04/18/2005 01:00 PM RESOURCES
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|Overview: Alaska Oil and Gas Conservation Commission|
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ALASKA STATE LEGISLATURE HOUSE RESOURCES STANDING COMMITTEE April 18, 2005 1:16 p.m. MEMBERS PRESENT Representative Jay Ramras, Co-Chair Representative Ralph Samuels, Co-Chair Representative Jim Elkins Representative Carl Gatto Representative Kurt Olson Representative Paul Seaton Representative Harry Crawford Representative Mary Kapsner MEMBERS ABSENT Representative Gabrielle LeDoux COMMITTEE CALENDAR OVERVIEW: ALASKA OIL AND GAS CONSERVATION COMMISSION REVIEW OF COMMISSIONERS DANIEL SEAMOUNT AND CATHY FOERSTER - HEARD HOUSE CONCURRENT RESOLUTION NO. 7 Urging the governor to direct the division of oil and gas, Department of Natural Resources, to undertake a comprehensive review of the subject of Cook Inlet oil and gas platform abandonment for the purpose of developing new oil and gas platform abandonment regulations and their adoption and implementation. - MOVED CSHCR 7(RES) OUT OF COMMITTEE HOUSE BILL NO. 9 "An Act establishing the Hydrogen Energy Partnership in the Department of Commerce, Community, and Economic Development; requiring the commissioner of commerce, community, and economic development to seek public and private funding for the partnership; providing for the contingent repeal of an effective date; and providing for an effective date." - MOVED HB 9 OUT OF COMMITTEE HOUSE BILL NO. 241 "An Act relating to participation in matters before the Board of Fisheries by members of the board; and providing for an effective date." - SCHEDULED BUT NOT HEARD PREVIOUS COMMITTEE ACTION BILL: HCR 7 SHORT TITLE: COOK INLET OIL & GAS PLATFORM ABANDONMENT SPONSOR(S): REPRESENTATIVE(S) OLSON 04/07/05 (H) READ THE FIRST TIME - REFERRALS 04/07/05 (H) RES 04/18/05 (H) RES AT 1:00 PM CAPITOL 124 BILL: HB 9 SHORT TITLE: HYDROGEN ENERGY RESEARCH PROGRAM SPONSOR(S): REPRESENTATIVE(S) CRAWFORD 01/10/05 (H) PREFILE RELEASED 12/30/04
01/10/05 (H) READ THE FIRST TIME - REFERRALS
01/10/05 (H) CRA, RES, FIN 04/12/05 (H) CRA RPT 1DP 5NR 04/12/05 (H) DP: CISSNA; 04/12/05 (H) NR: LEDOUX, SALMON, NEUMAN, OLSON, THOMAS 04/12/05 (H) CRA AT 8:00 AM CAPITOL 124 04/12/05 (H) Moved Out of Committee 04/12/05 (H) MINUTE(CRA) 04/18/05 (H) RES AT 1:00 PM CAPITOL 124 WITNESS REGISTER DANIEL SEAMOUNT, Commissioner Alaska Oil and Gas Conservation Commission (AOGCC) Anchorage, Alaska POSITION STATEMENT: Explained his role at the Alaska Oil and Gas Conservation Commission. CATHY FOERSTER, Commissioner Alaska Oil and Gas Conservation Commission Anchorage, Alaska POSITION STATEMENT: Explained her role at the Alaska Oil and Gas Conservation Commission. ELEANOR WOLFE, Staff to Representative Kurt Olson Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Presented HCR 7 on behalf of Representative Olson, sponsor. MARK MYERS, Director Division of Oil and Gas Department of Natural Resources (DNR) Anchorage, Alaska POSITION STATEMENT: Answered questions regarding HCR 7. MICHAEL MUNGER, Executive Director Cook Inlet Regional Citizens Advisory Council Kenai, Alaska POSITION STATEMENT: Testified on HCR 7. PAUL MORGAN, Energy Manager Golden Valley Electric Association Alternative Energy Team Fairbanks, Alaska POSITION STATEMENT: Testified in support of HB 9. BILL LEIGHTY Alaska Applied Science, Inc. Juneau, Alaska POSITION STATEMENT: Testified on HB 9. SARA FISHER-GOAD Alaska Energy Authority Anchorage, Alaska POSITION STATEMENT: Answered questions about HB 9. CHRIS ROSE, Executive Director Renewable Energy Alaska Project (REAP) Anchorage, Alaska POSITION STATEMENT: Testified in support of HB 9. ACTION NARRATIVE CO-CHAIR RALPH SAMUELS called the House Resources Standing Committee meeting to order at 1:16:23 PM. Representatives Seaton, Samuels, Ramras, Olson, Gatto, and Crawford were present at the call to order. Representatives Elkins and Kapsner arrived as the meeting was in progress. ^OVERVIEW: Alaska Oil and Gas Conservation Commission CO-CHAIR SAMUELS announced that the first order of business would be an review of two Alaska Oil and Gas Conservation Commission (AOGCC) members for upcoming confirmation hearings. DANIEL SEAMOUNT, Commissioner, Alaska Oil and Gas Conservation Commission, said he has been a commissioner in the geologic seat since 2000, and the job has been interesting and satisfying. He said he is addicted to the excitement of the work, and he would like to continue working for the people of Alaska. Much has been accomplished, but it has been a team effort, he said. 1:18:21 PM MR. SEAMOUNT said there are upcoming issues like the mitigation of oil losses due to major gas sales on the North Slope and the expanded exploration in the National Petroleum Reserve. He said the AOGCC has streamlined the permitting process for well permits from 28 days to 5 days. 1:19:53 PM MR. SEAMOUNT stated that the commission is looking for ways to cut costs, and there will be a budget in the near future. 1:20:22 PM REPRESENTATIVE GATTO asked about well logs being confidential. MR. SEAMOUNT said well logs are generally confidential for two years. DNR must approve if a company wants to keep them confidential for a longer period. The Arctic National Wildlife Refuge well is the most valuable log information in the world, and it has been hidden in a vault since 1986. 1:21:47 PM CO-CHAIR RAMRAS asked about future of Cook Inlet exploitation. MR. SEAMOUNT said he has worked as a geologist in Cook Inlet and believes there is a tremendous amount of oil potential. He declared that only four percent of the oil has been found. 1:23:15 PM CATHY FOERSTER, Commissioner, Alaska Oil and Gas Conservation Commission, said she was a petroleum engineer with experience in reservoir development and facility design. She has supervised and managed small technical engineering groups and large laborer operations. She worked in Texas, Louisiana, and 13 years on the North Slope as an operations manager and production superintendent at Prudhoe Bay. She managed technically brilliant people, led a strategic business review, and was on a consulting team to report to the Department of Natural Resources on how Alaska can assist new operators on the North Slope. 1:26:38 PM MS. FOERSTER noted that it was an honor to work with such a well-respected commission with ethical, hardworking people. 1:27:06 PM CO-CHAIR RAMRAS asked about the future of viscous oil. MS. FOERSTER said, optimistically, there is a long future. The hurdle is that North Slope facilities are producing beyond their original design length. There are trillions of barrels of heavy resource that is accessible, she said, but facility life is working against it. She said independents are coming in and scraping the pots and extending production on the North Slope. 1:29:02 PM REPRESENTATIVE GATTO noted that producing gas on the North Slope will reduce oil production, and he asked if there will be new technology to pull the oil out of the ground. MS. FOERSTER said the optimal way to blow down a gas cap is to wait until all oil is gone, but the market might not allow that. Operators will likely be producing gas before the oil is gone, but there are ways to encourage them to accelerate oil production. 1:31:30 PM REPRESENTATIVE GATTO suggested it could take thousands of years to get out the last few drops of oil. At what point will the gas be worth the loss of oil, and is there technology to allow the oil to be recovered after the gas is gone? he asked. 1:32:12 PM MS. FOERSTER said, "We want to maximize total hydrocarbon recovery." As the gas cap is depleted, the oil moves into rocks and is more difficult to remove. Reservoir pressure is lost, and with the pressure gone the oil can't be recovered. 1:33:57 PM CO-CHAIR RAMRAS asked what is the AOGCC's mission. MS. FOERSTER said the commission's mission is to prevent waste of hydrocarbons, encourage maximum production, protect groundwater, and to protect the rights of the landowners. 1:34:50 PM CO-CHAIR SAMUELS asked about the different oil fields in Alaska in relation to the North Slope. MS. FOERSTER said most everything is underground, so the same physics apply. "A reservoir is a reservoir," she said. The committee took an at-ease from 1:36 PM to 1:37 p.m. HCR 7-COOK INLET OIL & GAS PLATFORM ABANDONMENT CO-CHAIR SAMUELS announced that the next order of business would be HOUSE CONCURRENT RESOLUTION NO. 7, Urging the governor to direct the division of oil and gas, Department of Natural Resources, to undertake a comprehensive review of the subject of Cook Inlet oil and gas platform abandonment for the purpose of developing new oil and gas platform abandonment regulations and their adoption and implementation. ELEANOR WOLFE, Staff to Representative Kurt Olson, said there are offshore oil platforms in Cook Inlet that are over 40 years old, and regulations regarding abandoning the platforms are needed. The large number of entities involved will make the process time consuming. She said it is imperative the process begins as soon as possible, "particularly considering the impending sale of Unocal." She said the process will involve Cook Inlet Keeper, Trustees for Alaska, the Department of Environmental Conservation, industry members, Department of Natural Resources (DNR), Alaska Oil and Gas Conservation Commission (AOGCC), and others. She concluded that HCR 7 requests a comprehensive review be undertaken by DNR. 1:38:48 PM MARK MYERS, Director, Division of Oil and Gas, Department of Natural Resources (DNR), said DNR is fine with HCR 7. There are 16 platforms in Cook Inlet, and 4 are in lighthouse status, meaning the wells have been plugged and abandoned. He said these platforms are not economic for production, and there are others that are below their peak level of production. "The ultimate abandon standards need to be addressed in the near future," he stated. "Under the current lease terms, basically, they're required to fully remove and abandon all the facilities, remove all the seafloor pipelines and permanently plug and abandon the wells to AOGCC satisfaction." There is still exploration potential with lower and deeper targets, he said. "So the question is, can someone else economically operate the platforms or should they be removed permanently?" He suggested the platforms could be totally removed or left for other purposes. The state needs a process and standards, which will take time, and DNR supports moving forward, he said. 1:41:24 PM CO-CHAIR RAMRAS asked the cost to tear down and clean up a platform. 1:41:53 PM MR. MYERS said between $2 to $10 million for just the platform, and then there is the pipeline. Much of the infrastructure is connected and interrelated, creating complications. Specialized equipment will be needed, and there are questions of what the ultimate structure will be, if anything. He said the platforms could be used for habitat, further exploration, fish farms or be obliterated. 1:43:24 PM CO-CHAIR RAMRAS asked the cost of a new platform in Cook Inlet. MR. MYERS said up to $20 million just for the platform without the rigs. CO-CHAIR RAMRAS asked how the state can help urge the big operators to sell to the independent oil companies and overcome the concern of increased competition. 1:45:05 PM MR. MYERS said Cook Inlet does not have enough oil production for export, reducing competition. He said the bigger issue is that large corporations want more profits than the platforms are currently generating, and they want to lose their deep-pocket liability of oil spills from the aging platforms. "So they want to go ahead and sell the asset," he said. Some platforms are still lucrative, but the marginal platforms will likely be sold. The state will want to make sure the new operator is capable of operating the platform safely, and will want to keep the deep-pocket connection so the state doesn't end up with the liability. 1:47:00 PM REPRESENTATIVE CRAWFORD asked how long the platforms can withstand the inclement environment. MR. MYERS said they appear to be adequate for 20 years, but each platform needs to be considered individually. 1:49:02 PM REPRESENTATIVE GATTO asked if the platforms can be blown up, with the debris left for fish habitat. MR. MYERS said that might be permissible but it will need to go through the public process. There are strong tidal currents, so it may not be stable. He noted it would go through an Alaska Coastal Management Program process. 1:50:50 PM MICHAEL MUNGER, Executive Director, Cook Inlet Regional Citizens Advisory Council, Kenai, said the council is a nonprofit organized exclusively for the oversight and monitoring of oil operations in Cook Inlet. The council took a detailed look at the dismantling of the platforms, and said DNR has no specific statutes or regulations for such. He said HCR 7 will allow regulators to develop regulations, and the council has a white paper on it that will be ready in May. 1:53:03 PM DANIEL SEAMOUNT, Commissioner, Alaska Oil and Gas Conservation Commission (AOGCC), said the AOGCC supports HCR 7, but he urged caution "because there is a lot of oil left under Cook Inlet that is accessible from these platforms." Some light-housed platforms have only recovered 30 percent of the oil, he said. "There are hundreds of millions of barrels left in the produced fields of Cook Inlet," he noted, and motivated production companies should be encouraged to use new technology to extract as much oil as reachable from the platforms. 1:55:05 PM MR. SEAMOUNT said Cook Inlet is regarded as a mature field, but it is still under-explored. He noted a study that said only four percent of the oil has been identified in Cook Inlet, so with the 3 billion barrels that have been identified, "that comes out to 75 billion barrels of oil that was generated, and no one knows where it went. It may have escaped to the surface or there may be a lot of it left in undiscovered reservoirs and undiscovered rocks." He said his experience tells him that it is still trapped somewhere, and a lot would be accessible from the platforms. 1:56:53 PM MR. SEAMOUNT said the source rocks may be in the Jurassic layer. It makes sense to reenter well bores and drill another 5,000 feet into that section. He noted that the rocks are folded and faulted, making seismic identification difficult, so the best way to test the potential is through old well bores. 1:57:45 PM MR. SEAMOUNT said, "There are four tiers of potential left in Cook Inlet. One is discovered reservoirs that have been under- produced--less than 30 percent recovery. There are untested fault blocks that separate the known reservoir from its equivalent under and off to the sides of the platforms. There are identified prospects that have been around for years but not tested. And then there's the deep Jurassic and Cretaceous potential." The AOGCC believes the platforms are assets and all stakeholders must be careful when considering abandonment, which closes a window of economic potential, he concluded. 1:59:03 PM CO-CHAIR SAMUELS asked if AOGCC has the ability to tell the difference between a true exploratory well and a well going to an under-produced area that would be considered a production well. MR. SEAMOUNT said there is the expertise to accurately separate them out anywhere in Alaska. REPRESENTATIVE CRAWFORD asked about gas in Cook Inlet. MR. SEAMOUNT said he believes there is gas potential, especially at depth. "In fact the gas oil ratio is fairly low in the presently produced reservoir, so where is that gas?" he asked. 2:00:28 PM REPRESENTATIVE OLSON offered Amendment 1, labeled 24-LS0876\A.1, Chenoweth, 4/12/05 as follows: 1 Page 2, line 6: 2 Delete "smaller" 3 Insert "growing, independent" There being no objection, Amendment 1 carried. REPRESENTATIVE OLSON moved to report HCR 7 as amended out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHCR 7 (RES) passed out of the House Resources Standing Committee. The committee took an at-ease from 2:01 p.m. to 2:02. 2:02:40 PM HB 9-HYDROGEN ENERGY RESEARCH PROGRAM CO-CHAIR RAMRAS announced that the final order of business would be HOUSE BILL NO. 9 "An Act establishing the Hydrogen Energy Partnership in the Department of Commerce, Community, and Economic Development; requiring the commissioner of commerce, community, and economic development to seek public and private funding for the partnership; providing for the contingent repeal of an effective date; and providing for an effective date." REPRESENTATIVE CRAWFORD said a similar bill has passed out of the House in a prior session, and HB 9 creates a repository for grant money for hydrogen research and development projects. Hydrogen can be our next Prudhoe Bay, he said, because it is a medium for storage and movement of alternative energy, including tidal, wind, and geothermal power. 2:04:28 PM REPRESENTATIVE CRAWFORD said, "We believe that it's the fuel of the future." CO-CHAIR RAMRAS said the fiscal note indicates that federal funds would be found, and if they were not available, HB 9 would be repealed. He asked what provisions would be repealed. REPRESENTATIVE CRAWFORD said the project will not spend general funds. If there is no grant money, it will go away, he said. 2:05:55 PM PAUL MORGAN, Energy Manager, Golden Valley Electric Association, Alternative Energy Team, Fairbanks, said hydrogen has huge potential as Alaska's energy future and as an exportable technology. Golden Valley feels that HB 9 is a good idea, and notes that it is supported by the Alaska Energy Policy Task Force. He said hydrogen has a low freezing point so it would work nicely in Fairbanks. REPRESENTATIVE CRAWFORD showed a small gizmo with a fan running on a photovoltaic panel which turns water into hydrogen, and he said as long as the sun is shining, the wind is blowing, or the water is running, it will be in perpetual motion. 2:08:22 PM BILL LEIGHTY, Alaska Applied Science, Inc., said the gizmo is not perpetual motion, but it is hydrogen stored in a small pipeline. Hydrogen is not an energy source, and an energy source is needed to make the hydrogen, he explained. He said Alaska's niche in the emerging hydrogen sustainable energy sector is that we may have opportunities to bring Alaska's resources, both fossil and renewable, to distant markets by a pipeline or other means of compressing or liquefying hydrogen. "We may also be able to demonstrate ... storage of hydrogen at a large scale, either in geologic formations or in very large tanks filled with the abundant zeolites that we have as mineral resources here in the state." He noted that villages are functionally islands, and he said research in Norway is demonstrating the interface between wind power, hydrogen to store the energy, and then various ways of converting it back into electricity as it's needed." He said that HB 9 would facilitate a partnership and offer opportunities for Alaska to serve as a research and production location for the new technology. He cautioned that HB 9 shouldn't be looked at as just a way to garner federal funds to support something that is just within Alaska. The state should partner with the Department of Energy. 2:11:17 PM MR. LEIGHTY said Canada, the U.S. Department of Energy, and some states have made hydrogen road maps, and Alaska might do this to see what its strategic advantage is. He cautioned that transmission and storage of hydrogen is difficult and expensive, because of its low energy density. 2:12:26 PM REPRESENTATIVE GATTO said the premise is that the amount of energy from the sun, wind, or water is greater than what can be turned into hydrogen, so why make it, he asked. MR. LEIGHTY said energy should be used in the form that is most convenient at the site where the energy is made, but Alaska has more abundant resources than it can use in a particular locale, and others need the energy, so it might be possible to export stranded renewable resources as hydrogen. Any time you convert energy you lose energy, he said. 2:14:39 PM REPRESENTATIVE GATTO said he read that hydrogen cars lose fuel sitting still. MR. LEIGHTY explained that most car manufacturers have abandoned the technology of liquid hydrogen, which is lost as a gas. The high-pressure hydrogen stored in carbon filament wound gaseous containers will not lose energy, he said. 2:16:42 PM REPRESENTATIVE SEATON asked about new solid-state technology not at high pressure. MR. LEIGHTY said that is applicable for vehicles. The solid form is more attractive because of less pressure, but it is not yet competitive with the high-pressure technology, he added. 2:18:02 PM SARA FISHER-GOAD, Alaska Energy Authority, said the fiscal note for HB 9 requires receipt authority through the Department of Commerce to get the program started. The plan is to hire a person to staff the partnership and apply for federal grants. She does not see how HB 9 will be a burden on the general fund; the money would come from a utility or private funder. There are conditional effective dates that repeal the act if the federal money doesn't pan out, she said. 2:20:16 PM CHRIS ROSE, Executive Director, Renewable Energy Alaska Project (REAP), said REAP is a coalition of utility companies, environmental groups, consumer groups, and businesses who promote renewable energy. The group supports the bill for a number of reasons, he said. He noted that everyone uses hydrogen in other forms, such as wood, coal, or any fossil fuel. The society is moving toward a pure form of hydrogen, which is clean. There are questions about storage and transportation, and this is one area where Alaska can do research and development, he suggested. He said there are many stand alone villages in Alaska that can generate their own hydrogen rather than importing expensive diesel, he said. He concluded that HB 9 could be the beginning of a hydrogen road map for Alaska. 2:22:55 PM MR. ROSE said Alaska has many energy resources. The Aleutian Islands probably have 99 percent of the class 7 winds in North America, and anything class 4 and above is commercially viable. He also mentioned Alaska's geothermal energy as a resource for making hydrogen fuel. REPRESENTATIVE CRAWFORD cited an idea of a hydrogen pipeline from the Aleutians to Japan with wind generators along the way to fill the pipeline. 2:24:12 PM REPRESENTATIVE GATTO said the fiscal note looks like the state is spending about $250,000 from three different departments. REPRESENTATIVE CRAWFORD said they're not additive, "its all the same one and it's program-receipts related. If they don't get the money from the grants to start this project, it doesn't get started. There's no general fund money going to it." 2:25:39 PM MS. FISHER-GOAD said, "This is a Department of Commerce program, and commerce has requested that the Alaska Energy Authority be the point agency." The first fiscal note from commerce is the intake of the statutory designated program receipts, and those would be from a private entity. The second fiscal note is to the Alaska Energy Authority, which is interagency receipts from the Department of Commerce. The third fiscal note recognizes that the Alaska Industrial Development and Energy Authority does not have staff, so by requiring a person, a fiscal note is required. The fiscal notes are just a way for the legislature to see how money would flow, and it is not from the general fund. 2:27:12 PM REPRESENTATIVE GATTO asked who is going to cough up the money. MS. FISHER-GOAD said there are potential private sources. 2:28:04 PM REPRESENTATIVE ELKINS said if the money doesn't appear it may become a burden on the general fund. He asked if the state will get money if the project is successful. MS. FISHER-GOAD explained that if the funding isn't secured with federal or private sources the partnership will be repealed, and there will be no drain on the general fund at all. 2:29:31 PM REPRESENTATIVE ELKINS finds it hard to believe that the legislature wouldn't get asked for money if the grants don't happen. MS. FISHER GOAD said the way the bill is structured, she doesn't see where AEA would request money from the general fund. REPRESENTATIVE SEATON explained that another bill would have to offered, and the current legislature can't put conditions on future legislation to block hydrogen research. 2:31:07 PM REPRESENTATIVE CRAWFORD said it is not the intent to burden the general fund; repealers are built in. "I don't know how to make it any clearer." It would take a separate bill to ever fund this partnership, he said. 2:31:56 PM CO-CHAIR RAMRAS noted that HB 9 will go to the finance committee. REPRESENTATIVE GATTO said that members of the partnership will serve without compensation, but they are authorized for travel. He wants to know where the money is coming from, and he is concerned about paying benefits. He said he didn't want to support a bill that spent money or hired new employees. 2:33:49 PM REPRESENTATIVE CRAWFORD said it is private money, and members of the board are not part of any retirement system. REPRESENTATIVE KAPSNER said she served on boards and never received PERS. 2:34:41 PM REPRESENTATIVE SEATON said typical boards and commissions do not qualify for retirement benefits. REPRESENTATIVE KAPSNER said the $95,000 is not coming out of general funds, and it is a good case of spend now and save later. She noted that the state spends an exorbitant amount on subsidizing rural Alaska's diesel fuel. She pointed out that the legislature is willing to appropriate a lot of money to Arctic Power to just lobby to drill the Arctic National Wildlife Refuge. "This pales to the money given to them," she said. We do a lot of lip service to alternative energy, she noted, and this is a step in the right direction. 2:36:36 PM REPRESENTATIVE ELKINS will support the bill because Representative Crawford introduced it, but he wants it on the record that, "Once we're hooked, we're hooked." REPRESENTATIVE GATTO asked how per diem and travel will be paid. REPRESENTATIVE CRAWFORD said if the railbelt utilities don't pitch in, it will not get off the ground. The program has to find the money first, and the state is only hooked if the legislature passes another bill. This same bill passed unanimously twice last year, he noted. 2:37:32 PM CO-CHAIR RAMRAS said he is a big fan of alternative energy. REPRESENTATIVE SEATON moved to report HB 9 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HB 9 was passed out of committee. ADJOURNMENT There being no further business before the committee, the House Resources Standing Committee meeting was adjourned at 2:39:21 PM.