Legislature(2019 - 2020)BUTROVICH 205

03/22/2019 03:30 PM Senate RESOURCES

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03:30:14 PM Start
03:30:49 PM Presentation: Alaska Lng Project Update
04:44:10 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Alaska LNG Update by Joe Dubler, Interim
President, Alaska Gasline Development Association
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         March 22, 2019                                                                                         
                           3:30 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Chris Birch, Chair                                                                                                      
Senator John Coghill, Vice Chair                                                                                                
Senator Cathy Giessel                                                                                                           
Senator Scott Kawasaki                                                                                                          
Senator Jesse Kiehl                                                                                                             
MEMBERS ABSENT                                                                                                                
Senator Lora Reinbold                                                                                                           
Senator Click Bishop                                                                                                            
COMMITTEE CALENDAR                                                                                                            
PRESENTATION: ALASKA LNG PROJECT UPDATE                                                                                         
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
JOE DUBLER, Interim President                                                                                                   
Alaska Gasline Development Corporation                                                                                          
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Provided an overview of the Alaska LNG                                                                    
FRANK RICHARDS, Senior Vice President, Program Management                                                                       
Alaska Gasline Development Corporation                                                                                          
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Answered questions regarding the Alaska LNG                                                               
LIEZA WILCOX, Vice President, Commercial and Economics                                                                          
Alaska Gasline Development Association                                                                                          
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions regarding the  Alaska LNG                                                             
ACTION NARRATIVE                                                                                                              
3:30:14 PM                                                                                                                    
CHAIR CHRIS BIRCH called the  Senate Resources Standing Committee                                                             
meeting to order  at 3:30 p.m. Present at the  call to order were                                                               
Senators Coghill, Giessel, Kawasaki, Kiehl, and Chair Birch.                                                                    
^PRESENTATION: Alaska LNG Project Update                                                                                        
            PRESENTATION: Alaska LNG Project Update                                                                         
3:30:49 PM                                                                                                                    
CHAIR BIRCH announced  that the committee will hear  an update on                                                               
the  Alaska Liquefied  Natural Gas  (LNG) Project  by the  Alaska                                                               
Gasline  Development Corporation  (AGDC).  He  noted that  AGDC's                                                               
presentation is  the first time  the corporation has  come before                                                               
the  committee  since  a significant  change  in  leadership  and                                                               
direction occurred in  January 2019 when four of  the seven board                                                               
members were  replaced. He detailed  that Doug Smith  was elected                                                               
to serve  as AGDC's new board  chairman and Joe Dubler  was named                                                               
the new interim president of AGDC.                                                                                              
He noted  that prior to  being named AGDC's interim  president in                                                               
January 2019,  Mr. Dubler held  senior AGDC  leadership positions                                                               
between  2010-2016   including  serving  as  vice   president  of                                                               
commercial  operations and  chief financial  officer. Mr.  Dubler                                                               
returned to  AGDC after  serving as  executive vice  president of                                                               
finance and administration for Cook  Inlet Housing Authority. Mr.                                                               
Dubler  also  held  several positions  with  the  Alaska  Housing                                                               
Finance Corporation including serving  as chief financial officer                                                               
where he  managed the  corporation's $5  billion in  total assets                                                               
for  more  than a  decade.  A  certified public  accountant,  Mr.                                                               
Dubler earned  a Bachelor of  Science in  Business Administration                                                               
from San Francisco State University.                                                                                            
He explained  that today's  committee meeting  is the  first time                                                               
that  AGDC  has  had  a  chance  to  present  the  details  of  a                                                               
collaboration agreement  that they signed with  BP and ExxonMobil                                                               
to explore options  for advancing the Alaska  LNG Project through                                                               
Federal Energy Regulatory Commission (FERC) approval and beyond.                                                                
He  noted  that  in  attendance are  Damian  Bilbao,  Alaska  LNG                                                               
Business  Development  Manager  for   BP  Incorporated  and  Hans                                                               
Neidig, Public and Government  Affairs Manager, ExxonMobil. Also,                                                               
in attendance  are Commissioner Designee Bruce  Tangeman from the                                                               
Department of Revenue and Commissioner  Designee Corri Feige with                                                               
Department of Natural Resources.                                                                                                
3:32:34 PM                                                                                                                    
JOE  DUBLER,   Interim  President,  Alaska   Gasline  Development                                                               
Corporation  (AGDC),  Anchorage,   Alaska,  explained  that  AGDC                                                               
facilitates in the development of  the Alaska Standalone Pipeline                                                               
Project  (ASAP) and  the Alaska  LNG Project.  AGDC is  currently                                                               
pursing the  Alaska LNG Project  and detailed its status  via his                                                               
presentation with the following outline:                                                                                        
   • Alaska LNG Status:                                                                                                         
        o Project scope,                                                                                                        
        o Budget,                                                                                                               
        o Path forward,                                                                                                         
        o Stage-gate process,                                                                                                   
        o Third-party engagement,                                                                                               
        o Challenges.                                                                                                           
He explained that  ASAP started in 2010 with House  Bill 369 that                                                               
directed the  creation of a study  to look at the  feasibility of                                                               
bringing gas from  the Alaska North Slope.  The project's impetus                                                               
was to study the projected shortfalls  of gas from the Cook Inlet                                                               
reservoirs  and  the perceived  inability  of  the reservoirs  to                                                               
provide  enough gas  for Southcentral  Alaska.  In addition,  the                                                               
Fairbanks area  was experiencing very  high cost of fuel  and air                                                               
quality issues  with the EPA due  to burning coal and  wood. ASAP                                                               
was  designed to  bring low  cost  natural gas  to Fairbanks  and                                                               
Southcentral Alaska.                                                                                                            
He explained  that AGDC began working  on ASAP with House  Bill 4                                                               
in 2012. AGDC  has progressed the project and  provided an update                                                               
as follows:                                                                                                                     
   • Joint Record of Decision issued by U.S. Army Corps of                                                                      
    Engineers and Bureau of Land Management (March 4, 2019):                                                                    
        o Project as permitted will require a permanent subsidy                                                                 
          to deliver utility grade gas.                                                                                         
        o No export component, changing will require a restart                                                                  
          to the permitting process.                                                                                            
        o Right-of-way for ASAP project on 299 miles of federal                                                                 
        o ASAP and Alaska LNG share a common path for 80 percent                                                                
          of the Alaska LNG pipeline route.                                                                                     
        o Key decisions from ASAP benefit the Alaska LNG Project                                                                
          that is under review by the Federal Energy Regulatory                                                                 
          Commission (FERC).                                                                                                    
        o Allowing for the use of gravel for the project's "work                                                                
          pads" is a big cost savings.                                                                                          
        o "404 Permit" and compensatory mitigation plan.                                                                        
   • No additional ASAP work is anticipated unless there are gas                                                                
     supply issues in Southcentral Alaska and the cost of                                                                       
     importing LNG is prohibitive.                                                                                              
3:36:05 PM                                                                                                                    
CHAIR BIRCH  asked him to  address ASAP's 299 miles  of right-of-                                                               
way on federal lands and  inquired how the right-of-way works. He                                                               
asked Mr.  Dubler if  the current oil  pipeline and  the proposed                                                               
gas pipelines will overlap.                                                                                                     
MR. DUBLER  answered that the  pipelines will roughly  follow the                                                               
same route,  but the  right-of-way will  not be  the same  as the                                                               
Trans Alaska Pipeline System (TAPS).                                                                                            
SENATOR  GIESSEL asked  him to  explain the  federal right-of-way                                                               
through Denali National Park and Preserve.                                                                                      
MR.  DUBLER explained  that  U.S. Senator  Murkowski  got a  bill                                                               
through  that will  allow  a pipeline  through  the park  without                                                               
being subject to the Alaska  National Interest Lands Conservation                                                               
Act  (ANILCA). The  legislation  will allow  for  the project  to                                                               
apply for  federal permits progressively  rather than all  at one                                                               
SENATOR GIESSEL pointed  out that FERC has  stringent rules about                                                               
wetlands disturbance  and enquired  if FERC is  going to  be okay                                                               
with the project's wetlands disturbance.                                                                                        
3:40:43 PM                                                                                                                    
FRANK  RICHARDS,  Senior   Vice  President,  Program  Management,                                                               
Alaska  Gasline   Development  Corporation,   Anchorage,  Alaska,                                                               
replied  that  FERC  does  have a  concern  about  the  project's                                                               
placement of gravel fill in the  wetlands, an issue that is based                                                               
on FERC's  national policy to prevent  wetlands degradation. AGDC                                                               
is  educating FERC  on the  necessary use  of gravel  in wetlands                                                               
across the  North Slope for  oil and gas development,  roads, and                                                               
He  noted that  AGDC  has gone  through the  U.S.  Army Corps  of                                                               
Engineers' "404 permit" process  regarding placing fill. The U.S.                                                               
Army Corps  of Engineers has determined  what are "jurisdictional                                                               
wetlands" that  allows the project's  design efforts to  place an                                                               
impact of  approximately 9,000 acres  of wetlands. The  U.S. Army                                                               
Corps of  Engineers will  ultimately come  out with  a mitigation                                                               
requirement of only 300 acres, a  very good standard that AGDC is                                                               
trying  to educate  FERC on  as well  because ASAP  has the  same                                                               
right-of-way for 80 percent of the Alaska LNG's pipeline.                                                                       
MR. RICHARDS  summarized that AGDC  will see what FERC  comes out                                                               
with  in  their  draft   Environmental  Impact  Statement  (EIS),                                                               
scheduled  to be  published by  June 2019.  AGDC hopes  that FERC                                                               
will have  taken into  consideration and used  the work  that the                                                               
Army Corps of Engineers has permitted.                                                                                          
MR. DUBLER  said ASAP will  be set aside  for now. AGDC  does not                                                               
anticipate ASAP ever  being developed unless there  is a shortage                                                               
of gas in Southcentral Alaska  and either the larger project does                                                               
not   get  constructed   or  the   cost  of   importing  LNG   is                                                               
prohibitively high. He opined that  if it's cheaper to import LNG                                                               
than it  is to  build a  pipeline, the  state will  likely import                                                               
SENATOR GIESSEL asked if all of ASAP's permits are in hand.                                                                     
MR.  DUBLER answered  no. He  explained that  approximately 2,000                                                               
permits are needed, but the project's right-of-way was attained.                                                                
3:43:25 PM                                                                                                                    
MR.  DUBLER said  the second  project that  AGDC has  been tasked                                                               
with pursuing  is the Alaska  LNG Project that was  enacted under                                                               
SB 138. The  intent of the Alaska LNG Project  is also to deliver                                                               
gas to  Fairbanks and Southcentral  Alaska, but the  project also                                                               
provides  gas  to an  LNG  plant  somewhere in  Southcentral  for                                                               
export  to  help  monetize  the   vast  gas  resources  that  are                                                               
available in Alaska's  North Slope. While ASAP  would have helped                                                               
Alaskans, the pipeline  would not have done much  for the state's                                                               
treasury and  it would not have  done much for the  North Slope's                                                               
100-plus  years of  available gas.  The Alaska  LNG Project  will                                                               
help monetize the  North Slope's resource for the  benefit of all                                                               
He provided the timeline for the Alaska LNG Project as follows:                                                                 
   • 2014: Project started with four partners: BP, Conoco,                                                                      
     ExxonMobil, and TransCanada.                                                                                               
        o TransCanada represented the state's interest in the                                                                   
          upstream (gas treatment plant on the North Slope and                                                                  
          the pipeline).                                                                                                        
        o AGDC represented the state's interest in the LNG plant                                                                
          at Nikiski.                                                                                                           
        o Other partners represented their respective companies                                                                 
          in the entire project.                                                                                                
   • 2015: State bought out TransCanada.                                                                                        
   • 2016: Alaska LNG Project Pre-Front-End Engineering and                                                                     
     Design (Pre-FEED) completed under the Joint Venture                                                                        
     Agreement (ExxonMobil, BP, ConocoPhillips, AGDC).                                                                          
       o Economics at the time precluded FEED initiation.                                                                       
   • 2016: Project leadership transitioned to AGDC.                                                                             
   • 2017: AGDC initiated FERC permitting process to cross                                                                      
     federal lands.                                                                                                             
   • 2017-18: Commercial potential defined through nonbinding                                                                   
        o 16 letters of interest from various agencies                                                                          
          throughout Asia for gas purchasers or investors.                                                                      
3:47:27 PM                                                                                                                    
CHAIR  BIRCH asked  if  the market  landscape  or economics  have                                                               
changed  since the  decision was  made  in 2016  to not  initiate                                                               
MR.  DUBLER  answered  that  the economic  changes  is  what  the                                                               
governor's 60-day  review period  has been talking  about. AGDC's                                                               
engineering group is  looking at coming up with a  better idea of                                                               
what  the project's  cost  will be.  AGDC's  commercial group  is                                                               
developing an  economic model  to analyze  the project's  cost of                                                               
service to show what has been happening between 2016-2019.                                                                      
SENATOR KAWASAKI asked  if the economics in  2016 precluded FEED,                                                               
why did AGDC  decided to move along with  permitting process, and                                                               
why did  the state decide to  de-risk the project if  the rest of                                                               
the economics decided that the project was not feasible.                                                                        
MR. DUBLER answered  that the project's "first  dollars" weigh on                                                               
the state  to "prime the  pump". The  first dollars in  a project                                                               
like a  gas pipeline de-risk the  regulatory component, something                                                               
that an investor  is not going to do. Once  the regulatory hurdle                                                               
is out of the way the state can  go to the market and find people                                                               
who will  notice that the state  has an EIS for  the entire route                                                               
and the project can move forward.                                                                                               
3:49:49 PM                                                                                                                    
SENATOR  GIESSEL addressed  the  Alaska LNG  timeline Mr.  Dubler                                                               
noted regarding,  "2014: Project started with  four partners: BP,                                                               
Conoco,  ExxonMobil,  and  TransCanada." She  recalled  that  the                                                               
companies purchased the  land for the LNG plant in  the Kenai and                                                               
they  retained  possession  of   the  land  during  the  multiple                                                               
transition periods the  project has gone through.  She asked what                                                               
the status is for the land.                                                                                                     
MR. DUBLER answered that the status  of the land has not changed.                                                               
He said  he believed that the  three partners still own  the land                                                               
in Kenai.  AGDC has continued  talking to the partners  about the                                                               
Kenai land  because the  land will be  critical for  the pipeline                                                               
SENATOR GIESSEL  recalled that ExxonMobil, BP,  and Conoco signed                                                               
gas  supply precedent  agreements  as well.  She  asked what  the                                                               
status is of the agreements.                                                                                                    
MR. DUBLER replied  that the agreements were  non-binding and are                                                               
still  in existence.  He specified  that two  parties signed  the                                                               
agreements, not  three. He opined  that to pursue  the agreements                                                               
based on  the project's current  status is not a  good investment                                                               
until the project has more maturity.                                                                                            
3:51:44 PM                                                                                                                    
SENATOR KAWASAKI  mentioned de-risking  and asked what  point the                                                               
project  needs  to  get  to  for the  producers  to  become  more                                                               
MR. DUBLER  replied the producers  have to answer  that question.                                                               
He  said AGDC  will  put in  another stage  gate  after the  FERC                                                               
process in  June 2020 to stop,  look at the project,  and see who                                                               
is interested.  He emphasized  that whether  partners come  in or                                                               
not is  a decision each  company must  make on its  own including                                                               
the State of Alaska.                                                                                                            
SENATOR KAWASAKI  asked if AGDC  has enough  money to get  to the                                                               
June 2020 deadline.  He also asked Mr. Dubler if  he believes the                                                               
pipeline project is good enough to sell.                                                                                        
MR.  DUBLER answered  that whether  ADGC will  have enough  money                                                               
until the FERC  deadline in June 2020 will be  addressed later in                                                               
the overview. He  opined that if there is enough  of an incentive                                                               
for other  entities to invest in  the project will depend  on the                                                               
economics at that time.                                                                                                         
3:54:55 PM                                                                                                                    
MR. DUBLER emphasized  that AGDC has recommitted  to the original                                                               
Alaska  LNG design.  He noted  that  AGDC has  looked at  various                                                               
options  including a  36-inch diameter  pipeline, using  existing                                                               
facilities in Nikiski, and adding a one-train LNG facility.                                                                     
He addressed "Alaska LNG Project Scope" as follows:                                                                             
   • Recommit to original Alaska LNG design:                                                                                    
        o Transmission lines from Prudhoe Bay and Point Thomson.                                                                
        o North Slope Gas Treatment Plant:                                                                                      
             square4 Designed to deliver 3.4 billion cubic feet of gas                                                          
               a day into the pipeline.                                                                                         
        o 807-mile, 42-inch diameter steel pipeline with                                                                        
          multiple in-state offtakes:                                                                                           
             square4 Spur line, not part of the project, will be                                                                
               coming off for the Fairbanks area.                                                                               
        o Three-train LNG facility at Nikiski to produce 20.1                                                                   
          Million Tonnes Per Annum (MTPA) of LNG, likely to                                                                     
          customers in Asia.                                                                                                    
SENATOR KIEHL  asked what the  plan is for the  project's natural                                                               
gas liquids.                                                                                                                    
MR.  DUBLER replied  that the  decision for  natural gas  liquids                                                               
will  be  a decision  for  the  producers.  He assumed  that  the                                                               
liquids will  be like what  the producers are pulling  from Point                                                               
Thomson and going into the line.                                                                                                
SENATOR KIEHL  asked if the liquids  need to be addressed  in the                                                               
FERC process.                                                                                                                   
MR. DUBLER answered that he did not believe so.                                                                                 
3:57:28 PM                                                                                                                    
SENATOR GIESSEL  asked what  AGDC has  considered if  the current                                                               
project  is   not  economic   and  has   AGDC  looked   at  other                                                               
permutations  like  generating  and transmitting  electricity  or                                                               
exporting LNG directly from the North Slope.                                                                                    
MR.   DUBLER  answered   that  AGDC   has  looked   at  different                                                               
permutations  like gas-to-liquids  (GTL) that  converts gas  into                                                               
fuel  as well  as  compressed  natural gas  (CNG).  AGDC has  not                                                               
looked  at  a  North  Slope facility  due  to  possible  wildlife                                                               
disruption  and  ice  pack  thickness that  will  not  allow  for                                                               
consistent LNG delivery.                                                                                                        
MR. DUBLER  addressed "Alaska LNG Investment"  and explained that                                                               
funds were established when the  legislature set the two pipeline                                                               
projects  in   motion.  The   projects'  capital   portions  were                                                               
prefunded for AGDC to annually draw  down the capital. At the end                                                               
of 2018, the Alaska LNG  Project's capital fund had $54.3 million                                                               
remaining. For  2019, AGDC  is projecting  a "$33  million spend"                                                               
along with a  $5 million re-appropriation to the  general fund by                                                               
the governor, leaving a fund balance of $15.3 million.                                                                          
4:02:21 PM                                                                                                                    
He  disclosed that  AGDC has  done some  "belt tightening"  since                                                               
January 2019  to save money  because ASAP  is no longer  a viable                                                               
project and the focus is now on the FERC effort.                                                                                
He addressed AGDC's "Budget Savings" as follows:                                                                                
   • Reduced 16 "fulltime equivalents" in contract labor for a                                                                  
     savings of $2.5 million.                                                                                                   
   • Closed leased office space in Houston:                                                                                     
        o Office focused on sales contracts.                                                                                    
        o The project has not progressed to a point where LNG                                                                   
          sales could be contracted for.                                                                                        
   • Reduced legal support and consultants to execute expensive                                                                 
     agreements for a savings of $5 million since January 2019.                                                                 
SENATOR  GIESSEL commented  that  closing the  Houston office  is                                                               
good news and asked if the Japan office has been closed as well.                                                                
MR. DUBLER  answered that he  intended to close the  Tokyo office                                                               
but changed his mind when he  learned that the office has done an                                                               
excellent job of building  relationships, relationships that have                                                               
taken years  to build  and foster.  The amount  of time  that the                                                               
gentleman  is  spending in  Tokyo  will  be scaled  back.  Having                                                               
someone on the ground in Tokyo is more cost effective.                                                                          
4:05:51 PM                                                                                                                    
SENATOR KAWASAKI mentioned an  earlier point regarding "Corporate                                                               
structure and decisions focused on  Alaska LNG." He recalled that                                                               
an AGDC overview  last year said lowering the cost  of energy for                                                               
Alaskans  was a  top priority.  He asked  if the  AGDC board  had                                                               
discussed  changing the  focus on  LNG rather  than lowering  gas                                                               
costs for Alaskans.                                                                                                             
MR.  DUBLER emphasized  that their  focus is  on Alaska  LNG, not                                                               
necessarily on exporting LNG. The  key to getting gas supply cost                                                               
for Alaskans as low as possible  is with the Alaska LNG Project's                                                               
economies  of scale  using a  larger diameter  pipeline for  both                                                               
export and in-state use.                                                                                                        
SENATOR KAWASAKI  asked if  AGDC is  no longer  pursuing permits,                                                               
right-of-way, and engineering on the  in-state portion of the gas                                                               
MR.  DUBLER answered  that the  Alaska LNG  Project is  not doing                                                               
what  Senator Kawasaki  described. The  project's in-state  usage                                                               
for Fairbanks and whoever else wants  gas will be "one offs" that                                                               
will be done when appropriate.                                                                                                  
4:08:24 PM                                                                                                                    
He addressed "Alaska LNG Path Forward" as follows:                                                                              
   • Return to stage-gate process:                                                                                              
        o Measured approach to a project.                                                                                       
        o Stop at regular intervals to provide another analysis                                                                 
          to make sure the project still makes sense.                                                                           
        o Project currently at Pre-FEED:                                                                                        
             square4 15 percent of the project has been designed.                                                               
             square4 Next step will be between 40 and 50 percent                                                                
               design completion.                                                                                               
        o Small steps are taken in the stage-gate process until                                                                 
          a final investment decision is made when the "real                                                                    
          money" starts coming in after a project has been                                                                      
          determined to be economic.                                                                                            
   • Re-engage Alaska Legislature: House and Senate AGDC board                                                                  
        o AGDC has asked that a member from the House and Senate                                                                
          participate in board meetings except for executive                                                                    
        o Senator Giessel and Representative Knopp have been                                                                    
          selected to attend AGDC board meetings.                                                                               
   • Ascertain economic viability and competitiveness through a                                                                 
     commercial review within 45 days, completion by April 2019.                                                                
   • Pursue qualified third-party expertise for an integrated                                                                   
     Alaska LNG Project.                                                                                                        
   • Re-evaluate schedules for FEED, Final Investment Decision                                                                  
     (FID), and construction:                                                                                                   
        o AGDC will take another look at schedules after the                                                                    
          FERC effort in June 2020.                                                                                             
   • Complete FERC process with third-party participation.                                                                      
4:13:12 PM                                                                                                                    
CHAIR BIRCH  asked him  to explain  the importance  of completing                                                               
the FERC process.                                                                                                               
MR. DUBLER  explained that the  EIS has a  shelf life of  five to                                                               
seven years.  All the engineering  and data is available  for the                                                               
next party that comes along to start back at day one.                                                                           
SENATOR GIESSEL noted  that the third bullet  in the presentation                                                               
talks  about a  thorough commercial  review and  qualified third-                                                               
party  expertise.  She  recalled  that Black  &  Veatch  did  the                                                               
earlier  analysis for  AGDC and  asked if  AGDC will  employ that                                                               
firm again.                                                                                                                     
MR. DUBLER answered no. He explained  that AGDC might use Black &                                                               
Veatch  or a  similar third  party to  provide LNG  pricing views                                                               
because antitrust issues prohibit the  state as a potential owner                                                               
to discuss pricing with the two  producers. He said the intent is                                                               
to   plug  the   engineers'   installed  cost   numbers  into   a                                                               
modification  of   the  Department  of  Revenue   model  for  the                                                               
midstream part  that applies to  the pipe and project.  That will                                                               
be utilized as a shared model for the three parties.                                                                            
SENATOR GIESSEL  mentioned completing the FERC  process and asked                                                               
if the federal agency is having  any discomfort with what AGDC is                                                               
MR.  DUBLER replied  no.  He  said AGDC  has  not really  changed                                                               
anything  as far  as FERC  goes. FERC  is looking  at the  actual                                                               
project and not how AGDC progresses the project.                                                                                
SENATOR  GIESSEL asked  how  much the  state  and producers  have                                                               
spent so far.                                                                                                                   
MR. DUBLER  answered that he  does not have the  information. The                                                               
pre-FEED effort of the Alaska  LNG Project was approximately $500                                                               
4:17:57 PM                                                                                                                    
CHAIR BIRCH  asked how  AGDC will engage  with the  Department of                                                               
Natural  Resources  (DNR) and  the  Department  of Revenue  (DOR)                                                               
moving forward with the project.                                                                                                
MR. DUBLER  replied that AGDC  has a very good  relationship with                                                               
both DNR and  DOR. DNR makes the decision on  whether to take the                                                               
royalty  on the  project's  gas as  gas-in-kind or  gas-in-value.                                                               
Gas-in-kind means getting  physical delivery in lieu  of taking a                                                               
royalty  for the  value  of the  gas. DOR  aids  when a  producer                                                               
decides to pay their taxes with gas rather than dollars.                                                                        
4:19:56 PM                                                                                                                    
SENATOR GIESSEL noted that Mr. Dubler  had said the EIS from FERC                                                               
has a seven-year  shelf life. She asked Mr. Richards  if there is                                                               
a  time frame  where the  project  must start  or be  operational                                                               
under the FERC permit.                                                                                                          
MR.   RICHARDS   answered   that   when   FERC   provides   their                                                               
authorization,  their   authorization  is  for  the   ability  to                                                               
construct an integrated LNG facility. He  said he is not aware of                                                               
any  specific timeline  that FERC  would say  a final  investment                                                               
decision must be completed for a viable authorization.                                                                          
SENATOR  GIESSEL   asked  him  to   confirm  that  there   is  no                                                               
requirement to  begin construction  under the  FERC authorization                                                               
other  than the  permit  is good  for five  to  seven years.  She                                                               
inquired if the permit can be renewed.                                                                                          
MR. RICHARDS replied  that if time progresses and  the project is                                                               
not advancing,  the regulatory agencies could  ask for additional                                                               
information  to  supplement  their information  that  potentially                                                               
could  provide a  longer authorization  period. He  said he  will                                                               
find out if the timeline requires advancement.                                                                                  
4:22:29 PM                                                                                                                    
MR.  DUBLER addressed  "Defined  State-Gate  Process Success"  as                                                               
   • In order to continue to a FEED decision, AGDC must:                                                                        
        o Demonstrate a path that delivers sufficient returns to                                                                
          attract private equity investment and debt financing:                                                                 
             square4 Attainable North Slope gas purchases and LNG                                                               
        o Engage qualified project participants with world-class                                                                
          LNG Project experience to minimize construction,                                                                      
          execution, and operation risks:                                                                                       
             square4 AGDC does not have the infrastructure to run an                                                            
               LNG project.                                                                                                     
        o Ensure that AGDC's statutory objectives are met which                                                                 
             square4 Deliver of gas to Alaskans.                                                                                
             square4 Help the state monetize its North Slope                                                                    
SENATOR GIESSEL  asked him to address  private equity investment,                                                               
noting that  at AGDC's  last board  meeting Mr.  Dubler commented                                                               
that China's 75-percent ownership proposition was excessive.                                                                    
MR. DUBLER  answered that  the issue  is a  diversification issue                                                               
that depends on  a lot of factors. He said  he is not comfortable                                                               
with  anybody  owning  more  than  40  percent  of  the  project,                                                               
including the State of Alaska.                                                                                                  
4:25:02 PM                                                                                                                    
He explained  that one of his  charges when he came  back to AGDC                                                               
is to engage  the producers, something that is  very important to                                                               
the success of the Alaska  LNG Project. He addressed "Third-Party                                                               
Engagement" as follows:                                                                                                         
   • Enlist third-party support to fund, build, and operate                                                                     
     Alaska LNG.                                                                                                                
   • AGDC, BP, and ExxonMobil entered a non-binding memorandum                                                                  
     of understanding (MOU) in March 2019 to review:                                                                            
        o Commercial:                                                                                                           
             square4 Economic model and project competitiveness.                                                                
             square4 Financing options and strategies.                                                                          
             square4 Equity and debt capital costs, Internal Rate of                                                            
               Return (IRR), and tax structure:                                                                                 
                  • Important to have an exemption from federal                                                                 
                    income tax.                                                                                                 
        o Technical:                                                                                                            
             square4 Cost estimates and assisting with the FERC                                                                 
                  • Identify opportunities for value engineering                                                                
                    to lower Total Installed Cost (TIC).                                                                        
                  • Update schedule to incorporate current                                                                      
                  • Assist with timely and technically advanced                                                                 
                    responses to obtain permits as rapidly and                                                                  
                    cost-effectively as possible.                                                                               
        o Identify and incorporate additional parties to                                                                        
          complete Alaska LNG:                                                                                                  
             square4 AGDC is not limiting the group to the people that                                                          
               own gas on the North Slope.                                                                                      
SENATOR GIESSEL noted that the  Goldman Sachs Group is contracted                                                               
by AGDC  for finding equity  investors. She asked AGDC  to review                                                               
its engagement with the Goldman Sachs Group.                                                                                    
4:28:51 PM                                                                                                                    
LIEZA WILCOX,  Vice President,  Commercial and  Economics, Alaska                                                               
Gasline  Development  Association,  Anchorage,  Alaska,  answered                                                               
that AGDC does  have a contract with the Goldman  Sachs Group and                                                               
they have been providing assumptions  for the project's economics                                                               
and financing.  Information from the  Goldman Sachs Group  can be                                                               
used internally  by AGDC and  the board  as part of  the internal                                                               
economics analysis.                                                                                                             
SENATOR  GIESSEL  asked  Mr.  Dubler  to  address  the  project's                                                               
nonbinding MOUs and their confidentiality factors.                                                                              
MR. DUBLER answered that a  decision was made between the parties                                                               
that the "spirit of the agreement"  will be discussed and not the                                                               
content.  The MOUs  do not  contain cost  of supply  or numerical                                                               
things that the producers did not want to share.                                                                                
He addressed "Challenges" in his overview as follows:                                                                           
   • Many projects worldwide have been built at tidewater;                                                                      
     Alaska LNG's 807-mile pipeline is a cost they do not have                                                                  
     to cover.                                                                                                                  
   • Competition from projects relying on plentiful Henry Hub-                                                                  
     priced gas, current suppliers pursuing contract renewals,                                                                  
     and ambitious developments in new basins:                                                                                  
        o Alaska LNG Project has an advantage of being closer to                                                                
          the Asia market.                                                                                                      
        o Competition must go through the Panama Canal.                                                                         
   • Increased competition and Henry Hub pricing driving long-                                                                  
     term price projections to around $8.00/MMBtu in Asia, a                                                                    
     challenging threshold for Alaska LNG.                                                                                      
4:33:53 PM                                                                                                                    
SENATOR KIEHL  asked him  to address  AGDC's financial  burn rate                                                               
from  their drawdown  to pay  for upcoming  costs, salaries,  and                                                               
rent. He inquired if AGDC's plan  is to possibly keep their doors                                                               
open through April 2021.                                                                                                        
MR. DUBLER  answered that the  short-term plan is to  get through                                                               
the 60 days.  If analysis shows promise, AGDC  will start looking                                                               
for third  parties to  invest in  the Alaska  LNG Project  and to                                                               
fund  at least  part of  the effort  going forward  in 2020.  The                                                               
legislature and  the administration  will have  to decide  if the                                                               
state will  invest in the  project. If  the state decides  not to                                                               
invest and  just sell the  gas, the  state will make  some money,                                                               
"but gas  is not oil". The  state will never beat  TAPS. The real                                                               
money  in  the project  is  in  the  investing part  and  putting                                                               
dollars at risk.  He conceded that he does not  know if the state                                                               
has the dollars to risk.                                                                                                        
4:36:09 PM                                                                                                                    
SENATOR KIEHL  asked what the  state's stage gates are  and their                                                               
potential price tags.                                                                                                           
MR. DUBLER answered that the state's  stage gates are the same as                                                               
the project's stage  gates because the project's  stage gates are                                                               
for the owners  and the investors in the project  which the state                                                               
is the  only owner and  investor in  the project. The  stage gate                                                               
that AGDC's  board inserted in January  2019 was added to  see if                                                               
the project  has any  hope of being  competitive. The  next stage                                                               
gate will be after the FERC  process is complete where the EIS is                                                               
SENATOR KIEHL asked  what the timeline and costs will  be for the                                                               
stage gates that he previously described.                                                                                       
MR. DUBLER  answered that to  finish the  FEED effort will  be $1                                                               
billion and that is why partners are needed.                                                                                    
SENATOR GIESSEL  said she  appreciated Senator  Kiehl's questions                                                               
and  noted  that  the  legislature  wants  to  make  an  economic                                                               
decision, not  a political  decision on  the Alaska  LNG Project.                                                               
She  recalled that  a  legislative oil  and  gas consultant  once                                                               
said, "You can spend $65 billion  on a project if you are willing                                                               
to lose $65 billion on a project."                                                                                              
She  shared that  a recent  article published  by the  Center for                                                               
Strategic  and International  Studies  reported  that Russia  has                                                               
partnered with China and invested  $27 billion to construct Yamal                                                               
LNG  in the  Arctic  to export  gas. The  Yamal  project did  not                                                               
require  a pipeline  because the  Russian coastline  is different                                                               
for Alaska with a deeper offshore.                                                                                              
SENATOR GIESSEL said she appreciated  that Mr. Dubler pointed out                                                               
the project's challenges and the  fact that the state must decide                                                               
in 60 days that will be based on concrete numbers.                                                                              
4:39:53 PM                                                                                                                    
SENATOR  KAWASAKI  thanked  Mr. Dubler  for  reminding  committee                                                               
members  of the  project's huge  challenges. He  shared that  the                                                               
International  Monetary  Fund  and   the  World  Bank  forecasted                                                               
natural gas prices  per million British Thermal  Units (MMBtu) in                                                               
2030 to  be $4.00  in the  United States, $7.50   in  Europe, and                                                               
$10.00 in Japan. He said he did  not know how the Alaska LNG gets                                                               
there economically.                                                                                                             
He opined that  Japan, being one of Alaska's  primary natural gas                                                               
customers, also  gets LNG from Australia,  Russia, Indonesia, and                                                               
Malaysia.  He said  Alaska's partners  have considerable  capital                                                               
tied  up  throughout the  world  and  noted that  ExxonMobil  has                                                               
partnered  in Western  Australia's Gorgon  LNG project.  He asked                                                               
why a  company like ExxonMobil will  want to invest in  Alaska if                                                               
the state's customer  base is going to be same  as the Gorgon LNG                                                               
project.  He  inquired  if  AGDC is  reaching  outside  to  other                                                               
players.  He conceded  that the  potential partners  for the  LNG                                                               
project are the same partners for oil on the North Slope.                                                                       
MR.  DUBLER  reiterated that  AGDC  is  looking at  other  people                                                               
besides  the producers  on the  North Slope.  AGDC is  looking at                                                               
anybody who is  willing to invest in the Alaska  LNG Project. Oil                                                               
and gas companies  do have resources and  developments around the                                                               
world.  Investment  in the  Alaska  LNG  Project will  depend  on                                                               
getting the stranded gas to market at a price that makes money.                                                                 
CHAIR  BIRCH  thanked AGDC  for  the  update  on the  Alaska  LNG                                                               
4:44:10 PM                                                                                                                    
There being  no further  business to  come before  the committee,                                                               
Chair  Birch adjourned  the Senate  Resources Standing  Committee                                                               
meeting at 4:44 p.m.                                                                                                            

Document Name Date/Time Subjects
AGDC SRES Presentation 3.22.19.pdf SRES 3/22/2019 3:30:00 PM
AGDC Response to SRES 3.28.19.pdf SRES 3/22/2019 3:30:00 PM