Legislature(2007 - 2008)SENATE FINANCE 532
04/27/2007 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB104 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 104 | TELECONFERENCED | |
| + | TELECONFERENCED |
MINUTES
SENATE FINANCE COMMITTEE
April 27, 2007
9:02 a.m.
CALL TO ORDER
Co-Chair Bert Stedman convened the meeting at approximately
9:02:41 AM.
PRESENT
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman, Co-Chair
Senator Charlie Huggins, Vice Chair
Senator Joe Thomas
Senator Fred Dyson
Senator Donny Olson
Senator Kim Elton
Also Attending: MARK HANLEY, Public Affairs Manager, Anadarko
Petroleum Corporation; CAM TOOHEY, Alaska Manager,
Communications and Government Relations, Shell Exploration and
Production.
Attending via Teleconference: There were no teleconference
participants.
SUMMARY INFORMATION
SB 104-NATURAL GAS PIPELINE PROJECT
The Committee heard testimony from representatives of Anadarko
Petroleum Corporation and Shell Exploration and Production. The
bill was held in Committee.
9:02:48 AM
CS FOR SENATE BILL NO. 104(JUD)
"An Act relating to the Alaska Gasline Inducement Act;
establishing the Alaska Gasline Inducement Act matching
contribution fund; providing for an Alaska Gasline
Inducement Act coordinator; making conforming amendments;
and providing for an effective date."
This was the eighth hearing for this bill in the Senate Finance
Committee.
9:02:51 AM
Co-Chair Stedman announced that the Committee would hear
testimony from Anadarko Petroleum Corporation and Shell
Exploration and Production. He informed that the testimony would
provide insight into the concerns exploration companies had with
the Alaska Gasline Inducement Act, or AGIA.
9:04:58 AM
MARK HANLEY, Public Affairs Manager, Anadarko Petroleum
Corporation, introduced himself as a former commercial fisherman
and legislator. He served in the Alaska State Legislature for
eight years, four of those years as the House Finance Committee
Co-chair.
9:06:38 AM
Mr. Hanley expressed that Anadarko was generally supportive of
AGIA, and he would speak to his areas of concern as well as
areas of agreement with the bill. As a smaller company, Anadarko
had a different point of view than the larger producers. He
would provide a presentation, which was accompanied by a handout
titled "Anadarko Petroleum Corporation, Alaska Gasline
Inducement Act, Senate Finance, April 27, 2007" [copy on file].
9:07:13 AM
Co-Chair Stedman asked that questions from Members be held until
the conclusion of the presentation.
9:07:33 AM
Page 2
Anadarko's Investment in Alaska-Land
Anadarko Acreage
5.4 million acres (gross)
1.8 million acres (net)
[Map of the North Slope of Alaska depicting existing oil
fields, and highlighting APC Operated acreage, APC Non-
Operated acreage, Industry acreage, and APC wells as of
November 2006.]
Mr. Hanley informed that the Industry leases represented areas
in which Anadarko had no interest. The Anadarko Petroleum
Corporation (APC) Non-Operated acreage signified areas in which
Anadarko had a partnership interest, primarily with Conoco-
Philips, and in the western area, Pioneer. Anadarko's share in
these leases ranged between approximately 22 to 40 percent, and
constituted 22 percent of the Alpine field. Companies diluted
the risk of exploration by partnering with other companies, thus
reducing the individual entity's exposure.
Mr. Hanley communicated that the APC Operated areas were managed
by Anadarko, and often represented partnerships with Petro-
Canada, BG, or the Artic Slope Regional Corporation (ASRC). The
leases in the "Foothills" area of the State tended to be more
"gas prone".
9:10:43 AM
Mr. Hanley noted that land on the central slope and foothills
was a combination of State-owned acreage and ASRC land. Anadarko
had an agreement with the ASRC to explore on its lands. An
exploration well was drilled at Jacob Ladder in the winter of
2006, and the company held a contract to drill an additional gas
exploration well. While currently no natural gas transportation
infrastructure existed, Anadarko was willing to prospect for gas
in order to retain their leases and "be ready for the pipeline
when it comes."
9:12:27 AM
Mr. Hanley pointed out that under the schedule set forth in
AGIA, Anadarko would likely not participate in the first open
season if it occurred within four years as planned. The
discovery of gas in the first well drilled by Anadarko was not
sufficient to generate a commitment of volume, due to the fact
that four to six years of exploration could be needed to
identify adequate gas reserves to commit to the pipeline.
Anadarko had a three-year plan to drill in its three most
prospective areas, and which allowed for the possibility of an
expedited process if large reserves of gas were discovered.
While value was associated with participating in the first open
season, Anadarko would more realistically take part in the first
expansion of the pipeline project under AGIA, perhaps even
before construction had begun. This could be accommodated fairly
easily through the use of compressors if the request for an
expansion came early in the design and construction process.
9:15:59 AM
Mr. Hanley allowed that Anadarko's exploration was a limited
test project, and although one test well may be ample to
"condemn" a prospect, it would not be sufficient to confirm the
area for extensive additional drilling. The time required for
exploration illustrated why expansion of the gasline was
important.
Senator Huggins asked the length of Anadarko's leases.
Mr. Hanley replied that Anadarko held ten year leases. The
company had expended tens of millions if not hundreds of
millions of dollars for seismic programs throughout the lease
areas over the years. Drilling an exploration well could cost in
excess of $30 million.
9:17:24 AM
Page 3
Support AGIA
Support Alaska Gasline Inducement Act
· We like the process
· We support the specifics
· Address Key Explorer Concerns
o Fair access
o Expandable pipeline
o Reasonable tariffs
Mr. Hanley reviewed the page.
9:20:19 AM
Page 4
Support AGIA Process
· We like the process
o Three opportunities for input and key policy
makers to consider issues before a deal is done
ƒInitial legislation
ƒPublic comment on submitted applications
ƒLegislative review of selected application
o Creates competitive process
o Lays out "must haves" that the state will require
of any applicant
Mr. Hanley overviewed the page, noting the benefits of allowing
participants to provide input during the formation of the policy
and during the legislative review process.
9:20:30 AM
Page 5
Support Specifics in AGIA
· We Support mandatory provisions on access and rates
o Pipeline (licensee) must:
ƒAssess market demand for expansions every 2
years
ƒCommit to expand in reasonable increments on
reasonable terms
ƒPropose and support rolled in rates up to
15% above initial rate and agree not to
enter into negotiated rate agreements that
would preclude the rolled in rates
Mr. Hanley highlighted the importance of constructing a natural
gas pipeline that was "motivated" to expand as gas was
discovered. Typically, a pipeline owner would be "enthusiastic"
to expand the size of the line whenever possible due to the fact
that more gas in the pipeline would translate to greater
revenues for the owner. A producer-owned pipeline would be
inspired more by "upstream" factors, and would require extra
scrutiny as the producer-owner would be less motivated to expand
to ship other explorers' gas. He directed attention to
additional supporting documents in the handout provided to
members, referencing a position paper presented to the Law
Seminars International by J. Curtis Moffatt titled "The Likely
Impact of the Federal Energy Regulatory Commission's Alaska
Natural Gas Pipeline Open Seasons Regulations on the Development
of Oil and Gas Resources in Alaska," and provided to the
Committee by Anadarko [copy on file]. He summarized the findings
of the document as "not necessarily" adequate to protect access
to the pipeline for explorers.
Mr. Hanley commented that gas producers would support the lowest
cost pipeline with regards to construction expenses, but
conceivably not the lowest tariff rate. He explained that if a
pipeline were "owned and aligned" by a producer, that producer
would effectively pay the pipeline tariff to itself. A higher
tariff on the pipeline would increase costs to other explorers
but would reduce royalties to the State by lowering the value at
the well head. FERC regulation would be unable to effectively
mitigate all such circumstances.
9:25:11 AM
Mr. Hanley continued that Anadarko appreciated the rolled-in
rate provision, and had supported it before FERC during
discussions regarding open season regulations. Rolled-in rate
provisions differ from standard practice in the "Lower 48" due
to the fact that a natural gas transportation system from Alaska
would be a monopoly in that a shipper could not rely on a
competing pipeline to ease costs.
Mr. Hanley pointed out that FERC policy was to not allow an
initial shipper to subsidize subsequent shippers. FERC would
determine what factors constituted a "subsidy" in the context of
Alaska's pipeline. AGIA would not require rolled-in rates, but
would require the pipeline to request rolled-in rates from FERC.
FERC may or may not grant the request for rolled-in rates based
on its determination of whether those rates would function as a
subsidy.
9:28:22 AM
Page 6
Indicative Expansion Tariffs
Numbers from P. 25, State AGIA Presentation, March 12, 2007
[Bar graph depicting the following information:
Initial Capacity: 4.5 Bcfd
Rolled-In Tariff: $1.62
Incremental Tariff: $1.62
Expansion 1 (Compression): 5.5 Bcfd
Rolled-In Tariff: $1.47
Incremental Tariff: $1.07
Expansion 2 (Compression): 6.5 Bcfd
Rolled-In Tariff: $1.51
Incremental Tariff: $1.73
Expansion 4 (Looping): 7.5 Bcfd
Rolled-In Tariff: $1.71
Incremental Tariff: $3.25]
Mr. Hanley disclosed that the figures utilized in this chart
were garnered from a presentation on AGIA given by the State on
March 12, 2007. The exampled tariff was for transportation to
Alberta, and illustrated the potential benefits of rolled-in
rates. In this example, the first two expansions could be
accomplished by using compression rather than adding additional
pipe. The cost of the first expansion would result in rolled-in
tariff rates and incremental tariff rates lower than the initial
rate. The second expansion was also to be accomplished through
compression, and would produce an incremental tariff greater
than the initial tariff, while the rolled-in rate would remain
less than the initial rate. The next expansion would entail a
significant increase in the incremental rate with a nominal
increase in the rolled-in rate.
9:30:52 AM
Mr. Hanley summarized that rolled-in rates would encourage
exploration by providing a more stable tariff range for new
participants, and offering rates that would be lower than the
initial rate through the first two expansions of the pipeline.
If Anadarko was able to request the first expansion of the
pipeline, that expansion could serve to reduce tariff rates for
all shippers.
9:33:22 AM
Mr. Hanley shared that TransCanada had testified that it could
build a pipeline with a 4.5 billion cubic feet per day (bcfd)
capacity, and expand the capacity to 7 bcfd without increasing
tariffs above the initial rate by employing rolled-in rates.
9:33:44 AM
Co-Chair Hoffman asked why the third expansion was not included
in the chart.
Mr. Hanley replied that the State did not provide that data in
its presentation.
9:34:22 AM
Page 7
AGIA helps mitigate challenge of FERC rules
· Producers in court challenging FERC authority to
ensure adequate pipeline capacity and low cost
expansions
· Producers attempting to invalidate Sections 157.36 &
157.37
o 18 C.F.R. 157 Subpart B
o Section 157.36 Open seasons for expansions.
ƒAny open season for capacity exceeding the
initial capacity of an Alaska natural gas
transportation project must provide the
opportunity for the transportation of gas other
than Prudhoe Bay or Point Thompson production. In
considering a proposed voluntary expansion of an
Alaska natural gas pipeline project, the
Commission will consider the extent to which the
expansion will be utilized by shippers other than
those who are the initial shippers on the project
and, in order to promote competition and open
access to the project, may require design changes
to ensure that some portion of the expansion
capacity be allocated to new shippers willing to
sign long-term firm transportation contracts,
including shippers seeking to transport natural
gas from areas other than Prudhoe Bay and Point
Thompson.
o Section 157.37 Project design.
ƒIn reviewing any application for an Alaska
natural gas pipeline project, the Commission will
consider the extent to which a proposed project
has been designed to accommodate the needs of
shippers who have made conforming bids during an
open season, as well as the extent to which the
project can accommodate low-cost expansion, and
may require changes in project design necessary
to promote competition and offer a reasonable
opportunity for access to the project.
Mr. Hanley voiced concern regarding the design of the pipe. He
cautioned that it would be possible to build a pipeline with an
initial capacity of 4.5 bcfd that could be fully compressed from
the beginning, thus requiring expensive looping at the first
expansion. Without rolled-in rates, that sort of expense would
"sink" the expansion and exploration. FERC and the oil producers
were currently involved in litigation that challenged FERC's
authority to ensure pipeline capacity and low cost expansions.
Mr. Hanley expressed that the requirement under AGIA which would
allow FERC to consider the project design was important for the
aforementioned reason. This provision of AGIA would also meet
Congress' requirement that Alaska "not only get the pipeline
built, but promote competition and exploration."
Page 8
Support AGIA
· Support Alaska Gasline Inducement Act
o We like the process
o We support the specifics
o Address Key Explorer Concerns
ƒFair access
ƒExpandable pipeline
ƒReasonable tariffs
Mr. Hanley reviewed this page, commenting that he expected
Canadian participants to require rolled-in rates for the portion
of the project regulated by that country.
9:37:07 AM
Co-Chair Stedman asked about Anadarko's participation in the
fist binding open season.
Mr. Hanley responded that if the AGIA process worked as expected
with the first open season occurring in December of 2010,
Anadarko would have the 2008 and 2009 seasons to drill and
explore for gas. That would likely not be adequate time to
identify sufficient gas volume to participate in the first open
season.
Co-Chair Stedman understood that if Anadarko was unable to
participate in the first open season, the company would not
receive the fiscal stability offered by AGIA in the form of a
fixed tax rate. He asked Anadarko's position on that matter.
9:38:53 AM
Mr. Hanley acknowledged that Anadarko "took issue" with that
condition. Any commitment to the pipeline should receive similar
treatment, whether those commitments were made in the first open
season or in subsequent open seasons.
9:39:22 AM
Senator Olson, referencing the paper by J. Curtis Moffatt which
stated that the oil producers were disqualified from building
the TAPS pipeline, asked what changes had occurred to currently
allow gas producers to build the proposed natural gas pipeline.
Mr. Hanley was unsure of the historic details, but shared that
either President Carter or President Reagan had changed that
requirement. He informed that a Federal Trade Commission (FTC)
review was still required, and that he would provide further
information.
9:40:10 AM
Senator Olson set forth that concerns existed in his
representation district with regard to offshore exploration and
production. He asked if Anadarko held any offshore leases.
Mr. Hanley answered that Anadarko had "a couple" of offshore
leases.
Senator Olson asked if Anadarko had plans to explore its
offshore leases or produce in those areas.
Mr. Hanley replied that Anadarko did not have plans for offshore
development at that time, and was primarily focused on onshore
areas. He divulged that the company had worked extensively with
the community of Anaktuvuk Pass, located in the foothills area,
while exploring in that region. He reiterated that the company
had no plans to drill offshore.
9:41:22 AM
Senator Olson announced the "obvious concern" of the people in
northern coastal communities was the effect seismic and drilling
activity could have on whale migration, possibly driving the
animals farther offshore and impacting the whale hunt.
9:41:34 AM
Senator Huggins referred to page 7, and relayed that the oil and
gas producers had expressed concerns that FERC could require
expansion of the pipeline. He predicted this could have both a
monetary and a "timetable" impact on the pipeline builder's
construction plan, and asked Anadarko's perspective on the issue
of FERC-ordered expansion.
Mr. Hanley stated that Anadarko understood that producers would
not want FERC to have the authority to require a change in the
design of the pipeline. While a required expansion could cost
the pipeline builder time and money, it was "appropriate" to
allow FERC the authority to review the pipeline design to ensure
that it would allow for expanded capacity.
9:44:13 AM
Senator Huggins asserted that the State had a responsibility to
accommodate future gas, and must consider expansion capability
when evaluating project applications.
9:45:01 AM
Mr. Hanley specified that in the FERC appeal case currently
before the court, Anadarko was supportive of FERC's regulatory
right.
9:45:22 AM
Co-Chair Stedman asked if Anadarko had ever been in a "reverse
position," in which the company was a substantial holder of gas
in an area where a gasline was proposed and other explorers were
"poised to enter".
Mr. Hanley was unaware of any such circumstance, but told of the
many small fields where the only pipeline to transport a product
was owned by the producer although other explorers had a
presence. Anadarko was a majority member of a consortium
operating in the Gulf of Mexico that constructed transportation
for natural gas; however, the project would not have otherwise
been economical.
Mr. Hanley hypothesized a scenario in which 36 trillion cubic
feet (tcf) of gas on the North Slope was equally divided in
ownership between 12 different companies on separate fields,
with no company having an interest in any of the other fields.
He assumed that in that instance a pipeline company would enter
as a "consolidator," build an expandable pipeline and hold an
open season. The current circumstance in Alaska differs in that
three companies hold the majority of the gas.
9:47:43 AM
Co-Chair Stedman asked if Anadarko had ever supported
incremental tariffs in any of the projects it had been involved
in.
Mr. Hanley was not aware of any such support, and would report
back to the Committee if it had.
Co-Chair Stedman detailed that he was asking "particularly" if
Anadarko had ownership interest in any pipeline.
Mr. Hanley would provide the information. As an independent
producer, Anadarko was less likely to own a pipeline as it was
not "integrated".
9:48:54 AM
Senator Huggins asked if Anadarko had been consulted in the
design of AGIA as it was "emerging" as legislation.
Mr. Hanley told of a meeting with "a couple" commissioners in
January, at a time that other producers were also meeting with
the Administration. He stated that Anadarko had collaborated
with the State for years, and its position was clear.
Senator Huggins declared that he had asked "for the record".
9:50:23 AM
Co-Chair Stedman asked Anadarko's position in being a
participant in the AGIA licensee application process, assuming
that the company would not be prepared to come to the table in
the first open season.
Mr. Hanley responded that Anadarko would probably not
participate in the application to FERC. Anadarko did not
typically build or operate pipelines, but would consider
participating in a project if it could add value to the
pipeline.
9:52:04 AM
Co-Chair Stedman asked for Anadarko's areas of support and
concern within the bill.
9:52:22 AM
Mr. Hanley informed that he had "touched on" most of his
concerns, and referred to the application requirements under
section 43.90.130. of the bill, which included the detailed
description, route, receipt and delivery point, size and design
capacity, and description of transportation services. These were
all aspects of the bill that were important to Anadarko. The
two-year solicitation provision on page 5, line 5 was supported
by Anadarko, as was the "commitment to expand" provision on line
28. Anadarko was also in agreement with the commitment of the
applicant to support rolled-in rates up to 15 percent above the
negotiated rate as set forth in the bill, beginning on page 6,
line 11.
9:54:00 AM
Co-Chair Stedman asked if Anadarko had a position on setting the
rolled-in rate limit at 15 percent above the initial negotiated
rate, and if so, the company's reasoning.
Mr. Hanley replied that the company was "generally comfortable"
with 15 percent, but commented that Anadarko had argued in the
past to roll rates in "totally", with no limit on the impact
rolled-in rates could have on the rate of the initial shipper.
He suggested always allowing the rates to be rolled-in, with the
pipeline owner requesting that FERC set an economically
reasonable limit at each expansion.
9:55:30 AM
Co-Chair Stedman asked if Anadarko supported the possibility of
a forfeiture of appeal rights before FERC.
Mr. Hanley answered, "It depends." Assuming a lack of commitment
at the first open season, Anadarko would not receive any of the
incentives in the bill, and would have to balance those
circumstances. If Anadarko participated in the initial open
season, it would make the decision regarding FERC appeals at
that time.
9:56:38 AM
Co-Chair Stedman asked that Mr. Hanley provide the Committee
with information regarding the waiver of FERC appeal rights.
Mr. Hanley would provide that information.
9:57:10 AM
Mr. Hanley explained that Anadarko supported all the provisions
intended to keep the tariff low, including a demonstration by
the applicant to illustrate how it would manage cost overruns,
as required in paragraph (11) on page 8, line 18.
9:57:55 AM
Mr. Hanley shared that Anadarko was in agreement that the $500
million incentive should not be included in the rate base, but
should be utilized only to reduce the pipeline's rate, as
defined in paragraph (18) on page 9 line 17. Under Section (3)
the successful applicant would be required to prevent or reduce
cost over-runs that would affect tariff, a provision that
Anadarko supported.
9:59:22 AM
Senator Huggins pointed out that paragraph (4) spoke
"explicitly" the State's responsibility to carefully evaluate
the initial project proposal to avoid an appeal to FERC at a
later date.
Mr. Hanley agreed. Anadarko supported the State's evaluation
criteria.
10:00:14 AM
Mr. Hanley mentioned that he had already addressed resource
inducements, and reiterated his position that all participants
that commit to ship gas should enjoy some of the benefits
offered under AGIA. There was economic value in the tax
stability and royalty certainty. These benefits served to create
a competitive advantage for those companies able to participate
in the first open season.
10:01:08 AM
Senator Huggins asked how the State could appropriately offer
inducements to Anadarko subsequent to the first open season.
Mr. Hanley declared, "We need a pipeline." Anadarko could not
explore without a pipeline, hence the line itself represented
the biggest incentive for continued exploration. Favorable
expansion provisions would also benefit Anadarko after pipeline
construction was underway. He opined that the PPT legislation
had a "positive effect" on the economics of gas exploration.
Mr. Hanley stated:
At this point I don't have anything to tell you that we
need extra incentives. I think what we're asking for now is
number one, get a pipeline built, number two, make sure
that it has fair access and reasonable terms. With that,
we'll go do our business.
10:03:06 AM
Co-Chair Stedman expressed that the fiscal certainty offered in
the bill was designed to function as a "reward" for the parties
that were able to be present at the first open season and commit
ample volumes of gas to the pipeline for as long as 25 years. He
asked why the State should extend fiscal certainty to later open
seasons when participation would carry less risk exposure as the
initial commitment.
10:04:33 AM
Mr. Hanley responded that subsequent open seasons may or may not
carry the same risk exposure as the initial open season. An
immediate expansion could involve the same amount of risk, as
well as additional risk, such as the deliverability of gas. If
Anadarko requested an expansion within a year of the State
granting a license, the company would have the same length of
commitment and the same cost over-run considerations. He allowed
that if the first expansion occurred after 15 years of
operation, the risk exposure would be less. However, he
anticipated Anadarko would participate in a much earlier
expansion that would involve a substantial amount of risk.
10:06:23 AM
Co-Chair Stedman asked Anadarko's position on the length of
fiscal stability embodied in AGIA.
Mr. Hanley replied that the longer the timeframe for a favorable
tax structure, the better. It made "rational sense" to tie the
length of fiscal stability to the length of the financing for
the pipeline, approximately 20 to 25 years. Anadarko had not
taken an official position.
Co-Chair Stedman articulated that 20 to 25 years was different
than 10 years.
Mr. Hanley affirmed.
AT EASE 10:09:09 AM/10:12:19 AM
10:12:32 AM
CAM TOOHEY, Alaska Manager, Communications and Government
Relations, Shell Exploration and Production, communicated that
Shell had "reentered" Alaska in 2005 to participate in the MMS
lease sale in the Beaufort Sea, where it purchased 84 leases.
Shell was the first royalty payer to the State in 1965.
Exploration planned for 2007 included drilling three to four
wells in the Beaufort Sea, as well as seismic activities in the
Chukchi and Beaufort Seas.
10:14:13 AM
Mr. Toohey provided written testimony to the Committee [copy on
file], and testified as follows.
I appreciate the opportunity to be here today to give
Shell's comments in support of SB 104, Governor Palin's
Alaska Gas Inducement Act, or the AGIA legislation. Last
year Shell submitted formal comments on the natural gas
pipeline proposal as it was developed by the Murkowski
Administration. I'm going to highlight a couple of points
that we discussed in that letter as they're relevant to the
legislation before you. I did provide a copy and I think
it's in your packets.
Shell strongly supports the development of a North Slope
natural gas pipeline, and believes it's important to the
economic stability of the State as well as the nation.
While Shell currently does not have material proven gas
reserve to commit to a North Slope pipeline, Shell has made
a significant investment in the State and we are working to
explore our acreage and we hope to find if it's
economically feasible and produce those reserves in the
future. The certainty of construction of a North Slope gas
pipeline is an important factor in Shell's planning and
future investment decisions. So it's important to stress
the fact that the existence of a pipeline is very important
to Shell.
Of importance to Shell is the capacity access issues and
expansion issues. And as we stated last year in our letter
any North Slope gas pipeline project should be structured
to insure reasonable access to pipeline capacity by new
explorers and non-owner producers. In addition it would be
prudent to design and permit the project in anticipation of
this future expansion of the pipeline. Especially with
respect to establishing adequate right-of-way width and
environmental assessment that paves the way for future
incremental expansion, incremental facilities, pipeline
looping, and or second parallel pipeline. The project
structure should provide reasonable terms for accomplishing
future expansion of the line, including the presumption of
rolled-in rates and mechanisms for requiring and advancing
the timely completion of expansions.
Shell believes that AGIA addresses these aspects very well.
Another important element of the North Slope pipeline
identified in our 2006 letter was the terms of service. The
project should provide fair and reasonable terms of service
for new explorers and non-owner shippers. The terms of
service, particularly the transportation costs and the
rates, have a critical bearing on whether North Slope
development projects are economic and competitive with
other global opportunities. Project construction costs will
be the principal driver of the future rate for shipping gas
on the pipeline system, and it is important that the State
take steps to ensure that construction is completed in the
most cost-effective and timely manner to ensure the lowest
possible rates. I know Mark Hanley discussed this quite a
bit before, but it is truly important to all shippers.
These concerns are not simply a matter of Shell's economic
interest. For the State, as a royalty owner, the terms of
service are vitally important because increases in pipeline
project costs will be passed on to the shippers in the form
of higher transportation rates and higher transportation
rates will be detrimental to the development of these new
reserves and will decrease the netback value to the State
of Alaska.
10:18:17 AM
Mr. Toohey continued his testimony as follows.
Shell believes that these issues are well incorporated in
AGIA. Shell also believes it is important that all sections
of the pipeline traversing the United States be subject to
the regulatory oversight of the Federal Energy Regulatory
Commission, FERC. FERC oversight is necessary to ensure
open access, fair and reasonable terms of service and non-
discriminatory behavior. FERC oversight will also provide
all parties an impartial forum to seek redress of
grievances. Should FERC decline regulatory oversight of
certain components of the project, then those facilities
should be regulated under the jurisdiction of the
Regulatory Commission of Alaska.
In closing, Shell applauds the efforts of the Palin
Administration to advance the gasline project. Shell fully
supports the Administration in efforts to include all
interested parties in the gasline discussions, as this will
impact the future of all involved for generations to come.
Shell believes development of the North Slope gas project
is critical to the continued economic health of this state
and of the Nation. The certainty of construction of the
North Slope gas pipeline is an important factor in Shell's
planning for current holdings in the State as well as
decision-making on regarding Shell's future investments.
Shell believes it's critically important for future
explorers that they have access to the gas pipeline and the
line must be expandable. The project should provide fair
and reasonable terms of service for new explorers and non-
owner shippers, which will benefit the State of Alaska in
the long run.
Thank you for the opportunity to present here this morning
in support of AGIA. And as you mentioned, Mr. Chairman, I'm
prepared to collect questions and provide written response.
I apologize for our lack of involvement in time on this
legislation at this time, but we have been primarily
focused on securing permits for upcoming summer and have
not been able to spend the time here in Juneau on this
legislation. Thank you.
10:20:13 AM
Co-Chair Stedman asked Shell's position regarding fiscal
certainty at the first successful open season. He also asked
whether Shell had ever been in a "reverse situation", in which
the company was a major owner of gas in a region where another
entity was entering to open the area to production. If Shell had
experienced such a situation, he asked if the company had
supported incremental or rolled-in rates.
Mr. Toohey would provide the requested answers.
Co-Chair Stedman further requested that Shell respond to the
issue of a waiver of appeal rights before FERC, as well as
provide an opinion on an appropriate fiscal stability time
frame.
10:22:02 AM
Senator Thomas read a passage from the J. Curtis Moffatt
document into the record as follows.
Concern that private financing could not be accomplished
without greater participation by the producers, however,
ultimately led President Reagan to request and obtain from
Congress a waiver overturning the prohibition against
producer participation through the ANGTA section 8 waiver
process. Importantly, however, the waiver was subject to
the proviso, "that any agreement on producer participation
may be approved by the Federal Energy Regulatory Commission
only after consideration of advise from the Attorney
General and upon finding of the Federal Energy Regulatory
Commission that the agreement will not (a) create or
maintain a situation inconsistent with the antitrust laws,
or (b) in and of itself create restrictions on access to
the Alaska segment of the approved transportation system
for nonowner shippers or restrictions on capacity
expansion…."
Senator Thomas asked if that statement summarized Shell's
position.
Mr. Toohey asked for the statement in writing.
10:24:11 AM
Senator Elton remarked that Shell was the "odd person in the
debate" due to the fact that Shell was neither multi-national
nor solely an explorer. He asked how Shell would integrate firm
transportation commitments into its economic analysis and its
decision making processes.
10:25:30 AM
Co-Chair Hoffman asked why Shell decided to reinvest in the oil
and gas industry in Alaska. He inquired if the decision was
based on the potential in the State, the tax structure, or the
"problems" that the industry faced in other parts of the world.
10:26:16 AM
Mr. Toohey responded that Shell reentered in 2005, before the
PPT tax debate and restructuring. Shell's interest in Alaska was
attributed to the opportunities for significant oil discoveries.
ADJOURNMENT
Co-Chair Bert Stedman adjourned the meeting at 10:27:15 AM
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