Legislature(2001 - 2002)
02/07/2001 03:55 PM Senate RES
| Audio | Topic |
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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 7, 2001
3:55 p.m.
MEMBERS PRESENT
Senator John Torgerson, Chair
Senator Rick Halford
Senator Pete Kelly
Senator Robin Taylor
Senator Kim Elton
MEMBERS ABSENT
Senator Drue Pearce, Vice Chair
Senator Georgianna Lincoln
OTHER MEMBERS PRESENT
Senator Alan Austerman
Senator Gary Wilken
COMMITTEE CALENDAR
Briefing by Gas Pipeline Consortium:
Mr. R.D. (Robbie) Schilhab, Manager
Alaska Gas Development
ExxonMobil Production Co.
P.O. Box 2180
Houston TX 77252
Mr. Joseph P. Marushack, Vice President
ANS Gas Commercialization
700 G Street
P.O. Box 100360
Anchorage AK 99510
Mr. Ken Konrad, Sr. Vice President
Business Unit Leader Alaska Gas
BP Exploration (Alaska) Inc.
P.O. Box 196612
Anchorage AK 99519
ACTION NARRATIVE
TAPE 01-8, SIDE A
Number 001
CHAIRMAN JOHN TORGERSON called the Senate Resources Committee
meeting to order at 3:55 p.m. and asked Mr. Marushack, Phillips
Alaska, to begin and the following is his presentation:
Good morning. My name is Joe Marushack from Phillips
Alaska. With me are Ken Konrad from BP Exploration and
Robbie Schilhab from ExxonMobil. Together we comprise the
Management Committee of the North American Natural Gas
Pipeline Group. We appreciate the opportunity to appear
before you today to discuss the project. Each of us will
participate in the presentation.
At the outset, let us say that we fully understand and
share the strong interest Alaskans and others have in ANS
gas commercialization. An economically viable project
would encourage new investment exploring for and
developing North Slope gas, provide construction and
employment opportunities, maximize state royalty and tax
revenues over the long term, and create the potential for
increased access to gas in Alaska. From a producer
prospective, an economic project will provide the value
that our shareholders expect from us. We are highly
motivated to progress an Alaskan gas project. Recognizing
your interest, the Project Team plans to provide periodic
updates to you on project status as various milestones
are reached. The Team also plans to engage in ongoing
dialogue with appropriate government agencies and other
parties. The evaluation and route selection process
cannot be done in isolation. We want to move a project
along most efficiently and so it must be an inclusive
process that provides opportunities for interested
parties to participate. This is an Alaskan project, but
it is also an international project of enormous scale. To
be successful, it will require the full cooperation of
Alaska, the U.S. federal government, the Canadian federal
government, as well as affected provinces, territories,
First Nations, and many other interested stakeholders.
At the same time, those participating in the dialogue
must be open and realistic. There are many groups with
many viewpoints. To be successful, we must listen to and
respect these viewpoints. And we must not lose sight of
our objective: a commercially viable gas pipeline that
can deliver natural gas from the North Slope to the
lower-48 states at costs competitive with other supplies
in the U.S. and Canada. We do not have a full feasibility
cost estimate at this time that addresses all the
technical, permitting and logistics issues of the two
pipeline routes. That's why we have to consider the costs
and benefits of both major pipeline routes before
selecting one. Indeed, it is our obligation, and for
permit filing purposes a requirement, to evaluate
alternative options with the governments, communities,
regulators, and our shareholders. We recognize that
Alaskans are concerned about the route selection process
and with the huge investment required we have committed
to establishing a factual basis for the evaluation.
Graphic 2
The next graphic outlines the various topics we plan to
cover. I'll briefly address the resource background, and
the market. Next Ken will provide you with an update of
the ongoing work effort. Lastly Robbie will get into the
details of the permit applications, deliverables and
plans.
Graphic 3 (Project Overview)
On December 6, 2000, the three major Alaska North Slope
gas producers--BP, ExxonMobil and Phillips--announced a
joint work program to evaluate and progress an Alaskan
Gas Pipeline Project. The project would ultimately
involve a large diameter pipeline system to deliver gas
from Alaska's North Slope to Canada and the lower-48
states.
The three producers will share the costs and leadership
of the project equally. The initial work program is
expected to cost at least $75 million. Staffing levels
are anticipated to total about 90 full time equivalent
personnel from the three companies, with significant
contractor support. The work effort will be primarily
managed and staffed in Anchorage, with other work
locations in the U.S. and Canada.
The work team has initiated the first steps in
progressing the project. Key program activities over the
next year include:
- Conceptual design of the world's largest COtreating
2
plant; and
- Conceptual designs for a large diameter pipeline,
high-efficiency compressor stations and a NGL recovery
plant.
We'll discuss three of these facilities in more detail a
little later in the presentation to give you a better
understanding of the size and magnitude of our work
effort and the facilities being evaluated.
Other program activities include:
- Project costing;
- Environmental field surveys;
- Permitting requirements and plans;
- Design of a commercial structure; and
- Overall viability of the project.
A focus of the work effort will be on route evaluation
and selection, leading to filings with U.S. and Canadian
regulatory authorities--the Federal Energy Regulatory
Commission (FERC) in the U.S., and National Energy Board
(NEB) in Canada. The target objective is to file FERC,
NEB and other appropriate applications in late 2001.
This is a very aggressive target. Once the work planning
process is finalized we will understand the timing
better. Of course, the filings are contingent on
developing a commercially viable project that can
competitively deliver gas to the lower-48 states. The
latter is especially important since there are potential
competing sources of gas that could also supply these
markets. A competitive project also means that no cost
overruns can be tolerated, especially in a gas project of
this magnitude and we will utilize our company and
contractor resources to realistically understand all of
the costs and risks.
Graphic 4 (Alaska Gas Resources & Major Producers)
Turning to slide 4, this is the first of three graphics
covering North Slope Gas Resources and Gas Market
Outlook. It shows the major North Slope gas resources and
their locations. Developed fields are depicted in green
and include, from west to east, Alpine, Kuparuk, Milne
Point, Prudhoe Bay, Endicott, and Badami. Major
discoveries not yet developed are in yellow and include
Northstar, Liberty and Point Thomson. The known North
Slope natural gas resource totals about 35 Tcf. The total
potential gas resource on the North Slope has been
estimated over the years at around 100 Tcf. Industry's
ability to realize the full potential resource will in
large part be dependent on an efficient transportation
system which yields attractive netbacks, and hence the
incentive to explore and develop. It is worth noting that
there is potentially enough gas on the North Slope for
projects other than a gas pipeline to Canada and the
Lower 48 states if market conditions are supportive. For
reference, the pie shaped chart to the right shows the
relative ANS gas ownership interests for the 35 Tcf of
known resource. Through the state's royalty share it is
obvious the state has an important position in the
resource.
Graphic 5: Current Gas Utilization
Gas historically has played a significant role in
improving Prudhoe Bay's oil recovery. In the 1970's, an
estimated 9.6 billion barrels were originally forecasted
to be recoverable from Prudhoe Bay. As of today, we've
recovered over 10 billion barrels and are still counting,
with over 3 billion barrels remaining to be produced.
This improved recovery is achieved with the help of the
world's largest gas processing system.
The overall process is summarized in the slide 5
schematic. This image shows Reservoir Gas being routed
through our Central Gas Facility where natural gas
liquids are extracted, then blended with crude, which is
then transported down TAPS. Current NGL production rates
run at about 50 mbd to TAPS, with the sale of another 25
mbd to the neighboring Kuparuk oil field for use in their
miscible gas enhanced oil recovery project. Miscible
injectant is also manufactured at the CGF, for use in
enhancing oil recovery from the waterflood areas within
Prudhoe Bay.
The remaining dry gas is compressed and re-injected into
the Prudhoe gas cap. This re-injection process enhances
oil recovery, by maintaining reservoir pressure, and also
helps vaporize residual oil that is then cycled back and
re-produced.
The gas resource at Prudhoe will continue to be used to
improve oil recovery and until we are able to export gas
from the Slope by whatever means.
Graphic 6(Market Environment Demand Growth: 2000-2020)
Turning to slide 6, we often get asked why we believe the
time is now more appropriate for a gas pipeline project
from the North Slope to the Lower 48. The Lower 48 gas
market is the largest in the world, with the best
transportation infrastructure and the ability to move gas
from a single hub to many market sectors. It's a market
where gas can be sold long term or short term, priced at
spot or fixed, float with the general market or locked in
with caps and collars. It is also a growing market due to
the historic abundance of the energy and the
environmentally friendly aspects of the source. The U.S.
Energy Information Agency projects a continuing increase
in demand for natural gas through the year 2020. Natural
gas demand for the commercial, residential, and
industrial sectors increases at steady but modest rates.
Demand for the power generation sector, on the other
hand, is projected to increase from about 1l bcfd to over
3O bcfd between 2000 and 2020. Power generation is
driving expected growth in natural gas demand, accounting
for 64 percent of total expected demand growth during
this 20-year period. Overall the use of natural gas in
the Lower 48 is forecast to grow from about 56 bcfd to 86
bcfd by 2020.
Our current view is that 3-5 bcfd of North Slope gas
could be supplied from Alaska into the Lower 48. We
should also point out that there are many supply sources
that will be competing to meet this projected demand
growth. Those that are most economically viable will
succeed. Our gas will be competing against Mackenzie
Delta, Eastern Canadian gas, deepwater gulf gas, coal bed
methane, tight sands and LNG sources. But we know that
existing conventional gas resources cannot keep pace with
demand and we want Alaska's gas to be one of those new
sources. I'll now turn the microphone over to Ken for a
look at the Project Team's early efforts.
Graphic 7 (Organizational Structure)
Let's turn now to the organizational structure of the
Project Team. A three-member Management Committee
composed of Robbie Schilhab of ExxonMobil, Joe Marushack
of Phillips and Ken Konrad of BP will lead the day-to-day
operation of the Project Team. Below the Management
Committee are seven groups consisting of engineering,
commercial, environmental and regulatory, legal, and
external affairs specialists. This chart shows several of
the key leadership positions on the team.
Team members shown in red are from Phillips, those in
green from BP, and those in blue from ExxonMobil. Company
staff is being drawn about equally from the three
producers. This will allow us to access top quality
people from each organization and ensure full alignment
as we proceed through our work program. We are currently
engaged in a major effort to fill remaining
organizational slots. About 50 team members are in place
or have been identified.
Graphic 8 (Objectives)
Our team has set itself a few key objectives.
First, we want to create a project that can succeed - an
economically viable project that is sufficiently robust
to attract the billions and billions of investment
dollars that will be required to get gas to market.
North American gas prices have spiked during the past
year to $5 -$10/mcf from historic levels of around
$2/mcf. The duration of this current price spike is
impossible to predict. What we do know is that the laws
of supply and demand have not been repealed - just as
they were not repealed during the oil price spike in the
early 1980's or the U.S. gas "shortage" of the 1970's. An
Alaskan project needs to look past short-term volatility
to the fundamental long term - 10, 20, 30 and 40 year -
supply trends, and the cost of those competing supplies.
A variety of studies reveal that there is still an
enormous gas resource in the US. Some of this gas can be
economically developed at $2/mcf, the average price for
gas over the past decade. Much of this gas requires
higher prices or technological advances to be economic.
We need to establish Alaskan gas as a competitive source
of supply against these alternative sources of supply.
Clearly, we believe Alaskan gas can be made competitive,
otherwise we wouldn't be investing our dollars and our
people in this effort. But we do need to be realistic -
Alaska is still a long distance from the market and our
cost challenges are very real.
Of course the real prize for Alaska is not to simply make
the known resource base of 35 Tcf competitive. The larger
prize is creating a highly efficient and expandable
transportation system that yields a high field netback
providing an incentive for investors to explore for and
develop new gas fields. Incentive to move past 35 Tcf
towards 100 Tcf and beyond. Incentive to create a second
industry on the North Slope - an exploration and
development industry centered on gas - and the associated
long term jobs and revenues.
Our second objective is to establish sufficient
engineering, commercial and environmental definitions to
support permit applications by year-end 2001. This is not
a simple undertaking and as mentioned earlier, it is an
aggressive time target, but it remains our goal. We will
cover some of the specific application requirements
later.
Our third objective, assuming we are successful with the
first two, is to prepare for the next phase of activity.
Project applications are not an end but a beginning. A
further ramp up in activity including advancing
engineering design, working through the permitting
process and preparing detailed project execution plans.
Graphic 9 (Scope of Project)
This graphic shows the overall scope of our study, which
I'll speak to in four parts. First, nearly all the known
gas on the North Slope has carbon dioxide content above
required sales gas specifications and thus needs to be
treated before gas can be sold to end consumers. Gas
treatment facilities on the North Slope would condition
the gas for sale by removing C02 from the gas stream,
compressing the gas and cooling the gas before entering
the pipeline. It is worth noting that these gas treatment
facilities would be the largest such facilities ever
built, anywhere.
Next, a pipeline from the North Slope into northern
Alberta. Two major routes will be engineered and
evaluated - 1) a northern route which runs offshore north
Alaska to the Mackenzie delta and then up the Mackenzie
valley to Northern Alberta; and 2) a southern route which
broadly parallels TAPS to Fairbanks and then follows the
Alaska Highway into northern Alberta.
The specific detailed routing along these two routes as
well as the termination point in northern Alberta will be
part of the work program.
The next area of study will look at pipelines from
Northern Alberta to end markets in the U.S. because
simply getting gas to Alberta is not enough. Pipeline
infrastructure in Alberta has grown over the years and
currently there is some excess pipeline capacity.
However, many expect that capacity to be fully utilized
as more supply comes on stream over the next few years.
In any event, volumes from an Alaskan project will be
sufficiently large that some significant expansion of
capacity will be required.
The joint team will engineer and evaluate a new build
pipeline(s) from northern Alberta into U.S. markets. At
the same time we will meet with existing pipeline
operators to determine if there are cost effective
expansion opportunities on existing systems.
In aggregate, these two pipeline segments - Alaska to
Alberta and Alberta to Market - represent a pipeline
system 4-5 times the length of the Trans Alaska Pipeline
System. This is an enormous undertaking.
Finally, gas delivered to market will need to meet
specifications relating to the heating value of the gas.
North Slope gas contains various amounts of ethane,
propane and other gas components commonly called NGL's or
natural gas liquids. Some of these components may need to
be removed from North Slope gas to meet end sale
specifications. Additionally, there may be an opportunity
to export additional gas liquids to enhance overall
economics.
We will be looking at various options for placing NGL
facilities along the export system. The location and
nature of these facilities will be determined in the
study
Graphic 10 (Conceptual Pipeline System Components)
I just provided an overview of some of the major
facilities that would be associated with a gas pipeline
system from the North Slope to Canada and the lower-48
states. Now I will discuss a few more of the specifics
associated with the pipeline itself.
The pipeline being considered will utilize 21st century
technology and will be designed to the highest standards.
Many things have changed since the major pipeline studies
of the 1970's and by leveraging today's technology we can
design a system that is more cost effective and a system
that meets the highest environmental standards.
We will design a new system from the bottom up to match
today's needs with modern technology. Pipeline diameter,
throughput rates, operating pressure, compressor station
design and location, construction methods and pipeline
termination point will all be re-addressed. The end
result will be a more cost effective system with a
smaller "footprint", less fuel consumed along the system
and lower emissions.
Our work program will determine a specific design but at
this point there are some general attributes we can share
today. The pipeline will be buried along its length with
temperature carefully controlled to not disrupt the
permafrost. In this sense, once installed, it will be
almost invisible.
The pipeline would be plus or minus 48 inches in diameter
and operate at a pressure of perhaps 25OO psi or more. It
would utilize advanced high strength steel. However, even
with high strength steel, the steel requirements for this
system will be enormous. Consider a pipeline system 4 - 5
times the length of TAPS with a wall thickness of around
one inch. Literally hundreds of millions of tons of
steel.
This efficient pipeline design would require fewer
compressor stations and with today's automation and
communication systems, these stations can be built as not
normally manned facilities. While highly efficient, the
total installed horsepower necessary to move gas from
Alaska to end markets will still be many times the total
installed horsepower on TAPS.
Between compressor stations there would be block valve
stations as necessary to ensure safe and efficient
operability and maintenance. Intermediate pigging
facilities would enable monitoring of the pipeline system
with "smart pigs", again ensuring long term safe
operations.
Graphic 11 (Current status)
This is clearly a big undertaking and we are currently
moving aggressively to get the team fully staffed. We
currently have about 50 staff identified to date with 90
or so positions expected to be filled by April.
Of course we will also need the support of contractors. A
number of requests for proposals have been issued for
various work packages. These include front-end
engineering design and costing for various scopes of
work, land and environmental surveys as well as legal
support both in the U.S. and Canada. We will speak to
these in more detail later.
A key current activity is developing greater detail on
all the work scopes and objectives for each component of
the study. This will allow us to identify the critical
path issues we will need to address to meet our
aggressive time targets.
We are in the process of finalizing our near term work
schedule and are already initiating specific plans for
early field surveys, some of which are seasonal in nature
and thus very time sensitive. Now I'll turn the
microphone over to Robbie Schilhab who will describe some
of the FERC certificate requirements.
Graphics 12 and 13 (FERC Certificate Requirements)
Conducting our joint work program is not an option for
us. It is an absolute requirement. The next two charts
show the information required on an application for a
FERC Certificate of Public Convenience and Necessity.
It's voluminous and detailed. There is a comparable set
of requirements for applications filed with Canada's
National Energy Board.
The information required includes:
- A description of the legal entity applying for
the certificate.
- Descriptions and locations of the pipeline,
associated plants, compressor stations, and other
facilities; flow diagrams; and information on
construction and operations management practices.
- Data on natural gas supply and demand, and
- Estimates of facility costs, method of financing
the project, anticipated revenues and expenses,
and a model and methodology for calculating
tariffs.
FERC also imposes a number of other requirements. The
application must include a mile-by-mile description of
water resources; fish, wildlife and vegetation; geology;
soils; and air quality and noise along the pipeline
route. Given the length of the pipeline segments to be
evaluated, this requirement potentially means 5,800
separate descriptions.
- Other required reports include the socio-economic
impacts of the project; cultural resources that may be
impacted; land use, recreation and esthetics in affected
areas; alternatives considered; and project reliability
and safety.
It will require a massive undertaking to gather, evaluate
and report the information required by FERC.
Graphics 14 and 15 (Work Program Deliverables)
This chart and the next show the work program
deliverables expected from the various work groups. The
results will be used in determining the economic
viability of a pipeline project and then if warranted in
the evaluation of the gas pipeline routes and in FERC and
NEB filings.
As shown in this chart, the Technical groups are
responsible for the design basis and scope for pipeline
systems to bring ANS gas to market. This includes plant
and pipeline components for an integrated project, cost
estimates, and both a plan and schedule for project
implementation. The Technical group will also be
responsible for providing some of the information
required for applications for regulatory permits.
The Environmental and Regulatory group is responsible for
environmental field studies for northern and southern
routes, development of plans for filing permit
applications, and the completion of applications to be
filed with FERC and NEB.
As indicated on the next chart, deliverables from the
commercial group includes a plan to move natural gas from
Alberta to the lower-48 states, a model and methodology
for determining pipeline tariffs, a plan to finance the
project, the structure and ownership of the project, and
studies to determine the social and economic impacts of
the project. The group will also provide the commercial
elements needed to complete FERC and NEB applications.
Finally, the External Affairs group will lead the
community consultation program, help coordinate U.S. and
Canadian external affairs activities, facilitate
discussions with government agencies and officials and
other interested parties, and provide communications
support. This group will have a major role in arranging
periodic status updates for you.
Graphic 16 (Initial Contract Packages)
Our work scope covers great breadth and depth, from the
North Slope to Canada and the Lower-48 markets. A major
area of current activity is the identification and
selection of qualified contractors. Requests for Proposal
(RFPs) were issued on January 17 covering 9 distinct
contract areas. These include front-end engineering
design; environmental and land surveys in Alaska, the
lower-48 and Canada; and regulatory and permitting
requirements. In addition, legal firms in the U.S. and
Canada are being selected through a separate process.
On January 25, a pre-bid conference was held to brief
potential contractors on the initial work we are planning
and the criteria that will be used in awarding contracts.
Team members have also begun interviewing contractors who
will be submitting bids to assess their qualifications.
The timing of contract awards will vary based on the size
and complexity of the individual packages and the ability
to conclude contract negotiations. We are currently
receiving and reviewing bid submissions, and anticipate
that successful bidders will begin work before the end of
the first quarter of this year.
Finally, each group is currently planning its work
program. This includes identifying what it needs to
achieve, when the work needs to be done and what
information will be needed from other groups. The various
groups are also identifying critical issues that will
affect their work and that of the entire Project, and
options for addressing them. All of this information will
then be integrated into detailed work schedules that will
help guide the Team's efforts during the months ahead.
All of the groups are in the process of developing more
detailed near-term work schedules.
Graphic 17 (Near Term Plan)
The final chart shows what we will be doing over the next
couple of months.
As indicated earlier, we will continue to bring
additional personnel on to the Project Team. By April,
the personnel complement is expected to reach about 90
people on the team with additional support provided by
the firms awarded the various contracts.
There will be additional effort to determine in greater
detail the work scope and end products for each group and
for the overall Project Team.
We do not currently have definitive milestones for
completion of the many Project components. The Project
Team will be working to better define a timeline over the
next few weeks.
Lastly, we expect to execute most, if not all initial
contracts over the next two months. The exact timing of
contract awards will vary based on the size and
complexity of the individual packages and the ability to
conclude contract negotiations. It is important that both
parties have a thorough understanding of the terms,
expectations and schedule for each contract before the
document is signed.
Conclusion (No graphic)
Before concluding, I would like to summarize some of the
key points we made today.
First, the three major North Slope producers have agreed
to a joint work program to evaluate and progress a North
American Natural Gas Pipeline Project that could
ultimately culminate in the construction of a large-
diameter pipeline system to deliver gas from Alaska's
North Slope to Canada and the lower-48 states. And we are
fully engaged in this effort now.
Second, an Alaskan Natural Gas project that can deliver
cost-competitive natural gas to customers can play an
important role in meeting the nation's energy needs,
while providing substantial economic benefits to
Alaskans, leaseholders and others.
Third, no option should be precluded at this point. It is
important that all parties fully understand the costs and
benefits associated with the various options. Much of the
information to be generated and analyzed is also needed
to complete applications for FERC and the NEB. We urge
the Legislature to allow this critical work to be
completed and not prematurely attempt to preclude any
development option. It's in the States' and all parties'
best interest to fully understand the options on how to
best proceed.
Finally, given the strong interest in this project, the
Project Team plans to provide periodic updates to you as
various milestones are reached and to engage in an
ongoing and meaningful dialogue with government agencies
and other interested parties.
We'll be glad to answer your questions.
MR. KEN KONRAD, Sr. Vice President, BP Gas Group explained that
graphic 7 show the team's organizational structure. He, Mr.
Marushack, and Mr. Schilhab, will be responsible for the day-to-day
management of the joint team. The Company staff across the project
is being drawn from each company in approximately equal measure.
This will allow the best people from each organization to create a
team that is the best and will help the three companies stay
aligned throughout the joint study effort.
Number 1100
MR. KONRAD said that they want to create an economically viable
project that can succeed and get the gas to market. North American
gas prices have spiked during the past year to $5 - $10 mcf,
relative to historic levels of $2 mcf. The duration of a price
spike is impossible to predict. "An Alaska project needs to look
past short-term volatility to the fundamental long-term 10 - 40
year supply trends and the cost of those competing supplies," he
said.
A variety of studies reveal that there is still an enormous gas
resource in the United States some of which can be developed at $2
mcf, the average price for gas over the past decade. Much of this
gas requires higher prices or technological advances to be
economic. We need to establish Alaskan gas as a competitive source
of supply against alternative sources. Being realistic, Alaska is
a long distance from the market and cost challenges are very real.
The larger prize is to create a highly efficient and expandable
transportation system that yields a high field net-back price,
providing an incentive for investors to explore for and develop new
gas fields.
MR. KONRAD said their second objective is to establish sufficient
engineering (commercial and environmental definition) to support
permit applications by the end of the year - not a simple
undertaking and an aggressive time target.
A third objective is to prepare for the next phase of activity,
such as engineering design, working through the permitting process
itself, and preparing for project execution.
Regarding Graphic 9, the Overall Project Scope, Mr. Konrad said,
nearly all the known gas on the North Slope has carbon dioxide
content above required sale-gas specifications and needs to be
treated before it can be sold to consumers. Gas treatment
facilities on the North Slope would condition the gas for sale by
removing CO2 from the gas stream, compressing the gas, and cooling
it before putting it in the pipeline. These facilities would be
the largest ever built anywhere.
Next to the pipeline from the North Slope to Northern Alberta, two
major routes would be engineered and evaluated. A northern route
would run off-shore of North Alaska to the Mackenzie Delta and up
the Mackenzie Valley to Northern Alberta to a destination in
Northern Alberta. A southern route broadly parallels TAPS to
Fairbanks and then follows the Alaska Highway into Northern
Alberta. Specific detailed routing along these two routes as well
as the termination point in Northern Alberta will be part of the
work program, he said.
The next area of study will look at pipelines from
northern Alberta to end markets in the United States.
Pipeline infrastructure in Alberta has grown over the
years and currently there is some excess pipeline
capacity. However, many expect that capacity to be fully
utilized as more supply comes onto the market over the
next several years. The joint team will engineer and
evaluate new build pipeline or pipelines from northern
Alberta into United States' markets. At the same time,
we'll meet with existing pipeline operators to determine
if there are cost effective expansion opportunities on
existing systems. In aggregate, these two pipeline
segments represent a pipeline system four to five times
the length of TAPS.
Gas delivered to market will have to meet heating value
specifications. North Slope gas contains various amounts of
ethane, propane, and other gas components commonly called NGL
(natural gas liquids). Some of the components may be removed to
meet end-sale specifications. There may also be an opportunity to
export additional gas liquids to enhance overall project economics.
They will look at various options for placing NGL facilities along
the export system, Mr. Konrad said.
Graphic 10 is a picture of the overall pipeline components.
"Pipeline diameter, throughput rates, operating pressure,
compressor station design and location, construction methods, and
pipeline termination point will all be readdressed."
Some specific design attributes, MR. KONRAD said, were that the
pipeline would be buried along its entire length with temperature
carefully controlled not to disrupt the permafrost. The pipeline
would be approximately 48 inches in diameter and operated at a
pressure of about 2500 psi or more. It will be built of advanced
high-strength steel and a wall thickness of approximately one inch.
The specific pipeline design would require fewer compressor
stations and these do not need to be manned, he said. "While
highly efficient, the total installed horsepower necessary to move
gas from Alaska to markets will be many times the total installed
horsepower on TAPS. Between compressor stations, there will be
block valve stations as necessary to insure safe and efficient
operability and maintenance. There will also be intermediate
pigging facilities that will enable monitoring the pipeline with
smart pigs."
They will need to support contractors and have already issued a
number of RFPs for various work packages. These include front-end
engineering and design and costing for the various scopes of work,
land and environmental surveys, as well as legal support, both in
the United States and Canada.
MR. KONRAD said they have developed in much greater detail all the
work scopes and objectives for each component of the study. This
will allow them to identify critical path issues that need to be
addressed to meet their aggressive time targets.
Number 1450
MR. ROBBIE SCHILHAB, ExxonMobile, said the FERC application is
voluminous and detailed. Canada has a comparable set of
requirements for its National Energy Board (NEB). The requirements
include:
A description of the legal entity applying for the
certificate of the owner company
Descriptions and locations of the pipeline associated
plants, compressor stations, and other facilities
Flow diagrams
Information on the construction and operation management
practices
Data on natural gas supply and demand
Estimates of facility costs
Methods of financing the project
Anticipated revenues and expenses
Model and methodology for calculating the tariffs
MR. SCHILHAB explained that included in the FERC application is an
analysis of alternative projects that have been considered. There
are also environmental requirements. The application must include
a mile-by-mile description of water resources, fish, wildlife,
vegetation, geology, soils, air quality and noise along the
pipeline route. This requirement could mean 5,800 separate
descriptions. Other required reports include the socio-economic
impacts of the project, cultural resources that may be impacted,
land use, recreation, and aesthetics in effected areas,
alternatives he mentioned earlier, and project reliability and
safety.
The next two charts, pp. 14 & 15 summarize the work program
expected from the various core groups. The results will be used in
determining the economic viability of a project and, if warranted,
an evaluation of gas pipeline routes.
The technical teams are responsible for:
· Design basis and scope for pipeline systems to market
- Plant and pipeline components
- Integrated project
· Cost estimates
· Project execution plan/work schedules
· Inputs to regulatory permits and process
The environmental/regulatory team is responsible for:
· Environmental field studies for northern and southern
routes
· Permitting plans
· Completed FERC/NEB application
· Completed ROW application
· Other permit applications as appropriate
The commercial team is responsible for:
· Plan to move gas from Alberta to U.S.
· Tariff model and methodology
· Financing plan
· Project structure/ownership
· Socio-economic studies
· Commercial elements of FERC/NEB applications
The External Affairs Team is responsible for:
· Leading the community consultation program
· Helping to coordinate U.S./Canada external affairs
· Facilitating engagement with governments and other
interested parties
· Supporting communications
The work scope covers great breadth and depth. A major area of
current activities is the identification and selection of qualified
contractors to assist in their efforts. RFPs were issued on
January 17 covering 10 distinct contract areas. These include:
· engineering and design work for the gas treating plant
· two pipeline segments
· NGL plant
· environmental and land surveys in Alaska, lower 48, and
Canada
· regulatory and permitting requirements
MR. SCHILHAB added that local Alaskan firms were well represented
in the bid process. Legal firms in Canada are being selected
through a separate process.
On January 25, a prebid conference was held to brief potential
contractors on the initial work they were planning and the criteria
to be used in awarding contracts. Team members have begun
interviewing contractors who have submitted bids to assess their
qualifications. The timing of contract awards will vary based on
the size and complexity of the individual packages and the ability
to conclude contract negotiations.
Finally, MR. SCHILHAB said that each group is currently planning
its work program to include identifying its deliverable products,
when the work needs to be done, and what information will be needed
to support the other groups.
Various teams are identifying critical issues that will
affect their work and that of the entire project and
options for addressing these issues. All this
information will be integrated into a detailed work
schedule that will help guide the teams' efforts to
conclude the contactors' support during the months ahead.
The final chart was their schedule for the next couple of months.
They will get their personnel up to about 90 people with additional
support provided from the firms awarded the various contracts.
There will be greater efforts to determine in greater detail the
work scope and end products for each group and for the overall
project team.
MR. SCHILHAB said they hope to execute most, if not all, of the
initial contracts over the next two months and concluded his
remarks as follows:
The three major producers have agreed to a joint work
program to evaluate and progress the North American gas
pipeline project that could ultimately culminate in the
construction of a large diameter pipeline system to
deliver gas from Alaska's North Slope to the lower 48 and
they are fully engaged in this effort now.
Second, an Alaskan natural gas project that can deliver
cost-competitive natural gas to consumers can play an
important role in meeting the nation's energy needs while
providing substantial economic benefits to Alaskans,
lease holders, and others.
Third, no option should be precluded at this point. It is
important that all parties fully understand the cost and
benefits associated with the various options. Much of
the information to be generated and analyzed is also
needed to complete applications for FERC and NEB permits.
We urge the legislature to allow this critical work to
be completed and not preclude any development options.
It is in the states and all parties' best interests to
fully understand the options on how to best proceed.
Finally, given the strong interest in this project, the
project team plans to provide periodic updates to you as
various milestones are met and to engage in an ongoing
and meaningful dialogue with government agencies and
other interested parties.
CHAIRMAN TORGERSON asked Mr. Schilhab to give them a history of why
the 1977 act was amended in 1992 to allow producers to own part of
the pipeline.
MR. SCHILHAB replied that the 1977 act precluded the producers from
being an owner of the pipeline. It was recognized shortly
thereafter, that a project of that size needed other owners. The
producers were a natural owner for the pipelines.
CHAIRMAN TORGERSON asked if they currently own large gas pipeline
projects.
MR. KONRAD said that BP operates the largest gas pipeline in the
North Sea and is building a 48 inch line across the Algerian desert
now. BP is looking at a number of very large projects across
China.
CHAIRMAN TORGERSON asked if they had any idea of amendments that
would be needed to go forward.
MR. SCHILHAB replied that the original 1977 requirements had
specific locations for compressors, certain diameters, certain
routing, and many other specifications. With current technology,
lots of changes have to be made to those. They know they have
different pressure, different pipe, and different composition of
the gas. They do not know whether amendments or a whole new system
is needed.
CHAIRMAN TORGERSON asked if the Treaty timeline of 35 years is a
problem.
MR. KONRAD responded that they need to define a project first and
then they can define the best process. They are talking among
themselves about these issues:
·
Is it more efficient to go forward in a more conventional
sense?
·
Is it easier to change the existing legislation?
·
Is there a third way to do it?
CHAIRMAN TORGERSON asked if Foothills is part of their planning
process and where they fit in the process.
MR. KONRAD replied that first they need to design a system that is
going to be economically viable. Ownership and permitting are part
of it and they have been and will continue to be in discussions
with them. Now is the time to create options and they are talking
to a number of companies.
SENATOR HALFORD asked if they would be at the point of permit
application by the end of the year.
MR. KONRAD answered that is their target. That would include all
the information in place for the NEB and FERC permits and other
permits they would need to go forward.
SENATOR HALFORD asked if their timeline included deciding the
ownership at the time of application.
MR. KONRAD replied that they would decide the routing, but he
didn't think they would have to know the ownership at that time.
Companies can always sell interest in assets that they own.
SENATORHALFORD asked if going to FERC on a public
convenience/necessity standard would require some kind of
compromise with Foothills in terms of ownership or a competing
proposal.
MR. KONRAD said that Foothills could be a partner; a number of
companies have approached them. They first need to determine the
project. The termination point is most likely going to change as
well as the evacuation plans out of Alberta. The pipeline design
itself is going to change. Their goal is to have the best process.
SENATOR HALFORD asked if using that process again would be the most
streamlined method.
MR. KONRAD replied if it was most cost effective to change it,
that's what they would do. They have to know everything about the
project before they can commit to using the permits. They need to
know how the modifications would take place within the process.
Number 2200
SENATOR ELTON asked if he was wrong in assuming some options had
been precluded. It sounded like they were focusing on a southern
highway route or a variant thereof or the over-the-top route or a
variant thereof.
MR. SCHILHAB responded that there are numerous routes that they
continue to look at until they get a base design in place.
MR. KONRAD said he was talking to the committee as the group doing
the pipeline work. Various companies, like Phillips and BP, are in
the gas sponsor group. BP is constructing a gas to liquids
demonstration facility on the Kenai Peninsula. Right now the gas
pipeline is the leading contender. Work is being done on other
options.
SENATOR ELTON asked if he was defining the base effort as an
overland route that goes through Canada and anything else would be
an optimization of that and be considered in the future.
MR. KONRAD said, "We are focused on an overland pipeline to the
lower 48."
SENATOR TAYLOR asked where Alaska was represented on the chart on
page seven.
MR. KONRAD explained those three companies on the chart represent
the companies that are funding the studies right now.
SENATOR TAYLOR asked if the state had been invited.
MR. KONRAD replied that they had a lot of discussions with various
state agencies over time.
MR. MARUSHACK responded that each of the companies were looking at
separate pipeline projects.
TAPE 01-8, SIDE B
Number 2400
MR. MARUSHACK said it just made sense for them to come together.
The 12.5 percent interest owned by the state is a very important
part of this and that interest could be sold.
SENATOR TAYLOR asked if there were any internal conflicts that had
precluded considerations of a tideland gas line.
MR. KONRAD answered that they are actively looking at LNG, but that
doesn't appear to be competitive. So they are focusing on the gas
pipeline project. "Projects that are economic get funded and
projects that aren't economic don't get funded."
MR. MARUSHACK also responded that Phillips is a 7 percent owner in
the LNG facility in Kenai. They own a proprietary technology that
is very valuable and being used in other parts of the world. They
have made sales to Japan for over 30 years and have not missed a
delivery. It's been a very lucrative business; they like the LNG
business. They know those markets. "Phillips would be very, very
motivated to have an LNG facility out of Alaska using this gas."
The problem they have is that it's not a stand-alone economic
project.
CHAIRMAN TORGERSON asked how they planned on interacting with the
smaller groups who might want to sell gas.
MR. KONRAD answered that any project that goes forward for
application will go through a period called "open season." At that
time, people who want to ship on that pipeline will be given
opportunity to do so. The same thing happens in pipelines all over
the U.S.
CHAIRMAN TORGERSON asked if they [open seasons] happened after the
line is built.
MR. KONRAD said it happens before the application.
CHAIRMAN TORGERSON asked how they anticipate interacting with the
public on their planning process and would they have news releases.
MR. SCHILHAB responded that an entire team is dedicated to external
affairs both here and in Canada.
CHAIRMAN TORGERSON asked how the committee could interact with
their planning process.
MR. SCHILHAB replied that once they reach milestones and it's
appropriate, they would like to come back and keep the legislature
updated on the project. There would be time to have discussions
and contacts through meetings in-between those periods.
CHAIRMAN TORGERSON asked if he could assume 90 percent local hire
or at least what they have now on the project.
MR. MARUSHACK replied that they wouldn't have 90 percent local
hire. There is a job for Alaskans on this project; it is so huge
that they are going to have to bring in lots of people.
CHAIRMAN TORGERSON asked if there was a human resources person on
their planning team so that the state could learn in advance about
jobs and train people.
MR. KONRAD replied that part of the engineering studies will
determine what manpower is needed and that will be shared with
Alaskans and Canadians.
CHAIRMAN TORGERSON asked what was more important to their
suppliers, long term supply or price.
MR. KONRAD replied that price is probably the leading factor.
CHAIRMAN TORGERSON said they would be marketing to larger consumers
like industry and power plants.
MR. KONRAD replied that it really depends on what application one
is talking about. Some facilities need to have constant supply and
will pay a premium for it. Other consumers who have other power
options are more interested in price. Each company will doits own
marketing.
CHAIRMAN TORGERSON asked if the supply or price was more important
when marketing in Japan.
MR. KONRAD answered that each negotiation there [in Japan] is a
little bit unique. He said when there is lots of competition,
price is the driving factor.
SENATOR AUSTERMAN said they are driven by profits and that they are
obviously not going to be taking Alaskan gas to the Asian markets
because it would cost them more than to take other gas. He thought
the only reason we are talking today was because the lower 48
markets need the gas.
MR. KONRAD said that the North American market is growing and they
expect it to keep growing, but he said the current price is not
sustainable. One of their main considerations was that technology
has lowered the cost of building a pipeline [supply]. So they think
they can compete with coal bed gas and gas coming in from eastern
Canada.
MR. SCHILHAB commented that the producers have been very interested
in marketing Alaska gas since the start of Prudhoe Bay. They are
just looking for a competitive project that is economic.
SENATOR AUSTERMAN commented that they were basically saying that,
"…going to the Asian market is not economic right now, so we're not
going to tidewater. We're going to the lower 48." He said he was
concerned about what jobs were going to be created long-term for
Alaskans. He asked what their views were on extracting NGLs in
Alaska.
MR. MARUSHACK answered that they are normally extracted and some
are used as fuel and some are used as petrochemical. He described
a petrochemical facility on the lower Gulf Coast of the U.S., from
Corpus Christi to Mobile Bay. There are large refineries and
chemical facilities, a very detailed infrastructure, great
transportation, and feed stock [ethane, propane, naptha, and
butane] coming in from lots of locations. All these things are
clustered together. Their individual processing throws off other
smaller chemicals that can't be used economically, but someone else
very close to them could use it in their process. This happened
all the way through the Gulf Coast because at one time there was
low cost feedstock. There was also good transportation.
MR. MARUSHACK thought gas could be used in Alaska for heating and
industry. Petrochemicals are a little more difficult, because
Alaska doesn't have the economy of scale on a new facility or the
infrastructure and there are also transportation difficulties.
Huge plants are being built in Southeast Asia where they take
advantage of the infrastructure and the transportation system.
SENATOR AUSTERMAN asked if he thought that petrochemical extraction
would take place outside the State of Alaska.
MR. MARUSHACK said that was how he sees it right now.
MR. SCHILHAB said they are considering the feasibility of
extracting liquids out of the gas.
MR. MARUSHACK said that extraction is different than using a
product for something else. One can extract in a lot of different
locations if you can transfer that product for higher value some
place else. You normally put your extraction somewhere close to a
location where you distribute it or where you have a petrochemical
facility.
MR. KONRAD said in terms of long-term jobs, Alaska's competitive
advantage is its geology. If they can create a system of incentives
for investors to explore and develop gas, that is the long-term
legacy of this project.
SENATOR AUSTERMAN said, "That's if you look at us as a colony."
MR. KONRAD responded that across the entire industry, most of the
investment goes into the upstream portion of the industry.
CHAIRMAN TORGERSON asked if LNG production would be too expensive
or did they just not look at it.
MR. SCHILHAB said they looked at LNG to lots of different markets.
"LNG is a good thing except we've got this 800 mile pipeline we
have to overcome. That is our problem. It's not where you take
it…."
MR. KONRAD added if you can pipe gas to California for $1.75 or
$2.00, you're not going to pay $2.50 or $3.00 to get it there by
LNG."
CHAIRMAN TORGERSON said he thought that was why El Paso lost out
years ago. It was less costly to do a pipeline.
MR. KONRAD said that they are still looking at all the markets.
CHAIRMAN TORGERSON asked if they chose a different route than the
one that's approved by Congress, what kind of hoops would they have
to jump through.
Number 1500
MR. KONRAD answered that they would try to get the support of the
State of Alaska and the Canadians. There is an existing regulatory
framework that allows a company to look at international pipelines
on virtually any route; it's called the Natural Gas Act.
CHAIRMAN TORGERSON said he thought there was only one approved
route and that it would be up to the president to change it.
MR. KONRAD responded that they would have to confer with FERC and
NEB.
CHAIRMAN TORGERSON said he read their opinion, but it was only the
chairman's opinion. He knows they already turned down the over-
the-top route. "The only difference is you want to go under water
and they were on the shore of ANWR." He asked if there were any
major impacts in not reinjecting the gas into the production oil.
He asked if there would be a decrease in oil production.
MR. KONRAD answered, "As you sell gas there may be reservoir
impacts." He explained that part of the work they are doing now is
to understand that. They feel with additional investments that the
oil losses can be held to a low number. There is a slight tension
there, but it is less than it was 10 years ago. The fields have
matured and technology has moved on. They could inject a lot more
water into the reservoir.
CHAIRMAN TORGERSON asked what "tension" means.
MR. KONRAD answered, "You get to sell a whole bunch of gas and you
lose a little bit of oil."
Number 1400
CHAIRMAN TORGERSON asked if the state would have that data before
the plans go forward.
MR. KONRAD answered that the AOGCC has already kicked off a study
on that issue, but he didn't know what their timeline was. He was
sure the information would be shared.
SENATOR HALFORD asked if the companies own the same proportion of
oil to gas.
MR. KONRAD answered, "Yes. They're not identical, but they're
proportional."
SENATOR HALFORD asked if that means you own 20 percent of the gas
if you own 20 percent of the oil.
MR. KONRAD said, "Yes."
SENATOR HALFORD asked if the arguments of the efficiency of gas
versus the efficiency of oil would still apply in the cases before
the AOGCC.
MR. KONRAD said it's important because they are producing both and
want the most economic outcome possible. He thought the producers
in the state were far more aligned than most people seem to think.
CHAIRMAN TORGERSON said the state wants to know if there's a trade-
off.
MR. MARUSHACK said they are trying to assess the composition of the
gas. They are also asking if there is now an opportunity to throw
off more CO2 and do more CO2 floods - ways of mitigating potential
loss you might have through taking the gas.
CHAIRMAN TORGERSON asked what the percentage of CO2 in our gas is.
MR. KONRAD answered about 12 percent at Prudhoe, about five percent
at Pt. Thompson and about 18 percent at Endicott.
CHAIRMAN TORGERSON asked if they could ship up to two percent.
MR. KONRAD indicated that was correct.
CHAIRMAN TORGERSON asked what their goal would be in shipping.
MR. KONRAD answered between one and two percent.
CHAIRMAN TORGERSON asked if that number would be out of their
reserve number.
MR. KONRAD answered that CO2 is not worth much in Chicago and that
their reserve is about 35 tcf.
CHAIRMAN TORGERSON said that some people say they have already used
3 tcf and that hasn't been deducted.
SENATOR TAYLOR asked if CO2 can be reinjected to help with field
pressure.
MR. KONRAD answered that it has some different characteristics, but
they intend to dispose of it underground to help recover
[pressure].
SENATOR TAYLOR said he liked the term "open season" and asked what
access there would be for future production facilities and the pipe
for independents.
MR. KONRAD answered that the pipeline would be regulated
extensively by FERC and NEB. Transparent access and costs are
central to their reason for existence.
SENATOR TAYLOR asked if that also applied to production facilities.
MR. KONRAD replied that would be up to each field, which all has
its own facilities.
MR. SCHILHAB added if someone came up and leased lands and made a
discovery, they would develop that field much like North Star is
being developed. Those facilities would be constructed and they
would have gas available to go into a pipeline if there's a
pipeline there. It would be an open access pipeline, but they
would have to work out arrangements with the shippers on that
pipeline. If they wanted to use existing facilities, they would
negotiate with the facility owners.
SENATOR HALFORD asked if that includes the initial processing
facility that takes out the CO2 and whether that was subject to
open access.
MR. KONRAD answered that depends on if it's in the project and if
the each field builds its own facility.
CHAIRMAN TORGERSON said the question had to do with the
independents, not one of their working partners.
MR. MARUSHACK responded that, "You need to know the size of the
asset you're talking about." If you have room in an existing
facility, that leads you down one set of negotiations. If you're
talking about a large asset, it may be cheaper for them to support
their own gas facility.
CHAIRMAN TORGERSON said it seemed like they could lock out a
competitor because he would have to negotiate with existing owners
to get the right to run product through the CO2 facility.
MR. KONRAD answered that he didn't know if they could be locked out
or not, but there would have to be capacity.
Number 1000
SENATOR TAYLOR asked what if we find more gas than we originally
thought was there, do all the independents potentially have to
build their own CO2 facility or pumping facility because someone
else owns the only pipe.
MR. KONRAD replied, "When you build a pipeline, you build in
capability for it to be expanded. We want exactly that. We want a
pipeline that has low transportation costs that encourages more
investment. Usually those expansions lower the tolls for everyone."
He said this is what is called the "virtuous cycle."
SENATOR HALFORD explained that the Committee's concern is that the
conditioning facility be treated the same way so there is effective
access.
MR. KONRAD explained further that producers in the Lower 48 know
what the rules are before they go drilling in an area.
SENATOR TAYLOR asked if their evaluation of the economics would
include participation either by equity, tax reduction or severance.
MR. SCHILHAB answered that they would base their economics on their
understanding of what the taxing regime is today.
MR. KONRAD replied that their goal is, "to create an economic
project that stands on its own and is profitable…. We are not
asking for help today. If at some point in time we think we need
help, we'll let you know that, but it's certainly not our goal."
SENATOR TAYLOR asked if the economies of scale would be improved if
they considered LGN tidewater and the Lower 48 jointly as opposed
to considering them separately.
MR. MARUSHACK answered that they wouldn't even know how to
construct all those things together. These are serious
construction issues. "What makes most sense is you look at an
economic project on the Lower 48 pipeline. You have capacity to
expand that volume. Then you look at if there are alternatives that
come off of that to go into other markets. By the time we get this
thing on line, it's several years out there. You don't know
exactly what the market is going to be for oil on which LNG is
based. You don't know exactly what's happening with the market
with gas. You may do things in terms of hedging…. A single
pipeline project is a big undertaking all by itself."
MR. KONRAD said they are planning a pipeline that has incremental
compression capacity. If they built a 4 bcfd pipeline, they could
easily expand it to 6 bcfd.
MR. SCHILHAB commented that they are looking at a base pipeline
design that would get gas to the Lower 48. They hope to come up
with an economically viable project with that. If they can't, they
will look for ways to mitigate cost or change the overall
economics. One of the things they might look at is taking LNG or
GTL to tidewater.
SENATOR ELTON asked if equity ownership tax issues would be
addressed if the base pipeline didn't pencil out and or would it be
a consideration before that. As an owner, he thought the state
would want him to address the question: "Does it make sense to
invite Alaska in as an equity owner, because it's clearly going to
have some cost to the project?"
MR. KONRAD answered that they would look at potential partners
throughout the process, including Foothills and a number of other
investors who have expressed interest. He said they had not
precluded anyone. He thought it was a fundamental issue for the
state to decide whether it would want to be an owner.
MR. MARUSHACK added that there was a very big difference between
what they do with the equity versus what happens on the taxing
side. "We are not asking for anything now and our base case is we
ask for nothing in the future. That's on the tax side. On the
equity side, that will come." He explained that the three of them
represent six companies that have made a major acquisition. They
are trying to blend three cultures together to see if they can come
up with an economic project. They are limiting the numbers of
people right now to make the discussion easier in coming up with a
base project.
SENATOR AUSTERMAN reiterated his concerns that there be jobs for
Alaskans and the need for energy in Alaska be met. He asked Mr.
Schilhab [ExxonMobil] if there would be some kind of settlement
with the people of Alaska soon.
MR. SCHILHAB said he wasn't the one to answer that.
TAPE 9, SIDE A
CHAIRMAN TORGERSON said he didn't want to get into that issue right
now, but that it would be a very big one. He asked them to explain
the "hub" concept.
MR. MARUSHACK asked if they are familiar with the Chicago hubs
where there are many pipelines coming together where people trade
products back and forth. There are storage and NGL facilities -
"Lots of product in, lots of product out."
CHAIRMAN TORGERSON asked if they were looking at doing something
like that.
MR. MARUSHACK replied that that was Ken Thompson's plan. He said
there would be excess capacity and valves and flanges would be
available.
CHAIRMAN TORGERSON asked how FERC would include a conditioning
plant as part of the permitting process.
MR. KONRAD answered that the state would put in a request to the
regulators and they would then decide. He explained that initially
they are not regulated with pipelines. "CO2 facilities are not at
all uncommon in a whole host of gas fields across the U.S.
Typically, the CO2 is taken out on a lease. Our particular one
will be enormous, but they are normally not part of a pipeline."
CHAIRMAN TORGERSON asked if part of their study included in-state
usage in Cook Inlet.
MR. KONRAD answered that access to in-state gas is important
criteria. That's clearly facilitated on a southern route. They
are looking at creative options on a northern route. But markets
would drive any further extensions. "Anybody that wants to buy gas
off of this pipeline will probably be asking in open season whether
they want to commit to pipeline capacity for the first activity."
CHAIRMAN TORGERSON asked him if the answer was no.
MR. KONRAD responded that if they're coming the southern route with
flanges at Fairbanks, they're talking very small volumes of gas.
He said there would be ability to access it, but the volumes would
be insignificant and wouldn't impact the pipeline design. If
someone would want a larger capacity, they would design around
that.
SENATOR HALFORD said he liked the accelerated schedule, but it
means their decisions would be made internally without,
necessarily, much interaction with the legislature. He thought the
state and the legislature should have input, but he didn't know how
they should achieve that.
MR. KONRAD said they would have a better idea in 60 days of how
achievable their goal is.
SENATOR TAYLOR noted that the state participated to the extent that
state permits are required.
SENATOR AUSTERMAN asked when they thought the gas would flow.
MR. KONRAD answered that it would take three years to build and a
year to a year and a half to order the materials to build it. They
do not know how long the regulatory process will take. 2007 would
be the fastest humanly possible timeframe.
CHAIRMAN TORGERSON thanked them for coming in and adjourned the
meeting at 5:20 p.m.
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