Legislature(2009 - 2010)BARNES 124
04/10/2009 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Alaska Fischer-tropsch Synthetic Fuels Pilot Program | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 10, 2009
1:05 p.m.
MEMBERS PRESENT
Representative Craig Johnson, Co-Chair
Representative Mark Neuman, Co-Chair
Representative Kurt Olson
Representative Paul Seaton
Representative Peggy Wilson
Representative David Guttenberg
Representative Chris Tuck
MEMBERS ABSENT
Representative Bryce Edgmon
Representative Scott Kawasaki
COMMITTEE CALENDAR
PRESENTATION: ALASKA FISCHER-TROPSCH SYNTHETIC FUELS PILOT
PROGRAM
PREVIOUS COMMITTEE ACTION
No previous action to report.
WITNESS REGISTER
MARK IDEN, Deputy Director of Plans & Operations
Defense Logistics Agency
Defense Energy Support Center
U.S. Department of Defense
Fort Belvoir, VA
POSITION STATEMENT: Provided a presentation on the Alaska
Fischer-Tropsch Synthetic Fuels Pilot Program.
JOHN MARTIN, Major
Commander, Defense Energy Support Center, Alaska
Elmendorf Air Force Base, Alaska
POSITION STATEMENT: Answered questions regarding the Alaska
Fischer-Tropsch Synthetic Fuels Pilot Program.
KEVIN BANKS, Director
Division of Oil & Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding the permitting
process that would be required for the Alaska Fischer-Tropsch
Synthetic Fuels Pilot Program.
ACTION NARRATIVE
1:05:55 PM
CO-CHAIR MARK NEUMAN called the House Resources Standing
Committee meeting to order at 1:05 p.m. Representatives Olson,
Guttenberg, Tuck, Wilson, Johnson, and Neuman were present at
the call to order. Representative Seaton arrived as the meeting
was in progress.
^PRESENTATION: ALASKA FISCHER-TROPSCH SYNTHETIC FUELS PILOT
PROGRAM
1:06:16 PM
CO-CHAIR NEUMAN announced that the only order of business is a
presentation on the Alaska Fischer-Tropsch Synthetic Fuels Pilot
Program.
1:06:43 PM
MARK IDEN, Deputy Director of Plans & Operations, Defense
Logistics Agency, Defense Energy Support Center, U.S. Department
of Defense, said he will be giving an overview of the synthetic
fuel initiative that his agency is looking to pursue in the
state of Alaska. He explained that he works for the Defense
Energy Support Center (DESC) [slide 1] which is under the
Defense Logistics Agency (DLA), a defense agency under the U.S.
Department of Defense (DOD).
MR. IDEN noted that his agency used to be called the Defense
Fuel Supply Center and during that time the agency's business
was to provide liquid fuels to its customers - the military
services and federal civilian agencies like the U.S. Department
of Agriculture, U.S. Department of the Interior, and the U.S.
Bureau of Indian Affairs. In the last dozen years, however, he
said his agency has taken a larger emphasis into energy products
by buying natural gas and electricity, and in Alaska the agency
is also buying coal [slide 2]. In addition, DESC is involved in
many energy initiatives, cost-savings initiatives, energy-
savings performance contracts, and so forth. The agency's goal
is to be the energy provider of choice to its customers.
1:09:35 PM
MR. IDEN explained that DESC is predominantly fuel [slide 3].
It maintains 60 million barrels of fuel storage worldwide
through 630 storage terminals located on bases and intermediary
distribution systems. The DESC sells about 130 million barrels
of product a year which equates to about 5 billion gallons of
fuel on an annual basis throughout the world. As a result of
fuel price increases, the amount of DESC's sales has gone as
high as nearly $18 billion a year and is targeting about $15
billion for this year. Sales are to customers such as the U.S.
Army, Navy, Air Force, and federal civilian agencies.
MR. IDEN said DESC does roughly $1 billion a year in business in
natural gas [slide 3]; for example, it buys natural gas in
Alaska for the Elmendorf and Fort Richardson bases. The center
also competitively buys electricity and coal and there is now a
new area of focus on solar, wind, photovoltaic, and other
renewable power. He said DESC privatized utility systems in
Alaska at Fort Richardson, Fort Greely, and Fort Wainwright by
selling the utility systems to a supplier - Doyon, Limited - and
that is now buying back the service from Doyon. The award for
this 50-year utility privatization contract was for over $1
billion, he added.
1:12:15 PM
MR. IDEN, in response to Representative Tuck, explained that
DESC does both electricity and natural gas in the Lower 48, but
only natural gas in Alaska. In the 1990s the natural gas
industry was de-regulated in the Lower 48 and DESC could buy
wellhead gas and move it cheaper than could each installation
individually. The DESC also started buying electricity
competitively when it was deregulated, but this has not been
done in Alaska. Under a department-wide initiative, DESC began
privatizing the utility systems in the late 1990s, although some
of the services do it themselves. As a consolidator of
requirements, DESC can talk to industry in only one voice and
get a better competitive process than could each of the branches
of the armed forces individually.
MR. IDEN, in further response to Representative Tuck, explained
that privatization is a bill of sale to a new provider which
then owns the system and gets an easement and rights to get on
the base to do the work there. In turn, DESC puts a long-term
contract in place for the utility services of gas, electric,
water, and wastewater. He explained that DOD was having trouble
maintaining the infrastructure due to lack of funds and ability,
so the decision was made to sell those systems and buy the
service back from people who know how to run utility systems.
1:14:42 PM
MR. IDEN, in response to Representative Wilson, said the main
presence for coal in Alaska is Usibelli Coal Mine, and this coal
is put to Eielson Air Force Base.
JOHN MARTIN, Major, Commander, Defense Energy Support Center,
Alaska, added that the coal is also put to Clear Air Force
Station. In further response, he said he is not sure which
energy source [gas, electricity, or other] is cheapest, but that
Doyon will supply the utility at its discretion and right now
the utility is set up for coal.
MR. IDEN offered his belief that the coal power plant has not
been privatized, rather it is the rest of the distribution
system - the power lines on the base and utilidor - that has
been privatized. He said that if at some point the lifespan of
the coal plant is determined to be too short and not worth
operating or maintaining, then conversion to another source of
energy can be considered. He added that he is unsure whether it
would be Doyon, the base, or both that would make the call in
this regard.
1:17:06 PM
MR. IDEN commenced with his presentation about the Alaska
Fischer-Tropsch Synthetic Fuels Pilot Program [slide 4].
Fischer-Tropsch refers to a specific process of converting gas
or coal fuels to liquid, he explained. It is named after the
two Germans who developed the process during World War II when
Germany lost access to petroleum and began using coal to create
liquid fuels. South Africa currently uses the Fischer-Tropsch
process, he added. The DOD has made a concerted decision to get
the U.S. away from its reliance on foreign oil and to begin
developing capabilities within the U.S. Military services
identified the desire to move from petroleum to synthetic fuels,
which are now in the process of being tested and certified in
various aircraft and ground-fuels equipment to prove that they
are reliable and have no detrimental impacts. There are no
synthetic fuel plants working in operational capacity in the
U.S., continued Mr. Iden, and it takes about three to four years
to build a plant. The DESC recognized that it needed to
jumpstart this process and identified Alaska as the location to
do so.
CO-CHAIR NEUMAN commented that playing host to the first gas-to-
liquids plant in the Northern Hemisphere would be a huge
opportunity for the state of Alaska.
1:19:48 PM
MR. IDEN reviewed the agenda for the March 11-12, 2009, summit
that was held in Anchorage [slide 5]. Discussions at the summit
included how current fuel support is being provided to customers
and how it would occur if a synthetic fuel plant is successfully
built in Alaska. A number of subject-matter experts from the
DESC attended the summit and talked to industry members about
contracting issues, including how to structure contracts and
proposals, how industry would provide its offers to DESC, how
DESC would evaluate the offers, pricing and financial matters,
and quality and environmental considerations. He said about 100
people attended the first session of the summit, including
military customers, industry, and legislators. On the second
day, one-on-one sessions were held so industry could talk
privately with DESC staff. A level of interest is being
developed, he continued, and the goal of the summit was to
publicize this and get feedback to make sure that DESC has a
reasonable process ahead of it.
1:21:32 PM
MR. IDEN stated that Alaska was chosen as the location because
it is rich in the traditional feedstocks of coal and natural
gas. Also, he needed a location where he could get all of his
customers onboard with this approach and this concept (slide 6).
He said the fuel being looked at is JP8, the military's
equivalent to commercial jet A1 which is the international
commercial jet fuel. In addition to aviation, JP8 is used for
ground diesel requirements, making JP8 the single fuel on the
battle field. As part of the package, DESC is also looking at
some other ground programs in Alaska that do not normally use
JP8.
MR. IDEN explained that DESC typically does business on an
annual basis, but that one-year contracts will not do for
developing this particular industry given that a plant costs
several billion dollars. The DESC can do a minimum of five
years with its current authority, and add five one-year options
on to that, for a quasi ten-year commitment. However, industry
would like to see more than that and DESC has proposals floating
through "the legislative side" to go up to a twenty-year
contract.
1:24:32 PM
MR. IDEN stated that DESC is looking to go operational with the
Fischer-Tropsch Process because it cannot tinker around with new
concepts and ideas. The Fischer-Tropsch Process is proven, he
said; there just are not yet any plants in the U.S. Industry
will decide whether the feedstock is coal or natural gas, and
whether to have a biomass component if the feedstock is coal. A
straight synthetic fuel will not be used; rather, it will be a
50:50 blend of traditional petroleum-based product and synthetic
product. Weapon systems are currently being tested on this
50:50 blend and commercial industry is also testing its aviation
platforms on this blend; therefore everyone is looking to
initially start with a 50:50 blend fuel. He pointed out that
DESC cannot receive only the synthetic product at its
installations because it is not in the business of blending
fuel, instead the supplier will have to provide the 50:50 blend.
MR. IDEN, in response to Co-Chair Johnson about DESC being
feedstock neutral, confirmed that DESC will not dictate which
type of feedstock must be because they all will do the job. He
said DESC will also not tell industry where to build the plant.
1:26:37 PM
MR. IDEN, in response to Co-Chair Neuman, explained that
synthetically-derived fuels are ultra clean, which can have the
unintended consequence of impacting the seals of weapons
systems. When a straight-run synthetic product is used the
seals do not swell like they normally do with traditional fuel
and this results in leaks. The tests are therefore being done
on a 50:50 blend to make sure these problems do not occur.
REPRESENTATIVE SEATON recounted his own experience with problems
when he used ultra-clean fuel in two heating stoves.
MR. IDEN, in response to Co-Chair Neuman, stated that the
military services are testing their aviation systems right now,
including all fighter jets and helicopters. In addition, tests
are being done on all of the ground equipment. He noted that
there were problems with the JP8 when it was first used; thus,
it is necessary to do all of the testing carefully.
1:29:49 PM
MR. IDEN pointed out the importance of the replacement fuel
being competitively priced with what it is replacing. He
related that DOD has said the fuel must be "competitively"
priced, which means that it can be slightly more in cost as long
as it remains within the competitive range. With crude prices
currently at $40-$50 per barrel, industry is feeling that it can
get there because the synthetic product is right on the border
of being competitive. A rise in crude prices to $70-$80 per
barrel is expected in the relative near future, which is a
competitive range. He said DESC therefore thinks this is a
viable project from the economic point of view.
1:31:14 PM
MR. IDEN related that Section 526 of the Energy Independence and
Security Act of 2007 says that when the Department of Defense -
which means the DESC - buys fuel for operational requirements, a
synthetic-based fuel cannot have a larger lifecycle greenhouse
gas emissions footprint than a normal, straight run petroleum
product. However, he continued, the DESC receives a waiver from
this requirement when the fuel is purchased for testing and
certification processes; thus, DESC can buy any fuel to meet
testing needs. He went on to explain that natural gas has a
lower greenhouse gas emission footprint than traditional
petroleum products and is therefore in a net positive position.
Coal, on the other hand, generally starts out in a negative
posture. Mixing coal with biomass brings down the carbon
dioxide emission footprint. The whole lifecycle of the system
must be looked at to determine the greenhouse gas footprint -
where the feedstock product is produced, getting it to the
refining plant, the refining process, getting it to the end-use
customer, and checking the emissions from the equipment
tailpipes. Since this product burns cleaner, DESC is looking at
the feedstocks and not worrying about the emissions.
1:33:34 PM
MR. IDEN said this is a DOD-level program focusing on
alternative and renewable fuels [slide 7]. Emission standards
for commercial and military aviation are coming down the pike
that current fuels will not meet, he continued. The 50:50
blends are much cleaner than current fuels and will help in
meeting these emission standards, so going this way is a good
thing right up front. The DESC and the military services are
coordinating on this program in Alaska. The U.S. Air Force is
by far DESC's biggest customer and it has taken the lead as a
military service and expects to have all of its weapon platforms
certified by 2011. The U.S. Air Force's goal is to have 50
percent of the domestic aviation requirement using this 50:50
blend by 2016. The process to meet this goal must be started
now, Mr. Iden stressed, given there are currently no plants in
the U.S. producing at this level and it takes three to four
years to build a plant.
1:35:17 PM
MR. IDEN stated that DESC conducted a Request for Information
(RFI) for this initiative back in 2006, to which 28 people
responded and 27 indicated the Fischer-Tropsch was the most
viable process to use. Information received from this initial
RFI identified the desire for long-term contracts and floor
pricing. A second RFI in 2007 requested industry to let DESC
know if it could provide a blended fuel without a 20-year
contract. This RFI is what led DESC to pick Alaska for the
operational-sized pilot program, he said, and success in Alaska
will be replicated in the Lower 48.
MR. IDEN, in response to Co-Chair Johnson, explained that DESC
buys locally at each of its worldwide locations. There are
synthetic fuel plants overseas, he said, but right now the focus
is on the domestic side. About 60 percent of DESC's
requirements are CONUS [contiguous Lower 48 states], and 40
percent are "OCONUS".
1:37:40 PM
MR. IDEN resumed his presentation, pointing out that DESC
recognized it needed to take both a short-term acquisition
strategy and a long-term acquisition strategy [slide 8]. The
short-term strategy focuses on the certification and testing of
weapons systems and DESC has conducted three buys of synthetic
fuels in this regard. One purchase was a gas-to-liquid fuel
from Shell Malaysia and two purchases were coal-to-liquid fuel
from Sasol, the South African state oil company.
MR. IDEN, in response to Representative Wilson pointing out that
South Africa is a very hot climate, explained that the military
takes all weather conditions into consideration during the
testing and certification process. He acknowledged that there
are some problems with JP8 in Alaska because of the cold
weather, so JP4 is used in some locations because of its cold-
start properties. He expressed his confidence that when the
military says the synthetic fuels are safe to use, they will be
safe to use worldwide.
1:40:00 PM
MR. IDEN, in response to Representative Tuck, clarified that JP8
is a straight, non-blended fuel. In further response, he
explained that JP4 is the aviation fuel that was used during the
Vietnam War and is a gasoline-type jet fuel that is very
volatile; for example, many planes were brought down in Vietnam
by small arms fire. He said JP8 is a much safer fuel and is the
primary fuel used today.
CO-CHAIR NEUMAN commented that Shell Malaysia and Sasol recouped
their investments in the construction of their plants within 4
years, which indicates the demand and value for this synthetic
fuel.
MR. IDEN pointed out that South Africa had no other choice as it
could not get fuel because of apartheid and therefore it had a
big demand and customer base to justify building the plant. He
said he is unsure why Malaysia has gone to synthetic fuels, but
that a lot of times the extraction of crude oil produces lots of
excess natural gas.
1:41:56 PM
MR. IDEN returned to his presentation, explaining that DESC is
now beginning its long-term strategy [slide 8], which is the
sustainment, or operational, phase. While the pilot program is
in the state of Alaska, the ultimate goal is expansion to the
Lower 48 and domestic production from plants located within the
U.S.
MR. IDEN, in response to Representative Seaton regarding the
production of synthetic fuel and running it through the Trans-
Alaska Pipeline System, stated that this issue came up at the
Alaska summit. He said that the "BP plant" in Nikiski is
providing another refinery with synthetic crude that is blended
with that refinery's traditional crude stocks to produce a
blended crude. However, he continued, DESC wants a finished
synthetic product and a finished petroleum-derived product to be
blended together. The issue is how to ensure that the blend is
the targeted ratio. He said he has a handout detailing some of
the specifications for the synthetic product and the blended
fuel, as well as a handout summarizing the over 80 questions
that were brought up at the summit.
CO-CHAIR NEUMAN added that an increase in the economies of scale
might allow Flint Hills Refinery to act as the blending
facility.
1:46:24 PM
MR. IDEN commenced his presentation with a review of some of the
questions that have been asked [slide 9]. In answer to the
question "Why do this?" he said one reason is energy security,
especially given that 70 percent of the crude used in the U.S.
is from non-domestic sources. Another reason is that
conventional fuels will have problems meeting the tailpipe
emission standards that are coming down the pike. The blended
fuel has the environmental benefit of being a lot cleaner. In
addition, DESC customers want this product in about six years,
and since there are no plants in the U.S., DESC must start this
process now in order to meet its requirements. In answer to the
question "Who could do this?" Mr. Iden said both traditional,
existing suppliers and new synthetic fuel production suppliers
could do this. He offered his belief that a partnership
arrangement will need to occur because of the 50:50 blend
requirement.
1:48:44 PM
MR. IDEN specified that DESC's annual fuel requirement in Alaska
is approximately 70 million gallons [slide 10]. He noted that a
separate initiative for building a coal-to-liquid plant on
Eielson Air Force Base is being worked at the federal level.
Therefore, DESC must be very sensitive to this separate,
distinct initiative while moving forward with its own initiative
as it does not want to crush or take over that initiative. As a
comparison to DESC's 70 million gallons, Mr. Iden said that the
Ted Stevens Anchorage International Airport requires about 800
million gallons per year, and Fairbanks International Airport
requires 100-200 million gallons a year. Thus, the commercial
aviation requirements in the state of Alaska far outrank the
DOD, and a supplier should look into supplying these commercial
requirements as well as DESC's requirements. In addition to the
aviation fuels, he continued, there are the ground requirements
such as the state's ferry, rail, and trucking systems.
1:51:36 PM
MR. IDEN, in response to Co-Chair Johnson regarding clean diesel
for trucks, said he is unsure whether the blended fuel would
qualify for trucks and he will get an answer back to members.
MR. IDEN said he is mentioning commercial requirements because
industry looked at DESC's requirements during the summit and
pointed out that the agency's requirements would only be about
one-tenth of what a typical plant would produce. Therefore, he
continued, it is therefore critical that industry be involved
with the commercial side as well as the DOD side in order to go
forward.
1:52:50 PM
CO-CHAIR NEUMAN related that Alaska Airlines has spoken about
its needs and wish for this initiative to go forward because
carbon emissions at 35,000 feet have 10 times the negative
effect on greenhouse gases than at ground level.
MR. IDEN, in response to Representative Wilson, confirmed her
statement that Eielson, Fort Richardson, and Fort Wainwright
will be requiring both JP8 and JP4 fuels and the only ones
outside of that will be Fort Greeley and the U.S. Coast Guard at
Kodiak. In further response, he stated that the DOD will only
be testing and certifying the weapons system and it is doubtful
that testing will be conducted on snowmobiles and things of that
nature. He added that DESC is working with CAAFI, the
Commercial Aviation Alternative Fuels Initiative, on testing for
the commercial aviation side. He said the U.S. Army is testing
different ground engines, such as the Cummins engine and others,
and he assumes that this would apply to the commercial industry
for trucking requirements, so there will need to be a parallel
commitment for this to occur on the commercial side.
1:56:30 PM
MR. IDEN resumed his presentation, explaining that the next
steps after the summit include refining DESC's acquisition
strategy, issuing Requests for Proposals (RFPs), evaluating
offers, awarding a contract, and establishing a timeline for
building the plants and product delivery [slide 11]. He said
the timeline for the five- or ten-year contract will not start
until the first drop of fuel is provided so that four years of
the contract is not eaten up by construction of the plant with
only one year for delivering fuel.
MR. IDEN reviewed the notional timeline [slide 12]: a
solicitation will be issued [June 1, 2009] and closed in 45-60
days [July 30, 2009], initial evaluations will occur [August 1-
August 30, 2009], negotiations will occur [September 15-October
30, 2009], final evaluations will be completed by [November 30,
2009], a contract will be awarded by December 30, 2009, and
first delivery will occur in five years [December 2014]. He
said DESC recognizes that this is a big, complex investment for
which it will take time to develop a proposal. Since DESC has
already issued two RFIs and told industry at the summit what it
wants to do in Alaska, the process may be started in early
summer with a more generic proposal so that a "down select" to
two or three companies can be done. Then, later in the year,
DESC would ask for the specifics from the two or three
companies.
1:59:42 PM
MR. IDEN, in response to Co-Chair Johnson about regulations and
permitting, acknowledged that there was a little bit of concern
expressed at the summit about this and he will be addressing
this topic later in his presentation when he discusses how the
state can assist.
MR. IDEN commenced his presentation, saying he thinks the
industry summit was a success [slide 13]. Follow-on sessions
with the Alaska State Legislature will continue, he said, as
will follow-on coordination between DESC and the U.S. Air Force
so that the acquisition strategy can be refined and the course
ahead plotted.
2:01:20 PM
MR. IDEN pointed out that this cannot be a DOD-only solution;
the commercial industry must be brought into the mix in order to
make the plants efficient in size, scope, and benefits [slide
14]. He said DESC has only one restriction - the feedstock must
be produced in the U.S. By default, it must be done in Alaska
for the Alaska pilot program. In structuring the RFP for
success, DESC must develop a model as to how the lifecycle of
carbon emissions will be measured. Teams from the Environmental
Protection Agency (EPA) and the U.S. Air Force DESC are ironing
out the quality and technical criteria, as well as the contract
length and contract pricing structure.
MR. IDEN stated that in regard to pricing, DESC had thought it
would price the synthetic fuel like it prices JP8. However, he
related, the folks at the summit who are looking at a natural
gas feedstock said the 50:50 blend should be priced according to
natural gas prices and the folks looking at coal feedstocks said
the coal portion of the synthetic should be priced according to
coal prices. He went on to note that this can be argued both
ways: when crude is at $150 per barrel he would prefer to price
it at the cheaper natural gas prices, but if the price situation
reverses he does not want to be paying more than he would for a
conventional product. Therefore, DESC is looking at this issue,
but the real issue is how to evaluate a gas provider versus a
coal provider versus a traditional provider.
2:04:35 PM
MR. IDEN, in response to Representative Wilson, said it is not
DESC's intent [to have several different feedstocks in the
Alaska pilot program so it has the ability to switch to
whichever feedstock is cheapest]. He said he does not think
DESC will award more than one plant, although other plants could
be built by other suppliers. He explained that when DESC buys
JP8 for Alaska, it pays the market price by taking an average of
three West Coast market indexes - Los Angeles, San Francisco,
and Seattle. For the 50:50 blend, the petroleum component will
likely be escalated this same way, he advised, and the gas- and
coal-derived fuels may be tied to the price of natural gas and
coal in Alaska. He assured members that it is not DESC's goal
to award multiple contracts and then play one off the other.
2:07:32 PM
MR. IDEN addressed areas where the state could possibly provide
assistance [slide 15]. He suggested that one such area could be
financial incentives to industry to participate, such as tax
credits or incentives and loan guarantees. He said he does not
believe any federal stimulus money has been identified for this
type of initiative. Another area could be encouragement to the
commercial aviation industry through incentives for
participation, given that fuel costs are the largest component
of this industry's cost structure. A third area for state
assistance, he continued, could be streamlining regulatory
requirements for permitting, easements, and environmental
standards.
2:09:42 PM
REPRESENTATIVE SEATON offered his belief that a lot of
legislators would be opposed to converting Alaska's renewable
energy credits into alternative credits so that coal could be
used, but that these folks would not be opposed to something
like an alternative energy credit program that would incentivize
coal.
CO-CHAIR JOHNSON responded that there may not be the opposition
that Representative Seaton thinks.
2:11:45 PM
MR. IDEN, in response to Representative Tuck about the RFP
requirements shown on slide 10, stated that the requirements are
likely to be more than shown because the map only depicts DESC's
annual requirements for bulk fuel. He said DESC has
requirements for other programs such as the ground fuel program.
In further response, Mr. Iden clarified that JP8 is the current
fuel product and the 50:50 blend would be 50 percent traditional
JP8 and 50 percent synthetic fuel. He further clarified that
DFSP is the acronym for Defense Fuel Supply Point.
MAJOR MARTIN added, "Chevron's terminal is our DFSP for the
Anchorage area and it feeds Elmendorf through pipeline."
2:14:03 PM
MR. IDEN, in response to further questions from Representative
Tuck, confirmed that [JP8 will be the product in the 50:50
blend] and JP4 will probably remain in use [in the locations
depicted on slide 10] because of some unique issues with the
equipment, such as the cold-fuel starting capability that the
JP8 does not provide right now. He stated that that equipment
will eventually be taken out of inventory. In regard to who
would supply the JP4, Mr. Iden said the JP4 will not necessarily
[be supplied by the 50:50 blend supplier] and that there could
even be multiple suppliers for this fuel.
2:15:02 PM
MR. IDEN, in response to Representative Seaton, said he does not
know what the capacities are of [Alaska's] traditional petroleum
refineries [as compared to DESC's 70 million gallon annual fuel
requirement]. He related that industry has said the nominal
size for a synthetic fuel plant is about 25,000 barrels per day
in output capacity. Since DESC's daily requirement is about
2,500 barrels a day, it can be seen why inclusion of commercial
airport requirements makes this a more economically attractive
package.
CO-CHAIR NEUMAN pointed out that converting Alaska's methane gas
to liquid fuel in an in-state plant could be done through
payments of royalty-in-kind methane to supply carbon neutral,
sulfur-free fuels for the state's ferry system and everything
else that the Department of Transportation & Public Facilities
operates.
2:17:26 PM
MR. IDEN returned to his presentation and reviewed how DESC
purchases its bulk petroleum in the U.S. and worldwide through
its four major programs [slide 17]: the Inland/East/Gulf Coast
Program, the Rocky Mountain/West Program, the Western Pacific
Program, and the Atlantic/European/Mediterranean Program. He
said all of the programs are through one-year contracts that are
staggered on a quarterly basis around the world. Alaska's
requirements are embedded in the Rocky Mountain/West Program, he
said, and while there is always the potential that the synthetic
product could be delivered to the other programs, he said he is
not sure the economics are there to support that.
MR. IDEN explained that the vast majority of U.S. refining
capacity is located in the Gulf Coast and the West Coast [slide
18]. The vast majority of fuel in the U.S. is moved by
pipeline, he said. He pointed out DESC's storage systems shown
on the map and said the DESC moves its product comingled with
commercial product in the pipeline systems, although the fuel is
isolated because it is JP8 and not commercial jet fuel. He
added that DESC's fuel is occasionally transported by tanker.
2:19:57 PM
MR. IDEN read from Section 526 of the Energy Independence and
Security Act [original punctuation from slide 19 provided]:
No Federal agency shall enter into a contract for
procurement of an alternative or synthetic fuel,
including a fuel produced from nonconventional
petroleum sources, for any mobility-related use, other
than for research or testing, unless the contract
specifies that the lifecycle greenhouse gas emissions
associated with the production and combustion of the
fuel supplied under the contract must, on an ongoing
basis, be less than or equal to such emissions from
the equivalent conventional fuel produced from
conventional petroleum sources.
MR. IDEN reiterated that DESC was able to purchase fuel from
Shell Malaysia and Sasol because that fuel was for research and
testing; but once this goes operational, the portion of Section
526 related to lifecycle greenhouse gas emissions associated
with the production and combustion of the fuel will go into
effect.
2:21:13 PM
MAJOR MARTIN, in response to Representative Tuck about the
sources of the fuel used by DESC in Alaska, said it is all
supplied in Alaska.
CO-CHAIR NEUMAN noted that at "$2 per MMBtu" the synthetic fuel
would be competitive because synthetic fuel made from Prudhoe
Bay gas could be produced for $48-$52 per barrel, which equates
to about $1.20-$1.50 per gallon
2:22:12 PM
MR. IDEN, in response to Co-Chair Johnson about whether a plant
can switch feedstocks, said he believes that if a plant is a gas
plant it will be gas driven, and if a plant is a coal plant it
may have the ability to accommodate biomass into the equation,
but he does not know if there is an easy way for a plant to
switch between the two feedstocks without substantial
investment.
MR. IDEN, in response to further questions from Co-Chair
Johnson, explained that the nature of coal itself makes it very
high in carbon and the process of converting the coal to a
liquid produces a tremendous amount of carbon dioxide. When
looking at the whole lifecycle greenhouse gas emission, one must
look at the extraction of the coal, the conversion process, the
distribution process for blending, and passing the product on to
the end-use customer. It then dovetails with the petroleum
industry for what comes out of the tailpipe for emissions. He
confirmed Co-Chair Johnson's statement that the lifecycle would
include emissions from the tractor digging the coal up, the
train delivering the coal to the plant, and the electricity for
the conveyer belt taking the coal to the plant, and therefore
the lifecycle is not just the actual conversion of the coal into
liquid fuel. He added that folks are currently working on a
model that will quantify all of these things.
CO-CHAIR NEUMAN pointed out that there are numerous processes
that are used for Fischer-Tropsch. He offered to provide
further information to members if they stop by his office.
2:25:37 PM
MR. IDEN, in response to Representative Wilson, explained that
the DOD would never get the patents for the Fischer-Tropsch
processes because they are commercial processes that have been
used around the world since World War II. Just as in refining
petroleum, he continued, there are different patents,
techniques, and capabilities. In further response, Mr. Iden
reiterated that some companies already have access to the
technology, patents, and capabilities for doing this. Pilot
plants in the U.S. have been producing this fuel, but unlike the
plants in Malaysia and South Africa, the volumes have been very
small. It is a viable, proven technology in which people are
interested, he stressed, with plants currently being considered
for location in Ohio and Mississippi.
CO-CHAIR NEUMAN added that even Tyson Foods, Inc. is looking at
a Fischer-Tropsch plant as a way to use the oils produced from
its processing.
2:30:20 PM
CO-CHAIR JOHNSON, in regard to what can be done by the Alaska
State Legislature, surmised that siting is key because
transportation distance will impact the carbon footprint.
MR. IDEN agreed. He pointed out that DESC does not want to
dictate to industry and the commercial sector where to build a
plant, what feedstock to use, or what size to build the plant.
Rather, DESC is stating its desire for a finished product and
where the locations are for that finished product and industry
can then determine where to site the plant.
2:32:00 PM
KEVIN BANKS, Director, Division of Oil & Gas, Department of
Natural Resources, in response to Co-Chair Johnson about the
scale of the permitting process, said it would depend upon where
the facility is located. For example, it would be easier to
manage if the plant is located at Prudhoe Bay because there are
potential lease sites that could be afforded to a company. He
said he believes the facility would look similar to a small
refinery like the Flint Hills Refinery. Locating a plant
elsewhere may involve more permitting, depending on the
location, he advised. In further response, Mr. Banks said that
while this would be a new manufacturing facility, he does not
think it would be of the scale or controversy as something like
Pebble Mine. If the plant was built in a place zoned for
manufacturing, it would require certain air quality permits as
well as permits for water use and disposal. As far as how
extensive the permitting process would be, he said he would put
it on the same level as expansions in Prudhoe Bay.
CO-CHAIR JOHNSON commented that he does not want the state to be
behind the curve on this, and does not want the legislature or
the state's permitting departments to be the reason this does
not happen.
2:35:25 PM
MR. BANKS, in response to Representative Seaton, agreed that a
synthetic fuel plant would be about the same scale as the coal-
to-gas project that was proposed by Agrium, Inc., especially if
the plant was built in a part of the state where no other
development was going on.
CO-CHAIR JOHNSON requested Mr. Banks to send someone to his
office to explain all of the aforementioned in more detail.
CO-CHAIR NEUMAN understood it would take about 250 million cubic
feet a day of gas to produce 25,000 barrels of a Fischer-Tropsch
blend. He said that as a spinoff the plant could also produce
up to 50,000 gallons of clean purified water and another 50-100
megawatts of electricity.
2:37:25 PM
MR. IDEN, in response to Representative Wilson about whether
using an older pipeline would create problems, said he does not
believe there would be any negative impact because this is being
looked at as a complete drop-in replacement fuel.
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:39 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| DESC F-T SYN FUEL Presentation (Apr 09).ppt |
HRES 4/10/2009 1:00:00 PM |