Legislature(2019 - 2020)BARNES 124

01/22/2020 01:00 PM House RESOURCES

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01:02:18 PM Start
01:04:09 PM Presentation: Alaska Lng Project Update
02:40:15 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: AK LNG Update by Joe Dubler, TELECONFERENCED
President, Alaska Gasline Development Corp.
-- Testimony <Invitation Only> --
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                        January 22, 2020                                                                                        
                           1:02 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative John Lincoln, Co-Chair                                                                                           
Representative Grier Hopkins, Vice Chair                                                                                        
Representative Sara Hannan                                                                                                      
Representative Dave Talerico                                                                                                    
Representative George Rauscher                                                                                                  
Representative Sara Rasmussen                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Geran Tarr, Co-Chair                                                                                             
Representative Chris Tuck                                                                                                       
Representative Ivy Spohnholz                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION:  ALASKA LNG PROJECT UPDATE                                                                                        
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
JOE DUBLER, Interim President                                                                                                   
Alaska Gasline Development Corp.                                                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided a PowerPoint presentation                                                                       
entitled, "Alaska LNG Project Legislative Update House Resources                                                                
Committee," dated 1/22/20, and answered questions.                                                                              
                                                                                                                                
FRANK RICHARDS, Senior Vice President Program Management                                                                        
Alaska Gasline Development Corp.                                                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions during the PowerPoint                                                                 
presentation entitled, "Alaska LNG Project Legislative Update                                                                   
House Resources Committee," dated 1/22/20.                                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:02:18 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOHN  LINCOLN  called   the  House  Resources  Standing                                                             
Committee  meeting  to  order  at   1:02  p.m.    Representatives                                                               
Talerico, Hannan, Hopkins, Rasmussen,  Rauscher, and Lincoln were                                                               
present at the call to order.                                                                                                   
                                                                                                                                
CO-CHAIR LINCOLN made opening remarks.                                                                                          
                                                                                                                                
^PRESENTATION:  ALASKA LNG PROJECT UPDATE                                                                                       
            PRESENTATION:  ALASKA LNG PROJECT UPDATE                                                                        
                                                                                                                                
1:04:09 PM                                                                                                                    
                                                                                                                                
CO-CHAIR LINCOLN announced the only  order of business would be a                                                               
presentation by the Alaska Gasline Development Corp.                                                                            
                                                                                                                                
1:04:39 PM                                                                                                                    
                                                                                                                                
JOE DUBLER,  Interim President, Alaska Gasline  Development Corp.                                                               
(AGDC), provided a PowerPoint  presentation entitled, "Alaska LNG                                                               
Project  Legislative  Update  House Resources  Committee."    Mr.                                                               
Dubler directed  attention to slide  2, which was an  overview of                                                               
the history  of AGDC:   in  2010, House Bill  369 [passed  in the                                                               
Twenty-sixth  Alaska  State  Legislature] instructed  the  Alaska                                                               
Housing Finance  Corporation to  conduct a  pre-feasibility study                                                               
of a  small diameter pipeline  to transport natural gas  from the                                                               
North  Slope to  Fairbanks  and Southcentral  Alaska, to  address                                                               
anticipated  lower  gas  production  in  Cook  Inlet;  the  study                                                               
resulted   in  an   estimate  of   $10  billion   to  build   the                                                               
infrastructure needed  to bring  gas to  Southcentral.   In 2013,                                                               
House  Bill   4  [passed  in   the  Twenty-eighth   Alaska  State                                                               
Legislature]  created  AGDC,  and  its  board  of  directors  was                                                               
granted broad  powers in order  to insulate the  corporation from                                                               
political influence.   In  2014, Senate Bill  138 [passed  in the                                                               
Twenty-eighth  Alaska  State   Legislature]  authorized  AGDC  to                                                               
represent the state in a  partnership with ConocoPhillips Alaska,                                                               
Inc.,  BP,  and  ExxonMobil  Corporation,  which  was  formed  to                                                               
facilitate  construction  of  the Alaska  Liquefied  Natural  Gas                                                               
Project (AKLNG).                                                                                                                
                                                                                                                                
1:09:06 PM                                                                                                                    
                                                                                                                                
MR. DUBLER  stated that in  2016, the  25 percent interest  in an                                                               
earlier project  - established by  the Alaska  Gasline Inducement                                                               
Act (AGIA) [passed in the  Twenty-fifth Alaska State Legislature]                                                               
- held  by TransCanada Corporation,  was purchased by  AGDC, thus                                                               
AGDC  holds  the  state's  25  percent  interest  in  the  entire                                                               
project; TransCanada Corporation deals  with the GTP and pipeline                                                               
portion of the  project, while AGDC took the LNG  facility.  Also                                                               
in 2016,  the pre-front  end engineering  and design  (FEED) work                                                               
was completed,  and it was  determined that the price  to deliver                                                               
gas  to  Asia was  not  marketable.   Subsequently,  the  state's                                                               
private sector partners  withdrew from the project.   In the last                                                               
two  years, AGDC  has sought  to advance  the project  by finding                                                               
financial partners and through other  means.  In 2019, AGDC began                                                               
to update cost factors to  determine whether the project could be                                                               
competitive  on the  world market,  and to  complete the  Federal                                                               
Energy Regulatory Commission (FERC)  regulatory process; in fact,                                                               
FERC has  issued its draft environmental  impact statement (EIS),                                                               
the final EIS is expected in  March 2020, and a permit to proceed                                                               
is expected  in June 2020.   Mr. Dubler stressed AGDC's  focus in                                                               
2019 was turned away from  the Alaska Stand Alone Pipeline (ASAP)                                                               
to AKLNG  due to  ASAP's cost  of $10  billion; however,  ASAP is                                                               
still  an  asset  available  to  the state  at  any  time  as  an                                                               
infrastructure  project that  could  provide gas  to Alaskans  if                                                               
needed.                                                                                                                         
                                                                                                                                
1:13:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RASMUSSEN  asked how AGDC will  proceed after [the                                                               
FERC permit] is completed in June 2020.                                                                                         
                                                                                                                                
MR. DUBLER explained  efforts are already underway  to seek third                                                               
parties to  invest in, own, build,  and operate the project.   He                                                               
stressed  the state  would not  be  able to  build an  integrated                                                               
liquefied natural gas (LNG)  project without experienced partners                                                               
because  AKLNG   consists  of  three   projects:     North  Slope                                                               
facilities, a pipeline, and an LNG  facility, each of which is an                                                               
approximately $10 billion project.                                                                                              
                                                                                                                                
REPRESENTATIVE  RASMUSSEN asked  whether the  state would  retain                                                               
ownership in the project and, if so, at what percentage.                                                                        
                                                                                                                                
MR. DUBLER  answered that  he did not  know; he  observed similar                                                               
projects occur when  there is an alignment  between the ownership                                                               
of the  gas and  the ownership  of the  project.   Depending upon                                                               
agreement, the  state would own up  to 25 percent of  the gas and                                                               
thus  could  own or  invest  one-quarter  of  the equity  in  the                                                               
project.                                                                                                                        
                                                                                                                                
REPRESENTATIVE HOPKINS questioned whether  AGDC would need to add                                                               
staff if it receives the final FERC permit in June 2020.                                                                        
                                                                                                                                
MR. DUBLER  said no, explaining AGDC's  role would not be  as the                                                               
project's sponsor  but would represent the  state's interest; for                                                               
example, [the state's interest] in commercial negotiations.                                                                     
                                                                                                                                
REPRESENTATIVE HOPKINS asked whether  current AGDC staff would be                                                               
sufficient in this regard.                                                                                                      
                                                                                                                                
MR.  DUBLER advised  that  if the  project  cost projections  are                                                               
favorable in June [2020], then  third parties will participate in                                                               
the project  and the  role for AGDC  will be  relatively limited;                                                               
the third  parties will be taking  the lead and most  of the risk                                                               
of construction  and operations.   He estimated  participation by                                                               
minority  parties   will  not  require   a  staff   exceeding  24                                                               
employees, although the need is unknown at this time.                                                                           
                                                                                                                                
1:18:03 PM                                                                                                                    
                                                                                                                                
MR.  DUBLER directed  attention to  slide 3  and reviewed  AGDC's                                                               
activities  in 2019,  shown  on the  slide  as follows  [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
   • shelved ASAP pending interest by an entity - the                                                                           
     project is not economic at current gas prices                                                                              
   • reinitiated the stage gate process for AKLNG - a                                                                           
     reasoned approach to developing a project by stopping                                                                      
     to reevaluate its economics before further spending                                                                        
   • suspended AGDC's focus on marketing AKLNG in Asia and                                                                      
       returned focus to the FERC process to de-risk the                                                                        
        regulatory risk to the project - he provided an                                                                         
     example                                                                                                                    
   • committed to evaluating AKLNG competitiveness by                                                                           
        updating costs related to construction costs and                                                                        
     tariffs                                                                                                                    
   • contracted with the engineering firm that provided                                                                         
      original cost estimates under the terms of the Joint                                                                      
     Venture Agreement (JVA) to provide December 2019, cost                                                                     
     estimates                                                                                                                  
   • committed to solicit private sector firms to build,                                                                        
     own, and operate AKLNG                                                                                                     
                                                                                                                                
1:24:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR LINCOLN  returned attention  to ASAP  and asked  for the                                                               
term of the rights-of-way (ROWs) that have been received.                                                                       
                                                                                                                                
MR. DUBLER expressed  his understanding the ASAP  permit from the                                                               
U.S. Army Corps  of Engineers (USACE) is valid for  five to seven                                                               
years;  if  construction  begins  within  five  to  seven  years,                                                               
applications can be made for an extension of the permit.                                                                        
                                                                                                                                
CO-CHAIR  LINCOLN  asked  about  the time  limit  for  the  AKLNG                                                               
permit.                                                                                                                         
                                                                                                                                
1:26:08 PM                                                                                                                    
                                                                                                                                
FRANK RICHARDS,  Senior Vice President Program  Management, AGDC,                                                               
explained the  USACE and  Bureau of  Land Management  (BLM) Joint                                                               
Record of  Decision, permits,  and ROW  across state  and federal                                                               
land for  ASAP are authorizations  valid for three to  five years                                                               
on a  major EIS;  however, additional work  on the  project could                                                               
add more  time.  He cautioned  ASAP has been set  aside thus time                                                               
is  expiring  on the  ASAP  permits.    The lead  federal  agency                                                               
regulating AKLNG  is a different  agency -  FERC - and  FERC will                                                               
keep its order to construct AKLNG  open for eight years or longer                                                               
for additional work.                                                                                                            
                                                                                                                                
CO-CHAIR LINCOLN  inquired as to  the firm updating  the economic                                                               
analysis of AKLNG.                                                                                                              
                                                                                                                                
MR. DUBLER answered Fluor Corporation.                                                                                          
                                                                                                                                
MR.  RICHARDS added  Fluor Corporation's  Houston [Texas],  Aliso                                                               
Viejo [California], and offshore  offices are providing data from                                                               
other major  projects.   Other participants  in the  ongoing work                                                               
are AGDC,  ExxonMobil, and BP.   In further response  to Co-Chair                                                               
Lincoln, he  said the work completed  in 2016 under the  terms of                                                               
the JVA was compiled by  ExxonMobil.  Fluor Corporation developed                                                               
cost  estimates for  ASAP and  has reviewed  facets of  AKLNG for                                                               
project sponsors.                                                                                                               
                                                                                                                                
CO-CHAIR  LINCOLN  asked for  a  summary  of  the basis  for  the                                                               
project's high cost estimates.                                                                                                  
                                                                                                                                
1:31:04 PM                                                                                                                    
                                                                                                                                
MR. RICHARDS explained  in April 2019, there was a  review of the                                                               
execution plan  and cost  estimate developed  under the  terms of                                                               
the JVA,  led by ExxonMobil.   The review was of  the methods the                                                               
project   planned  for   delivery  of   materials  and   how  the                                                               
construction  would  be  executed.   He  noted  there  have  been                                                               
increases  in the  use of  modular  construction in  oil and  gas                                                               
facilities worldwide,  which is a  significant way to  reduce the                                                               
cost of a constructing a facility.   In fact, modularization is a                                                               
significant  component  in reducing  cost  for  AKLNG.   The  gas                                                               
treatment  plant  on the  North  Slope  was planned  for  modular                                                               
construction; however,  the liquefaction facility in  Nikiski was                                                               
designed with substantial onsite  construction at increased cost.                                                               
Further  cost reductions  may  be  found in  the  price of  major                                                               
commodities, and by reductions to the project management team.                                                                  
                                                                                                                                
MR. DUBLER directed  attention to slide 4 which showed  a map and                                                               
specifications for AKLNG.   The pipeline begins  at Point Thomson                                                               
to a main  gas treatment plant at Prudhoe Bay,  and continues 804                                                               
miles to Nikiski.   He noted there would be  500 to 1,500 workers                                                               
on the North Slope during  peak construction, and construction of                                                               
the gas treatment plant would  require 250,000 to 300,000 tons of                                                               
steel.    Mr.  Dubler  pointed  out  modular  construction  saves                                                               
construction  costs  because  units   are  built  elsewhere  with                                                               
cheaper labor  and shipped to  the North Slope  for installation,                                                               
as has been done for many years on the North Slope.                                                                             
                                                                                                                                
1:36:00 PM                                                                                                                    
                                                                                                                                
MR. DUBLER  said the pipeline  is a 42-inch steel  pipeline, with                                                               
pressure  greater  than  2,000  pounds  per  square  inch  (PSI),                                                               
maintained  with compressor  stations, and  shipping 3.3  billion                                                               
cubic feet  per day.   He compared the  aforementioned production                                                               
with the  use of natural  gas in  Anchorage which is  250 million                                                               
cubic  feet per  day; further,  500  million cubic  feet will  be                                                               
available for in-state use.   The liquefaction plant will produce                                                               
up to  20 million tons  per annum  (MTPA) with three  trains that                                                               
allow for  expansion.  The  estimated peak workforce of  3,500 to                                                               
5,000 workers will  be less if modular  construction is utilized.                                                               
Mr. Dubler  stressed the price  and fabrication of  steel affects                                                               
the cost of the project significantly.                                                                                          
                                                                                                                                
REPRESENTATIVE HANNAN asked  how the price of  steel has affected                                                               
the cost  of the project  over the past  five years, and  for the                                                               
factors that affect the price of steel.                                                                                         
                                                                                                                                
MR. DUBLER  assured the committee  AGDC will find the  best price                                                               
available for  steel; the steel  could be sourced from  the U.S.,                                                               
which would  negate the  added cost  of an  [import] tariff.   He                                                               
advised Fluor Corporation will provide guidance in this regard.                                                                 
                                                                                                                                
REPRESENTATIVE  HANNAN  asked -  in  addition  to high  volume  -                                                               
whether AGDC staff are aware of  issues related to timing and the                                                               
demand for steel.                                                                                                               
                                                                                                                                
1:41:03 PM                                                                                                                    
                                                                                                                                
MR.  DUBLER   said  AGDC   has  cut   staff  and   expressed  his                                                               
understanding current staff  do not follow the steel  market.  In                                                               
regard  to  other  projects,  he  said  information  about  other                                                               
projects   is  illusive;   for  example,   AKLNG  was   to  begin                                                               
construction in  2020.  The price  of energy is also  a factor in                                                               
the price of  steel, which is the reason AGDC  will rely on Fluor                                                               
Corporation for  advice.  He  turned attention to slide  5, which                                                               
illustrated the components  of the gas treatment plant  at a cost                                                               
of $10.7  billion, the  pipeline at a  cost of  approximately $14                                                               
billion,  and   the  LNG  production   facility  at  a   cost  of                                                               
approximately  $20 billion,  based  on 2015  cost  estimates.   A                                                               
final  investment  decision  (FID)  would occur  in  2022,  after                                                               
additional work is completed during the FEED stage.                                                                             
                                                                                                                                
REPRESENTATIVE  HANNAN  surmised  "first  cargo  means  a  tanker                                                               
leaving with gas in it."                                                                                                        
                                                                                                                                
MR. DUBLER said  correct.  He estimated there is  a time lapse of                                                               
one year to  eighteen months between the  beginning of production                                                               
and full commercial production.                                                                                                 
                                                                                                                                
1:46:01 PM                                                                                                                    
                                                                                                                                
MR. DUBLER continued  to slide 6, which illustrated  a stage gate                                                               
process.   He restated the  process is a reasoned  approach which                                                               
forces  parties  to  stop  at  predetermined  points  and  decide                                                               
whether to  advance the  project.   A stage  gate process  is not                                                               
appropriate  for  some  projects,  such   as  roads,  but  is  an                                                               
industry-led effort with stopping points  at which the project is                                                               
analyzed.  As shown on slide  6, AKLNG has three stopping points.                                                               
He cautioned the state should avoid  a project that is delayed by                                                               
obstacles  and advances  only because  a  lot of  money has  been                                                               
invested.                                                                                                                       
                                                                                                                                
REPRESENTATIVE RAUSCHER asked for clarification of "de-risk."                                                                   
                                                                                                                                
MR.  DUBLER  explained de-risk  is  reducing  risk; for  example,                                                               
reducing regulatory risk by getting  the FERC permit.  In further                                                               
response  to Representative  Rauscher, he  said the  timeline for                                                               
obtaining  permits is  several years  as there  are thousands  of                                                               
permits  required because  of the  number of  facilities and  the                                                               
length of the pipeline.                                                                                                         
                                                                                                                                
                                                                                                                                
REPRESENTATIVE  RASMUSSEN asked  for the  amount the  state would                                                               
have invested at each stopping point [indicated on slide 6.]                                                                    
                                                                                                                                
MR. DUBLER said the front end  loading (FEL) 2 Decision was prior                                                               
to pre-FEED thus there would have  been no investment in AKLNG at                                                               
that time; however,  costs incurred by the  Department of Natural                                                               
Resources (DNR)  and state  agencies over the  past 40  years are                                                               
unknown.  During pre-FEED, under the  terms of the JVA, the state                                                               
spent approximately  $150 million, and the  aforementioned amount                                                               
paid to TransCanada was $160 million.                                                                                           
                                                                                                                                
1:51:01 PM                                                                                                                    
                                                                                                                                
MR. RICHARDS  expressed his  understanding costs  associated with                                                               
AGIA were over $320 million.                                                                                                    
                                                                                                                                
MR. DUBLER  returned attention  to slide 6  and talked  about the                                                               
next stage, the FEED effort.  He  said there has been quite a bit                                                               
of discussion  about this  because it was  in the  original Joint                                                               
Venture Agreement.  He explained  the concept was to complete the                                                               
regulatory  effort during  FEED;  however, a  good  deal of  that                                                               
effort  was completed  during  pre-FEED.   He  said the  original                                                               
estimate was about $1.5 billion to  go from "the middle green one                                                               
to the  right green one"  [in reference to  the slide].   He said                                                               
AGDC thinks  it's going to  be significantly less because  of the                                                               
permitting that it  has acquired in the last two  or three years.                                                               
He indicated  that the numbers  he has heard "thrown  around" are                                                               
in the range of $800 million to $1.2 billion.                                                                                   
                                                                                                                                
MR.  DUBLER  clarified  the  estimate of  $800  million  to  $1.2                                                               
billion  is for  the entire  project.   He suggested  the state's                                                               
portion would be  determined by the state's role  in the project;                                                               
for example, one-quarter interest in  $1 billion is $250 million.                                                               
In response  to Representative  Hopkins, he  said the  project is                                                               
now at  the FEED (FEL  3) stage [shown on  slide 6 in  the middle                                                               
yellow box], which is a decision stage.                                                                                         
                                                                                                                                
REPRESENTATIVE HOPKINS questioned whether  June 4, [2020,] is the                                                               
final investment decision timeframe.                                                                                            
                                                                                                                                
MR. DUBLER  answered no,  FID would  be two  more years;  FEED is                                                               
approximately  eighteen   months  [hence]   if  the   project  is                                                               
economic.                                                                                                                       
                                                                                                                                
1:56:03 PM                                                                                                                    
                                                                                                                                
MR. DUBLER directed  attention to slide 7, which  was an overview                                                               
of  AKLNG's  regulatory program.    He  explained "pre-FEED  JVA"                                                               
advanced the project through  FERC pre-filing; subsequently, AGDC                                                               
answered 2,000 questions  through FERC, which serves  as the lead                                                               
federal  agency.   Further, there  has  been no  change to  AKLNG                                                               
design criteria since 2015-2017, and  data from ASAP was used for                                                               
AKLNG where the routes aligned.                                                                                                 
                                                                                                                                
MR. DUBLER  continued to slide  8, which illustrated some  of the                                                               
federal, state, and  local agencies that are  issuing permits for                                                               
the project.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  RASMUSSEN  questioned  whether  state  permitting                                                               
processes could be streamlined.                                                                                                 
                                                                                                                                
MR.  DUBLER advised  the enabling  legislation that  created AGDC                                                               
authorized   state   permitting    agencies,   departments,   and                                                               
corporations to give preference to AKLNG over other projects.                                                                   
                                                                                                                                
MR. RICHARDS pointed  out issues concerning ROWs  over state land                                                               
involved  five different  agencies,  with differing  regulations,                                                               
and he suggested this process could be improved.                                                                                
                                                                                                                                
2:01:03 PM                                                                                                                    
                                                                                                                                
MR. DUBLER continued  to slide 9, which listed  the FERC schedule                                                               
and  some milestones  achieved  by the  project,  such as  public                                                               
comment  meetings where  the project  was  supported by  affected                                                               
communities.   He  noted  the biggest  issue  is between  regions                                                               
seeking to have facilities located  in their region.  Subsistence                                                               
hearings  have  raised  the  issue   of  access  which  is  being                                                               
addressed for  the Native  Village of Minto.   On  10/3/19, draft                                                               
EIS comments were provided to FERC;  the final EIS is expected on                                                               
3/6/20, and the final FERC order  on 6/4/20.  Mr. Dubler said the                                                               
aforementioned  accomplishments  are   encouraging  to  potential                                                               
participants in the AKLNG project.                                                                                              
                                                                                                                                
REPRESENTATIVE HOPKINS  asked whether a 100-foot  ROW is standard                                                               
for the main pipeline.                                                                                                          
                                                                                                                                
MR.  DUBLER stated  AGDC  would  take measures  in  order not  to                                                               
create  issues  for  subsistence  hunters, and  deferred  to  Mr.                                                               
Richards.                                                                                                                       
                                                                                                                                
MR. RICHARDS  further explained during construction  the width of                                                               
a  ROW  would  be  approximately 120  feet;  however,  after  the                                                               
pipeline  is   in  the   ground  the   permanent  ROW   would  be                                                               
approximately  53  feet,  which  would   be  kept  clear  of  new                                                               
[vegetative] growth for maintenance purposes.                                                                                   
                                                                                                                                
2:06:00 PM                                                                                                                    
                                                                                                                                
MR. DUBLER  added that in  Denali National Park and  Preserve the                                                               
ROW will become a bike trail.                                                                                                   
                                                                                                                                
REPRESENTATIVE HOPKINS asked  whether the ROW will  be a publicly                                                               
accessible ROW.                                                                                                                 
                                                                                                                                
CO-CHAIR LINCOLN clarified the opportunity  for people to use the                                                               
ROW for  hunting is a concern;  definitely the intent of  the ROW                                                               
was not to open the ROW for hunting access.                                                                                     
                                                                                                                                
MR.  DUBLER  acknowledged  "an unfortunate  consequence"  is  the                                                               
potential to open up areas.                                                                                                     
                                                                                                                                
MR. RICHARDS explained access to the  ROW will be governed by the                                                               
landowner who provides AGDC with a  ROW easement or a land lease;                                                               
private landowners  and federal entities have  expressed concerns                                                               
about subsistence  issues and  sensitive habitat.   He  said AGDC                                                               
will comply with  the wishes of the  landowners; furthermore, the                                                               
future operator of the project  will need access for maintenance,                                                               
which would  be part of  the landowner agreements.   Mr. Richards                                                               
remarked:                                                                                                                       
                                                                                                                                
     So, the concept is ... not an open trail concept for,                                                                      
     you know, from Prudhoe Bay to Nikiski, it is going to                                                                      
     be -- it's an active pipeline corridor.                                                                                    
                                                                                                                                
MR. DUBLER  observed along  Parks Highway  the ROW  could provide                                                               
access to an  area not accessible now because  there are wetlands                                                               
or dense vegetation; on state  land, state rules regarding access                                                               
would apply.   He continued  to slide 10, which  listed completed                                                               
major permits  from entities  such as the  U.S. Coast  Guard, the                                                               
U.S. Department  of Energy, the National  Oceanic and Atmospheric                                                               
Administration,  and the  Pipeline  and  Hazardous Materials  and                                                               
Safety    Administration    (PHMSA),     U.S.    Department    of                                                               
Transportation.   He  related  PHMSA is  an  oversight agency  to                                                               
ensure  pipeline  safety  and reduce  risk,  which  is  extremely                                                               
important to AGDC and the oil  and gas industry.  Slide 11 listed                                                               
major permits that are in process.                                                                                              
                                                                                                                                
2:11:01 PM                                                                                                                    
                                                                                                                                
MR. RICHARDS advised  projects such as AKLNG or ASAP  may need to                                                               
deviate from  design standards  or regulations  set by  PHMSA and                                                               
thus need a special permit from  PHMSA.  For example, in Nikiski,                                                               
LNG  will be  contained in  tanks and  must be  transported by  a                                                               
pipeline  to   two  loading  berths,   and  PHMSA   required  the                                                               
installation of  a very expensive  catchment system in case  of a                                                               
spill.    However, AGDC  proposed  an  alternative pipe  in  pipe                                                               
concept which utilizes a smaller  pipe inside a larger pipe, both                                                               
of  which would  be capable  of  safely transporting  LNG.   This                                                               
concept  has  been  used  in LNG  facilities  outside  the  U.S.,                                                               
therefore, AGDC  is seeking  a special permit  from PHMSA  to use                                                               
pipe  in pipe,  which is  a safe  and cost-saving  element.   The                                                               
remainder  of the  permits  shown  on slide  8  will be  received                                                               
during  the next  six months  and  will continue  to de-risk  the                                                               
project.                                                                                                                        
                                                                                                                                
MR.  DUBLER said  additional permits  in process  are related  to                                                               
whales,  bridges,   a  ROW  through  Denali   National  Park  and                                                               
Preserve,  wetlands, and  water quality  (slide 12).   He  stated                                                               
water quality  issues occur because  the project  crosses several                                                               
major  rivers.   He described  two other  pending permits  (slide                                                               
13).                                                                                                                            
                                                                                                                                
2:16:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  RAUSCHER  asked when  all  the  permits would  be                                                               
received.                                                                                                                       
                                                                                                                                
MR. DUBLER  stressed the major  permits would be  obtained first;                                                               
however, a  large project  does not  advance before  most permits                                                               
are acquired, and he elaborated.                                                                                                
                                                                                                                                
REPRESENTATIVE RAUSCHER restated his question.                                                                                  
                                                                                                                                
MR. RICHARDS said the aforementioned  major federal permits grant                                                               
authorization  to construct  the project,  followed by  state and                                                               
local  permits.   Most of  the state  and local  permits will  be                                                               
acquired  as the  project advances  through FEED;  however, there                                                               
will  be  permitting activity  up  to  and  through the  time  of                                                               
construction.    In  fact,  he said,  there  will  be  authorized                                                               
officers  in  the  field during  construction  who  will  address                                                               
permit compliance through  operations.  He noted  the majority of                                                               
permits will be acquired prior to the final investment decision.                                                                
                                                                                                                                
MR.  DUBLER  estimated  six  to  seven  years  total  to  acquire                                                               
permits.                                                                                                                        
                                                                                                                                
CO-CHAIR LINCOLN  surmised two years  from now all  major permits                                                               
would be done.                                                                                                                  
                                                                                                                                
MR. DUBLER turned attention to  AGDC's efforts to reduce the cost                                                               
of the project  in order to determine the future  of the project.                                                               
Sufficiently  reducing  the  cost   from  the  2015  estimate  is                                                               
critical  to  the  project  being  commercially  viable:    Fluor                                                               
Corporation  will  update the  cost  estimate  by completing  ten                                                               
major  cost  elements  including  modularization,  sourcing,  and                                                               
contingency which is 20 percent of  the cost of the project.  The                                                               
class 4  updated estimate incorporates 15-20  percent engineering                                                               
with a percentage  of generic design; after  FID, design advances                                                               
to  the engineering,  procurement, and  construction (EPC)  phase                                                               
[slide 14].                                                                                                                     
                                                                                                                                
2:22:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HOPKINS asked  whether labor  costs are  included                                                               
and, if so, how labor costs are estimated.                                                                                      
                                                                                                                                
MR. DUBLER indicated  labor costs are included.   A complete cost                                                               
of  labor is  based  on  prevailing wages  in  Alaska, which  are                                                               
higher than wages  paid in the Gulf of Mexico  [gulf coast] labor                                                               
market.                                                                                                                         
                                                                                                                                
REPRESENTATIVE HANNAN inquired as to classes of estimates.                                                                      
                                                                                                                                
MR. RICHARDS  explained definitions of class  levels of estimates                                                               
are established  by the American  Association of  Cost Estimators                                                               
as follows:   initial work is class 5 level;  pre-FEED is class 4                                                               
level;  FEED is  class 3  level; detailed  design/EPC is  class 2                                                               
level; complete  project is class  1, when the overall  costs are                                                               
known.                                                                                                                          
                                                                                                                                
CO-CHAIR  LINCOLN questioned  whether AGDC  is currently  working                                                               
with an investment bank.                                                                                                        
                                                                                                                                
2:26:00 PM                                                                                                                    
                                                                                                                                
MR. DUBLER remarked:                                                                                                            
                                                                                                                                
     We have been  working with ...  an  investment bank for                                                                    
     quite a  while now.   It's ... Goldman Sachs,  which is                                                                    
     why I didn't put it  in the presentation, but since you                                                                    
     asked...  For  those of you who didn't  hear, they came                                                                    
     out  with an  announcement  that they're  not going  to                                                                    
     support any projects that  involve drilling for liquids                                                                    
     in  ... the  Arctic,  for --  it  was specifically  ...                                                                    
     related  to oil,  not gas.   However,  that's --  as an                                                                    
     Alaskan,  that, to  me, that's  kind of  offensive; ...                                                                    
     it's  something that  is  a real  problem  for them  to                                                                    
     continue working  on this project.   ...   We've talked                                                                    
     to them, and  they said that wasn't  their intent, that                                                                    
     they're  OK  to  keep  working on  this,  and  we  have                                                                    
     continued to  work with them.   We're  still evaluating                                                                    
     that, whether that relationship will continue.                                                                             
                                                                                                                                
REPRESENTATIVE RASMUSSEN  asked, "Do you  have a ballpark  of the                                                               
amount  of exposure  we  have with  Goldman  in investment  right                                                               
now?"                                                                                                                           
                                                                                                                                
MR. DUBLER  said [Goldman Sachs]  has done some  work; investment                                                               
banks do not make money during  structuring of a project but earn                                                               
commissions  when  the  equity  or  debt is  sold.    He  further                                                               
explained:                                                                                                                      
                                                                                                                                
     ...  I believe  we  had  a contract  with  them not  to                                                                    
     exceed  $150,000.   We've  probably  got $100,000  into                                                                    
     that already from  the work that they've  done over two                                                                    
     years,  so it's  not a  lot of  money ...,  and they've                                                                    
     provided some  very good advice ...  [and] product that                                                                    
     we've  used  ....   [For  example,]  we  just  finished                                                                    
     working with  them on our  shared economic model.   ...                                                                    
     Exxon  and BP  and  AGDC came  together  and created  a                                                                    
     model to  do a  projection so that  when the  costs are                                                                    
     updated  and when  everything's done,  we can  put them                                                                    
     into this  model and get some  idea at the end  on what                                                                    
     we would  potentially be  able to  deliver gas  to Asia                                                                    
     for ....                                                                                                                   
                                                                                                                                
REPRESENTATIVE HANNAN  observed BP  was an investment  company in                                                               
AKLNG and  BP is now selling  its North Slope assets  to Hilcorp.                                                               
She asked whether  BP retains any rights to the  work in which it                                                               
has invested.                                                                                                                   
                                                                                                                                
MR.  DUBLER  directed attention  to  slide  15  and said  BP  and                                                               
ExxonMobil  are not  partners  in  the project  but  have a  cost                                                               
sharing  agreement to  provide funding  to AGDC  for work  on the                                                               
project; after  the agreement terminates in  [June 2020], further                                                               
action by  BP is unknown.   He surmised  all of the  parties will                                                               
make decisions in the future.                                                                                                   
                                                                                                                                
2:31:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HANNAN questioned  whether BP  retains rights  to                                                               
use  any technical  data  in  the future  that  was gleaned  from                                                               
AKLNG, because  BP was one  of the  parties that invested  in the                                                               
project.                                                                                                                        
                                                                                                                                
MR. DUBLER  acknowledged ownership  of data  related to  AKLNG is                                                               
confusing; although AGDC  has a license to use some  of the data,                                                               
and  owns some  of the  data, there  are different  categories of                                                               
data.   For example,  ExxonMobil worked  with TransCanada  on the                                                               
AGIA project at the same  time ConocoPhillips Alaska, Inc. and BP                                                               
were working on the "Denali  pipeline"; both projects accumulated                                                               
data for  AKLNG.  He  cautioned this  is a technical  legal issue                                                               
and opined  it is in the  best interest of North  Slope companies                                                               
that own data to allow the data to advance the AKLNG project.                                                                   
                                                                                                                                
MR. DUBLER returned  attention to slide 15,  noting AGDC acquired                                                               
$20  million receipt  authority in  fiscal year  2020 (FY  20) of                                                               
which  BP and  ExxonMobil agreed  to  provide up  to $10  million                                                               
each.  He pointed out  AGDC is significantly underbudget and will                                                               
spend approximately $15  million in FY 20 - of  which the state's                                                               
cost  is  $5 million  -  and  with  $20  million left,  AGDC  can                                                               
continue   working   for   several   years   without   additional                                                               
appropriations.    Further,  in  the   FY  21  budget,  there  is                                                               
additional  receipt  authority  of  $20  million  for  use  if  a                                                               
positive outcome of AKLNG's economic analysis occurs.                                                                           
                                                                                                                                
2:35:56 PM                                                                                                                    
                                                                                                                                
MR. RICHARDS  related AGDC  operations in  FY 20  were authorized                                                               
for approximately  $10 million  and the  AGDC board  of directors                                                               
authorized  an additional  $20 million  for  capital spending  in                                                               
order to  complete the FERC  license and the  permitting process,                                                               
and  for   [expenses  related  to   the]  cost   reduction  work;                                                               
therefore, AGDC  budgeted up to  $30 million, including  the one-                                                               
third funding provided  by ExxonMobil and BP.   Through [November                                                               
2019],  AGDC  spent approximately  $5.2  million  and will  spend                                                               
additional  funds to  Fluor Corporation,  with an  expected total                                                               
expenditure  of approximately  $15  million.   ExxonMobil and  BP                                                               
provide reimbursements on  a quarterly basis.   He concluded AGDC                                                               
is spending its budget responsibility.                                                                                          
                                                                                                                                
REPRESENTATIVE HANNAN  asked for clarification of  AGDC's capital                                                               
spending procedure.                                                                                                             
                                                                                                                                
MR. DUBLER  explained AGDC's original appropriation  was put into                                                               
a fund to  be used to advance the AKLNG  project and AGDC returns                                                               
to  the  legislature on  an  annual  basis for  operating  funds;                                                               
capital  expenditures  for  facets   of  the  AKLNG  project  are                                                               
withdrawn  from  the  fund without  further  appropriation.    In                                                               
response to  Co-Chair Lincoln, he confirmed  permitting costs are                                                               
paid from the fund for capital expenditures.                                                                                    
                                                                                                                                
2:40:15 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Resources Standing Committee meeting was adjourned at 2:40 p.m.                                                                 

Document Name Date/Time Subjects
1.20.20 AGDC Presentation.pdf HRES 1/22/2020 1:00:00 PM
AGDC Update