Legislature(2001 - 2002)
02/14/2001 03:35 PM Senate RES
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES COMMITTEE
February 14, 2001
3:35 p.m.
MEMBERS PRESENT
Senator John Torgerson, Chair
Senator Drue Pearce, Vice Chair
Senator Pete Kelly
Senator Robin Taylor
Senator Kim Elton
Senator Georgianna Lincoln
MEMBERS ABSENT
Senator Rick Halford
OTHER MEMBERS PRESENT
Senator Bettye Davis
COMMITTEE CALENDAR
Gas Briefing: Alyeska Pipeline Co.
Mr. David Wight, President and CEO
Mr. Dan Hisey, Chief Operating Officer
ACTION NARRATIVE
TAPE 01-12, SIDE A
Number 001
CHAIRMAN JOHN TORGERSON called the Senate Resources Committee
meeting to order at 3:35 p.m.
MR. DAVID WIGHT, President Alyeska Pipeline Co, said he wanted to
put "renewal" in a different context than what they usually think
about. "Right now we are in a right-of-way renewal process." There
are four areas that have to do with people, business systems, the
physical assets, and renewal of the right-of-way granting of lease
terms.
MR. WIGHT said they have looked closely at their staff and a lot of
them had been around for a significant period of time. It's
important that they consider future retirements and how they are
going to replace the individuals. They also have some serious
commitments around Sections 28 and 29. Their organization has
committed to study each and every job and have a full understanding
of the skills and competencies necessary for each job and have
those kinds of definitions for the jobs they want to add to the
organization. As they go forward, they want to have training
programs, hiring programs, and development programs that will match
up the skills they will need in the future with what it will take
to run the pipeline.
MR. WIGHT said they had made substantial progress under Section 29
in the last year going from less that 4 percent to 14.5 percent on
Alaska Native hires with a goal this year of reaching 16 percent.
They have substantial commitments around other programs to develop
individuals as well as recruit individuals into the company in
those areas.
Number 460
He said that the right-of-way renewal is a very lengthy and complex
process. There is renewal in three areas: private lands (80 miles
or 10 percent) and the remaining 90 percent is almost equally
divided by state and federal. They are trying to move all three
categories in a parallel process starting about a year and a half
ago. They are in the process of filing for right-of-way renewal
approval in the late first or early second quarter and think it is
a two and a half to three year process. An EIS is required and they
take a minimum of 24 - 27 months.
They believe they can demonstrate economic viability of the
project, which Mr. Dan Hisey would explain soon. They also have to
demonstrate compliance with the grant and lease terms, both state
and federal.
MR. WIGHT said the pipeline is 800 miles long and its primary
purpose is to transport oil from Prudhoe Bay to Valdez. There is
essentially no storage on the North Slope or in the pipeline,
except for operational purposes. Therefore, the pipeline must be
operated at a very high efficiency rate to allow the production on
the North Slope to continue. During 2000, it operated at 99.7
percent reliability. "The pipeline has successfully carried more
than 13 million barrels of crude oil since it started and currently
is running around one million barrels per day… Projections from
producers indicate that new fields should keep it at this level
with a slight increase over the next three to five years. It
represents nearly 20 percent of the domestic production and there
are six owners."
MR. WIGHT said that there really are six pipelines where people own
a share in the pipeline and they actually commercially offer that
service for transportation of oil.
North Slope oil is a significant contributor to the economic well
being of Alaska. They have oversight by 21 local, state, and
federal regulatory agencies. They have Prince William Sound
Regional Advisory Council and over 2,000 employees and contractors.
Currently, Alyeska has 900 employees and day-to-day they have 1,700
- 1,800 contractors working for them except in the summer
construction time when it would be more.
Management has a real commitment to have an open work environment
so that any issues around the integrity of the pipeline and
employment can be discussed and resolved. Part of this is an
employee concerns program, which allows an employee to discuss
pipeline integrity, harassment, intimidation, retaliation, or
discrimination (HIRD).
MR. WIGHT said there had been substantial improvement in the
atmosphere within Alyeska over the last four to five years and
their last survey indicated that 100 percent of the employees would
report any integrity issue. "Unfortunately, less than that indicate
a willingness to talk about personal employment issues, so they
continue to need an employee concerns program." He hopes that it is
a bridge to the future when they have an open environment where
people can talk about issues that need to be resolved.
Number 900
Within Section 29 they have a Building Foundations of Excellence
Program (BFEP), which has 50 people in it. Seventy-seven percent of
those individuals are Alaska Native hires. Recently, they converted
about a dozen of those individuals into full time employment. "The
desire would be to give people opportunities to look at Alyeska,
experience Alyeska and find competent employees to fill our future
needs."
MR. WIGHT said they have a constant 25 percent hire of women and
have increased the minority population, which includes Alaskan
Natives to almost 25 percent. Within that 25 percent, Alaska
Natives have gone from five to almost 15 percent. They have a
commitment to be at 20 percent by 2004, but hope to be there before
that.
Number 1100
MR. DAN HISEY, Chief Operating Officer, said that they start all
meetings with a conversation about safety to keep people focused on
their most important value and priority of no one getting hurt. He
said there was a significant improvement in the incident rate
between 1992 and 1995, but it plateaued in the years after that.
They need to significantly advance their safety performance their
goal is to halve the rates.
MR. HISEY said that the TAPS is one of the largest systems and the
largest privately funded project ever built in the world. It's 800
miles long and 4 feet in diameter and is about 400 miles above
ground and about 400 miles below ground, crosses three major
mountain ranges, 34 rivers and streams and over 800 minor rivers.
During the construction years, they had a total construction work
force of over 70,000 people. The cost to build it was over $8
billion.
The TAPS has 11 pump stations that were built during construction.
Currently, they are operating seven of them; four were shut down in
1996 and 1997 when they dropped below throughputs of 1.4 million
barrels a day. A pump station is designed to boost the pressure of
the oil to move it down the line and over the mountain ranges from
Prudhoe to Valdez and is manned by 10 - 25 full-time people around
the clock, 365 days per year. Each pump station similarly
configured has three 18,000-horsepower jet engines that operate the
pumps. Those can be run in a multitude of configurations to
accommodate the throughput (now, 1.0 million barrels per day).
MR. HISEY explained that Alyeska's major responsibility is to
simply operate and maintain the asset. Of their $500 million
budget, they spend approximately $200 - $250 per year on
maintenance. Their 2001 maintenance budget baseline is $100 million
and they have another $100-plus million in investment projects of a
one-time nature.
Properly maintained, the pipeline can be operated indefinitely.
They have programs and routines in place to inspect, monitor and
test, do preventative maintenance, and do repairs and maintenance
as necessary to keep it operational.
MR. HISEY said the pipeline has 177 48-inch mainline valves. In
1997 they began a project to physically test the capacity of all
the valves in case they needed to block the flow. They replaced
three of those valves for $5 million - $6 million a piece. That
routine maintenance is part of their ongoing program.
Alyeska's pigging program is the most aggressive and sophisticated
pipeline inspection pigging program of any pipeline in the world.
They actually developed the technology that is now used around the
world for "smart pigs" which are computerized. They use two kinds
of pigs to inspect for corrosion. One is an ultrasonic device
developed by NKK in Japan for Alyeska and the other one is a
magnetic flux leakage pig. Both are capable of detecting even minor
corrosion long before it would pose any threat to the integrity of
the line. Alyeska has never experience a main line corrosion leak
in its entire operation.
MR. HISEY explained that Alyeska uses other types of inspection
pigs to monitor for curvature of a line should they get settlement
or displacement in the buried sections. They also have a pig that
can electronically measure for any deformation, dents or bends the
line might experience. All the pigs are run on a routine program,
which is the most rigorous and most frequent pigging program of any
pipeline in the world. They run cleaning pigs on an almost weekly
basis and those remove wax and sediments and any deposition in
order to maintain flow efficiency.
Their inspection program costs $2 million per year. A large amount
of the money goes to inspect for corrosion. "Alyeska has an
extensive overall corrosion inspection program. Their main defenses
are sophisticated coatings and an electro-chemical process that's
used to protect steel in corrosive environments. They currently
spend approximately $20 - $40 million per year on their corrosion
programs.
The purpose of the Valdez Terminal is to measure, store, and load
oil onto tankers. The marine terminal covers almost 1,000 acres of
property with 18 crude oil storage tanks of .5 million barrels
capacity each for a total of 9 million barrels. There are four
tanker-loading berths, two of which are equipped with tanker vapor
controls. The marine terminal contains the automated operation
control center so they can operate the entire pipeline from Valdez.
Another primary function of the marine terminal is to remove the
ballast water from the tankers as they arrive and treat it for
hydrocarbons and impurities. They use the most stringent ballast
water treatment permit in the world for the performance criteria.
The marine terminal operates its own electrical power generation
and is capable of producing 37.5 megawatts, enough power for a city
of 25,000 people. It employs about 500 people with over 1,000 going
through the gate during the peak construction summer season.
The Tanker Vapor Control System was installed in 1997 and this
captures the hydrocarbon vapors that are emitted as tankers are
loaded. Last year they loaded 438 tankers and 403 of those were
loaded utilizing vapor controls. They have four berths and two of
those are equipped with vapor controls. Since 1997 they estimate
they have recovered and captured over 90,000 tons of hydrocarbon
emissions. They use the vapors to generate power in a power plant
and also use them to provide blanket gas to the crude oil storage
tanks to keep an inert atmosphere.
He said their goal with the vapor control berths is to maintain the
liabilities in the 100 percent range and they have a 10-year turn-
around cycle for major rebuilds to the berths. Berth work is
running $20 - $30 million per year - basically rebuilding all the
piping systems, rebuilding the vapor recovery arms, replacing
controls valves, and replacing ballast water piping, as well as
some significant electrical and hydraulic work.
MR. HISEY explained how the tanker arms worked and why they have to
maintain electrical isolation to avoid getting a current between
the tanker and the berth. That is done two ways - either by a
ground having a continuous electrical current or by isolation.
He said that an error was made recently during a maintenance
operation whereby they bypass the isolation flange with a grounding
strap and created a spark. They are not satisfied with any kind of
ignition source around the crude oil. After extensive
investigation, they uncovered the cause and made corrective
actions. Another incident happened in October when the wrong size
valve (too small) was installed and when the system started up,
there was severe cavitation, which caused significant vibration.
They shut the berth down and replaced the valves and figured out
how they made the mistake.
The Fire Suppression System is in the crude oil storage tanks,
which are 500,000 barrels each. Because of the snow loads in
Valdez, they have a fixed roof so there is a vapor space in the
tank. Not only do they have vapor controls to eliminate the
potential for a hazardous atmosphere, they have a redundant system
should a fire break out in one of the tanks. They have a subsurface
fire foam injection system called spider piping which, in the event
of a fire, would inject 5,000 gallons per minute of fire foam that
would float to the surface and extinguish the fire. Fortunately,
they never had to use those.
They discovered late in 1999 that the drop out of sediments from
the crude oil streams had accumulated above the level of the spider
pipings and they were able to inspect and identify the
accumulations in all the tanks through some operational
modifications and installation of equipment that will agitate the
crude oil and move the sediments bringing the system back into
operating condition. Another system tested the functionality
annually.
In Valdez, they are proud of their Ship Escort Response Vessel
System (SERVS). Alyeska operates the largest oil spill response
organization in the world and has the largest conglomeration of
spill prevention and response equipment anywhere. The process they
use is to escort all laden tankers from the terminal 70 miles into
the Gulf of Alaska with 2 SERVS vessels. The vessels can assist the
tanker in case of an emergency; they are able to redirect the
tanker and bring it under control and steer it. They also operate
initial response equipment. However, prevention is the key and most
of their focus is on eliminating the potential for a spill to ever
occur. The SERVS operation in Valdez employs about 150 people. Last
year they did 34 major oil spill drills and training exercises
along with another 60 exercises on the pipeline, itself.
He said that SERVS has five new tugs: two enhanced tractor tugs and
three prevention response tugs. All of them are 10,000 horsepower,
world-class ships. They believe this fleet provides them the safest
transit and response capability of any oil transportation system in
the world. They have invested $75 million to bring the equipment up
to that level of technology.
Their long-term strategy involves using one contractor to provide
this service, which is Crowley Maritime, and they have been able to
reduce costs by using state-of-the art equipment and multipurpose
vessels which are capable of docking, escorting, and responding as
the need might be.
In 1997, their annual operating costs were $498 million and the
capital expenditures were $61 million. They have spent
significantly more last year and more this year.
MR. HISEY said their priority is to operate in a safe and
environmentally sound manner and they are very successful at
maintaining a high operations reliability. They are involved with
strategic reconfiguration, which is an effort to look at the
ultimate configuration of the pipeline, recognizing it's 25 years
old. They are looking at replacing the entire control system with
new state-of-the-art equipment and what configuration of pump
stations and pumps is most efficient to operate at 1 million
barrels per day (mbpd) as opposed to the peak of 2 mbpd. They are
looking at integrating all their control and business systems and
positioning themselves for another 30 years of operating in an
efficient manner. They are also planning on removing one of the
shutdown pump stations (number 2), which was shutdown in 1996. That
will be a model on how to remove the assets on TAPS.
They also have an initiative to substantially improve and change
the way they do business through streamlining and improving the
management systems.
Number 2100
MR. WIGHT said they feel they can continue to improve their
business systems, which will change the role of the regulator and
enhance their ability to see how Alyeska goes about their business.
This is a very critical step.
In summary, he said he has never seen this level of care and
involvement around the safety and integrity of the pipeline and
concern about protection of the environment that goes on on a day-
to-day basis.
MR. WIGHT related that he looked at some statistics once and was
horrified to see that hundreds of spills had occurred on the
Alyeska Pipeline. The operation he is familiar with has very few
spills, if any. "Most people in the world don't measure spills like
Alyeska does. The fact is that Alyeska had essentially no spills by
most peoples' standards. They measure spills in terms of teaspoons,
cups, and things of this nature and they report all of those."
SENATOR TAYLOR asked if they send the mixed up sludge from the fire
system to a California refinery.
MR. WIGHT answered that they discovered in 1996 when the
temperature of the Inlet stream dropped below 77 degrees, they had
an exponential increase in wax precipitation fall out. So 99
percent of the solids that were moved were actually paraffins,
which are a saleable product.
SENATOR TAYLOR said he didn't realize we already had 146 miles of
10-inch pipeline built. He asked what the ownership relationships
were of the Gupco joint venture with the government of Egypt. He
asked what Egypt was getting from their oil.
MR. WIGHT explained that Gupco was a joint venture operation - 50
percent AMOCO and 50 percent Egyptian government. "We had 4,130
employees, 70 of whom were expatriates who worked for AMOCO. The
remainder was employees of the Egyptian General Petroleum Company.
It's what you and I would call a production sharing agreement.
Actually, AMOCO ran the operation, made the capital investment, and
we recovered the capital investment through cost of oil margin
associated with that. At the time I was there, we were producing
about 400…"
TAPE 11, SIDE B
MR. WIGHT continued, "The initial stand for Gulf was Suez Petroleum
Company. It was all located in the Gulf of Suez close to where it
meets the Red Sea and it was all off-shore production on 18
different fields."
SENATOR PEARCE asked what was his estimated cost for the
reauthorization.
MR. WIGHT answered:
We think that the process alone, in terms of the
environmental impact statement (EIS), work, the people
and the period of time that transcends about four and a
half years is in the range of $30 - $35 million. That
would not include any type of compliance issues that
might come out of that. Although we feel, and have gotten
some pretty strong advice, both from the regulators and
independent valuators that we are in compliance, we do
think there will be some work requested of us that we'll
have to do to assure that compliance will remain in the
future. That's the work effort around satisfying the
environmental side and the compliance review, but it
wouldn't include any work that might be necessitated by
the outcomes of those reviews.
SENATOR PEARCE asked why they have to have an EIS and is the
question continued impacts since the pipeline is already there.
MR. WIGHT answered that to his knowledge, "This is the first time
an existing facility that is asking to continue to operate is
required to do an EIS. That was a determination at the federal
administrative level."
Alyeska and the owners talked about it a lot and felt that, while
they would prefer not to do it, if they don't do it and get three
years down the road having completed the requirements of grant and
lease and are ready to get renewed and have a lawsuit around
environmental issues, they might be three years behind in terms of
having the answers to those. He said they had already done an
environmental report, themselves, to prepare for an EIS and can
satisfy the environmental requirements. He added that it is about
an $8 million process and a minimum of 24 - 27 months.
SENATOR PEARCE asked if the study was looking at cumulative impacts
or what would happen if there weren't a reauthorization.
MR. WIGHT replied that it would be a full-blown EIS looking at all
the aspects of the impact on the environment throughout the length
of the pipeline and the Valdez Terminal. They are currently in the
process of negotiating the full details as if they were building a
new facility.
Number 2190
SENATOR LINCOLN said on page 5, under work force diversity, that
women had gone up one percent in the work force in the last four
years and the other groups had gone up 10 percent. "There is a
steady incline, but for women it took a dip."
She asked him to comment on that and to give the percentages of
employees in numbers. She asked if he had similar numbers for
contracting they do with Alaskan businesses versus non-Alaska
businesses or contractors. She also wanted to know the number of
employees that are Alaska hire versus non-Alaska hire.
MR. WIGHT answered that they have worked very hard to maintain
their female population while at the same time strongly increasing
the Alaska Native hires. They have not given the same level of
emphasis to the other minorities and women. As part of the process
of going into the future, they are going to redouble their focus in
that area.
He couldn't answer the question of overall state demographics and
how to compare them. "Obviously, the female population number would
not be close demographically, so there's a substantial opportunity
for improvement there."
Their goal, MR. WIGHT said, is to go from 26.5 percent to 31
percent of women in 2001. He would get the specific employee
numbers for Senator Lincoln, but he did not have them with him. He
noted that they also track statistics by positions, because it's
important for them to know that they are making promotional and
managerial opportunities available to them.
MR. WIGHT said, "Alaska hires versus non-Alaska hires - All of
Alyeska's employees, save one, myself, are direct hires and
therefore, they are Alaskans."
In 1997, they decided Alyeska should be more of an Alaskan based
business and have substantially reduced secondis out of the owners.
They have direct hires and try and recruit first from Alaska.
Occasionally, they have to go outside to get technology and skills
they want. The people move here and become Alaskans. He did not
have statistics with him on Alaskan businesses and would get those
for them. Alyeska focuses substantially around Alaskan businesses
and Alaskan Native Corporations and their subsidiaries.
SENATOR LINCOLN asked for clarification of their goals on slide
five.
MR. WIGHT responded that 2001 goals are 31 percent women, 20
percent minorities. "We are way above our commitment on
minorities…. Our goal is to actually move up another two percent on
minorities to about 26.5 percent."
Number 1900
CHAIRMAN TORGERSON asked how many years would the new permit get an
extension for.
MR. WIGHT answered they would like to have a 30-year extension on
the right-of-way, which would be consistent with the original
grants and leases that were obtained. Currently, federal law
provides for administrative approval if requirements are satisfied.
State law provides for a 10-year extension at this point.
CHAIRMAN TORGERSON asked if any of that took legislative or
congressional approval or was it all regulatory.
MR. WIGHT answered the extension is administrative both state and
federal; if you go beyond 10-years at the state level, it would
take legislative action.
CHAIRMAN TORGERSON asked if they were working with villages that
are close to their existing gas line.
MR. WIGHT said he is not familiar with any requests for gas supply
along it.
MR. HISEY added that he is not aware of any requests from them to
connect to the gas line.
CHAIRMAN TORGERSON said, "There's one coming."
MR. WIGHT mentioned that he is having discussions with the
University Arctic Research Facility on that subject. They are one
to two miles away from the gas pipeline.
SENATOR ELTON asked what kind of complications might there be with
the right-of-way renewals for separate entities in a shared
corridor.
MR. WIGHT replied that issue is not generally in his purview. A gas
pipeline that is properly designed could be a good neighbor. As
decisions are made both commercially and legislatively, he thought
Alyeska would be in discussions involving business opportunities.
SENATOR ELTON said he was interested in business opportunities and
it seemed to him, if Alyeska has to go through a full-blown EIS,
one of the considerations they would have to give some thought to
is what happens if they do have a shared corridor.
MR. WIGHT replied that the scope would not include that. The EIS
would be just for the pipeline. A series of studies will have to be
done. One would have to be about the interactions of the two. Since
their's is the existing pipeline and its around renewal, they have
to look at the impacts from their pipeline and not the other. He
reiterated that having an EIS will give some assurance that things
are being done properly.
SENATOR ELTON asked what Alyeska is doing with ballast water
treatment and exotic species and things like that.
MR. HISEY answered that some work was being done by Prince William
Sound RCAC on non-indigenous species and some studies are being
done by the shipping companies. Alyeska is not involved in that
aspect of it right now. It is a marine shipping issue. With the
advent of the tankers coming on line in the next 1 - 10 years, a
lot of the tankers will be using segregated ballast (ballast that
has not been commingled with crude oil).
SENATOR PEARCE asked if the new tankers were being built to fit
their berths or would they have to reconfigure.
MR. HISEY answered that they do not have any plans for any major
reworking of the berths.
SENATOR LINCOLN said that another company had been approached by
Stevens Village about a feeder line going off the gas line to them.
She asked how feasible that would be if the village is 30 miles
away from the pipeline.
MR. WIGHT answered that each one would require an individual review
of things like cost, access, terrain, volume and volume capacity of
their pipeline and viability of taking gas off that in excess of
any they need. They would need to consider whether there would be
the ability to increase the capacity of that line. He realized in
talks with the University that they would have to find out the
legal and regulatory requirements. "The answer is that it's unknown
for each one. The smaller the volume, the greater the distance, and
what is in between are very significant factors in the cost to get
there." The University is close and there are roads, so it
shouldn't be a major issue, but 30 miles depending on what you have
to go through and the volume could be very significant.
SENATOR LINCOLN asked if they had thought of supplying villages
that are off that corridor, like Yukon Delta and Kuskokwim.
MR. WIGHT replied that he had only that one conversation and didn't
know of any other significant conversations that had taken place
within Alyeska.
SENATOR TAYLOR asked how long it takes for a person to be hired
from "outside" to become an Alaskan resident.
MR. WIGHT answered that he didn't know and that he is a cheechako.
Their goal is to be Alaskan based; they advertise and try to hire
here. Sometimes they have to go outside to get the expertise they
are looking for. The jobs are here in Alaska and they get paid on
an Alaskan base. It's not a temporary assignment for them.
SENATOR TAYLOR asked if they would use the recent national census
statistics when they come out to look further at the ethnic quotas.
MR. WIGHT said he feels that people are one of his prime
responsibilities and he should know the demographics of the place
he lives and works in. He felt uncomfortable that he doesn't have
that information right now, but he would get it.
SENATOR PEARCE noted that the original Pipeline Act required a
certain percentage of Native hire.
SENATOR TAYLOR said he knew that, but he wanted to know if the
percentage would be adjusted according to reality or politics.
CHAIRMAN TORGERSON noted that he wanted to see the demographics,
too, since it had changed a lot over 10-years. He thanked everyone
for joining them and adjourned the meeting at 4:50 p.m.
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