Legislature(2001 - 2002)
02/05/2001 03:35 PM Senate RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES COMMITTEE
February 5, 2001
3:35 p.m.
MEMBERS PRESENT
Senator John Torgerson, Chair
Senator Drue Pearce, Vice Chair
Senator Rick Halford
Senator Pete Kelly
Senator Robin Taylor
Senator Kim Elton
Senator Georgianna Lincoln
MEMBERS ABSENT
All Members Present
COMMITTEE CALENDAR
Foothills Pipe Lines Ltd. Briefing by:
Mr. John Ellwood, Vice President, Engineering &
Operations
Mr. Curt Moffatt, Van Ness & Feldman - United States
Counsel
Mr. Robert Cohen, General Counsel
ACTION NARRATIVE
TAPE 01-7, SIDE A
Number 001
CHAIRMAN JOHN TORGERSON called the Senate Resources Committee
meeting to order at 3:35 p.m. and announced a briefing by Foothills
Pipe Lines Ltd.
MR. JOHN ELLWOOD, Vice President, Engineering and Operations,
Foothills Pipe Lines Ltd. introduced Mr. Moffatt and Mr. Cohen and
said he would explore with the committee the current status of
their pipe line project with a focus on the permits and gave the
following briefing:
Our company is jointly owned by Westcoast Energy Ltd.
(Westcoast) and TransCanada Pipe Lines Ltd.
(TransCanada), the two major players in the Canadian gas
pipeline business. Our corporate mission is very
specific: to build and operate the Alaska Highway
Pipeline Project. We are leaders in the project that was
conceived twenty-five years ago and we are just as
committed today.
Between Westcoast and TransCanada, we have nearly 100
years of experience in developing, building and operating
gas pipeline projects. We have been involved with every
major Canadian gas pipeline project built in the last
fifteen years and several U.S. based projects, as well.
Our existing pipeline systems provide access to five of
North America's largest natural gas markets. Together,
these systems have the capability to move fifteen billion
cubic feet per day of gas from western Canada to the
consuming markets. Canadian gas accounts for almost 20
percent of all gas consumed in the United States and all
of that gas currently moved through pipelines owned in
whole or in part by TransCanada and Westcoast. The map
[an attachment to the presentation] shows the existing
and planned pipeline network of Westcoast and
TransCanada.
TransCanada, Westcoast and Foothills have developed
leading edge gas pipeline design, construction and
operating technology, including expertise in dense phase
designs. We are also well known for our development of
environmentally sound design, construction and operation
practices. We believe that our expertise in northern,
remote and difficult terrain gas pipeline construction
and operations is second to none. Building and operating
pipelines is our core business.
The Alaska Highway Project is the Alaskan gas pipeline
project approved in accordance with the Alaska Natural
Gas Transportation Act of 1976 (ANGTA) in the U.S., the
1978 Northern Pipeline Act in Canada, and the 1977
Agreement Applicable to a Northern Natural Gas Pipeline
between the two countries (U.S./Canada Agreement). The
project is shown in black and green on this map. The
southern portion of the project is in full operation. I
don't show it all on this map. Those legs extend to
California and to the Midwest near Chicago. As approved,
the Alaska Highway Project is a 4,800-mile international
pipeline project commencing at Prudhoe Bay and
terminating in the Midwest and California market areas.
It is important to note that the southern part of this
pipeline has been constructed and is in full operation.
The route for this system parallels the Trans Alaska
Pipeline System (TAPS) to Fairbanks, where it angles
southeast, following the Alcan Highway to the Alaska-
Yukon border with Canada, down through the Yukon
Territory and northern British Columbia, and into
Alberta. In Alberta, the pipeline splits into two legs.
The Eastern Leg proceeds southwest, crossing the U.S.-
Canada border at Monchy, Saskatchewan and terminating
near Chicago. The Western Leg proceeds southwest,
crossing the U.S.-Canada border near Kingsgate, British
Columbia and terminating at a point near San Francisco,
California.
Foothills and TransCanada are the two remaining partners
of the Alaska Northwest Natural Gas Transportation
Company (Alaska Northwest Company), a partnership formed
to construct and operate the Alaska portion of the Alaska
Highway Project. In addition, Foothills is the Canadian
sponsor of the Alaska Highway Project, and the majority
owner and operator of all the Canadian portions of the
Eastern and Western Legs of the Alaska Highway Project.
Foothills has continuously championed the Alaska Highway
Pipeline Project from the very beginning.
The Project is back on the list of possible solutions to
the current North American concerns about high energy
prices and the adequacy of natural gas supplies.
There are some basic points I would like to delineate:
• It is important to remember that this pipeline
crosses the territory of two countries with different
regulatory and political regimes.
• The Project has a long history, which adds unique
attributes. The permits which have been issued are a
product of this history and to understand the former
requires an appreciation of the latter. Significantly,
ANGTA in the U.S. and the Northern Pipeline Act in Canada
create expedited procedures for completing the chosen
system, the Alaska Highway Project.
• The pipeline permitting process can be very time
consuming. In addition to the substantial work already
completed on both the Alaskan and Canadian portions of
the Alaska Highway Project, the special legislative and
regulatory procedures in place in the U.S. and Canada
will assist in expediting the construction and initial
operation of the Project and keeping unnecessary delays
to a minimum.
As I indicated, there are important historical dimensions
associated with this project. We might focus on the time
frame 1976-1982. Originally there were three competing
Alaskan natural gas pipelines proposed. As shown on this
map two of the projects were overland pipelines through
Alaska and Canada. The third project would have
transported gas by pipeline to tidewater, following the
route of the TAPS pipeline, where the gas would be
liquefied and transported to California by LNG tankers.
The U.S Congress enacted the Alaska Natural Gas
Transportation Act of 1976 with a purpose to provide an
expedited process with respect to the selection of a
single transportation system for the delivery of Alaska
natural gas to the lower forty-eight states and to
expedite construction and initial operation of the chosen
transportation system.
With respect to the transportation of Alaska North Slope
gas to markets in the lower 48 states, ANGTA superseded
the usual Natural Gas Act process for granting federal
regulatory authorization to construct and operate a
pipeline. ANGTA assigned the responsibility for the
overall Alaska pipeline agenda to the President and
Congress. Much the same approach was followed in Canada,
where the government took an active role in the decision
regarding the Alaska natural gas pipeline. The reason for
the creation of this extraordinary authority was that the
governments wanted to expedite a cumbersome regulatory
approval process in order to move more quickly to a
solution.
Prior to 1978, a Canadian Board of Inquiry (The Berger
Inquiry) examined a proposal to move Alaska gas across
the North Slope and along the Mackenzie Valley. At the
same time the National Energy Board (NEB) held a hearing
to determine which of the two overland pipeline routes
was acceptable to Canada. Both processes rejected the
North Slope route (primarily for environmental reasons)
and the NEB recommended the Alaska Highway Project
option, being promoted by Foothills. The Berger Inquiry
recommended that no pipeline should be built along the
Mackenzie River section for at least a decade and that a
pipeline across the northern Yukon should never be built.
During this same period of time the Federal Power
Commission (later to become the Federal Energy Regulatory
Commission (FERC) came to a split decision on the
question of which route should be selected. Following the
enactment of the ANGTA, the President selected the Alaska
Highway route and the Alaska Highway Project with his
Decision and Report to Congress on the Alaska Natural Gas
Transportation System (President's Decision or Decision).
In 1977 just prior to the President issuing his Decision,
the U.S. and Canada signed the U.S./Canada Agreement.
This agreement or treaty, established the route, chose
the companies who would build and operate the system,
established tolling principles, and set the terms and
principles to be followed in facilitating the
construction and operation of the Alaska Highway Project
pipeline. The President's Decision reflected the
U.S./Canada Agreement. The Decision and the Agreement
were subsequently approved by the U.S. Congress. In 1978
Canadian Parliament enacted the Northern Pipeline Act
which:
1)incorporated all of the terms of the U.S./Canada
Agreement,
2) issued statutory certificates of public convenience
and necessity to the respective subsidiaries of Foothills
Pipe Lines Ltd.,
3) created the Northern Pipeline Agency to facilitate
the efficient and expeditious planning and construction
of the pipeline,
4) established the methodology and rules for setting
the Canadian tolls and tariffs for the pipeline,
5) selected the route for the pipeline across Canada
and
6) established Terms and Conditions respecting the
socio-economic, environmental, construction and
operations matters.
The complete Alaska Highway Project is shown on the
attached map.
The President's Decision designated Alcan Pipeline, a
subsidiary of Northwest Pipeline Company (Northwest), as
the party who would construct and operate the Alaska
pipeline segment of the Alaska Highway Project. This
authority was later assigned to Alaska Northwest, a
partnership assembled by Northwest. At one time Alaska
Northwest consisted of 11 partners, all subsidiaries of
U.S. or Canadian pipeline companies.
Given the magnitude of the pipeline undertaking Alaska,
Northwest sought to recruit the North Slope Producers to
join the project and assist the financing of the
pipeline. The Producers expressed a willingness to join,
but were restricted by the President's Decision that
disallowed the producers from taking an equity position
in the pipeline. In 1981, President Reagan submitted and
Congress approved a Waiver of Law package allowing
producer participation and including in the project the
North Slope gas conditioning facility.
In 1980, before the Waiver of Law was passed, Alaska
Northwest and the Alaska Producers entered into a
Cooperation Agreement providing for joint funding of the
design and engineering of the Alaska Highway Project and
the gas conditioning facility. Following the approval of
the Waiver of Law, the scope of the Cooperation Agreement
was expanded to encompass efforts to achieve the
remaining regulatory approvals and to jointly pursue
financing arrangements. The two sides anticipated that
affiliates of the Producers would join the Alaska
Northwest Partnership at some point. Design, engineering,
environmental, financing and regulatory work proceeded
along parallel tracks in Alaska and in Canada during this
period of time.
As worldwide energy supply and demand came back into
balance and the energy crisis eased, the focus of the
pipeline shifted to the pre-building of the southern
portions of the Alaska Highway Project. There was a
disagreement between Canada and the United States over
this issue, primarily as it related to the export of
Canadian natural gas to the U.S. market.
The Canadian Government was unwilling to authorize the
Pre-build or the gas exports without further assurance
from the United States that the entire Alaska Highway
Project, including the Alaska segment, would eventually
be completed. This assurance was forthcoming in a letter
from President Carter to Prime Minister Trudeau, along
with a Congressional resolution. As a result, the
southern Pre-build pipeline section was completed by
1982. This involved constructing 650 miles of 36 and 42-
inch pipeline from Caroline, Alberta to Monchy and
Kingsgate on the US border. The Pre-build and subsequent
expansions were constructed pursuant to the Northern
Pipeline Act and it's regulatory regime managed by the
Northern Pipeline Agency.
When the Pre-build construction began, it was widely
anticipated that North American natural gas demand would
quickly resume its upward trend. However, the market did
not recover as anticipated and demobilization of the
Alaska Highway Project soon began. In order to
remobilize, we will be required to make modifications and
enhancements to various elements of the Alaska Highway
Project regime. Pipeline designs will have to be modified
so that the Project can respond to capacity and gas
quality requirements of the shippers. We will have to
incorporate the latest technology and techniques
necessary to ensure that the maximum environmental
protection measures are in place. We do not expect any
difficulty in introducing these revisions, which are so
obviously of benefit to all parties.
Recently other parties have raised issues re1ated to
payments that might be due to withdrawn partners pursuant
to the Alaska Northwest Partnership Agreement. We are
confident that if any return of the withdrawn partners'
original investment is required, it can be resolved
within the context of an economically viable project.
Clearly, there is a lot of work still to be done. It is
very important to understand that the advantages that
come with the unique ANGTA and NPA regulatory regimes far
outweigh the alternative of starting from scratch. Using
the existing statutes and treaty we can assist in having
Alaska natural gas into the U.S. market sooner, with
competitive transportation costs and at the same time
reducing project risks for all stakeholders.
In our capacity as the managing partner of Alaska
Northwest, we have maintained the Alaska Highway Project
in good standing. We have kept the project alive to
ensure that the advantages and benefits of the Project
could be used in remobilization plans to expedite
construction of the pipeline. We particularly wished to
preserve what we see as the "special and unique fast
track" regulatory regime.
Foothills and its shareholders have expended time and
effort to keep the permits current and to optimize the
project design. We do not intend to quit the field now
that success is within sight.
A substantial amount of work has been completed by the
Alaska Highway Project sponsors to date. Before
discussing the specific permits held by Alaska Northwest
it is important to better understand the unique
regulatory and legislative framework under which these
permits were issued, namely ANGTA.
ANGTA and the President's Decision remain in effect and
can be terminated only by another act of Congress. ANGTA
does not create a perpetual priority for the Alaska
Highway Project. Rather, it establishes a priority
designed to ensure that the Alaska Highway Project will
be completed and begin initial operation in accordance
with the decision of the President and Congress. Once the
Alaska Highway Project is in operation additional
projects may be considered under the Natural Gas Act.
In implementing this priority, ANGTA requires that
Federal agencies and officers expedite and issue at the
earliest practicable date all permits and authorizations
required by the Alaska Highway Project. In addition,
ANGTA provides that applications and requests with
respect to permits and authorizations required by the
approved system shall take precedence over any similar
applications and requests. Furthermore, ANGTA limits the
discretion of Federal agencies and officers to include in
certificates and permits for the Alaska Highway Project
any conditions that would obstruct the system's
expeditious construction and initial operation.
As required by ANGTA, the FERC in 1977 expeditiously
issued a conditional certificate of public convenience
and necessity for the Alaska Highway Project. That
certificate contains no expiration date and is still in
effect today. In addition, Alaska Northwest holds a
federal right-of-way grant issued in 1980 by the
Department of Interior's Bureau of Land Management. That
grant does not expire until December 2010, and may be
renewed at the request of Alaska Northwest.
Furthermore, Alaska Northwest holds two recently extended
Clean Water Act wetlands permits issued by the Army Corps
of Engineers in coordination with many other agencies.
Those permits were extended through September of 2007.
While these various federal permits were issued some time
ago, they all are valid today. Indeed, nothing in ANGTA
or in the certificates and authorizations issued for the
Alaska Highway Project thereunder provides for the
expiration of the chosen system's priority because
completion of the Alaska segment was postponed until the
U.S. domestic market could support it. Rather, the Alaska
portion of the Alaska Highway Project has been held in
reserve until the need for additional natural gas arises
in the Lower 48 states is such that this section can be
completed.
As sponsors, we have actively protected the preserved
Alaska segment by maintaining all necessary certificates
and permits and actively overseeing the rights-of-way. We
recognize that these certificates and permits need to be
updated to capture changes in technology, markets and
environmental requirements. We will do such updating, and
it can be done within the ANGTA framework. To that end, a
couple of additional points need to be emphasized before
I move on to the State permits.
• First, ANGTA clearly envisions and provides for the
ability to condition and to amend these permits. These
powers are subject only to the limitation prohibiting
changes in the "basic nature and general route" and
actions that will "otherwise" prevent or impair in any
significant respect the expeditious construction and
initial operation of the Alaska Highway Project.
• Second, the Alaska Highway Project sponsors'
requests for both new permits and amendments to existing
permits must be given priority under ANGTA. This priority
translates into a timing advantage for the Alaska Highway
Project.
• Third, the authority of the Office of Federal
Inspector, as transferred to the Secretary of Energy,
also continues in effect today to expedite and coordinate
federal permitting, enforcement of permit conditions, and
facilitation and oversight of the construction and
initial operation of the U.S. portion of the Alaska
Highway Project.
• Fourth, ANGTA also provides for expedited and
limited judicial review of actions taken by Federal
agencies and officers.
• Finally, the Alaska Northwest Partnership is well
along in permitting the Alaska Highway Project.
On the state side, Alaska Northwest has a pending State
of Alaska right-of-way lease application. Recently, we
have initiated discussions with the State officials
regarding perfecting and processing the pending
application. Also at the state level, Alaska Northwest
holds certificates of reasonable assurances issued
pursuant to Section 401 of the Clean Water Act and a
determination of consistency with the Coastal Zone
Management Act.
While Foothills (Alaska Northwest) already holds the
major permits necessary to construct the remainder of the
Alaska Highway Project, there are additional permits and
authorizations that will need to be obtained. For
example, the Alaska Highway Project sponsors will need to
acquire a permit under the Clean Air Act. However, these
additional permits will be procured as the Project
proceeds, and such procurement will not cause a delay in
the expeditious construction of the Alaska Highway
Project.
On the Canadian side, Foothills holds two unique
certificates or permits:
• Certificate of public convenience and necessity.
• Yukon right-of-way.
The certificate of public convenience and necessity is
the Order issued following a successful hearing before
the National Energy Board (NEB) of a pipeline
application. The information that is required to be filed
for hearing purposes is delineated in regulation and
includes details about supply and markets, environmental
impact assessment, engineering, construction and
operations plans and details about connecting pipeline
facilities.
The preparation of the required hearing information
generally takes one to two years to complete and the
length of the hearing will be proportional to the level
of controversy surrounding the issues.
Foothills has completed this phase of the process. We
have the certificates that entitle us to build a
pipeline, subject only to terms and conditions set out in
the Alaska Highway Project regime. The certificates are
statutory. They were issued by the Parliament of Canada
when it enacted the Northern Pipeline Act and are in
keeping with the principles and intent of the U.S./Canada
Agreement.
We acknowledge that the certificates were legislated 20
years ago and that some have raised questions about their
scope and validity. Others suggest that the certificates
are dated and accordingly must be reissued. The
certificates are valid. We are on solid legal ground in
this regard.
Changes to the pipeline design to accommodate new
technical issues and improvements have previously have
been granted by the Northern Pipeline Agency both at the
time of the construction of the original Pre-build
facilities and later during the facility expansion.
However, fundamental changes to the Canadian certificates
would require changes to both the legislation and the
treaty. For example, another project could not be
approved under the Alaska Highway Project regime.
Further, the Northern Pipeline Act (incorporating the
U.S./Canada Agreement) provides that the route for Alaska
natural gas will be along the route set forth in Annex 1
to the U.S./Canada Agreement, i.e. the Alaska Highway
route. In the face of the provision of the Northern
Pipeline Act and the U.S./Canada Agreement, a treaty with
the force of law, it is difficult to see how the National
Energy Board could entertain applications either for
alternative pipeline routes for delivery of Alaska gas
through Canada or applications by companies other than
Foothills following the Foothills highway route for
delivery of Alaska gas through Canada.
Given the above, we may well ask what remains to be done
before the project can proceed?
First of all, we do not have a commercial arrangement
negotiated with the Alaska North Slope producers or other
shippers. Achieving this commercial arrangement is our
number one priority. We are confident that the mutual
interests of all sides will ultimately lead to
satisfactory arrangements.
Following the successful completion of such a commercial
agreement, there are a number of terms and conditions
that must be satisfied. These are set out in the Northern
Pipeline Socio-economic and Environmental Terms and
Conditions. It is our view that the terms and conditions
are broad enough to accommodate modern environmental,
engineering and construction practices. In fact, we
addressed this issue when we pre-built the southern
portion of the Alaska Highway Project pipeline.
Detailed design and engineering work also must be
completed and approvals must be obtained from the
Northern Pipeline Agency. It is this mechanism that I
referred to when I indicated that we had a "fast track"
regulatory process.
I will take a few minutes to describe the status of our
right-of-way through the Yukon. Foothills has been
granted an easement (by the federal government) in the
Yukon. The current term of the easement is September 2012
and provisions are in place to renew the easement for a
further term of 24 years. It is important to note that
the easement is protected under the Encumbering Rights
provisions of the Umbrella Final Agreement which has been
signed by the Government of Canada, the Government of the
Yukon and the Yukon First Nations. The Final Settlement
Agreements that have been negotiated with the Yukon First
Nations contain specific provisions relating to the
easement. In addition, the compressor station locations
and permanent access to the proposed stations are
protected.
What does this mean? From our perspective, this
translates into certainty of tenure and a significant
timing advantage. Foothills has developed an excellent
working relationship with the Yukon First Nations over
the years and we are building on that relationship. Like
the Canadian certificates, the easements also constitute
an important asset not easily replicated.
Let me summarize and focus on some of the key points.
Foothills is a company with real pipelines and real
customers. When combined with our shareholders,
TransCanada and West coast, we transport 20 percent of
all the natural gas consumed in the United States. We
have the know-how and the where-with-all to build the
Alaska Highway Pipeline. We and our former partners have
invested heavily to achieve the permits, certificates,
rights-of-way and much of the engineering on the Alaska
Highway pipeline.
A basic message that I want to leave with you is this, we
have a very unique and solid regulatory framework, it is
a very valuable framework in terms of saving money and
avoiding costly delays when building a pipeline. It is
more than a collection of permits. It is a package,
designed specifically to expedite building the Alaska
Highway pipeline. This framework can neither be
duplicated nor terminated easily. It is a one-of-a-kind
regime. I urge all Alaskans to take full advantage of it.
Finally, let me raise one other issue and that is the
matter of the pipeline route decision. Before we can move
from discussion to action this must be resolved. Anything
this committee can do to bring clarity to the routing
debate will be a positive development. So where do we go
from here?
A commercial agreement between pipelines and producers is
the next major milepost for the Project. Once a
satisfactory commercial arrangement is achieved ... the
flag drops; from that point on we believe that our
regulatory framework will allow "shovels to be in the
ground" within 24 months.
This is a very large project. It will involve many
companies. It will cost a lot of money and there will be
lots of issues to address and benefits to share.
Foothills and its shareholders intend to be major players
in the development and operation of this important
pipeline and we believe that we bring value to the
Project and value to Alaska.
Number 1600
SENATOR PEARCE asked him to explain how they got their commercial
agreements for the Prebuild system.
MR. ELLWOOD replied that they negotiated an arrangement with
PanAlberta Gas Corp., which was the original shipper of gas to
markets. They had an agreement in place with various U.S.
companies to purchase gas that it had contracted for in Alberta.
PanAlberta Gas contracted with [Foothills] to ship the gas. It's
not a negotiated arrangement as they understand today, because in
those days the terms of the tariff were set by regulation as a cost
of service measure. Today, he would expect a toll would be a
negotiated arrangement between the pipeline and its shippers and
have the regulator approve that.
SENATOR PEARCE asked how many Alaskan lease holders would have to
be involved in negotiated agreements with Foothills for there to be
enough gas to be supplied to them to move forward in building a
pipeline.
MR. ELLWOOD answered that to make a project like this financable,
they would need contracts for 15 - 20 years worth of gas supply for
the lenders to have confidence that the gas would be there. It's a
question of the volume of gas being sufficient to cover the
anticipated design flows for as long as it takes to repay the
lenders. The Act envisions a flow of 2 - 2.5 bcfd to start and to
increase maybe to 4 bcfd as time went on. This is a matter that
still needs to be resolved with the producers.
CHAIRMAN TORGERSON asked if 1.5 bcfd was going to originally come
out of the Mackenzie down the Dempster Highway.
MR. ELLWOOD answered that he thought it was 1.2 bcfd that would
have gone to Whitehorse where it would be commingled.
CHAIRMAN TORGERSON asked if that would have been a total of 4 bcfd
from Whitehorse and our segment was 2.5 bcfd.
MR. ELLWOOD responded that in the original design, they didn't
contemplate that the Alaska section would be limited to 2.5, but
that it would grow from there and so would the southern section
accordingly.
SENATOR PEARCE referred to the last paragraph on page 6 saying that
the original president's decision disallowed the producers taking
an equity position in the pipeline and asked if he was familiar
with the political or the economic reasons for that decision.
MR. CURT MOFFATT, General Counsel, responded that at the time there
was concern about the equity participation of the producers in the
transportation system and overall concern of access to the pipeline
by non-equity owner producers, particularly if and when additional
resources around and beyond Prudhoe Bay were identified. There were
also representations made by Alaska Northwest, as a sponsor at that
time. They believed it could be financed without equity
participation by the producers. This was ultimately modified, he
added.
SENATOR ELTON asked what the capacity was of the southern route
below Caroline [Alberta].
Mr. ELLWOOD replied that the present capacity of the eastern leg
crossing the border at Monchy down to Chicago is 2.2 bcfd and the
capacity of the western leg crossing the border at Kingsgate is 1
bcfd. Total capacity is 3.2 bcfd.
What would happen when Alaska gas comes on line will depend on a
couple of things, MR. ELLWOOD said. First, the contract for moving
gas on these systems are of various terms. Some will expire before
Alaska gas comes and some will not. Depending on the amount of
Canadian gas that might be renewed, there might be more or less
unused capacity in the pipe at the time Alaska gas floats. If that
is not sufficient capacity, they would contemplate expanding the
system as they have in the past. Counting both legs, they have
expanded it five times since it was originally constructed. That
can be done again.
MR. ELLWOOD said that it's not necessary for all of the Alaska gas
to flow through the Prebuild. There may be other markets that the
owners, producers, or shippers would like to pursue. The gas could
be dropped off along the network of pipelines, for instance.
SENATOR ELTON said that so many things have happened subsequent to
the Canada/U.S. agreement, and asked how bullet proof all these
arrangements really are. An EIS has a shelf life of three or four
years and it seems that permits must have some kind of shelf life
also, because of changing circumstances.
MR. ELLWOOD answered that they didn't use the word, "bullet proof."
He reiterated that there is a legislative regime in place in both
countries, ANGTA in the U.S. and the northern pipe in Canada, and
the treaty between the two countries and they think this has great
value. It provides for expedited approval of a way to move Alaska
gas to market. It does it in a very flexible arrangement, allowing
them to use the very best technology available. They have done
that as recently as 1998 in Canada when they expanded the
Saskatchewan piece of the Prebuild system. They believe that can
be done just as efficiently in Alaska, as well.
SENATOR ELTON asked if they saw it as a breach of existing
agreements if another route is selected.
MR. ELLWOOD replied that, "The Canada/U.S. agreement is very
specific and lays out a route for the transport of Alaska gas
across Canada. It is the law in Canada."
CHAIRMAN TORGERSON asked if it would take another treaty or a
decision of the President or Congress to pick a different route.
MR. ELLWOOD answered, "Sure. They are both sovereign countries and
if they choose to pass another law, they can pass another law."
CHAIRMAN TORGERSON asked if the agreement giving his route priority
didn't preclude them from picking a different route, but would need
a decision of the President to do that.
MR. ELLWOOD said it would take an Act of Congress.
CHAIRMAN TORGERSON said the treaty was for only 35 years and asked
if he thought they would be back in negotiation with the U.S. State
Department to change the treaty or go for a longer period of time.
MR. ELLWOOD answered that he would have to ask the Canadian State
Department its plans. He understands the treaty is for 35 years
and then would continue year-by-year unless either party gave
notice that they wish to cancel it. He didn't know what the
governments would do at that time.
Number 2300
SENATOR PEARCE asked where the gas is processed according to the
treaty and existing permitting.
MR. ELLWOOD answered that the carbon dioxide (CO2) would need to be
removed and it would have to be done on the North Slope. Any other
processing is a commercial matter with the owners of the gas.
SENATOR PEARCE said that Mr. Oliver, BP, said in a recent Alliance
meeting in Anchorage, that the present high prices of gas are a
disincentive to bringing Alaskan gas to market, because their
company believes these high prices will cause so much gas to come
on line that is closer to the markets and our gas will be pushed
out of the opportunity. She asked him if he agreed with that.
MR. ELLWOOD replied that if you look at the history of production
in the lower 48 over the last 10 years, it's flat to declining. If
you look at the more recent production history of the last six
months, it's still flat to declining even with record drilling
activity. Canada has a small upward rise in production and that is
due to bringing on line the Sable off-shore basin on the east coast
of Canada within the last year. Production from the west coast
sedimentary basin is rising marginally even though they have had a
whole year of record pace drilling.
TAPE 01-7, SIDE B
MR. ELLWOOD said there is an expectation and all the studies show
that over the next decade we, in North America, need to add about
20 bcfd of gas production over what we are now producing. Alaska
could produce about four. Even if the estimates are off by half,
Alaska still can't produce that much. "With the marginal increases
we have seen in growth in existing basins, I think it's very
difficult to see how this market is going to be supplied unless we
connect both Alaska and the Mackenzie Delta and expand all of the
basins that are currently producing in North America.
SENATOR PEARCE asked what he thought the committee could do to
bring clarity to the routing debate.
MR. ELLWOOD answered that he didn't know that much about the
process to suggest something, but from his perspective they have
to get moving forward on a common goal. They can't get there going
in different directions. The key players are the producers and the
state as owners and Foothills as a pipeline company with permits. T
SENATOR HALFORD said he wanted to have as much processing done in
Alaska as possible and was concerned that there would only be
initial processing.
MR. ELLWOOD replied that they have significant processing
capabilities in Alberta and clearly they bring economic advantages
and he understands his feelings.
Number 2100
SENATOR HALFORD asked what was the current status of any
negotiations using the state as a producer.
MR. ELLWOOD replied that they had been in contact with the
producers and have exchanged some information. The producers at
this point have come to some understanding amongst themselves and
that is a positive development as it gives them an entity to talk
to. They look forward to commencing some serious negotiation. He
understands that the state can select to take its gas in kind and
if that were the case, then they would be like a producer.
Foothills needs entities that will agree to ship their gas on their
pipeline.
SENATOR HALFORD asked what he thought the price of natural gas
would be two years out.
MR. ELLWOOD replied that his guess as an engineer would be pretty
worthless, but that the forward market in 2004 is holding around
$4. If prices get above that competing technologies tend to come to
the front, like clean coal.
SENATOR LINCOLN said that other pipeline related people she has
talked to have been good salesmen also and is having a hard time
deciding which is the better group for Alaska and asked if
combining the Foothills pipeline with a marine terminal would be a
feasible possibility.
MR. ELLWOOD replied, "Absolutely." He explained that they are a
participant in the Alaska North Slope LNG project which is not the
same as the project proponents were talking to her about a little
while ago. They have a serious interest in building an LNG
facility on tide water and are participating with BP, Phillips, and
Marubini in a study to advance that. Marketing that LNG in Asia
Pacific is a very difficult challenge. He said that moving forward
on the Alaska Pipeline would be very easy compared to the market
challenge in Asia Pacific.
SENATOR LINCOLN said that previous presenters said that the
Prebuilt was already at capacity and there was no way they could
expand or get the gas to market in a timely fashion and asked him
to respond to that.
MR. ELLWOOD answered, "That's absolutely nonsense!" He spent his
whole career expanding pipeline systems and that's how the natural
gas business in North America works. "You build a pipeline. As the
market grows and as the supply grows, you expand the pipeline
network to transport that gas." Any system in North America can be
easily expanded to carry Alaska gas.
CHAIRMAN TORGERSON asked how they do it.
MR. ELLWOOD explained, "You start with a pipeline and it will have
a few compressor stations on it, usually. Then, as the market and
supply goes, you'll add some more compressor stations. You put
more horsepower on it, you can pump more gas down it. You'll
eventually get to a place where the amount of fuel gas you use to
power the compressors becomes uneconomic. At that point, you start
laying some new pipe. You don't have to lay a complete new pipe
alongside the old one. You can lay short sections of new pipe - a
little bit here, a little bit there, and a little bit farther down.
Those short sections are sized for whatever might be the
incrementing growth you're looking at that time. You keep doing
that until the whole thing is connected and now you have two pipes.
Now you start adding compressors on the second pipe. You keep
doing this as long as the supply and market grow." He said that a
place called Empress has six pipelines crossing it.
SENATOR LINCOLN asked what would Foothills commitment be for Alaska
hire and utilizing Alaska businesses.
MR. ELLWOOD answered that they pride themselves on having pioneered
local hire and local business use in Canada and, "…would give an
absolute commitment that we will utilize to the maximum extent that
we can have local hire and local business." Fabrication of pipeline
components can be done here and there is a good support industry in
Alaska including pipeline construction and techniques.
Number 1700
SENATOR TAYLOR said when we started out we had "seven sisters" and
now we've whittled ourselves down to one big sister and one small
one. He said legislators do not understand how to somehow motivate
these companies to join hands and sign some type of agreement. He
asked how they could help and if further motivation is needed, what
they need to be discussing.
MR. ELLWOOD said a large decision needs to be made and everyone
needs to have confidence that the market price will hold high
enough that you won't be buying gas at $4 and selling it at $2.
The State will have to decide whether it wants to takes its royalty
gas in kind or market it itself.
SENATOR TAYLOR asked if we should be looking at some tax
incentives.
MR. ELLWOOD said he didn't know if that was an alternative for the
state or not. He hoped Foothills' discussions with the producers
would turn into serious negotiations fairly soon.
SENATOR HALFORD asked if he had ever seen any successful incentives
for or other encouragement that a province, state, or country had
been able to use to effectively encourage the producers that's
actually worked.
MR. ELLWOOD answered that on the original pipeline across Canada
from Alberta to Ontario there was a particularly risky section.
Industry was in its infancy and industry didn't know how much it
was going to cost to construct the line through there. In the end
the federal government built that section. TransCanada managed the
construction and the government provided the funding. When they
could afford it, TransCanada bought it back from the government.
SENATOR HALFORD said, "So socialize the risk and privatize the
profits."
MR. ELLWOOD responded that TransCanada bought that piece of
pipeline back at a price the federal government thought was fair.
SENATOR HALFORD asked if there were any other examples.
MR. ELLWOOD said that was all he knew of.
MR. MOFFATT added a historical point to Senator Lincoln's question
about the concept of the Y and how that would work with the ANGTA
framework and the authorizations that are currently held for the
Alaska Highway Project. He asked the committee to look at the
report the president submitted to Congress in support of his
recommendation in choosing the Alcan project over the El Paso LNG
project. He noted from the President's comments that,
"…installation of additional pipeline facilities connecting with
the Alcan system could provide natural gas to other areas of the
state, particularly the Cook Inlet region in southeastern Alaska
and thus supply the energy base required for long term economic
development." The president and Congress contemplated building
facilities off the Alcan forming a Y when they chose the Alcan
system over the LNG project El Paso had been proposing.
SENATOR ELTON asked if Foothills anticipated sitting down with the
producers at some point and talking about their participation as an
equity partner in a pipeline.
MR. ELLWOOD answered that they would be sitting down with them
fairly shortly to discuss how they might proceed.
SENATOR HALFORD asked if any of the producers had approached
Foothills with the possibility of buying their interest.
MR. ELLWOOD responded that they haven't offered it for sale. Their
business is owning and operating pipelines.
SENATOR KELLY asked if discussions about a sale be in his purview.
MR. ELLWOOD said it could be in his purview as Vice President of
Engineering or it could go directly to the shareholders. He would
know about it either way.
CHAIRMAN TORGERSON asked if there was any liability for them if the
pipeline didn't hook into the Prebuild. Was that portion designed
to be a stand-alone?
MR. ELLWOOD answered that it was designed as a stand-alone and has
its own tariff. It's not associated with any other company or any
other line. He couldn't see how it would be a liability. The
question was, "What would be the amount of unused capacity in the
line at the time Alaska gas comes on. We'll know that as we get
closer to the date. And what will be the amount of gas the
shippers want to send to the Chicago and California markets? Then
we will design the system that will carry that gas."
CHAIRMAN TORGERSON asked if he knew of any agreement where we would
preship gas from Alberta to repay that gas later on from the North
Slope.
MR. ELLWOOD answered that it was contemplated that the Canadian
market would have access to Alaskan gas in return for having
exported the Canadian gas during this period.
CHAIRMAN TORGERSON asked what volume we were dealing with on the
North Slope.
MR. ELLWOOD replied that he heard numbers from 26 tcbfd in Prudhoe
and he couldn't get a satisfactory answer as to whether that was in
the gas cap or the associated gas.
CHAIRMAN TORGERSON remarked that 26 tcbfd was just a little bit
short of what they need for 20 years at 400 mbcfd.
MR. ELLWOOD said it would be 365 days x 4 X 20.
CHAIRMAN TORGERSON said he used 360 days because he thought they
had down days.
MR. ELLWOOD said their existing pipeline has run at capacity for
three years in a row.
CHAIRMAN TORGERSON asked what was the volume of CO2 in our North
Slope gas. "Would it be in the reserve number or out?"
MR. ELLWOOD said he had seen a lot of 12 percent estimates.
CHAIRMAN TORGERSON asked if they wanted to take as much as they
could at the other end.
MR. ELLWOOD indicated that was right.
SENATOR TAYLOR asked if he saw the State as a producer.
MR. ELLWOOD said there were two different aspects to the commercial
arrangement. One is the project structure and ownership. The other
one is the transportation contracts for shipping the gas. They
haven't had time to talk to the producers about ownership or
transportation issues. They expect to start that process soon. He
didn't see why the state would not be an owner in these entities,
if it is interested in investing in pipelines. They have had
arrangements like that in other places. It's not so common in
North America because they are commercial enterprises.
CHAIRMAN TORGERSON asked him to point out the aboriginal route and
asked if they were involved in it.
MR. ELLWOOD answered that the "Aboriginal Pipeline Group",
consisting of the Northwest Territories, was advocating a route
that would take the Mackenzie Delta gas down the Mackenzie River
and bring it through Northern Alberta. Foothills is not directly
involved, but their shareholders, Westcoast and TransCanada, have
another separate joint venture which is pursuing that. Foothills
is the joint venture entity for the Alaska Highway route and there
is a separate joint venture for the Mackenzie Valley route.
CHAIRMAN TORGERSON asked if they owned the right-of-way for the
Dempster route.
MR. ELLWOOD replied no and explained when this debate occurred 20
years ago, the Berger Inquiry recommended that no pipeline be built
in the Mackenzie Valley for 10 years. There was concern that the
Mackenzie Delta gas would be stranded and the government asked
Foothills to look at alternatives which they did. One of them was
the Dempster Highway. It's a technical possibility, but it never
went further than being looked at on the map.
SENATOR PEARCE asked if he thought there would be either federal or
provincial financial assistance for the financing of the building
of the pipeline.
MR. ELLWOOD replied no, that this was a commercial enterprise.
Number 409
SENATOR PEARCE asked what he thought Foothills' next public move
should be.
MR. ELLWOOD said they do not want to seek higher profiles, but he
hoped they could soon move forward with reactivating their
application for rights-of-way on state lands.
SENATOR LINCOLN asked how the aboriginal route connects with the
over-the-top route.
MR. ELLWOOD explained that the over-the-top route was put forward
by a group from Houston and it would go from Prudhoe Bay offshore
into the Beaufort Sea, bring it onshore somewhere near the
Mackenzie Delta region and then to the Mackenzie Valley.
SENATOR LINCOLN asked where the aboriginal route tapped into the
gas reserves.
MR. ELLWOOD pointed out strictly in the Mackenzie Delta. He agreed
that they were not looking at the over-the-top route.
SENATOR TAYLOR asked if both of those pipelines were stand alone
economically viable. He asked if the Mackenzie Delta gas was
stranded.
MR. ELLWOOD said it is stranded except for one tiny exception.
There is gas being produced in the Mackenzie Delta servicing the
town of Anuvik.
SENATOR TAYLOR said there might be some economics of scale to
picking up gas off Alaska's North Slope. He asked how much gas was
on the Delta.
MR. ELLWOOD answered that the National Energy Board of Canada
estimated reserves to be 6 - 9 tcfd. The Chairman has requested an
interview with them about the alternative routes in the near
future.
CHIARMAN TORGERSON thanked everyone one for their comments and
adjourned the meeting at 5:15 p.m.
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