Legislature(2009 - 2010)Anch LIO Rm 220
06/16/2010 01:30 PM House RESOURCES
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| Presentation and Update from Denali-the Alaska Gas Pipeline, Llc's Open Season | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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= bill was previously heard/scheduled
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ALASKA STATE LEGISLATURE
JOINT MEETING
HOUSE RESOURCES STANDING COMMITTEE
SENATE RESOURCES STANDING COMMITTEE
Anchorage, Alaska
June 16, 2010
1:43 p.m.
MEMBERS PRESENT
HOUSE RESOURCES
Representative Craig Johnson, Co-Chair
Representative Mark Neuman, Co-Chair
Representative Paul Seaton (via teleconference)
Representative Peggy Wilson (via teleconference)
Representative David Guttenberg (via teleconference)
Representative Scott Kawasaki (via teleconference)
Representative Chris Tuck (via teleconference)
SENATE RESOURCES
Senator Lesil McGuire, Co-Chair
Senator Bill Wielechowski, Co-Chair
Senator Hollis French
Senator Bert Stedman
Senator Gary Stevens (via teleconference)
MEMBERS ABSENT
HOUSE RESOURCES
Representative Bryce Edgmon
Representative Kurt Olson
SENATE RESOURCES
Senator Charlie Huggins, Vice Chair
Senator Thomas Wagoner
OTHER LEGISLATORS PRESENT
Representative Carl Gatto
Representative Jay Ramras
Senator Joe Thomas (via teleconference)
COMMITTEE CALENDAR
PRESENTATION AND UPDATE FROM DENALI-THE ALASKA GAS PIPELINE,
LLC'S OPEN SEASON
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
BUD FACKRELL, President
Denali - The Alaska Gas Pipeline, LLC
Anchorage, Alaska
POSITION STATEMENT: Provided a presentation entitled "Denali
Project Update."
ROBERTO REICHARD, Vice President
Gas Treatment Plant
Denali - The Alaska Gas Pipeline, LLC
Anchorage, Alaska
POSITION STATEMENT: Reviewed the Gas Treatment Project.
KRIS FUHR, Vice President
Project Mainline
Denali - The Alaska Gas Pipeline, LLC
Anchorage, Alaska
POSITION STATEMENT: Continued the presentation regarding the
mainline and transmission lines.
SCOTT JEPSEN, Vice President
Business Services
Denali - The Alaska Gas Pipeline, LLC
Anchorage, Alaska
POSITION STATEMENT: During the presentation, discussed the
commercial offer.
ACTION NARRATIVE
1:43:15 PM
CO-CHAIR LESIL MCGUIRE called the joint meeting of the Senate
and Senate Resources Standing Committees to order at 1:43 p.m.
Representatives Johnson, Neuman, P. Wilson (via teleconference),
Seaton (via teleconference), Guttenberg (via teleconference),
and Kawasaki (via teleconference) and Senators McGuire,
Wielechowski, French, Stedman, and Stevens (via teleconference)
were present at the call to order. Representative Tuck (via
teleconference) arrived as the meeting was in progress. Also in
attendance were Representatives Gatto and Ramras and Senator
Thomas.
^Presentation and Update from Denali-The Alaska Gas Pipeline,
LLC's Open Season
Presentation and Update from Denali-The Alaska Gas Pipeline,
LLC's Open Season
1:43:41 PM
CO-CHAIR JOHNSON announced that the only order of business would
be the presentation and update from Denali - The Alaska Gas
Pipeline, LLC's open season.
1:44:20 PM
BUD FACKRELL, President, Denali - The Alaska Gas Pipeline, LLC,
said he would begin with a summary of the technical offer from
Denali - The Alaska Gas Pipeline, LLC, ("Denali"). Referring to
slide 3, Mr. Fackrell reminded the committees that Denali's open
season plan was approved by the Federal Energy Regulatory
Commission (FERC) and open season will begin July 6 and conclude
on October 4, 2010. The open season plan was before the public
and comments were received for 90 days prior to that. During
open season, Denali will seek binding agreements. To move a
pipeline of this size forward firm transportation commitments
are required, which begins with precedent agreements being
signed during open season.
1:48:51 PM
MR. FACKRELL, in response to Co-Chair Neuman, explained that a
nonbinding open season is one in which interest is solicited in
a project, but no commitment is being requested. Whereas, a
binding open season is one in which signatures are obtained such
that both parties, the transporter and shippers, are bound to an
agreement. An agreement at this stage would have conditions
precedent. During the 90-day period [prior to the open season]
the work focuses on identifying those conditions precedent by
the transporter and the shipper. Denali has already identified
its conditions precedent in the offer forwarded during the open
season plan. Therefore, as Denali proceeds through the open
season, it will determine the conditions precedent with the
shippers if they decide to sign something. After that, a
timeframe is established to resolve the conditions precedent in
order to achieve a binding agreement. The next step is then to
sign a firm transportation service agreement.
1:50:18 PM
MR. FACKRELL, returning to slide 3, opined that Denali has a
high quality design and project execution plan as is evidenced
by the following. Denali invested over $140 million and 670,000
man-hours [since 2008]. Furthermore, Denali brings decades of
arctic, mega-project pipeline experience and has engaged world-
class engineering firms, such as Bechtel, Fluor/WorleyParsons,
and CH2MHILL. Additionally, Denali has gathered field data
during this two-year period of time and incorporated the
numerous studies that have been performed over the last 30
years. He related that Denali is confident that it has a high
quality design, which is important as Denali is trying to
convince shippers that they know the cost of the pipeline and
the risk and uncertainties of it. Mr. Fackrell acknowledged
that the Alaska gas pipeline is an enormous undertaking with
significant risk. In the commercial offering, Denali tried to
address those risks in order to avoid asking shippers to take
unreasonable risks too early in the life of the project.
1:52:12 PM
MR. FACKRELL, referring to slide 4, informed the committees that
the project is designed to deliver 4.5 billion cubic feet a day
(bcfd) of gas from the North Slope to North America. The plan
is to have six delivery, off-take, points in Alaska and four in
Canada. The process starts with a large gas treatment plant
(GTP) that will remove CO and impurities on the North Slope,
2
compress and chill the gas. He noted that the GTP has unbundled
services such that various services can be chosen when the gas
is processed. The project also includes transmission lines from
Prudhoe Bay to the GTP and from Pont Thomson to the GTP. The
shippers can decide whether to utilize those transmission lines
or build them. There is also a mainline that goes from Prudhoe
Bay to Delta Junction down the Trans-Alaska Pipeline System
(TAPS) highway right-of-way and through the Yukon, British
Columbia, and into Western Alberta. The Alaska portion of the
mainline is over 700 miles long while the Canada portion is over
1,000 miles long. Mr. Fackrell highlighted that there are three
off-take points in Alberta to feed gas to the U.S., which
include the Spectra Energy Pipeline System, the Nova Gas
Transmission Ltd. system, and the Alliance Pipeline Ltd. system.
Denali's project allows shippers to nominate gas on any three of
those options.
1:54:01 PM
REPRESENTATIVE P. WILSON inquired as to the location of the six
delivery points in Alaska.
MR. FACKRELL informed the committees that an in-state gas study
was completed. The study identifies the delivery points within
the state, including Fairbanks, Delta Junction, Livengood, and
at the GTP on the North Slope.
1:54:58 PM
CO-CHAIR NEUMAN recalled that TransCanada is considering a 48-
inch line, which carries 5.5 bcf a day, maximum. The
aforementioned would leave 1.0 bcf a day since TransCanada has
said it needs 4.5 bcf a day to amortize its expenditures. He
then inquired as to the size of pipe Denali is considering.
MR. FACKRELL answered a 48-inch pipe that's expandable.
1:55:47 PM
CO-CHAIR JOHNSON inquired as to what selection of services would
be available at the GTP.
MR. FACKRELL explained that part of the process requires the
pipeline company to offer unbundled services such that the
services can't be bundled for one tariff. At the GTP, gas
treating services, removing CO and HS, as well as compression
22
and chilling services are being offered. A company could choose
to bypass the gas treating portion of the GTP if there's sweet
gas, whereas a company would elect to use both services for gas
with CO at Prudhoe Bay.
2
CO-CHAIR JOHNSON inquired as to the impact of [unbundled
services] on the tariff, particularly for a company that has
sweet gas and can bypass the GTP.
MR. FACKRELL answered that it would reduce the tariff if there
is sweet gas that the company chooses not to process.
CO-CHAIR JOHNSON related his understanding that the tariff for
the company with the sweet gas would be reduced, but he asked
whether those companies that have gas requiring processing would
face an increased tariff.
MR. FACKRELL clarified that the gas is processed on a Btu value
and the tariffs are based on a Btu value. Therefore, the Btu
value is measured, which excludes the sour gas.
CO-CHAIR JOHNSON surmised then that a producer with the sweet
gas will have a lower tariff than a producer with a dirtier
product.
MR. FACKRELL replied yes, adding that's because a producer with
the sweet gas doesn't have to perform gas treating to remove it.
In further response to Co-Chair Johnson, Mr. Fackrell confirmed
that unbundled services are a FERC requirement.
1:58:03 PM
MR. FACKRELL, returning to his presentation, continued with
slide 5 entitled "Key Metrics." He highlighted that all the
costs are in 2009 U.S. dollar estimates. There is a high
quality Class 4 cost estimate of $35 billion, which includes the
GTP in the portions of the pipeline in Canada and Alaska. He
explained that the project is referred to as high quality Class
4 because the project has met all Class 4 requirements as well
as almost all of Class 3 cost estimate requirements. Mr.
Fackrell said that Denali feels very confident in its estimate.
He then related that the estimated tariff from GTP to Alberta is
$2.67 per million Btus (MMBtu). He noted that the
aforementioned is in today's dollars. When the pipeline is
built and online in 2020, the estimated tariff from GTP to
Alberta would likely be $3.25 per MMBtu. That future price is
based on which prices escalate as well as other factors. Mr.
Fackrell directed attention to the cost and rate summary of the
$35 billion. The GTP cost $12.2 million, which is a mega
project itself, for which the tariff for all its services will
be $.90. The cost of the Alaska Mainline is $10 billion while
the Canada Mainline is $12.5 billion, which totals $35 billion.
2:00:03 PM
MR. FACKRELL then directed attention to the timeline on slide 5.
He pointed out that the open season will start in early July and
end in early October. In the success case, Denali forecasts
that it will file its certificate of public convenience and
necessity (CPCN) applications at the end of 2014, receive FERC
approval in 2013, and sanction the project in early 2016. The
aforementioned would result in first delivery of gas in 2020 and
thereafter the trains on the GTP will be ramped up. He
explained that currently Denali is trying to provide the
shippers confidence in the cost estimate. The underpinning of
such is having a high quality team. As related on slide 6,
Denali has leveraged over 30 years of historical technical work.
Furthermore, Denali has a very experienced core team with
decades of projects and engineering experience around the world
as well as in Alaska. Moreover, Denali had world-class
capabilities and experienced and highly regarded contractors.
He noted that virtually every major project constructed on the
North Slope was built by one of Denali's owners. Therefore,
Denali has the benefit of people who have worked on those
projects being on this team as well as the processes that the
two owners utilized. Mr. Fackrell related that Denali has
already had many conversations with the shippers who have
expressed that they are impressed by the level of understanding
and the identified risk.
2:02:45 PM
SENATOR FRENCH inquired as to how many full-time or full-time
equivalent staff are working on the Denali project.
MR. FACKRELL answered that it varies depending upon what Denali
is doing. He related that at the peak Denali employed about 90
employees, which it referred to as its core team, as well as
dozens of contractors. He noted that additionally Denali has
engineering offices in Long Beach, California, that employed 40-
50 employees. There was also an engineering office in Houston,
Texas, where there were 15-20 employees. Denali also has an
office in Canada as well as the core team in Anchorage. Turning
to slide 7, Mr. Fackrell pointed out that the slide shows the
logos of the many companies that have or are currently working
for Denali. The important take-away is that Denali has employed
large engineering contractors and small boutique contractors
with experience in handling particular parts of the pipeline.
For example, Denali has a contractor who has handled almost all
of the sealifts on the North Slope over its history.
2:04:47 PM
CO-CHAIR NEUMAN said he hadn't seen information from Denali
regarding the $18 billion federal loan guarantee. However,
TransCanada is seeking a doubling of the federal government's
loan guarantees and thus there would be $36 billion worth of
federal loan guarantees for a $40 billion pipeline, which
amounts to 90 percent loan guarantees on the project.
MR. FACKRELL remarked that loan guarantees are going to be an
important part of financing the project, but that has not yet
been the focus as the [company] is currently reviewing whether
Denali has a commercial venture or not. He pointed out that the
project is $35 billion and thus an $18 billion loan guarantee is
much smaller than the project today. There are numerous loan
guarantee bills before Congress, he noted. As part of Denali's
open season plan Denali has to provide a financing plan.
2:06:37 PM
SENATOR WIELECHOWSKI informed the committees that today BP put
out a press release relating that it intends to implement a
significant reduction in organic capital spending. He asked if
that will impact this project at all.
MR. FACKRELL responded that Denali has a budget that has been
approved by both of the project's owners, who have indicated
that they will support it. Therefore, Denali feels good about
moving through the open season with the budget it has today.
2:07:14 PM
MR. FACKRELL, returning to his presentation, directed attention
to slide 8. This slide illustrated the manpower outlook in
Alaska during the construction phase of the project, and
therefore for the [construction] of the pipeline and the GTP.
However, it doesn't include the manpower in Canada. The chart
illustrates that during the height of construction the
construction manpower in Alaska peaks at 9,000 people, but drops
off very rapidly. Once the pipeline is up and operating, the
operating expense and manpower required totals about $400
million annually of which about $290 million is in Alaska. The
forecast is that Denali will have a company of about 440
personnel of which 310 will be in Alaska.
2:08:39 PM
CO-CHAIR JOHNSON, referring to the chart on slide 9, pointed out
that the drop off between 2019 and 2020 is a huge number. He
interpreted that drop off to illustrate 7,000 unemployed people
over the period of one year, which will be a significant number
requiring review. Are the skills of these employees during
construction transportable, he asked. He recalled that when the
construction of the oil pipeline ended, there were problems with
the decrease in employees. Therefore, he further asked if
Denali is reviewing the aforementioned socio-economic side of
[the completion of the gasline].
MR. FACKRELL said that it's a number of years before the process
reaches the point at which there's a drop off in employment.
Still, it's important that Denali has a cost estimate and an
execution plan. Since there are many details behind the
numbers, Denali knows the types of crafts that will be involved.
This manpower is primarily pipeline-related crafts, and
therefore as the pipeline is completed the jobs will go away.
He highlighted that it will be a different skill set and thus a
different group of people who will be left to run the project
after construction. It's important, as manpower is planned, to
recognize the aforementioned, he opined.
2:10:38 PM
ROBERTO REICHARD, Vice President, Gas Treatment Plant, Denali -
The Alaska Gas Pipeline, LLC, referring to slide 9, informed the
committees that the GTP is a world class treatment plant
designed to condition the gas in the mainline. The GTP consists
of four processing trains to remove the acid gases from the gas
in order that it's conditioned for transportation. The gas is
then dehydrated, compressed, and chilled to 30° before being
placed in the pipeline. As mentioned earlier, the plant is
designed to have a nominal output of 4.5 bcfd while providing
0.3 bcfd of clean gas for users on the North Slope. The CO and
2
HS removed from the gas will be returned to the shippers for
2
their use for enhanced oil recovery or sequestration. He noted
that with the addition of one more treatment train, the GTP can
be expanded to 5.8 bcfd. As was also mentioned earlier, the GTP
has unbundled services and thus the shipper has the option to
treat the gas or compress it and chill it. Additionally, some
of the gas can be returned as clean gas.
2:12:32 PM
MR. REICHARD, referring to slide 10, highlighted that the design
of the GTP emphasizes safety and the environment, and therefore
will implement the latest safer design norms and energy
efficiency strategies. The GTP is highly reliable and in fact,
simulations illustrate that the plant will be at full capacity
over 98 percent of the time. The aforementioned, he noted,
includes time for plant maintenance. The design of the GTP
incorporates the lessons learned about operating gas plants on
the North Slope as well as other Arctic areas. Moving on to
slide 11, Mr. Reichard reviewed some of the key studies that
have been completed, such as energy optimization studies,
constructability, logistics, and risk analysis. He noted that
the studies include design studies and project execution
planning studies. These studies, he explained, were used to
develop the key deliverables, which are used to develop the cost
estimates, schedules, and execution plans. Slide 12 depicts a
fly-over of a three-dimensional (3D) model of the GTP, which is
comprised of the individual layouts made for each of the over 90
modules that makeup the plant. He reviewed the functions of the
various portions of the GTP as well as the key components and
equipment in the various buildings of the GTP.
2:16:20 PM
MR. REICHARD, continuing with slide 13, showed the committees
the plot plan of the GTP, which has some aircraft superimposed
for scale purposes. The larger aircraft are 747s. Moving on to
slide 14, which outlines the sequence that will be used to
fabricate, transport, and install the modules for the GTP. The
current planning basis is that the modules will be fabricated in
the U.S. Gulf Coast. The plan calls for five major fabrication
yards in the U.S. Gulf Coast. The first modules will be ready
to leave the fabrication plant within 2.5-3 years after
receiving the CPCN from FERC. The modules will be loaded onto
ocean-going barges and transported to the North Slope. Once in
Prudhoe Bay, the modules will be offloaded on existing Dock 2.
However, Dock 2 needs to be upgraded and expanded in order to
birth at least four sets of barges at a time. The modules are
then offloaded onto specially designed, multi-axel vehicles to
be transported to the final location where they will sit on pre-
installed piles. Referring to slide 15, he related that the
plant will require three consecutive yearly sealifts in order to
move the over 90 modules from the Gulf to the North Slope. The
modules need to be near Wainwright by late July/early August of
each year to take advantage of the ice-free window. Therefore,
the modules have to depart from the Gulf Coast by mid-May/early
June. The modules then head south to the Panama Canal and up
the West Coast to Alaska. In fact, the bridges over the Panama
Canal determine the height limitations of the modules.
2:19:29 PM
SENATOR FRENCH recalled that the chart on slide 8 illustrates a
jump in employment in 2017-2019. He asked if that increase in
employment reflects the three consecutive years of sealifts.
MR. REICHARD reminded the committees that the chart on slide 8
illustrates the manpower in Alaska. The modules, he clarified,
will be fabricated in the Gulf Coast. However, he pointed out
that the manpower required to install the GTP modules on the
North Slope peaks at about 2,000 in 2019.
MR. FACKRELL interjected that the remainder of the curve is the
pipeline personnel. The curve, he related, is mainly dominated
by the pipeline in Alaska.
2:20:36 PM
SENATOR FRENCH surmised that the final year of construction is
2019, with some wrap up in 2020.
MR. REICHARD said that's correct.
SENATOR FRENCH asked then if the first year of the sealift for
the GTP would be 2017.
MR. REICHARD clarified that it would be 2019. Therefore, the
modules arrive on the North Slope in the summer of 2019. In
further response to Senator French, Mr. Reichard stated that the
last train would be completed in 2021. Gas would be able to be
produced in 2020 from the first train and then the other trains
would be brought online and thus ramp up the (indisc.) capacity.
The pipeline's flow rate in 2020 would be approximately 1 bcfd.
2:21:36 PM
SENATOR STEDMAN requested a brief summary of the employment
impact this would have in the Gulf Coast states, including any
alterations that would have to be made to work on a project of
this size.
MR. REICHARD pointed out that the aforementioned is addressed in
the next slide, slide 16. He directed attention to the
estimated job-hours and noted that a large number of the job-
hours, approximately 43 million man hours, are for module
fabrication and assembly.
2:22:51 PM
CO-CHAIR JOHNSON inquired as to the number of people 43 million
man hours would employ, particularly in terms of the impact on
the job market in Louisiana.
MR. REICHARD answered that [the project] would peak at about
5,000 full-time equivalents for direct craft. Additionally,
there would be several hundred people employed in management and
supervisory capacities. In further response to Co-Chair
Johnson, Mr. Reichard confirmed that [construction of the
pipeline] would potentially employ about 5,500 people
nationwide. He noted that the employment would be for a limited
period of around three years.
2:23:44 PM
SENATOR STEDMAN asked if Alaska's pipeline construction would be
a disruption in the work flow for those in the Gulf Coast.
MR. REICHARD informed the committees that Denali performed an
extensive survey during which staff visited a dozen of the major
fabrication yards in the Gulf Coast area. The staff assessed
their manpower and projected capacities and work, which he
acknowledged can change dramatically over the next five years.
The survey determined that [the Alaska project] will use about
one-third of the total capacity of the Gulf Coast.
2:24:39 PM
CO-CHAIR JOHNSON inquired as to where else this can be
completed. He reminded everyone that Alaska is in competition
with another pipeline that will travel through Canada. He asked
if Alaska will be competing with Canada in terms of [the Gulf
Coast workforce.]
MR. REICHARD said that although it's difficult to know these
many years in advance, the expectation is that there will be
competition from other pipeline projects as well as potential
offshore projects. The aforementioned is why Denali performed
the assessment to determine the resources that are available.
He estimated that Denali will use about one-third of the Gulf
Coast's [workforce] capacity. Mr. Reichard informed the
committees that there are opportunities to build these modules
outside the U.S., such as in the Far East. However, the
assumption is that the module construction will occur in the
U.S. Still, the situation will likely depend upon what the
market is like when the facilities are being bid upon. If the
Gulf Coast yards are very busy, they may not make a very
competitive bid or vice versa. Many factors, including the
effect of loan guarantees, will have to be weighed, he said.
2:26:38 PM
CO-CHAIR NEUMAN remarked that with the global economy in a
slump, the industry is hungry. Therefore, he predicted that a
better value for the [construction of these modules] will be
obtained. He inquired as to how the aforementioned is accounted
for in the class 4 engineering report.
MR. FACKRELL explained that although the assumption with the
execution plan was that the platforms will be built in the Gulf
Coast, it is possible that due to market circumstances at the
time the bids are let some will have to be built elsewhere.
Going into [the planning] Denali was concerned regarding whether
the Gulf Coast would have the capacity to build [the platforms].
The positive result of the study is that the Gulf Coast could
build these platforms, if everything falls into place. He did
point out; however, that part of this will be getting into the
cue early at the fabrication yards and even Denali setting up
some new fabrication yards. "So, we do play the global market
in the end. They'll be built where they will be the cheapest
and the manpower exists at the time you put out the bids," he
said.
2:28:25 PM
CO-CHAIR NEUMAN, regarding the sealift, highlighted that it's a
two-month window in Alaska. By not making the sealift, the $35
billion project could face a setback of a year. A setback of a
year on any netback increases risk analysis and cost.
MR. REICHARD said that Denali will try to position itself to
take advantage of every ice-free day that it's able to enter
Prudhoe Bay. Therefore, Denali wants to be positioned at Fort
Wainwright early enough to take advantage of a possible early
breakup. Furthermore, the amount of time required to move in
the sealift, off load the sealift, and move the barges out is a
small proportion of the average ice-free time period. Denali
will require about 20 percent of the typical window that is
usually available.
2:29:50 PM
REPRESENTATIVE GUTTENBERG pointed out that a lot of
infrastructure in Prudhoe Bay, Kuparuk, and the outlying fields
will have to be modified for gas. He asked if those employment
and timelines have been built into Denali's numbers that have
been presented thus far.
MR. REICHARD replied no, adding that Denali has only reviewed
the facilities that it would be responsible for implementing.
Denali hasn't assessed the modifications that potential shippers
would have to do to their facilities to deliver the gas to
Denali. However, Denali is in conversation with potential
shippers and have had meetings with the operators in Prudhoe
Bay, all of which are aware of Denali's plans and what they need
to do.
MR. FACKRELL added that currently Denali is reviewing two fields
being the primary source of gas - Prudhoe Bay and Point Thomson.
Point Thomson is currently under development and thus there will
be facilities constructed. Prudhoe Bay already produces a
significant amount of gas that it's reinjecting. Although
modifications will undoubtedly be necessary, Prudhoe Bay already
has a very large gas recovery process and reinjects the gas.
2:31:50 PM
SENATOR FRENCH mentioned that the Dalton Highway needs a lot of
funds invested in it prior to the construction of this project.
It's possible that the State of Alaska may not be in a financial
position to make that sort of investment. Therefore, he
questioned what would happen if the state doesn't have the funds
to invest in the necessary roads.
MR. FACKRELL informed the committees that Denali has had many
conversations with the state on this matter. He acknowledged
that roads, bridges, and ports will be integral to moving pipe
down the line.
MR. REICHARD explained that the pipeline component will involve
a lot more land logistics than the GTP. The GTP is a mainly
sealifted operation, and thus for the GTP not many upgrades are
being required.
2:33:21 PM
MR. REICHARD, referring to slide 16, pointed out that on the
North Slope the GTP installation will require 3.4 million man
hours, which amounts to about $1 billion of labor costs in
today's wage rates. Turning to slide 17, Mr. Reichard stated
that the GTP alone is a mega project, which Denali estimates
will cost $12.2 billion in 2009 dollars.
2:34:31 PM
KRIS FUHR, Vice President, Project Mainline, Denali - The Alaska
Gas Pipeline, LLC, began by directing attention to slide 18. He
explained that the current basis of Denali's commercial offer
for the transmission lines is a conventional, above ground
pipeline system for both Point Thomson and Prudhoe Bay. For
Point Thomson, the line will be 62 miles long using 36-inch pipe
and the initial design is to move 1 bcfd from Point Thomson to
the inlet and the GTP. The design is expandable to 1.5 bcfd.
The [Prudhoe Bay transmission line] is a 60-inch line that runs
about 1 mile long and links the GTP inlet to the central gas
facility (CGF) that currently exists at Prudhoe Bay. The
central gas facility currently moves between 7-8 bcf of gas a
day. Mr. Fuhr related that Denali has a good idea with regard
to the tie-in requirements to tie the 60-inch pipeline into the
CGF to supply the vast portion of the 4.5 bcf to the pipeline
from Prudhoe Bay.
MR. FUHR then related that for the mainline Denali is
apprenticing a 48-inch line with a maximum operating pressure of
2,500 pounds. The mainline will be a buried pipeline that will
be chilled in Alaska, which means that there will be
refrigeration at the compressor stations that allow reduction of
the gas temperature to below 32° Fahrenheit. The gas
temperature will remain below 32°F as it transverses across
Alaska in order to ensure no permafrost is thawed. To move the
4.5 bcf of gas a day to Alberta, 15 compressor stations are
necessary of which 6 will be located in Alaska. Mr. Fuhr
emphasized that this pipeline system will be expandable. With
the addition of 16 compressor stations between Prudhoe Bay and
Alberta, the capacity can be increased to 5.6 bcf of gas a day,
which is consistent with an additional acid gas removal train at
the GTP. As mentioned earlier, the mainline is a bit over 700
miles in Alaska and over 1,000 miles in Canada. There would be
three termination points, primarily to existing pipeline
infrastructure in Alberta. Denali will [offer] tie-ins to the
Nova, Alliance, and the Spectra systems. Of the six delivery
points currently planned in Alaska, one will be at Prudhoe Bay
to provide sweet fuel gas for consumption on the North Slope.
Other delivery points include Livengood, the Brooks Highway
spur, Fairbanks, Tok, and Delta Junction. Those delivery points
are consistent with the recommendations of the in-state gas
study performed by Northern Economics in January 2010. The
[transmission lines] are initially sized to provide about 338
million standard cubic feet per day to initial customers in
Alaska. Four delivery points are planned in Canada, which
include the three termination points described earlier as well
as the expectation to provide gas to Whitehorse. Denali is open
in terms of shippers providing gas to other clients along the
right-of-way and is willing to evaluate such within the design.
2:38:08 PM
REPRESENTATIVE RAMRAS inquired as to the cost communities should
expect between the take-off point of the line and connecting to
the local transmission line.
MR. FACKRELL said that the presentation will relate the tariff
rate of the different locations later in the presentation. He
noted that Denali's offer includes a distance-sensitive rate,
such that there would be a different rate in Fairbanks versus
Delta Junction, for example. Additionally, there will be a
distribution system charge to take the gas from the pipeline to
the customer. Denali doesn't have a figure for the distribution
system charge since it's not under its purview. He reminded the
committees that this gas has liquids in it, and therefore when
the pressure is dropped propane will be created. The
aforementioned will also result in a charge.
2:40:57 PM
REPRESENTATIVE RAMRAS expressed concern that if the cost is $10
million and it's divided amongst 300 customers at the Yukon
River bridge, no one will be able to afford the off ramp.
However, if that same $10 million cost is divided amongst
110,000 nozzles in South Central, it's an affordable conduit to
local distribution.
MR. FUHR remarked that Representative Ramras's observation is
correct. He explained that Denali is offering a tie-in point
with gas that is not utility quality gas and will likely require
a significant amount of capital to reduce the pressure, liquids,
and provide a safe supply of the utility to the end user.
2:42:34 PM
MR. FUHR, referring to slide 19, highlighted that Denali has
spent a lot of time ensuring the pipeline is fully integrated
with the GTP, which is a complex facility. With regard to
engineering a pipeline, it really starts with identifying the
route. Therefore, Denali has spent extensive time in the field
evaluating what it believes to be the optimized route. However,
he noted that the route won't be finalized until the last foot
of ditch is dug. Much of the work performed by Denali's owner
companies has been leveraged and there are over 12,000 boreholes
to identify the soil conditions along the route. Once the route
is determined, the pipeline design can be determined. Denali
has its own proprietary thermal hydraulic model that identifies
the number of compressor stations, the horsepower requirements,
and the physical locations [of the compressor stations]. The
aforementioned technical work is then integrated with the
environmental, regulatory, and land personnel to optimize the
location of the compressor stations.
2:44:29 PM
CO-CHAIR NEUMAN assumed that the gas pipeline route will
basically follow the TAPS route. At pinch points such as Atigun
Pass where there is limited distance between the pipes, will
there be any concern with regard to the explosiveness of the gas
and oil pipelines, he asked.
MR. FUHR responded that he absolutely believes there will be
issues with regard to pinch points, with Atigun Pass being one
of the most critical in Alaska. There are three to four more
pinch points located in Canada that will be as equally
challenging. He noted that Denali has had some initial
conversations with Alyeska. Denali's base approach is to not
place the pipeline right-of-way any closer than 250 feet to the
existing TAPS pipeline. However, there will be areas where the
gas pipeline will cross underneath TAPS.
2:45:48 PM
MR. FUHR, continuing with slide 19, turned the committees'
attention to compressor station design. He related that the
premise is that the compressor stations will be truckable,
fabricated modules that Denali intends to construct in
Fairbanks, Anchorage, and Kenai. The desire is to maximize the
amount of truckable models for each of these compressor
stations. He recalled that the refrigerated stations in Alaska
are 38-40 truckable modules each. Denali, he further related,
will assemble on the compressor station sites in order to
maximize local content where the fabrication yards exist. With
regard to the total staffing requirements, there will be about
250-300 jobs in fabrication yards from 2017-2020. Mr. Fuhr then
pointed out that there are some significant river crossings that
need to be engineered. For example, the premise for the Yukon
River is that Denali will horizontally directionally drill under
the Yukon River. The base case on most of the major rivers, of
which there are about 80 major river crossings between Prudhoe
Bay and Alberta, will require significant additional engineering
as the process continues. Alaska does have active faults, which
will require detailed engineering to ensure the pipeline can
take the type of stress and strain resulting from a seismic
event. Denali is premising the use of high strength steel; the
weld-ability of the steel as well as the ability to identify
defects in the welds must be finalized as Denali permits a
"strain-based design" for the pipeline. This pipeline, he
related, needs to be able to absorb frost heaves, thaw
settlement, and elements associated with some of the permafrost
issues in Alaska. Denali has also developed its proprietary
geospatial system, which is a data-based system that's
geospatially oriented and contains all the technical information
for the 1,750 miles of the pipeline.
2:48:15 PM
CO-CHAIR JOHNSON asked if the 48-inch high strength steel is
readily available.
MR. FUHR answered no, it's not readily available. Currently,
there are seven mills globally that can make 80,000 psi stress
capable pipe. The mills are in Europe, India, Japan, and
Russia. After obtaining quotes for the pipe, the India and
Russia sources were eliminated. The current basis of Denali's
cost estimate is focused on Japan. He opined that Denali can
wait about three years before one must finalize the mill with
which the orders will be placed in order to complete the
pretesting and certification work to facilitate the delivery of
the pipe.
2:49:39 PM
REPRESENTATIVE GATTO asked if it's possible to make a thicker
pipe and make it in North America.
MR. FUHR responded that currently there aren't capabilities with
U.S. mills, which he attributed to a combination of the
specifications of the materials, its diameter, and its wall
thickness. Currently, there isn't the infrastructure in U.S.
mills to make such a product.
2:50:24 PM
MR. FUHR returned to the presentation, specifically slide 20.
Slide 20 is an alignment sheet that is a plan view of the right-
of-way for the pipeline route. Denali has described and defined
the slopes, both longitudinal and cross slopes, which is
important when determining how much dirt has to be moved; how
much pad or gravel has to be moved in; and what type of work
pads are necessary. The [characterization] also describes the
type of terrain that ultimately determines how the ditch will be
dug, with what it will be dug, and how fast it will be dug. All
of the aforementioned ultimately speaks to how much it will cost
to build [the gas pipeline]. Moving on to slide 21, Mr. Fuhr
expressed the hope that the slide relates the level of
definition Denali has with regard to its execution plan and the
requirements or quantities that will need to be purchased to
deliver construction. The 90 mainline block valves amounts to
about $50 million, which would be used from Prudhoe Bay to
Alberta. The mainline will require 2.2 million tons of X80
steel, which amounts to roughly $4 billion worth of a capital
purchase just for the pipeline steel. Furthermore, over 20
million cubic yards of gravel will need to be mined and spread
for pads for camp, access roads, storage yards, et cetera. Mr.
Fuhr, referring to slides 22-23, explained that Denali has
evaluated all the various activities, determined when they need
to be performed, the season in which they need to be performed,
the crews that need to be used, including the number of people
and equipment requirements. All of the aforementioned is done
in building a comprehensive construction execution plan that
ultimately manifests into the cost and timeframe of the project.
The next step is to talk with those who do these various
activities for a living. He noted that Denali has received over
200 requests for information from a myriad of vendors and
suppliers regarding the various timeframes and costs for the
various aspects of building the gas pipeline. Mr. Fuhr pointed
out that Denali has talked with every vendor listed on slide 24
in order to obtain real-time data on their areas of expertise.
2:54:06 PM
REPRESENTATIVE RAMRAS highlighted that this morning one of
Denali's owners suspended its $10 million dividend for 2010. He
then inquired as to how the aforementioned impacts Denali's
ability to put capital together and obtain vendors.
MR. FACKRELL stated that at this point, the open season stage,
Denali has full funding from both owners. The immediate goal is
to get through open season and determine if there are bids on
the project.
2:55:26 PM
REPRESENTATIVE GATTO asked if the cost of construction would be
increased in a scenario in which the federal government
implemented a cap and trade program.
MR. FACKRELL related that when reviewing emissions on the North
Slope Denali has tried to take an approach that some sort of
trading will take place. He reminded the committees that Denali
will be taking CO out of the gas and reinjecting it, which is
2
positive. He indicated that highly efficient turbines and
machinery on the North Slope will be used. By using more
efficient equipment emissions will be reduced. Furthermore,
Denali will be offering 300 million cubic feet a day of clean
gas to operators on the North Slope. Those operators who take
that clean gas will reduce their CO footprint on the North
2
Slope. Mr. Fackrell opined that Denali is doing some things
with this project that could be viewed as environmentally
friendly.
2:56:43 PM
MR. FACKRELL, in response to Representative Gatto, acknowledged
that there are a number of different pieces of environmental
legislation that are being discussed. Therefore, it's difficult
to determine what will be approved in the end. Denali is trying
to be aware of the aforementioned and realize they will impact
the project. However, from a larger perspective, the [national]
administration views gas as a clean burning fuel and a bridging
fuel to renewables. In fact, [the national administration] has
said that the Alaska gas project is in the top of its energy
list. Still, he acknowledged that the legislation that's
ultimately adopted could impact the project.
2:58:07 PM
MR. FUHR, returning to the presentation, directed attention to
slide 25. Slide 25 lists the various service providers of which
Denali has inquired to obtain real-time data on areas or
activities that are critically important to the delivery of the
construction of the pipeline. Information has been requested of
vendors from the U.S. as well as Canada. With regard to an
earlier question about the resourcing of the pipeline crafts,
Mr. Fuhr informed the committees that Denali's execution plan
has seven major pipeline spreads that will impact the
construction over a two-year period. The plan is to become
mechanically complete with the pipeline in 2019. Of those seven
spreads, three are in Alaska and four are in Canada. Through
Denali's initial evaluation, they pre-qualified 23 big-inch
pipeline contractors in the U.S. and Canada. Denali would
require seven of those. He then moved on to slide 26, which
specifies the various material vendors who were contacted for
material quotes. Mr. Fuhr played an animated 60-second video of
a flyover along the entire gasline from Prudhoe Bay to Alberta.
He reviewed the various aspects of the pipeline and the
infrastructure the pipeline will need, which the video
illustrates. In summary, he referred to slide 28 and emphasized
that Denali feels good about the mainline cost estimate. He
explained that [the mainline cost] estimate isn't factored; it
is resource loaded; the number of [employees] and the amount of
equipment are known as is how long the employees need to be
employed and the activities that need to be executed.
Furthermore, the estimate is quantity based; uses a mile-by-mile
design; has industry benchmarks and real-time data; and utilizes
a world class team to develop the estimate. Mr. Fuhr informed
the committees that the [mainline] cost estimate is about $23
billion.
3:03:29 PM
SCOTT JEPSEN, Vice President, Business Services, Denali - The
Alaska Gas Pipeline, LLC, echoed earlier statements that the
cost estimate for this project, the GTP and the mainline, is $35
billion, in constant 2009 dollars. He noted all the numbers
he'll be using will be in constant 2009 dollars. Referring to
slide 29, Mr. Jepsen pointed out that the first table summarizes
the cost breakdown for the various components of the project and
the cost to move the gas through the GTP or the mainline. He
then turned to the fact that Denali is offering unbundled
services, which means customers can select only the services
they require. The cost to the shipper for use of the
transmission lines between Prudhoe Bay and Point Thomson would
be $0.4 per MMBtu while it will be an estimated cost of $0.26
per MMBtu to move gas from Point Thomson to the GTP. At the
GTP, the services will be unbundled and thus there will be a
rate for treating and a rate for compression. The rates are
also based on distance and the table entitled "In-State
Deliveries" relates the estimated cost to move gas to Fairbanks,
$0.50 per MMBtu, and Delta Junction, $0.59 per MMBtu. If the
gas needs to be treated prior to it entering the pipeline, of
course the appropriate GTP cost would have to be paid. If all
of the services of the GTP are needed, one would add $0.90 to
those delivery rates.
3:05:31 PM
REPRESENTATIVE GATTO asked if it's possible to send gas that
isn't chilled down the line.
MR. JEPSEN replied no, adding that the gas will have to be
chilled. In further response to Representative Gatto, Mr.
Jepsen confirmed that compression and chilling are options. If
a customer wants to deliver cold gas to the pipeline at 2,500
psi and its sweet gas with no impurities, the entire GTP can be
bypassed. As mentioned earlier, FERC required that the entire
project not be bundled into one tariff/rate. Individual
services and options have to be offered for shippers. In
further response to Representative Gatto, Mr. Jepsen emphasized
that a shipper would have to provide cold gas, otherwise the gas
wouldn't be accepted.
3:06:59 PM
MR. JEPSEN, in response to Co-Chair Neuman, stated that Denali
is providing a delivery service that is gas treating,
compression, and transportation. The actual selling price of
the gas would be determined by the owner of the gas and the
purchaser of the gas. He clarified that Denali doesn't own the
gas or sell the gas. Therefore, the selling price of the gas
will be dependent upon what the market demands at that time.
CO-CHAIR NEUMAN surmised then that the [selling price] of the
gas would be $1.40 to Fairbanks plus whatever it costs to
purchase the gas.
MR. JEPSEN explained that typically the $1.40 is going to be
encompassed in the end price for which the gas is sold.
MR. FACKRELL interjected that Denali will charge the gas
shipper/producer $1.40 to move gas to Fairbanks. The
shipper/producer will charge a price, which will take into
account taxes, profit, et cetera, to the consumer. Therefore,
the tariff to move the gas will be $1.40, and then there will be
taxes and development costs that [the shipper/producer] will
charge the consumer.
3:08:53 PM
REPRESENTATIVE SEATON pointed out that on slide 29 the estimated
rate of gas delivered from the GTP to Alberta is $2.67 per MMBtu
excluding fuel. He asked if the estimated rate of gas delivered
to Fairbanks also excludes fuel. He also asked how the fuel
cost is handled, in general.
MR. JEPSEN confirmed that the deliveries to Fairbanks also
exclude fuel. Basically, the shipper/customer supplies fuel in-
kind for transporting their gas. In further response to
Representative Seaton, Mr. Jepsen stated that a little over 6.5
percent of the gross volume is fuel gas with an estimated $2.67
rate, which the shipper would incorporate into the selling price
of the gas.
3:10:20 PM
REPRESENTATIVE SEATON recalled that [TransCanada's] pipeline
project has a condition specifying how the compression and
transmission, carbon dioxide output, is handled. The reasoning
is that the 6.5 percent is more than the total of all current
carbon dioxide from all commercial and residential uses within
the state. He asked if Denali has a plan for minimizing and
handling carbon dioxide emissions.
MR. JEPSEN reminded the committees that the goal is to build as
efficient a compression project above the GTP and compressor
stations, which will minimize the CO emissions. With regard to
2
COscrubbed from the gas at the GTP, it will be returned to
2
Denali's customers who will presumably handle the gas through
reinjection.
3:11:47 PM
MR. JEPSEN, continuing the presentation, turned to slide 30 and
opined that Denali has crafted a distinctive commercial offer.
The offer has been crafted such that it will allow a broad group
to participate as foundation shippers. Foundation shippers are
the group that makes the long-term commitments to allow the
pipeline to move forward. Although the foundation shippers take
a lot of the risk, they receive certain benefits. In order to
be a foundation shipper, the shipper must meet the credit
worthiness standards, which require a credit rating of BBB by
Standard & Poors or BAA2 by Moody's; meet the net worth
requirements, which means the shipper must have net worth that's
commiserate with its commitment to the project; execute a
precedent agreement during the initial open season with a
minimum term of 20 years. He noted that there is no minimum
volume requirement. Mr. Jepsen opined that the aforementioned
requirements for foundation shippers will make it possible for
small leaseholders, the state, explorers, and users to
potentially participate in the open season as a foundation
shipper. He then informed the committees that the foundation
shipper benefits include: the option to extend the primary term
by five years; access to negotiated, levelized rates or recourse
rates; and the "most favored nation" clause, which ensures that
customers will have access to the lowest rates that Denali
offers. Mr. Jepsen acknowledged the uncertainty of the project
and related that Denali will offer decision points that settle
specific points in time during the early stages of the project.
In fact, a decision point will be offered when a [shipper] files
for a CPCN and later when Denali receives approvals from U.S.
and Canadian governments to move forward with construction.
Returning to negotiated, levelized rates, he explained that they
will be offered at several hundred basis points below the return
on equity that's estimated on the recourse rates. The levelized
portion means that the rates for moving the gas to the GTP will
be constant on the term of the commitment.
MR. JEPSEN noted that Denali, too, will be taking some risk.
Denali will take its depreciation over 25 years, although it's
only seeking commitments for about 20 years. Therefore, Denali
is assuming that it can recover the remaining 20 percent of the
depreciation over the end of the life of the project. He then
informed the committees that Denali has constructed a commercial
offer that's responsive to shipper concerns. In the event of
expansion and subject to FERC regulations and National Energy
Board (NEB) regulations, Denali isn't going to require that
existing shippers subsidize expansion shippers. Additionally,
if during the initial open season Denali doesn't receive
commitments for at least 85 percent of its design capacity,
Denali has established a framework to work with customers in
terms of redesigning the project with a smaller volume of gas to
Alberta, building a pipeline to an liquefied natural gas (LNG)
plant at the location of the customer's choice, or seeking to
garner additional support to move forward with the original
project.
3:15:25 PM
REPRESENTATIVE SEATON asked if that means Denali won't utilize
rolled-in tariffs.
MR. JEPSEN answered that Denali will use rolled-in rates to the
extent allowed by FERC and the NEB. However, Denali won't argue
that rolled-in rates should require existing shippers to
subsidize expansion shippers. He opined that most likely the
initial expansions would result in a reduced rate for all
shippers. Ultimately, it's up to the FERC and the NEB as to
what will be allowed.
3:16:06 PM
MR. JEPSEN then moved on to slide 31 entitled "Open Season." He
related that Denali intends to start its open season July 6,
2010, which will run through October 4, 2010. During that
timeframe, Denali will offer open access to capacity on the
pipeline and discuss with customers regarding signing binding
precedent agreements in order to move forward with the project.
The open season will be overseen by the FERC in the U.S. and the
NEB in Canada. He noted that there will be a simultaneous open
season in the U.S. and Canada. Denali sent out an expression of
interest to potential leaseholders, producers, and governments
in Canada to elicit whatever interest they might have.
Recently, Denali sent out 250 letters announcing the timeframe
of the open season. He directed attention to the illustration
that specifies 170 days after the open season during which
precedent agreement conditions will have to be resolved. Once
the precedent agreements are executed, they will be filed with
FERC and move forward with the project.
3:18:02 PM
CO-CHAIR JOHNSON requested an explanation of the FERC
confidentiality requirements and inquired as to the access the
legislature would have to that confidential information.
MR. JEPSEN explained that in the first 10 days, [Denali] must
report with whom they have a contract and for how much gas.
However, the details of the commercial arrangement don't have to
be revealed. The aforementioned will be kept confidential
unless both parties agree to release it, which is the case with
any confidential agreement. In further response to Co-Chair
Johnson, Mr. Jepsen said that he didn't believe FERC would care
if both the customer and the transporter decided to make the
aforementioned information public.
3:19:10 PM
REPRESENTATIVE SEATON inquired as to whether there is a listing
of Denali's conditions precedent, especially those that would
involve the state and its relationship with the pipeline or the
producers.
MR. FACKRELL stated that the main conditions precedent have been
discussed. The conditions precedent relative to the state and
resource base is anticipated to be from the shipper/customer
side. From Denali's side the aforementioned isn't a condition
precedent that it lists. He offered to provide the committees
with a list of the conditions precedent, which will definitely
be laid out when the open season package is submitted.
REPRESENTATIVE SEATON remarked that it would be helpful to have
a listing of the conditions precedent. He then asked whether
there is any other conditions precedent besides the 20-year
term, the rate portion, and obtaining approval from the owners
that would impact the state's relationship with the producers of
the pipeline.
MR. JEPSEN offered to provide the committees with the precedent
agreement, which lists them. Most of Denali's conditions
precedent don't relate to Denali's relationship with the state.
As mentioned earlier, the issues that would relate to the state
are shipper/customer issues not transporter issues. He informed
the committees that Denali won't start construction of the
pipeline until a CPCN is obtained [in Alaska and Canada] and the
right of eminent domain through Canada to build a pipeline is
obtained.
3:22:31 PM
MR. FACKRELL, referring to slide 32, related that there are
seven key elements for a successful project. First, the cost
has to be understood and managed as well as the execution plan.
Although Denali believes it has the aforementioned under
control, it recognizes that it's a dynamic situation. Second,
there must be a defined regulatory process. He said that Denali
understands the regulatory process in the U.S. as well as in
Canada. Third, there must be commercial agreements with
customers. He characterized the agreements as creative and
distinctive. Fourth, there must be resolution of stakeholder
issues on the pipeline route. The aforementioned, he noted, is
still in process. Fifth, there must be attractive financing,
which will most likely require the use of a multitude of
[financial] instruments. In order to accomplish the
aforementioned, there need to be agreements and collateral.
Sixth, there must be resolution of a series of issues in the
State of Alaska, including resource uncertainty. He noted that
Point Thomson remains in litigation, and thus the concern is
what shippers will do in terms of nominating Point Thomson.
Denali encourages the parties' to resolve the issue because at
this point, it seems that Denali's open season will be heavily
conditioned on that item, which is outside the realm of the
pipeline company itself. Another issue that needs to be
resolved is the fiscal regime for gas in the state. He said
that Denali anticipates that there will be a condition precedent
in that regard. Seventh, there must be a natural gas market.
At this point, what's known is that there's a very volatile gas
market in North America. Furthermore, since the project started
two years ago, shale gas has entered the scene. Therefore, an
Alaska pipeline will have to compete with other sources of gas,
which means that [Alaska] will have to have the lowest tariff
possible, manage the costs, and compete with other sources of
gas. Resolving the aforementioned issues will be extremely
important to building the pipeline. As a pipeline company,
Denali has worked on those issues over which it has influence
and control.
3:26:49 PM
MR. FACKRELL, referring to slide 33, summarized by reminding the
committees that Denali's open season plan was approved by FERC
and is scheduled to start July 6, 2010. Furthermore, Denali
believes it has a high quality cost estimate that will provide
shippers confidence in the cost of the project and its execution
plan. Denali also believes that it has some attractive
commercial terms that are distinctive as well as the great risks
that exist on the project. The open season results should
signal the market's assessment of Alaska's North Slope gas
competitiveness. Although the hope has been that at this point
the issues with Point Thomson and the gas fiscal regime would be
resolved, he acknowledged that most likely going into the open
season those issues will remain. Therefore, the next steps for
Denali will be to evaluate the open season. Since this is a
market driven project, the customer will dictate what Denali
does after the open season. At this point, all the technical
work for the project has been completed and thus the focus now
is on commercial arrangements and the open season in order to
determine what shippers will do next.
3:28:32 PM
CO-CHAIR JOHNSON posed a situation in which say a legislator in
Louisiana agrees to increased loan guarantees if the modules are
built in Louisiana. He asked if FERC has any allowance for that
type of increased cost to not be included in the tariff. He
asked if FERC would allow Alaska not to take the aforementioned
into consideration in terms of the tariff. Since the state
can't seek the lowest bidder, will the state have to pay the
price for that, he asked.
MR. FACKRELL said that he was unsure as to whether he could
answer that. He explained his understanding that a pipeline
company must justify its tariff and the associated cost.
[Denali] can't forecast what other parties will do relative to
loan guarantees. He related that Denali has tried to assess the
market. At this point, Denali doesn't know whether it's cheaper
to build the pipeline in Louisiana as opposed to Korea.
However, Denali believes that physically the pipeline can be
built in the Gulf coast. Therefore, it's being used as the base
case. He suggested that the question be directed to FERC.
3:30:53 PM
CO-CHAIR NEUMAN asked what the state can do to assist in
ensuring as many jobs as possible stay in Alaska.
MR. FACKRELL specified that one of the best things is to
understand the execution schedule in order to get ahead of it,
which is commonly referred to as front-end loading. Front-end
loading can be done in terms of the workforce. Furthermore,
there needs to be a clear understanding of where the jobs will
be in order to manage expectations. For example, the GTP
modules can't be built in Alaska because the state doesn't have
the fabrication yards to do so. However, the compressor
stations and the modules associated with it can be built in
Alaska, which is why Denali focused on those. The other portion
of the workforce that will be in Alaska is the construction jobs
associated with the pipeline itself. Now that Denali has an
execution plan, the numbers can be better detailed.
CO-CHAIR NEUMAN remarked that he wanted to ensure that Alaska
has the highest opportunity possible to ensure that [the
aforementioned jobs] go to Alaskan companies.
3:34:52 PM
REPRESENTATIVE P. WILSON inquired as to the degree Denali has
met with the Department of Labor & Workforce Development (DLWD).
She further inquired as to whether there is anything that the
legislature needs to change in relation to the training offered
in the state.
MR. FACKRELL related that Denali has had extensive discussions
with Commissioner Click, DLWD, and has met with most of the
labor union representatives. He said that it's important to
keep up to date and for folks to understand where the jobs are.
As mentioned earlier, Denali has an execution plan that details
the crafts that will be used and when they will be used.
Therefore, Denali is in a good position in terms of what jobs
will be necessary and when they'll be necessary. The
aforementioned helps DLWD dictate the training. However, the
current question is regarding when the training should begin.
3:37:01 PM
CO-CHAIR NEUMAN asked if the Denali project would have an open
bidding process or project labor agreements.
MR. FACKRELL replied that the project will require as many
laborers as can be found and there will be multiple project
labor agreements for this project.
3:37:39 PM
CO-CHAIR JOHNSON related his understanding that there will be
only one pipeline. He then asked if there are any conversations
ongoing between TransCanada, Denali, and Exxon.
MR. FACKRELL said it's clear that there isn't enough gas for two
pipelines, and thus there will only be one pipeline. The state
is in a dilemma because TransCanada is an AGIA licensee, which
the state is paying. Furthermore, there are terms and
conditions the state must honor. The owners of Denali, BP and
ConocoPhillips, don't agree with the terms and conditions of
AGIA, nor does ExxonMobil as it has not signed. Therefore, it's
problematic for the two projects to come together and form one
project. Mr. Fackrell emphasized that the state needs to
resolve and unravel the issues that exist in AGIA in order to
move forward. "It's compounded now from where it was two years
ago. We have a extremely competitive gas market in North
America, it's been depressed, demand is down. Alaska needs to
get all parties together so that we can compete in that market.
But there are issues ... that are outside of Denali's control to
resolve," he related.
CO-CHAIR JOHNSON asked if AGIA is standing in the way of the
construction of this pipeline.
MR. FACKRELL opined that some of the terms and conditions of
AGIA are standing in the way of the construction of the
pipeline.
3:40:30 PM
REPRESENTATIVE GATTO highlighted that TransCanada has indicated
that it holds lots, if not all of the First Nations' permits
from the Crown 40 years ago. TransCanada has also indicated
that the aforementioned permits would be impossible to obtain
now. He asked if those statements are true.
MR. FACKRELL said he has talked with the high level industry
folks in Canada, including the Minister of Energy, the head of
the EPA in Canada, and the chairman of the NEB. Canada has an
open process for building a pipeline and there is no exclusive
right for any party to build a pipeline in Canada. Under NPA,
TransCanada has that right [to build a pipeline]. However,
there's a parallel process through NEB for the construction of
any project. In fact, the Department of Natural Resources (DNR)
has established a special office for Denali, Major Projects
Management Office, and NPA reports to a department such as DNR.
Therefore, the process is present for both projects to move
forward. Denali has had extensive conversations with
stakeholders, including aboriginal groups along the pipeline
route, some of who say that no one has a right to cross their
land. Furthermore, some of the land is unsettled land claims,
which means that it hasn't been resolved with the Crown or
anyone else. Mr. Fackrell opined that he has taken away the
understanding that there is no exclusive right to build a
pipeline in Canada and Denali's process is just as valid as the
competition's process. Furthermore, there are issues that both
projects need to resolve in order to move the project forward in
Canada.
3:42:53 PM
CO-CHAIR NEUMAN questioned what it will take to bring this all
together because the problem can't be solved until the problem
is known. He further questioned whether Denali is willing to
talk to legislators in private or public regarding the issues
needing resolution for this project to move forward.
MR. FACKRELL said that he isn't hesitant to talk about it
publically because the issues are known. Furthermore, open
season will clearly relate what the conditions precedent are on
the shipper's side, in the event the shipper decides to sign a
precedent agreement. If the shipper decides not to sign the
precedent agreement, even larger issues would be indicated.
3:44:44 PM
CO-CHAIR JOHNSON said that at some point this problem will have
to be addressed and hopefully it will be with the [legislators].
If the [legislators] don't know the problems, they can't be
fixed. Therefore, he said the sooner the [problematic]
conditions are known, the sooner the legislature can address the
problems. The aforementioned is in relation to the
confidentiality clause FERC uses as a protection. He noted that
if the aforementioned requires signing confidentiality
agreements, so be it as that's occurred in the past.
3:45:37 PM
CO-CHAIR JOHNSON related his intention to ask either the
Legislative Budget and Audit Committee or the Legislative
Council to have an independent analysis of the two open seasons
in order to have a side-by-side comparison.
3:46:17 PM
ADJOURNMENT
There being no further business before the committees, the joint
meeting of the House and Senate Resources Standing Committees
was adjourned at 3:46 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| House&Senate Resources Denali Update 6.16.10.pdf |
HRES 6/16/2010 1:30:00 PM |