Legislature(2015 - 2016)SENATE FINANCE 532

01/30/2015 09:00 AM Senate FINANCE


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09:05:23 AM Start
09:06:12 AM Presentation: Agdc Projects Update
09:57:06 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: Overview FY17 Operating Budget TELECONFERENCED
Departments: Environmental Conservation and
Frank Richards, Vice President of Engineering and
Program Management
Miles Baker, Vice President of External Affairs
& Government Affairs, Alaska Gasline Development
Corporation
                 SENATE FINANCE COMMITTEE                                                                                       
                     January 30, 2015                                                                                           
                         9:05 a.m.                                                                                              
                                                                                                                                
9:05:23 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Kelly  called the Senate Finance  Committee meeting                                                                    
to order at 9:05 a.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Anna MacKinnon, Co-Chair                                                                                                
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Click Bishop                                                                                                            
Senator Mike Dunleavy                                                                                                           
Senator Donny Olson                                                                                                             
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Peter Micciche, Vice-Chair                                                                                              
Senator Lyman Hoffman                                                                                                           
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Frank Richards,  Vice President  of Engineering  and Program                                                                    
Management,   Alaska    Gasline   Development   Corporation,                                                                    
Department of Commerce,  Community and Economic Development;                                                                    
Joe  Dubler, Vice  President, Commercial  Operations, Alaska                                                                    
Gasline  Development  Corporation, Department  of  Commerce,                                                                    
Community  and  Economic  Development;  Fritz  Krusen,  Vice                                                                    
President,  Alaska   Liquid  Natural  Gas,   Alaska  Gasline                                                                    
Development Corporation,  Department of  Commerce, Community                                                                    
and Economic Development.                                                                                                       
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
^PRESENTATION: AGDC PROJECTS UPDATE                                                                                           
                                                                                                                                
9:06:12 AM                                                                                                                    
                                                                                                                                
FRANK RICHARDS,  VICE PRESIDENT  OF ENGINEERING  AND PROGRAM                                                                    
MANAGEMENT, ALASKA  GASLINE DEVELOPMENT  CORPORATION, (AGDC)                                                                    
introduced  his  team and  noted  that  they were  there  to                                                                    
provide an update  on the activities and  work products that                                                                    
AGDC had undertaken during the  preceding year. He made note                                                                    
of  the   passage  of  SB   138  [legislation   relating  to                                                                    
commercial  production  of  North  Slope  natural  gas  that                                                                    
passed the  legislature in 2014]  and AGDC's  involvement in                                                                    
the   Alaska  Liquid   Natural  Gas   (AKLNG)  project.   He                                                                    
summarized  that he  would  speak to  the  assets that  AGDC                                                                    
retained for the  State of Alaska and  characterized AGDC as                                                                    
the state's  "pipeline company." He furthered  that the work                                                                    
activities and  work products developed by  AGDC were assets                                                                    
owned by  the state.  He stated that  he wanted  to identify                                                                    
AGDC's corporate  focus for  the following  year as  well as                                                                    
provide an update  on the Alaska Stand  Alone project (ASAP)                                                                    
and speak to project funding status.                                                                                            
                                                                                                                                
9:07:54 AM                                                                                                                    
                                                                                                                                
Mr. Richards  referred to slide 3,  "AGDC Introduction," and                                                                    
related  that   AGDC  was  a   legislatively-created  public                                                                    
corporation  that   had  a  legal  existence   separate  and                                                                    
independent  from the  state  (AS  31.25.010). He  explained                                                                    
that  Alaska  statute  provided AGDC  with  the  ability  to                                                                    
represent   the    state   in   developing    pipeline   and                                                                    
transportation projects  to provide energy for  Alaskans. He                                                                    
recounted  that  the  passage  of  HB  4  [2014  legislation                                                                    
relating to  AGDC] gave the  direction for AGDC to  focus on                                                                    
an  in-state  natural  gas pipeline  to  provide  an  energy                                                                    
transportation mechanism to meet  the needs of Fairbanks and                                                                    
Southcentral Alaska.  He spoke to the  declining reserves in                                                                    
the  Cook  Inlet  area  and explained  that  the  focus  was                                                                    
originally  to  provide  resources  of the  North  Slope  to                                                                    
Interior   and  Southcentral   Alaska  along   the  pipeline                                                                    
corridor; furthering  that with the  passage of SB  138, the                                                                    
focus of AGDC had expanded  to include the representation of                                                                    
Alaska in  the AKLNG project.  He reiterated that  the goals                                                                    
of  the AGDC  were  to provide  energy  and maximization  of                                                                    
natural resources and commercialization  of the huge amounts                                                                    
of  natural gas  on the  North Slope  to help  the state  by                                                                    
providing an  income stream into  the future. He  added that                                                                    
AGDC   currently   held   the  equity   position   for   the                                                                    
liquefaction plant  in the Alaska LNG  project; it accounted                                                                    
for a 25 percent representation  of the plant in one segment                                                                    
of the AKLNG project. He  concluded that AGDC's focus was to                                                                    
provide a  pipeline capable  of delivering  those mechanisms                                                                    
to  Southcentral   and  other  communities  at   the  lowest                                                                    
possible cost.                                                                                                                  
                                                                                                                                
Mr. Richards presented slide 4, "AGDC Objectives":                                                                              
                                                                                                                                
   · Commercialize Alaska's North Slope gas resource                                                                            
   · Secure a stable, affordable, long-term energy supply                                                                       
     for Alaskans                                                                                                               
   · Generate revenue, jobs and economic growth                                                                                 
   · Facilitate further oil and gas development                                                                                 
   · Maximize overall benefit to Alaskans                                                                                       
                                                                                                                                
Mr. Richards re-stated that part  of the objectives given to                                                                    
AGDC  by the  legislature  was to  provide  for a  long-term                                                                    
affordable energy  supply for Alaskans.  He referred  to the                                                                    
historically high cost  of home heating fuel  and diesel for                                                                    
residents  of Fairbanks,  Anchorage, and  rural communities;                                                                    
and  characterized  AGDC   objectives  as  providing  energy                                                                    
relief to those communities.                                                                                                    
                                                                                                                                
9:10:58 AM                                                                                                                    
                                                                                                                                
Mr.  Richards  gave  an  overview  of  slide  5,  "Corporate                                                                    
Initiatives," and highlighted the  two projects under AGDC's                                                                    
responsibility: the ASAP project,  and the AKLNG project. He                                                                    
explained that the  ASAP project, with the passage  of HB 4,                                                                    
was  to  provide energy  for  Alaskans.  He noted  that  the                                                                    
design  concept  was changed  early  in  2013 to  include  a                                                                    
pipeline that would deliver utility-grade  gas that could go                                                                    
from  the pipeline  into existing  distribution systems  and                                                                    
then to  the homeowner. Additionally, he  explained, the gas                                                                    
could  be utilized  in power  production  with the  existing                                                                    
turbine sets.                                                                                                                   
                                                                                                                                
Mr. Richards  furthered that  the ASAP  pipeline was  a 727-                                                                    
mile,  36-inch  diameter pipeline  that  was  capped at  500                                                                    
million  standard cubic  feet per  day. He  noted that  this                                                                    
capping  limitation  was  originally placed  by  the  Alaska                                                                    
Gasline Inducement  Act (AGIA) statute and  by the agreement                                                                    
signed  with TransCanada.  With  a  more recent  termination                                                                    
agreement, signed in July of  2014, AGDC was relieved of the                                                                    
cap;  however, at  that point  the  work had  advanced to  a                                                                    
degree  that the  change to  the design  cap would  not have                                                                    
been  beneficial. He  mentioned  the goal  of finishing  the                                                                    
work in order to get to  a Class 3 estimate and identify the                                                                    
economics  of that  particular line.  He specified  that the                                                                    
estimate showed  the cost to  be approximately  $10 billion.                                                                    
He reiterated  that this  cost covered  for a  gas treatment                                                                    
plant on  the North  Slope with a  727-mile pipeline,  and a                                                                    
lateral line  leading in to  Fairbanks that  would hopefully                                                                    
feed into a distribution system built out by others.                                                                            
                                                                                                                                
Mr.  Richards referred  to a  3.5-year construction  window,                                                                    
and  noted  that  with  the  passage of  SB  138,  AGDC  had                                                                    
deferred the  schedule due to policy,  which determined that                                                                    
AKLNG would be the primary  project for the State of Alaska.                                                                    
He further opined  that it had not made sense  to finish the                                                                    
ASAP project on  the original schedule, due  to doubts about                                                                    
the  success  of the  project  at  that time.  He  discussed                                                                    
reasoning  such as  the need  to  seek commercial  interests                                                                    
(producers) to  ship on  the ASAP  pipeline while  they were                                                                    
simultaneously  designing and  planning their  own line.  He                                                                    
specified  the   AGDC  had  deferred  work   activities  and                                                                    
scheduling until 2024 for completion of the ASAP project.                                                                       
                                                                                                                                
Mr. Richards  discussed the AKLNG project,  stating that the                                                                    
focus  was  on  commercialization   of  Alaska  North  Slope                                                                    
resources. He  explained that the  project was in  the "Pre-                                                                    
FEED" stage, [pre front-end  engineering and design effort];                                                                    
as opposed  to the  ASAP project,  which had  just completed                                                                    
the  FEED stage,  and was  able to  come up  with a  Class 3                                                                    
estimate.  He highlighted  the differences  between the  two                                                                    
projects,  explaining that  AKLNG  would export  LNG to  the                                                                    
world market. He elaborated that  the gas composition on the                                                                    
AKLNG  line  would be  slightly  different  because the  gas                                                                    
would  be conditioned  to an  LNG-quality specification,  by                                                                    
removing carbon dioxide  (CO2) down to 50  parts per million                                                                    
as  opposed   to  ASAP,  where  industry   or  utility-grade                                                                    
standards  were  met  at approximately  3  percent  CO2.  He                                                                    
furthered that the design capacity  of the two projects were                                                                    
slightly different.                                                                                                             
                                                                                                                                
9:14:38 AM                                                                                                                    
                                                                                                                                
Senator Dunleavy asked if the  difference in gas composition                                                                    
would affect the sale price.                                                                                                    
                                                                                                                                
JOE  DUBLER, VICE  PRESIDENT, COMMERCIAL  OPERATIONS, ALASKA                                                                    
GASLINE  DEVELOPMENT  CORPORATION,  answered that  it  would                                                                    
depend upon the customer. For  example, ENSTAR, did not sell                                                                    
on  a BTU  (British thermal  unit)  basis, but  rather on  a                                                                    
volume metric  basis. Conversely,  a large  customer utility                                                                    
would most like pay on a  BTU basis, and would therefore pay                                                                    
a differential  for gas with  a higher-BTU  content. Senator                                                                    
Dunleavy followed up  to ask if the gas for  export could be                                                                    
at a higher price. Mr. Dubler responded in the affirmative.                                                                     
                                                                                                                                
9:15:29 AM                                                                                                                    
                                                                                                                                
Co-Chair  MacKinnon  asked  Mr.   Richards  to  restate  the                                                                    
difference between the two projects  and the quality of gas.                                                                    
Mr.  Richards   clarified  that  each  project   had  a  gas                                                                    
treatment  facility  on  the North  Slope  with  a  pipeline                                                                    
leading  to  Southcentral  Alaska. The  ASAP  project  would                                                                    
terminate in the ENSTAR Beluga  pipeline system, whereas the                                                                    
AKLNG pipeline would  terminate at Nikiski with  the new LNG                                                                    
plant. He  explained that the gas  composition was different                                                                    
due to  the customers: the ASAP  would provide utility-grade                                                                    
gas to serve  utilities for homeowners using  natural gas as                                                                    
a heating  source, whereas  AKLNG would  provide LNG-quality                                                                    
gas.  He  went  on  to  point out  that  one  of  the  major                                                                    
differences in the two projects  was the volume through-put:                                                                    
AKLNG started out  at 3.3 billion cubic feet per  day at the                                                                    
gas treatment plant,  whereas the ASAP project  would be 500                                                                    
million. He added  that AKLNG also has a  large LNG facility                                                                    
in Nikiski.                                                                                                                     
                                                                                                                                
FRITZ  KRUSEN, VICE  PRESIDENT, ALASKA  LIQUID NATURAL  GAS,                                                                    
ALASKA GASLINE DEVELOPMENT  CORPORATION (AGDC) discussed the                                                                    
differences with  utility grade gas and  liquid natural gas.                                                                    
He echoed Mr. Richards's comments  with regard to LNG having                                                                    
CO2 removed  to a  higher criteria in  order to  be utilized                                                                    
for  home heating  rather  than  industrial application.  He                                                                    
articulated  that  perhaps  such  treatment  makes  the  gas                                                                    
richer and more marketable to  the Far East LNG markets that                                                                    
expect a richer grade of gas.                                                                                                   
                                                                                                                                
9:19:00 AM                                                                                                                    
                                                                                                                               
Senator  Bishop asked  if  LNG was  a  more valuable  export                                                                    
product. Mr.  Kruzen answered in  the affirmative  and noted                                                                    
that people in the Far East,  Japan, and South Korea did not                                                                    
have  natural  gas and  therefore  paid  for it  based  upon                                                                    
parity with oil.                                                                                                                
                                                                                                                                
Mr. Richards  continued his  presentation and  discussed the                                                                    
scheduling of  the two projects.  He conveyed that  the next                                                                    
major milestone  for the ASAP  project had aligned  with the                                                                    
pre-FEED/FEED  decision for  AKLNG in  the first  quarter of                                                                    
2016. He  furthered that the  ASAP project,  considering the                                                                    
delay in  filing with the  Regulatory Commission  of Alaska,                                                                    
would  shift toward  being  on the  same  timeline with  the                                                                    
AKLNG  project  for  2024-2025   completion  and  first  gas                                                                    
production.                                                                                                                     
                                                                                                                                
9:20:12 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:20:41 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Mr.  Richards  continued  to  say   that  the  ASAP  project                                                                    
schedule had been altered to  align the next major milestone                                                                    
date  with the  AKLNG  Pre-FEED/FEED decision  in the  first                                                                    
quarter of 2016. Until that  time, he explained, there would                                                                    
be  uncertainty   as  to  whether   the  ASAP   project  was                                                                    
advancing; AGDC would utilize the  ASAP project as a back-up                                                                    
project if AKLNG did not advance as planned.                                                                                    
                                                                                                                                
Mr.  Richards  moved  to  slide  6,  "Accumulated  Corporate                                                                    
Assets,"  and expressed  that AGDC  wanted  to identify  the                                                                    
assets they had accumulated  since the group's inception. He                                                                    
revealed that  with the  original passage  of the  bill, the                                                                    
legislature directed the Department  of Natural Resources to                                                                    
grant AGDC  a state right-of-way.  He furthered that  it was                                                                    
an  unconditional and  transferrable  right-of-way, and  was                                                                    
available for AGDC to use on the aforementioned projects.                                                                       
                                                                                                                                
Mr.   Richards   stated   that   AGDC   had   completed   an                                                                    
environmental  assessment statement  on the  original design                                                                    
concept,  which  was  a smaller  diameter,  higher  pressure                                                                    
pipeline containing  more natural gas liquids.  With a focus                                                                    
on  cost efficiency,  the design  premise was  changed to  a                                                                    
lower  pressure  utility-grade  gas and  a  larger  diameter                                                                    
project.  He pointed  out  that this  change  in the  design                                                                    
necessitated re-initiation  of a  Supplemental Environmental                                                                    
Impact Statement  (SEIS). He  elaborated that  the statement                                                                    
was required  through the National Environmental  Policy Act                                                                    
(NEPA), which  was necessary to  advance the project  due to                                                                    
the impact  on wetlands.  He relayed  that AGDC  had revised                                                                    
the  Plan of  Development  and  completed the  Environmental                                                                    
Evaluation Document  which would as  a draft for use  by the                                                                    
Army Corps of Engineers to  write the SEIS. He characterized                                                                    
the SEIS as a key asset  for the state, as it identified all                                                                    
the mechanisms  for design, construction,  and environmental                                                                    
impacts associated with the project.  He added that AGDC had                                                                    
done public scoping  in 16 communities around  the state and                                                                    
had  received  a  very good  outcome  with  vocal  community                                                                    
support for the line going forward.                                                                                             
                                                                                                                                
9:24:05 AM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  asked Mr. Richards  if there would  be a                                                                    
change in volume under the  SEIS after changing the diameter                                                                    
of the pipe. She followed up to  ask if the EIS needed to be                                                                    
modified   if  the   volume  changed   and  AKLNG   was  not                                                                    
successful.  Mr.  Richards  responded   that  the  SEIS  was                                                                    
initiated with a design through-put  of 500 million standard                                                                    
cubic feet  per day.  He clarified  that currently  AGDC was                                                                    
not aware of the volumes  that commercial interests may have                                                                    
for  the ASAP  project, and  they would  not be  known until                                                                    
meaningful  discussions with  the  commercial interests  had                                                                    
taken place. He continued that  AGDC was continuing the SEIS                                                                    
with the 500  million cubic feet per day  quantity. He added                                                                    
that  a decision  in  the  first quarter  of  2016 would  be                                                                    
important; if AKLNG  was not to proceed, AGDC  would look to                                                                    
the  market to  see  what  volumes they  would  like from  a                                                                    
pipeline. At  that point, he  surmised, AGDC would  look and                                                                    
see how to accomplish  that; through additional compression,                                                                    
or perhaps redesign of the  gas treatment plant on the North                                                                    
Slope to  accommodate the larger volumes.  He reiterated the                                                                    
importance  of knowing  what  the end  market  would be  and                                                                    
where the terminus of the pipeline would be.                                                                                    
                                                                                                                                
9:25:58 AM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  asked whether AGDC would  need to modify                                                                    
if the volume changed. She referred  to the mention of a new                                                                    
treatment facility under construction  and wondered if there                                                                    
was  an expected  timeline. Mr.  Richards responded  that it                                                                    
was dependent  upon the volume  through-put. For  example, a                                                                    
through-put  of  800 million  standard  cubic  feet per  day                                                                    
would   require   a   plant  re-design   to   optimize   the                                                                    
conditioning of the gas and  would most likely mean changing                                                                    
the train-set from 250 to  400. Additionally, to accommodate                                                                    
the 800 million  they would need to  add compressor stations                                                                    
along  the line.  He discussed  contingency factors  such as                                                                    
impact  on  wetlands  and  whether  they  would  require  an                                                                    
environmental  assessment or  if it  would require  an SEIS.                                                                    
Mr. Richards added that AGDC  had indeed accommodated in the                                                                    
schedule  for the  eventuality of  these adjustments  to the                                                                    
ASAP  project timeline.  He clarified  that  they had  built                                                                    
discussions with commercial  interests, potential re-design,                                                                    
and environmental process into the forward schedule.                                                                            
                                                                                                                                
9:27:44 AM                                                                                                                    
                                                                                                                                
Mr.  Richards  articulated  that in  slide  7,  "Accumulated                                                                    
Corporate Assets,"  the list reflected assets  that belonged                                                                    
to the State of Alaska, and  could be used by either project                                                                    
going forward.                                                                                                                  
                                                                                                                                
   · 400-plus geotechnical bore holes drilled                                                                                   
   · 128 material source sites identified                                                                                       
   · Air quality monitoring data and permit for Gas                                                                             
     Conditioning Facility                                                                                                      
   · Purchased Strain Based Design (SBD) pipe for:                                                                              
        o Small and medium scale material testing                                                                               
        o Automatic weld procedure validation                                                                                   
   · Line-pipe specifications                                                                                                   
   · Safety& operational stipulations with PHMSA                                                                                
   · Final biologic assessment report                                                                                           
   · Final essential fish habitat report                                                                                        
   · Project Execution Plan(PEP) including:                                                                                     
        o Construction execution plan                                                                                           
        o Project logistics plan                                                                                                
                                                                                                                                
Mr.  Richards  relayed that  AGDC  was  currently using  the                                                                    
assets for  the AKLNG project  as well as  the collaboration                                                                    
between the  two projects,  so as to  advance them  both. He                                                                    
discussed  geotechnical boreholes  and  explained that  AGDC                                                                    
had drilled  them south of  Livengood, Alaska.  He recounted                                                                    
that   AGDC  had   received  a   strong  message   from  the                                                                    
legislature  to avoid  duplicate  efforts  while working  on                                                                    
simultaneous  projects, and  detailed that  they had  worked                                                                    
with  the   AKLNG  parties  because  they   had  significant                                                                    
geotechnical  and geologic  information north  of Livengood.                                                                    
He  specified that  they had  collaborated  by sharing  data                                                                    
from both projects in this  area, and it had benefitted both                                                                    
projects.                                                                                                                       
                                                                                                                                
Mr. Richards  remarked that one  of the primary  issues that                                                                    
would  be faced  on any  project was  the identification  of                                                                    
material  sources; and  opening access  and availability  of                                                                    
the  material source  to provide  for general  backfill, the                                                                    
workpad, and for  the padding and bedding  for the pipeline.                                                                    
He relayed that there had  been a major effort underway that                                                                    
would  benefit either  project but  would  also benefit  the                                                                    
State of  Alaska through  its needs  with the  Department of                                                                    
Transportation and Public Facilities  for future highway and                                                                    
road construction.  He noted that they  had done air-quality                                                                    
monitoring on the  North Slope and would be  applying for an                                                                    
air-quality  permit for  the site  of  the gas  conditioning                                                                    
facility. He revealed that the  site was co-located with the                                                                    
gas  treatment  plant for  the  AKLNG  project, so  the  air                                                                    
quality data  had value  for both  projects and  would allow                                                                    
the  permitting  process  for   either  project  to  proceed                                                                    
expeditiously.                                                                                                                  
                                                                                                                                
Mr. Richards  discussed geologic  factors that  would affect                                                                    
the ASAP project  by inducing strain to the  pipe itself. He                                                                    
elaborated that  the Strain Based  Design pipe was  a subset                                                                    
of the  pipeline that  crossed discontinuous  permafrost. He                                                                    
discussed the  impacts of frost  heave and  thaw settlement,                                                                    
and  the need  to  demonstrate federal  regulators that  the                                                                    
materials could  handle the strains.  To assure  the federal                                                                    
regulators  of  the   safety  and  operational  stipulations                                                                    
required  through  the   Pipeline  and  Hazardous  Materials                                                                    
Safety Administration  (PHMSA), AGDC developed  and acquired                                                                    
pipeline  materials  to weld  and  test  for validation.  He                                                                    
noted that  they were  in the testing  phase to  verify that                                                                    
the design was sufficient for the gas volume.                                                                                   
                                                                                                                                
9:30:50 AM                                                                                                                    
                                                                                                                                
Co-Chair Kelly  asked Mr.  Richards to  clarify the  word he                                                                    
used  before "permafrost."  Mr. Richards  explained that  he                                                                    
was using  the word  "discontinuous," referring to  areas of                                                                    
land where  permafrost was not contiguous,  but rather mixed                                                                    
with  areas  of  non-permafrost.  He  elaborated  that  such                                                                    
ground composition  created a freeze and  thaw scenario that                                                                    
could be compared  to frost heaves occurring  on highways in                                                                    
Alaska.                                                                                                                         
                                                                                                                                
Senator   Bishop  commented   that  when   the  Trans-Alaska                                                                    
Pipeline System (TAPS) was built  almost 40 years prior, all                                                                    
of the work  was done by hand and was  commonly known in the                                                                    
industry as "poor-boyin." He  recounted that the engineering                                                                    
that was  done at  the time  was truly  tested during  a 7.6                                                                    
magnitude earthquake  at the Denali fault,  which caused 400                                                                    
feet  of the  pipe to  jump  out of  the rack  and onto  the                                                                    
ground without  structural failure. He offered  kudos to the                                                                    
engineers  of TAPS.  Co-Chair Kelly  expressed amazement  at                                                                    
the speed  at which workers  could lay pipeline  during that                                                                    
time.                                                                                                                           
                                                                                                                                
Mr. Richards continued and noted  that both projects crossed                                                                    
the Denali fault in the  area south of Denali National Park.                                                                    
He  referred  to  AGDC's  paleo-seismologist  who  had  also                                                                    
worked on TAPS;  recounting that he predicted  a rupture and                                                                    
large   magnitude   quake   with   40   feet   of   pipeline                                                                    
displacement, as  well as  a prediction  of similar  type of                                                                    
event  during the  lifetime of  the AGDC  project. He  added                                                                    
that  AGDC would  utilize the  same type  of design  used by                                                                    
TAPS,  putting the  pipeline on  embedded  I-beams knows  as                                                                    
"sleepers,"  that  allow  the pipe  to  move  during  ground                                                                    
motion. He restated that AGDC was using proven technology.                                                                      
                                                                                                                                
Mr.  Richards continued  to  discuss  corporate assets,  and                                                                    
stated   that  there   were  tremendous   additional  assets                                                                    
accompanying  the work  on ASAP,  with the  alignment sheets                                                                    
and march  charts that  were completed.  He added  that AGDC                                                                    
had  an extremely  robust geographic  information system  as                                                                    
well as having completed a Class 3 estimate.                                                                                    
                                                                                                                                
Senator Bishop commented that he  believed these projects to                                                                    
contain valuable  saleable assets, and stated  he would like                                                                    
to  be provided  with  information about  the  value of  the                                                                    
assets. Mr. Richards replied that  they were indeed saleable                                                                    
assets  owned  by the  State  of  Alaska, and  furthered  to                                                                    
reveal the  keen interest and fiduciary  responsibility with                                                                    
which AGDC held the assets.                                                                                                     
                                                                                                                                
9:35:02 AM                                                                                                                    
                                                                                                                                
Mr. Richards  moved to slide  8, "Approximate  Pipeline Land                                                                    
Ownership," and  again referred to the  right-of-way granted                                                                    
by the state. He specified that  the outcome of the SEIS and                                                                    
the record  decision for the  Army Corps of  Engineers would                                                                    
allow the Bureau  of Land Management (BLA),  through its own                                                                    
record  decision,  to  grant the  federal  right-of-way.  He                                                                    
detailed  that  the decision  would  provide  the ASAP  line                                                                    
approximately 85  percent of  the right-of-way  available to                                                                    
build a  project. He noted  that when the point  of decision                                                                    
was reached on  the viability of the ASAP  project, it would                                                                    
be an important  time for negotiations with  the land owners                                                                    
as listed on  the slide. He clarified that AGDC  had not yet                                                                    
entered into  negotiations because it was  too premature. He                                                                    
revealed that  perhaps 5  percent of the  line for  the ASAP                                                                    
project would be held by AGDC.                                                                                                  
                                                                                                                                
Mr.   Dubler  presented   slide  9,   "Alaska  LNG   Project                                                                    
Participation,"  specifying that  the important  distinction                                                                    
between the  ASAP project and  the LNG project was  that the                                                                    
state  owned  100  percent  of  ASAP  through  its  pipeline                                                                    
company AGDC;  whereas the AKLNG  project was  a combination                                                                    
of owners  based on resource  ownership on the  North Slope.                                                                    
He  referenced  the  diagram  on   slide  9,  depicting  the                                                                    
Resource  Owners  and  Project Interest  parties,  detailing                                                                    
that the  state owned gas  through its royalty share  and to                                                                    
the extent that the state  made the determination to go with                                                                    
a taxes  gas, it would  own approximately 25 percent  of the                                                                    
resource  on  the  North  Slope. He  revealed  that  the  25                                                                    
percent  state  interest was  held  by  TransCanada, in  the                                                                    
North Slope facilities and pipeline;  and by AGDC in the LNG                                                                    
facility. He  summarized that the  state was  represented by                                                                    
two corporations in its interest in the project.                                                                                
                                                                                                                                
9:37:20 AM                                                                                                                    
                                                                                                                                
Mr.   Kruzen  presented   slide  10,   "Alaska  LNG   Recent                                                                    
Activity,"  and  summarized  the technical  highlights  from                                                                    
both  a project  perspective  and the  AGDC perspective.  He                                                                    
recounted  that the  AGDC board  recently  approved a  $39.8                                                                    
million budget  for calendar year  2015. He  elaborated that                                                                    
the AGDC  budget was based  on project teams' work  plan and                                                                    
budget (WPNB) which was  aggregated to include consideration                                                                    
of deliverables from various  sub-projects including the gas                                                                    
treatment plant, the pipeline,  the marine terminal, the LNG                                                                    
plant,  and  permitting  considerations. He  recounted  that                                                                    
AGDC was  trying to spend  money wisely by  coordinating and                                                                    
using historical  data to avoid duplications.  He emphasized                                                                    
that AGDC tried  to be effective in moving  forward to avoid                                                                    
duplication  of  efforts  for both  projects.  He  mentioned                                                                    
communicating  with land  owners,  agencies,  or the  public                                                                    
only one  time and  gathering information for  both projects                                                                    
for maximum effectiveness.                                                                                                      
                                                                                                                                
Mr. Kruzen commented  that although AKLNG was  far away from                                                                    
sanction,  or final  investment  decision (FID);  as of  the                                                                    
summer 2014 field season the  project had over 250 people in                                                                    
the field in a variety  of activities including geotechnical                                                                    
borehole   drilling,  marine   surveying,  and   looking  at                                                                    
pipeline  corridor stream  crossings.  He  detailed that  of                                                                    
those  250 people,  80 percent  were Alaskans.  He contended                                                                    
that the AKLNG  project and AGDC would  continue to champion                                                                    
Alaska  hire and  utilization  of  Alaskan capabilities.  He                                                                    
referred to a provision of  the AKLNG website for interested                                                                    
parties to inquire after employment.                                                                                            
                                                                                                                                
Mr.  Kruzen  discussed  the  magnitude  of  the  engineering                                                                    
project,  and  reiterated  that AGDC  was  in  the  Pre-FEED                                                                    
stage.  He explained  that  prior to  Pre-FEED  was a  stage                                                                    
known as  "concept selection," which  was done  in-house and                                                                    
included ideas  such as a  gas treatment plant on  the North                                                                    
Slope with  three trains, a  big pipeline, and an  LNG plant                                                                    
with three  trains. He continued  that the  current Pre-FEED                                                                    
stage  included engineering  to  specify  and optimize  what                                                                    
would  be  built.  He  elaborated  that  to  accomplish  the                                                                    
engineering, AGDC hired  world-scale contractors through the                                                                    
competitive  bidding process.  He  detailed the  engineering                                                                    
contracts as listed on slide 10:                                                                                                
                                                                                                                                
   · Gas Treatment Plant: URS w/CBI and ASRC Energy                                                                             
     Services (AES)                                                                                                             
   · Pipeline: Worley Parsons                                                                                                   
   · LNG Plant: CBI w/Chiyoda and ASRC Energy Services                                                                          
     (AES)                                                                                                                      
   · Marine Facilities: CH2M Hill                                                                                               
                                                                                                                                
Mr.  Kruzen   continued  on  slide  10,   remarking  on  the                                                                    
magnitude of the  permitting scope of the  AKLNG project. He                                                                    
summarized the "Regulatory" bullet on slide 10:                                                                                 
                                                                                                                                
   · Depart of Energy authorized LNG exports to Free Trade                                                                      
     Agreement countries                                                                                                        
   · Federal Energy Regulatory Commission (FERC) approved                                                                       
     Pre-Filing request on Sep 8                                                                                                
        o 60 public meetings already conducted to engage                                                                        
          Alaskans                                                                                                              
        o Resource reports provide baseline environmental                                                                       
          and socio-economic data                                                                                               
        o First draft of resource reports targeted for 1Q15                                                                     
        o FERC pre-scoping meetings and project open houses                                                                     
          to take place 1st half 2015                                                                                           
                                                                                                                                
Mr.  Kruzen   added  that  the   US  Department   of  Energy                                                                    
authorized our LNG exports to  the amount of 20 million tons                                                                    
per year to Free  Trade Agreement (FTA) countries, including                                                                    
South Korea and  the Pacific Rim. He added that  yet to come                                                                    
are the non-FTA approvals.                                                                                                      
                                                                                                                                
9:42:17 AM                                                                                                                    
                                                                                                                                
Senator Dunleavy asked if  the state's prospective customers                                                                    
were all  within the FTA  designation. Mr.  Kruzen responded                                                                    
in the negative,  and said to his knowledge  South Korea was                                                                    
the only one,  and deliberation was ongoing  for the non-FTA                                                                    
approvals.  Senator Dunleavy  asked Mr.  Kruzen to  opine on                                                                    
the outcome of the deliberations.  Mr. Kruzen stated that he                                                                    
did  not know,  but in  general he  had the  impression that                                                                    
FERC was supportive of AGDC's efforts.                                                                                          
                                                                                                                                
Mr. Kruzen  referred back  to slide  10, explaining  that at                                                                    
some  point AGDC  would file  an EIS  through FERC,  and was                                                                    
currently  in what  was called  the  "pre-filing" phase.  He                                                                    
outlined that  AGDC had  agreed upon  a strategy  with FERC,                                                                    
whereby various  resource reports describing aspects  of the                                                                    
AKLNG  project would  be submitted.  He specified  that AGDC                                                                    
would be referencing the concept  select information as well                                                                    
as the  early Pre-FEED information  and filing the  first 12                                                                    
resource  reports with  FERC. He  estimated  the target  for                                                                    
delivery  of the  reports to  be  mid-February. He  analyzed                                                                    
that this  deliberate strategy would enable  agencies to put                                                                    
their  employees  on the  AKLNG  project  rather than  other                                                                    
projects, and begin to cultivate  public and agency input in                                                                    
time to  direct summer  and winter  2015 field  programs. He                                                                    
concluded   that  the   resultant   field  information,   in                                                                    
combination with Pre-FEED  engineering information, would be                                                                    
combined  for  re-submission  of  the second  draft  of  the                                                                    
resource reports in approximately a year's time.                                                                                
                                                                                                                                
9:45:02 AM                                                                                                                    
                                                                                                                                
Mr.   Richards  moved   to   slide   11,  "Alaska   LNG/ASAP                                                                    
Coordination," and  re-articulated that AGDC had  a role and                                                                    
responsibility  within   both  projects   that  necessitated                                                                    
coordination  and  collaboration   to  advance  the  state's                                                                    
interest for  both projects.  He referenced  the significant                                                                    
amount  of  historic  baseline  data  and  engineering  from                                                                    
previous  pipeline projects  north of  Livengood. He  voiced                                                                    
the  intention  to utilize  the  wealth  of information  and                                                                    
announced that  a cooperation agreement  was in  place under                                                                    
which historic data on the  two projects had been exchanged,                                                                    
resulting in  cost savings of  tens of millions  of dollars.                                                                    
He   elaborated   that   savings  occurred   in   areas   of                                                                    
geotechnical information, civil  works, and hydrology works.                                                                    
Additionally,  the  information  sharing  aided  in  meeting                                                                    
AKLNG's "very aggressive schedule"  with regard to the first                                                                    
quarter FEED  decision as  well as  transmitting information                                                                    
for resource reports.  He stated that due to  the JVA [Joint                                                                    
Venture  Agreement] signed  in  July, and  the necessity  of                                                                    
finding  contractors, the  process was  slowed somewhat.  He                                                                    
furthered  that the  work efforts  that AGDC  had undertaken                                                                    
could help advance the AKLNG schedule in a beneficial way.                                                                      
                                                                                                                                
9:47:17 AM                                                                                                                    
                                                                                                                                
Mr.  Richards  moved  to  slide   12,  "ASAP  Class  3  Cost                                                                    
Estimate,"  noting  that it  was  the  culmination of  three                                                                    
years of  work to advance the  ASAP project to a  30 percent                                                                    
design-level  estimate. He  explained  that Class  3 was  an                                                                    
estimate  level as  defined by  the American  Association of                                                                    
Cost Estimators.  He reviewed  the rising  estimated project                                                                    
cost, specifying that the cost  went from approximately $7.7                                                                    
billion in 2012  (adjusted for inflation to  $8 billion); to                                                                    
a  current  estimate  of $10  billion,  updated  to  include                                                                    
detailed design of the gas  treatment facility and pipeline.                                                                    
He added  that the $10  billion included $900  million worth                                                                    
of contingency, and referred  to a confidence-level analysis                                                                    
of P75 on  the estimate. He detailed that in  doing so, they                                                                    
had  received bid-level  work packages  from contractors  to                                                                    
aid  in the  estimate. He  elaborated that  the contractors,                                                                    
such  as  Peter Kiewit,  Doyon  Limited,  Brice, and  Alaska                                                                    
Interstate  Construction;  were  all  familiar  with  Arctic                                                                    
conditions. He  continued to note that  they received vendor                                                                    
quotes  from process  manufacturers as  well as  fabrication                                                                    
yards,  and  concluded  that AGDC  was  confident  that  the                                                                    
estimate  was   a  true  representation   of  the   cost  of                                                                    
developing and producing the ASAP project.                                                                                      
                                                                                                                                
Mr.  Richards pointed  out  that the  cost  of the  pipeline                                                                    
versus the gas conditioning facility  on the North Slope was                                                                    
two-thirds  to  one-thirds ratio.  He  added  that he  would                                                                    
quickly  discuss  the  tariffs  in order  to  see  what  the                                                                    
outcomes would be to consumers in Alaska.                                                                                       
                                                                                                                                
Mr.  Dubler presented  slide 13,  "ASAP Estimated  Tariffs,"                                                                    
and pointed out the tariff  rate for Fairbanks was estimated                                                                    
to be $5.50  to $6.75. He explained that  tariff rates based                                                                    
on new cost estimates were shown  in a range due to a degree                                                                    
of  uncertainty  in  projections  after  using  hundreds  of                                                                    
estimates to calculate. He pointed  out the Anchorage tariff                                                                    
rate of  $8.00 to  $9.75, with  an accompanying  "Burner Tip                                                                    
Cost" of $11.50 to $14.50.  He mentioned the current cost at                                                                    
just  under $10,  and suggested  that the  advantage of  the                                                                    
ASAP project was the vast amount  of gas on the North Slope,                                                                    
with no  risk of depleting  in the  near future even  with a                                                                    
per day usage of 500 million cubic feet.                                                                                        
                                                                                                                                
Mr.  Dubler discussed  the  tariff  model, highlighting  the                                                                    
"Major Assumptions":                                                                                                            
                                                                                                                                
     · 70/30 Debt to Equity                                                                                                     
     · 12 percent Return on Equity                                                                                              
     · 5.7 percent construction financing cost                                                                                  
     · 25 year depreciation                                                                                                     
                                                                                                                                
Mr. Dubler  explained that the  assumptions were  all fairly                                                                    
conservative and that returns  were somewhere between 11 and                                                                    
14 percent (recently  on the lower end of  the spectrum). He                                                                    
specified that the financing cost  was fairly high and a 25-                                                                    
year depreciation was fairly conservative as well.                                                                              
                                                                                                                                
9:51:06 AM                                                                                                                    
                                                                                                                                
Senator  Bishop asked  if it  was safe  to say  that it  was                                                                    
imperative for the  state to keep its AAA bond  rating as it                                                                    
went forward  with the  projects, to  ensure that  the state                                                                    
was sending the right signals  to the financial markets with                                                                    
regard to budgeting. He further  inquired if the delta would                                                                    
move on the  5.7 percent construction cost  financing if the                                                                    
state did not retain its AAA bond rating.                                                                                       
                                                                                                                                
Mr. Dubler  responded that  a rating  analysis on  a project                                                                    
such as  ASAP could  take the  state's rating  into account,                                                                    
however the project  would most likely be rated  on the end-                                                                    
customers, which in  the case of the in-state  line would be                                                                    
whatever  entity took  over and  sold gas  in Fairbanks.  He                                                                    
furthered that  the state's rating  could play  an important                                                                    
role in the financing of the project.                                                                                           
                                                                                                                                
Co-Chair MacKinnon  considered the 70  to 30 debt  to equity                                                                    
ratio and asked  if the cash portion of  the component could                                                                    
be carried  inside of the  rate tariff and transferred  as a                                                                    
rate of return  back to Alaskans. Mr.  Dubler responded that                                                                    
it could  be structured either  way, but to  be conservative                                                                    
AGDC  assumed that  the  state's  $400 million  contribution                                                                    
achieved a  12 percent return  on equity. He  furthered that                                                                    
the 30  percent equity was  made on the assumption  that the                                                                    
state would not be building  and owning the project. Rather,                                                                    
he  clarified  that  the  state had  issued  a  request  for                                                                    
proposal  and had  used a  competitive process  to select  a                                                                    
pipeline  company to  build, own,  and operate  the project;                                                                    
the negotiation  with the company  would determine  the debt                                                                    
to equity  ratio and  the return on  equity the  company was                                                                    
reimbursed for through the tariff.                                                                                              
                                                                                                                                
Co-Chair  MacKinnon asked  what would  happen if  the demand                                                                    
for  in-state  gas  settled  at  the  250  MMscf/d  (million                                                                    
standard cubic feet  per day) capacity that she  had seen on                                                                    
some projections.  She wondered if  the state would  try and                                                                    
sell  the  other  portion. Mr.  Dubler  responded  that  the                                                                    
assumption they had  made is 500 MMscf/d, and  to the extent                                                                    
that in-state users would not  fully utilize up to 500, AGDC                                                                    
would  look  to  sell  to others  through  the  open  season                                                                    
process.                                                                                                                        
                                                                                                                                
9:54:12 AM                                                                                                                    
                                                                                                                                
Mr.  Richards   commented  that   slide  14,   "ASAP  Design                                                                    
Capacity"  was   merely  a  history  of   the  $500  million                                                                    
limitation  for  the  ASAP  project,  and  more  importantly                                                                    
wanted to  address slide 15,  "ASAP Revised Spend  Plan." He                                                                    
directed  the committee's  attention to  the orange  line on                                                                    
the  graph  denoting the  original  spending  plan that  the                                                                    
legislature  sanctioned. He  referred to  the passage  of SB
138 and  ASAP project  benchmarks of Recourse  Tariff Filing                                                                    
and  Project Sanction,  noting that  the subsequent  revised                                                                    
spending   plan   reduced   the  ASAP   project   total   by                                                                    
approximately  $90  million.  He remarked  that  the  figure                                                                    
represented  a 60  percent reduction  in spending;  and AGDC                                                                    
would then  complete the NEPA  and EIS processes as  well as                                                                    
fieldwork and material  testing. He referred back  to the 60                                                                    
percent  spending reduction  and claimed  it would  keep the                                                                    
ASAP project  viable while allowing  AGDC to continue  to do                                                                    
achievable  and transferrable  work  between  the AKLNG  and                                                                    
ASAP projects.                                                                                                                  
                                                                                                                                
Co-Chair MacKinnon referred to  slide 10, and inquired about                                                                    
the resource  reports listed as providing  environmental and                                                                    
socio-economic data.  She asked  for clarification  that the                                                                    
reports were  available for scrutiny  and public  comment by                                                                    
individuals. Mr.  Richards answered in the  affirmative; the                                                                    
report would  be an open  public document with FERC  once it                                                                    
was  filed. After  which,  he clarified,  there  would be  a                                                                    
"vigorous  public scoping  or meeting  schedule" established                                                                    
for  individuals as  well as  municipalities  to review  and                                                                    
comment.                                                                                                                        
                                                                                                                                
ADJOURNMENT                                                                                                                   
9:57:06 AM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 9:57 a.m.                                                                                          

Document Name Date/Time Subjects
013015 AGDC Senate Finance Committee.pdf SFIN 1/30/2015 9:00:00 AM
Alaska Gasline Development Corporation