Legislature(2023 - 2024)BARNES 124
02/06/2023 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): 2022 Cook Inlet Gas Forecast | |
| 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
February 6, 2023
1:02 p.m.
MEMBERS PRESENT
Representative Tom McKay, Chair
Representative Kevin McCabe
Representative Josiah Patkotak
Representative George Rauscher
Representative Dan Saddler
Representative Stanley Wright
Representative Jennie Armstrong
Representative Donna Mears
Representative Maxine Dibert
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
PRESENTATION(S): 2022 COOK INLET GAS FORECAST
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JOHN BOYLE, Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Participated in the presentation, titled
"2022 Cook Inlet gas forecast."
JHONNY MEZA, Commercial Analyst
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Participated in the presentation, titled
"2022 Cook Inlet gas forecast."
JOHN BURDICK, Petroleum Reservoir Engineer
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Participated in the presentation, titled
"2022 Cook Inlet gas forecast."
JOHN CROWTHER, Deputy Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Participated in the presentation, titled
"2022 Cook Inlet gas forecast."
ACTION NARRATIVE
1:02:00 PM
CHAIR TOM MCKAY called the House Resources Standing Committee
meeting to order at 1:02 p.m. Representatives McKay, Saddler,
Wright, Armstrong, Mears, Rauscher, McCabe, and Dibert were
present at the call to order. Representative Patkotak arrived
as the meeting was in progress.
^PRESENTATION(S): 2022 Cook Inlet Gas Forecast
PRESENTATION(S): 2022 Cook Inlet Gas Forecast
1:03:37 PM
Chair McKay announced that the only order of business would be a
presentation, titled "2022 Cook Inlet Gas Forecast."
1:04:37 PM
JOHN BOYLE, Commissioner, Department of Natural Resources,
participated in the presentation, titled "2022 Cook Inlet gas
forecast." He began his remarks by giving a background on the
history of oil and gas development in the Cook Inlet over the
last 60 years. He explained that natural gas in Cook Inlet is
finite and is currently nearing a point where the field may no
longer be productive and suggested that it may be more
economically beneficial for the state to begin importing natural
gas rather than expend more resources and time on further
exploration in the region.
1:08:42 PM
JHONNY MEZA, Commercial Analyst, Division of Oil and Gas,
Department of Natural Resources (DNR), participated in the
presentation, titled "2022 Cook Inlet gas forecast." He briefly
explained the order of information that would be presented to
the committee.
JOHN BURDICK, Petroleum Reservoir Engineer, Division of Oil and
Gas, Department of Natural Resources, participated in the
presentation, titled "2022 Cook Inlet gas forecast." He briefly
explained the geology behind the current methods of oil
extraction in the Cook Inlet.
MR. MEZA began the presentation via PowerPoint [hardcopy
included in the committee packet], on slide 4, titled "Cook
Inlet Fields Overview: Gas Production History," which displayed
two graphs, one that delineated which companies extracted gas
and one that specified how much gas was extracted over a certain
period of time.
MR. MEZA continued to slide 5, titled "Production by Field,"
which displayed a spreadsheet comparing 2022 oil and gas
production next to a map of the active exploration fields in
Cook Inlet.
1:12:40 PM
REPRESENTATIVE SADDLER asked what the trend of oil and gas
exploration in Cook Inlet has been like recently.
MR. BURDICK answered that there is development primarily on the
eastern side of the Cook Inlet and explained that the Western
Side of Cook Inlet has been extensively developed historically.
JOHN CROWTHER, Deputy Commissioner, Department of Natural
Resources, participated in the presentation, titled "2022 Cook
Inlet gas forecast." In response to Representative Saddler, he
explained that the movement of development in Cook Inlet is a
product of "infrastructure" and "a need and desire to explore
further areas in the basin."
MR. MEZA resumed the presentation on slide 6, titled "Demand by
User Type," which displayed a graph that specified Oil and Gas
use by each user type in Cook Inlet.
1:16:43 PM
REPRESENTATIVE SADDLER asked about a discrepancy in the
presentation regarding the import/export of liquified natural
gas (LNG).
MR. MEZA replied that the current operator of the LNG facility
has requested the Federal Energy Regulatory Commission (FERC) to
change its current permit to allow for the importation of LNG to
Alaska.
REPRESENTATIVE ARMSTRONG asked whether the importation of LNG is
necessary for Alaska.
MR. CROWTHER answered that there is a need for the capacity to
"degasify" different types of natural gas in Alaska and further
explained the possibility of a gas shortage in the Cook Inlet.
CHAIR MCKAY asked whether Alaska currently has a FERC permit to
import LNG.
MR. MEZA replied that there is still a need for more information
before a permit should be requested from FERC.
1:22:08 PM
MR. CROWTHER added that the amount of LNG Alaska would be
allowed to import has already been specified and issued under a
FERC permit.
MR. MEZA resumed the presentation on slide 7, titled "Cook Inlet
Recovery Act and Resulting Activity," which displayed a series
of bar graphs that described certain policies stimulated Oil and
Gas development/exploration in the Cook Inlet Region.
1:27:58 PM
MR. MEZA continued to slide 8, titled "Local Prevailing Value vs
Henry Hub," which displayed two lines of a graph on a 10-year
timeline comparing gas prices in the Cook Inlet with the average
price of gas in the general market.
CHAIR MCKAY asked whether the financial figures displayed are
adjusted for inflation.
MR. MEZA clarified that the numbers are adjusted for inflation.
1:29:52 PM
MR. MEZA moved to slide 9, titled "Exploration & Development in
Cook Inlet: Cook Inlet Future Production," which displayed a
graph that made predictions of future prospects of oil and gas
development in Cook Inlet and explained what made previous oil
and gas explorations successful.
CHAIR MCKAY asked how often DNR was successful in finding viable
wells in the Cook Inlet Region.
MR. BURDICK answered by describing exploration methods and how
they've adapted as technology has changed.
1:33:03 PM
REPRESENTATIVE MCCABE asked whether there is royalty credit for
new discoveries in Cook Inlet.
MR. MEZA replied that the royalty rating in Cook Inlet is 12.5
percent for the majority of leases in Cook Inlet.
REPRESENTATIVE MCCABE asked whether there are undeveloped oil
and gas fields near Homer, Alaska, that have been delayed due to
environmental concerns and would fall under the same royalty
program as the other leases in the Cook Inlet region.
MR. MEZA answered that the could-be oil and gas developments
near Homer, Alaska, would have the same royalties apply to them.
REPRESENTATIVE MCCABE asked how big the oil and gas field
outside of Homer is.
1:36:27 PM
MR. BURDICK answered that DNR does not have firm estimates of
the field's total size.
CHAIR MCKAY described the challenges of the development of the
oil and gas fields outside of Homer, Alaska, and opined that
their development would most likely require a platform to adhere
to the restrictions of such development. He asked whether DNR
would need help from the legislature to bring the development to
fruition.
COMMISSIONER BOYLE replied that the complexity of the impending
shortage natural gas in the Cook Inlet Region is in the issue of
bringing more gas to the market. He said that the risks of
further development in the region require more discussion before
any decision is made by DNR to lease an exploration or
development in the Cook Inlet region. He emphasized that the
oil and gas support industry in Cook Inlet is in serious
decline, which puts constraints on any further exploration or
development in the region.
1:43:42 PM
REPRESENTATIVE SADDLER asked Mr. Crowther whether he thought
that the Cook Inlet Recovery Act (CIRA) was successful in its
legislative goals.
MR. CROWTHER replied that CIRA is an extremely complex Act and
it's not clear whether or not the legislation had any impact on
certain developments in the Cook Inlet Region.
1:46:31 PM
MR. BURDICK resumed the presentation on slides 10 and 11, both
titled "Overview of Division of Oil & Gas Cook Inlet Studies,"
which each gave a chronological overview of studies in Cook
Inlet that have occurred since 2009 and explained their specific
impact on oil and gas development in the region.
REPRESENTATIVE ARMSTRONG asked what the term "economic to
develop" means.
MR. MEZA answered that the term refers to a conceptual
development of a project that would produce a return on
investment for DNR.
REPRESENTATIVE MEARS asked who determines the economic viability
of a proposed project.
MR. MEZA answered that DNR takes a "one-size-fits-all" approach
in determining the economic viability of a proposed project.
1:49:50 PM
MR. BURDICK resumed the presentation on slide 12, titled
"Current Study," which gave an overview of the current study
occurring on the Cook Inlet's potential developments.
CHAIR MCKAY asked how DNR models the phenomenon of "blowdown" in
its forecast of productivity of an exploration.
MR. BURDICK replied that that modeling falls outside of the
current study's scope.
MR. BURDICK moved to slide 13, titled "Cook Inlet Development
Well History," which displayed a graph that explained the number
of wells drilled per year from 2009-2019.
MR. BURDICK continued to slide 14, titled "Modelling the
Economic Limit for Each Field: Structure of the Model," which
explained how the DNR creates its economic model for each
proposed exploration or development of oil and gas in Cook
Inlet.
1:56:05 PM
MR. BURDICK moved to slide 15, titled "Forecast Untruncated
High-Mid-Low-Mean Streams," which displayed a graph that
compared forecasts of daily gas usage in thousand cubic feet per
day.
MR. CROWTHER touched on slide 16, titled "Forecast Truncated
High-Mid-Low Mean Streams."
MR. BURDICK continued to slide 17, titled "Forecast vs Actuals,"
which displayed a graph that compared different outlooks on
annual billion of cubic feet (bcf) of gas used versus the actual
amount of bcf of gas used in a period from 2021-2022.
2:00:19 PM
MR. BURDICK moved to slide 18, titled "Forecast-Annualized Gas
Volume (Untruncated)," which displayed a series of bar graphs
that each conveyed separate forecasts of annual gas usage in bcf
with a line drawn across the graph to convey the average demand
of gas in bcf.
MR. MEZA continued to slide 19, titled "Forecast-Annualized Gas
Volume (Truncated)," which displayed a truncated version of the
graph shown on slide 18.
2:02:36 PM
REPRESENTATIVE SADDLER asked about the terms used in slide 19.
MR. MEZA explained that the slide reflects the economic
principle that a producer may maintain its production if it
recovers its production cost through revenues.
MR. CROWTHER added that an assumption is made that gas prices
would remain static to current prices, subject to any
inflationary increases.
REPRESENTATIVE RAUSCHER asked how renewable energy would affect
the supply of natural gas available to the Cook Inlet Region.
MR. CROWTHER replied that the studies shown on the previous
slides do not take into account any different energy sources.
REPRESENTATIVE ARMSTRONG asked whether DNR has done any modeling
or compiled any information on how renewables might supplement
natural gas.
MR. CROWTHER said that such a proposed model is beyond the scope
of DNR.
2:07:20 PM
REPRESENTATIVE MEARS asked for clarification as to who manages
the energy supply of the Cook Inlet.
CHAIR MCKAY echoed Representative Mear's question and asked for
more information regarding the variety of energy production in
Alaska.
COMMISSIONER BOYLE responded that the governor has a task force
that is currently studying available low-cost energy options for
Alaskans and gave a few examples of such low-cost energy
options.
MR. BURDICK moved to slide 20, titled "Forecast Proved Developed
& Proved Undeveloped," which displayed a graph that compared the
forecast of projects in the Cook Inlet Region that are predicted
to be developed versus projects that are predicted to not come
to fruition.
MR. MEZA continued to slide 21, titled "Forecast Proved
Developed & Proved Undeveloped," which displayed a graph similar
to the graph shown on slide 20.
REPRESENTATIVE ARMSTRONG asked whether further gas exploration
is economically viable.
MR. CROWTHER explained that the depiction of 2041 production on
slide 21 is merely a reflection of the 2022 production and usage
study of the Cook Inlet Region.
2:14:50 PM
MR. BURDICK concluded the presentation on slide 22, titled
"Division of Oil & Gas Studies Compared," which displayed a
graph that compared the amount of gas produced during a year in
bcf versus the amount of estimated gas in Cook Inlet reserves
that same year.
2:17:23 PM
CHAIR MCKAY asked about recent lease sales in the Cook Inlet
Region to Hilcorp Inc.
MR. CROWTHER explained which areas of Cook Inlet were acquired
under leases by DNR.
REPRESENTATIVE SADDLER asked for confirmation of his
understanding that economic limitations are hindering further
development of natural gas in the Cook Inlet Region.
COMMISSIONER BOYLE confirmed that is correct and emphasized that
the biggest challenge for a company wanting to develop gas in
the Cook Inlet Region is the fixed demand of the region. He
said that this fixed demand doesn't incentivize economic growth.
2:21:44 PM
REPRESENTATIVE ARMSTRONG asked how much gas would need to be
produced to make gas export economically viable.
COMMISSSIONER BOYLE said that the most important factor to LNG
export is the need for a large quantity of gas and said that
there must be a competitive cost to supply LNG to a given
consumer.
2:25:39 PM
REPRESENTATIVE DIBERT asked whether DNR has received any public
input regarding the impending natural gas shortage in the Cook
Inlet Region.
MR. CROWTHER replied that DNR has not received many comments
since its initial announcement a week prior to the current
committee meeting.
REPRESENTATIVE MCCABE commented that natural gas has purposes
beyond heating someone's home and thanked the presenters for
their time.
2:28:28 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:28 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HRES DOG 2022 Cook Inlet Gas Forecast 2.6.23.pdf |
HRES 2/6/2023 1:00:00 PM |
|
| 2022 Cook Inlet Gas Forecast Report.pdf |
HRES 2/6/2023 1:00:00 PM |