Legislature(2015 - 2016)BUTROVICH 205
01/30/2015 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Alaska Lng Overview by Steve Butt, Project Manager of the Aklng Project | |
| 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 30, 2015
3:30 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Mia Costello, Vice Chair
Senator John Coghill
Senator Bill Stoltze
Senator Bill Wielechowski
MEMBERS ABSENT
Senator Peter Micciche
Senator Bert Stedman
COMMITTEE CALENDAR
OVERVIEW: Alaska LNG Projects by Steve Butt, ExxonMobil
Corporation
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
STEVE BUTT, Project Manager
Alaska Liquid Natural Gas Project (AKLNG)
POSITION STATEMENT: Provided the first of three 2015 AKLNG
updates as provided for in SB 138.
ACTION NARRATIVE
3:30:30 PM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:30 p.m. Present at the call to
order were Senators Costello, Coghill, Wielechowski, Stoltze and
Chair Giessel.
^Alaska LNG Overview by Steve Butt, Project Manager of the AKLNG
Project
Alaska LNG Overview by Steve Butt, Project Manager
of the AKLNG Project
3:30:56 PM
CHAIR GIESSEL announced the only order of business today would
be an overview of the Alaska LNG (AKLNG) project and welcomed
project manager, Steve Butt.
3:32:35 PM
STEVE BUTT, AKLNG Project Manager, said he represents the work
of hundreds of people from all the different companies involved
in the project. Those companies include the Alaska Gasline
Development Corporation (AGDC), BP, ConocoPhillips, ExxonMobil,
and TransCanada. That leadership teams leads several hundred
contractors to create the Alaska LNG project. They are now doing
pre-front end engineering and design (pre-FEED). He said the
project was created under a set of agreements by those companies
to do shared work to see if an infrastructure can be created to
transport, treat, and liquefy gas here in Alaska in a
competitive manner.
These shared teams were created, because they think it drives
down costs. Their objective is shared: create an infrastructure,
and LNG project that can compete globally. Another 100-plus
people are working "owner issues" (commercial issues, and
framework issues with the state, and places where different
owners have different views) in different forums outside of his
review. He would be happy to bring any of those people to the
Senate Resources Committee to answer any questions.
CHAIR GIESSEL asked if he had been involved in a project like
this before and if so, where, and how it worked out.
MR. BUTT replied that there has never been a project like this
before. Each element of it exceeds what a mega project is
typically defined as, which is anything in $1 billion to 10
billion range. He and others on the team had worked in projects
with several similar parallels: in Venezuela they built large
field treating plants connected with large pipelines to the
coast where there were large treating facilities for export.
They also have experience in other parts of the world building
treating facilities to remove impurities and 400 miles of pipe
to liquefaction facilities for export. These are parallels, but
nothing of the scope of the AKLNG project. The experience of
those parallels can be drawn on and the owner organizations have
all their experience.
He liked to say that the 130-person team has well over a couple
thousand years of experience, but their leadership team, the 27
top managerial jobs, has over 800 years of experience, in excess
of 300 million metric tons of LNG design experience. To put that
into context, the whole world only consumes 250 million metric
tons of LNG. One of the engineering managers has individually
designed and built almost 80 million metric tons of LNG; their
LNG plant manager has personally been involved in an excess of
30 million metric tons of LNG. Each of the pieces of this
project has been done somewhere. He was general manager of the
gas treatment plant in the Middle East as large as this one.
There are pipelines as big as this and there are bigger LNG
plants than this, but no one has put all three together or put
them together in Alaska, or in Alaska and permitted it in the
United States, and nobody has ever done it in this environment.
3:39:41 PM
MR. BUTT recapped that the AKLNG project is three projects in
one $45-65 billion project: they treat the gas, which means
removing impurities and putting it back in the ground, and
transporting the gas, which means moving it from the North Slope
to where it is liquefied by making it very cold. At -260°F it
shrinks from the volume of a gas to the volume of a liquid by a
factor of 600, which means a given volume of gas can be shipped
with one carrier instead of 600. That is why it is done. The
first thing people who buy it do is warm it up. It gets used for
utilities, home heating or a number of other benefits. That
makes it a commodity, and in the commodity business low cost
wins, because that commodity is always trying to get sourced at
the lowest cost possible.
SENATOR STOLTZE asked who pays him - to clarify who the
presentation is from.
MR. BUTT responded that Alaska LNG is a joint venture
organization formed under a joint venture agreement that was
signed in the middle of 2014. He represents the entities who
were involved in developing this material as the senior project
manager for the group. He talks about all the project issues
that are shared by all the parties. It doesn't mean he talks
about the owner issues and the different commercial frameworks
where the owners have different views. He was here to talk about
how the project works and moves. In the project context, they
are designing the facilities required to build the project, the
regulatory work that is required to permit the project, and all
the cost and schedule work that is required to support moving
from a pre-FEED decision to a FEED decision.
SENATOR STOLTZE asked who pays him.
MR. BUTT replied that he bills his time back to the entities.
His time is paid for as a function of the participating
interests, by all of them. All 130 people are billed in the same
manner.
3:43:20 PM
CHAIR GIESSEL said she would invite the individual parties here
in about three weeks. So, today is one aspect of a sequence of
hearings that will fulfill the statutory requirement of SB 138.
MR. BUTT said a project of this size requires 10,000-15,000 jobs
for construction and somewhere around 1,000 jobs for operating
it. The construction phase lasts several years and the operating
phase lasts decades. For permitting, engineering, and all the
work they are doing now over 1,000 people are working through
all the different owner organizations, the project
organizations, and the contract organizations.
Accomplishments since the last update in December 2014 are:
-No safety, health or environmental incidents to report
-Continued progress in building a "culture of caring" where
people have an individual role to help each other to go home
safely.
SENATOR COSTELLO asked what types of jobs will be created so
that kids in third and fourth grade today can be prepared for
the jobs that might exist for them in the future if this project
goes through.
MR. BUTT answered that he can characterize where the work is and
the type of skills needed, but they are still at an early stage
of definition and cost. The FEED stage - how big the studs are,
what kind of foundation, where the concrete is coming from, and
where to get the nails from - gets more specific. That is the
stage at which you have great clarify on every single job you
need.
3:48:59 PM
SENATOR COSTELLO asked who will be identifying the jobs.
MR. BUTT answered once they have a FEED design and understand
what is needed they can work with the different state agencies,
the Department of Labor and Workforce Development (DOLWD) for
one, on how to do it. They will work on training centers and
enabling mechanisms to make sure of getting as much of the right
resources as possible. One of the early elements of pre-FEED is
labor studies on what is available. The state and federal
agencies and the broader market are engage to find out who is
building what and where. Getting the right people is very
competitive, as well, because there are a lot of projects out
there.
3:50:43 PM
MR. BUTT related some high-level accomplishments:
-The resources about 35 tcf of gas at Pt. Thomson and Prudhoe
Bay,
-The gas is piped into a treatment plant (GTP), which is
proximal to the central gas facility at Prudhoe Bay.
-The GTP removes impurities (Prudhoe Bay has about 11 percent
CO) and put back in the ground. Their objective is to take
2
methane gas and move it from 30°F to -260°F so that anything
that isn't methane freezes early and drops out.
-Once the gas is treated, it is put in an 800-mile long pipeline
and goes to a proposed LNG plant at Nikiski that will compress
and shrink the gas by a factor of 600.
To that end since the middle of 2014 they have spent $82 million
on pre-FEED. Those monies are carried by the participating
partners of the joint agreement. The State of Alaska through SB
138 has a 25 percent participating equity interest in the
project. Two agents represent it: the first is TransCanada,
which represents the state in the mid-stream elements (pipeline
and gas treatment plant (GTP)), (which means TransCanada is
paying the state's share of all work for the GTP and the
pipeline) and the Alaska Gasline Development Corporation (AGDC)
that carries the state's participating interest in the down-
stream costs. The other elements are paid for by the other joint
venture participants consistent with their equity interests.
Right now their spending has ramped up to $25-30 million per
month, which they believe will stay the same over the next
several months. One of the reasons he has confidence the pre-
FEED work will get done is because all the contracting is done
and all the companies are in place; they have met their 30-day
deliverables and contracting objectives were met in October
2014, as expected. He explained that very large LNG companies
are involved: Chiyoda and CB&I are working together on the LNG
plant; URS and CB&I are working on the GTP; the Arctic Slope
Resource Corporation's (ASRC) Energy Services Arm is also
represented. So, it's a great example of having global LNG
players working with a local Alaskan corporation from day one in
the design at both plants. A small group of people are doing
pipeline design work with a company called Worley Parsons that
has a long history of doing the previous design work for other
companies.
They also have confidence in being able to get the first 12
resource reports done early in the next month. The first intent
was submitted late last year and 2-9 and 11-12 are largely
complete. Hopefully they will go to FERC, the umbrella
organization that administers the Environmental Impact Statement
(EIS), soon. These resource reports are very important because
they enable them to complete an EIS and that underpins a
construction permit. The project can't be started without it.
CHAIR GIESSEL said these reports, particularly report 5 that
addresses socio-economic issues, are the opportunity for the
general public to review and offer input.
3:56:56 PM
MR. BUTT said that was correct, but suggested that it is only
one of many mechanisms that show opportunities for engaging the
public. FERC has open houses, for instance. He said the first
draft is a framework that is used to work with stakeholders and
it is written in pencil. The completed report, the second one,
is written in pen.
He said the Department of Energy (DOE) has provided export
authorization to the project to all free trade nations, but that
allows them to export LNG to only a portion of the globe. Their
original application solicited both free-trade agreement (FTA)
and non-free-trade agreement country access. The reason is
simple: they want to be able to sell LNG to anybody that wants
to buy it, because they want to have the most competitive
environment for buyers, just like they have the most competitive
environment as sellers. It needs to work both ways. The DOE is
continuing to work this issue very hard.
3:59:05 PM
In addition to the resource reports, probably the best way for
the public to get involved is through the open house sessions
with FERC. After the first draft resource reports are submitted
FERC "kind of takes the reins." The reason is to make sure that
all the community members and stakeholders have unfettered
access and can say whatever is on their mind.
4:00:02 PM
MR. BUTT said these sessions are a fundamental mechanism to help
Alaskans feel comfortable with this project. The new
administration has done a great job of helping everyone
understand the importance of transparency and as an owner,
Alaskans need to know that their share of that investment makes
sense.
The flip side of that is sometimes talked about in terms of
confidentiality. They think about confidentiality in a
competitive context. He explained that the LNG business has
about two projects pursuing every one LNG molecule, which from a
supply side means there's twice as much capacity being designed
and pursuing regulatory permits as the market thinks it needs.
It's not exact 2:1 on the number of projects, but 2:1 on the
volume. This is a very big project, so for it to move forward it
will displace more than one project. Given that competitive
framework, it's important to keep the information that preserves
their competitiveness a little bit confidential. That doesn't
mean anyone should be excluded, but it means they need to be
very thoughtful about how to have transparent information
available to a broad range of people. They would feel
uncomfortable putting some of the design work they do in the
public domain, because of competition around the world. The
project team and participants feel like they're pretty good at
this and aren't really interested in helping others compete with
them. The SOA as an owner equity shares that, so a balance is
needed.
The challenge is how to preserve a competitive environment while
being as transparent as possible. He said the DNR Deputy
Commissioner challenged the sponsoring groups to come up with a
way to build that trust. One of the business leaders said tongue
in cheek that everybody's bid should be in the public domain
except his. And that is the challenge. One great step towards
transparency are the FERC-led community open houses where people
can say whatever is on their minds to the FERC representatives
about the project. Building on that is the 2015 summer field
season where all the data is gathered for regulatory permits.
SENATOR COGHILL said Japan is not part of the FTA, but they are
probably our best working customer and Mr. Butt's plan is to
sell to them at the first application. He asked who else besides
Japan.
4:06:01 PM
MR. BUTT answered that he couldn't talk about marketing
strategies, because of anti-competitive reasons, but the owners
who created the commercial framework want to secure export
permits and the authorizations for both FTA and non-FTA
countries to pursue the broadest market possible. So, they must
get Japan as a customer.
He explained that Alaska has a natural advantage in
transportation over a lot of projects, because it is 12-14 days
away from the Asian market whereas other parts of the world are
18-28 days away depending on whether you're talking about the
Gulf of Mexico or the Middle East. He emphasized that it's a
fundamental law that low cost wins in the commodity business.
SENATOR COGHILL said one of his concerns is about the
competition from the Canadian West Coast, because they might not
be limited by FTA issues.
MR. BUTT responded that the state has a lot of great people
working for it to support the LNG project, but how the state
will market its gas is an element, and it might want to think
about how much the buyers know about its plans for marketing.
This folds back into the broader conversation about how to
manage this information flow to preserve competitiveness and
private information.
4:09:31 PM
His key messages:
1. AKLNG is an integrated LNG project, a pipeline plus plants.
The pipeline is only a small portion of the total cost. The
majority of the costs are the plants. The gas can't be liquefied
unless it is cleaned up and it can't be sold overseas unless it
is liquefied. So, it is a large integrated LNG project with the
pipeline as an important portion as it allows gas to go to
Alaskans and to the south.
As an integrated project, it is regulated under a different
section with FERC, section 3, which is for export projects
instead of section 7. This is very important to them, because
the resource owners, who are the state and the parties who have
purchased the right to produce the resource through the leases,
have 98 percent of the gas on the North Slope. This is an
opportunity to work together in an integrated manner allowing
the project people talk to the resource people in a way that has
never happened before.
Previous incarnations of this project were always done under
FERC, section 7, which means there are limitations on data
exchange between the project and the resource owners. In an
integrated project like this the project owners and the
resources owners are the same group of people and therefore are
not limited by those factors. Because they are not limited they
are able to be much more efficient in their design. They can
make design decisions in how the GTP is built and how the
business gets integrated at Prudhoe Bay that previous projects
could not. These provide big advantages that help
competitiveness particularly in terms of costs.
2. For the large LNG project to be successful three things are
necessary: alignment, risk, and costs (ARC). This is a framework
to test the questions like he is hearing from the committee
today against: like what a factor does to alignment and how it
impacts risk and cost. The most important project element of
success for any mega project is alignment of the parties and
their ability to resolve differences and move forward
effectively.
4:12:46 PM
SENATOR WIELECHOWSKI said he heard talk about maybe some
misalignment with the new administration and asked if he shared
that concern.
MR. BUTT replied that he hoped the life of the AKLNG Project
would be measured in decades and there will be a lot of
political transition. The challenge is to preserve the alignment
across the parties such that they all continue to work together.
He was happy to say the folks in new administration have been
great; the previous administration did a tremendous amount of
work to make this project happen. They did an excellent job, but
the transition process can be managed in a way to preserve
alignment. He is very optimistic. He repeated that preserving
alignment is everything.
A second question to ask themselves is how a factor impacts
risk: how they move through the gates. Pre-FEED is all about
identifying risk, mitigating risks, and reducing uncertainty.
Anything that creates risk or uncertainty makes it much more
difficult to move the project forward, because as it moves
forward the amount of resources - people, money, time -
increases by factors of two and three. It's a very abrupt
escalation.
3. With that said, alignment and risk tie back to cost, because
cost of supply is the fundamental metric that says how much was
spent to build and operate the project and how much gas was
delivered to the consumers, or taking those total dollars and
dividing them by the total millions of btus of energy, can he
deliver that energy to a buyer at a low enough cost to compete?
An old adage says if you are losing money on a unit basis, don't
try and make it up with volume. This is a huge project and they
have to make sure every one of those molecules has a margin that
generates enough return to make the investment and the risk
worthwhile for all the owners.
Last, he wanted to talk about status. They are moving through
pre-FEED and going really well, but there are some open
commercial and fiscal considerations that need to be resolved.
SB 138 offered a roadmap for how to address commercial and
fiscal issues such as property tax, royalty structures, fiscal
durability and predictability. It will be very difficult to get
any owner group to feel comfortable with increasing their
investment without some reduction in the uncertainty around
these factors.
4:17:09 PM
MR. BUTT said the way that would work is by using a gated
project management process. They do different things - move
through different decisions and do different levels of work -
but then they hit decision points called "gates" where they
decide to either go forward or stop. He related in 2012 and 2013
the group did concept work, which is where they decided where
the GTP would go, where the LNG plant would go, and how big the
facilities would be. That cost $100 million; the state through
Alaska Gasline Inducement Act (AGIA) carried about $28 million.
That information allowed them to get to a decision point in the
middle of 2014 to ask themselves whether or not they wanted to
move into pre-FEED that will cost on the order of $400-500
million.
They have now spent $82 million for a total of $180 million.
They will spend another $300-350 million in pre-FEED. That
information will allow them to make a FEED decision, the
detailed work that really defines how this project would get
built. At the final investment decision (FID) they will spend
$2-3 billion before deciding to build the project or not. So,
they will want to know before putting up all that money if they
can get a regulatory permit to build it, about the Environmental
Impact Statement (EIS), and about the federal construction
permits, the export licenses, and the authorizations to sell to
non-FTA countries as well as FTA countries.
He said all the owners will want to see information that will
make them confident that at the end of pre-FEED when they will
have spent a half billion dollars, they have the right to spend
$1-3 billion in FEED. They are spending $25-30 million a month
now; going to FEED they will spend well in excess of $100
million a month. Going to construction will make that number go
up to millions a day.
4:21:51 PM
SENATOR WIELECHOWSKI asked if he will be evaluating a plan only
to Nikiski or to other locations.
MR. BUTT answered that line routing and plant location decisions
have been made in concept. Some of those elements are being
revisited in pre-FEED, but their resources are focused on the
LNG plant in the Nikiski industrial area at this time. It may
move, but dozens of alternatives across the state were tested in
the concept work and the Nikiski industrial site was selected,
because they think it has the lowest profile for risk and cost.
It's basically a very big flat space, which means they don't
have to spend a lot on civil work and it reduces the
environmental impact. Other places would have to move 30-35,000
cubic meters of rock. That is very expensive and would have huge
impacts on the environment that they would like avoid.
He said they also looked at the pipeline routing that made it
most expeditious to source gas to Alaskans, and they looked at
operability - weather and snow loads - everything that gave them
a sense that the project as designed with its current route and
current plant locations is the right place to focus energy for
pre-FEED. But it's not final until the FERC work is done.
SENATOR WIELECHOWSKI said he had heard concerns that about the
water depth in Nikiski versus a greater depth in Valdez.
MR. BUTT explained that LNG carriers are very different from
crude tankers that carry a heavier denser liquid and draft 100-
110 feet. An LNG carrier drafts 40-45 feet. They have done a lot
of work that gives comfort that the sites as they are working
them are the place to start.
SENATOR STOLTZE asked about using Mat-Su for a deep water port.
MR. BUTT responded if they could avoid crossing Cook Inlet, they
would consider it seriously, but a combination of pipeline
approach characteristics, construction characteristics and
operation characteristics make the Nikiski industrial area a
better choice.
4:25:54 PM
He said that Pt. Thomson and Prudhoe Bay provide 25-35 tcf of
gas. All work in the unit is managed by the unit operators under
the unit joint operating agreements, but they work together on a
very close basis to make sure the design of the project is as
efficient as possible. A fundamental strength this project has
that others didn't is the use of the existing infrastructure
(compression facilities and wells). The infrastructure is needed
to source the gas to the project so they don't have to create
it.
4:27:38 PM
The design work for added compression and expansion is done. The
gas is sourced to the GTP, about three-quarters from Prudhoe Bay
and one-quarter from Pt. Thomson. The facility will be big
enough to handle the big swings in volume in the winter - about
.4 bcf/d for export, about 400-500 mmcf for in-state use - with
the balance for fueling the GTP, the compression facilities, and
the LNG plant.
He explained that the facilities are 3,000-9,000 ton modules
that consist of 250,000 tons of steel each, the size of a Nimitz
air craft carrier. Geotechnical work and sealift strategies are
being done to make sure it can all get moved.
They are also looking at the fabrication. He showed a 130-foot
tower that was 28 inches in diameter; the steel walls were 12-14
inches thick. So they have to be able to take a single piece of
steel that thick and roll it. It is a very specialized task, but
they have confirmed the ability to fabricate and move them.
He showed a one-minute video of the virtual operation of a plant
using a tool where people can work in real-time 3-D and move
around to their heart's content. They do that to make sure that
the designs are as efficient as possible from a hydraulic and
thermal perspective.
4:33:39 PM
From the GTP the gas goes into the pipeline, Mr. Butt said, but
that is a lot more complex than people think. It goes through
multiple environments and multiple design regimes. Starting at
Pt. Thomson the line is above ground to the GTP; the Atigun Pass
regime is continuous perma-frost, which uses a conventional
under-ground pipeline design, because the ground is always
frozen; moving down to the Interior is the central section where
the strains and loads have to withstand 150° swings over the
course of the year, because it's very warm in the summer and
very cold in the winter; it is always moving. Once it gets onto
the back of the Alaska Range, they move back into a conventional
design range, because it doesn't have the temperature swings.
Then an off-shore section is needed to cross the Cook Inlet. So
when they talk about the pipeline, they are actually talking
about five different regimes.
With that said, they have started a pipeline testing process by
acquiring $2.5 million worth of pipe to see who can source what
is needed. Not a lot of folks can make pipe this big. One or two
in North America can handle up to 42 inches, but above 42 inches
it would have to go to Asia.
MR. BUTT explained that different kinds of pipe are required for
the different loads. A longitudinal welding (LSAW) is difficult
to make, because the weld has to be stronger than the body of
the pipe. A little bit simpler type of design is a helical weld
(HSAW) in which the volume of the weld is much greater than in a
longitudinal weld; that means that both its loading and strain
characteristics are different.
He said many different types of pipe are needed and are sourced
from many different mills that have to fit five different
regimes. So, they are in the process of testing different
welding procedures and different material sourcing procedures to
find out which mills have the capability to provide this pipe at
a low enough cost. The goal is to make sure that the cost and
schedule characteristics are as carefully defined as possible.
4:38:50 PM
He said the Pipeline Hazardous Materials Safety Agency (PHMSA)
is the federal regulator that works on pipelines; FERC is its
umbrella organization, but PHMSA has the permitting authority
over pipelines.
MR. BUTT said the AKLNG Project and AGDC are continuing to
cooperate. He thanked Fritz Kruzen who works for AGDC who helped
him come up with an excellent helical pipe example. They are
also cooperating on all the data and design work for the
pipeline design. Most importantly, they have harmonized the
routes so that all the different pipeline routing that is being
looked at to move gas from north to south has a common route.
This has meant gathering all the historical data from previous
pipelines - TAPS, Denali, APP and ASAP - into one set of data.
They are also sharing those studies - geotechnical program,
aerial mapping, environmental field data, fault studies,
infrastructure studies - in moving forward. These are very
important elements in making sure the pipeline has the lowest
risk and the lowest cost possible.
4:41:19 PM
He showed a short video of the Atigun Pass segment of the
pipeline route taken from a large interactive data base. The
pipeline comes all the way down to the LNG plant that was
permitted for 20 million metric tons (about 2.5 billion cubic
feet of gas a day). It's ten times the average use of the State
of Alaska and about one-third of what an industrial country the
size of Germany, the UK, or Canada would use. Its design
consists of three modular I-6 MT (million tons) trains (how
liquefied gas is referred to). It takes about 800 million cubic
feet (mcf) of gas a day to generate 5 million metric tons of
LNG. So, each train is about 800 mcf or about 2.4 bcf/gas in
total.
The reason they picked this size is because it was in the
middle; the bigger trains have much larger drivers and are very
efficient for very large resources; the smaller trains are
better fits for smaller resources. They try to match the size of
the trains to the size of the resource, so they have 25 years of
plateau and can source gas over a 30 year period, which is the
period they requested in their export authorization.
4:43:09 PM
He said the team had done all the engineering work around a
selected liquefaction technology; the one selected is the most
common one and these train sizes are also the most common. The
reason being to reduce risk; they know these trains and this
technology. He said the challenge with LNG manufacture is
everything that is in a gas stream that isn't methane will
freeze before the methane does, so it has to be very clean.
4:44:05 PM
He said the Nikiski site has a wide range of characteristics.
The infrastructure is very important; 737s can land in Kenai and
that allows equipment to be moved efficiently. It has an
existing infrastructure, which is important because the
workforce to build this plant is on the order of 3,000-3,500
people. Some of the places on the west side of the Inlet,
particularly moving to the south, have no infrastructure. They
also want to minimize their environmental impact, so the less
civil work needed the better. The snow loads in Kenai are a
little lower than in other parts of the state; some parts of the
state have over 300 inches that makes it impossible to operate
an LNG plant, because unlike other industrial facilities, LNG
facilities require constant care and attention.
MR. BUTT pointed out the three little dots that were the
ConocoPhillips LNG facility that they had operated for 40 years
never missing a cargo or had an issue, another demonstration
that that area has a history of successful LNG manufacture. All
those characteristics kind of role together as part of a very
large, very detailed analysis that gives them the sense that
this is the area they want to try first (there are three of four
other possibilities).
4:46:01 PM
In terms of confidentiality, he explained that they are
acquiring land and it's important to respect the privacy of the
landowners and make sure that the deals are done in a manner
that work for all parties. To date, most of the feedback has
been that parties feel they have been treated fairly from day
one. This is very important because they want to be a good
neighbor and to be there for decades. Alaska has cold dry air,
which is great for compression equipment and they would like
this plant to operate well past 30 years, and think about that
in their design process.
4:46:57 PM
SENATOR WIELECHOWSKI asked if he had ruled out Anchorage as a
location.
MR. BUTT replied that they did look at Anchorage, but it would
have a lot of challenges. Moving up Cook Inlet, some of the ice
loads are higher and finding 600-800 contiguous acres with
access to the port was difficult.
He explained that FERC won't pursue EISs on projects that don't
own acreage; the partners must be able to demonstrate that they
own the land, control the resource (the four parties have 98
percent of the known resource), and can manage the technology.
The three producer entities are three of the five largest LNG
companies in the world, so they have the technology.
4:48:39 PM
SENATOR STOLTZE said he wanted a "solid second look" and due
diligence done on all locations, because the public would have a
greater degree of confidence in whatever ultimate decision is
made.
MR. BUTT responded that he appreciated that and that they have
had 65-75 community sessions where they took the design criteria
and the site selection criteria and had sat down with the mayor
of the Mat-Su Borough and showed him how the decisions were
made. They sat down with the Valdez City Council with Governor
Walker in attendance. All that material is available; he would
be happy to ensure that the right representatives of the state
see it again.
SENATOR STOLTZE said in those meetings there was a certain
dynamic as Governor Walker was sitting in the back row then.
4:50:53 PM
MR. BUTT showed more video of the site that was largely
uninhabited flat land with industrial infrastructure
characteristics. He said the LNG plant weighs about 200,000
tons; the compression equipment is also very heavy and they want
to make sure that the soil and the foundation designs are proper
enough to carry that load. So geotechnical work is done with
bore holes drilled and cuttings taken down to about 150 feet.
Thirty have been done and another 150 are needed all over the
site to make sure it all has the geotechnical characteristics to
handle the loads of the plant.
SENATOR WIELECHOWSKI said the proposed site in Cook Inlet is
obviously home to millions of returning salmon and asked if
dredging would be necessary. Did he anticipate fisheries issues?
MR. BUTT said the decision was made to stay north of the Kenai
River to minimize any impact on salmon. But there are fisheries
in the area and they want to minimize any impact on those. So,
they have opened conversations with the Borough and the
Department of Natural Resources (DNR) on how those will be
managed. Part of the EIS and the assessment process is
demonstrating no adverse impact on fisheries. He didn't expect
any, because their impact in the water is very limited.
He explained their 2-D seismic and sonar mapping of the ocean
floor that is matched to other data that allows them to get very
detailed maps of the Inlet. They also have years of data that
have been captured on the metocean characteristics - tides and
currents - and other characteristics of the Inlet to make sure
that the shipping can be managed safely. Cook Inlet has seen 40
years of successful LNG operators. Further, LNG carriers are
very different from crude carriers that are about the same size
but very heavy. A crude carriers draft more the twice what an
LNG carrier does and that difference is very important when
navigating up the Inlet.
4:54:47 PM
SENATOR WIELECHOWSKI asked if the LNG carriers are similar to
the ones going into Nikiski now and if he anticipates needing to
dredge.
MR. BUTT answered they are similar, but the ones going into Cook
Inlet are smaller. A traditional vessel calling at Nikiski is
somewhere between 80,000-90,000 cubic meters (gas on a boat is
measured in cubic meters); really large LNG carriers are
215,000-265,000 cubic meters. Their plan is to use
"conventionals" on the order of 150,000-165,000 cubic meters.
Last year the existing facility brought in a vessel of about
130,000 cubic meters with the same length and beam.
To his second question, it's too early to say if they anticipate
dredging for the jetty. They don't want to, because it has an
environmental impact and a cost. Their intent is to design the
jetty so dredging isn't needed, but they need to work with FERC
and the U.S. Coast Guard to do a "water way suitability
assessment" and other mechanisms to test the jetty. And it's too
early to say about needing to dredge another part of the Inlet.
SENATOR WIELECHOWSKI asked how many ships per day/week they
anticipate coming in and how many are coming in now.
MR. BUTT replied currently only one ship comes in once in a
while, because the volumes are mainly consumed by in-state use.
He is looking at one conventional ship (150,000 cubic meters)
about every two or three days. The tanks on shore will be filled
up every three days and one ship will be needed every three days
to take it out.
SENATOR WIELECHOWSKI asked if the plan is to ship everything for
the LNG plant into the Port of Anchorage and then truck it down
to Kenai.
MR. BUTT answered that they would build an offloading facility
at the site. Moving it into Anchorage and trucking it would be
an enormous burden on everybody. Access by air is also important
and those characteristics are why they chose the Nikiski
industrial area to start.
SENATOR STOLTZE asked him to talk about potential environmental
and habitat litigation costs. He knows what it has cost the
Borough on a much smaller project.
5:00:28 PM
MR. BUTT responded there is no active litigation and they don't
expect any.
MR. BUTT said the Mat-Su Borough can do a lot of important
things; a lot of the pipe will be moved through there. He has
had great conversations with folks in the Economic Development
office and the Mayor. If something is missing, he would follow
up.
SENATOR WIELECHOWSKI commented that putting the pipe in Mat-Su
or Anchorage would save a lot of miles and crossing over the
Cook Inlet with its Endangered Species issues. He hoped he would
take a good hard look at it.
5:02:52 PM
MR. BUTT said that crossing the Inlet is difficult and expensive
but the challenge in constructing on the west side of Inlet is
the nature of its marine characteristics, the nature of the ice
flows and the winter ice packs. The forelands move the ice in
the east side of the Cook Inlet channel it is much deeper than
the west side, which is why the existing industrial area was
sited there and why shipping has been successful there for 40
years. The LNG plant does its peak demand work in the winter and
probably there will be a vessel every two days in the winter.
So, they have been very thoughtful and careful thinking through
the marine design. Moving either west or north is very
challenged and costly. It's cheaper to cross the Inlet and that
is why the pipe is on the west and the plant is on the east.
5:04:49 PM
MR. BUTT said they had gotten great support from the Department
of Energy, because they took Alaska out of the Lower 48 permit
process and are treating it separately. A lot of the summer
field work has been done. Part of that is digging holes to make
sure there is no cultural heritage or sites of archaeological
significance and work with water ways. The captured data goes
into the resource reports.
5:06:19 PM
He said FERC is the agency that leads the National Environmental
Protection Act process, which enshrines the EIS creation. To
support FERC, the federal DOE has created an inter-agency
working group to bring all the parties together to talk about
the regulatory process and how the federal government can
support and get the information it needs for the permitting
process.
5:07:10 PM
He said there are 13 resource reports: numbers 1 and 10 have
been submitted and the other 10 of the first 12 are largely
done. Submitting these reports triggers FERC into taking over
the community engagement process where together they address the
public's concerns. This creates transparency and hopefully the
buy-in they need.
5:08:30 PM
CHAIR GIESSEL asked if Congress has to do anything to allow this
project to go forward.
MR. BUTT answered nothing at this time; they had provided some
enabling legislation that may or may not allow the pipeline to
enter Denali National Park, but their intent is not to enter it.
5:09:36 PM
He showed a short video of summer field work activities and
another of community engagement sessions they have had so far so
that everyone understands the project.
5:12:39 PM
He summarized that to get to FEED, the FERC process needs to be
completed and a lot of engagement is needed from Alaska as an
equity participant. People need to feel that sense of ownership.
They have invited local businesses to register on their website:
AK-LNG.com; those businesses are invited to open houses where
they will talk about different ways to engage them as the
project moves forward and learn about their skills to match up
global LNG knowledge and local Alaska knowledge. A lot of
community meetings are planned and talks with FERC, so they can
document that they have talked to the stakeholders and know they
understand the process.
MR. BUTT said help is needed from the legislative to make sure
they are really reducing project risk and cost of supply. The
legislature needs to let them know what it needs to help them
move this forward. This all goes together to position them for a
decision point in 2016. The state needs to identify the off-
takes and help is needed on key commercial agreements: how gas
is sourced from the different fields and balanced, what third-
party access looks like, and other commercial issues that need
to be resolved. They need to look at the Heads of Agreement
(HOA) and SB 138 roadmap around durable, predictable fiscals.
It's very important to take that higher level of resource
commitment to understand that it's going to be durable for a
long time. The project will last for decades and will the
environment support that kind of commitment?
Finally, and most important of all, they have to really find
ways to keep building alignment between all the parties. There
will be a lot of transitions and the question is if parties can
stay aligned such that the folks who have resource ownership of
the known resource at Prudhoe Bay and Pt. Thomson - the State of
Alaska, BP, ConocoPhillips and ExxonMobil - can find ways to use
that shared resource to build an infrastructure that can then
access the markets in a cost competitive manner.
CHAIR GIESSEL thanked Mr. Butt for the presentation.
5:16:40 PM
CHAIR GIESSEL adjourned the Senate Resources Committee meeting
at 5:16 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SRES-Alaska LNG - Legislative Update-Steve Butt- 30Jan15 FINAL print version.pdf |
SRES 1/30/2015 3:30:00 PM |