Legislature(2009 - 2010)BUTROVICH 205

04/01/2010 03:30 PM Senate RESOURCES

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03:36:17 PM Start
03:36:34 PM SB143
03:42:05 PM Overview from Administration on In-state Gas
04:08:05 PM Overview: Export License Issues
05:02:04 PM HB369
05:22:57 PM Presentation by Larry Persily, Federal Coordinator for Alaska Natural Gas Transportation Projects
05:35:29 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview from the Administration on TELECONFERENCED
In-State Gas
+ Overview from Experts on Export License TELECONFERENCED
+ Update from ConocoPhilips on Gas Export TELECONFERENCED
<Above Item Removed from Agenda>
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSSB 143(RES) Out of Committee
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         April 1, 2010                                                                                          
                           3:36 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Lesil McGuire, Co-Chair                                                                                                 
Senator Bill Wielechowski, Co-Chair                                                                                             
Senator Charlie Huggins, Vice Chair                                                                                             
Senator Hollis French                                                                                                           
Senator Bert Stedman                                                                                                            
Senator Gary Stevens                                                                                                            
MEMBERS ABSENT                                                                                                                
Senator Thomas Wagoner                                                                                                          
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 143                                                                                                             
"An   Act   establishing   the  Greater   Railbelt   Energy   and                                                               
Transmission  Corporation   and  relating  to   the  corporation;                                                               
relating   to   transition,   financial   plan,   and   reporting                                                               
requirements   regarding  planning   for  the   initial  business                                                               
operations  of  the  Greater  Railbelt  Energy  and  Transmission                                                               
Corporation; relating  to a report  on legislation  regarding the                                                               
Regulatory Commission  of Alaska and the  Greater Railbelt Energy                                                               
and  Transmission  Corporation;  authorizing  the  Alaska  Energy                                                               
Authority to  convey the Bradley  Lake Hydroelectric  Project and                                                               
the  Alaska   Intertie  to  the   Greater  Railbelt   Energy  and                                                               
Transmission Corporation; and providing for an effective date."                                                                 
     - MOVED CSSB 143(RES) OUT OF COMMITTEE                                                                                     
OVERVIEW FROM ADMINISTRATION ON IN-STATE GAS                                                                                    
     - HEARD                                                                                                                    
COMMITTEE SUBSTITUTE FOR HOUSE BILL NO. 369(FIN) AM                                                                             
"An Act relating to an  in-state natural gas pipeline, the office                                                               
of  in-state  gasline project  manager,  and  the Joint  In-State                                                               
Gasline  Development Team;  requiring the  development of  an in-                                                               
state  natural  gas  pipeline  plan,   to  be  delivered  to  the                                                               
legislature by July 1, 2011, that  provides for a gasline that is                                                               
operational by  December 31, 2015;  directing the  Joint In-State                                                               
Gasline Development  Team to  assume responsibilities  under sec.                                                               
19, ch. 14, SLA 2009; requiring expedited review and action by                                                                  
state agencies or entities relating to the in-state natural gas                                                                 
pipeline project; and providing for an effective date."                                                                         
     - HEARD AND HELD                                                                                                           
PRESENTATION BY LARRY PERSILY, FEDERAL COORDINATOR FOR ALASKA                                                                   
NATURAL GAS TRANSPORTATION PROJECTS                                                                                             
     - HEARD                                                                                                                    
UPDATE FROM CONOCOPHILLIPS ON GAS EXPORT FACILITY                                                                               
     - REMOVED FROM AGENDA                                                                                                      
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 143                                                                                                                  
SHORT TITLE: RAILBELT ENERGY & TRANSMISSION CORP.                                                                               
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
03/09/09       (S)       READ THE FIRST TIME - REFERRALS                                                                        
03/09/09       (S)       ENE, RES, FIN                                                                                          
03/19/09       (S)       ENE AT 11:00 AM BUTROVICH 205                                                                          
03/19/09       (S)       Heard & Held                                                                                           
03/19/09       (S)       MINUTE(ENE)                                                                                            
04/06/09       (S)       ENE AT 5:00 PM BUTROVICH 205                                                                           
04/06/09       (S)       OPPOSE UN DESIGNATION OF ARCTIC OCEAN                                                                  
04/09/09       (S)       ENE AT 2:30 PM BUTROVICH 205                                                                           
04/09/09       (S)       Heard & Held                                                                                           
04/09/09       (S)       MINUTE(ENE)                                                                                            
03/17/10       (S)       ENE AT 3:30 PM BUTROVICH 205                                                                           
03/17/10       (S)       Heard & Held                                                                                           
03/17/10       (S)       MINUTE(ENE)                                                                                            
03/22/10       (S)       ENE REFERRAL WAIVED                                                                                    
03/24/10       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/24/10       (S)       Heard & Held                                                                                           
03/24/10       (S)       MINUTE(RES)                                                                                            
03/25/10       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/25/10       (S)       Heard & Held                                                                                           
03/25/10       (S)       MINUTE(RES)                                                                                            
03/29/10       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/29/10       (S)       Heard & Held                                                                                           
03/29/10       (S)       MINUTE(RES)                                                                                            
04/01/10       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
BILL: HB 369                                                                                                                  
SHORT TITLE: IN-STATE PIPELINE/ MANAGER/TEAM                                                                                    
SPONSOR(s): CHENAULT                                                                                                            
02/23/10       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/23/10       (H)       RES, FIN                                                                                               
02/26/10       (H)       RES AT 1:00 PM BARNES 124                                                                              
02/26/10       (H)       Heard & Held                                                                                           
02/26/10       (H)       MINUTE(RES)                                                                                            
03/01/10       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/01/10       (H)       Heard & Held                                                                                           
03/01/10       (H)       MINUTE(RES)                                                                                            
03/08/10       (H)       RES AT 6:00 PM BARNES 124                                                                              
03/08/10       (H)       Heard & Held                                                                                           
03/08/10       (H)       MINUTE(RES)                                                                                            
03/10/10       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/10/10       (H)       Moved CSHB 369(RES) Out of Committee                                                                   
03/10/10       (H)       MINUTE(RES)                                                                                            
03/11/10       (H)       RES RPT CS(RES) NT 4DP 1NR 1AM                                                                         
03/11/10       (H)       DP: OLSON, P.WILSON, JOHNSON, NEUMAN                                                                   
03/11/10       (H)       NR: SEATON                                                                                             
03/11/10       (H)       AM: KAWASAKI                                                                                           
03/15/10       (H)       FIN AT 9:00 AM HOUSE FINANCE 519                                                                       
03/15/10       (H)       Heard & Held                                                                                           
03/15/10       (H)       MINUTE(FIN)                                                                                            
03/22/10       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
03/22/10       (H)       Heard & Held                                                                                           
03/22/10       (H)       MINUTE(FIN)                                                                                            
03/23/10       (H)       FIN AT 9:00 AM HOUSE FINANCE 519                                                                       
03/23/10       (H)       Scheduled But Not Heard                                                                                
03/23/10       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
03/23/10       (H)       Moved CSHB 369(FIN) Out of Committee                                                                   
03/23/10       (H)       MINUTE(FIN)                                                                                            
03/24/10       (H)       FIN RPT CS(FIN) NT 10DP                                                                                
03/24/10       (H)       DP: THOMAS, GARA, DOOGAN, JOULE, KELLY,                                                                
                         AUSTERMAN, N.FOSTER, FAIRCLOUGH,                                                                       
03/24/10       (H)       STOLTZE, HAWKER                                                                                        
03/24/10       (H)       TRANSMITTED TO (S)                                                                                     
03/24/10       (H)       VERSION: CSHB 369(FIN) AM                                                                              
03/25/10       (S)       READ THE FIRST TIME - REFERRALS                                                                        
03/25/10       (S)       RES, FIN                                                                                               
04/01/10       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
WITNESS REGISTER                                                                                                              
MICHELLE SYDEMAN                                                                                                                
Staff to Senator Wielechowski                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, AK                                                                                                                      
POSITION STATEMENT: Commented on SB 143 for the sponsor.                                                                      
ROBERT SWENSON, Project Manager                                                                                                 
Alaska In-state Natural Gas Pipeline                                                                                            
Department of Natural Resources (DNR)                                                                                           
POSITION  STATEMENT: Presented  an  overview entitled  "Potential                                                             
Infrastructure for In-State Gas Distribution."                                                                                  
HAROLD HEINZE, Executive Director/CEO                                                                                           
Alaska Natural Gas Development Authority (ANGDA)                                                                                
POSITION  STATEMENT:  Presented  update  on  ANGDA  in-state  gas                                                             
HARRY NOAH [former pipeline czar], representing himself                                                                         
No address provided                                                                                                             
POSITION  STATEMENT: Gave  some background  on what  was intended                                                             
when the in-state gas program was put together last year.                                                                       
REPRESENTATIVE CHENAULT                                                                                                         
Alaska State Legislature                                                                                                        
Juneau, AK                                                                                                                      
POSITION STATEMENT: Sponsor of HB 369.                                                                                        
LARRY PERSILY, Federal Coordinator                                                                                              
Office  of  the  Federal  Coordinator   for  Alaska  Natural  Gas                                                               
Transportation Projects                                                                                                         
Washington, D.C.                                                                                                                
POSITION STATEMENT: Provided presentations  on rules dealing with                                                             
LNG export licensing and world LNG markets.                                                                                     
ACTION NARRATIVE                                                                                                              
3:36:17 PM                                                                                                                    
CO-CHAIR MCGUIRE  called the Senate Resources  Standing Committee                                                             
meeting to order  at 3:36 p.m. Present at the  call to order were                                                               
Senators French, Wielechowski, Huggins, and McGuire.                                                                            
          SB 143-RAILBELT ENERGY & TRANSMISSION CORP.                                                                       
3:36:34 PM                                                                                                                    
CO-CHAIR MCGUIRE announced consideration of SB 143.                                                                             
SENATOR  WIELECHOWSKI  moved  to  adopt  the  proposed  committee                                                               
substitute  to  SB  143,  labeled  26-GS1041\C,  as  the  working                                                               
document.  There  being  no objection,  the  motion  carried  and                                                               
version C was before the committee.                                                                                             
3:37:06 PM                                                                                                                    
MICHELLE SYDEMAN,  staff to  Senator Wielechowski,  explained the                                                               
only  major change  to this  bill concerned  RCA regulation.  The                                                               
previous version (S) provided a  form of Regulatory Commission of                                                               
Alaska (RCA) regulation for the  first five years after GRETC was                                                               
formed and  then a sunset. This  CS calls for a  traditional form                                                               
of RCA  regulation for  the first five  years and  then expresses                                                               
the legislature's  intent to review whether  continued regulation                                                               
is appropriate. In order to  accomplish this, several sections of                                                               
the bill had to be changed.                                                                                                     
Also, several  small changes to  version S  were on page  7, line                                                               
30, where  a phrase was  inserted that clarifies  that electrical                                                               
utilities  can  only  join  with   the  Greater  Railbelt  Energy                                                               
Transmission Corporation  (GRETC) upon approval of  its board. In                                                               
addition, Senator Stedman had a  question regarding the 26 powers                                                               
of  the corporation.  One  of those  concerns  was whether  their                                                               
authority to  acquire lands and  water rights was  throughout the                                                               
state  or  just  within  the service  area  of  the  corporation.                                                               
Another  change added  a  phrase  before all  of  the various  26                                                               
powers  that  says they  have  the  powers  only to  fulfill  the                                                               
purposes of the  corporation. So they can't  buy extraneous lands                                                               
and water rights in other parts  of the state simply to carry out                                                               
the duties for which they are established.                                                                                      
MS. SYDEMAN mentioned that the RCA  was reviewing this bill at an                                                               
emergency  meeting and  she  had received  a  call from  Chairman                                                               
Pickett within the  hour saying they unanimously  took a position                                                               
that some of the RCA sections  they spoke of on Monday would have                                                               
been difficult  to administer.  So they would  be pleased  at the                                                               
action the committee is considering today.                                                                                      
3:40:16 PM                                                                                                                    
SENATOR  WIELECHOWSKI  commented  that  the RCA  had  a  host  of                                                               
concerns with  the regulation. The  legislature felt this  was an                                                               
important  bill  and  the  committee  has  moved  as  quickly  as                                                               
possible.  He moved  to report  CSSB 143  () from  committee with                                                               
individual  recommendations and  attached  fiscal note(s).  There                                                               
being no objection, the motion  carried and CSSB 143() moved from                                                               
the committee.                                                                                                                  
         ^Overview From Administration on In-State Gas                                                                      
3:42:05 PM                                                                                                                    
CO-CHAIR MCGUIRE announced that  the administration would provide                                                               
an overview of tasks  to be completed on a line  to Valdez or the                                                               
Southcentral area to deliver gas to Alaskans.                                                                                   
At ease from 3:42 until 3:43.                                                                                                   
3:43:51 PM                                                                                                                    
ROBERT  SWENSON, Project  Manager,  Alaska  In-state Natural  Gas                                                               
Pipeline,  Department of  Natural Resources  (DNR), presented  an                                                               
overview  entitled  "Potential  Infrastructure for  In-State  Gas                                                               
He  showed  various  routes that  were  analyzed  mid-year  2009:                                                               
Fairbanks  to Cook  Inlet mile  post 39,  Delta Junction  to Cook                                                               
Inlet,  and a  stand-alone route  from the  North Slope  to Delta                                                               
Junction to  Glennallen and  into the Cook  Inlet region  to mile                                                               
post 39.                                                                                                                        
MR.  SWENSON said  he would  focus  his discussion  today on  the                                                               
bullet-line route from Deadhorse to Anchorage that was chosen.                                                                  
Slide 2  illustrated the problem  of declining production  in the                                                               
Cook Inlet Region. He noted the  various tranches of gas into the                                                               
future demand  curve leveled off beyond  2013 indicated increased                                                               
lifting costs associated with both  discovery and access to those                                                               
3:47:08 PM                                                                                                                    
Slide 3 showed  2.5 years of daily gas usage  (from DNR 2009). It                                                               
shows the high swing in daily  demand between the summer lows and                                                               
the  winter  peaks. That  demand  goes  from  a little  over  100                                                               
mmcf/day to  350 mmcf/day.  Without a large  base load  to smooth                                                               
out  the  demand  curve,  the producers  are  still  required  to                                                               
maintain deliverability  of up  to 350 mmcf/day  to cover  just a                                                               
few days  during the coldest snaps  in the winter, and  would not                                                               
be able to produce from those wells during the summer months.                                                                   
Slide  4 showed  a potential  solution,  which is  access to  the                                                               
tremendous reserves  on the  North Slope. That  is what  he would                                                               
talk about during  the rest of the presentation.  The USGS Survey                                                               
showed proven North  Slope reserves of 35 tcf in  the Prudhoe Bay                                                               
unit and  Pt. Thomson. It  pointed to  the reserves that  many of                                                               
the projects are currently looking at.                                                                                          
Slide  5 showed  the  North  Slope is  a  very  gas rich  region.                                                               
Various circles  and dots are  associated with  exploration wells                                                               
and known accumulates.  The green and yellow dots  are wells that                                                               
had moderate gas show or in  the case of the yellow dots actually                                                               
recovered gas  on a  drill stem  test. The  red circles  with the                                                               
green outline are known gas with oil accumulations. Is                                                                          
Slide 6:  In 1994-2006  USGS did a  resource assessment  of those                                                               
natural  gas   potential  reserves  and  there   are  very  large                                                               
potentials    of    undiscovered    unconventional    technically                                                               
recoverable reserves, an onshore portion of that being 120 tcf.                                                                 
Slide   7:   Those   assessment  numbers   do   not   incorporate                                                               
unconventional gas like shale gas,  coalbed methane and tight gas                                                               
sands. One  of the potential  unconventional natural  gas sources                                                               
on the North  Slope are gas hydrates, and a  tremendous amount of                                                               
work had been done recently on  that. Estimates are as much as 85                                                               
tcf of  natural gas that could  be available to a  market if they                                                               
could  understand exactly  how to  bring  them to  the well  bore                                                               
safely. These are ongoing efforts by  BP and the US Department of                                                               
Energy (DOE).                                                                                                                   
3:51:00 PM                                                                                                                    
Slide 8:  Another issue  that has  not been looked  at as  far as                                                               
available  resource is  basin  center  over-pressured gas  (shale                                                               
gas) and over-pressured  region fractured shale. He  had not done                                                               
a  resource assessment  on that  resource  in the  basin, but  he                                                               
could say that  it is certainly there. Over the  next three years                                                               
the state plans to work with the USGS to assess it.                                                                             
Slide 9:  Alaska has a  tremendous base of energy  resources, but                                                               
the issue is  the size of the  state and the size  of the market.                                                               
He would talk  today about development of  that infrastructure to                                                               
bring those  energy resources to  where they are needed.  That is                                                               
specifically the  project he  is managing right  now -  the stand                                                               
alone  bullet line  that  would transport  natural  gas from  the                                                               
North Slope to tidewater in the Cook Inlet area.                                                                                
3:52:22 PM                                                                                                                    
MR. SWENSON  said right now the  work the department is  doing is                                                               
in parallel  with the large  diameter and spur line  efforts, but                                                               
they are  keeping all  of their options  open. They  are reducing                                                               
risk  to the  in-state gasline  projects by  acquiring the  major                                                               
permits  and determining  the  cost of  transport  and doing  the                                                               
economic  analyses, and  finally preparing  the permits  and data                                                               
package they hope to transfer to a project pipeline developer.                                                                  
3:52:53 PM                                                                                                                    
Slide  10:  Showed   the  work  completed  to   date:  the  route                                                               
alternative   analysis,  pipeline   costs   were  compared,   and                                                               
environmental  surveys  were  looked   at.  The  initial  project                                                               
description for the permitting package has been completed.                                                                      
3:53:31 PM                                                                                                                    
Slide 11: The scoping document  and commercial group meetings are                                                               
under way.  The initial review  of Enstar capital  cost estimates                                                               
and pipeline and  all three major permits have  been applied for.                                                               
The  work  they are  doing  now  updates  all the  pipeline  cost                                                               
A cost  of transport analysis  will be  one of the  outcomes from                                                               
this work  and they are preparing  detailed projects descriptions                                                               
to  support  the  EIS  and   right-of-way  activities.  They  are                                                               
continuing the engineering report for  both the EIS and right-of-                                                               
way process in  both the federal and state  realms and developing                                                               
a data package for the cost  of service analysis and working with                                                               
commercial  group   to  identify  new  market   potential  within                                                               
Southcentral Alaska and along the route.                                                                                        
Slide  12:  The  cost  of transport  analysis  has  16  different                                                               
material balances.                                                                                                              
3:54:51 PM                                                                                                                    
Slide  13: there  are four  scenarios  with four  flow rates  per                                                               
scenario.  They are  matching a  facility component  and cost  to                                                               
each one of  the balances and will generate  annual schedules for                                                               
capital outlays,  revenues and  expenses and  feed all  that data                                                               
into their economic analysis.                                                                                                   
MR. SWENSON  said the  four scenarios  that are  being considered                                                               
1. The  cost of North  Slope gas conditioning  (acquiring residue                                                               
gas from  the Prudhoe Bay  central gas facility with  North Slope                                                               
gas conditioning;)                                                                                                              
2. Using the same gas stream  from the central gas facility, move                                                               
the  conditioning  off  the  North  Slope  because  of  the  cost                                                               
associated  with  doing that  conditioning  there.  But that  gas                                                               
would have  to be treated  because of the 12  percent CO  and HS                                                                
associated  with it.  The gas  conditioning would  be located  in                                                               
Fairbanks and the Cook Inlet.  One challenge associated with this                                                               
scenario is sequestration of  CO in Cook  Inlet. At the Fairbanks                                                               
facility that  would be put back  into the pipeline and  moved to                                                               
the central facility for handling that CO.                                                                                      
3:56:04 PM                                                                                                                    
3. Transport of  utility-grade gas from the  central gas facility                                                               
and conditioning and natural gas  liquids extraction on the North                                                               
Slope  with natural  gas returned  to the  producers. This  was a                                                               
request from the commercial group.                                                                                              
4. Transport  of enriched gas  to the  Cook Inlet region  in high                                                               
btu/volume-type transport.  Spike with  NGL no longer  needed for                                                               
enhanced oil  recovery at Prudhoe  Bay (33,000 bpd LPG  in 2008).                                                               
Use  that  for  in-state  consumption and  transport  around  the                                                               
state.  Any excess  natural gas  liquids would  be available  for                                                               
3:57:01 PM                                                                                                                    
Slide  15: Showed  four flow  rates  for each  scenario from  250                                                               
mmcf/d to 975  mmcf/d. He noted that for each  flow rate you have                                                               
different  configurations  of  compressor  stations  as  well  as                                                               
conditioning  plants.  In the  25  mmcf/d  scenario, two  smaller                                                               
trains would  be added  for redundancy  for both  maintenance and                                                               
emergency purposes on the North Slope.                                                                                          
3:57:39 PM                                                                                                                    
Slide 16: Provided the Cost  of Service Analysis for all pipeline                                                               
and facilities scenarios at various  flow rates. This information                                                               
would be  fed into  the cost  of service  to the  residential and                                                               
industrial  consumers and  developed from  those models.  He said                                                               
they would  use an  industry standard  commercial model  for this                                                               
analysis;   it  includes   commodity  prices,   transmission  and                                                               
distribution costs and  non-infrastructure components. Moving the                                                               
conditioning  plant to  the Cook  Inlet region,  scenario 4,  and                                                               
sequestering that  CO would  have costs that  this analysis would                                                               
attempt to capture.                                                                                                             
MR. SWENSON said all the inputs  would have to be ranges, because                                                               
most scenarios won't have specific costs.                                                                                       
3:58:48 PM                                                                                                                    
Slide 17: Showed the costing  work schedule, which shows they are                                                               
exactly on track with this work.  At the end of July1, 2010, they                                                               
expect to  have a complete report  on cost of transport  and cost                                                               
of service analysis for the legislature.                                                                                        
Slide  18: Permit  Status: They  have applied  for both  the Army                                                               
Corps  of Engineers  404/10 permit  and the  State of  Alaska and                                                               
federal rights-of-way. They are currently  in support of each one                                                               
of  those efforts  and a  significant  portion of  their work  is                                                               
answering  questions   and  updating   the  files   and  pipeline                                                               
CO-CHAIR MCGUIRE  asked him to  go back to  page 17 and  asked if                                                               
the costing  work schedule was  put in  place before he  took his                                                               
MR. SWENSON said yes.                                                                                                           
CO-CHAIR  MCGUIRE asked  if all  of the  dates have  remained the                                                               
MR. SWENSON said yes.                                                                                                           
4:00:31 PM                                                                                                                    
Slide 19:  Environmental Field Programs  planned for  this summer                                                               
are in support  of the EIS and  right-of-way permit applications.                                                               
They will do wetlands work,  lake studies for water availability,                                                               
stream  crossings  and  fisheries work,  and  cultural  resources                                                               
work. They will also look at  the geotechnical aspects of some of                                                               
the fault crossing and permafrost issues along the route.                                                                       
Slide 20: Time Line Goal: They  are on schedule with first gas by                                                               
2016. The initial  timeline was specifically related  to 2015 and                                                               
going  to  the  Gubik  gas   field  where  conditioning  was  not                                                               
required. He  asked the engineering  group to put  together three                                                               
timelines, the fast  track and two others with  extension of this                                                               
timeline, one  associated with permit challenges  and company due                                                               
diligence during  the transfer of  the project to a  new company.                                                               
Their current goal is for the 2016 timeline.                                                                                    
4:02:16 PM                                                                                                                    
SENATOR HUGGINS asked  for the top three  challenges this project                                                               
MR. SWENSON answered  one would be their ability  to maintain the                                                               
timeline, because  challenges to  the permit  process are  out of                                                               
their control. Their ability to  have access to North Slope lifts                                                               
for any  development on the  North Slope and meeting  those lifts                                                               
associated  with their  permitting  effort  and the  construction                                                               
sanction  date.  Another  challenge  is  establishing  the  costs                                                               
associated with  it and providing  the specific  costs associated                                                               
with development of the pipeline.                                                                                               
4:03:41 PM                                                                                                                    
SENATOR HUGGINS  said if  he was  going to ask  one thing  of the                                                               
legislature to boost the project, what it would be.                                                                             
MR.  SWENSON replied  that  their  support so  far  has kept  the                                                               
project on task  and on time. They need to  keep the current work                                                               
ongoing. It  is incredibly  important to make  sure there  are no                                                               
"hick ups"  in the  timelines. The costing  estimates need  to be                                                               
finalized  so the  legislature can  understand  exactly what  the                                                               
costs  associated   with  the  16  different   scenarios  are  so                                                               
reasonable decisions can be made.                                                                                               
4:04:46 PM                                                                                                                    
SENATOR FRENCH  said he had a  spreadsheet with a series  of cost                                                               
estimates that involved his project  that he thought was prepared                                                               
for ANGDA and asked if Mr. Swenson had it.                                                                                      
MR. SWENSON  answered that he  had seen  it. He said  he couldn't                                                               
really speak  to it  at this  time, but  Mr. Heinze,  CEO, ANGDA,                                                               
would be discussing it later.                                                                                                   
SENATOR FRENCH asked  if he could give them a  rough date when he                                                               
would be able  to provide comparable numbers for  the Parks route                                                               
or Richardson route for the stand along pipeline project.                                                                       
MR.  SWENSON answered  that slide  17 shows  when they  will have                                                               
various aspects done; that report will be done by July 1, 2010.                                                                 
SENATOR GARY STEVENS joined the meeting.                                                                                        
                ^Overview: Export License Issues                                                                            
4:08:05 PM                                                                                                                    
HAROLD  HEINZE,   Executive  Director/CEO,  Alaska   Natural  Gas                                                               
Development  Authority   (ANGDA),  said  the  table   before  the                                                               
committee was  their attempt  to understand  costs over  the past                                                               
couple of years, and particularly  the last six months. Last fall                                                               
they presented  the cost  estimates by  the stand  alone pipeline                                                               
group (ASAP)  and, more recently,  as a potential shipper  in the                                                               
big  pipeline sponsored  by  TransCanada  and ExxonMobil  (Alaska                                                               
Pipeline Project). They had a  chance to understand some of their                                                               
cost estimate  information. One  of their  major efforts  at this                                                               
point  is  to  work  with  the  in-state  electric  utilities  to                                                               
potentially  make commitments  into the  open season  of the  big                                                               
pipeline and  associated with that  any lateral pipeline.  Key to                                                               
doing that is to understand costs.                                                                                              
4:10:29 PM                                                                                                                    
SENATOR BERT STEDMAN joined the meeting.                                                                                        
MR. HEINZE  said there  was continuing concern  was that  the in-                                                               
state gasline case should include  the possibility of Valdez, and                                                               
ANGDA felt the  work being done wasn't hitting  that target. Part                                                               
of  the comparison  was developed  to  illustrate why  that is  a                                                               
continuing concern  to them.  The first  four lines  are straight                                                               
recitals  from  the  work  presented   to  the  legislature  last                                                               
September and included  enough detail to give a good  idea of the                                                               
segments that  were analyzed in  the pipeline. The  recital takes                                                               
the work in line three and  extends it to Valdez instead of going                                                               
to Cook Inlet.                                                                                                                  
4:12:33 PM                                                                                                                    
MR. HEINZE said lines 1-4  use some confidential information they                                                               
got as  a potential shipper  on the Alaska Pipeline  Project. The                                                               
cost comparison work  that had been done last  September was very                                                               
limited in  scope. There was no  attempt to include all  the cost                                                               
factors that  might be  the same in  any project,  because detail                                                               
cost  estimates  are costly.  It  did  not  include the  cost  of                                                               
compressor stations.                                                                                                            
They took  what was described as  a $4 billion pipeline  cost and                                                               
scaled it up for not only  the compressor stations but for a very                                                               
reasonable estimate  of the contingencies -  increasing generally                                                               
the price tag but maintaining  fairly accurately the relationship                                                               
amongst  the  numbers.  The  Parks  Highway  and  the  Richardson                                                               
Highway routes  rise to  $5.6 billion to  $6.3 billion.  Going to                                                               
Valdez adds another $600 million to that.                                                                                       
4:14:42 PM                                                                                                                    
The other major  item they looked at for comparison  was what the                                                               
Alaska  Pipeline people  had published  as part  of their  public                                                               
documents - a pipeline cost range  of a 48-inch pipe to Valdez of                                                               
$10.7-$14 billion.  They took that  estimate and divided  by both                                                               
the miles and  pipe diameter. For the  Valdez estimate associated                                                               
with the  ASAP work and  the Alaska pipeline Project  the numbers                                                               
are similar  at the  upper range of  the larger  diameter project                                                               
and that  seems reasonable and  helped give them  some confidence                                                               
that they can  use both sets of  numbers to guide them  to a good                                                               
set  of  costs  that  might  be used  to  advise  the  utilities.                                                               
Finally, they did  a case that added a spur  line from Glennallen                                                               
into  the  Palmer area,  which  ran  the  cost up.  However,  the                                                               
benefit of  that shows  up when  you look  at pipeline  flow rate                                                               
assumed  using a  proxy  for  a tariff.  Those  two columns  were                                                               
designed to  illustrate the fact  that very large  diameter pipes                                                               
have very  low pipe tariffs. At  those flow rates and  size pipes                                                               
you are  down to  $1.50-2.00 on  the basis  of the  tariff. Small                                                               
diameter pipes have smaller flow  rates and those numbers quickly                                                               
go up to  $10. If you can  combine the Valdez affect  with a spur                                                               
line in, you end up with a more intermediate set of numbers.                                                                    
MR. HEINZE concluded  that ANGDA is pleased they  can review past                                                               
work and  wished the ongoing work  could be done sooner,  but are                                                               
comfortable with  the numbers and  feel that if  technical groups                                                               
could continue an interchange at  a working level they would gain                                                               
a  better understanding  and more  confidence in  it. This  was a                                                               
case where Mr. Swenson and his  team presented their piece to the                                                               
puzzle  and ANGDA's  team will  continue to  contribute a  little                                                               
different piece.  In particular, they will  be pursuing something                                                               
related to the open season and  in addition, will continue to try                                                               
to understand the Valdez LNG  implications as far as the in-state                                                               
gas project goes.                                                                                                               
4:18:53 PM                                                                                                                    
SENATOR WIELECHOWSKI  asked what  the additional  cost for  a gas                                                               
treatment  plant for  the Alaska  Pipeline Project  going through                                                               
the Parks Highway would be.                                                                                                     
MR. HEINZE  answered that  they have  no specific  estimates, but                                                               
probably  the smallest  plant would  probably be  measured as  $1                                                               
billion. He  expected a tariff proxy  of $1.50 - $2.00  saying it                                                               
is quite  expensive to remove CO  from  the gas and get  it ready                                                               
for shipment  even with  large economies of  scale and  putting a                                                               
facility  on the  North Slope  would have  additional costs.  The                                                               
TransCanada numbers are $9-$11 billion for their plant.                                                                         
4:20:48 PM                                                                                                                    
SENATOR WIELECHOWSKI  said Enstar's chart indicated  an estimated                                                               
a rate of $5.97-$7.17 at 250  mmcf/d. He asked why their estimate                                                               
was different.                                                                                                                  
MR. HEINZE replied that he didn't  have that table, but a lot has                                                               
to do  with what you  think the cost of  the pipeline is.  He has                                                               
heard that  the Enstar  pipe is  around $4  billion, but  it will                                                               
probably be more like $6  billion-plus $1 billion for a treatment                                                               
4:22:22 PM                                                                                                                    
SENATOR WIELECHOWSKI  asked why he  didn't calculate using  a 500                                                               
mmcf flow rate and asked what that result would be.                                                                             
MR. HEINZE  said he was  trying to  keep the figures  simple, but                                                               
any of them could be doubled,  for instance, and come up with the                                                               
same direct  relationships. Making  the assumptions in  this case                                                               
was intended to be illustrative and not a prediction.                                                                           
4:24:11 PM                                                                                                                    
CO-CHAIR MCGUIRE said as  they look at HB 369 and  SB 379 and try                                                               
to think about  what to do as an in-state  effort, and looking at                                                               
the March 24,  2010 letter to Speaker Chenault, she  asked how he                                                               
would feel  if they divided  the activities into  demand-side and                                                               
financing  (with  AHFC) on  the  one  hand  and the  routing  and                                                               
building  assessment  on the  other  hand.  Then have  the  Noah/                                                               
Swenson work continue on with the Railroad.                                                                                     
4:26:24 PM                                                                                                                    
MR. HEINZE  said his intent in  that letter that was  sent to all                                                               
60 legislators  was to  tell them  what ANGDA  is working  on and                                                               
asking  how they  can be  of assistance.  Alaska Housing  Finance                                                               
Corporation (AHFC) has a lot of  experience in bonding and he has                                                               
respect  for  them; but  ANGDA  has  developed  a lot  of  tariff                                                               
studies and  they will be  happy to contribute  that information.                                                               
Also ANGDA has a strong  team for pipeline management. They don't                                                               
have to be  in charge, but will  be happy to work  with others on                                                               
it. The  meeting Mr.  Swenson described was  the first  effort to                                                               
get together on  it. He has no desire to  slow down Mr. Swenson's                                                               
work,  but  since it  started  almost  a  year  ago he  has  been                                                               
concerned that no one is looking  at the Valdez part of it. ANGDA                                                               
would like to  do that. They will be happy  to work with whatever                                                               
team the legislature puts together.                                                                                             
4:30:15 PM                                                                                                                    
SENATOR HUGGINS  said it  that there  is a lot  of support  for a                                                               
pre-build   to   Fairbanks.   He   asked   the   advantages   and                                                               
disadvantages he saw to a pre-build.                                                                                            
MR. HEINZE  answered that  there are  a couple  of issues  in the                                                               
concept of pre-builds.  ANGDA had looked at the  spur line coming                                                               
off the big pipeline from  Delta Junction through Glennallen into                                                               
Palmer. He  believed that  was more  of an  Alaska-sized project,                                                               
and one  that could be  mobilized fairly quickly. It  would train                                                               
Alaskans to  participate very effectively  in the big  pipe where                                                               
tens of  thousands of folks are  going to involved and  avoid the                                                               
huge cost  escalation associated  with starting the  big pipeline                                                               
project. People who were here  during the TAPS years remember the                                                               
impact of  the development of Prudhoe  Bay and how costs  went up                                                               
because there weren't  enough people to work here;  it could mean                                                               
as much as a 35 percent  escalation in the first year. The second                                                               
choice  element that  is envisioned  in the  question about  pre-                                                               
build is  that you can  also look  at pre-investment in  terms of                                                               
the size. Getting the in-state effort started is smart.                                                                         
4:33:40 PM                                                                                                                    
SENATOR  HUGGINS asked  what actions  the  legislature should  be                                                               
taking to get things moving.                                                                                                    
MR. HEINZE  responded that  he had been  working on  this project                                                               
for seven  years and he  would like to  see some final  action on                                                               
it.  He  would  be  supportive   if  the  legislature  took  some                                                               
directional action if there is  an understanding that they aren't                                                               
going to be back talking about it in a year.                                                                                    
4:35:45 PM                                                                                                                    
SENATOR  HUGGINS asked  what  he thought  about  ANGDA being  the                                                               
broker and distributor of propane  throughout the state to remote                                                               
communities and projects.                                                                                                       
MR. HEINZE answered that ANGDA's  interest in propane is strongly                                                               
driven by an insight they  gained in 2003/4, which basically said                                                               
try as we  may no more than two-thirds of  Alaskans will ever see                                                               
directly the benefit  of North Slope gas through  a pipeline, and                                                               
that propane  represented the way to  share with all the  rest of                                                               
Alaska the  benefit of  North Slope  gas. That  is why  they have                                                               
pursued it. ANGDA is not interested  in being the focal entity of                                                               
it,  but is  interested in  finding  ways to  create a  wholesale                                                               
facility that is  commercial in nature and would  allow things to                                                               
happen in  a quicker  way. They think  that propane  would become                                                               
more available with development of  any of the gaslines, and they                                                               
think it  needs to start  now - if for  no other reason  than the                                                               
high oil  prices. That conversation  has moved over and  is going                                                               
on between  ANGDA and  the Prudhoe  Bay unit  owners in  hopes of                                                               
finding a  way that  makes sense for  them as a  unit as  well as                                                               
having a commercial propane facility on the North Slope.                                                                        
As far  as ANGDA's  involvement in  that, propane  is one  of the                                                               
things that  is on the  edge of what  they are authorized  to do;                                                               
and it  would require resources  to proceed. He also  wanted them                                                               
to  be aware  that they  are doing  a number  of things  with the                                                               
electric  utilities that  affect Cook  Inlet, but  that, too,  is                                                               
skating on  the edge  of ANGDA's authority.  The only  basis they                                                               
have  for doing  that is  a bill  in the  legislature that  would                                                               
clarify their authority  to do that. If that bill  does not pass,                                                               
those efforts will have to stop.                                                                                                
4:39:28 PM                                                                                                                    
SENATOR HUGGINS said he supported  ANGDA having some resources to                                                               
do some things  that are important for Alaskans, but  he wanted a                                                               
compatible  relationship amongst  the players.  He asked  what he                                                               
thought was the value of the ConocoPhillips LNG in Cook Inlet.                                                                  
4:40:13 PM                                                                                                                    
MR.  HEINZE responded  that ANGDA  hired  a technical  consultant                                                               
that also  worked for  a number  of banks  around the  world that                                                               
finance  LNG projects  several years  ago and  asked him  what he                                                               
would do  with that plant. He  said it has been  operating for 40                                                               
years and  has been extremely  well maintained. But on  the other                                                               
hand every  day it operates, it  sets a new record  for LNG plant                                                               
operation length of time, a very legitimate concern.                                                                            
At the extremes,  if that plant's export license  is not extended                                                               
and  it shuts  down, that  would cost  the whole  Cook Inlet  gas                                                               
system a lot of deliverability.  That plant is key to maintaining                                                               
production  in Cook  Inlet during  the  summer. There  is a  huge                                                               
swing  in  the  seasonal  heating load  between  the  summer  and                                                               
winter.  So, that  plant  provides the  summer  season load  that                                                               
keeps  wells on  production. Without  it  there would  be a  very                                                               
rapid degradation of deliverability.                                                                                            
Secondly,  Mr.  Heinze  said,  they  looked  at  whether  it  was                                                               
possible   to  strike   a  bargain   where  the   re-gasification                                                               
capability was added  to that plant as early as  next winter. The                                                               
plant could  operate as a  peak saver by  drawing LNG out  of its                                                               
tank and converting it into gas  on those very coldest days. That                                                               
might be enough to make a real difference in the system.                                                                        
In the  longer run, if North  Slope gas in good  quantities finds                                                               
its  way  into  Cook  Inlet,  if that  plant  was  still  around,                                                               
certainly the storage units and  the dock would probably still be                                                               
very usable in a brown  field sense. The rotating machinery might                                                               
need replacing  with a  more modern  maybe electric  motor driven                                                               
train or  something like  that. That would  seem to  provide that                                                               
large scale customer they would be  look for for a spur or bullet                                                               
line or  any in-state line  coming into Cook Inlet.  ANGDA's view                                                               
is that they should not shut it down.                                                                                           
CO-CHAIR  MCGUIRE  echoed  Senator Huggins'  statement  that  she                                                               
envisioned their work continuing and  being part of the equation.                                                               
Many of them  are working overtime to see how  the pieces can fit                                                               
MR.  HEINZE said  they  would  work with  the  team however  it's                                                               
4:43:47 PM                                                                                                                    
HARRY NOAH [former pipeline czar],  representing himself, said he                                                             
was asked to  give some background on what was  intended when the                                                               
in-state  gas program  was put  together last  year. He  said the                                                               
objectives  used to  put  the initial  program  together were  to                                                               
encourage the development  of an in-state pipeline  by taking out                                                               
some of  the risk  if the  state could. There  are two  ways that                                                               
risk can be removed: one is by  just putting money in it, but the                                                               
second more logical  place to start is to  reduce the uncertainty                                                               
associated  with pipeline  development in  the state.  There were                                                               
three legs to that effort.                                                                                                      
  1. define the cost of transportation of the gas, which is an                                                                  
  engineering study                                                                                                             
  2. obtain the major permits                                                                                                   
  3. obtain, if possible, letters of intent to ship gas (the                                                                    
  most important                                                                                                                
MR.  NOAH  related  that  the  second  driver  was  timing.  When                                                               
Governor Palin  asked to have  this plan put together  she wanted                                                               
gas to flow in  the pipeline by 2015. They tried  to do that, but                                                               
they  did tell  her very  carefully  that that  was an  extremely                                                               
aggressive schedule;  probably the  earliest it could  happen was                                                               
late 2015 or early 2016.                                                                                                        
The   second  objective   under  timing   was  to   get  detailed                                                               
engineering  design  by  June  1,  2011 in  order  to  meet  that                                                               
schedule. He said the basic concept  was for the state to try and                                                               
take  out the  high  initial risk  factors  associated with  this                                                               
project and  that is  when money  is most  expensive, but  it was                                                               
always their intent to package  that information into an RFP-type                                                               
of document and  move it to a private developer.  They would have                                                               
tried to  do that by the  end of the  first quarter of 2011  if a                                                               
company was  going to  have any  chance to gear  up to  start the                                                               
detailed  design.  He  restated  that  it  was  their  intent  to                                                               
facilitate a project, not build it.                                                                                             
MR.  NOAH said  the in-state  program  undertook as  part of  the                                                               
program  the  legislature  authorized  money  for  last  year  an                                                               
evaluation of  pipeline route alternatives  from the  North Slope                                                               
to Cook  Inlet -  that was  mainly the  Parks Highway  versus the                                                               
Richardson Highway  - already  discussed today.  It was  simply a                                                               
cost comparison between the two;  the others considerations might                                                               
be environmental  impact or people  served. A second task  was to                                                               
look  at  a pipeline  to  western  Alaska terminating  at  Donlin                                                               
Creek, and this work is pretty well done.                                                                                       
4:48:53 PM                                                                                                                    
MR. NOAH said the  third was to look at gas  supply in Cook Inlet                                                               
and, as  a subtask of  that, LNG  imports. When they  started the                                                               
work, DNR  said they wanted  to the  gas supply study,  which was                                                               
fine; it was done by Bob  [Swenson] and the Cook Inlet utilities.                                                               
Plus the  Cook Inlet utilities,  Enstar, ML&P, and  Chugach, also                                                               
looked at LNG imports and the  cost associated with that. That is                                                               
the scope of the work that was done.                                                                                            
He said he  wanted to focus on  the three legs of  the stool that                                                               
dealt with  the in-state  or bullet line:  the cost  of transport                                                               
study, acquiring both federal and  state right-of way permits and                                                               
the  Corps  404 permits,  but  most  importantly the  letters  of                                                               
intent to ship  gas in the pipeline. Alaska  is different because                                                               
it is a very small market;  putting everyone in the same room who                                                               
want  to sell  or  buy gas,  doesn't require  a  large room.  So,                                                               
facilitating  agreements  between  them  became  the  focus,  not                                                               
necessarily a focus of the state making a decision.                                                                             
He said  it was always  their assumption that the  cost estimates                                                               
would be  a guideline and  a help, but  whoever was to  take over                                                               
this project  would be  doing their own  work. When  they started                                                               
this program  they felt the  engineering work was  the definitive                                                               
answer;  it was  a guideline  to help  facilitate the  commercial                                                               
discussions.  It was  set up  over a  two-year period.  The first                                                               
year,  last year,  was to  start  the engineering  to define  the                                                               
capital  costs,  and  to  get all  the  permitting  together  and                                                               
applications  filed (which  they were),  but more  importantly to                                                               
form  the commercial  working group  and start  those discussions                                                               
(which also occurred).                                                                                                          
4:52:02 PM                                                                                                                    
MR. NOAH said  the intent of the second  year (basically starting                                                               
now) was  to try  to see if  those commercial  agreements between                                                               
buyers  and  sellers  could  be  achieved. It  would  be  to  use                                                               
engineering and  cost data to  facilitate those  discussions. The                                                               
other part of the  work plan for this year was  to do enough work                                                               
to maintain the schedule.                                                                                                       
He explained that the engineering work  looks at a whole group of                                                               
different options;  it's a little  bit like an erector  set where                                                               
you  can mix  and match  the different  pieces as  the commercial                                                               
discussions were  going on. It was  just a basis of  knowledge at                                                               
that point. That work effort was  set in motion last October, and                                                               
the  schedule has  been maintained  quite  well. It  was not  the                                                               
intent of the  state to choose a specific project,  but it was to                                                               
work with the  commercial entities to see if there  was a project                                                               
that worked  for everyone,  not just  the state  or not  just the                                                               
The  permitting  was  undertaken   for  two  reasons;  first,  to                                                               
maintain the  schedule - and  then the idea  was to get  the work                                                               
done to try  to answer some of the open  questions that prevented                                                               
real  cost  estimates  from being  completed.  Because  when  you                                                               
complete  right-of-way  documents  there  is  a  whole  group  of                                                               
stipulations.  They can  have  a tremendous  impact  on cost  and                                                               
timing if there  are "too woolly." As an example,  when you build                                                               
a major  pipeline off  the highway system,  you're going  to tear                                                               
that highway system up. Who will  pay for that? The producers say                                                               
well,  the  state  is.  The legislature  will  probably  say  the                                                               
producers. Dozens of these open questions need to be resolved.                                                                  
4:55:17 PM                                                                                                                    
Beyond  just maintaining  the schedule,  the reason  to undertake                                                               
the permitting  was to  get a  clear path forward  as to  how the                                                               
construction  permits would  be issued  and how  issues like  who                                                               
would pave  the road  would be resolved.  Towards that  end, they                                                               
had asked  John Reeves, Department  of Transportation  and Public                                                               
Facilities (DOTPF), to work with  them, but those questions still                                                               
need to be answered. Getting just the permit is not enough.                                                                     
4:55:57 PM                                                                                                                    
MR. NOAH said the third leg of  the stool was the working group -                                                               
the letters of  intent. The purpose of the letters  of intent was                                                               
a.  could you  really  get one  -  if  no one  will  sign up  for                                                               
anything, you  won't have any demand  to ship gas -  and, second,                                                               
if you have  those commercial discussions and there is  a big gap                                                               
between people selling  gas and those buying it,  the state would                                                               
understand that. Then  the legislature and the  governor would be                                                               
in a  position to decide whether  they wanted to help  or not. It                                                               
has  to be  clarified.  It  doesn't do  any  good  to bat  around                                                               
capital cost  numbers if you  don't have business  entities ready                                                               
to make  a deal  with the  future pipeline  company. But,  if you                                                               
have  all  of   three  things,  however,  the   state  will  have                                                               
facilitated  a  package that  will  be  really interesting  to  a                                                               
pipeline company.                                                                                                               
4:57:47 PM                                                                                                                    
MR. NOAH  said the key  to a  successful project is  that someone                                                               
has to be willing to sell on one  end and buy on the other. Right                                                               
now, Alaska does  not have gas to dump into  a pipeline tomorrow.                                                               
The commercial agreements are necessary.                                                                                        
Over the  past year he  watched the  debate between the  big ling                                                               
and the  in state  line, and it  was his intent  as part  of this                                                               
work program  to see  if commercial  agreements could  be reached                                                               
that would them to deal with  both the short-term needs of Alaska                                                               
and any  long-term major sales  of gas  from the North  Slope. He                                                               
took  the  position that  BP  and  ExxonMobil and  ConocoPhillips                                                               
could take  care of themselves.  At the same time,  the utilities                                                               
that would  be buying the  gas are only going  to buy the  gas if                                                               
they can do  it at a rate that is  acceptable to their customers.                                                               
So,  this commercial  activity  is  a self  righting  type of  an                                                               
equation. The  question is  how could  the state  facilitate both                                                               
wanting to not hurt the long-term  interests of a pipeline on the                                                               
North Slope,  but deal  with Alaska's  energy sooner  rather than                                                               
later.  In his mind, it  was always the mixture of the commercial                                                               
aspects of this along with the engineering that was the key.                                                                    
MR. NOAH  closed saying that  getting to  point of being  able to                                                               
put the RFP  "out on the street"  to a private entity  is the key                                                               
thing. If they  can't get those letters of intent,  they can't do                                                               
that work  and that will  tell them a lot.  But if they  can, the                                                               
concerns about  whether it  affects the big  pipeline or  not are                                                               
things the  producers can  take care of  themselves. If  they are                                                               
willing  to  sign agreements  and  a  business  deal can  be  put                                                               
together  that is  acceptable  to  everyone, then  in  a way  the                                                               
process will take  care of itself. The state doesn't  have to put                                                               
itself in  the position where it  feels it has to  make all these                                                               
decisions. "We'd let the market do it."                                                                                         
5:01:03 PM                                                                                                                    
CO-CHAIR  MCGUIRE thanked  him for  his  work for  the state  and                                                               
announced a brief at ease.                                                                                                      
             HB 369-IN-STATE PIPELINE/ MANAGER/TEAM                                                                         
5:02:04 PM                                                                                                                    
CO-CHAIR  MCGUIRE announced  HB 369  to be  up for  consideration                                                               
[CSHB 369(FIN) AM was before the committee].                                                                                    
REPRESENTATIVE CHENAULT, sponsor of HB  369, offered that he is a                                                               
"hands on  kinda guy" and  he wants  to start "turning  dirt." He                                                               
explained that this  bill forms a joint  in-state gas development                                                               
team (JIGDT).  It would be  found in  the Office of  the Governor                                                               
and consist of  the chief executive officer (CEO) of  the AHFC as                                                               
chair,  the  CEO   of  Alaska  Railroad  or   his  designee,  the                                                               
commissioner  of  the  Department of  Transportation  and  Public                                                               
Facilities (DOTPF)  or his  designee, the CEO  of the  ANGDA, and                                                               
the in-state gas line coordinator or project manager.                                                                           
5:03:31 PM                                                                                                                    
The  bill  also describes  the  duties  of the  in-state  gasline                                                               
coordinator in statute  and sets the deadline of July  1, 2011 to                                                               
assure that a project plan  is presented back to the legislature.                                                               
The  project plan  would  specify  how an  in-state  line can  be                                                               
designed and built  made operational by December  31, 2015. These                                                               
are  aggressive dates,  but they  won't  get to  completion of  a                                                               
project without  a timeline. The  project plan must  also include                                                               
specific  plans to  coordinate and  facilitate the  construction,                                                               
ownership, operation and  management of a gasline.  They tried to                                                               
leave these  as loose as  they could,  because he has  found that                                                               
when the  politicians get  involved in  projects like  this, they                                                               
tend to be the problem.                                                                                                         
He  said the  development team  is to  prepare plans  and designs                                                               
necessary  for  construction,  to coordinate  with  the  entities                                                               
qualified to  build, own  or operate a  pipeline, and  select the                                                               
route; the  route is to  be the  most economical, provide  gas to                                                               
residents  at a  reasonable  cost,  and to  use  state lands  and                                                               
rights-of-way   to  the   maximum   extent   possible.  It   also                                                               
establishes  an  expedited  process for  information  access  and                                                               
cooperation among the  state entities. It outlines  the duties of                                                               
the  development  team,  but  gives   them  some  flexibility  to                                                               
determine  what actions  are necessary  to  complete the  project                                                               
without politicians being involved.                                                                                             
5:05:51 PM                                                                                                                    
REPRESENTATIVE CHENAULT  said he  feels the  need to  combine the                                                               
efforts to  move an in-state  gas line  forward not only  for the                                                               
funding purposes  but to  gather information  and studies  and to                                                               
share them in order to turn dirt.                                                                                               
REPRESENTATIVE CHENAULT said the  in-state gas line would provide                                                               
economic opportunity for Alaska and  will supply the energy needs                                                               
for Alaskans for many years.                                                                                                    
5:06:54 PM                                                                                                                    
CO-CHAIR  MCGUIRE said  they are  trying to  figure out  how many                                                               
captains and who is going where  with what intent, and she looked                                                               
forward to his input.                                                                                                           
5:07:55 PM                                                                                                                    
REPRESENTATIVE CHENAULT  agreed that one  of the big  problems is                                                               
too  many chiefs  and not  enough Indians.  This project  needs a                                                               
strong leader who  can make those determinations. It  has to have                                                               
a  supportive administration  and the  legislature behind  it. He                                                               
thought  it imperative  that  they consider  that  the state  has                                                               
tried for  over 30 years to  try to secure Alaska's  energy needs                                                               
and it no longer  has the luxury of discussing it.  It is time to                                                               
turn it over to experts.                                                                                                        
5:09:51 PM                                                                                                                    
SENATOR HUGGINS agreed with Speaker  Chenault's opinion that they                                                               
need to get a strong leader and let him do the job.                                                                             
5:10:42 PM                                                                                                                    
REPRESENTATIVE CHENAULT  said we have  some of the best  minds in                                                               
the state; there is no reason a project can't be brought back.                                                                  
CO-CHAIR MCGUIRE  agreed and said  she looked forward  to working                                                               
with him. She conceded that  the timelines are aggressive but she                                                               
believed Alaskans want something to move forward now.                                                                           
5:11:48 PM                                                                                                                    
SENATOR  WIELECHOWSKI referred  to Mr.  Heinze presentation  that                                                               
estimated the tariff  at 250 mmcf/d would be  $9.24 plus $1.50-$2                                                               
for the  gas treatment plant.  Bumping it  up to 500  mmcf/d, you                                                               
still have a $6 tariff plus the  cost of the gas. He asked how HB
369 deals with  a possible $10 tariff a couple  of years down the                                                               
5:12:44 PM                                                                                                                    
REPRESENTATIVE  CHENAULT said  he didn't  have a  good answer  to                                                               
that.  The  question  can  be  asked  what  do  they  tell  their                                                               
constituents in 2018  when they have no gas. He  had no reason to                                                               
doubt  Mr.  Heinze's numbers,  but  he  wanted  to see  what  the                                                               
project   looks  like.   As  the   numbers  change   so  do   the                                                               
opportunities.  He would  like  to  build a  bigger  line but  he                                                               
thought that should be left to the experts.                                                                                     
5:14:43 PM                                                                                                                    
SENATOR FRENCH  said they will have  the estimates by July  1 and                                                               
asked why  the current  structure is not  sufficient to  get this                                                               
REPRESENTATIVE  CHENAULT  answered that  they  have  heard for  a                                                               
number of  years through different  agencies; ANGDA  for instance                                                               
was ready  to go forward  but then  the legislature chose  not to                                                               
fund him on  certain issues. They didn't think  they were getting                                                               
anywhere and that is how they  came up with the in-state pipeline                                                               
coordinator, and that  agency has been in turmoil  even though he                                                               
respects  Mr. Noah.  The legislature  needs to  continue to  keep                                                               
"our thumb on" the task that  not only the administration but the                                                               
departments are  tasked with, then what  they get in July  may be                                                               
the answers  they are looking for,  but maybe not. The  2011 date                                                               
could get  pushed out  further. He  wasn't interested  in hurting                                                               
the AGIA  project's chances to go  through, and he didn't  see it                                                               
being derailed by an in-state gas project such as this.                                                                         
5:18:12 PM                                                                                                                    
SENATOR   HUGGINS  agreed   with  Representative   Chenault.  Who                                                               
deserves the gas  first? Alaskans! Spending the money  on AGIA is                                                               
fine, but he was  willing to spend the same amount  to get gas to                                                               
CO-CHAIR  MCGUIRE said  she thought  the speaker  was right;  the                                                               
legislature needed  to set  milestones in order  to keep  this on                                                               
track. They both put July 1, 2011  in the bill out of respect for                                                               
the  governor but  she  wanted  to have  further  talks with  the                                                               
engineers because  they are  saying more field  work needs  to be                                                               
done in the summer.                                                                                                             
REPRESENTATIVE CHENAULT  agreed, but  said that  if they  leave a                                                               
project totally up  to the engineers nothing will  ever get done.                                                               
Engineers look for perfection and,  while he respects that, there                                                               
was not  going to be perfection.  He thought that others  need to                                                               
be working with them to make the decisions.                                                                                     
CO-CHAIR MCGUIRE  agreed that  a team is  needed. With  that, she                                                               
set HB 369 aside and said they would hear from Larry Persily.                                                                   
 ^Presentation by Larry Persily, Federal Coordinator for Alaska                                                             
              Natural Gas Transportation Projects                                                                           
5:22:57 PM                                                                                                                    
LARRY  PERSILY,  Federal  Coordinator,   Office  of  the  Federal                                                               
Coordinator for Alaska Natural  Gas Transportation Projects, said                                                               
he had  two presentations,  one about the  rules dealing  with an                                                               
export license that  you have to get from  the federal government                                                               
if you're going to send natural  gas overseas, and the other that                                                               
talks about is going on in the world LNG markets.                                                                               
MR. PERSILY  stated that  since 1938  exporting natural  gas from                                                               
the  United State  required an  export license  issued by  the US                                                               
Department of  Energy (DOE). It  must show that sending  your gas                                                               
overseas  is consistent  with the  public interest.  You have  to                                                               
show basically that there is a  surplus, that it is available and                                                               
not needed domestically. The DOE  license for export at the Kenai                                                               
plant was  last issued  in 2009  with a  two-year renewal  and is                                                               
valid until  March 31,  2011. It  took almost  1.5 years  to get.                                                               
Initially in  1996 when the plant  owners filed for a  renewal it                                                               
took 2.5 years.                                                                                                                 
He said the state originally  opposed the last renewal (2007) and                                                               
later dropped  its protest. Chugach Electric  opposed the renewal                                                               
as  did   others.  The  state  initially   asked  for  trial-type                                                               
procedures  with discovery  -  as did  Tesoro  which also  wanted                                                               
evidentiary  trial-type  proceedings.  Chugach  Electric  was  in                                                               
negotiation with the producers at  that time for supply contracts                                                               
and wanted  the state to  continue opposing the export  permit so                                                               
as to  strengthen their hand  as they negotiate  supply contracts                                                               
with  Marathon  and ConocoPhillips.  All  that  is to  say  that,                                                               
without protests you can get an  export license a lot sooner than                                                               
1.5 years.                                                                                                                      
MR. PERSILY  explained that it  is an administrative  action, not                                                               
congressional. It  is the  second export  license that  exists in                                                               
Alaska. Twenty-one  years ago the  DOE approved an  export permit                                                               
for Yukon Pacific  which at that time envisioned  an LNG project.                                                               
That export  permit specified  the gas could  go to  Japan, South                                                               
Korea or  Taiwan. (Export licenses  granted by the  Department of                                                               
Energy actually specify which countries  it can be sent to.) That                                                               
license  in  1989  was  for a  specific  project,  with  specific                                                               
owners, at a specific time. A  change in ownership of the license                                                               
would require  Department of Energy  approval - his  opinion, not                                                               
the Office of  Federal Coordinator - but  considering the changes                                                               
in  market conditions,  supplies, economics  and such  in the  21                                                               
years, it's  doubtful the DOE  would simply okay the  transfer of                                                               
that license  to a new  owner who would  have to go  back through                                                               
the process.                                                                                                                    
SENATOR FRENCH asked the volume allowed under that permit.                                                                      
MR. PERSILY said he didn't  remember. Even though export licenses                                                               
for natural gas  are administrative, politics do  come into play.                                                               
He remembered when the TAPS  legislation went through Congress it                                                               
banned the export of Alaska oil  for more than 20 years. And when                                                               
a  Chinese oil  company  tried to  buy Unocal  a  few years  ago,                                                               
nation-wide political pressure killed the deal.                                                                                 
5:26:29 PM                                                                                                                    
MR.  PERSILY  continued  that  back in  his  office,  the  Alaska                                                               
Natural Gas Pipeline  Act of 2004 includes a  "sense of Congress"                                                               
language that  says the Lower 48  states will need Alaska  gas in                                                               
the  coming decades.  He  commented that  it  would certainly  be                                                               
ironic  and  somewhat  politically  problematic if  just  as  the                                                               
president is elevating the Alaska  gasline to a national interest                                                               
project  and  just as  the  state's  congressional delegation  is                                                               
trying  to win  approval to  increase the  loan guarantee  to $30                                                               
billion, if  at that same time  they change direction and  try to                                                               
send the  gas overseas. He  said the federal loan  guarantee, the                                                               
accelerated  depreciation  on  the   pipeline,  the  federal  tax                                                               
credits for  the North Slope  gas treatment plant, even  the very                                                               
assistance of the  Office of Federal Coordinator  and Federal Job                                                               
Training Funds - none of that  is available under current law for                                                               
an export project.                                                                                                              
The  2004  Act  defines  the Alaska  natural  gas  transportation                                                               
project  as a  pipeline system  that  carries gas  to the  border                                                               
between Alaska and Canada, and then eventually heads south.                                                                     
5:27:44 PM                                                                                                                    
MR. PERSILY  said in  terms of  what is going  on in  LNG market,                                                               
there is  a lot  of competition  in the  Asian market.  China and                                                               
India have  local gas; China and  the US are working  together to                                                               
develop shale  gas. China  and India, in  addition to  some local                                                               
gas,  also  have   the  option  of  pipeline   gas  from  Russia,                                                               
In terms of  existing LNG producers or countries  with LNG plants                                                               
being  built, you  have Australia,  Papua  New Guinea,  Sakhalin,                                                               
Indonesia,  Malaysia, Brunei,  Qatar,  the Middle  East (a  swing                                                               
supplier that  can go to the  Atlantic Basin or to  the Pacific).                                                               
In fact, Japan  most recently was getting 10 percent  of its spot                                                               
sales from the Atlantic based  suppliers rather than just Pacific                                                               
Rim. Currently there is an oversupply of gas in the world.                                                                      
He said Shell is also looking  at floating LNG production and has                                                               
contracted with Samsung  to build essentially a  huge ship bigger                                                               
than an  aircraft carrier that  parks over an offshore  field; it                                                               
produces,  it liquefies,  and then  ships it  out. When  they are                                                               
done they move to a different spot.                                                                                             
MR. PERSILY said that people who  think of the export market look                                                               
at pricing,  because in the past  just about all gas  in Asia was                                                               
tied to oil  prices, when oil was $80-$100.  Those are attractive                                                               
gas  prices and  the  buyers  figured it  out.  Lately, about  20                                                               
percent of  Asian LNG trade  is going  to spot market.  The price                                                               
was tied to oil will still be in  the majority, but it is not the                                                               
vast majority as it used to be.                                                                                                 
Something else  to consider, he  said, is that 2007  numbers show                                                               
that 73 percent of the gas  consumed in world was consumed in the                                                               
country  where it  was  produced;  about 19  percent  of the  gas                                                               
consumed in the  world was delivered to the  consuming country by                                                               
pipeline; and  only 8 percent  of the  gas that was  consumed was                                                               
delivered by LNG tanker. It is  a small piece of the market, even                                                               
though it  is an  attractive market. To  keep it  in perspective,                                                               
Mr.  Persily said,  the North  American natural  gas market  on a                                                               
daily basis consumes  about three times the gas  of India, China,                                                               
Japan, Korea,  and Taiwan combined.  He summed up that  there are                                                               
opportunities  in the  LNG market,  but it  is very  competitive;                                                               
there  is a  lot of  gas in  the  Pacific Rim  and a  lot of  LNG                                                               
projects. It is a much smaller market than North America.                                                                       
5:31:12 PM                                                                                                                    
CO-CHAIR  MCGUIRE asked  if he  had  seen Representative  Young's                                                               
letter  to Secretary  Chiu  regarding the  extension  of the  LNG                                                               
export license.                                                                                                                 
MR. PERSILY replied yes; but he hadn't any feedback on it.                                                                      
5:31:45 PM                                                                                                                    
SENATOR WIELECHOWSKI asked if he  had any thoughts on whether the                                                               
DOE would extend the Nikiski plant license.                                                                                     
MR. PERSILY  answered if ConocoPhillips and  Marathon, owners and                                                               
operators of  the plant, determine  that they have enough  gas to                                                               
meet local needs  and that they have some surplus,  it would help                                                               
to have some place  to send the gas in the summer,  and if no one                                                               
protested it,  they would have a  pretty good shot at  getting an                                                               
SENATOR  WIELECHOWSKI  explained  that  he  asked  that  question                                                               
because one of his newsletters said there was zero chance.                                                                      
MR. PERSILY  clarified that was  for a  new export license  for a                                                               
project that was totally dedicated to something.                                                                                
5:33:14 PM                                                                                                                    
SENATOR WIELECHOWSKI  said they  keep hearing that  the President                                                               
is  interested  in  elevating  his position  and  making  this  a                                                               
project of national interest and he  asked what that means to the                                                               
project and  the likelihood of  it getting completed  through the                                                               
AGIA process.                                                                                                                   
MR. PERSILY  said he didn't know.  He had had one  meeting at the                                                               
White House and it was  discussed. They haven't quite figured out                                                               
what they  can contribute along  with the state and  the pipeline                                                               
developers and producers  to help, but the President  said he has                                                               
to think of something.                                                                                                          
He mentioned  that Tokyo  Gas Company, one  of the  Kenai plant's                                                               
customers  and is  the largest  gas supplier  in Japan,  recently                                                               
signed  a contract  with British  Gas (BG)  that is  developing a                                                               
project  in Australia;  they signed  a 20-year  deal starting  in                                                               
2015 and it would cover 11 percent of their needs for 20 years.                                                                 
5:35:29 PM                                                                                                                    
CO-CHAIR MCGUIRE apologized that she couldn't get to the other                                                                  
presenters and adjourned the meeting at 5:35 p.m.                                                                               

Document Name Date/Time Subjects
Potential Infrastructure for In-State Gas - Swenson - April 1, 2010.pdf SRES 4/1/2010 3:30:00 PM
ANGDA - Instate Pipeline Cost Comparison 4-01-10.pdf SRES 4/1/2010 3:30:00 PM