Legislature(1999 - 2000)

03/08/2000 03:12 PM Senate RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                    SENATE RESOURCES COMMITTEE                                                                                
                          March 8, 2000                                                                                         
                            3:12 p.m.                                                                                           
                                                                                                                              
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Rick Halford, Chairman                                                                                                  
Senator Robin Taylor, Vice Chairman                                                                                             
Senator Pete Kelly                                                                                                              
Senator Lyda Green                                                                                                              
                                                                                                                              
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Jerry Mackie                                                                                                            
Senator Sean Parnell                                                                                                            
Senator Georgianna Lincoln                                                                                                      
                                                                                                                              
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
Briefing:  Foothills Pipe Line Company                                                                                          
                                                                                                                                
SENATE BILL NO. 249                                                                                                             
"An Act authorizing a land exchange between the Department of                                                                   
Natural Resources and Alaska Hardrock, Inc.; and providing for an                                                               
effective date."                                                                                                                
                                                                                                                                
     -MOVED SB 249 OUT OF COMMITTEE                                                                                             
                                                                                                                              
                                                                                                                                
PREVIOUS SENATE COMMITTEE ACTION                                                                                              
                                                                                                                                
SB 249 - No previous action to consider.                                                                                        
                                                                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Mr. Robert L. Pierce, Chairman                                                                                                  
Foothills Pipe Lines Ltd.                                                                                                       
3100-707 Eighth Avenue, S.W., Suite 3100                                                                                        
Calgary, Alberta T2P 3W8, Canada                                                                                                
POSITION STATEMENT: Testified for Foothills Pipe Lines                                                                          
                                                                                                                                
Mr. John Ellwood, Vice President                                                                                                
Engineering and Operations                                                                                                      
Foothills Pipe Lines Ltd.                                                                                                       
3100-707 Eighth Avenue, S.W., Suite 3100                                                                                        
Calgary, Alberta T2P 3W8, Canada                                                                                                
POSITION STATEMENT: Testified for Foothills Pipe Lines                                                                          
                                                                                                                                
Mr. Harry Hobbs, Vice President                                                                                                 
Transportation and Corporate Secretary                                                                                          
Foothills Pipe Lines Ltd.                                                                                                       
3100-707 Eighth Avenue, S.W., Suite 3100                                                                                        
Calgary, Alberta T2P 3W8, Canada                                                                                                
POSITION STATEMENT: Testified for Foothills Pipe Lines                                                                          
                                                                                                                                
Mr. Jim Stratton, Director                                                                                                      
Division of Parks and Outdoor Recreation                                                                                        
Department of Natural Resources                                                                                                 
3601 C St., Suite 1200                                                                                                          
Anchorage, AK 99503                                                                                                             
POSITION STATEMENT: Supported SB 249.                                                                                           
                                                                                                                              
ACTION NARRATIVE                                                                                                              
                                                                                                                              
                                                                                                                                
TAPE 00-10, SIDE A                                                                                                            
Number 001                                                                                                                      
                                                                                                                                
CHAIRMAN HALFORD called the Senate Resources Committee meeting to                                                               
order at 3:12 p.m. and announced the first order of business would                                                              
be a briefing by representatives from Foothills Pipe Line Ltd.                                                                  
                                                                                                                                
MR.  BOB PIERCE,  Chairman and  CEO  of Foothills  Pipe Line  Ltd.,                                                             
introduced  Mr. John Ellwood,  Vice President  of Engineering,  and                                                             
Mr. Harry Hobbs, Vice President  of Transportation and Secretary of                                                             
Foothills  Pipe   Lines  Ltd.    Mr.  Pierce  gave   the  following                                                             
testimony.                                                                                                                      
                                                                                                                                
     In short we  are here because, as some of you  know we've                                                                  
     been  here before and  we have always  said that the  day                                                                  
     would come  when Alaska gas  would go by pipeline  to the                                                                  
     Lower  48.   We're  here because  we  think that  day  is                                                                  
     getting very  imminent and we want  to tell you why.   We                                                                  
     appeared    yesterday    before    Mr.    Whitaker's    -                                                                  
     Representative  Whitaker's  committee  and said  some  of                                                                  
     the  same things  and  I don't  think  I'll say  anything                                                                  
     contrary  today to  what we  said then.   We have  always                                                                  
     believed  the Alaska Highway  Pipeline was not only  cost                                                                  
     effective,   but  it   was   environmentally  sound   and                                                                  
     politically palatable.  There is a great deal  of history                                                                  
     about this  proposal.  Some of you may recall  there were                                                                  
     originally three  different proposals to move  Alaska gas                                                                  
     to market in  the 1970's: the El Paso Project,  which was                                                                  
     LNG to  California; theArctic   Gas Project, which  would                                                                  
                                                                                                                              
     pipeline  gas across  the North  Slope  to the  MacKenzie                                                                  
     Valley  and Canada and  then through  Canada to the  U.S.                                                                  
     market;  and  the  Alaska Highway  project,  an  overland                                                                  
     pipeline  along the  Dalton and  Alaska Highways  through                                                                  
     Alaska and  Canada to the  Lower 48. The history  is that                                                                  
     both  the  United States  and  Canada agreed  that,  when                                                                  
     all  things were  considered,  the Alaska  Highway  route                                                                  
     was the best option.                                                                                                       
                                                                                                                                
     Accordingly,  certificates   were  issued,  international                                                                  
     agreements  were  signed   by  the  President  and  Prime                                                                  
     Minister.   The agreements  were ratified by Congress  in                                                                  
     the U.S.  and by Parliament  in Canada and the  decision,                                                                  
     the  agreement, and the  legislation selecting the  route                                                                  
     have  the force and  effect of a  treaty between our  two                                                                  
     countries.                                                                                                                 
                                                                                                                                
     There is now  a new proposal being floated  whose central                                                                  
     premise  is to  move  Alaska gas  east  to the  MacKenzie                                                                  
     Delta  and then  down  the valley  to  join the  Canadian                                                                  
     pipeline  grid.    This only  differs  from  the  earlier                                                                  
     Arctic  Gas  project  that   was  rejected  in  that  the                                                                  
     pipeline  is going  to be  laid  in the  ocean under  the                                                                  
     ice.    This  is  not  a new  concept.    We  and  others                                                                  
     selected  similar  options  before and  we  predict  this                                                                  
     proposal   will  fail  for   the  same  reasons,   namely                                                                  
     economics, environment and politics.                                                                                       
                                                                                                                                
     But, clearly,  there is a renewed interest in  building a                                                                  
     pipeline from  Alaska to the  Lower 48 states.   The U.S.                                                                  
     demand and  price for natural gas continues  to escalate,                                                                  
     driven  primarily   by  the  demand  for   new  gas-fired                                                                  
     electrical  generation.  Most  analysts predict a  30 TCF                                                                  
     U.S.  market and up  to a $3.00/MCF  price by the  second                                                                  
     half of this  decade.  Indeed it could happen  before the                                                                  
     second half of this decade.                                                                                                
                                                                                                                                
     There is a  need to connect new sources of supply.   Many                                                                  
     believe that  the U.S. demand will be met  with increased                                                                  
     exports  of   Canadian  natural  gas.  We   believe  this                                                                  
     assumption  is too  optimistic.   Recently, the  chairman                                                                  
     of the National  Energy Board warned about  the potential                                                                  
     of  a $2/BCF  per day  shortfall  in deliverability  from                                                                  
     Canada  by  2001.   This  winter  we are  seeing  surplus                                                                  
     pipeline  capacity  and  the   1.5BCF  per  day  Alliance                                                                  
     pipeline  will be put  in service  later this fall.  That                                                                  
     capacity will  be vacant when  the new pipeline  comes in                                                                  
     because it won't be filled with Canadian gas.                                                                              
                                                                                                                                
     And  finally,  and the  most  important thing  from  your                                                                  
     standpoint,  is  that  the  North Slope  is  the  largest                                                                  
     unconnected  gas  reserve  in  North  America.    It  may                                                                  
     basically  be the  largest gas  reserve.   We've been  in                                                                  
     the gas  business for some  time and, as an Albertan,  we                                                                  
     have a  particular perspective  on this issue because  at                                                                  
     one  time, much of  Alberta's natural  gas was  stranded,                                                                  
     not  unlike   your  current  situation.     Industry  and                                                                  
     government  took  up a  challenge  as  to how  they  were                                                                  
     going  to  put  it  to  use   and  the  strategy  is  not                                                                  
     different  from what we now  understand Alaskans  are now                                                                  
     thinking  of,  namely  you   look  for  increased  market                                                                  
     opportunities  in  the Lower  48 but  you  must look  for                                                                  
     ways  to  use and  further  process  the gas  within  the                                                                  
     state.   That provides  the jobs that  you need for  your                                                                  
     people.                                                                                                                    
                                                                                                                                
     There was enough  gas in Alberta for both purposes.   The                                                                  
     Alberta strategy  was to process  some of its  gas within                                                                  
     and find  new markets for  the rest and it succeeded,  in                                                                  
     part,  because  of the  policies  of government  and  the                                                                  
     development  plans of industry  but also because  Alberta                                                                  
     was in  the right place  at the right  time.  We  believe                                                                  
     you are  in the right  place and that  the right time  is                                                                  
     very near.                                                                                                                 
                                                                                                                                
     Alberta's  strategy   was  to  develop  a   petrochemical                                                                  
     industry   in  the  province   and  aggressively   pursue                                                                  
     increased exports  to the U.S., including new  markets in                                                                  
     the U.S. Northeast and it was very successful.                                                                             
                                                                                                                                
     Capital  investments  in the  petrochemical  industry  in                                                                  
     Alberta  are approaching $7  billion Canadian.  Over  400                                                                  
     construction  jobs  are  created   for  each  $1  billion                                                                  
     investment  and  a  single   $200  million  petrochemical                                                                  
     derivative  plant  in Alberta  pays cumulative  taxes  of                                                                  
     $300 million Canadian over a 20-year period.                                                                               
                                                                                                                                
     At the  same time, natural  gas exports to the  U.S. have                                                                  
     increased  dramatically in  the  past two  decades.   The                                                                  
     question  from  here,  of course,  is  can  the  distance                                                                  
     factor  be overcome.   Will the  Chicago gas price  allow                                                                  
     for  the profitable  movement of  Alaska gas  south?   We                                                                  
     believe that  the answer is  yes and we believe  that the                                                                  
     best  way to transport  your gas to  market is along  the                                                                  
     Alaska Highway pipeline.                                                                                                   
                                                                                                                                
     The current  projected capital  cost for the pipeline  is                                                                  
     around U.S. $6  billion in order to get to what  BP Amoco                                                                  
     calls the  Alberta gas hub,  which would be the  point at                                                                  
     which  Alaska  gas  would  reach  the  various  pipelines                                                                  
     serving North  America out of both Canada and  the United                                                                  
     States  - out of  Alberta. And you,  in moving your  gas,                                                                  
     would have a choice as to which of those you use.                                                                          
                                                                                                                                
     It  is necessary  that there be  spare pipeline  capacity                                                                  
     or  otherwise your  price goes  down  so you  have to  be                                                                  
     able to move  it on to the eventual market  and therefore                                                                  
     will  have to  connect  into areas  where  you have  more                                                                  
     than one choice.                                                                                                           
                                                                                                                                
     We now believe  that the appropriate design for  the pipe                                                                  
     would  involve using  a high-pressure  pipe that has  the                                                                  
     capability  of moving  gas liquids  that might  otherwise                                                                  
     be  left stranded  on  the North  Slope.   We  anticipate                                                                  
     throughput  volumes in  the  range of  2.5 to  3 BCF  per                                                                  
     day. The  distance would be about 1,700  miles commencing                                                                  
     at  the North  Slope  with roughly  one-half  of the  new                                                                  
     pipeline  being built  in Alaska  and the  other half  in                                                                  
     Canada.                                                                                                                    
                                                                                                                                
MR. PIERCE continued.                                                                                                           
                                                                                                                                
     Because  we have many  of the key  approvals in hand,  we                                                                  
     believe our  pipeline could be in service by  as early as                                                                  
     2006.   This is an ambitious  plan, but we believe  it to                                                                  
     be  a  realistic one.    Some ask  how  is it  that  this                                                                  
     pipeline  is so  much  cheaper than  previous  estimates.                                                                  
     There  are several  reasons.  A sizeable  section of  the                                                                  
     pipeline  has  been built  but  a higher  strength  steel                                                                  
     exists,  higher  operating  pressures  enable us  to  use                                                                  
     smaller  diameter pipe to  move the  same volume of  gas.                                                                  
     New  welding  techniques  enable  us  to  achieve  higher                                                                  
     productivity  in pipeline  construction.   And there  are                                                                  
     many  other improvements,  which were  not there when  we                                                                  
     were originally certified 20 years ago.                                                                                    
                                                                                                                                
     To  give you  an idea of  how much  things have  changed,                                                                  
     when  we  originally estimated  this  project we  had  in                                                                  
     excess  of $1  billion  for northern  communications  and                                                                  
     now  you  can get  all  the northern  communications  you                                                                  
     want  by renting  a telephone  today.  We  have done  all                                                                  
     kinds  of studies  on permafrost.   We  thought we  would                                                                  
     have to truck  in gravel to make berms but we  don't have                                                                  
     to  any  more.    We  can  electronically   check  what's                                                                  
     happening  to the pipe  every hour of  the day and  if it                                                                  
     is  starting to move,  we can  go in and  adjust it.   So                                                                  
     there have been many changes on the technical side.                                                                        
                                                                                                                                
     There  are currently,  of  course, key  sensitivities  to                                                                  
     this  project.  Two  of the most  important are the  cost                                                                  
     of  gas  in  the  market  and   the  pipeline  throughput                                                                  
     volumes.  Ultimately, for any  project to succeed,  there                                                                  
     must  be   something  in  it   for  the  producers,   the                                                                  
     pipelines, the  major suppliers and unions,  the in-state                                                                  
     gas users  and clearly the governments and people  of the                                                                  
     state  where the  gas originates.  Naturally, the  higher                                                                  
     the price of  gas in the Lower 48 states, the  more money                                                                  
     there will  be to go around.   We believe that  a Chicago                                                                  
     gas  price in  the  range of  $3.00/MCF  could provide  a                                                                  
     sufficient profit margin for everyone to sign on.                                                                          
                                                                                                                                
Number 529                                                                                                                      
                                                                                                                                
     Turning  to the  question  of throughput,  as  a rule  of                                                                  
     thumb,  larger pipeline capacities  equal lower per  mile                                                                  
     transportation  totals. But, of course, pipeline  designs                                                                  
     must  also  be cognizant  of  the Lower  48  marketplace.                                                                  
     Overbuilding the  pipeline in the beginning  could defeat                                                                  
     the purpose of the exercise.                                                                                               
                                                                                                                                
     There   are  obvious  synergies   if  we  can   harmonize                                                                  
     pipeline  designs so as  to serve both  the Lower 48  and                                                                  
     the  in-state growth  in gas  demand.  This  should be  a                                                                  
     win-win  for Alaska economic  development and the  Alaska                                                                  
     Highway pipeline,  not to mention the consumer  advantage                                                                  
     for  Alaskans that  will result from  the opportunity  to                                                                  
     use natural gas for home heating.                                                                                          
                                                                                                                                
     Foothills  is a  partner in  the ANS LNG  project and  is                                                                  
     the second  largest participant with ARCO.  We  have been                                                                  
     actively investigating  these synergies and  believe that                                                                  
     we  could save  several hundred  million  dollars if  the                                                                  
     two projects could be brought together.                                                                                    
                                                                                                                                
     Let me now  return to those three fundamental  factors of                                                                  
     any  pipeline  proposal: 1)  economics,  2)  environment,                                                                  
     and 3)  politics.  Can  an alternative proposal  move the                                                                  
     gas cheaper?                                                                                                               
                                                                                                                                
     One  alternative  currently  being investigated  in  some                                                                  
     circles  is the proposal  to build  a pipeline under  the                                                                  
     ice  of  the  Beaufort Sea.  The  promoters  claim  their                                                                  
     pipeline  is shorter, will  encounter fewer  construction                                                                  
     obstacles, and,  therefore, can deliver Alaskan  gas into                                                                  
     the  Canadian  grid  cheaper   than  the  Alaska  Highway                                                                  
     Pipeline.   It  is  true that  the pipeline  through  the                                                                  
     ocean may  be shorter by  approximately 125 miles,  about                                                                  
     seven percent of the total project.                                                                                        
                                                                                                                                
     However, distance  alone will not make the  proposal more                                                                  
     cost   efficient.  Why?   Because   the  Alaska   Highway                                                                  
     Pipeline will  be built along an existing  transportation                                                                  
     corridor,  the  Dalton and  the  Alaska Highways.    Easy                                                                  
     access  to the  right-of-way  is extremely  important  to                                                                  
     low-cost, efficient  pipeline construction.   Without it,                                                                  
     the  movement  of  personnel,  materials,  and  equipment                                                                  
     would  be a  major  undertaking  in its  own  right.   To                                                                  
     build  a pipeline  where no road  currently exists  often                                                                  
     means  that the cost  of a  new road  is included in  the                                                                  
     capital costs  of the pipeline.  And as you  know as well                                                                  
     as we,  northern roads cost a  lot of money to  build and                                                                  
     maintain.                                                                                                                  
                                                                                                                                
     The terrain  along the Alaska  Highway route provides  no                                                                  
     greater construction  challenges than those now  faced in                                                                  
     northern  Canada  and Alaska.  Most of  the  geotechnical                                                                  
     work  has  been  completed along  the  right-of-way.  The                                                                  
     mountain   pass  in   the  Brooks   Range  is   difficult                                                                  
     construction, but  not long and not extraordinary  by any                                                                  
     means.                                                                                                                     
                                                                                                                                
     We have  many of the necessary  permits in hand  and most                                                                  
     rights-of-way   have  been   secured.    An   alternative                                                                  
     project  must begin from scratch.   That effort  requires                                                                  
     time  and money  and plenty  of both, as  we can  attest.                                                                  
     We  believe that  a pipeline  under the  ocean will  cost                                                                  
     more.                                                                                                                      
                                                                                                                                
     The  second fundamental factor  relates to  environmental                                                                  
     issues.  Would  an offshore North Slope pipeline  be more                                                                  
     environmentally  benign?   We don't think  so.  In  fact,                                                                  
     environmental factors  played a key role in  the original                                                                  
     decision  when  the  Alaska Highway  Pipeline  route  was                                                                  
     chosen.   Again, the  fact that  the pipeline follows  an                                                                  
     existing  well-used  transportation corridor  means  that                                                                  
     it    will    be   less    environmentally    disruptive,                                                                  
     particularly  when  compared  to  a  pipeline  through  a                                                                  
     pristine  undeveloped area.    Some would  scoff at  such                                                                  
     suggestions,  but they'd  be well advised  to study  some                                                                  
     recent  samplings of North  American attitudes  regarding                                                                  
     energy issues.  The most important energy  industry issue                                                                  
     is  not cost but  the effects on  the environment.   That                                                                  
     is  a marked  change in  public sentiment  and perhaps  a                                                                  
     fundamental change.                                                                                                        
                                                                                                                                
     And since we  live in a part of the country  far from the                                                                  
     centers  of population, just  like you  do, we find  that                                                                  
     the  people who  live a  long  way away  think that  they                                                                  
     know more  about our environment  than we do and,  by and                                                                  
     large, find ways to stop us from dealing with it.                                                                          
                                                                                                                                
     So, finally  the political factor  - and we say  anything                                                                  
     about  politics  with  some  trepidation  because  that's                                                                  
     your  business, not ours.   But  we think politics  often                                                                  
     boil  down to  a  debate about  what  benefits will  flow                                                                  
     from any given  public policy. This debate will  be about                                                                  
     two very different  pipeline proposals:  the one  that we                                                                  
     present will  run through the  length of your state.   We                                                                  
      can become  a catalyst for trigger development  and will                                                                  
     provide  jobs for  your citizens  and, in  the long  run,                                                                  
     will generate maximum tax revenues.                                                                                        
                                                                                                                                
     I began  by speaking about  Alberta - the jobs  that were                                                                  
     created,  the business investment  that has resulted  and                                                                  
     the  taxes  that  have  been   generated.  If  maximizing                                                                  
     benefits  for Alaska is the  goal of energy  development,                                                                  
     then our  pipeline can help.   Frequently, pipelines  are                                                                  
     instruments  of national,  regional,  and state  economic                                                                  
     and  social   policy.    They  often  present   difficult                                                                  
     choices    about   complex    economic   and    long-term                                                                  
     environmental   priorities  and,  ultimately,   they  are                                                                  
     about   politics.    Our   project,   we    believe,   is                                                                  
     economically    competitive    with   any    alternative.                                                                  
     Environmentally  it is far  superior.   We will leave  it                                                                  
     to others to debate about the best public policy.                                                                          
                                                                                                                                
     Our  project won the  day once and  it's time this  issue                                                                  
     was  heard.  We  think we  have a head  start in  winning                                                                  
     this  matter  again,  because  we're  there,  we've  been                                                                  
     there,  and there are  a lot of things  in place.   Thank                                                                  
     you and we'd welcome your questions.                                                                                       
                                                                                                                                
Number 850                                                                                                                      
                                                                                                                                
CHAIRMAN HALFORD  thanked Mr.  Pierce for  his testimony  and asked                                                             
what the current gas price is in the Chicago market.                                                                            
                                                                                                                                
MR. HARRY HOBBS, Vice President,  replied that the spot price today                                                             
was $2.83  in Chicago and the  12-month strip price on  NYNEX today                                                             
was $2.93.                                                                                                                      
                                                                                                                                
CHAIRMAN  HALFORD asked  if it would  be to  Alaska's advantage  to                                                             
have the gas ownership  in Prudhoe Bay in the hands  of one company                                                             
or split as it is.                                                                                                              
                                                                                                                                
MR.  PIERCE   answered  that  more   than  one  owner   means  more                                                             
competition.  From his standpoint,  the gas could still emerge with                                                             
the three  companies that own it.   If the merger between  BP Amoco                                                             
and  ARCO  goes  through,  there  will  be  one  less  company  and                                                             
decisions would be  made quickly.  He would expect  that if the gas                                                             
went back  to ARCO, now that  BP understands the importance  of it,                                                             
things might  move quickly too.   He said if  it was his  money, he                                                             
would  want to  find  a way  to  get  that money  back  as soon  as                                                             
possible.                                                                                                                       
                                                                                                                                
MR.  PIERCE   said  Foothills   thinks  Alaska  has   a  particular                                                             
opportunity  in time.   Foothills believes  the U.S. Department  of                                                             
Energy's job  is not  to estimate  the supply; its  job is  to talk                                                             
about the  demand.    With a  30 TCF per  year demand,  there isn't                                                             
enough gas in  the Lower 48 to  serve that demand and  the only way                                                             
to serve it is with Alaska gas.   The Department of Energy does not                                                             
disagree about the supply.  Decline  rates are currently 20 percent                                                             
and may be increasing.  If 21  TCF of gas is the present amount and                                                             
between 4 and 5  TCF per year has to be put back  in to stay whole,                                                             
a lot  of new gas is  needed.  He indicated  on a map that  the gas                                                             
has already  been  found here and  it's recyclable.  There is  talk                                                             
about drilling  for more gas in the  North.  If more  is found, the                                                             
infrastructure will  have to be put  in.  Then, the  companies will                                                             
have to go through  all the environmental problems  to get a permit                                                             
to deal with it.                                                                                                                
                                                                                                                                
MR. PIERCE added that a key point  is that Congress agreed with the                                                             
Canadian government to put a system  in place to move Alaska gas to                                                             
the Lower  48 and  most of  the permits  are in  place.  Timing  is                                                             
important.   Three years  ago he  told the  committee the  time was                                                             
getting closer,  but it's  really close  now.   He and Mr.  Ellwood                                                             
have built  pipelines  all over  the world.   Mr. Ellwood  believes                                                             
this pipeline can  be in place within five years;  the construction                                                             
time will take  three years, which leaves only two  years to do the                                                             
other things that have to be done.                                                                                              
                                                                                                                                
SENATOR  TAYLOR asked  what impediments  at  the legislative  level                                                             
still stand in the way and what  the legislature can do to expedite                                                             
this project.                                                                                                                   
                                                                                                                                
MR. PIERCE answered that the legislature  should allow all projects                                                             
to compete  on the same  basis.  The  legislature shouldn't  put an                                                             
impediment in front of one that  the others don't face, because the                                                             
market will  determine whether or not  it makes sense.   Their view                                                             
of ARCO  is that everyone  in the world is  trying to get  into one                                                             
market and  that is the  Lower 48 of the  United States.   It's the                                                             
best market to sell the product  to; it's a growing market.  As the                                                             
only one  with the gas, Alaska  should "own the market"  - that is,                                                             
set the  price.  No one  else has that  under their control.   When                                                             
you  establish a  way for  a product  to go  the market,  all of  a                                                             
sudden the place  that originates the product finds  more and more,                                                             
because they look for it.                                                                                                       
                                                                                                                                
MR. PIERCE  explained that there  are six pipelines going  east out                                                             
of Alberta that move  about 8 BCF per day.  The last  line was a 48                                                             
inch line.  They are not necessarily  talking about just one.  They                                                             
put a  petrochemical business  in Red Deer,  Alberta, which  is the                                                             
half way  point of the province.   The weather there is  worse than                                                             
Alaska's.   Red Deer is  now the largest  ethane producer  in North                                                             
America and  the lowest cost producer.   It is exporting  and is as                                                             
far from  tidewater as  Fairbanks would be.  He would  think Alaska                                                             
could put a petrochemical industry  here by moving the gas to it so                                                             
that  it would  be  closer  to tidewater.    The industry  is  very                                                             
competitive in  nature.  The gas  is bound to be cheaper  here than                                                             
it is after you pay the cost of transportation to the Lower 48.                                                                 
                                                                                                                                
SENATOR  TAYLOR  said  he understood  Mr.  Pierce's  comment  about                                                             
allowing all projects  to compete equally.  He wanted  to know what                                                             
the  legislature needs  to do  now  so that  the Foothills  project                                                             
could  move forward  or so  that a decision  could  be made on  all                                                             
projects.                                                                                                                       
                                                                                                                                
MR. PIERCE  answered that  Foothills really  doesn't feel  there is                                                             
anything Alaska  needs to do.   Foothills needs the ability  to sit                                                             
down with  a producer  and work out  the costs  in final form.   He                                                             
thinks BP Amoco  has been trying to do that and  Foothills has been                                                             
in discussions  with BP.   When that's  done, the decision  will be                                                             
made on an  economic basis. There may be something  the legislature                                                             
could do at that time.  Clearly,  they expect to receive the right-                                                             
of-way permits without any difficulty  because they have always had                                                             
up-front experiences with the Alaskan  government.  The key at this                                                             
point is  to sit  down with  the people  who own  the gas and  then                                                             
proceed in a normal fashion.                                                                                                    
                                                                                                                                
SENATOR TAYLOR said he thought  Alaska owns about 27 percent of the                                                             
gas.                                                                                                                            
                                                                                                                                
MR. PIERCE  said that is  correct, but  he doesn't expect  that the                                                             
state would produce  it separately from the other owners.   He said                                                             
Alaska could use that as a means  to assist the project.  There are                                                             
ways the state  could help the financing and, in  the long run, not                                                             
go  short of  money.   When  the first  pipeline  was built  across                                                             
Canada, the Canadian government  owned, as a crown corporation, the                                                             
particular portion of it across  the head of a lake.  In due course                                                             
it  was purchased  back  at  full  cost.   The  project  has to  be                                                             
economical so  it may need  help in  the beginning.   Foothills has                                                             
heard  that BP  Amoco  intends to  be an  owner,  a deliverer,  and                                                             
intends to play very  big in the market.  Amoco is  the largest gas                                                             
player in North  America.  Mr. Pierce said that  Foothills does not                                                             
think the  problem will be  with the  State of Alaska,  it believes                                                             
the problem will be further east.                                                                                               
                                                                                                                                
                                                                                                                                
         SB 249-DEPT NAT RES & AK HARDROCK LAND EXCHANGE                                                                    
                                                                                                                                
CHAIRMAN  HALFORD  thanked  Mr. Pierce  for  his  presentation  and                                                             
announced SB 249 to be up for consideration.                                                                                    
                                                                                                                                
MR. JIM  STRATTON, Director  of the Division  of Parks  and Outdoor                                                             
Recreation,  said the  Independent  Mine State  Historical Park  is                                                             
located about 90  minutes from Anchorage in the  Hatcher Pass area.                                                             
It's an  historic mine operation  that was closed down  during WWII                                                             
and it  came to the division  from those mining interests  in 1980.                                                             
Currently,  about 52,000 visitors  per year  make their  way there.                                                             
It's very  accessible and it is  near the proposed new  ski area in                                                             
Hatcher  Pass.   It's  a major  tourist  attraction  in the  Mat-Su                                                             
Borough and it sits  on one of the few roads off  the major highway                                                             
system.  The main attractions are  the historical mining structures                                                             
and the  beginning of one  of the mine tunnels  in the side  of the                                                             
mountain.   Maintaining  historical  buildings is  expensive.   The                                                             
division held a public meeting  in March of 1997 to discuss options                                                             
with the community about different  ways to protect and sustain the                                                             
buildings in  the Park. Everyone  at the meeting  acknowledged that                                                             
some kind of adaptive  reuse of the structures was  the only way to                                                             
ensure the buildings would remain standing.                                                                                     
                                                                                                                                
MR. STRATTON said, in his mind,  the only way to accomplish that is                                                             
to work  with a private  partner to  develop a visitor  destination                                                             
facility  that would  include overnight  lodging,  food service,  a                                                             
gift shop,  and tours.   This is compatible  with the  purposes for                                                             
which  the Park  was  established a  couple  of years  ago but  the                                                             
division  learned from prospective  private  partners there  is not                                                             
enough cash flow  in lodging and food service alone  to support the                                                             
investment needed to adapt and reuse the buildings.                                                                             
                                                                                                                                
MR.  STRATTON  told  committee   members  the  prospective  private                                                             
partners would  need another attraction,  such as  underground mine                                                             
tours.   However, the  division did  not own  beyond the first  few                                                             
hundred  feet  of  the  tunnel.  The tunnel  was  owned  by  Alaska                                                             
Hardrock,  Inc., who  is  interested in  pursuing  an exchange  for                                                             
property the State  owned on the Willow Creek side  of Hatcher Pass                                                             
that Alaska Hardrock is currently  using for its mining operations.                                                             
The  division  got together  last  year  with Alaska  Hardrock  and                                                             
signed  a preliminary  exchange agreement  and split  the costs  of                                                             
doing  the surveys  and appraisals.   In the  final analysis,  they                                                             
signed an  agreement in which the  State will receive 118  acres of                                                             
underground mine tunnel valued at  $87,000 and Alaska Hardrock will                                                             
receive 107  acres of surface  estate on  the Willow Creek  side of                                                             
Hatcher Pass valued  at $66,500.  Because of the  unequal values of                                                             
the exchange,  legislative approval  is required,  which is  why SB
249 is before the committee today.                                                                                              
                                                                                                                                
SENATOR TAYLOR  asked how  much Alaska Hardrock  will pay  per acre                                                             
for the State  lands.  He figured  it to be a little  over $500 per                                                             
acre.                                                                                                                           
                                                                                                                                
MR. STRATTON said it calculated out to $620.                                                                                    
                                                                                                                                
Number 1811                                                                                                                     
                                                                                                                                
SENATOR  TAYLOR asked  if the  division  had to  survey that  land,                                                             
stake it and create  a subdivision with a five-year  plan before it                                                             
could be conveyed.                                                                                                              
                                                                                                                                
MR. STRATTON  said the parcels had  to be surveyed this  summer and                                                             
Alaska Hardrock  paid for  that.   The survey  for the acreage  the                                                             
State is receiving did not have to be redone.                                                                                   
                                                                                                                                
SENATOR TAYLOR asked if the State is just receiving tunnels.                                                                    
                                                                                                                                
MR. STRATTON said that is correct.                                                                                              
                                                                                                                                
SENATOR  TAYLOR asked  if  they wouldn't  need  legislation if  the                                                             
appraisal values had been the same.                                                                                             
                                                                                                                                
MR. STRATTON said that is true.                                                                                                 
                                                                                                                                
SENATOR TAYLOR commented  that he needs to talk to  the Division of                                                             
Lands because  that might  be the only  way an Alaskan  can acquire                                                             
land in this state.                                                                                                             
                                                                                                                                
MR. STRATTON  replied they  try to be  creative at the  Division of                                                             
Parks.                                                                                                                          
                                                                                                                                
SENATOR TAYLOR said  he didn't want to discourage them  in any way.                                                             
                                                                                                                                
CHAIRMAN HALFORD  asked if the division received  any opposition to                                                             
this proposal.                                                                                                                  
                                                                                                                                
MR. STRATTON replied that the division  had a public comment period                                                             
for the month of  December and the first part  January and received                                                             
a  couple of  comments  from folks,  but  essentially  it's a  non-                                                             
controversial action.                                                                                                           
                                                                                                                                
Number 1898                                                                                                                     
                                                                                                                                
SENATOR  TAYLOR  moved SB  249  out  of committee  with  individual                                                             
recommendations.  There were no objections and it was so ordered.                                                               
                                                                                                                                
With no  further business  to come  before the committee,  CHAIRMAN                                                             
HALFORD adjourned the meeting at 4:55 p.m.                                                                                      

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