Legislature(2005 - 2006)SENATE FINANCE 532
04/27/2005 06:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Overview: Stranded Gas Act Proposals | |
| Start |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
JOINT MEETING
HOUSE RESOURCES STANDING COMMITTEE
SENATE RESOURCES STANDING COMMITTEE
April 27, 2005
6:05 p.m.
MEMBERS PRESENT
HOUSE RESOURCES
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
SENATE RESOURCES
Senator Thomas Wagoner, Chair
Senator Ralph Seekins, Vice Chair
Senator Ben Stevens
Senator Fred Dyson
Senator Bert Stedman
Senator Kim Elton
Senator Gretchen Guess
MEMBERS ABSENT
HOUSE RESOURCES
All members present
SENATE RESOURCES
All members present
OTHER LEGISLATORS PRESENT
HOUSE
Representative Nancy Dahlstrom
Representative Les Gara
Representative Beth Kerttula
SENATE
Senator Lyman Hoffman
Senator Hollis French
COMMITTEE CALENDAR
OVERVIEW: STRANDED GAS ACT PROPOSALS
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
FRANK MURKOWSKI, Governor
State of Alaska
Juneau, Alaska
POSITION STATEMENT: Presented an update of a future natural gas
pipeline from the North Slope.
TOM IRWIN, Commissioner
Department of Natural Resources
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding gas pipeline
proposals.
WILLIAM CORBUS, Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding gas pipeline
proposals.
DAVE MARQUEZ, Attorney General
Department of Law
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding gas pipeline
proposals.
RIGDON BOYKIN, Special Council
Alaska Gas Line Port Authority
Anchorage, Alaska
POSITION STATEMENT: Answered questions on the Jones Act and
other issues related to a gas pipeline.
SENATOR GENE THERRIAULT, Chair
Legislative Budget and Audit Committee (BUD)
Alaska State Legislature
POSITION STATEMENT: Described BUD's role in the gas pipeline
contract negotiations.
TONY PALMER, Vice President
Alaska Business Development
Trans-Canada
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding gas pipeline
proposals.
MIKE MORGAN, Vice President
Sempra Energy
San Diego, California
POSITION STATEMENT: Answered questions regarding gas pipeline
proposals.
HAROLD HEINZE, Chief Executive Officer
Alaska Natural Gas Development Authority (ANGDA)
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding the proposed
gas pipeline.
JOE GELDOFF, Alaska Council
Marine Engineers Beneficial Association (MEBA)
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding the Jones Act.
WALTER HICKEL
Anchorage, Alaska
POSITION STATEMENT: Spoke in support for an all-Alaska gas
pipeline.
ACTION NARRATIVE
CHAIR THOMAS WAGONER called the joint meeting of the Senate and
Senate Resources Standing Committees to order at 6:05:35 PM.
Senators Wagoner, Ben Stevens, Guess, Coghill, Elkins, Stedman,
and Dyson and Representatives Crawford, Elkins, Ramras, Olson,
Samuels, Gatto, and Kapsner were in attendance.
^OVERVIEW: Stranded Gas Act proposals
CHAIR WAGONER announced that the only order of business would be
an Overview of the Stranded Gas Act proposals.
6:07 p.m.
GOVERNOR FRANK MURKOWSKI read the following prepared remarks
[original punctuation provided]:
· I feel it is appropriate that we meet with you today and
provide you with a status report on where we stand in our
ongoing efforts to build a North Slope gas delivery system.
· As most of you know, we are currently evaluating three
proposals to construct and operate a North Slope gas delivery
system.
· One from the North Slope oil producers (Conoco/Phillips,
ExxonMobil, and BP), one from TransCanada Pipeline Company,
and one from the Port Authority. Also, I want to recognize
the Alaska Natural Gas Development Authority (ANGDA).
· I am joined today in this effort by the members of my Gas
Cabinet ---- Bill Corbus, Commissioner of Revenue; Dave
Marquez, our Attorney General; and Tom Irwin, Commissioner of
the Department of Natural Resources and others on the team.
6:10 p.m.
· Because of the confidentiality requirements mandated in our
ongoing commercial negotiations, I am only able to speak in
general terms about the status of the discussions.
· I hope all of you will understand and appreciate the sensitive
nature of these talks and the reasons a high degree of
confidentiality must be maintained.
· We stand on the brink of making the most important decision in
our state's history ---- actions we soon will be taking are
going to have a profound effect on Alaska's economy for
generations to come.
· As you can imagine a decision of this scope and magnitude is
surrounded with a great deal of emotion, enthusiasm and deeply
held opinions ---- some are founded on fact ---- some are not.
· As Governor, I am charged with the solemn responsibility of
evaluating all of the gasline development proposals and
determining which is in the best interest of all the people of
Alaska.
· We are guided in this effort by the Stranded Gas Development
Act ---- Passed by the Legislature and signed into law in
2003.
· That Act sets forth a process whereby the Governor is
authorized to negotiate fiscal certainty for an extended
period of time regarding taxation and other applicable issues
with qualified applicants who propose to build a North Slope
gas delivery system.
GOALS:
· My goals in negotiating at contract under the Stranded Gas
Act is to achieve:
1. A fair share of the revenues for Alaska.
2. Provisions for in-state use of the gas.
3. Access to the pipeline for others who explore for gas.
4. A pipeline that may be expanded.
5. A state equity ownership in the pipeline.
6. Jobs for Alaskans and job training.
· In addition the SGA specifies that any negotiated contract
that I deem appropriate for consideration by the legislature
go out for a 30-day public review.
6:13 p.m.
· Upon completion of that review, the contract will be provided
to the legislature for ratification.
· Once received, the contract must be voted either up or down -
--- there is no opportunity provided for amendment.
· This places a great burden on the Administration to "get it
right the first time".
· Out of necessity, the scope and complexity of these contracts
will be staggering ---- running into the hundreds of pages.
· Because of the complexity inherent in a contract that embraces
hundreds of billions of dollars in commercial content, I am
mindful of the need to provide the legislature with the time
and information necessary to adequately weigh the value of the
contract I forward to them.
· To address this need my Administration has been working
closely with the joint Senate/House Legislative Budget and
Audit Committee.
· Members selected by the leadership in both bodies are being
provided with access to all the confidential information being
collected and analyzed in our negotiating efforts.
· They are currently in the middle of this process ---- they are
afforded the opportunity to observe the so called good, the
bad, and the ugly associated with these complex commercial
discussions.
· I have provided this unprecedented access because I believe it
is the right thing to do.
· As I have my responsibilities under the SGA, so too does the
legislature ---- and their duties are no less solemn or
difficult than mine.
· They must either accept or reject the contract I present to
them ---- to be able to do that they absolutely need to
understand all of the complexity and nuance of the information
used to make our decisions.
· As you can imagine it is not always pretty watching sausage
being made ---- but at the end of the day, they "will"
understand how we arrived at our decisions and the information
we used in the process.
· As I stated we are currently evaluating three separate North
Slope gas commercialization efforts.
· The good news is that we have "three" proposals ---- for the
gasline veterans in this room this is extremely good news and
suggests that our gas may soon no longer be stranded.
· Unlike previous efforts that ran 60 miles per hour into a
market reality of $2.00/mcf ---- these "new" proposals reflect
a tide change in the market.
· With current gas prices close to $7.00/mcf and strong
demand/price projections stretching well into the foreseeable
future I believe that now is the time to deliver our gas to
the nation's consumers.
6:16 p.m.
· The first big step in making this a reality occurred late last
year when Alaska's Congressional Delegation under the
leadership of Ted Stevens, Don Young, and Lisa Murkowski
successfully passed federal enabling legislation for the
Alaska Gas Pipeline Project.
· This legislation contains a number of provisions critical to
the construction of the Alaska gas pipeline.
½ Expedited judicial review;
½ Priority permit processing by FERC and other federal
agencies;
½ Loan guarantees;
½ Accelerated depreciation for the pipeline;
½ Conditioning plant benefits;
· In mid February of this year another big step was taken when
the U.S. Federal Energy Regulatory Commission proposed
regulations governing "open seasons" for the Alaska gas
pipeline.
· I am pleased to report that those regulations embraced my main
policy goals;
½ Providing access for new explorers;
½ Providing off-take points for instate usage;
½ Requiring serious consideration be given to in-state
needs during open seasons and expansions.
· Now the ball is in the State's court.
· The first application we received under the SGA arrived on
January 20, 2004 from a consortium of North Slope oil and gas
producers Conoco/Phillips, ExxonMobile, and BP.
· They propose a 52" pipeline will be constructed along the
existing highway system from Prudhoe Bay through Alaska and
Canada to existing North American pipeline infrastructure.
· This project would begin with an initial capacity of 4.5
bcf/day expandable through compression up to 5.6 bcf/day.
· Receipt of that first application triggered an enormous effort
by my Departments of Revenue, Natural Resources, and Law.
· We found ourselves right in the middle of a multi-multi
billion-dollar negotiation ---- and frankly in those first
days we were challenged.
· I am tremendously proud of the men and women in my
administration and how they rose to meet this daunting
challenge.
· Through the employment of their own talents and the
acquisition of world-class consultants ---- we have developed
a formidable analytical capability.
· Because of their efforts I can say with confidence the State
of Alaska's interests "will" be protected.
6:19 p.m.
· This would not have been possible without the budgetary
support provided by the legislature and I appreciate their
understanding the need to build this critical skill set.
· I would also note for the record that a similar same skill set
developed for the producer negotiations is also being used for
the TransCanada and Port Authority effort.
· The Producer application is by far the most complex of the
three.
· That complexity stems from the fact that it embraces every
aspect of gas transportation beginning at the bottom of the
production well ---- through the gathering system and the gas
conditioning facility ---- into the proposed pipeline across
Alaska, the Yukon, British Columbia, Alberta and back into the
United States ---- through the marketing process ---- ending
up at the gas consumer's front door.
· Every step along the way has its own set of opportunities,
complexities, and risks.
· Contemplation of this departure from a state's normal royalty
and taxation process is based on two reasons.
½ The project may be accelerated if the state provides
contract provisions beyond the status quo;
½ The opportunity to significantly increase the
financial benefit of the project to the state.
· This could be accomplished through three specific actions.
6:20 p.m.
½ Converting royalty and taxes into outright ownership of a
significant portion of the in-place gas reserve.
½ Taking an equity position in the gasline and processing
facility proportionate to our gas ownership share;
½ Marketing our gas and taking firm transportation capacity in
the pipeline to deliver that gas to purchasers.
· I am pleased to report that the state has made tremendous
progress in putting this very complex concept into the form of
a contract.
· I am convinced that the Producers are fully committed to
successfully concluding these negotiations and are providing
all the supporting resources necessary to support our
discussions.
· While there is a solid financial and technical underpinning
for the producer proposal, it is not without its challenges.
½ Because this pipeline will run through Canada, they must deal
with regulatory uncertainty in that country;
½ They must also deal with procuring enough steel to construct
over 2000 miles of 52" pipeline
TRANSCANADA
· The second application we received under the SGA arrived on
June 1, 2004 from TransCanada Pipeline Company.
6:22 p.m.
· Under this proposal a 48" pipeline will be constructed along
the existing highway system from Prudhoe Bay through Alaska
and Canada to existing pipeline infrastructure in Alberta.
· It does however contemplate state equity ownership in the gas
conditioning facility and the pipeline ---- it also envisions
the possibility of the state taking the responsibility for
the transportation and marketing of its own gas if the
Producers choose to sell their reserves rather than ship on
an independent pipeline.
· Under this proposal the state and TransCanada would attempt to
strike a business deal with the North Slope gas owners to
either sell their gas at the wellhead or make a firm
commitment to move their gas down the pipeline to market.
· I would also characterize these negotiations as well advanced
with all parties committed to finalizing discussions in the
very near future.
· I have been impressed with the willingness of TransCanada to
work with the state team to create a tariff framework that
embraces both my gas development policies and the FERC
regulations.
· As in the Producer discussions, I believe TransCanda is fully
committed to successfully completing all the negotiations as
quickly as possible.
· TransCanada's proposal also has its challenges.
½ This proposal presumes the Producers will be commercially
reasonable and either ship their gas on an independent
pipeline or sell their gas at a commercially reasonable rate;
½ As with the producers, they must deal with regulatory
uncertainty in Canada;
½ They must also deal with procuring enough steel to construct
1800 miles of 48" pipeline.
ALASKA PORT AUTHORITY
· The third, and most recent, gas development proposal we are
evaluating was submitted by the Alaska Port Authority on March
30th of this year.
· The Port Authority was formed in 1999 and is made up of the
North Slope Borough, Fairbanks North Star Borough and the City
of Valdez.
· The Port Authority proposes to build a gas delivery system
consisting of a 56" pipe from the North Slope to Delta
Junction and a 48" pipe from there to tidewater in Valdez.
· In Valdez the gas would be converted to liquefied natural gas
and transported by tanker to West Coast markets or other
markets in addition, natural gas liquids such as propane,
ethane, and butane would be extracted and sold in the markets
of the world.
· Under this proposal the Port Authority would make a business
deal with the North Slope Producers and the State to purchase
gas at the wellhead, transport it through a tax exempt entity,
and sell the gas to a marketer for sales into the consumer
market.
6:25 p.m.
· This project envisions no direct state participation but does
recognize that the North Slope Producers may need a degree of
fiscal certainty on gas production taxation.
· Our analytical team is just beginning to evaluate the Port
Authority's submission and it is to early to make any risk or
value judgments pertaining to the proposal.
· As in the other two proposals, the Port Authority effort is
not without its challenges.
½ Since they do not control the gas supply they must make a
commercial proposal to the owners sufficient to obtain sales
contracts;
½ They must get formal approval from the Internal Revenue
Service to retain their tax-free status;
½ They must get long-term sales contracts;
½ They must obtain a permanent exemption from the Jones Act;
½ And they must deal with difficult siting issues on the West
Coast.
6:25 p.m.
· I will say that this project is radically different than the
Alaska Highway proposals submitted by the North Slope
Producers and TransCanada ---- as a result it will have a
significantly different risk/reward profile.
· Before I will be in a position to make any recommendation on
this project we will need to be able to do an "apples-to-
apples" comparison on the risk/reward profiles of all three
proposals.
· Not covered under the Stranded Gas Development Act is the
Alaska Natural Gas Development Authority created by
Proposition 3 in the November 2002 election. ANGDA has been
working on a spur line which will bring gas to Cook Inlet.
· I am not certain at this time how long this is going to take,
but we will keep you appraised as we move down the analytical
trail.
· Regardless of what happens with any of the proposals already
discussed, I assure you that we enshrine in any agreement an
opportunity to construct a pipeline to the Cook Inlet ---- I
have asked the Alaska Natural Gas Development Authority to
lead in that effort.
· It is common knowledge by now that I made a recent trip to
Ottawa to discuss the gasline with Prime Minister Martin.
· This was in recognition of the fact that no matter how quickly
we act here in Alaska, the highway routes all will travel
through Canada.
· While Alaska would not presume to recommend what regulatory
framework is appropriate for Canada, we do believe the time is
right to create a process by which a gas pipeline project can
be constructed in the most expeditious manner possible.
· I know all of you are making plans for the summer and would
like to hear from me that a specific date had been chosen for
a "special session" to act on a stranded gas contract.
· While I can say that we are getting close, I can not give you
that date today.
· Once we have closed on general terms, there is a lot of detail
work for the attorneys to do before we have a contract ready
for public and legislative review.
6:29 p.m.
· I will tell you that I am personally involved in the
negotiations and will continue to be involved until I am
satisfied that I have a contract worthy of your consideration.
· I will send you a contract containing what I believe it takes
to get our gasline built and it "will" be what is best for
Alaskans today and what will be best for Alaskans tomorrow.
· It will have the earliest "in-service" date possible, contain
the best fiscal benefit package possible, and afford new
explorers and Alaskans the best access possible.
· What is best will be a product of raw economic reality ---- it
will not be based on emotions. .
· And you should also know that my decision will not be without
criticism ---- no matter which way we go.
· And I promise you my decision ---- the contract I send to you
for your approval ---- will be based on what I believe is
right.
6:30 p.m.
· So, enjoy your summer (at least the first month or so) and I
will see you back here soon ---- and when I do, we will really
have something to celebrate.
6:31 p.m.
CHAIR WAGONER asked if the governor will we look at two
contracts or if he will just send the best one to the
legislature.
GOVERNOR MURKOWSKI said he is not limited to one contract.
There will be a public process with input on all three, he said,
and he can recommend one to be submitted for an up or down vote.
REPRESENTATIVE BERKOWITZ asked the status of negotiations with
Mid-America.
GOVERNOR MURKOWSKI said there are no negotiations currently.
TOM IRWIN, Commissioner, Department of Natural Resources, said
Mid-American evaluates what is most valuable to them. "I think
the state can feel very confident that when Mid-America and the
other folks that are involved--this is a project that has
economic value. I think it's also a real statement that Trans-
Canada very clearly stepped up and presented their proposal and
they're carrying that issue very aggressively forward, working
with the state," he said.
GOVERNOR MURKOWSKI said Mid-America came with a request for a
five-year option, which he could not agree to, consequently the
negotiations began through Trans-Canada. There was a difference
of opinion on the percent of participation between the two, he
said. The state has never closed the door on that application,
but they terminated their interest, he stated.
SENATOR GRETCHEN GUESS asked about pipeline ownership, and if
the governor is considering any other methods of funding gas
pipeline ownership, including using the federal loan guarantee.
GOVERNOR MURKOWSKI said, "In our concept, the state would
propose to be an equity owner in two of the proposals before us-
-the producer's proposal and the Trans-Canada proposal." The
figures are confidential, he added.
WILLIAM CORBUS, Commissioner, Department of Revenue, said the
state is envisioning an equity ownership and would have to pick
up that proportional share of the debt. The federal loan
guarantee would come into play for the debt portion.
SENATOR HOLLIS FRENCH asked about financing for a spur line for
the people in his South Central district to get the gas.
6:36 p.m.
GOVERNOR MURKOWSKI said there was a resolution that carried, and
the Alaska Natural Gas Development Authority (ANGDA) was formed.
It has a broad authority but recently directed its interests to
a lateral line to Southcentral Alaska. "We support that ... but
the economics of that are still very much under review," he
added. ANGDA is focusing on a worthwhile cause, but that is
separate from what he is talking about, because that would be a
lateral line off the main line. He said any of the proposals
would have an alternative of taking Alaska gas down to
Southcentral. "The problem with Southcentral is they need cheap
gas for the two petro-chemical facilities. We can't afford to
lose those facilities because they are the main load identified
users," he noted.
SENATOR GENE THERRIAULT asked about Alaska jobs, and having a
contract that would obligate the state, but not have specific
dates for the pipeline to move forward.
6:39 p.m.
GOVERNOR MURKOWSKI said there are provisions in the stranded gas
act for job training and placement. It is a high priority item,
he said, because one proposal included 10,000 jobs for four
years, with involvement of up to 1,000 engineering firms.
COMMISSIONER CORBUS said there is a section in all the contracts
addressing employment and training.
COMMISSIONER IRWIN said the governor brings up Alaska jobs in
all the general meetings.
SENATOR GUESS asked if the lawsuit against the Federal Energy
Regulatory Commission regulations will impact the negotiations.
DAVE MARQUEZ, Attorney General, said it will not impact the
negotiations in the immediate future.
REPRESENTATIVE NANCY DAHLSTROM asked about a risk with the loan
guarantee, and the concerns of homeland security, especially
with gas going through another country.
6:43 p.m.
GOVERNOR MURKOWSKI said the risk is committing to a $20 billion
project--the largest construction project ever undertaken in
North America. There won't be revenue until the gas flows in
2012-2014, he added. If the price of gas is low it will be the
worst investment in the history of Alaska, he said, but he
believes this country is using its reserves faster than it is
finding new ones. From the standpoint of the consumer it is
cheaper to build a pipeline instead of using tankers. The
extraordinary amount of gas makes these projects feasible, he
stated. Are the economics sufficient to bring the resources to
market? he asked. "We think they are."
GOVERNOR MURKOWSKI stated that homeland security is manageable.
The gas line will be buried in its entirety, so it is more
secure than the oil pipe line. Alaska shares many strategic
interests with Canada, he added.
REPRESENTATIVE LES GARA said the producers did not think they
could bring the in service date before 2014. What is the
state's position? he asked.
6:48 p.m.
GOVERNOR MURKOWSKI said it was a legitimate concern, and the
state is aiming for an in service date of 2012. He noted that
the price of steal is rising.
COMMISSIONER IRWIN said DNR will look at it technically.
"Sooner is significant for the state," he postulated.
SENATOR DYSON said one of the "real treasures" is the gas
liquids, and the advantage of the all-Alaskan route is
controlling that. Is there a difference between the proposals
in what happens to the gas liquids and who gets access to them?
he asked. He said he thinks there are some restrictions on the
gas liquids in a northern pipe line agreement, and should that
survive its challenges, how does that figure in?
6:51 p.m.
GOVERNOR MURKOWSKI responded that economics would dictate where
the gas liquids end up. "There's no question that Alberta and
Calgary have a substantial capability to ... use those liquids."
He noted, however, that the market is changing, and he has
instructed the applicants to evaluate the Asian markets for gas
liquids. Naphtha is already going to the Asian market from a
Fairbanks refinery, and that "marks a first step." He said the
state is doing some internal evaluations of the Asia market, and
he is excited about it. "Economics usually dictate where they
end up," he stated. He said the northern pipe line agreement
means different things to different people, and he noted that
representatives from Trans-Canada are in the room that may want
to respond.
CO-CHAIR RAMRAS you said the port authority proposal is
radically different than the Alaska highway proposals. He asked
if the governor has reviewed the Internal Revenue Service (IRS)
correspondence from the port authority regarding the Jones Act,
and if he thinks the Jones Act can be overcome.
GOVERNOR MURKOWSKI said those questions can best be answered at
a later date; that process has not begun.
6:55 p.m.
MR. MARQUEZ said tax-free status and a permanent Jones Act
exemption are two serious challenges the port authority faces.
REPRESENTATIVE GATTO mentioned ex-Governor Hickel's book Crisis
in Common, which discouraged taking state resources out of
Alaska as soon as possible instead of processing them here.
"Have we ever been approached by a petro-chemical industry that
looked at these quantities and maybe had some consideration for
that kind of enterprise?" he asked.
GOVERNOR MURKOWSKI said the concerns are traditional; you move
your refinery close to the market. It is based on economics, he
said. Gas liquids would have the labor costs of petro-chemical
conversion, and, "we are not a consumer of consequence."
6:58 p.m.
GOVERNOR MURKOWSKI said an Alaska timber task force tried to
create primary manufacturing. "Now we have lots of timber and
no method to use the 30 percent of the timber which is either
dead or dying in this state cause we don't have the availability
to utilize the utility timber." He said the return on
investment controls the investment of capital.
SENATOR GUESS asked how the governor envisions the public
hearing process; thirty days is not a long time for the public
to digest and form opinions on this issue.
GOVERNOR MURKOWSKI said, "We are the recipients of your labors,
and your vision in determining what is adequate and inadequate."
He assumes the thirty days could be expanded moderately.
7:00 p.m.
COMMISSIONER CORBUS said he will be issuing a draft interest
finding that will be made available at the beginning of the
public hearing process. He envisions public hearings in the
capitol and elsewhere. "We are going to do everything we can to
do solicit the views of the public and the legislature during
time frame."
MR. MARQUEZ said it is a short time period, so it is important
to have a continuing relationship with the legislature ... so
that when that 30-day public notice period starts, at least the
legislature will be able to participate very quickly and
effectively."
7:01 p.m.
SENATOR GENE THERRIAULT, Chair, Legislative Budget and Audit
Committee (BUD), Alaska State Legislature, said it is actually a
minimum of a 30-day public comment period for the gas pipeline.
He added that LB&A can make it longer if needed. His committee
has met with the administration five times to get briefings from
the negotiating team regarding the gas pipeline proposals. With
regard to Alaskan jobs, he noted that there are opportunities to
shelve or delay the project if it is not in the best interests
of the state.
7:04 p.m.
SENATOR THERRIAULT said he and Representative Ralph Samuels met
with the Federal Energy Regulatory Commission (FERC), and a FERC
package put together that was very favorable to Alaska.
"Litigation has been filed in the federal courts to preserve ...
an opportunity for the companies that have concerns over the
package to take the issue into the court system. We are
currently reviewing our obligations or our potential for
entering into that litigation, and steps may have to be taken in
order to preserve the legislature's right to continue to press
the state's point in the FERC process."
SENATOR THERRIAULT said he and Representative Samuels met with
the Senate Energy Committee in Washington D.C. regarding gas
hydrates, and asked for money for research. Alaska has
tremendous resources in gas hydrates, he said, and legislation
has been introduced with increased funding requests.
7:07 p.m.
SENATOR THERRIAULT said LB&A is researching antitrust issues,
and has hired a company to do economic modeling, which is a
complicated, detailed effort. The committee has been watching
the administration's research on the duty to produce under the
existing terms of the leases. He said LB&A may be doing its own
work on the terms of the current leases. He noted his
appreciation of the willingness of the administration to share
information with the LB&A, but he pointed out it is not
negotiating the contract. The committee's role is to help keep
legislators up to speed, but it is not sitting at the table.
The committee has attorneys in Washington D.C. and consultants
working on it all.
7:10 p.m.
CHAIR WAGONER announced that the parties who have applied for
the contract are in the room, and they will answer questions.
TONY PALMER, Vice President, Alaska Business Development, Trans-
Canada, said, "The Northern Pipeline Act has no obligations in
it to remove the liquids [indecipherable] in Canada -- Alberta
or otherwise." He said there is that opportunity for Alberta
liquids operators to compete to remove the liquids if the
project goes through Alberta--"I believe they will do so on a
competitive basis." "There is also no restrictions in the
Northern Pipeline Act to remove the liquids. In fact, the
liquids that come out of our system--the Foothill system, which
is the pre-build for the Alaska highway pipeline--does move
today through the border of Alberta. Liquids are removed from
those streams. The facilities we built to allow that gas to be
stripped of liquids were actually constructed under the national
energy board. They're in service today ... and can be used in
the future if Alaska gas owners choose to do so."
7:11 p.m.
HAROLD HEINZE, Chief Executive Officer, Alaska Natural Gas
Development Authority (ANGDA), said ANGDA is working on the spur
line, which is a very important feature of all the proposals
that are on the table. He wants to assure the members that
ANGDA'S approach to the spur line is intended to be compatible
with all proposals. He said the one variation that is different
from what had been originally conceived, is that since all the
major projects require five to seven years for engineering,
procurement, design and other steps, "we've looked at the spur
line as a pre-build into the project. Rather than waiting for
its completion, we've looked at in on a timeline where we would
build while all that diligence is going on." He noted that the
spur line is technically fairly simple. He said ANGDA has
applied for the right-of-way between Glennallen and Palmer and
that ANGDA has included the ability to remove natural gas
liquids to be used anywhere in Alaska, propane in particular.
He opined that financing the spur line is more "modest" than
"the big projects going down." It is in the range of hundreds
of millions of dollars, he postulated. Utility financing is
available for that kind of project, where the customers provide
the financial security, so financing is very low interest, he
noted. He told the committee to peruse www.allalaskalng.com.
SENATOR LYMAN HOFFMAN said it sounds good to deliver propane to
the rest of Alaska, but he asked how feasible it is.
MR. HEINZE answered that if ANGDA extracted half the propane
going down the big line to Canada, there would be about 50,000
barrels a day of propane for ANGDA to bring to tidewater. He
estimates that 10 to 20 percent of that would satisfy all the
energy needs of rural and coastal Alaska. There is a study on
loading barges in Cook Inlet, but it would run into the Jones
Act, but that is easy to satisfy, he said. Propane is very easy
and cheap to move, and he said a large portion would be exported
across the Pacific Rim.
7:17 p.m.
RIGDON BOYKIN, Special Council, Alaska Gas Line Port Authority,
said the Internal Revenue Service (IRS) issued a private letter
ruling that "all of the income received by the Port Authority
would be tax exempt. We do not feel there is any issue
regarding the IRS ruling. The only criticism of that ruling
that we have heard by anyone is a reference to the fact that
most of the gas from this project would not be used within this
state." That is irrelevant for tax purposes, he said. The Port
Authority is a municipal organization, so as long as it owns and
controls the project, it is tax exempt. "We did also tell the
IRS ... that most of the gas from this project would be used out
of state ... Alaska is a small state and cannot possibly use the
volumes of gas required to make this pipeline economic, and
therefore a large percentage of this gas would be used out of
state."
7:20 p.m.
REPRESENTATIVE RAMRAS asked to see the aforementioned
correspondence.
MR. BOYKIN said he could make it available, and he thinks it
already was made available under the stranded gas application.
SENATOR THERRIAULT asked as Sempra's importation sites are
developed, does Sempra enter into long term financing contracts
that commits the capacity of those sites long term.
MIKE MORGAN, Vice President, Sempra Energy, said Sempra
contracts long term for capacity in the LNG regasification.
Sempra has facilities on the West Coast. There is a market for
the capacity to those facilities, and there is a lot of interest
from LNG producers all over the world, not just Alaska, he said.
"Some of our facilities are considered to be open-access
facilities, and if there's demands to contract expansion ... no
choice but to oblige those demands. There is a race to serve
the West Coast market, "and it will be won in a matter of
months."
7:23 p.m.
CHAIR WAGONER asked about the potential for litigation for the
Canadian right-of-way.
MR. PALMER asked if he was speaking about the Northern Pipeline
Act or the right-of-way. He said Trans-Canada has held the
right-of-way through the Yukon for 20 years, and there has not
been a legal challenge.
REPRESENTATIVE BETH KERTTULA asked about an exemption to the
Jones Act.
JOE GELDOFF, Alaska Council, Marine Engineers Beneficial
Association (MEBA), said MEBA was founded in 1875 and is the
oldest maritime union, representing licensed deck and
engineering officers in the United States. He said MEBA has a
relationship with Sempra and the Alaska Gas Port Authority
(AGPA). MEBA's obligation is to deal with the Jones Act and
training for moving Alaska's gas to market. He noted that MEBA
is an ally with Sempra and AGPA, not a full partner. Sempra has
a real market with real customers--it is not a notional market,
"and they approached us seeking assistance and guidance on how
to deal with the Jones Act."
7:26 p.m.
MR. GELDOFF said the Jones Act is often vilified by Alaskans.
If and when the financials drop into place and the state decides
"this is a bona fide market with a legitimate transportation
plan, and you assist Sempra and AGPA in getting our gas into the
pipeline that they want to build, at the risk of sounding both
naïve and arrogant, the Marine Engineers and our affiliated
maritime unions will work diligently to get a limited project-
specific--from one aspect of the Jones Act." He said it is
premature to talk about how that will take place, "but there is
too much at stake with this entire project, not to seek a
limited project specific exemption from the American-build
provision of the Jones Act." He said MEBA and other mariners
"are not going to hold real jobs for shore side people in Alaska
... hostage to what's really a theoretical job protection,
because the yards in the United States of America are not
capable right now, in our opinion, of building LNG tankers." He
concluded that, "If and when the financials drop into place, as
I think they will with the Sempra and AGPA proposal, we are
going to bust our pick to get a limited exemption, and we think
we can do it."
MR. HEINZE said he wanted to offer other perspectives on the
Jones Act, "because it is a very important issue." He noted
that ANGDA is concerned about how the act will impact the inter
coastal movements in Alaska. He said the Alaska delegation may
be able to get an exemption for that. Secondly, he said, as the
world trade in LNG develops, the advantage of Alaska being close
to the west coast can be captured by circular trade routes. He
said it is not necessary for the ships to sail back and forth to
California. He told the committee to envision a circular
movement of Indonesian gas going to California, then the empty
ship sails to Alaska and picks up cargo, which is taken to
Tokyo, and then the empty ship goes back to Indonesia and
continues the loop. "You garner a great deal logistically of
that ... closeness of Alaska to the West Coast without ever sent
a ship from here to the West Coast."
7:30 p.m.
WALTER HICKEL, Former Governor, State of Alaska, said this is an
important moment in Alaska's history. He noted he is almost 86
years old. A vast supply of natural gas urgently needed by the
American people awaits a decision. How will the gas get to
market? he asked. He thinks the whole future of the state is
dependent on that decision, and it is not difficult to "sort
out." He reminded legislators that they swore to uphold the
Alaska constitution, and Article 8 says the legislature shall
provide for the utilization and conservation of all natural
resources "for the maximum benefit of its people--not for the
benefit of any special interest, not for the benefit for those
that contribute to all the campaigns." He said it was not for
the benefit of lobbyists, but for all Alaskans. "That is our
solemn promise and pledge."
MR. HICKEL said Alaska won statehood to free it from exportation
of the colonial past. "Outside countries ripped our resources
from our land and shipped them across our borders ... leaving
little behind for our people." He said to keep four benefits in
mind: Will the route do the most for Alaska's consumers? Will
the homes of Alaskan's be warm and light by this resource? Will
the people's gas be available to all our people by a spur line?
Will the route generate the most revenue to Alaska? Will the
route create the most jobs for Alaskans, not just to build the
line, but for future generations? Which route can be started
first? He said worldwide competitors are moving fast to capture
the United States' market. "We need to start building that
pipeline now." He said in the early 1980s Governor Jay Hammond
appointed the late Bill Egan and him to study the gas pipeline
issue. "From that time on I have believed in and fought for the
all-Alaska route. It has been a 35-year battle." He said, "You
and Governor Murkowski have to make it happen. And you may have
to have the courage to use all the powers at your disposal."
ADJOURNMENT
There being no further business before the committee, the joint
House and Senate Resources Committee meeting was adjourned at
7:36 p.m.
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