Legislature(2015 - 2016)BUTROVICH 205
01/28/2015 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Update on the Status of Aklng Project by Legislative Consultants Enalytica | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
January 28, 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 Wielechowski
MEMBERS ABSENT
Senator Bill Stoltze
OTHER LEGISLATORS PRESENT
Representative Kreiss-Tomkins
COMMITTEE CALENDAR
Update on the Status of the AKLNG Project by Legislative
Consultants Enalytica
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JANAK MAYER, Partner
Enalytica Energy Consultants
Consultants for the Legislature
POSITION STATEMENT: Provided update of the AKLNG Project issues.
NIKOS TSAFOS, Partner
Enalytica Energy Consultant
Consultants for the Legislature
POSITION STATEMENT: Provided update of the AKLNG Project issues.
ACTION NARRATIVE
3:29:51 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 and Chair Giessel.
3:30:12 PM
SENATOR WIELECHOWSKI joined the committee.
^Update on the Status of AKLNG Project by Legislative
Consultants Enalytica
Update on the Status of AKLNG Project by Legislative Consultants
Enalytica
3:30:23 PM
CHAIR GIESSEL announced the continuation of the AKLNG Project
update by enalytica starting with confidentiality.
3:30:57 PM
SENATOR MICCICHE joined the committee.
CHAIR GIESSEL said yesterday she learned of a union entity
called the Confidential Employees' Association; it is comprised
of folks that manage payroll information and their average
salaries are around $55,000 a year. It is one of the union
entities that the state negotiates with. She then welcomed Janak
Mayer and Nikos Tsafos.
3:31:21 PM
JANAK MAYER, Partner, Enalytica, consultants for the
Legislature, introduced himself."
NIKOS TSAFOS, Partner, Enalytica, consultants for the
Legislature, recapped that a major distinction between
confidentiality during a negotiation and confidentiality of the
agreements at the end of a negotiation and he wanted to talk
about both issues. But, he said the first and most crucial
question for the legislature to answer is how much information
it needs to pull the trigger.
He said LNG projects generate tons of information: a sales and
purchase agreement can be anywhere from 50-100 pages and the
state may have three or four of those, an engineering
procurement and construction contract could be about 1300-1500
pages, and loan agreements could be 10s or 100s of pages. Most
companies will be happy to make a lot of information available
publically but some will be kept private especially around
pricing.
For an analogy, they looked at the Norwegian Snohvit LNG Project
to see what kind of information the Parliament needed to give
approval to it. He couldn't find any mention of the precise
pricing that Snohvit LNG was selling the gas for, but there was
an estimate of how much money it was going to make, the
sensitivity of how much money it was going to make under
different scenarios, and the expected rate of return to the
state. Two state-owned companies were involved and Norway used
different ways of regulating and monitoring them.
3:34:31 PM
SENATOR COGHILL joined the committee.
MR. TSAFOS said the sooner legislators know what information
they need and get it, the easier it will be to give the green
light to authorize the $6-15 billion that might be required to
fund its part of the project, and the administration needs to
know that these agreements will become public at some point.
MS. TSAFOS said the second broad question he would ask speaks to
process and the end result: are you willing to give up some
flexibility for having more transparency? For example, Cheniere
Energy that is developing an LNG project in the Lower 48, is the
only company that has taken final investment decision (FID) on
an LNG project where a member of the public can access every
single LNG contract that they signed. There are some specific
reasons for that, which is that they were selling in the Lower
48 and it was a new pricing system, and they wanted people to
buy into the pricing system, so they had to be a little bit more
transparent.
3:37:20 PM
On process, the idea in SB 138 is that the administration
negotiates, but the legislature has the ability to provide input
to make sure the administration doesn't negotiate something that
has no hope of passing the legislature, and that this happens
both in public meetings as well as executive sessions. But
really at the end of the day, SB 138 said any agreement that is
in effect for more than two years it has to be reviewed by the
legislature.
That process seems to have a lot of merit, but it forces the
administration to negotiate on the front page of the newspaper,
which also makes it very difficult, because there is no ability
to sort of trade and achieve the State's objectives over a range
of issues. It's worth making sure that those agreements when
they come back to the legislature are going to be 100 percent
available to the public or not. He explained that a contract
could be fully available except for the price and some sensitive
clauses, which can be gotten in other ways.
3:40:01 PM
SENATOR COSTELLO said that several commissioners will be
involved in negotiating a contract and asked if they choose not
to sign a confidentiality agreement (CA) would that put them at
a disadvantage.
MR. MAYER answered that depends on a lot of different variables;
one should distinguish between their role and any CA they sign
and the CAs individual legislators have with the administration
to enable them to share things with legislators that may not
necessarily be about company proprietary information but about
the State's negotiating position. The administration needs to
work out the details of understanding how much of the final
information they need to make a decision can be obtained without
that. There is no single answer. He personally would want to
have the best information available to him to make a decision.
3:42:30 PM
SENATOR GIESSEL recognized Representative Kreiss-Tomkins in the
audience.
MR. MAYER remarked on the tight timeframe that was set out last
year and that there is a lot of work particularly for the
administration to do over the next 12 months.
He said the AKLNG Project goes through three big stage-gated
phases that lead up to eventual construction in the middle of
the next decade: pre-front end engineering and design (pre-
FEED), front end engineering and design (FEED), and
construction. Pre-FEED is where all of the detailed conceptual
work of what the project will look like is done from an
engineering, technical, financial, and commercial perspective
(defining the exact route of the pipeline, defining all of the
different technologies that would be involved in everything from
the gas treatment plant (GTP) and processing to compression
stations on the pipeline to the liquefaction project itself, and
details about where things will be sourced from), starting to
much more narrowly define what the project looks like, and going
from the initial estimate of $45-65 billion to a much more
tightly bound estimate based on everything specified.
When that process is completed, one eventually reaches a stage
gate where all the partners need to sit down, look at all the
work that has been done and decide on whether or not to move on
to the next stage of spending money and refining the project (a
more detailed specification of every last flange and valve and
equipment component of the entire project that ends up with
pages of precise documentation, blueprints, and all the rest) to
be the basis for what is put out to bid for engineering,
procurement, and construction. Eventually, all of that work is
completed and it's time for a Final Investment Decision (FID) to
be made on the project. Then there is another four or five years
of construction before the project comes on line. During the
entire process, countless other activities need to be going on
hand-in-hand.
MR. MAYER explained that during the pre-FEED stage, for
instance, all of the parties including quite likely the State of
Alaska (SOA) will be looking at marketing their share of the gas
from the project. That starts out with high level initial
meetings - getting participants in the market aware of the
project and interested - and eventually signing high-level non-
binding agreements, Memoranda of Understand (MOU), and Heads of
Agreement (HOA) to spell out what a potential future binding gas
purchase agreement might look like.
3:47:52 PM
SENATOR STEDMAN joined the committee.
MR. MAYER said the FEED process is about steadily signing more
binding HOAs and eventually signing sale and purchase
agreements. By and large, by the time the FID is made, a good 70
percent to fully all of the gas for the project from all of the
partners is likely to be contracted through firm sale and
purchase agreements, because part of reaching FID is lining up
the financing that is enabled by those binding, long-term
contracts to sell the gas. That said, there may be a small
tranche of unsold LNG and possible during the construction phase
there would be additional negotiations for additional buyers.
On the financing front a lot is to be determined about how
financing for all the different partners works, each of them
individually or together through some form of joint venture. The
state needs to grapple with some specific questions on the
financing front over the next 12 months.
Once FID has been taken and during the construction phase,
further financing will be brought on, because the risk profile
of the project falls and financing becomes cheaper. He explained
that some tranches of financing are ordinarily signed during the
construction phase because it would be cheaper to do so than at
FID and it's not required for FID. Once the project is itself on
line, there may be refinancing of earlier tranches of debt or
other parts of the capital structure that could be made cheaper
either because of changes in market conditions or because the
project is now on line and therefore substantially de-risked.
He said the project's ownership and structure will likely change
numerous times during the next decade. Any number of comparable
projects in the world are very different at various points
before it actually comes on line.
3:52:00 PM
Roughly a half billion dollars needs to be spent during the pre-
FEED stage and $1.5-2 million more for FEED; eventually at FID
is when the real money is committed. The state's share, with
TransCanada involved is about $50 million for its share of 25
percent of a liquefaction project for the overall project to
reach pre-FEED, then around $200 million more for FEED; and
depending on TransCanada's involvement, the state might want its
own share of 25 percent in the gas treatment and pipeline and
then will be on the hook for substantially more.
3:54:39 PM
The agenda for the next 12-18 months is ambitious and daunting
to get to FID decision on time and involves:
-Technical: Driving down costs, route, location, etc.
-Commercial: Domestic gas, off-take and balancing, LNG
disposition, financing
-Organizational: Joint-venture agreements, lease modifications
-Fiscal: Form of fiscal stabilization, property tax
-Regulatory: Progress towards export approval and FERC
permitting process
3:56:56 PM
On the commercial front the state will need to negotiate a lot
of agreements on domestic gas, off-take and balancing, LNG
disposition, and financing - all of which have implications for
the legislature that may need to think about some of those
sooner rather than later.
For instance, it will have to think about how large projects
like this impact the market for domestic gas, about market
structure and regulation for a domestic gas market when this
mega project is part of it, and about how the project
participates in the domestic gas market. The questions are:
whose obligation it is to provide gas to the domestic market,
how much, and will it come out of the state's share of the gas
or be more broadly borne by all of the partners in the project.
MR. MAYER said if the state can reach a point where it's
comfortable with a range of things that need to come together
for it to take its royalty and tax entitlement as gas, the
structure would be one where the state had roughly 25 percent of
the equity in the entire project and took 25 percent of the gas.
The basic idea here is that each partner has a measure of the
gas and is contributing their share of the costs and each being
able to operate for many purposes almost independently of each
other.
3:58:46 PM
SENATOR STEDMAN asked if there had been some change in the
relationship with TransCanada since last April.
MR. MAYER answered no; the state signed a memorandum of
understanding (MOU) with TransCanada to hold the state's 25
percent share in the pipeline and gas treatment plant while the
state retains its full 25 percent of the liquefaction project.
At the moment this means when it comes to cash calls for the
actual work being done, the relevant part of the $125 million in
total for the state's full 25 percent in everything is being
funded by TransCanada and they are contributing all of their
technical capability into that process.
SENATOR STEDMAN said he was under the impression that it would
be very difficult to totally buy out TransCanada, but he wanted
to know if the State has the option to completely take them out
of the picture if it wants.
MR. MAYER answered that the state had not yet signed a firm
transportation services agreement (FTSA) with TransCanada; at
some point that agreement will be negotiated and finalized and
either approved or not. If the state wants to go ahead with
this, the firm transportation services agreement is signed and
at that point a completely binding commitment will have been
made with TransCanada under which they will operate through
FEED, construction, and eventual operation the state's share in
the GTP and the pipeline, and receive a tariff from the state
for its share of gas in return. Until that firm transportation
services agreement is signed there isn't that binding
commitment.
If the firm TSA is signed, the state has a right to exercise an
option to buy back in at 40 percent of TransCanada's overall
share. So, the state would continue to have some of both capital
calls to contribute to that share of the project and the share
of revenues that come from it. So, two separate decisions have
to occur at the same time: one being, does the state wish to
continue with that structure by signing the firm transportation
services agreement and the other being if it does, does it want
TransCanada to bear the full 25 percent or does it want to buy
back in and reimburse TransCanada for costs associated with 40
percent of that 25 percent share of the two components.
4:03:37 PM
For the state to reach the point of deciding whether to take its
royalty and its tax entitlement as gas a lot of things have to
come together: whether the risks can be adequately managed
through a range of proposed contracts. One of the agreements
that is going to be crucial to understanding whether the risks
are managed or not will be the off-take and balancing agreement.
The reason is that under this proposed structure, everyone has
an equal share of the gas and the pipe, but the one thing that
isn't the same among all players is the up-stream component. The
state would not have a share of the up-stream; it would simply
have a share of the gas through its royalty and tax entitlement.
It would not be an operator of either field.
MR. MAYER recapped that there are four different high-level
partners: two are operators, a third partner is an equity owner
in both projects, and then the state that has an entitlement to
the gas but does not have either a working interest ownership or
operatorship. To the extent that implicit in taking royalty and
tax in kind is incurring a bunch of obligations to other counter
parties, in particular, counter parties that the state has
signed a firm binding purchasing agreement with binds them to
purchasing given quantities of LNG, but also binds the state to
meeting certain requirements in terms of the amount of LNG it
can deliver and the schedule for doing so. The state needs to
make sure it can meet those obligations given a wide range of
circumstances that could occur on the up-stream: if there are
outages, what it means in terms of a financial perspective and
its obligations with other parties, if there is a failure of one
field or one part of a field to deliver.
Part of what needs to be understood by the time that decision is
made is how disposition of the state's gas is going to work. A
wide range of things could be done: SB 138 talks about as part
of a royalty in kind decision being made the producers needing
to show that they are willing to sell the state's gas on terms
as advantageous as they receive.
4:06:53 PM
Another option is seeking expressions of interest by putting out
a tender to major producers and to other major players who will
buy the state's share of gas in total, or in fact starting up
and mounting its own LNG marketing operation and contracting
directly with buyers in Asia. Decisions about how those things
could work need to be made and how those possible commitments
work in with off-take and balancing agreements need to be
understood before deciding to take royalty in kind.
MR. MAYER stated that a range of decisions about financing and
how the state meets its equity share need to be made. One of the
crucial things to understand is going to be what the state's
financial capacity is to do all this. There is a wide range of
ways the state could meet that commitment both in terms of
equity (recurrent revenues, Permanent Fund (PF) distributions,
leveraging the assets of the PF and other assets of the state)
and debt.
He said these things will become very important for both the
administration and the legislature to consider sooner than one
might think, because at the moment under the agreements signed
last year, the state has to come back with a firm transportation
services agreement with TransCanada and the question of whether
it exercises its option in the pipeline and GTP portion of the
project by October 2015. Signing the agreement with TransCanada
implies the state is saying it has molecules to transport
through a pipeline, which requires knowing if it will take
royalty in value or in kind. The state should know how it will
raise its equity and how much it will cost and how that will
compare to TransCanada's involvement and the cost of financing
involved in paying a tariff instead of to TransCanada.
4:10:44 PM
TransCanada brings a lot of benefits to the table: their
technical expertise and the possibility of them being the
operator of the GTP and the pipeline as an expansion-minded
party whose interests may in many cases align better with the
state than the other producers. They also come to the table with
a certain cost in terms of the tariff they would charge.
SENATOR STEDMAN asked him to explain the deadline in the fall.
MR. MAYER answered that that timeline is prefaced on target
dates for going from pre-FEED to FEED, and the fact that
TransCanada as a partner is also contributing enormous resources
of its own, the financial aspect of which would be reimbursed if
the state didn't proceed, but a lot of management time and
effort and other things that for the moment it's willing to
commit to this project on the good faith that the state is
interested in them being involved in the full project further
down the line.
But at some point, the state has to make the firm commitment so
that TransCanada can continue with that security or not. The
stage gate between pre-FEED and FEED is quite reasonably the
point at which that is set. He didn't know if that date could be
extended, but then the whole timeline for the rest of the
project would be pushed out, as well as requiring further good
faith from TransCanada that they can keep contributing to this
project without the FTSA that they really need at some point.
4:13:41 PM
SENATOR WIELECHOWSKI asked if legislators needed to consider any
fundamental changes since SB 138 was passed.
MR. TSAFOS answered "not yet." But this project will be very
difficult to do in today's commodity environment. If it really
takes $50-60 billion to bring on the North Slope to the market,
it's not clear that changing the structure will make the project
more economic. So, the ultimate question is whether or not the
commodity environment persists and if so, that would pose a real
challenge to the project.
SENATOR WIELECHOWSKI asked if people would know by October.
MR. MAYER noted the changes in the commodity price environment
in just the last five years and told them to bear in mind that
this project won't come on line until 2024 in the best
circumstances.
4:16:30 PM
MR. MAYER said on the organizational front, there must be some
joint-venture governance agreements (a Heads of Agreement (HOA))
through the FEED stage and point of Final Investment Decision
(FID), how FID is reached, and what can be decided through a
majority of the shareholders and what requires agreement from
everyone. As part of reaching a royalty in kind determination
about there will need to be a series of decisions for the DNR
commissioner to make about lease modifications (specific terms
and net profit share leases that need to be converted to a
single gross amount to work with the idea of royalty in kind).
Finally, a substantial agreement on the question of
stabilization will need to be looked at and what is needed to
take an eventual FID on this project in terms of guaranteeing
stability of fiscal terms over whatever period of time is
required to have sufficient certainty to make the FID.
MR. MAYER said there will be certain barriers that come with
being a partner, because the State of Alaska has particular
constitutional requirements to not be bound by future
legislatures, etc. A number of possible strategies could be
examined that could both provide the certainty the project needs
and meet those requirements, some may ultimately need to be
tested through the judicial process.
The state also needs to agree on how property tax for the
project will be treated. He and Nikos had attended meetings of
the Municipal Advisory Group Board in Anchorage to look at the
question of what alternate structures for property tax might be
considered given that the way it is structured now puts quite a
strong economic burden on the project by having a lot of
potential liabilities up front that then taper further down. A
possibility is payment in lieu of taxation; it has to be
something that would generate enough revenues for the
municipalities and the state and that is transparent and
predictable for everyone involved. Some progress has been made
on that, but much more work needs to be done.
4:20:27 PM
At the same time that all of those things are going on, the
permitting process is under way in terms of export approval
through the Department of Energy and the broader Federal Energy
Regulatory Commission (FERC) permitting process that will help
identify and quantify impacts to communities.
4:21:12 PM
MR. TSAFOS said he would talk about two things in particular
that are presented in more detail in two papers he made
available to the committee: one is on LNG marketing and the
second is on domestic gas. Starting with LNG marketing, he said
one of the major novelties of the project is that SB 138 raises
the possibility of the state taking possession of the gas and
selling it. Slide 4 showed samples of seven or eight projects
and explained several broad issues:
-How much companies pre-sell before taking FID -
usually 70 percent or more (for the 16 million tons in
the AKLNG Project, that would mean about 12 or 13
million tons), but often it goes up to 100 percent
that are usually exclusively long-term contracts of 20
years;
-Counter-parties - how many buyers each project has
(an average of 2.9 buyers ranging from 1 to 6); price
exposure - some of the U.S. projects are linked to
Henry Hub).
4:23:20 PM
SENATOR WIELECHOWSKI said the project has four parties who will
all be looking for buyers and asked if that will be a problem.
MR. TSAFOS answered no, because he looks at it as volume not
number of players. If the AKLNG Project has contracts scattered
over a two or three-year period, the 16-18 million tons of that
project overall can be absorbed by the market. And the fact that
each company is going to be competing for the same buyers will
create some tension, but nothing the companies have not
experienced in the past.
-Contract size - there are contracts of 1 million tons
and contracts of 4-plus million tons. Alaska has a
quarter of the project so it will be selling 4.5 tons.
It may find one buyer or three or four.
SENATOR WIELECHOWSKI asked how many million cubic feet day
(mcf/d) 1 ton equals.
MR. TSAFOS answered that 1 ton per annum equals 132 mcf/d.
4:26:35 PM
MR. TSAFOS explained that the other complication is that the
amount of gas going in is different than the amount of gas that
comes out, because of losses. So, sometimes these numbers are
not exact. Ultimately, a quarter of the project means selling
the equivalent of 500 mcf/d.
-Transfer point: this a way of asking who does the
shipping. There is no real trend, so the state could
find counter parties to do that or the buyer could
arrange the shipping.
-About a third of the buyers had equity in the
project. This either means that a project developer
sold gas themselves or a buyer for the gas wanted a
piece of the project.
His take-away is with the exception that a lot of the gas will
probably be pre-sold, everything else is up for grabs; the state
could sign one big contract or lots of little ones. The strategy
could be tailored to the state's interest.
4:29:01 PM
Four core principles for tailoring contracts to Alaska:
1. Focus on performance over time: This means in signing a 20-
year deal, one must take the long-term approach as opposed to
any given day.
2. Focus on risk not the highest price: Why? Because the highest
price today is not the highest price tomorrow. It fluctuates.
And a lot of times one won't know what the highest price is,
because you won't be able to find it.
3. Don't outsource your risk profile: think about the partners
wanting to take risk the state doesn't want to take with its
money. ExxonMobil has exposure the state doesn't have. It they
sell the state's gas, the state is adopting ExxonMobil's risk
tolerance. The first question for the state to ask should be
what do I want? And then judge whether what the companies offer
suit it.
4. Build in-house expertise. The LNG market is highly fragmented
and marketing expertise in gas makes a difference. The best way
to understand the state's risk profile and be able to manage it
is to have people that know how to do it. An autopilot approach
will not serve the state's interest over the long term. For
example, the state might want stability of revenue and there are
many ways to do that. It needs sophisticated people to do that.
4:35:21 PM
In closing the market conversation, Mr. Tsafos said the state
has so many levers to get what it wants. On the question of
volatility, Alaska should think about getting a certain amount
of money to cover debt the same way one designs an investment
portfolio with a comfortable risk profile.
4:37:19 PM
MR. TSAFOS continued to the issue of domestic gas saying that
Alaska's number-one priority is getting energy to Alaskans, but
how does getting this project affect the local market he asked.
Does allowing LNG exports raise prices? People in the Lower 48
have struggled with that and people in Queensland, Australia
have seen a lot of LNG development and rising prices because
less gas is available.
He said there are two ways to look at this and instead of using
a murky model, he looked for a real case where someone went
through the same thing and figured out what happened to them. He
picked Western Australia, a developed country that is easy to
relate to, which started exporting gas in 1989. It has five LNG
trains at the Northwest Shelf with a capacity about the same as
the AKLNG Project. They also have a new project of about 4
million tons. It exports a little over 20 million tons, not
dissimilar to the AKLNG Project's volume.
4:39:49 PM
What Western Australia learned over 20 years:
1. He was surprised to find (economic text books teach
otherwise) that, in fact, there is really no set link between
export and domestic prices. Partly because of signing different
contracts and part of it has to do with the Australian dollar
that really changes prices for exports.
2. Just because LNG exports are possible doesn't mean that every
company wants to export.
3. Western Australia's reservation policy is to secure 15
percent of the gas for the local market. But in an effort to
secure enough gas for the local market, they crashed the price,
and because Northwest Shell signed such a big commitment to make
sure everyone in Western Australia had gas no one wanted to
explore, because there was no market.
4. Clearly having a reservation policy makes a difference to the
domestic market. It makes people pay attention, but market
forces are still at work.
5. Policy and advance planning is no substitute for close
oversight and diligent regulation.
4:44:32 PM
SENATOR MICCICHE asked him to explain how putting gas on the
global market can potentially increase the cost of domestic gas
and eventually restrict supply.
MR. TSAFOS went to slide 8 and used Cook Inlet as a good example
of the fact that domestic prices and export prices don't
automatically correlate. There was a time when the price was
linked to oil and a time it was not, so what really matters is
thinking about the market forces in this environment. If you
consume 70 mcf/d and also export, there must be a demand for 90
mcf/d, and in theory, the more demand the higher cost of gas to
meet it, the theory being the cheaper gas is already being
developed and the more gas you need the more expensive it is to
get.
Department of Energy studies in the Lower 48 conclude that
adding demand is the first move, but then it pushes up the
price. The question is what to do then. If there is a well-
functioning market with competition, one thinks regulation and
supply should respond to that. The ultimate goal is not to think
about domestic and export markets, but to think about making
sure there is enough that market forces will work in the local
market given the fact that you can export.
MR. TSAFOS said there are a number of policy options to do that
and Cook Inlet is a good example that shows one can still have
affordable gas even though Japan is paying a lot more. It shows
that what really matters is local market forces; it also shows
that just because exports are available doesn't mean that
companies like Hilcorp are going to step in to supply gas to the
local markets.
They liked the Western Australia example, because it spoke to a
lot of the experiences and challenges that Alaska faces. This is
a 25-year endeavor and it will require a lot of monitoring and
thinking through and a lot of tweaking. What works in the
beginning of a project may not work 10 or 15 years down the
line. There will be the temptation to step back and figure
everything out for the long term, and if that is done, he would
like to help them think through some of the unintended
consequences. One of the biggest things to come up is what
happens to Cook Inlet suppliers if a ton of gas is brought down
from the north possibly at a cheaper price.
4:50:59 PM
MR. TSAFOS concluded that he didn't want to say much more on
domestic gas, but both the marketing the domestic gas have
papers associated with them and the intention was to start a
conversation on these issues at the legislative level.
4:51:45 PM
MR. MAYER next discussed various financing options open to the
state for its share of the GTP and pipeline. If the state were
to go it alone without TransCanada, what its cost of capital
under a range of different circumstances might be and how that
compares to the tariff implied in such an agreement and how
those different costs stack up against the other benefits that
come with having TransCanada in the mix. Getting to an educated
decision on that requires a lot of analysis on understanding
what the state's capacity for financing the capital requirement
is.
Key questions for Alaska to answer are what mix of debt and
equity it will use for the project and will the debt be specific
to the AKLNG project itself without recourse to the cash flows
or assets of the parent company, because that is the only
recourse the debt holders have. Two things become very
important: one, that is a big driver for the fact that so much
of LNG that is sold in the world is sold on a 20-odd year
contract, because it's those contracts and the bankability and
credit ratings of the counter parties to those contracts that
ultimately determine a big part of the price of the debt
involved. And because of those things, frequently that debt is
more expensive than debt a triple-A rated sovereign might incur
with debt financing that ultimately has recourse to them.
Nonetheless, it is a way of providing financing that has much
less if any impact directly on the balance sheet, credit rating,
etc. of either a parent company or the State of Alaska.
4:56:54 PM
SENATOR MICCICHE said that confidentiality and executive
sessions are covered in AS 44.62.310 that covers financial
information, things that could prejudice the reputation or
character of any person, and medical issues. He related that
when he was a small town mayor they would go into executive
sessions for certain things but it was never abused and was only
used where it was applicable under Alaska law. For his example
he used the time when Fred Meyer was going to expand its
pharmacy in Soldotna and didn't want to tip off other
competitors that could come into town. Confidentiality has its
place, he said, and it should never be abused; this project's
financing is much more impactful than a Fred Meyer in Soldotna.
CHAIR GIESSEL thanked the presenters.
4:59:38 PM
CHAIR GIESSEL adjourned the Senate Resources Committee meeting
at 4:59 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SRES Agenda Materials Sheet January 28-2015.pdf |
SRES 1/28/2015 3:30:00 PM |
|
| SRES,enalytica, How LNG Affects Local Markets, 01-28-2015.pdf |
SRES 1/28/2015 3:30:00 PM |
|
| SRES,enalytica, AK LNG Project Update, 01-28-2015.pdf |
SRES 1/28/2015 3:30:00 PM |
|
| SRES,enalytica, AK LNG Marketing Issues, 01-28-2015.pdf |
SRES 1/28/2015 3:30:00 PM |
|
| SRES- enalytica Confidentiality January 28 2015.pdf |
SRES 1/28/2015 3:30:00 PM |