Legislature(2009 - 2010)CAPITOL 106
04/07/2009 01:00 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Pipeline Updates | |
| Transcanada | |
| Denali - the Alaska Gas Pipeline | |
| Alaska Gasline Port Authority | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
April 7, 2009
1:59 p.m.
MEMBERS PRESENT
Senator Lesil McGuire, Co-Chair
Senator Bill Wielechowski, Co-Chair
Senator Charlie Huggins, Vice Chair
Senator Thomas Wagoner
MEMBERS ABSENT
Senator Hollis French
Senator Bert Stedman
Senator Gary Stevens
COMMITTEE CALENDAR
Overview: Pipeline Updates
HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record.
WITNESS REGISTER
Tony Palmer Vice President
Alaska Development
TransCanada
POSITION STATEMENT: Delivered a presentation on the TransCanada
gas pipeline.
Bud Fackrell, President
Denali - The Alaska Gas Pipeline
POSITION STATEMENT: Delivered a presentation on the Denali gas
pipeline.
Bill Walker, Project Manager and General Counsel
Alaska Gasline Port Authority
POSITION STATEMENT: Delivered a presentation on the gas
pipeline.
ACTION NARRATIVE
1:59:46 PM
CO-CHAIR LESIL MCGUIRE called the Senate Resources Standing
Committee meeting to order at 1:59 p.m. Present at the call to
order were Senators Wagoner, French, Wielechowski and McGuire.
^PIPELINE UPDATES
CO-CHAIR MCGUIRE announced the business before the committee is
to hear an overview on the potential pipeline projects.
2:00:28 PM
^TransCanada
TONY PALMER, Vice President, Alaska Development, TransCanada,
said he will briefly address questions that have come up since
he last spoke to the body in January.
He displayed a map of North America showing TransCanada 2008
pipeline accomplishments. He highlighted that the first phase of
the $12 billion Keystone Oil Pipeline will be completed in a
year. It will move more than 1 million barrels of Canadian oil
into Patoka Illinois, Cushing Oklahoma and ultimately to
Houston, Texas by 2012. Second, they have a 42 inch construction
project through the North Central Corridor (NCC) running from
northwestern Alberta to northeastern Alberta. Federal
jurisdiction has been approved for the Alberta facilities and
will improve the chance to achieve the Fort Nelson option that
he described last year. Finally, TransCanada has two northeast
shale gas plays. Horn River is on the Alberta BC border just
o
south of 60 N latitude and Groundbirch is just south of Boundary
Lake in the Montney shale gas play. Together, TransCanada has
executed shipper contracts with customers for 1.5 bcf/d of new
shale gas by 2014. He noted that it sounds impressive but in the
last two years conventional gas in western Canada has decreased
by 1 bcf/d and is expected to further decrease by another 1
bcf/d in the next two years. At present in western Canada, shale
gas is offsetting the decline in conventional gas.
2:03:41 PM
MR. PALMER displayed a slide showing the TransCanada Alaska
Pipeline Project. Two alternatives will be offered in the
initial open season. One is for customers that want to serve the
Lower 48 by going through the Alberta Hub and the other is to go
to Valdez and deliver gas to either Lower 48 or Asian markets.
MR. PALMER displayed a slide of the elements of a successful
project and highlighted that cost and schedule are critical to
the success of a project. TransCanada is very focused on keeping
the costs under $3/MMBtu. While TransCanada cannot control gas
prices or what other players in the marketplace will do, they do
have some measure of control over capital costs. He added that
TransCanada has had discussions with potential shippers within
Alaska, to Asia and the Lower 48 through Valdez, and to the
Lower 48 through the Alberta Hub.
MR. PALMER said that since November 2008 TransCanada has raised
$5.5 billion Canadian, $4.4 billion U.S., at competitive rates
in an uncertain market. It has secured 10 year money at just
over 7 percent, 30 year money at 7.625 percent, and has raised
common equity through a public offering. This access to the
capital markets is unparalleled for pipelines in North America.
Addressing those who question whether the project can be
financed, he pointed out that the project will have access to
the $18 billion U.S. federal loan guarantee. Project financing
will occur five years out when markets are likely to be less
turbulent.
2:07:09 PM
SENATOR FRENCH said he read a Bloomberg article about efforts by
Shell Oil and BP to renegotiate with their support companies for
a 20 percent to 40 percent reduction in the costs of their
contracts and services going forward. Their justification was
the economic climate and the price of raw materials like steel.
He asked if TransCanada is undertaking a similar effort as it
works up cost estimates.
MR. PALMER replied they aren't at the stage where they have to
renegotiate contracts. They won't purchase pipe for about five
years, assuming that the project moves forward. As TransCanada
develops capital cost estimates over the course of the next 12
months, they will look at what costs are today and project what
they will be ultimately. Clearly, prices rose through 2008 and
this year they are falling back.
MR. PALMER said that in their AGIA application they forecast
that capital costs would be $26 billion in 2007. In one year
that will be updated and the new numbers will be given to
customers for the open season. He displayed a bar graph showing
pipe prices and highlighted that they skyrocketed after
TransCanada prepared their AGIA application in the third quarter
of 2007. Prices had fallen somewhat by the third quarter of 2008
when the application was approved and prices today are at about
the same level as when TransCanada prepared their application.
CO-CHAIR WIELECHOWSKI asked what percentage of the project steel
costs represent.
MR. PALMER replied a reasonable estimate for bare pipe is
between 20 and 30 percent.
2:10:07 PM
MR. PALMER displayed a graph of recent crude oil price forecasts
as a proxy for looking at how viable the project might be. He
directed attention to 2018, which is the success case for this
project, and highlighted that all four consultant's forecasts
that were conducted in January 2009 have prices in the $80 to
$120 range. If those numbers are accurate, that would give a
significant netback for an LNG project. He added that he doesn't
have all the components of that project so he doesn't have
precise numbers.
Recent Alberta Hub gas price forecasts show a steep drop in
natural gas prices in the last 12 months. When he testified last
summer gas prices were $10 to $12 and rising and now they've
fallen to less than $4. However, short term swings in natural
gas prices do not determine the viability of this sort of
project. Determining factors include the long term forecasts of
gas prices and the cost of the project. He noted that the five
consultants that prepared forecasts between December 2008 and
March 2009 predicted prices in 2018 to be higher than $8. If
that price is maintained and the project costs can be controlled
as described, this is a very viable project.
2:12:39 PM
MR. PALMER said all AGIA applicants used the December 2006 U.S.
EIA Alberta Hub gas price forecasts as a common tool so that the
state could compare applications. That was the most recent
forecast when the applications were submitted in the fall of
2007. He directed attention to a line graph of U.S. EIA Alberta
Hub gas price forecasts and pointed out that the fall 2008 EIA
forecast is about $2/MMBtu higher than the EIA forecast used in
the AGIA application.
At the time of the AGIA application the U.S. EIA forecast in
2018 was $6.53/MMBtu, tolls were $2.76/MMBtu, and the netback
was $3.77/MMBtu. Over 25 years the netback was $6.89/MMBtu and
would have resulted in $350 billion in revenue for governments
and producers to share. If the December 2008 EIA forecast is
used the total revenue would increase by one-third to $475
billion. As of today, the economics of the project have improved
relative to the AGIA application.
He advised that the TransCanada website for the Alaska pipeline
project has been in place for several months and provides a
number of statistics and facts.
MR. PALMER summarized that the AGIA bill passed and the license
was subsequently issued on December 5, 2008. TransCanada is
aggressively advancing the project. The activities that were
outlined in a January 2009 presentation and the schedule have
been unaffected by the turbulent financial markets. TransCanada
has solid access to the capital markets today. Current gas
prices are higher than those used in the application and this
upward swing would result in an additional $125 billion in
revenue to producers and governments compared to their
application. Projects of this nature rely on long-term economics
and do not succeed or fail based on short-term swings in gas
prices. This project will be in service in 9.5 years and for 25-
50 years beyond that time. Finally, TransCanada will continue to
focus on costs, schedules, and attracting customers.
2:16:36 PM
SENATOR MCGUIRE asked if TransCanada has decided to prefile with
the Federal Energy Regulatory Commission (FERC) and for an
explanation for their decision.
MR. PALMER said their plan was to follow the traditional model
and prefile with the FERC post open season. That being said,
they have clearly heard that FERC wants TransCanada to speed up
that schedule. Productive discussions are ongoing and he is
optimistic they can reach a satisfactory resolution. TransCanada
is committed to controlling costs and maintaining schedule and
some control of that is handed over to the FERC once you
prefile. That is why prefiling traditionally occurs post open
season. He again expressed optimism that TransCanada and the
FERC will resolve their concerns in a short while.
SENATOR MCGUIRE asked if he has a sense of how things will play
out in the open season next spring.
MR. PALMER said they will hold an open season in the spring of
next year and conclude it by July 2010. They have had productive
discussions with a number of customers, but, as always, the
customers are holding their cards close. His experience is that
customers look beyond the prices today to when the project will
be in service and beyond. The potential customers are
sophisticated, but he is optimistic that the open season will be
successful. TransCanada will offer customers a competitive
project with competitive commercial terms that are already
public information. "TransCanada will do its utmost to have a
successful open season and the customers will have to make the
decision if they're ready to commit their gas to Valdez, to
Alaska, to Alberta and make one of those alternatives a
success," Mr. Palmer said.
2:20:28 PM
SENATOR MCGUIRE asked for an update on the TransCanada strategy
in event of an unsuccessful open season.
MR.PALMER said they have obligation under the AGIA license to
continue with the necessary work and will continue to shoot for
a 2012 application to the FERC. They have also committed to
solicit customers at least every two years so that would be 2012
unless they decided to advance it earlier.
With respect to what they would do with potential customers, he
explained that they would examine the results of the open season
and if there were conditioned bids they would work with the
potential customers to resolve the conditions. That is the first
step take that TransCanada would take with potential customers.
SENATOR MCGUIRE asked him to explain the process for addressing
conditional bids.
2:22:59 PM
MR.PALMER said it is a negotiation process. For example,
TransCanada might receive sufficient bids to a particular
destination with the single condition that they change the rate
of return by 50 basis points. In that circumstance TransCanada
would decide whether or not it would make the change and take a
reduction in return in order to have a successful open season.
Sometimes the condition(s) aren't in TransCanada's control to
negotiate; they are simply able to identify the condition(s) to
the party or parties that have control to negotiate. "That's
often what happens over the course of one to six months after an
open season," he said.
SENATOR MCGUIRE observed one such condition might be the tax
rates on natural gas.
MR. PALMER agreed that certain parties might have that as a
condition.
CO-CHAIR MCGUIRE asked him to talk about the jobs that have been
created vis-à-vis TransCanada in Alaska.
MR. PALMER reminded the committee that in the application
TransCanada said it expected all of its employees to be Calgary-
based prior to open season. However, TransCanada has opened a
small Alaska office and there have been 42 jobs through the
contractors in the last several months. Some were temporary,
which is expected at this phase of the project. He highlighted
that TransCanada has not yet submitted a bill, but very shortly
it will submit the first invoice for reimbursement from December
5, 2008 through March, 2009.
SENATOR MCGUIRE asked if he wants to state for the record what
that might total.
MR.PALMER said he understands that it will include about $2
million in qualified expenditures. If they are accepted
TransCanada will be reimbursed for half that amount.
2:26:49 PM
SENATOR HUGGINS joined the meeting.
SENATOR MCGUIRE asked his perspective on the MacKenzie Delta gas
line and if it will impact completion of the Alaska line. Her
information indicates that it will be approved in December this
year and that there is a mandate for it to go forward ahead of
the Alaska line.
MR. PALMER said the MacKenzie project started six years ago and
the joint review panel is expected, but not obligated, to
complete its final report and decision in December. The National
Energy Board will then use that information and issue its final
decision sometime in 2010. He understands that the project
proponents and the government of Canada have discussed fiscal
terms, but he has not been privy to those discussions. However,
the government of Canada recently announced it has made an offer
to the participants. That project has stated it can be in
service by 2014 and it that's correct TransCanada's Alaska
project won't be affected. If the MacKenzie project slips by
three or four years, there is the potential for piggybacking.
That being said, TransCanada strongly supports both projects.
They have been and will continue to be on independent tracks and
TransCanada will continue to push forward on both whenever it
can reach a commercial or regulatory breakthrough.
2:31:03 PM
SENATOR MCGUIRE asked what specific elements would impact the
Alaska line if the MacKenzie project slips three or four years.
MR. PALMER said TransCanada will potentially have a three
percent to five percent interest in the MacKenzie project so
that impact would be small. However, if the two projects are
piggybacked the cost impact could be substantial and could
increase the cost of both projects. He noted that recently there
have been many Lower 48 projects that have gone forward
simultaneously and the industry has managed, but costs have been
higher.
CO-CHAIR WIELECHOWSKI asked if he has current cost estimates for
the project.
MR. PALMER replied he doesn't expect to have an update from what
was filed in the AGIA application until a year from now.
CO-CHAIR WIELECHOWSKI asked if he can talk about the political
landscape, conversations he's had with the Obama administration,
and impacts of the proposed cap and trade legislation might have
on the pipeline.
MR.PALMER said TransCanada has not spoken directly to President
Obama about the project, but they are pleased that it is a high
priority for his administration. They spoke briefly with his
staff about a month ago, before they had formulated how they
might proceed. As Senator Begich said today, cap and trade or
other climate change legislation should be positive for this
project and gas in general as a bridge to renewable energy.
2:34:30 PM
CO-CHAIR WIELECHOWSKI observed that some people say that shale
gas and LNG are possible detriments to the Alaska line while
others say they're a bridge. He asked his thoughts on that.
MR.PALMER said in order for parties to present price forecasts
like he showed today they must consider all of the sources of
supply and demand. As recently as last month, parties were still
projecting a positive outcome for this project in 10 years time
with gas prices greater than $8. Obviously, gas price forecasts
do change, but TransCanada is optimistic that neither LNG nor
shale gas will take Alaska gas out of the market. If costs are
kept under $3, Alaska gas competes very well with LNG, shale,
and conventional gas sources into 2018.
CO-CHAIR WIELECHOWSKI asked if he's thought about whether or not
the terms of AGIA would allow the parties that submitted
conditioned bids to receive preferential tax treatment under
AGIA.
MR.PALMER replied he hasn't, but he imagines that would be the
case if their conditions are resolved. He added that he isn't
qualified to give a legal view.
2:37:11 PM
CO-CHAIR WIELECHOWSKI recalled that under the conditions of AGIA
the preferential tax treatment extends through open season. If
someone submitted a conditioned bid on the last day of the open
season and negotiations occur after that, as you suggested, it's
something to think about, he said
MR.PALMER said he will ask his legal advisors to look at that.
SENATOR WAGONER asked the wellhead price of the shale gas plays
at Horn River and Groundbirch.
MR.PALMER replied they will receive a wellhead price at the
Alberta Hub minus the cost of transportation from the well head
to the Alberta Hub. He can't say what the gas prices will be in
2011 through 2014, but the transportation costs will be
significantly less than for the Alaska gas because it's closer
to the Alberta Hub. The tolls within Alberta are about $.35
Canadian and the transportation costs into the Alberta system
from Horn River or Groundbirch will probably be under $1.
SENATOR WAGONER asked if they have started producing the shale
gas.
MR.PALMER replied modest amounts of gas are being produced today
and that will increase to significant volumes in 2011 and
through 2014.
2:39:30 PM
^Denali - The Alaska Gas Pipeline
CO-CHAIR MCGUIRE announced the committee would next hear an
update on the Denali project.
BUD FACKRELL, President, said Denali is on schedule to conduct
an open season in 2010. The existing economic conditions haven't
their view on that, but it's clear that the project has to be
economic and it has to compete with supply sources in the Lower
48, including shale gas. It's also clear that the current
administration views Alaska gas as a keystone of its energy
policy. He said that Denali sees Alaska gas as having space in
the Lower 48 supply and demand scenario if it's economic. Their
current focus is on the open season, but they realize that it's
important to only spend what is necessary to move the project
through that open season.
2:42:39 PM
MR. FACKRELL displayed a map of the Denali project and pointed
out two options. The main pipeline follows TAPS and the
Alaska/Canadian highway into the existing Alberta infrastructure
with the existing tariffs. The gas can either go into the
existing Alberta infrastructure with the existing tariffs or it
can go into new pipe down into the Lower 48. Whether the new
pipe is built or whether the gas goes into the existing
infrastructure will be dictated by the shippers. Another
important point is that they are talking about 4 bcf/d of gas,
which is 6 percent to 8 percent of demand today. By any measure
it's a significant project, he said.
Turning to a slide on terms of service, he said it's time to lay
to rest the assertion that Denali is not an open access
pipeline. That's not true and would be against the law. FERC has
very clearly stated that "People have open access to the
pipeline, not just the producers." Denali wants as many
customers as it can and is committed to solicit expansions every
two years. The terms include distance sensitive transportation
among other things, he said.
2:44:34 PM
SENATOR MCGUIRE clarified that he's referring to the 2005 FERC
order that sets up the law.
MR. FACKRELL said yes; the Alaska Natural Gas Pipeline Act of
2004 dictated that and the FERC subsequently wrote the rules.
He explained that in Canada there are two regulatory frameworks
and Denali will be using the National Energy Board Act. That is
the modern legislation that is open to any project proponent. In
the U.S. FERC is responsible for authorizing the project. AGIA
is not an exclusive license to build a pipeline and Denali is
moving forward without AGIA.
MR. FACKRELL outlined the following progress and key
accomplishments:
· The Denali project team has been mobilized and 90 to 100
people are in the core team; 80 percent are based in
Alaska. Contract services will come and go as needed.
· They have established headquarters in Anchorage and in
Canada.
· They went through the pre-filed process on the advice of
FERC and it's been beneficial. They have submitted resource
reports and will engage an environmental contractor.
· They have filed for right-of-way on federal lands in Alaska
so that the Bureau of Land Management (BLM) can work with
Denali on requests for field work.
· The summer 2008 field program was successful. It focused
primarily on the Delta Junction to the Canadian border, but
there was field work other than that as well. They
currently have a large magnitude database.
· Community outreach meetings have been held in Alaska and
Canada and will continue.
· Denali is proud of the archeology technician program it has
established with UAF.
· They have been engaged with the Alaska DOT workforce
development task force.
· They have met with many regulators in Alaska, the U.S. and
Canada to understand what is expected on the project and
making sure that people are clear on what Denali is doing.
· Denali has awarded two multi-million dollar contracts for
the gas treatment plant and pipeline preliminary
engineering. The first is a joint venture with Fluor and
WorleyParsons to build the gas treatment plant. These
engineering firms have previously designed and developed a
significant number of facilities on the North Slope, which
will work to Denali's advantage. The second contract is
with Bechtel who will supplement the engineering on the
pipeline itself.
2:49:35 PM
MR. FACKRELL highlighted some of the summer 2008 field work.
· Surveyed over 200 miles of wetlands.
· Investigated 70 archeological sites.
· Shot over 1,700 miles of orthophotos [aerial photos that
are geometrically corrected so that the scale is uniform].
· Shot 730 miles of immersive video [spherical view].
· At one point, as many as 80 people worked in the field.
· 80-100 people did engineering work in the office focusing
particularly on cost estimates and schedules.
A subsequent slide depicted 35 different logos of companies
Denali hired on a project basis.
2:52:08 PM
MR. FACKRELL said the 2009 program will focus on costs and
schedule in order to conduct a successful open season. He
highlighted the following important points:
· The broader program will build on the data from the
producers' 2001-2002 $125 million 18 month cost estimate.
· Fluor and WorleyParsons was awarded the gas treatment plant
contract and preliminary engineering is underway.
· Bechtel will work on the pipeline itself, supplemented by
Denali employees who already understand the route.
· Work with the Alaska Department of Natural Resources (DNR),
Federal Energy Regulatory Commission (FERC), National
Energy Board (NEB), and the Office of Federal Coordinator
(OFC).
· Continuing to meet the FERC prefiling requirements
including engaging the FERC third-party contractor.
· Work with the Alaska Department of Transportation and
Public Facilities (DOTPF) on infrastructure will continue.
Before construction on the project starts, roads, bridges,
and ports in the state require upgrading. The pipe for this
project is twice as thick as TAPS. Pipeline projects are
about logistics - moving people, equipment, and goods and
services at the right time.
· The Canadian field program is underway.
· The field program in Alaska will be minimal in 2009 because
a great deal of data has already been collected. It is
sufficient to carry through the open season.
· Workforce development programs include: UAF and Tanana
Chiefs Conference to train surveyor technicians. This
project will need both union and nonunion labor and there
will be at least one project labor agreement (PLA).
· Stakeholder engagement in Alaska and Canada will continue
to be crucially important. Denali has had extensive
interaction with Native groups and that will continue. BP
and ConocoPhillips have relationships in Canada and Denali
will piggyback on that because that will be a large part of
the 2009 program.
· In 2009 commercial work will be progressing to the open
season.
He summarized that the 2009 program will focus on costs and
schedules, and fulfilling prefiling requirements, and getting
ready for the open season in 2010.
2:55:35 PM
MR. FACKRELL stated that Denali has unique offerings and is the
only project proponent that:
· Has decades of Alaskan and Canadian construction experience
and experience building in the Arctic.
· Has the experience to build and operate the gas treatment
plant on the North Slope.
· Has followed the FERC advice and prefiled. They plan to
follow up with all the requirements.
· Has a significant presence in its Alaska headquarters.
· Is spending its own money to move the project forward even
under the current uncertain economic conditions.
Denali is committed to moving the project forward and is focused
on the open season and providing the two low shippers a solid
cost estimate underpinned with good engineering that is field
tested.
2:56:53 PM
SENATOR MCGUIRE asked if he has a sense of how things will play
out in the open season next spring.
MR. FACKRELL expressed hesitation in answering a hypothetical
question. Denali is trying to set itself up for success by doing
things within its control like getting good cost estimates. That
will play will with the shippers. Similarly important is to
follow through with the commitment to prefile with the FERC to
give people confidence that they are working cooperatively as
they move through the process. FERC wants to be involved going
forward as they've been given stewardship over this very
important project.
SENATOR MCGUIRE asked if, in the event of a successful open
season, he sees a role for TransCanada or a merging of the
projects.
MR. FACKRELL said the owners have always said they are open to
bringing in other project participants that can bring down risk
and enhance the project. However, at this point it's problematic
to join TransCanada and Denali because TransCanada is an AGIA
licensee. It is being paid by the State of Alaska and is
operating under a set of obligations. The owners of Denali did
not file an AGIA application because they did not believe that
process would result in a viable project.
2:59:46 PM
SENATOR WAGONER asked if Denali has a specific date for the open
season.
MR. FACKRELL replied they will begin the open season by the
fourth quarter of 2010.
SENATOR WAGONER asked how long the open season will run.
MR. FACKRELL said that is dictated by the FERC, but it's
essentially 6 months from the first filing.
SENATOR WAGONER asked where he should direct calls for
employment opportunities.
3:01:25 PM
MR. FACKRELL replied there is a link for applying for work as
well as a list of the contractors on their website at
www.denalipipeline.com.
SENATOR WAGONER, observing that TransCanada is contractually
committed to go to FERC certification, asked what Denali plans
to do if it doesn't have a successful open season.
MR. FACKRELL replied their first milestone is to conduct an open
season. At that point you find out a lot of information like why
a shipper didn't sign up if in fact it didn't. They'll make
plans after they have that information.
3:02:50 PM
CO-CHAIR WIELECHOWSKI asked if he has sense of whether or not
the open season will be successful.
MR. FACKRELL replied he has faith, but there are a lot of
issues. A lot of pipelines don't have a successful first open
season and that's not necessarily bad. That being said, Denali
is planning for a successful open season.
CO-CHAIR WIELECHOWSKI asked for an explanation of the apparent
discrepancy between Denali stating that first gas will flow in
2018 and ConocoPhillips stating that it expects to have gas
flowing in 2019.
MR. FACKRELL replied it was initially surprising, but they
learned that ConocoPhillips was talking about full capacity in
2019. First gas will still be 2018.
CO-CHAIR WIELECHOWSKI asked how many bcf will flow at first gas
versus full capacity.
MR. FACKRELL said he doesn't have the information in his head.
SENATOR MCGUIRE noted that he said the shale discoveries could
act as a bridge to this project. She asked if there has been any
change in the level of interest in the last year considering the
uncertain economy.
MR. FACKRELL said you need to take a long term view on a big
project like this, but you can't ignore the existing financial
situation. Shale gas is competition for Alaska gas, but on the
supply and demand spectrum he believes there is room for both.
He restated that the project has to be economic and it has to
compete with shale gas. Likewise, it has to compete with LNG
imports. Energy in the Lower 48 is depressed now because of the
economy but that won't last forever. In Washington they heard
that natural gas is the bridging fuel to renewables so Alaska
gas will be high on the administration's priority list. It's a
clean burning fuel.
3:07:11 PM
SENATOR WAGONER commented that an essential ingredient in both
of these pipeline projects has to be ExxonMobile's ability to
bring Pt Thomson gas into the system in a reasonable time frame.
He asked how that figures into Denali's project and what he
envisions will happen.
MR. FACKRELL said their target is 4 bcf/d and Prudhoe Bay isn't
enough gas so Pt Thompson is very important. He believes there
is enough undiscovered gas but having that gas available at the
start is very important. The more gas that's available at the
start, the better the project.
At ease from 3:09 pm to 3:12 pm.
^Alaska Gasline Port Authority
3:12:11 PM
SENATOR MCGUIRE announced the committee will next hear an update
from Bill Walker with the Alaska Gasline Port Authority.
BILL WALKER, Project Manager and General Counsel, Alaska Gasline
Port Authority (AGPA), said that since the last update AGPA has
been working with entities that are interested in developing LNG
receiving terminals on the West Coast, including three companies
in Oregon. Responding to a question about California companies,
he explained that that Sempra has the only LNG receiving
terminal on the West Coast. It is located south of Costa Azul
and north of Ensenada, Baja California. He said he was asked to
extend an invitation to tour the facility.
3:13:56 PM
MR. WALKER said AGPA has received a resolution of support from
the Alaska Federation of Natives and they continue to work with
the Office of Hawaiian Affairs to deliver LNG to that state. He
noted that they were invited to talk about the project with the
Obama administration and they are pleased the administration has
shown that level of interest.
AGPA continues to work with Mitsubishi Corporation and Sempra.
They started with a memorandum of understanding (MOU) and have
completed the joint development agreement getting ready for open
season.
SENATOR MCGUIRE asked if the MOU is proprietary.
MR. WALKER replied yes it is.
CO-CHAIR MCGUIRE asked if it outlines things like the division
of ownership between Mitsubishi Corporation, Sempra, and AGPA.
MR. WALKER replied that's actually part of the joint development
agreement, which succeeds the MOU.
SENATOR WAGONER asked if Hawaii has an LNG receiving facility.
MR. WALKER said no, but they are eager to get cleaner fuel than
coal and diesel that they currently use. One option is an
offshore LNG receiving terminal.
Continuing with the presentation, he said that in January Mr.
Palmer with TransCanada came to Valdez to a community briefing
to talk about the open season and answer questions directly.
AGPA, working through Sempra and Mitsubishi, continues to give
TransCanada information on needed volumes and pipe size for the
open season.
3:16:54 PM
Now that their focus is only on liquefaction and shipping, they
are developing cost estimates in much the same way that
TransCanada puts theirs together for conditioning and the
pipeline. AGPA has always focused on instate gas and they
initially planned 22 offtake points. This is a midsize project;
the target is 2.7 bcf/d plus the instate volume. AGPA has a MOU
with ANGDA for the instate portion and would like to see an
offtake at Glennallen and other locations into Southcentral.
Since the last update in January more attention has focused on
shale gas. AGPA is only looking at that issue because Alaska
needs to keep its options open. No one knows the impact shale
gas will have but it's something to keep an eye on.
MR. WALKER displayed a map of the Horn River Basin, Montney
Formation, the proposed Kitimat LNG export terminal, and the gas
grid to the south to show the competition. At one point the
Kitimat facility was a potential receiving terminal, but it
turned into export terminal for the Asian market because of
shale gas. That just shows that the market changes and
competition is healthy.
3:22:21 PM
MR. WALKER displayed two slides to emphasize the consequences of
not having a major gas sale or project. He made the following
points:
· A three train LNG project offsets declining North Slope oil
production.
· Without a replacement revenue source there likely will be a
pre-statehood scenario.
· Different oil price assumptions change the magnitude of
state collections, but do not reverse the declining
production and falling state revenues from oil.
MR. WALKER said there are ten reasons the all-Alaska LNG project
is the best instate option for Alaska. He highlighted the
following:
· The gas supply is known and is within the offtake limits of
Prudhoe Bay at this point.
· The route is known. It is parallel to TAPS.
· There is no limit on volume of gas being within AGIA. Using
TransCanada the volume can be .5b or 6b, it doesn't matter.
· TransCanada is an abundantly qualified pipeline company.
· Gas will be cheaper for Alaskans. With the export of LNG it
will provide a lower tariff for gas instate. That was a
founding purpose for the Port Authority.
· They've been working with ANGDA on the spur line to
Southcentral. The right-of-ways have been secured.
· Revenues to Alaska's treasury will increase.
3:25:13 PM
SENATOR MCGUIRE asked him to remind her why AGPA is in AGIA.
MR. WALKER explained that in TransCanada's application they said
they would do a simultaneous open season to Valdez. When they
were awarded the license they received an exclusive on both
routes, to Valdez and Alberta. AGPA's partners are in AGIA
because of the legislative intent and what the Governor did on
Administrative Order 242. It basically says there is an interest
in Alaska for an LNG project of a certain level. That's been
helpful.
SENATOR MCGUIRE summarized that when TransCanada goes through
the open season process next spring, one route will be to Valdez
and they have the exclusive license for that.
MR. WALKER said yes. TransCanada won't do anything on
liquefaction or shipping, but they have the exclusive license on
the pipe. They have said they would do that as a standalone
pipe, which is critical to AGPA. This gives greater market
option. The Alberta Hub now is surrounded by two shale plays,
which will impact the price of gas in that area. AGPA likes that
ships can go wherever they need to go, the U.S. and Hawaii and
the world markets.
Referencing an earlier question about what happens if there is a
failed open season, he said if another instate project was
moving forward they would be interested in participating by
adding their volume.
3:28:52 PM
SENATOR MCGUIRE mentioned the Ketchikan Ship Yard and asked if
he's considered building smaller ships under the Jones Act.
MR. WALKER said yes; they like the option of building smaller
ships here in Alaska. Also, compressed natural gas barges are
less expensive if they're going less than 1,200 miles. They
envision that happening in Southeast, but Hawaii is just outside
that range. The loan guarantee includes LNG tankers, which is a
tremendous opportunity for Alaska.
3:31:28 PM
SENATOR MCGUIRE encouraged him to talk to the California State
Legislature about their LNG contract with Australia. She asked
if he has any comment on the recent announcement that Sakhalin
will begin shipping LNG.
MR. WALKER said they've watched the Sakhalin II project and
others for some time and wish they were at the same stage, but
it's encouraging to know they're on the right track.
SENATOR MCGUIRE thanked Mr. Walker for presenting.
3:34:13 PM
There being nothing further to come before the committee, Co-
Chair McGuire adjourned the Senate Resources Standing Committee
meeting at 3:34 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Denali - Pipeline Update - 04-07-09.pdf |
SRES 4/7/2009 1:00:00 PM |
|
| AGPA Pipeline Update - 04-07-09.pdf |
SRES 4/7/2009 1:00:00 PM |
|
| TransCanada - Pipeline Update - 04-07-09.pdf |
SRES 4/7/2009 1:00:00 PM |