Legislature(2007 - 2008)BUTROVICH 205

02/07/2007 03:30 PM Senate RESOURCES


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03:34:45 PM Start
03:36:53 PM Alaska Natural Gas Development Authority Presentation
05:08:34 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: TELECONFERENCED
Alaska Natural Gas Development Authority:
Alaska Gas Market System; MOU Between
ANGDA & AK Gasline Port Authority
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                        February 7, 2007                                                                                        
                           3:34 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Charlie Huggins, Chair                                                                                                  
Senator Bert Stedman, Vice Chair                                                                                                
Senator Lyda Green                                                                                                              
Senator Gary Stevens                                                                                                            
Senator Lesil McGuire                                                                                                           
Senator Bill Wielechowski                                                                                                       
Senator Thomas Wagoner                                                                                                          
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                              
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Senator Johnny Ellis                                                                                                            
Senator Joe Thomas                                                                                                              
Senator Fred Dyson                                                                                                              
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
Alaska Natural Gas Development Authority (ANGDA) Overview -                                                                     
Harold Heinze, CEO                                                                                                              
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to consider                                                                                                  
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
HAROLD HEINZE, CEO                                                                                                              
Alaska Natural Gas Development Authority (ANGDA)                                                                                
Anchorage AK                                                                                                                    
POSITION STATEMENT: Presented ANGDA overview.                                                                                 
                                                                                                                                
LORI BACKES                                                                                                                     
Alaska Gasline Port Authority (AGPA)                                                                                            
Anchorage AK                                                                                                                    
POSITION STATEMENT:  Commented briefly on AGPA.                                                                               
                                                                                                                                
PAUL FUHS                                                                                                                       
Alaska Gasline Port Authority (AGPA)                                                                                            
Anchorage AK                                                                                                                    
POSITION STATEMENT: Commented on AGPA's MOU.                                                                                  
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
                                                                                                                                
CHAIR  CHARLIE  HUGGINS  called  the  Senate  Resources  Standing                                                             
Committee meeting to order at 3:34:45  PM. Present at the call to                                                             
order  were Senators  Wielechowski, Stevens,  Green, McGuire  and                                                               
Huggins.                                                                                                                        
                                                                                                                                
     ^Alaska Natural Gas Development Authority Presentation                                                                 
                                                                                                                                
3:36:53 PM                                                                                                                    
SENATOR WAGONER joined the committee.                                                                                           
                                                                                                                                
CHAIR HUGGINS announced the presentation  from the Alaska Natural                                                               
Gas Development Authority.                                                                                                      
                                                                                                                                
HAROLD  HEINZE, CEO,  Alaska  Natural  Gas Development  Authority                                                               
(ANGDA),  said his  purpose today  was  to cover  the outline  of                                                               
ANGDA's proposal and  highlight some of its high  points. He said                                                               
the  Alaska Gas  Market System  (AGMS)  is a  proposal ANGDA  put                                                               
together in  response to a  meeting with Governor Palin  in which                                                               
she  reminded  him  of  what   ANGDA's  purpose  was.  His  board                                                               
reflected on  what it  had and  had not done  for the  last three                                                               
years  and  today's presentation  is  a  result  of that.  It  is                                                               
consistent  with  Governor  Palin's  stated  principles  for  the                                                               
Alaska Gasline  Inducement Act (AGIA),  which she  will introduce                                                               
in the legislature this year.                                                                                                   
                                                                                                                                
3:39:54 PM                                                                                                                    
MR.  HEINZE  said  this  proposal  is a  starting  point  and  is                                                               
intended to  draw participants into  a study  without commitments                                                               
in a transparent  process; he said it would be  adjusted once the                                                               
Governor's proposal is on the table.                                                                                            
                                                                                                                                
3:41:39 PM                                                                                                                    
SENATOR STEDMAN joined the committee.                                                                                           
                                                                                                                                
MR.  HEINZE   referenced  the  previous  proposal   that  clearly                                                               
provided for  a pipeline  transiting Canada and  said it  is also                                                               
clear  that  the  MacKenzie  Delta pipeline  is  in  trouble.  He                                                               
suggested   that  maybe   the   three   companies  need   greater                                                               
flexibility in expressing what they want to do.                                                                                 
                                                                                                                                
3:44:41 PM                                                                                                                    
It  also addresses  Alaska's energy  needs in  a timely  fashion.                                                               
Going to his slide of  the proposed Alaska Gasline Market System,                                                               
he noted that the pipeline splits  in Glennallen and goes to both                                                               
the Cook Inlet and Valdez  areas. The starting point was actually                                                               
in Cook  Inlet because that,  along with Fairbanks and  the Yukon                                                               
River, represent  the Alaska citizens'  gas needs and  amounts to                                                               
around 200 to 250 mmcf/day (or  .25 mmcf/day) - less than the 4.5                                                               
bcf/day that  many people  talk about. ANGDA  wants to  make sure                                                               
these gas  needs are taken  care of. If  the state chose  to take                                                               
it's  one-eighth share  of  the known  reserves  at Prudhoe  Bay,                                                               
which would  amount to  3 tcf,  and divide  that by  .25 bcf/day,                                                               
which works out to about a 30-year supply.                                                                                      
                                                                                                                                
Unfortunately, Mr.  Heinze said,  .25 bcf/day is  not a  lot when                                                               
looking at the distances and  the challenges involved here. It is                                                               
costly to  come from the North  Slope of Alaska to  tidewater. On                                                               
spreading that cost over a small  market, he said, "I'm not going                                                               
to  tell you  it  can't be  done;  on  the other  hand,  it is  a                                                               
challenged decision."                                                                                                           
                                                                                                                                
MR. HEINZE  said that  ANGDA looked  at how  to make  the project                                                               
work while taking the burden  off the Alaskan consumers and still                                                               
meeting their energy  needs. Thus they came up with  the leg that                                                               
goes 110  south of  Glennallen and delivers  1 bcf/day  to Valdez                                                               
for the  manufacture of LNG and  the transport of that  across to                                                               
different destinations.                                                                                                         
                                                                                                                                
3:48:07 PM                                                                                                                    
CHAIR HUGGINS asked  why not just use a larger  pipe and one line                                                               
to Valdez and not from Cook Inlet.                                                                                              
                                                                                                                                
MR.  HEINZE replied  this is  intended as  a minimalist  project.                                                               
Nobody has  ever suggested smaller  numbers; everyone  has always                                                               
suggested  bigger numbers.  But he  thought  that is  the way  to                                                               
start this  kind of  a process. Second,  he explained  that while                                                               
Cook  Inlet  has  several  important  ingredients,  a  fertilizer                                                               
manufacturing plant  and an LNG  manufacturing plant,  nether one                                                               
of them  is interested in  being part of  a project to  bring gas                                                               
there. So he stuck with  the electric and gas utilities. However,                                                               
if at  some point in  this process,  one of the  industrial users                                                               
came forward wanting to be part  of the project, he would welcome                                                               
them.                                                                                                                           
                                                                                                                                
The other issue, he said, is  that Cook Inlet has an existing LNG                                                               
facility that was  built there because that's where  the gas was.                                                               
It has  been operating for  a long  time in a  marine environment                                                               
that is much  more challenged than Valdez. There is  also a limit                                                               
to how big  a ship can be  brought in because of  water depth and                                                               
the presence  of ice,  which makes navigation  in the  Inlet more                                                               
difficult. People in  the energy transport business  want a place                                                               
like Valdez for a port because it  is deep and has a large enough                                                               
space to accommodate  the biggest of the big  ships. This project                                                               
does not rely on the Cook Inlet LNG plant being in the game.                                                                    
                                                                                                                                
3:52:31 PM                                                                                                                    
SENATOR  WIELECHOWSKI asked  if  there is  a  pipeline system  in                                                               
place that  would get the  gas to Kenai.  He also asked  what the                                                               
export  market looks  like going  to Asia  - keeping  the Nikiski                                                               
plant in mind.                                                                                                                  
                                                                                                                                
MR.  HEINZE  replied that  the  proposal  target  is to  bring  a                                                               
pipeline into the Cook Inlet area  and terminate it at the Beluga                                                               
power plant. The virtue of bringing  the pipeline to that area is                                                               
that whatever gas isn't used can  be put back into the ground and                                                               
to recharge the reservoir.                                                                                                      
                                                                                                                                
He  said that  Enstar  owns a  pipeline system  to  Kenai and  he                                                               
envisions a tie-in  to that, although he didn't  know exactly how                                                               
that would work.  He said that some pipelines cut  from the north                                                               
side of  Cook Inlet to  the south where  the Kenai LNG  plant is,                                                               
but they  aren't available now  for that  kind of a  service. One                                                               
could look at either some sort  of adapting those lines or laying                                                               
a whole new line.                                                                                                               
                                                                                                                                
Third, Mr. Heinze said the LNG  plant in Kenai was built 35 years                                                               
ago and is  extremely small. Current technology for  such a plant                                                               
would  be  six  or  seven  times bigger.  The  dock  and  storage                                                               
facilities might  be used,  but it  can't be  placed in  the same                                                               
category  as the  type  of  facility he  is  talking  about. A  1                                                               
bcf/day LNG plant  is 7 million tons per annum  and the Kenai LNG                                                               
plant runs at about 1 million tons per annum.                                                                                   
                                                                                                                                
3:56:43 PM                                                                                                                    
SENATOR  STEDMAN asked  him to  elaborate on  the state's  eighth                                                               
share of gas as a supply.                                                                                                       
                                                                                                                                
MR. HEINZE replied that this  project represents about 40 percent                                                               
of the  known Prudhoe  Bay reserves  (about 24  tcf of  gas). His                                                               
design is  based on 1.25  bcf/day. If you  do that for  20 years,                                                               
that's 10 tcf  of gas. The biggest project being  discussed is 50                                                               
tcf, twice the known developed reserves.                                                                                        
                                                                                                                                
He emphasized  that this  project is  based upon  10 tcf,  a very                                                               
modest reserve number.  He said one way to get  that volume is to                                                               
take the  state's one-eighth  share of along  with another  7 tcf                                                               
from  the   three  major   producers  at   Prudhoe  Bay   in  any                                                               
combination. Another way  would be to take the state's  3 tcf and                                                               
the Pt. Thomson reserves,  6 tcf - 9 tcf. It's  his belief that a                                                               
number of explorers  who hold acreage and  have defined prospects                                                               
will  almost immediately  drill as  soon as  some project  really                                                               
starts  to move  forward. If  they were  to find  something, this                                                               
project could be adjusted to use it. Mr. Heinze stated:                                                                         
                                                                                                                                
     We visualize  that at the  LNG end that people  who are                                                                    
     in the  LNG business  would actually build  and operate                                                                    
     that plant, that this system  would only get the gas to                                                                    
     Valdez and  from there on, others  would basically take                                                                    
     the  responsibility  in  terms  of  a  firm  commitment                                                                    
     financially  to move  the gas.  Having  been said  that                                                                    
     way, what  this means is,  somebody would have  to sign                                                                    
     with them some  sort of a sales contract.  And it would                                                                    
     not be  an unusual  contract, but it  would be  a sales                                                                    
     contract and  that would  then allow  them to  have the                                                                    
     contractual equivalent  of owning  the reserves  in the                                                                    
     ground. That would probably be  very acceptable to some                                                                    
     of  the bigger  LNG companies  - whether  it be  the BG                                                                    
     Group,  Mitsubishi, Sempra  - as  a basis  for them  to                                                                    
     make very  large financial  commitments -  because they                                                                    
     have the  markets, they have  other vessels to  move it                                                                    
     and so on. It's their business.                                                                                            
                                                                                                                                
     Again, at this  scale all the feedback  we've gotten is                                                                    
     that  that  is a  very  plausible  thing and  again  it                                                                    
     certainly  is our  intent in  the study  process moving                                                                    
     this forward  that those participants will  be very key                                                                    
     to understanding  the LNG  part of  this. And  how they                                                                    
     see  it will  determine  whether you  do  that or  not,                                                                    
     frankly.                                                                                                                   
                                                                                                                                
4:01:42 PM                                                                                                                    
MR. HEINZE said  he envisioned that more than a  number of people                                                               
- producers, pipeline companies,  LNG plant owners, shippers, and                                                               
experienced  energy  project  investors  -  would  be  more  than                                                               
willing to contribute  some sort of in-kind expertise  in a joint                                                               
study  effort  to   move  from  a  conceptual   phase  to  enough                                                               
information that  people could  start deciding  on a  very simple                                                               
open season process.  There is a lot of interest  in this kind of                                                               
an energy project.                                                                                                              
                                                                                                                                
4:04:19 PM                                                                                                                    
SENATOR STEVENS asked him to  discuss where a propane plant would                                                               
be located and how complex the project would be.                                                                                
                                                                                                                                
MR. HEINZE  replied that  the answer  is in  the markets,  but he                                                               
wanted to finish his list  first of possible participants. Alaska                                                               
utilities, whether  gas or electric,  have things  to contribute,                                                               
he said, and the only way for  them to make those decisions is to                                                               
have good information  and the way to get good  information is to                                                               
participate in this  kind of a process. He also  listed the State                                                               
of Alaska  and the U.S.  government because they possess  lots of                                                               
valuable expertise and  information in doing this  type of thing.                                                               
For instance,  the United States  Department of Energy  is expert                                                               
in the  utilization of  CO2 for enhanced  oil recovery,  a highly                                                               
specialized area that  may become of some importance  in terms of                                                               
gas conditioning on the North Slope.                                                                                            
                                                                                                                                
He  said in  his  mind the  first market  is  the utilities;  the                                                               
second  is the  propane market.  Propane  can be  trucked up  the                                                               
highway  from a  variety  of spots.  People  could develop  those                                                               
kinds  of trucking  businesses.  The Mat-Su  Valley actually  has                                                               
three people competing to deliver propane.                                                                                      
                                                                                                                                
MR. HEINZE said that the North  Slope gas is very rich in ethane,                                                               
propane and butane  (NGLs); just the opposite of  Cook Inlet. The                                                               
propane  far exceeds  what  can be  used in  Alaska.  Once it  is                                                               
brought to  tidewater, it  can be  moved via  marine barge  or in                                                               
cargo containers that  is received every summer  by every village                                                               
and town in Alaska.                                                                                                             
                                                                                                                                
     You just slip in a  container in there that is actually                                                                    
     a propane  tank. Maybe slip in  two or three if  it's a                                                                    
     bigger community.  And you take  the empties  back with                                                                    
     you and you bring them  back next year filled. And it's                                                                    
     just  like  a trade-in  thing  on  your barbeque  grill                                                                    
     propane tank if you go down to the hardware store.                                                                         
                                                                                                                                
He said  getting propane delivered  to the 100 or  so communities                                                               
in  Yukon-Kuskokwim   River  system   would  be  a   little  more                                                               
difficult, but he  envisioned that a pipeline could  have an off-                                                               
take where  it crosses  the river  and a  then the  problem would                                                               
become  distributing it  up and  down the  river system.  He said                                                               
that not  much information exists  about the cost and  methods of                                                               
distributing  the propane  on the  river,  so he  has proposed  a                                                               
demonstration project for that.                                                                                                 
                                                                                                                                
4:10:39 PM                                                                                                                    
SENATOR STEVENS  asked if taking propane  out of gas is  a simple                                                               
process.                                                                                                                        
                                                                                                                                
MR. HEINZE replied  that when each compressor  station draws some                                                               
of the gas off  for fuel, it is cooled so  the propane drops out.                                                               
It's  a very  simple process  and every  compressor station  will                                                               
have a  small propane facility.  The more challenging  issues are                                                               
storage and distribution.                                                                                                       
                                                                                                                                
4:12:28 PM                                                                                                                    
SENATOR  WAGONER  asked  him  the difference  in  the  btu  value                                                               
between propane and natural gas.                                                                                                
                                                                                                                                
MR. HEINZE replied  that natural gas is methane; it  has 1 carbon                                                               
molecule  and  4  hydrogen  molecules around  it;  ethane  has  2                                                               
carbons,  propane  has  3  carbons  and  butane  has  4  carbons.                                                               
Basically  one  molecule of  propane  has  2.7 times  the  energy                                                               
content of  a methane molecule.  The more propane  molecules, the                                                               
more energy  gets moved down the  line. "You move molecules  in a                                                               
pipeline,  you don't  move btus."  Propane is  a liquid  and very                                                               
dense at very moderate temperatures  and pressures. So it doesn't                                                               
require  super chilling  or high  pressures.  Other energies  are                                                               
more volatile in terms of making them a liquid.                                                                                 
                                                                                                                                
Inherent  in the  project is  the ability  to start  shipping gas                                                               
from Prudhoe  Bay without  the conditioning  plant being  on line                                                               
and to  Cook Inlet without the  LNG facility in Valdez  - as long                                                               
as they know  it is coming. The  Prudhoe Bay gas is  so rich that                                                               
even with  12-percent CO2  content, it will  still burn  great in                                                               
stoves and  turbines. He  also envisioned  making maximum  use of                                                               
the TAPS right-of-way.                                                                                                          
                                                                                                                                
4:17:33 PM                                                                                                                    
He emphasized the importance of the joint-study process saying:                                                                 
                                                                                                                                
     It's  our  feeling  that  while  the  project  here  is                                                                    
     important, the  study process may be  actually the more                                                                    
     important thing  at this point.  I should  emphasize to                                                                    
     you that we're  not looking for support  of the project                                                                    
     at this  point. Ultimately, that  will flow out  of the                                                                    
     people  who  want to  build  it,  who  want to  be  the                                                                    
     participants in it. What we  are looking for is support                                                                    
     of the idea  of moving forward with a  number of people                                                                    
     in a  sort of voluntary  sort way - no  commitments, no                                                                    
     exclusivity -  other than  that they  will work  in and                                                                    
     contribute    towards     the    project    definition,                                                                    
     understanding the  project, defining  it on  an in-kind                                                                    
     basis. We've  proposed here that  the state put  up the                                                                    
     $5  million of  cash  to  fund what  we  think are  the                                                                    
     studies. We  suspect that the in-kind  effort that this                                                                    
     could  attract  is  [indisc.] probably  valued  in  the                                                                    
     range of $5 million - $10  million if you could even go                                                                    
     out and buy the kind  of expertise from these companies                                                                    
     we would be looking for.                                                                                                   
                                                                                                                                
MR. HEINZE explained  that at the end of the  joint study process                                                               
all the participants would have  enough knowledge that they could                                                               
make an informed decision whether  to go forward and whether they                                                               
were to foot the bill for the  next level, which might be more in                                                               
the  range of  $50 million.  He  said this  is in  line with  the                                                               
Governor's proposal.  ANGDA would  be the facilitator  of getting                                                               
the  project started.  He thought  certain participants  would be                                                               
willing to put some people working on this almost full-time.                                                                    
                                                                                                                                
     That's what it would take to  kind of make it happen. A                                                                    
     lot of other people would  be part time. The reality is                                                                    
     that   the  process   would   be   very  public,   very                                                                    
     transparent and  everybody could  sort of see  what was                                                                    
     going on at least on this project.                                                                                         
                                                                                                                                
MR.  HEINZE  speculated  that the  Governor's  legislation  would                                                               
inspire  some proposals,  but that  others would  be needed  - in                                                               
particular ones that focus on  the Alaska market, because that is                                                               
an  important  ingredient  from  the  state's  point  of  view  -                                                               
regardless.  He  speculated  also  that this  project  was  small                                                               
enough to  be doable, and that  it would be cheap  insurance that                                                               
something will happen.                                                                                                          
                                                                                                                                
4:22:10 PM                                                                                                                    
CHAIR  HUGGINS said  last year  the legislature  faced the  issue                                                               
that there was  no contract start date and asked  how his "course                                                               
of action" would have more certainty.                                                                                           
                                                                                                                                
MR. HEINZE replied:                                                                                                             
                                                                                                                                
     This  isn't  a  negotiation.  This  is  people  working                                                                    
     together that are  potentially interested participants.                                                                    
     It's   working  together   in   a  circumstance   where                                                                    
     everybody  has  a lot  to  gain  and nothing  to  lose.                                                                    
     Again,  because there  is no  exclusivity to  it, there                                                                    
     may  be companies  that choose  the participate  in the                                                                    
     study  very  actively  and  also  undertake  their  own                                                                    
     proposals under whatever the Governor  puts in front of                                                                    
     you. So,  at worst all  we have done is  encourage more                                                                    
     action and anticipation on it.                                                                                             
                                                                                                                                
     Secondly,  I think  the result  of the  joint study  is                                                                    
     going  to be  to see  that this  is not  the kind  of a                                                                    
     project  where you  need  one person  or  one group  of                                                                    
     people,  but   where  you  need  a   number  of  people                                                                    
     involved. This provides, then, at  least a framework to                                                                    
     start to  identify those people,  for them to  start to                                                                    
     work  with  each  other and  understand  each  other  a                                                                    
     little  better   and  again,   develop  some   of  that                                                                    
     background.                                                                                                                
                                                                                                                                
     Also, because it's  highly visible in a  public sense -                                                                    
     who  is  there,  what's  happening. I  think  it  aides                                                                    
     whatever  other discussions  have  to  take place  with                                                                    
     whatever  other   parties  under  anything   else.  Our                                                                    
     intention  is to  proceed simultaneously  with whatever                                                                    
     other  efforts  there  are. We  have  no  intention  to                                                                    
     interfere with  or in any  way create problems  for the                                                                    
     other issues. On  the other hand, very  frankly, if the                                                                    
     moment comes where  the state decides that  it is faced                                                                    
     with significant delay on  some other alternative, then                                                                    
     it  may want  to look  hard at  this and  see if  it is                                                                    
     appropriate  to move  ahead. Having  said that,  I will                                                                    
     assure  you  we have  analyzed  and  we've discussed  a                                                                    
     little  bit in  the  proposal here  the  sort of  'what                                                                    
     ifs.'  What  if you  do  this  project and  then  other                                                                    
     things  happen and  none of  them seem  in our  mind to                                                                    
     work  out bad.  They  are all  possibilities that  seem                                                                    
     very manageable  and, frankly,  probably good  from the                                                                    
     state's  point of  view. We  think that's  kind of  our                                                                    
     take  of  how  we  contribute  to  the  process  moving                                                                    
     forward on it.                                                                                                             
                                                                                                                                
CHAIR HUGGINS  summarized that  his system can  be viewed  in two                                                               
major  categories -  "one  that it's  complimentary  to a  larger                                                               
system that you  take gas off of and that  given that there isn't                                                               
that larger system, you could have an autonomous system."                                                                       
                                                                                                                                
MR. HEINZE replied that the system  he has proposed is a "minimal                                                               
autonomal system"  and that there  is an inherent  frustration in                                                               
not doing anything.                                                                                                             
                                                                                                                                
4:27:14 PM                                                                                                                    
SENATOR  MCGUIRE said  lawmakers keep  coming back  to the  point                                                               
that  any  project  needs  a  gas supply  and  there  must  be  a                                                               
willingness  on  behalf  of  the   people  who  own  the  gas  to                                                               
participate.  She said  that three  major producers  own the  gas                                                               
supply and  asked what  would be  their incentive  to voluntarily                                                               
participate  in  this   when  their  goal  is   to  please  their                                                               
shareholders not to help Alaska  resolve its energy dilemma. What                                                               
if they have a competing proposal  that would lead to their goal?                                                               
She has  also found in  working on homeland security  issues that                                                               
it  is difficult  for  people to  work  voluntarily because  they                                                               
recognize the risk of giving up proprietary information.                                                                        
                                                                                                                                
4:29:20 PM                                                                                                                    
MR. HEINZE replied, "The visualization  here is sort of two-fold"                                                               
and that  companies commonly share  information that is  in their                                                               
common  interest.  People might  want  not  want to  make  things                                                               
public, but  wouldn't mind sharing  it with other  people because                                                               
it  might lead  to  a better  thing and  the  other people  maybe                                                               
already know it.  Second, part of the reason for  the state to be                                                               
involved  is to  help guide  studies that  will generate  certain                                                               
information in the  public realm without them  having to disclose                                                               
proporietary information.  For instance,  the state could  hire a                                                               
contractor that would  review their work and incorporate  it in a                                                               
summary way without ever  revealing proprietary information. This                                                               
is a common vehicle. He noted  that later he would talk about the                                                               
Port Authority memorandum - one of  the reasons for doing that is                                                               
so that he can keep a secret.                                                                                                   
                                                                                                                                
In  response to  her  other  question, he  said  the decision  to                                                               
market  gas has  to  be  made separately  by  each  of the  three                                                               
leaseholders in the  Prudhoe Bay unit. Each has  to make separate                                                               
decisions on marketing  and to do otherwise strikes  to the heart                                                               
of their responsibilities to the  state and to their shareholders                                                               
and, if  done wrong,  could represent  a prima  fascia anti-trust                                                               
violation. They have to find  a balance in thinking through their                                                               
individual perspectives.  It was clear  in the last  session that                                                               
the  three  producers  worked with  the  legislature,  but  other                                                               
producers might be interested, as well.                                                                                         
                                                                                                                                
4:34:41 PM                                                                                                                    
SENATOR  WAGONER asked  if a  percentage of  the gas  is lost  by                                                               
storing it or compressing it.                                                                                                   
                                                                                                                                
MR.  HEINZE answered  very  small percentages  are  lost and  the                                                               
state's bank account might be  appreciating faster than the vault                                                               
that is  leaking. However,  the state might  want to  examine its                                                               
role in  terms of  interest rates and  suggested it  might absorb                                                               
the  extra  charges  through  the pipeline  tariff.  One  of  the                                                               
biggest  objections to  most projects  that he  has heard  is the                                                               
long ramp  up period they  require. "This  is just simply  to say                                                               
not the case here."                                                                                                             
                                                                                                                                
4:37:10 PM                                                                                                                    
SENATOR WAGONER asked  him how letting the gas liquids  go out of                                                               
state would impact the state.                                                                                                   
                                                                                                                                
MR. HEINZE  replied in a pipeline  of the size he  envisions they                                                               
would look  at ethane numbers in  tens of thousands of  barrels a                                                               
day, propane  numbers would be  in the  range of 5,000  to 10,000                                                               
barrels a  day. Larger  projects are  huge numbers  - approaching                                                               
100,000  barrels a  day of  ethane and  50,000 barrels  a day  of                                                               
propane. A  petrochemical facility can  be built on the  basis of                                                               
50,000 barrels a day. So,  this volume is two major petrochemical                                                               
facilities.                                                                                                                     
                                                                                                                                
He said  that NGLs are  a large resource  on the North  Slope; it                                                               
has  no place  to  go  but into  the  gas  pipeline. Because  the                                                               
molecules are so valuable in  a recovery conservation sense, some                                                               
emphasis has  to be  placed on  finding a  market for  them. Once                                                               
they  get  outside  a  pipeline   that  gets  a  little  trickier                                                               
especially with ethane. So you tend  to build the plant that uses                                                               
the ethane right at the end of the pipeline.                                                                                    
                                                                                                                                
Markets in  the Mideast are  tightly controlled and it's  hard to                                                               
get in  to them - places  like Iran, Indonesia and  Sakhalin. The                                                               
Russians confiscated  half of Sakhalin's interest  just recently.                                                               
"If  you're  faced with  those  choices,  Alaska becomes  a  very                                                               
attractive place, frankly,  and you're going to  work really hard                                                               
to see if you can make something pencil out here."                                                                              
                                                                                                                                
SENATOR WIELECHOWSKI  asked him to  compare his project  with the                                                               
one last year in terms of  cost, revenues to the state and Alaska                                                               
jobs. Second,  if a larger gas  line is agreed to,  he asked what                                                               
ability his project had to be upgraded to accommodate it.                                                                       
                                                                                                                                
MR. HEINZE replied  this is a smaller project, but  if you choose                                                               
to make the  LNG portion of this project bigger,  that would lead                                                               
to three  years of good  jobs. You size  the pipe because  of the                                                               
people who made the commitments on the other end of it.                                                                         
                                                                                                                                
4:44:17 PM                                                                                                                    
SENATOR  WIELECHOWSKI asked  in terms  of interchangeability,  if                                                               
the state  goes with a  smaller line and  then goes with  a major                                                               
export line, how easy it is to upgrade.                                                                                         
                                                                                                                                
MR. HEINZE replied:                                                                                                             
                                                                                                                                
     If  you had  installed this  system and  you wanted  to                                                                    
     bring a much larger reserve  to market, you would build                                                                    
     a  separate line  and go  all the  way to  Chicago. And                                                                    
     this lien would continue to  operate; it would still be                                                                    
     a very good  line. It would be very  cost effective. It                                                                    
     would be meeting Alaska's needs  and you'd ship all the                                                                    
     NGLs down  of it and we  could enjoy the benefits  of a                                                                    
     petrochemical industry.                                                                                                    
                                                                                                                                
He said  if the big gasline  goes through, he would  put his hand                                                               
over his  drawing of  the pipeline north  of Delta  Junction "and                                                               
all of a sudden we've got  a wonderful workable project that goes                                                               
south from  that point and  ties off  the big pipeline."  He also                                                               
perceived that the Governor's AGIA  legislation would place a lot                                                               
of weight on instate gas use.                                                                                                   
                                                                                                                                
4:46:20 PM                                                                                                                    
CHAIR HUGGINS  asked if his  plan depends  on whether the  gas is                                                               
stranded or not.                                                                                                                
                                                                                                                                
MR.  HEINZE  replied  no;  nothing in  his  proposal  depends  on                                                               
legislation. It  is a business-like approach.  Organizations like                                                               
ANGDA,  like  the  Wyoming   Natural  Gas  Development  Authority                                                               
(WNGDA), have  been very effective  in providing lines  of credit                                                               
and  other types  of credit  guarantees, aggregating  supply, and                                                               
those  kind of  steps. He  mentioned  that he  could use  ANGDA's                                                               
bonding authority to do something like that.                                                                                    
                                                                                                                                
CHAIR HUGGINS asked him how WNGDA was effective.                                                                                
                                                                                                                                
MR.  HEINZE  gave  one  example where  Wyoming  provided  a  $300                                                               
million  line  of  credit, the  de-bottle-necked  their  pipeline                                                               
system, got wells  drilled and pipelines built - "They  woke up a                                                               
few years  later and  the state  of Wyoming  was realizing  a $.5                                                               
billion more revenue every year."                                                                                               
                                                                                                                                
4:48:26 PM                                                                                                                    
MR. HEINZE said  that recently the boards of the  Alaska Gas Line                                                               
Port Authority  (Port Authority) and ANGDA  approved a memorandum                                                               
of understanding (MOU)  between them. The intent is in  no way to                                                               
restrict  what  gets  done,  but  it provides  for  a  degree  of                                                               
cooperation that was  not possible before the MOU.  As two public                                                               
agencies,  one  their  biggest  problems is  they  can't  keep  a                                                               
secret. The MOU  basically acknowledges that there  will be times                                                               
when both authorities need to talk  to each other and ask that it                                                               
be kept confidential.                                                                                                           
                                                                                                                                
The strongest  motive he  had for  pursuing this  MOU is  that he                                                               
knows the Port Authority already  has good and valuable work done                                                               
for them  by Bechtel. Bechtel  wasn't paid  for the work,  but it                                                               
owns  it  and  has  every right  to  third-party  confidentiality                                                               
prohibitions.  Under the  MOU, he  could  sign a  confidentiality                                                               
agreement, take a  look at the work and use  it without revealing                                                               
it, and save the  state from having to pay more  for it. The most                                                               
important thing  is that both  ANGDA and the Port  Authority have                                                               
shared mission  goals from  the very beginning  and they  want to                                                               
continue working together.                                                                                                      
                                                                                                                                
4:51:12 PM                                                                                                                    
CHAIR HUGGINS  asked how  he envisioned  someone would  become an                                                               
applicant in his system.                                                                                                        
                                                                                                                                
MR. HEINZE  replied that he didn't  know the details of  what the                                                               
Governor  will bring  forward, but  she has  described a  process                                                               
that involves the submission of  a number of different proposals,                                                               
an evaluation  of them, and then  some sort of process  that goes                                                               
to a next step.                                                                                                                 
                                                                                                                                
4:52:46 PM                                                                                                                    
CHAIR HUGGINS asked how the state  would get its money out of his                                                               
project - in-kind or in-value.                                                                                                  
                                                                                                                                
MR. HEINZE replied  by asking the legislature to  fund $5 million                                                               
to ANGDA.                                                                                                                       
                                                                                                                                
4:54:44 PM                                                                                                                    
CHAIR HUGGINS  asked if a producer  would have to break  ranks to                                                               
work with him.                                                                                                                  
                                                                                                                                
MR. HEINZE supposed  each company would have to look  at its hole                                                               
card and decide what to do.                                                                                                     
                                                                                                                                
4:56:46 PM                                                                                                                    
CHAIR HUGGINS  asked Lori  Backes and  Paul Fuhs,  Alaska Gasline                                                               
Port Authority (AGPA), to comment on the MOU for the committee.                                                                 
                                                                                                                                
PAUL  FUHS,  AGPA, reasoned  that  both  authorities are  working                                                               
together  at  the  closest  level   and  there  is  no  sense  in                                                               
duplicating efforts.  He said it  is the  will of the  people and                                                               
they have  a responsibility to  the people  to do what  they were                                                               
asked to do.                                                                                                                    
                                                                                                                                
He said it's important to just  get started. After an open season                                                               
is held  and other people  come in is when  a decision has  to be                                                               
made. Senator  McGuire is correct  that an initial gas  supply is                                                               
needed,  but no  one knows  how Pt.  Thomson will  play out.  The                                                               
royalty gas  is there. "If we  said to the producers  we want our                                                               
royalty gas because  we want to bring that gas  to our own people                                                               
and they said no, how would that make you feel?"                                                                                
                                                                                                                                
4:59:34 PM                                                                                                                    
SENATOR  WAGONER asked  if the  state doesn't  have a  line going                                                               
through Canada and:                                                                                                             
                                                                                                                                
     Would our gas liquids  be applicable to Alberta's large                                                                    
     demand  for pollutants  and  could we  sell  them on  a                                                                    
     competitive basis  and kind of  export and  import them                                                                    
     from here to Prince Rupert and then over by pipeline?                                                                      
                                                                                                                                
MR. HEINZE replied  if Canada is still interested  in the propane                                                               
for  instance, it  could be  transportable, but  the price  would                                                               
have to be competitive with  some other high-value markets - with                                                               
China  for   instance.  Ethane  would  be   much  more  difficult                                                               
logistically, because  of its  volatility. He  said the  only way                                                               
you know  you get full value  is to have both  an alternative and                                                               
the  control to  move  it between  those  alternatives. "At  that                                                               
moment you will get the best price for that commodity."                                                                         
                                                                                                                                
SENATOR  WAGONER  said  as  a  follow-up  on  gas  liquids,  it's                                                               
estimated  that  an  80,000  barrel  ethane  plant  would  employ                                                               
between 600  - 900 people.  That's a  lot more jobs  for Alaskans                                                               
than the operation  of a pipeline system. That's why  he wants to                                                               
encourage instate processing of natural gas liquids.                                                                            
                                                                                                                                
MR. HEINZE added that the  point to remember with petro-chemicals                                                               
is that it's  not only the manufacturing  industrial complex that                                                               
just turns out  feedstock for all the industries;  The next level                                                               
of manufacturing  where a whole  string of activities can  be set                                                               
up is where more value comes in.                                                                                                
                                                                                                                                
SENATOR MCGUIRE  remembered when  about five years  ago Netricity                                                               
came  to Alaska  interested  in warehousing  big data  processing                                                               
plants  and  agreed  that  innovations   like  that  need  to  be                                                               
encourage by having a gas supply.                                                                                               
                                                                                                                                
MR. HEINZE  remembered also  that Netricity wanted  to be  on the                                                               
North  Slope because  it was  cold  and more  energy is  expended                                                               
cooling electronics than  running them. He added  that Alaska has                                                               
very  limited  plastics  manufacturing of  extremely  high  value                                                               
products and  encouraging that kind of  entrepreneurship would be                                                               
interesting.                                                                                                                    
                                                                                                                                
SENATOR MCGUIRE remembered  that one of the  barriers was getting                                                               
a rate set for the gas.                                                                                                         
                                                                                                                                
5:05:42 PM                                                                                                                    
SENATOR  STEDMAN asked  how a  company can  go about  not getting                                                               
blocked out  in an open season  when its industry isn't  in place                                                               
yet. He asked if he was still struggling with that one.                                                                         
                                                                                                                                
MR. HEINZE  replied that  besides the small  size of  the Alaskan                                                               
market,  it is  an undeveloped  market as  well. For  an example,                                                               
Fairbanks Natural  Gas uses a  very minor amount of  trucked LNG.                                                               
Obviously,  once  gas  is coming  through  their  community,  the                                                               
system will  expand to maybe 100  times bigger that it  is today.                                                               
Reserving space for  them in the future is why  he wants consumer                                                               
participants to be involved. He  noted that ANGDA is working with                                                               
the  Alaska  Power  Association,   which  includes  most  of  the                                                               
electric utilities in  the state, on an education  process on how                                                               
to participate in an open season.                                                                                               
                                                                                                                                
CHAIR HUGGINS  thanked Mr.  Heinze for his  work. There  being no                                                               
further business to  come before the committee,  he adjourned the                                                               
meeting at 5:08:34 PM.                                                                                                        
                                                                                                                                
                                                                                                                                

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