Legislature(2015 - 2016)BUTROVICH 205
01/23/2015 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Overview: Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects | |
| 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
January 23, 2015
3:29 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Mia Costello, Vice Chair
Senator John Coghill
Senator Peter Micciche
Senator Bert Stedman
Senator Bill Stoltze
Senator Bill Wielechowski
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
OVERVIEW: OFFICE OF THE FEDERAL COORDINATOR FOR ALASKA NATURAL
GAS TRANSPORTATION PROJECTS
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
LARRY PERSILY, Federal Coordinator
Alaska Gas Line Projects
Washington, D.C.
POSITION STATEMENT: Presented information on the Alaska Natural
Gas Transportation Project.
ACTION NARRATIVE
3:29:44 PM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:29 p.m. Present at the call to
order were Senators Costello, Coghill, Micciche, Stedman,
Wielechowski, and Chair Giessel.
^ Overview: Office of the Federal Coordinator for Alaska Natural
Gas Transportation Projects
Overview: Office of the Federal Coordinator for Alaska Natural
Gas Transportation Projects
3:30:44 PM
CHAIR GIESSEL introduced the presenter.
3:30:49 PM
LARRY PERSILY, Federal Coordinator, Alaska Gas Line Projects,
Washington, D.C., offered a handout on oil and gas-related
acronyms.
CHAIR GIESSEL noted the arrival of Senator Stoltze.
MR. PERSILY pointed out that the 56th anniversary of the first
liquefied natural gas (LNG) shipment by tanker on January 28,
1959, which left Louisiana for the United Kingdom. He provided
the history of the joint venture between Union Stockyard and
Transit Company of Chicago and Continental Oil - now Conoco. He
described how they converted a WWII liberty ship to be able to
carry LNG. He emphasized how much the gas industry has grown
since then.
3:34:00 PM
MR. PERSILY began the update by relating Federal Energy
Regulatory Commission (FERC) efforts. In order to build a gas
terminal in the U.S., FERC must build and operate it. The FERC
has named an environmental project manager, two deputy
directors, and a third-party contractor to work on the
Environmental Impact Statement (EIS). The project sponsors have
indicated they will submit the first draft environmental
resource reports next month and FERC will issue a formal Notice
of Intent in the federal register, starting the EIS scoping
process. He explained that the scoping process involves holding
public meetings statewide to discuss baseline data and the
effects of the project on things like water, soil, wetlands, and
habitat. FERC wants to hear from the public and agencies what
issues to address in the EIS.
CHAIR GIESSEL asked if two draft reports had been turned in
already.
MR. PERSILY said yes - they were preliminary project
descriptions. The detailed reports will follow.
CHAIR GIESSEL asked where the public scoping meetings will be
held.
MR. PERSILY said the schedule has not been released; the
meetings will not be limited to the Railbelt, but rather, held
throughout the state. The goal is to build an EIS that does not
get challenged.
MR. PERSILY discussed the Department of Energy's (DOE)
obligation to export the gas. The project sponsors applied for
export authority last year and on December 21 DOE granted export
authority to free-trade nations; however, there are no free-
trade nations other than South Korea that are interested
currently. Non-free trade nations such as China, Japan, India,
Thailand, Vietnam, and Indonesia are the customers pending. He
said when DOE posted the notice in the federal register there
were 27 responses, a small number, with only one in opposition
from the Sierra Club which has opposed every LNG export project.
He pointed out that since the law says the presumption is that
exports are good, unless someone can show DOE it's not in the
public interest, he expects approval sometime in 2015. Approval
would be conditional on final FERC approval of the EIS.
3:39:09 PM
SENATOR STOLTZE did not share the opinion regarding the Sierra
Club's lack of relevance to the process.
MR. PERSILY pointed out that none of the approved export
applications have been held up by DOE so far this year. One of
the Sierra Club's complaints is that upstream and downstream
environmental impacts should be included. He said it is not
FERR's job to do a "cradle to grave" analysis and DOE agrees.
3:40:57 PM
MR. PERSILY relayed that the Office of the Federal Coordinator
for Alaska Natural Gas Transportation Projects was not funded
and will close March 1. The office was created in 2004 when
there was concern about running out of LNG. Their authority was
only for domestic projects and no longer qualifies. He said the
agency is working to preserve the work that has been done with a
contract with the Alaska Resources Library Information Service
(ARLIS) at the University of Alaska - Anchorage. There will be a
searchable, digital library of documents from the past 40 years.
He said he is looking for a federal home for information
services.
CHAIR GIESSEL said she found the POD files in the digital
library very informative.
She welcomed Representative Kreiss-Tomkins to the meeting.
MR. PERSILY addressed make-or-break factors for Alaska's LNG
project. He said that it comes down to market demand for LNG
whether the world economy continues to grow at a sufficient rate
and whether countries turn to natural gas and away from coal and
other sources. It depends on China, which now imports about 30
percent of its gas and would like to clean up its air. Japan is
currently the biggest importer of LNG, but that could change to
China by 2020. Brazil, Qatar, Thailand, Vietnam, Indonesia, and
Egypt are also importing LNG.
He said that Alaskan needs to be cost competitive and to be
realistic about profits; LNG is not as profitable as oil. At
today's LNG prices in Asia, for a new project, it costs about 75
percent to 80 percent of its value to move it from the North
Slope.
3:47:30 PM
SENATOR COSTELLO asked if there were any competitive advantages
of the quality of Alaska's gas.
MR. PERSILY noted a disadvantage of the higher prices of
Alaska's LNG. He said there were also advantages: a higher BTU
value than coalbed methane gas in Australia, Asia, and the U.S.
Gulf Coast, significant shorter shipping distance, and proven
reserves.
He addressed risk and price as they relate to Alaska LNG. There
are dozens of proposed, potential, possible projects that are
making pitches to the same buyers as Alaska. There is no
shortage of gas. Companies that lack experience and financial
backing are at a disadvantage. Certainty and dependability have
value.
3:50:27 PM
MR. PERSILY addressed the odds for Alaska. He said it's the best
it's been in 40 years, the timing is good for Alaska, and the
market is growing. Natural gas is increasingly the fuel of
choice. LNG demand is growing; it's just a question of how much
demand. Turning North Slope gas into cash would extend the life
of oil operations, which is crucial for Alaska's future. By
2020's and beyond, gas sales could begin without ruining North
Slope oil production numbers.
MR. PERSILY spoke of staying on a schedule that is based on
filings by the project sponsor with FERC, and the schedule that
was laid out by the previous administration in presentations on
SB 138, in the Heads of Agreement with the producers, and in the
Memorandum of Understanding (MOA) with TransCanada and the
state. The project sponsors would begin to turn in their draft
resource reports to FERC next month and continue with
preliminary engineering and design field work in the summer of
2015. That would position them to make the Front-End Engineering
and Design (FEED) decision in early 2016, the draft EIS in 2017,
the final EIS in 2018, and Final Investment Decision (FID) in
2019. He concluded that the federal perspective is to stay on
schedule, but he recognized that there are issue that the state
and its partners have to resolve.
3:55:12 PM
MR. PERSILY talked about Alaska's competition, the first being
Canada. He said none of the 18 proposed Canadian projects have
gone to FID. He gave an example of some of the projects that are
just on paper. Petronas, an example of a project that is far
along in progress, is trying to develop a terminal near Prince
Rupert, but is delayed until costs are cut down. There are First
Nations issues in Canada and environmental issues for coastal
LNG plants.
He describe competitors in the U.S. Gulf Coast, noting that four
export terminals are under development. The first project was to
start up the end of 2015; two more are under construction on the
Gulf and one on the East Coast. He discussed "brown field"
developments - already developed import terminals that are under
used - that can be turned into export terminals. They have a
cost advantage. These LNG projects are called "tolling models"
and are not built by producers, a different business model. The
market risk is not there. He predicted that the gas will end up
in the Atlantic Basin, Europe, and elsewhere.
He said the U.S. does not have enough pipeline capacity to meet
the growing demand and move the gas. It is difficult to get
approval for new pipelines and very expensive.
4:03:01 PM
MR. PERSILY discussed Russian competition. Russia has one LNG
terminal on Sakhalin Island and there is one LNG terminal under
development called Yamal LNG, but it is under duress. There are
Western sanctions over Ukraine that are hindering financing,
technology, equipment, and expertise. The Russian government is
investing $2.5 billion in the "Wellbeing Fund," and is building
a port, an airport and icebreakers. He described the Russian
plans for shipping and the expectation that Yamal will miss the
2018 start-up date.
MR. PERSILY turned to the global pricing debate. Asian buyers,
led by Japan, have been pushing to delink LNG pricing from oil
since at least 2012. High oil prices, growing LNG demand, and
lack of new supply pushed prices to $17 - $20 per million Btu;
now they are at $10 per million Btu. New supply is coming on in
Papua New Guinea, Algeria Oil, Australia, and in the U.S.
He stressed that today's price do not affect the future price of
gas. What is important is supply and demand, long-term prices,
and contract terms. Price and contract terms for 2020 and beyond
will determine the success or failure of the Alaska gas project.
Buyers are signing shorter contracts until the market settles.
He gave an example of a recent five-year contract in Korea.
4:08:17 PM
MR. PERSILY said that future pricing is unknown. Lower prices
will lessen the push for a new price formula. The LNG
consumption continues to grow. A downside of falling prices is
current over supply and some projects may be cancelled. There
will be a supply deficit in 2020 if too many projects are
cancelled.
4:10:10 PM
MR. PERSILY addressed the topic of confidentiality. He said
there is an inherent conflict with state ownership - with the
state a partner in a business venture. It is a very competitive
environment. Confidentiality is a financial and a political
conflict when a public entity is a partner with private
business. As a democracy, Alaskans want to be informed. The
final governance agreements will be public, but during
negotiations there must be a balance that works for public and
private interests.
SENATOR COSTELLO asked how de-linking oil and gas prices works.
MR. PERSILY explained that LNG is priced at U.S. Henry Hub, plus
15 percent more gas, which is the cost of production, plus $3
per million Btu liquefied. Sellers want price certainty; buyers
are looking for a diversified portfolio with blending or
hybrids. He concluded that the new norm has not been defined.
4:14:50 PM
SENATOR COGHILL thanked Mr. Persily for his work. He asked about
the international need to get gas to market. Over-land pipelines
and over-water LNG tanks seem to be on a collision course in
some areas. He inquired about the clash over the expense of
building a pipeline versus shipping.
MR. PERSILY said it depends on the geography. China gets about
half of its LNG by pipeline from Central Asia and half by
tanker. Russia and China signed a gas pipeline agreement last
year, but they have not begun construction. It will be a 2,500
mile pipeline with a $50 billion pipeline and field development
cost. There is some speculation that China would help finance it
and is using this to force better prices from others.
He reported that Japan has no pipeline options. Qatar has built
very large LNG tankers, but only certain terminals can accept
those massive ships.
SENATOR COGHILL referred to the advantages of Alaska's
conditions such as closeness to market and an established
pipeline. He questioned if shipping would be more economical
with larger ships.
MR. PERSILY reported that Alaska developers have said that they
are going to use standard-sized tankers. Alaska has shorter
transit runs to Asia, dependable deliveries, proven reserves,
and higher Btu. Europe gets some pipeline gas from Norway and
North Africa and some LNG, depending on pricing. He reported on
Lithuania's contract with Norway and the use of a floating LNG
receiving terminal storage unit. Lithuania would like to become
a hub for the Baltic and make a political statement.
4:21:24 PM
CHAIR GIESSEL voiced concern over the marketing of Alaska's gas.
She requested information about oil company marketing versus
state government contract marketing.
MR. PERSILY said there are not that many companies that market
gas because it is very risky. He suggested the state could
negotiate a contract with reasonable terms with a marketing
company and avoid politics, rather than trying to set the state
up as international commodity expert.
CHAIR GIESSEL thanked Mr. Persily for his presentation.
4:23:29 PM
There being nothing further to come before the committee, Chair
Giessel adjourned the Senate Resources Standing Committee at
4:23 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SRES PowerPoint Presentation from Larry Persily-Jan 23-2015.pdf |
SRES 1/23/2015 3:30:00 PM |
|
| SRES-Natural-Gas-Term-Sheet-Lazard-.pdf |
SRES 1/23/2015 3:30:00 PM |