this
all works together. He emphasized that when referring to Owner
Reviews he is referring to the state as an owner.
MR. BUTT explained that the needed regulatory work is shown in
orange on slide 3. The first draft Resource Reports will be
submitted eminently, the second drafts follow about a year
later, and then the "thirteenth report" - the design details of
the LNG plant - will be submitted, leading up until the FERC
application is done. Summer field work to gather the regulatory
data is done when the weather allows. Work is constantly being
done with the contracting community to get the right people to
help do the work. All of this allows the decision to be made on
FEED and how it would work. The FEED evaluation would begin in
the middle of 2016 and continue [until the end of 2016]. It is
really important to not move from the Pre-FEED period across the
gate into FEED until everybody is ready and has the confidence
that uncertainty has been reduced enough to add the additional
resources and take on the additional cost.
1:33:59 PM
REPRESENTATIVE HAWKER inquired whether the actual progress in
achieving these goals and benchmarks to reach the FEED decision
is on schedule as anticipated.
MR. BUTT replied that different elements of the risk are in
different places of maturity. The technical work, the design
work that helps define cost and schedule in order to ask whether
this project is technically feasible and commercially viable, is
going extremely well. The commercial issues are challenging.
The regulatory issues are challenging and are not in the control
of anyone in this room. However, he emphasized, the federal
government and the state regulatory agencies have been excellent
to work with. The project has been able to get things done
better and faster than anyone expected. Some of the more
challenging issues are those outlined in the Heads of Agreement
that was signed in January [2014] and enshrined in Senate Bill
138. Those issues are under the responsibility of the project,
the legislature, and the administration, and are about how to
make some of those really complex issues work. The new folks in
the administration, the Department of Natural Resources, and the
Department of Revenue have been impressive. He said he is very
optimistic and feels everyone is working towards the right goal.
REPRESENTATIVE HAWKER clarified he was not asking about
speculating forward, but whether the work done to date is on
schedule as work is being done to resolve the issues.
MR. BUTT responded that as of January 30, [2015], all of the
milestones laid out in the joint-venture agreement of June 30,
2014, have been reached. The Resource Reports were submitted on
time, the FTA approval was received, approval of the non-FTA is
anticipated, all the contracts were let, and all the design work
initiated exactly on schedule. Other issues need work by the
legislature through the regular legislative session. He said he
does not think any of the parties, including the state, are
ready to progress any of the more complex commercial issues with
any sort of different environment. Whether the schedule will be
on time at the end of the next six months, he does not know.
1:37:54 PM
REPRESENTATIVE TARR understood that if things progress there
will be a special session in October 2015. She asked whether
those things are joint-venture agreement (JVA) work products.
MR. BUTT answered that this is the work the project team is
doing. Some of the owner interface issues with the legislature
are not depicted on [slide 3] and he cannot presume to say when
or if there will be any sessions that are outside the project's
control, just like he cannot presume to say when or if the
project will get any of the regulatory permits. The things that
are within [the project's] control are going extremely well.
Ways need to be found to work together as owners to get some of
these other issues done and he is optimistic that everybody has
the will to get it done. In any large project, he added, the
most important thing is alignment in the will of the parties and
all the parties share a desire to see this happen.
REPRESENTATIVE HAWKER, in regard to moving forward with the
commercial and regulatory issues, inquired whether Mr. Butt was
speaking on behalf of the owners' work or the project work.
MR. BUTT replied he thinks he can share information from both,
but that he is not speaking on behalf of the owners today.
However, he said, through the sponsors groups the owners have
been very clear - they want to get these issues resolved and
want to work together to make it happen. When and how that gets
done is still uncertain because tomorrow is always uncertain and
nobody ever really knows what tomorrow holds. But, looking at
the last six months, all of the milestones have been hit.
1:39:42 PM
MR. BUTT turned to slide 4, explaining that the project is
anchored by the Prudhoe Bay and Point Thomson units, which are
world class resources at about 35 trillion cubic feet of gas.
The work is managed by the unit operators, but because the
project is under Section 3 and is an integrated team, [Prudhoe
and Point Thomson] can work together to make sure the design is
very efficient and that is really important. He drew attention
to the bottom left schematic on slide 4 depicting the design
work on how the project would be integrated to the central gas
facility. Much work has been done on how to manage carbon
dioxide, he said, and work continues on refining and optimizing
the carbon dioxide spec and the handling. The two assets are
being treated together, which is important because it presumes
that Prudhoe Bay will continue to be healthy and the project can
continue to rely on those compression facilities and those wells
to source the gas. It is a great advantage but also an
important risk. The Point Thomson operator has also continued
to make tremendous progress. The upper right photo on slide 4
is of the Point Thomson initial production system and was taken
in September 2014. All of the milestones at Point Thomson have
been met. Drawing attention to the lower right schematic on
slide 4, he said the design work of sizing and module layout is
done for how the gas management and the gas expansion systems
would be managed in the event of an Alaska LNG Project allowing
for the export of gas from Point Thomson.
1:41:59 PM
REPRESENTATIVE HAWKER said the entire Point Thomson development
is underpinned by a settlement agreement of several years ago
between the state and the owner/operator, but that agreement is
being challenged in the Alaska court system. He asked how much
risk this lawsuit is to the continued expeditious, on-time, on-
budget development of the project. He expressed his concern
over the prospect of the settlement agreement being determined
invalid given the money spent so far.
MR. BUTT responded that he can give the committee some data but
not all, and he will not presume to speak on behalf of the
operator. He explained that the operator works on behalf of the
owners, the operator is the one that speaks but the owners pay
the bills. In excess of $2 billion has been spent and total
spend will be close to $4 billion to generate about 10,000
barrels a day of condensate production from a gas cycling
project. The pipeline is built, everything is ready. He said
the person managing that project is a good friend of his and he
is confident she will hit all of her deliverables and meet all
of the settlement requirements. Regarding how it would impact
this project, he spoke from his role of project manager, stating
that any uncertainty in how the gas source comes into the
project will adversely impact the project. Any risk, any
uncertainty, adversely impacts the project. That will always
pivot back to alignment, risk, and cost. Anything that creates
a risk on the source adversely impacts the project and
compromises the project's ability to move through the gates. He
said his understanding of the litigation is limited, but none of
the people involved in [the project] are actually parties to
that litigation and he is confident it will get worked. He
added that he is not comfortable talking about litigation.
1:44:35 PM
MR. BUTT moved to slide 5, stating that Prudhoe Bay and Point
Thomson provide the gas to the gas treatment plant. At 250,000
tons of steel the gas treatment plant is enormous. Each of the
plant's three trains is large enough to fill the Super Bowl
stadium. Each train will be broken into pieces called modules,
and each module will be moved to the North Slope one at a time.
It is thought that how to design the gas treatment plant with
three trains has been figured out. Three trains is important
because it allows balancing of the facility with the
liquefaction facility that has three trains. Train is an
industry phrase that means a processing kit - everything happens
in sequence. It allows each of the sections, or trains, to be
balanced so the system can be kept in balance when working on
the treatment or liquefaction plants. He said he calls it
"three, three, and three" - three treating trains, a pipeline
that handles about 3.3 billion cubic feet a day, and three
liquefaction trains. In the event there is an opportunity to
expand, it is designed such that there is some headroom in the
pipeline and the trains can be added and everything kept in
balance. The carbon dioxide has been finalized with the Prudhoe
people and that integration cannot be stressed enough. It is a
unique element of this project and is one of the most important
opportunities the project has to be successful because everyone
can work together. All the resource owners are together and all
the companies are working without barriers in a way that was not
possible before.
1:46:51 PM
MR. BUTT played an interactive video system depicting the gas
treatment plant and its trains. He explained that huge amounts
of data are involved that allow the team to design all the
different process flows. As wedges are cut away in the video,
each color that is seen represents a process flow stream, such
as hot gas, some kind of treated gas, an amine cycle, or some
other element. This model is used to ensure the design is
efficient from a hydraulic perspective, meaning as little pipe
as possible, and from a thermal perspective, meaning when things
are made hot or made cold it can be balanced. Narrating the
video, he noted the plant covers a couple hundred acres and has
camps and infrastructure facilities so it can be operated
independently; however, work is being done with the Prudhoe Bay
operator to see if there are opportunities to integrate and
share some costs. The tower depicted in the middle is a process
vessel that is about 130 feet tall and 28 feet wide. The door
seen in the video is eight feet. He explained that the video is
a tool that allows operating the plant in a virtual space to
test it. The steel is 12-14 inches thick and must be rolled and
must be moved in one piece, making it big and heavy. The reason
it is so big and so heavy is that Prudhoe Bay has 11 percent
carbon dioxide. No other LNG projects in the world handle that
much carbon dioxide. While great for soft drinks, carbon
dioxide is not great for LNG because it freezes and causes
problems. The carbon dioxide must be taken out of the gas and
put back into the ground and that is what the gas treatment
plant is allowing to be done.
1:49:11 PM
MR. BUTT then played an interactive video system that allows
mapping of the entire project from the pipeline to the plants.
He explained that this data system does interactive three-
dimensional (3D) flybys, so any point in the system can be
looked at from any angle. It is done through stereoscopic
cameras. The detailed analysis was completed over the last two
years. He pointed out where the gas treatment plant (GTP) would
sit at Prudhoe Bay, and said the pipeline on the right goes to
Point Thomson and the pipeline on the bottom is the main trunk
line going to the Cook Inlet. Continuing to narrate the video,
he said the gas treatment plant would be located in the flat
spot where there is no water and the terrain can be analyzed
anywhere on the route in 3D real time. This data system
provides a deep understanding of how to build the project and is
done in Pre-FEED to ensure that as the system is designed and as
the resources and the cost are increased, there is an
understanding of where the project will be built. It will also
be known where to get the gravel and the water, and how it will
be managed.
1:51:06 PM
MR. BUTT turned to slide 6 and emphasized that the pipeline is
not one piece of pipe and it is not just a matter of digging a
trench and putting in a pipe; rather, the pipeline is actually
four design pieces. Drawing attention to the route depicted in
the top right of slide 6, he explained that the portion of
pipeline between Point Thomson and Prudhoe Bay (depicted in
green) is an above ground conventional pipeline. The span from
Prudhoe Bay to the top of Atigun Pass (depicted in purple) is
also conventional, but is a much heavier pipeline because this
span is continuous permafrost. From Atigun Pass to the top of
the Alaska Range [depicted in red] is discontinuous permafrost
from hot summers and very, very cold winters. With temperature
swings of 150 degrees, this ground is always moving with the
freezing and thawing. When designing pipelines, everything
possible is done to ensure the pipe never moves, so very
specialized pipe must be used in this center section. From the
back side of the Alaska Range before going into Cook Inlet,
[depicted in purple] is another section of conventional pipe.
After that is an offshore subsea pipe [depicted in blue]. The
building of four different types of pipe across five different
regimes will require 1.2 million tons of steel. However, there
are no mills anywhere that can create that. The project team
has therefore engaged 12 mills in North America, 2 in Canada and
10 in the U.S., and about 12 mills in Asia to see which mills
can make this pipe.
1:53:16 PM
MR. BUTT drew attention to the schematics across the bottom half
of slide 6, with the helical method of manufacturing pipe
depicted on the left and the linear weld method on the right.
Using a piece of paper to demonstrate the [linear] weld process,
he explained that a flat piece of metal is bent into a U-shape
and welded longitudinally. While very strong, this type of pipe
is hard to make - this method allows for having a much heavier-
walled pipe, but the longitudinal weld must be stronger than the
pipe. Using a cardboard tube from a roll of paper towels to
demonstrate the helical manufacturing process, he explained that
a flat piece of steel is rolled into a tube rather than bent
into a U. While the helical method is easier and cheaper to
build, it is not nearly as strong. Additionally, the weld area
as a dimension of the total length of the pipe is much greater,
creating other challenges. The different mills and different
ways to make pipe are being looked at to see which mill can
supply enough pipe, he said. About $2.5 million-worth of pipe
has been ordered, which is the cost of the pipe with no markup
because the mills are trying to work with the project. Two
different grades of pipe - X70 and X80 - are being tested for
how to do the welding, how it would be sourced, and what fits in
these different environments. Leading the look at this really
complex structure is the project's pipeline team, a fully
integrated team under TransCanada leadership. While the focus
is on a 42-inch system, bigger systems are still being tested
and whether those bigger systems impact availability is being
looked at. There are no mills in North America that can make
pipe bigger than 42 inches and only a couple of mills in North
America can handle 42 inches. It is really difficult to get
this pipe because it is so large and so heavy. All the steel
and all the plate must be imported and then milled.
Additionally, the pipeline team is reviewing geotechnical data
and working with the regulators on how to get it permitted.
1:56:08 PM
REPRESENTATIVE TARR inquired whether there is any tax advantage
to selecting a U.S. manufacturer over a non-U.S. manufacturer.
MR. BUTT replied no, the cost angle is who can source the plate
steel, which is the big expense, and then fabricate it, which is
the bending or the turning. The desire is to source as close
[to Alaska] as possible because that limits transportation cost.
Cost, he added, is something that must be mentioned frequently.
1:56:56 PM
MR. BUTT turned to slide 7, stating the pipeline team continues
to have really good cooperation with its partners at the Alaska
Gasline Development Corporation (AGDC). There are cooperation
agreements with AGDC and AGDC has subject-matter experts. All
the historical data from all the different incarnations of
pipeline projects has been shared and put into one pot to
determine how to make the best pipeline from north to south.
The route has been harmonized so that everyone is looking at the
same route, which is really helpful because it allows gathering
of the needed environmental data. This information gathering
includes geotechnical mapping, environmental data, and fault
studies. Fault studies are extremely important because it must
be ensured that if the ground moves the pipe does not. Staying
as close as possible to infrastructure is also wanted, which is
why the phrase "on and off" right-of-way infrastructure is used.
For example, the project stays as close to roads as it can. The
first 400 miles of the pipeline parallel the Trans-Alaska
Pipeline System (TAPS); at 200 feet away it is not technically
in the TAPS right-of-way, but the road can be used. Staying
with existing infrastructure minimizes the environmental impact
and minimizes the cost, both of which are paramount.
MR. BUTT played a sample video of the pipeline route from the
interactive mapping system. Narrating, he said the system
allows the flying of any section of the pipeline, looking right
or looking left, and managing any element of the pipeline right-
of-way in real time for the full 800 miles.
1:59:26 PM
MR. BUTT discussed the LNG plant (slide 8), pointing out that it
is enormous. He said the export authorization request is for
about 20 million tons per year for a 30-year period, meaning 2.4
billion cubic feet of gas a day would be exported. That is 10
times the amount of gas the state of Alaska uses on average, and
one-third the amount of gas a highly industrialized country like
Germany, Canada, or the United Kingdom uses. So, one-third of
Germany's needs could be supplied from this plant. Therefore,
the LNG plant has geo-political aspects to it and has huge
economy-of-scale elements to it. The plant would have three
modularized six-million-ton trains. While there are bigger
trains and smaller trains, these trains are the most proven
because there is the most of them. So, it is the selection of a
technology that is used in about 90 percent of the world's LNG's
manufacture. Selection of this most common technology and most
fundamental size was done to minimize risk because there is an
understanding from other places as to how it is built and run
and this leverages the experiences of all the parties. The
project's pipeline manager has decades of experience, the LNG
plant manager has built LNG plants all over the world, and his
engineering manager has personally been involved with 70 million
tons of LNG - the whole world only has 250 million tons. So,
someone on the project's team has worked on every operating LNG
plant and one of the project's team members has worked on one-
third of all LNG in operation. To date, the process layout and
process design have been finished and are being translated into
the models the committee saw earlier for the gas treatment
plant. The models enable it to be really refined and ensured
that they are hydraulically and thermally efficient. All an LNG
plant does is make gas cold. The gas arrives at about 30
degrees Fahrenheit and goes out at minus 260 degrees Fahrenheit.
It is not under pressure, is odorless and colorless, and looks
like water in a glass.
2:02:09 PM
MR. BUTT said Nikiski was selected for the LNG plant site
because the focus was on which site would have the lowest risk
and the lowest cost. Nikiski provides that because it has a
large flat area that limits the amount of needed civil work.
Civil work is very expensive and very environmentally difficult
to permit. Some of the sites looked at needed to have 35,000-
50,000 cubic meters of rock moved, which is very difficult to
permit because such a large amount of area is impacted. The
Nikiski site is also near existing infrastructure, which is very
important for the moving in and out of workers and goods.
Additionally, it must be ensured that the plant can be operated
over a long time. The snow loads at Nikiski are lower than in
other parts of Alaska which have very high snow loads that make
it difficult to operate an LNG plant. Drawing attention to the
photograph of the proposed LNG plant site on the bottom right of
slide 8, he said that this picture is in the Resource Report, so
will be moving into the public domain. The site sits just to
the south of the Tesoro refinery. Hard work has been done to
create fair and durable arrangements with the landowners for the
purchase of their land. The folks in the Nikiski industrial
area and the broader Kenai Peninsula communities of Kenai and
Soldotna have been very welcoming, he reported. He has great
relations with the majors of the borough and the city and the
leadership in the area. The team thinks it is on the right path
here and that it is a good environment for success.
MR. BUTT noted that confidentiality is important in the process
of buying land. While people want to know what is being paid
for land, the folks selling land do not want that information in
the public domain, which must be respected. Confidentiality is
an element that helps the project be competitive and respects
private information. It is also a parallel to the elements of
contracting. For example, he related, at a meeting with a group
of contractors there was discussion about how to satisfy the
need to be as transparent as possible. One contractor said
everybody's bid should be in the public domain except his, which
characterizes the challenge. Whether it is land or contracting,
the project is trying to create that transparent environment
without compromising competitiveness or private information.
2:05:08 PM
REPRESENTATIVE TARR asked whether the LNG plant site is mostly
privately owned or owned by the borough.
MR. BUTT responded that most is owned by private individuals,
but some sections are owned by the borough.
REPRESENTATIVE TARR inquired whether the sales are cooperative.
MR. BUTT answered that the guidelines say it must be fair and
durable, it has to work for everybody. There has been a lot of
very positive feedback, he reported, although not every single
parcel has been worked out yet. It must work for all the
members of the community because the project is going to be
there a long time. The project's guideline is to be a good
neighbor and a good member of the community.
REPRESENTATIVE TARR inquired whether any of the land sales
involve provisions that allow individual use of gas or access to
the gas.
MR. BUTT replied they are purchases with no other elements
because it must be fair and durable and anything that gets too
unusual is probably not going to be durable. It must therefore
be kept really clean.
REPRESENTATIVE OLSON related that his district is right next to
the Alaska LNG Project plant site and many of his constituents
work in the Nikiski area. Oftentimes he gets calls that should
have gone to Representative Chenault, he said, and there have
been very few phone calls where people have been unhappy with
the way land sales have been handled. He complimented the
project on this.
MR. BUTT thanked Representative Olson and said the land team was
given a very clear mandate to be fair and durable on both sides.
2:07:47 PM
MR. BUTT played an interactive video of the LNG plant site in
real time 3D. Narrating, he explained that at the left edge is
the boundary of the Tesoro refinery and to the south [is the LNG
plant site] that is largely trees and open space with some
spotted infrastructure and developments, making it a good fit
for an LNG plant. In thinking about other areas in Alaska, it
is hard to find a big flat space and a flat space is a lot more
conducive to an LNG plant than anything else. That said, there
are a couple of other places that would work well for siting the
plant. The project is trying to work out the land issues with
all the owners and is doing geotechnical work to ensure that
this is a good place to put the plant. Samples are being
drilled down to about 150 feet to determine whether it is soil,
clay, or sand because the plant will weigh about 200,000 tons
and there is vibration from the big compressors and motors that
are in motion. It must be ensured that when things move the
ground doesn't. It must also be ensured that the foundations
can be designed properly and the plant will fit on the site.
MR. BUTT played a video of the Denali Drilling Company gathering
samples for the project. Narrating, he said about 30 holes have
been cut so far, and another 150 holes will be cut over the next
year and a half. He noted that the video is stock footage from
Channel 11. Thanking Channel 11, he quipped that borrowing the
video is an example of cost savings.
2:10:19 PM
MR. BUTT played another video borrowed from Channel 11 of the
tools being used in the Cook Inlet. Narrating, he explained
that the video is of a two-dimensional (2D) seismic tool and a
sonar tool off the bottom of the boat, which are used to get
detailed maps of the bottom of the Cook Inlet. This information
is needed because a jetty must be placed and it needs to be
positioned safely. The data is captured by the aforementioned
tools and then integrated to come up with very detailed images
of the sea floor. Data is also being gathered on currents and
tides and what the water looks like.
MR. BUTT moved to slide 9, noting that all of the aforementioned
data gathering is part of the broader regulatory permitting
process, which is done to understand the risks. Summer field
work is critical because this is the information used to put
into the Resource Reports, which is what gets the environmental
impact statement that gets the permit to construct. These early
steps really matter. A couple hundred archeologists dug holes
spaced about 3-5 meters apart all along the pipeline right-of-
way. About 10,000 acres was covered last summer and another
15,000-16,000 acres remains to be done over the next year and a
half. The archeologists are looking for any sort of cultural
history or artifacts of cultural heritage. Anything found is
reported to the state Office of History & Archaeology, not the
project, and the archeologists will work with the state office
to ensure those artifacts are protected.
2:12:31 PM
REPRESENTATIVE JOSEPHSON asked whether State of Alaska funds,
appropriated under Senate Bill 138, are being used for the
aforementioned work by contracting parties.
MR. BUTT responded that the "family tree" shown in the lower
left of slide 9 is only for the summer field work, and all the
other elements of the project also have family trees. He
confirmed that state monies are used for this work. The state
has 25 percent equity through its agents, AGDC for the LNG
plant, and TransCanada for the midstream which is the pipeline
and the gas treatment plant. The contractors gathering summer
field data for the pipeline are billed back through TransCanada
who is actually paying for that portion to cover the state's 25
percent. The folks doing the archeological work, field work,
site work, and geotechnical work in the [LNG] plant area are
paid through AGDC.
2:14:00 PM
MR. BUTT returned to his discussion of slide 9, pointing out
that lots of civil surveys are being done because it must be
known where everything is. Lots of stream and waterway work is
being done to ensure waterways are not damaged. Of the 250
people doing field work last year about 80 percent were
Alaskans; they walked 10,000 acres and drove 200,000 miles.
MR. BUTT moved to slides 10-11, saying it is key to understand
the environment so it is not adversely impacted. All of this
feeds the export application and the Resource Reports to get the
permits for the project. It is important because there are a
lot of regulators out there. The project has had meetings with
state and federal regulators and slide 10 is a graphic showing
the number of different folks that the project works with.
Representatives from interagency working groups come together to
look at the different permitting elements. However, FERC
actually leads the National Environmental Policy Act of 1969
(NEPA) which defines the permitting process and FERC is the
umbrella to plug all of these in. In addition to FERC, the
federal government has formed the Interagency Working Group that
is led through the Department of Interior through its auspices
at the Bureau of Land Management (BLM). That group calls
meetings where all those regulators come together from the 30-50
regulatory groups to talk about the project, the permitting, and
the data gathering to create these Resource Reports. Mr. Butt
brought attention to the 13 Resource Reports listed at the top
right of slide 11. He reported that Resource Report 1 [Project
Description] and Resource Report 10 [Alternatives] are done and
have been submitted. Resource Reports 2-9, 11, and 12 will be
submitted eminently. All of these reports are required to get
the environmental impact statement. Resource Report 13 [LNG
Plant Information] will follow in about a year.
2:16:20 PM
MR. BUTT, responding to Representative Hawker, explained that
the page numbers for his presentation differ from the slide
numbers in the committee packets due to the videos contained in
his presentation.
REPRESENTATIVE TARR asked whether the field teams have gotten as
far south as the LNG plant.
MR. BUTT answered that most of the archeological work is still
up in the north Healy/Talkeetna area, while much of the
geophysical and geotechnical work is all the way down to the LNG
plant. The whole route must be done, but it is done in sections
based on the availability of the resource and the weather and to
prevent conflicts. For example, the archeological data cannot
be gathered while a hole is being drilled. The archeological
data is gotten first and then the holes are drilled.
2:17:41 PM
MR. BUTT said FERC is involved now and it is very important to
get the environmental impact statement to have FERC lead the
process. Once the first drafts are submitted, FERC will take
over and will begin a lot of community engagement. The project
will continue to have public sessions. For example, two weeks
ago the project held a public session with FERC in Kaktovik.
The project is holding sessions throughout Alaska, but along the
pipeline route it is meeting with all the communities and will
continue to do that. To date, the project has had about 65 open
house sessions, 14 of them with FERC, and will hold about that
many more as the project goes forward. How the project is going
to impact a community and whether people support it is an
important element in the project's design.
MR. BUTT pointed out that the picture on the left in slide 11 is
of a geotechnical boring tool and the picture on the right is a
geotechnical trench for assessing a fault. Anywhere a fault is
suspected, he explained, a trench is dug to gather data to see
how it is moving. In the event a pipe was put there, it would
be understood how the ground might move so the pipe can be
designed to not move.
2:19:21 PM
MR. BUTT played a video depicting how the summer field work is
gathered. Narrating, he said the crews start with a job safety
briefing, then go into the field sites, and then they walk a
lot. In waterway suitability work the crew walks to find places
to capture fish using mild electrical current to stun the fish.
The fish is captured, categorized, and then released. This is
done on every waterway, every stream, every crossing and the
depth, width, and water quality are measured. This is done
because the project must demonstrate what the environment was
like before the project got there. Archeological crews dig
holes spaced three meters apart and three meters down. Anywhere
it is thought there is a site, an archeologist defines those
sites, such as overlooks for game.
MR. BUTT then played a video of the project's community
engagement sessions, saying the project is endeavoring to be
transparent in its process. People can come to the open houses
and ask any question they want.
2:21:42 PM
MR. BUTT turned to slide 12, addressing what is ahead to get
into FEED. He pointed out that there are many opportunities to
engage. Because Alaska is an equity participant it is very
important to get an owner's mindset. Owners must work to make a
business successful. Alaskans, as equity participants and
owners of the project, have the same rights and obligations as
everybody else through the 25 percent participating equity
defined in Senate Bill 138. How the project engages in that is
really important. The project has asked all the businesses to
register on its web site and about 100 local businesses have
registered. The project will have those businesses work with
the other elements of the project to look for ways to match up
global LNG experience with local Alaskan knowledge. The project
wants people to attend the community meetings to talk to FERC
about any concerns they may have so ways can be found to resolve
those concerns early. It is also important to continue this
legislative engagement process. The project is happy to have
additional sessions to talk about any other information that the
legislature wants. Legislators are welcome to call. Kim Fox is
the project's external affairs manager. All of that engagement
leads to the 2016 decision point where it really needs to be
understood whether to move from Pre-FEED to FEED. The Pre-FEED
work will define the design and confirm the site and the route.
That work is on track and, he said, he has every confidence that
it will get done. It needs to be confirmed that the cost and
schedule is competitive - whether gas can be delivered at a low
enough cost to compete in a global market. Mr. Butt stressed it
cannot be emphasized enough how competitive this business is.
It is guaranteed that at least half of the molecules that people
are trying to figure out how to send to market will not have a
home, the Alaska LNG Project wants to be the half that does.
2:24:20 PM
MR. BUTT said the project wants to work with the state to define
the off-takes to provide gas to Alaskans. The project is happy
to support different models on where to locate the off-takes.
One will probably be the Minto/Fairbanks area and one will
probably be the Wasilla area into the back of the existing grid
for Anchorage. The project would like to help decide where to
place the others. Knowing the off-take locations allows for
proper design of the facilities to meet that need. The earlier
that the project has that information, the better it can size
the compression stations and decide their locations.
MR. BUTT noted the project needs help on the very important key
commercial agreements - how the gas balance works between the
reservoirs, how the governance going forward gets done. The
state has a lot of energy around expansion rights and third
party access. Through a collaborative solution-oriented manner,
ways can be found to get each party what it really, really
needs. While it may not be what a party wants, ways can be
found for what a party really, really needs. The project needs
help developing durable and predictable fiscal terms as defined
in the Heads of Agreement and Senate Bill 138. While that is
not really within the project's domain, the project can help
provide information, listen to enalytica, and support any third-
party consultants that the state may use. Black & Veatch's
Alaska North Slope Royalty Gas Study is an excellent document.
Last year's seminars on LNG provided a tremendous amount of
information, but the project is going to need help to move all
that forward. The only way this is going to work is if all the
parties are kept aligned. The four parties - the state on
behalf of Alaskans, BP, ConocoPhillips, and ExxonMobil - have
about 98 percent of the gas on the North Slope. The parties
have an opportunity to work in an integrated manner that has
never happened before. The parties have an opportunity to
create a system that has never been built before and the parties
are at a point in the process that has never been reached
before. He concluded by saying that if the parties can build on
that alignment, the parties can be really successful.
2:26:42 PM
REPRESENTATIVE HAWKER observed on slide 12 the bullet stating,
"Continue building alignment between all parties" and the bullet
stating, "Legislative engagement - need help to align on forward
plan to reduce project risk and 'cost of supply'". He inquired
as to what is the specific ask underlying the second statement.
MR. BUTT replied that for legislative engagement he will not
presume to make a specific ask on behalf of the project. But,
he continued, he will say that "on behalf of the project, we
have a framework to get all the work done that we need to get
done to support the elements of a Pre-FEED decision. What we
need help with is to align on how do you want to address some of
these other issues - commercial agreements, fiscal agreements."
He said he doesn't think there will be consensus across all the
owner parties to move from Pre-FEED to FEED and increase the
spend from roughly $25-$30 million per month for a total spend
on the order of $450 million to probably three times that, $100
million per month, without a higher level of certainty.
Certainty is an objective that "allows us to have confidence
that when we put up that money that we are going to be able to
work together and actually build the project because between
Pre-FEED and FEED is … a step change of commitment." It will
need to be known what the property tax structure, the royalty
framework, and the fiscal durability looks like. Using the
analogy of building a house, Pre-FEED is the concept level of
deciding where to put the house, what it looks like, how big it
is. But that house won't be built until it is understood over
the 30 years whether the mortgage is going to change every
month, what the mortgage rate is, whether the taxes will change
every month, whether the house is in the right school district,
or the right place. Those are the kind of questions the project
needs to understand. Like a house, this is a plant that will
need to be run and successfully operated for 30 years or more.
An LNG plant like this could run 50-60 years because it is
designed for that capability. The permit is for 30 years, but
LNG plants in cold dry environments can run decades and they are
built with that in mind. The legislature's help is needed to
answer some of those questions that are outside the project's
control. He suggested holding some of the owner sessions
referenced earlier by Representative Hawker and have some of
those dialogs about what it is going to look like to get to a
level of fiscal and commercial certainty that is going to help
all the parties, including the state, feel good about escalating
from Pre-FEED to FEED.
2:30:02 PM
REPRESENTATIVE HAWKER stated that if help is needed, then the
project is asking the legislature for something, but the
legislature can't help if the project doesn't ask for something.
He said he did hear a clear statement about the need for
resolving fiscal terms and economic stability for the project on
a long-term durable basis. Earlier he heard Mr. Butt talking
about difficulty with commercial agreements and he sensed that
Mr. Butt was asking the legislature to arbitrate disagreements
amongst the commercial parties. [Slide 2] of the presentation
was about how well-aligned the resource owners are and working
as an integrated team. He asked whether a functional, working,
integrated team is really had and whether there are some serious
disagreements within the project plan that the legislature
should be aware of.
MR. BUTT replied that is why he is trying to differentiate it.
The team is functioning very well. There are owner issues where
there are differences of opinion, but within the project
structure [the team's] job is to find out how to make this thing
work at the lowest cost possible. But there are differences of
opinion across the different owners, including the state. But,
he said, he would like to clearly be on record stating that he
is not asking the legislature to engage to arbitrate that. The
mechanisms are in place to work through all that in a timely
manner. A project this big and complex with people from all
these different places will not have everybody agree. He
related one of his favorite sayings - that if he puts 10 people
in a room and asks a question to which he receives the same
answer 10 times, then he has 9 too many people in that room. It
is very natural for there to be differences of opinion, he
continued. These are folks with decades of experience on all
elements of this project and they have different views. That is
a very good thing, not a bad thing. It helps in making really
good decisions and helps in having confidence that when a
decision is made it has been tested from every angle and facet.
On behalf of the project he is not asking for any help
arbitrating that - it will all get worked out. From within both
his roles, the teams are working really well. Do they agree on
everything? No. And, he stressed, he does not want them to
agree on everything, he wants them to get to the right answer,
he wants them to get to a competitive project with the lowest
cost of supply in a framework that has aligned owners. That
takes time. One thing that makes this project unique is having
the state as a partner, there are no other places where that is
done. "We have a democratic process in a business decision
making process here," he said. "Democracy is messy. We
shouldn't expect it to be a simple autocracy. We don't want a
simple autocracy. Autocrats rarely are very successful for very
long for a reason. So, I think we are fine there." However,
places where the legislature's help is needed are probably to
the question of how to help implement the road map under Senate
Bill 138. He offered to facilitate bringing the right owners'
representatives before the committee or other group to talk
about what that looks like because that is a place where the
legislature has a unique role and nobody else can help.
2:33:43 PM
REPRESENTATIVE HAWKER said Mr. Butt answered his question by
stating that help is needed with the fiscal terms, stability,
and working out those long-term fiscal arrangements.
MR. BUTT said there are a lot of ways to help, but arbitrating
on commercial issues is not one of them - building awareness,
helping create an environment where there is transparency. The
new administration has made an excellent point, at some juncture
the Alaskan public is going to be asked to support the
legislature and support the administration in an enormous
investment. It is going to take a lot of transparency, a lot of
confidence, and a lot of people given there are over 600,000
stakeholders out there. While he does not think the project can
get them all to agree, there will need to be enough confidence
that if the state puts up its share of the project, which will
be north of $12 billion. The state may use agents to reduce
that frontend capital and it is the state's choice on how it
chooses to do that. He said one of his roles is to help the
owners understand the project and understand what it needs to
move through the gates so that the project can be executed, and
the state is an owner. Therefore he takes it very seriously to
be before the committee to share the information.
2:35:05 PM
REPRESENTATIVE TARR noted today's low oil prices, saying it
could be concerning if gas price is linked to oil price. While
short term at the moment, she asked at what duration of time a
low price would start to raise red flags.
MR. BUTT responded that, unfortunately, he does not have a great
answer, but he can say that all the owners are ready to stay the
course. While prices have been down for the last several
months, this project's life is measured in decades. If prices
stay down for decades it is probably one answer; if it is
measured in months it is probably another answer. Over the next
12 months there is a tremendous amount of work and that work
needs to be done well and the regulatory, commercial, and fiscal
information feathered in to determine whether it makes sense to
move to FEED. If prices move dramatically lower between now and
then, it might get to one answer; if they stabilize and go the
other direction, it might get to a different answer. The gated
process allows the project to finish chunks of work so that [the
owners] can determine whether it makes sense to escalate their
resourcing. Do [the owners] want to triple the amount of money
they are spending? Are they confident that if they do that and
make the decision to spend the capital to build the project that
it will generate enough margin to generate enough return to make
that investment prudent?
2:36:57 PM
REPRESENTATIVE JOSEPHSON recalled that when Mr. Butt was
interviewed by the press earlier this month it all sounded
optimistic and positive. However, two words heard today give
him some pause - "consensus" and "disparate". He recalled Mr.
Butt saying he was not confident yet that the partners had
reached consensus and it sounded less than positive about moving
forward. He inquired whether the differences are huge and
whether some partners are ready to move forward while some are
reluctant.
MR. BUTT answered that he does not mean to use words like
disparate or consensus in a negative manner. He said he means
to use them in a manner that there are different people who have
different ideas. That is a natural process and everybody is
trying to ensure that they are properly stewarding the resources
of either their shareholders or their constituents and he
respects that. It takes a while to get to that common ground
and he is very optimistic that that common ground is there if
the work is done in a solution-oriented manner and alignment
preserved. Everybody has a shared resource and if there is an
integrated shared structure to connect that resource to the
market, we all have an opportunity to benefit. Does that merit
the investment? Or are there different views around that? That
is the question for the owners that he wouldn't presume to
answer. But, he added, he is optimistic and optimistic would be
the headline.
2:38:47 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:39 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Alaska LNG - Legislative Update 30Jan15 FINAL print version.pdf |
HRES 1/30/2015 1:00:00 PM |