Legislature(2007 - 2008)BUTROVICH 205
02/04/2008 03:30 PM Senate RESOURCES
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| Little Susitna Construction & Prime Subcontractor: Sinopec Dominic Lee, Tammie Smith, Wayne Lewis | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
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ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 4, 2008
3:39 p.m.
MEMBERS PRESENT
Senator Charlie Huggins, Chair
Senator Bert Stedman, Vice Chair
Senator Lyda Green
Senator Gary Stevens
Senator Bill Wielechowski
Senator Thomas Wagoner
MEMBERS ABSENT
Senator Lesil McGuire
OTHER LEGISLATORS PRESENT
Senator Joe Thomas
Representative Kurt Olson
Representative Jay Ramras
COMMITTEE CALENDAR
Presentation by Little Susitna Construction & Prime
Subcontractor: Sinopec - Dominic Lee, Tammie Smith, Wayne Lewis
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
DOMINIC S.F. LEE, P.E., President
Little Susitna Construction Company (LSCC)
Anchorage, AK
POSITION STATEMENT: Gave presentation on behalf of LSCC and
answered questions.
TAMMIE SMITH, General Manager
Little Susitna Construction Company
Anchorage, AK
POSITION STATEMENT: Gave overview of gas pipeline proposal with
subcontractor Sinopec ZPEB.
WAYNE LEWIS, Vice President
Yukon Pacific Corporation
POSITION STATEMENT: Commented on Sinopec gas pipeline proposal.
ACTION NARRATIVE
CHAIR CHARLIE HUGGINS called the Senate Resources Standing
Committee meeting to order at 3:39:22 PM. Present at the call
to order were Senators Green, Stevens, Stedman, Wielechowski,
Wagoner, and Chair Huggins. Senator McGuire was excused. Also
in attendance were Senator Joe Thomas and Representatives Kurt
Olson and Jay Ramras.
^Little Susitna Construction & Prime Subcontractor: Sinopec
Dominic Lee, Tammie Smith, Wayne Lewis
3:40:41 PM
CHAIR HUGGINS announced the presentation by Little Susitna
Construction Company (LSCC) and its prime subcontractor, Sinopec
ZPEB of China.
DOMINIC S.F. LEE, P.E., President, Little Susitna Construction
Company, introduced Tammie Smith of LSCC and Wayne Lewis, Vice
President, Yukon Pacific Corp., noting he'd only met Mr. Lewis a
month ago.
CHAIR HUGGINS drew attention to a completeness determination
dated January 4 from the governor to Mr. Lee with respect to
LSCC's application under the Alaska Gasline Inducement Act
(AGIA). He remarked on the apparent merit and quality of
preparation. He thanked LSCC for submitting an application.
3:42:26 PM
TAMMIE SMITH, General Manager, Little Susitna Construction
Company, began a slide overview of LSCC's "Alaskans First Gas
Pipeline" proposal submitted November 30 with subcontractor
Sinopec ZPEB; a hard copy was provided. She told members the
proposal was for an 800-mile, 48-inch gas pipeline from Prudhoe
Bay to Valdez along the Trans-Alaska Pipeline System (TAPS)
corridor. Designed to deliver 4.5 to 5 billion cubic feet a day
(Bcfd), expandable to 7 Bcfd, it would terminate at Anderson
Bay, two miles beyond the current Alyeska oil pipeline terminal;
there would be a liquefied natural gas (LNG) facility and a
natural gas liquids (NGL) plant and LNG storage plant there. It
might be possible to do the NGL plant elsewhere in the state.
MS. SMITH said a marine terminal would be built at Anderson Bay
for docking and loading of LNG tankers. Sinopec proposed to
provide 20 LNG tankers to transport LNG from Valdez to China, a
$7 billion value that isn't part of the proposed cost. A 24-
inch spur line from Glennallen to Beluga would be built to
supply Southcentral Alaska with gas for home heating and
electrical generation; most likely, it would be subcontracted to
the Alaska Natural Gas Development Authority (ANGDA) to design
and build, since ANGDA already has so much of the preliminary
engineering and environmental studies completed.
MR. LEE, in response to Chair Huggins, noted that after the
proposal was submitted he had talked with ANGDA's Harold Heinze,
who'd mentioned working as a team, possibly with the Alaska
Gasline Port Authority ("Port Authority") or others in Alaska.
3:45:32 PM
MS. SMITH noted a minimum of five delivery points would be
provided at locations such as Fairbanks, North Pole, Delta
Junction, Glennallen, and Valdez; those could be changed,
depending on supply and demand. Propane and LNG would be
shipped from Valdez to over 100 Alaskan communities for heating
and electricity generation. This all-Alaska project would
provide 20,000 construction jobs over 3-4 years to build the
pipeline, and approximately 5,000 good-paying permanent jobs to
operate and maintain the infrastructure for 30-50 years. It
also would create good permanent jobs in support of associated
industries and facilities related to the petrochemical industry,
transportation, and distribution.
MS. SMITH showed a slide depicting the pipeline route, with red
dots showing places to which the propane would be shipped. She
noted the project team would consist of LSCC with the support of
its Chinese subcontractor, Sinopec, along with up to 20 other
U.S. and Alaskan companies that would be involved in completing
this project because of its size.
3:46:55 PM
MS. SMITH provided background, noting LSCC is a 28-year Alaskan
firm providing architectural, engineering, construction, and
construction management throughout Alaska and ten Lower 48
states. It is headed by Dominic Shi Fong Lee, P.E., who has a
bachelor of science and master's of science degree in electrical
engineering as well as a master's degree in mechanical and
aerospace engineering, all from the University of Missouri at
Columbia; he also has three years of graduate study in arctic
and civil engineering at the University of Alaska Anchorage
(UAA). A professional mechanical engineer and professional
electrical engineer since 1974, Mr. Lee holds these dual P.E.
licenses in Alaska and 10 other states.
MS. SMITH said LSCC got its start in Alaska by designing North
Slope projects for ARCO's Kuparuk oil field for over 10 years.
There is an awareness of the harsh conditions and what it takes
to operate. Since 1980, LSCC has been providing construction
and construction management services for projects all over
Alaska for clients such as the U.S. Coast Guard, Army Corps of
Engineers, Air Force, Army, General Services Administration
(GSA), and U.S. Postal Service; the Alaska Department of
Transportation and Public Facilities; and the City of Barrow,
City of Valdez, City of Bethel, Fairbanks North Star Borough,
Matanuska-Susitna Borough, Municipality of Anchorage, and other
local governments and school districts.
3:48:31 PM
MS. SMITH turned to Sinopec, saying it's the second largest oil
and gas company in China, comparable in size to ConocoPhillips,
with 2006 revenues of $155 billion and profits of $9.2 billion.
Traded on the New York Stock Exchange (NYSE), it has more than
500,000 employees in China and overseas.
MS. SMITH said Sinopec doesn't want to own or operate this
pipeline. Rather, it wants to purchase LNG from Alaska for the
following reasons: 1) Alaskan gas will be a stable and secure
energy source, 2) it is prudent to have a diverse supply of
energy, 3) the Chinese are eager to purchase Alaskan resources
outside what they currently do in the lumber and fishing
industries, and 4) there is a desire to purchase LNG to balance
trade with the U.S.
MS. SMITH noted three Sinopec divisions would be involved in
this project. The first, Sinopec ZYEC, is the design branch of
Sinopec Engineering Company, with 400 licensed engineers and
technicians that design oil and gas pipelines, pressure
pipelines, oil-gas gathering facilities, long-distance
pipelines, and LNG plants. It has designed all Sinopec oil and
gas projects since 1980, including a 2,200 kilometer gas
pipeline from Sichuan to Shanghai.
MS. SMITH said the second division, Sinopec ZPEB, is responsible
for construction and operation of Sinopec's oil and gas fields
in China and builds and operates gas pipelines, oil pipelines,
and LNG facilities. For this project, it would serve as LSCC's
general contractor for the pipeline and LNG facilities, and it
would coordinate the purchase of steel and equipment.
MS. SMITH said the third division, Sinopec International, has
authority to approve or disapprove any Sinopec international
activities. It is the entity that provided authorization for
the teaming agreement with LSCC, and it will assist LSCC with
financing for this project. Ms. Smith turned the presentation
over to Mr. Lee.
3:51:27 PM
MR. LEE noted he'd mostly written the proposal himself, with
help from staff and a petroleum engineer. Highlighting
globalization, he said an Irish friend sent an e-mail about an
English princess with an Egyptian boyfriend who crashed in a
French tunnel while driving a German car with a Dutch engine; it
was driven by a Belgian drunk on Scotch whiskey who was followed
by Italian paparazzi on a Japanese motorcycle and was treated by
an American doctor. People may read this using a computer that
has Taiwanese chips and a Korean monitor, assembled by
Bangladesh workers in Singapore, handled by an Indian hired by
an Indonesian, unloaded by Sicilian longshoremen, and trucked by
a Mexican. That's globalization.
3:54:00 PM
CHAIR HUGGINS welcomed Representative Kurt Olson and Senator Joe
Thomas.
MR. LEE showed slides on why LSCC's project is best for Alaska,
Alaskans, and the U.S. The first had the following points:
1. The "Alaskans First Gas Pipeline" proposal has
brought to the table what no other entity has been
able to produce for the past 30 years: a commitment
to purchase North Slope gas in sufficient quantities
to enable a project to be built that is economically
viable.
Sinopec's commitment:
- 4 Bcf of natural gas per day or
- 30 million tons of LNG per year
- A $500 to $800 billion trade surplus to U.S. in the
next 30 years
MR. LEE mentioned a $200 billion deficit every year to China.
He'd studied three routes from Prudhoe Bay: to Chicago, to the
Beluga field, and to Valdez. He recalled that the governor had
spoken for an all-Alaska pipeline during her campaign. He'd
compared the three routes. The one to Chicago is 3,600 miles to
bring the gas to the Lower 48. It would require more than 70
compressor stations, each using a lot of energy; the price would
be the Chicago or Henry Hub price, about $7 or $8 maximum.
MR. LEE said the second route studied, to the Beluga oil field,
peels off from Fairbanks, going through state, federal, Native,
private, and borough land. The required environmental studies
and permitting would take a long time, and it would require a
lot of gravel for the foundation and so on. Furthermore, it
isn't suitable for 150,000-ton tankers because of wintertime
ice, and it isn't that deep.
3:57:55 PM
MR. LEE explained the chosen route, to Valdez. The TAPS
corridor already exists, two miles wide. A natural gas pipeline
should be able to be put alongside. The permits are there
because they've been done three times already for environmental
impact statements. The land is mostly rock and would resist
earthquakes. There is a deepwater port, ice-free all year. And
there is a possibility of sharing security, maintenance, and so
forth, which would lower the tariff rates. Thus he'd chosen an
all-Alaska route to Valdez for economic and other reasons.
CHAIR HUGGINS asked about compressor stations if the southern
route is used through Canada.
MR. LEE said it takes about 32 to Calgary, as confirmed by the
winning proposal. It takes 71 to Chicago.
CHAIR HUGGINS asked how much gas is consumed by those stations.
MR. LEE indicated a solar-turbine compressor manufacturer, a
unit of United Technology, estimated 11.5 million cubic feet a
day per station to run the compressors and chiller. To Chicago
it's about 20 percent of the gas; to Calgary, about 8.3 percent.
His calculations were close to those numbers from the factory.
Some compressors are more efficient than others, within about a
5 percent range.
MR. LEE said the 19.5 percent to Chicago that he'd estimated
would be subsidized by the State of Alaska to push the gas from
Prudhoe Bay, $1.1 billion a year at an $8 price. If the price
rose to $16 in the future, it would be $2.2 billion. Over a 30-
year lifetime, it would be $33 billion to $66 billion subsidized
by the state to move the gas to the Lower 48.
4:02:41 PM
MR. LEE, in response to Senator Wagoner, said the 71 compressor
stations are for 4.5 Bcfd. To his understanding, that is the
same number of stations in TransCanada's proposal.
SENATOR WAGONER said he hadn't read that in TransCanada's
proposal last week.
MR. LEE cited 60,000 horsepower per station and then mentioned
"55 or 60" horsepower per station.
4:03:38 PM
MR. LEE showed slides depicting the teaming agreement between
LSCC and ZPEB International, signed by him and the acting
general manager of ZPEB International, dated October 24, 2007.
He said it was approved by the board of directors and had a
government approval "chop" or seal - highly important in China -
on a binding document. He mentioned an oil field he'd gone to
500 miles southwest of Beijing where 400,000 people work for one
company, Sinopec. He said this shows the genuine contract,
arrived at after five days of talking; the original signature
was submitted with the proposal.
MR. LEE, in response to Chair Huggins, said that paper means the
division has 400 engineers right away to work on it. Half the
work would be done in Alaska, but they have the expertise to
design the necessary facilities.
4:07:11 PM
CHAIR HUGGINS asked about Sinopec's experience with LNG.
MR. LEE replied Sinopec designed all the LNG work for China and
now is working on LNG for the Middle East, with offices in Saudi
Arabia, Dubai, Qatar, and so on. In response to Senator
Wielechowski, he explained that LNG tankers hold 150,000 to
185,000 cubic meters.
SENATOR WIELECHOWSKI asked how many days' supply that would be
from a 4.5 Bcfd line.
MR. LEE said when the gas becomes liquid, it goes by the ton.
This project would require 30 tankers running between Valdez and
China year-round, with eight day's traveling time, two days
loading, and two days unloading, to deliver 30 million tons of
LNG to China.
4:08:58 PM
MR. LEWIS remarked on all the conversions necessary to get
natural gas from its vapor state to a delivered liquid in Asia.
MR. LEE, in further response as to the number of tankers for
4.5 Bcfd, said he knows the conversion, but in a metric system
using liters, not gallons.
4:09:52 PM
MR. LEE continued with the slides, showing a letter of intent,
estimating it's worth $500 billion to $800 billion, depending on
the future LNG price. It says Sinopec agrees to buy about
4 Bcfd of LNG, about 30 million tons a year, for the next 30
years. Price isn't locked in. The current selling price in
Asia will be paid. For example, they just bought 100 million
tons of crude oil from Iraq last week on a long-term contract
that uses the previous four days' average price for any
particular day's price. It will be a good current market price,
he emphasized.
SENATOR WIELECHOWSKI asked how the price in China compares with
Henry Hub in the U.S., where it's about $7 or $8 per thousand
cubic feet (Mcf).
MR. LEE replied he thinks it's about $10 to $12 now. But
according to a U.S. Energy Information Administration (EIA)
projection, by the time the project is finished it may average
$20 over the 30 years. That translates to some $800 billion.
He indicated at the end of the proposal there is a comparison
spreadsheet.
4:12:53 PM
MR. LEE showed another slide on why LSCC's project is best for
Alaska, Alaskans, and the U.S., with the following points:
2. "Alaskans First Gas Pipeline" will have easier
access to X70 steel required for pipeline.
- Subcontractor and project financier, Sinopec, will
coordinate steel purchases.
- China's Bo On Steel is one of two companies in the
world able to provide 2.2 million tons of X70 steel.
- Shorter 800 mile route from Prudhoe Bay to Valdez
will be a favorable factor in procuring steel as
compared to a Canadian route to Chicago ....
MR. LEE opined that only China can do the pipeline swiftly
because it has the steel. Since steel deregulation, the U.S. is
losing its steel industry because it cannot compete; he
mentioned a steel mill in St. Louis and a small one in Utah that
use scrap metal to make steel on a small scale. Building a
pipeline from Prudhoe Bay to Valdez would require 800 miles of
4-foot pipe weighing almost 1,000 pounds a foot. At 5,280 feet
a mile, times 800 miles, this is about 200 million tons of
steel. Whereas TAPS used pipe 5/8ths of an inch thick, this
would use pipe 1 inch thick, nearly double.
4:14:46 PM
Representative Jay Ramras arrived.
MR. LEE said China now makes about 60 percent of the steel, with
the other 40 percent made by Poland, India, Japan, and South
Korea. Sinopec is a Chinese company whose majority stockholder
is the government, at 76 percent. Bo On Steel is 100 percent
owned by the Chinese government, as is another company there. A
quota will be provided, acknowledging this urgent allocation of
the steel. He mentioned ensuring that the delivery time and
quality meet specifications, suggesting one advantage over other
companies is having the manufacturer on their side.
CHAIR HUGGINS recalled Mr. Lee had once said this would require
Bo On Steel and potentially Nippon's production.
MR. LEE said Nippon can make some of the steel, but not all.
Some might be bought from Nippon to make up the difference.
China is an industrialized country and is using a lot of steel
now, for the upcoming Olympics, for example. "We are lucky to
get steel from them," he added.
4:17:09 PM
CHAIR HUGGINS asked whether "X70" is an international standard
for steel.
MR. LEE affirmed that, saying it means the steel has a strength
of 65,000-70,000 pounds before it buckles. The pressure for the
gas pipeline will be only 2,500 pounds. He indicated there was
a Canadian suggestion to use X100 steel, but he said the demand
doesn't exist and so isn't made. While X100 steel is extremely
strong, people would laugh if 1,700 miles were ordered today,
saying they couldn't even obtain 100 feet; it is that rare.
Normal pipe is X60 to X70, which is used for gas pipelines
worldwide and can stand up to 7 Bcfd already. He indicated the
X70 was recommended by Sinopec's steel engineer as a good steel
that they use all over the world.
SENATOR WAGONER asked about the pounds per square inch (psi) for
a 48-inch pipeline transporting 7 Bcfd.
MR. LEE answered 2,500. He said to get to Chicago requires
10 million tons of steel because it is 3,600 miles, 4.5 times
longer than LSCC's proposed pipeline. He surmised someone might
have to wait 20 years to get that much steel.
4:20:13 PM
MR. LEE showed the third slide on why LSCC's proposal is best
for Alaska, Alaskans, and the U.S., with the following points:
3. The "Alaskans First Gas Pipeline" calls on the
buyer to provide the shipping.
- This cost is absorbed by purchaser, Sinopec
- Non-Jones Act ships will transport LNG to China and
other Pacific Basin countries
- Jones Act ships will transport LNG to Alaskan
Coastal cities
MR. LEE elaborated, saying the buyer would provide the shipping,
bringing a boat to Valdez to pick it up. The pipeline itself
wouldn't be burdened by the cost of the boat. A large LNG boat
costs about $300 million, and they take a long time to build,
sometimes requiring a wait of four or five years. Shipping LNG
around Alaska, to Kodiak, for example, requires a Jones Act
boat; the hull and engine must be built in the U.S. and then it
goes to China or Korea to add refrigeration. Those are smaller
boats, perhaps 75,000 cubic meters, half the size, but still
cost $250 million each because American labor costs more.
MR. LEE said every city and village in Alaska should have cheap
gas to heat homes and generate electricity. There is no reason
Alaska, as an energy-producing state, should have such high
heating costs. He has traveled in Alaska for 28 years, visiting
over 100 villages, where people may pay half or a third of their
incomes to heat their homes. In Iran and Iraq, people pay
30 cents a gallon for gas.
MR. LEE suggested that the State of Alaska would have so much
money from his project that it could subsidize such costs,
ensuring Alaskans pay $50 a month for heating and the same for
electricity, saving some families $5,000 a year. He pays $400
or $500 a month in Anchorage; in 1977, he paid $100 for both
electricity and gas. He asked: Since Alaska owns the gas, why
shouldn't it benefit Alaskans, rather than other people? He
said LSCC's plan does this.
4:24:18 PM
MR. LEE showed another slide on why LSCC's project is best, with
these points:
4. The "Alaskans First Gas Pipeline" keeps the
project within Alaska to create the following value
added benefits for Alaskans:
- A Spur Line to Anchorage/Mat-Su area
- Propane distribution for rural Alaska;
- Permanent jobs for Alaskans for 20 to 50 years;
- Potential new jobs with natural gas byproducts;
- Availability of natural gasoline as cheap substitute
fuel;
- Opportunity for Alaskans to invest in the pipeline
service company as a publicly traded corporation
MR. LEE explained that the plan includes 190 miles of 2-foot-
diameter X70 gas pipeline to the Beluga field to give energy to
ENSTAR so it can feed Southcentral Alaska, including Palmer,
Wasilla, Anchorage, Eagle River, and the Kenai and Homer areas.
This would take care of perhaps half of the state's energy
needs. The rest of the gas would feed Chugach Electric and
Municipal Light & Power (ML&P) to provide cheap electricity. He
noted Harold Heinze, when asked about subcontracting on this
project because he'd done so much work already, had said he'd be
happy to help Mr. Lee out.
4:25:15 PM
MR. LEE discussed distribution to rural Alaska. This 4.5 Bcfd
of natural gas comes with a lot of liquid. A big part is
propane, which is portable. The plan is to separate the propane
in Valdez; put it into 5,000 and 10,000 gallon propane tanks;
transport it by barge or boat to Seward; take it by train to
Nenana, south of Fairbanks; and then barge it down the Yukon
River to all communities along the river like Tanana, Galena,
and so on.
MR. LEE said the propane would go to distribution centers from
which bottles can be trucked to every family's home, where 1,000
gallon tanks can be filled for a year's supply. A tank at the
electrical power plant would be filled as well. Converting the
burner for the power plant from diesel is simple, he said, and
every community would benefit.
MR. LEE noted that for towns not on the river, it can be
transported. Propane is cheap. It's also one of the most
versatile fuels. It can be gotten to folks for around a dollar
a gallon. For bigger towns like Ketchikan, Sitka, Juneau,
Seward, Kodiak, Dillingham, Bethel, Nome, and Kotzebue, his
proposal suggests that the state do a program whereby those
places have an LNG receiving station and storage facility in
order to evaporate the liquid LNG and distribute it through gas
pipes, as done in Fairbanks now. But it would be $1 a gallon or
less. People could heat homes for $100, and electric bills
would be $50. This would benefit every Alaskan family, he said.
4:31:57 PM
MR. LEE turned to jobs for Alaskans, saying the plan creates
jobs in a variety of areas during construction. It also creates
permanent jobs for 20 to 50 years, when people will be needed to
maintain facilities, run the 10-14 compression stations in this
line, do deliveries, and so on. The plant that converts the
4.5 Bcfd of gas to LNG will be the biggest in the U.S. Another
plant will separate liquids, which can be shipped to places like
Fairbanks, Kenai, or Wasilla to make petrochemical products,
rather than having it go to Canada. Thus Alaskans could have
more job opportunities and monetary benefits.
MR. LEE highlighted pentane, explaining it is a natural gasoline
that can be used in a car. Like it or not, it comes with the
gas, up to 10-20 million tons a year. The plan proposes to
distribute it at cost to Alaskan gas stations where it could be
sold for 30 cents a gallon. While not enough for Alaska's
entire use, this resource belongs to Alaskans who could benefit
from it.
MR. LEE addressed the opportunity to invest in the pipeline
service as a publicly traded corporation. He reiterated that
Sinopec isn't interested in owning or operating the company.
Thus a new legal entity would be created, Alaskans First Gas
Pipeline Service Company. Modeled after the Alyeska Pipeline
Service Company ("Alyeska"), it would service the gas pipeline,
LNG plant, marine terminal, and liquids plant. But it would be
publicly traded, unlike Alyeska, which is owned by oil
companies. Any Alaskan could buy stock, as could any oil
company or the State of Alaska. The profit would provide a
dividend to stockholders. This would give an opportunity to
invest in something that benefits Alaska.
4:37:37 PM
MR. LEE showed the next slide on why the project is best, with
the following points:
5. The "Alaskans First Gas Pipeline" makes a
commitment to work with Alaska's unions to provide
skilled and non-skilled labor for the construction of
the pipeline.
- Plans will be developed to provide incentives and
assistance to train Alaskans to work on the pipeline
construction project.
MR. LEE elaborated, saying LSCC has committed to using 100
percent union labor, whether skilled or unskilled. Alaskans
will have first preference and will make excellent money. This
job will last three to four years, building a gas pipeline, a
world-class LNG plant, and a petrochemical industry for Alaska.
Besides construction jobs, there will be a need for engineers,
surveyors, scientists for environmental studies, and folks
involved in shipping, supplies, and so on.
MR. LEE said this is the biggest construction project in the
U.S., perhaps the world. Whereas China's Three-Gorge Dam
project cost $25 billion, this will be $32 billion. Noting his
four children grew up in Alaska's school system, he said they
now have advanced degrees but couldn't find good jobs in Alaska
and thus live elsewhere. He emphasized providing good jobs so
Alaska's young people will stay, either blue-collar jobs that
pay Davis-Bacon wages or professional jobs.
4:43:03 PM
MR. LEE showed the next slide on why the project is best, with
the following points:
6. The "Alaskans First Gas Pipeline" proposal met the
AGIA requirements for financing with no less than 70%
debt. Sinopec will help to provide the 30% capital
financing required by AGIA.
He referred to the teaming agreement and letter of intent
discussed earlier, saying China agreed to help with capital
financing that isn't guaranteed by the federal government,
70 percent. "They will have no problem raising money for you,"
he added, saying the new pipeline company would take over the
loan and (indisc.) the debt to the tariff and the profit they
make. In the meantime, there is no need to go to Wall Street to
raise money; it's already there.
4:44:13 PM
MR. LEE showed the next two slides on why the project is best,
with the following points:
7. The "Alaskans First Gas Pipeline" is the best deal
for the U.S. because it will help solve our critical
trade imbalance with China.
- Selling 4 Bcf of natural gas a day to China will reduce
the U.S. trade imbalance with China by nearly $500
billion to $800 billion over 30 years based on today's
dollars at sales of $10 to $12 per mmbtu.
- Actual trade numbers will exceed $500 billion when rates
exceed the current $10 per mmbtu.
- China has the same trade status in Japan.
- For over 35 years Alaska has been exporting Liquefied
Natural Gas (LNG) from Kenai to the two largest LNG
importers on the planet - Tokyo Electric Power and Tokyo
Gas of Japan. Between these two importers, they have a
combined customer base of 30 million customers.
- Presidential authorization for export of North Slope gas
is currently in place.
MR. LEE pointed out how much this country buys from China and
outsources to there. Noting he is a 33-year U.S. citizen, he
expressed concern that every year there is a $200 billion deficit;
already $1.4 trillion is owed. This cannot continue, he said.
Eventually, there will be nothing to sell. There is little trade.
The LSCC project wouldn't just benefit Alaska; it would also benefit
the U.S. He expressed concern about the declining value of U.S.
currency, noting whereas it used to be worth more than Canada's, now
it is even. He cited other examples.
MR. LEE said he wants to see America strong, which requires trade.
Trade is a two-way street. There must be something to sell. He said
his plan is good for the U.S. because it would bring in about
$30 billion a year for 30 years, $800-900 billion, a big sum. He
suggested there is no benefit to shipping it to the Lower 48 because
of the cost compared with shipping it to China.
4:48:59 PM
MR. LEE said shipping natural gas to the Far East has been done
in the past 40 year from Kenai to Japan, so exporting LNG in
this respect isn't new.
SENATOR WAGONER asked whether this is based on the assumption of
Yukon Pacific Corporation (YPC) holding an export permit from
the U.S. Department of Energy (USDOE).
MR. LEE replied he'd just learned from them that they already
have an export license from the USDOE. His company would have
to get that agency to submit a revision.
4:50:48 PM
MR. LEWIS added that the current export license is held by YPC
through its parent company, CSX. It speaks in terms of a
million metric tons a year for an aggregate of 350 million
metric tons authorized for export, with an annual average of
14 million tons. That's a 2 Bcfd project, in essence. There's
no ceiling. It calls for an average. Theoretically, more could
be exported in a given year, but overall it works out to
14 million metric tons a year.
SENATOR WAGONER asked how valid that license is. He said
ConocoPhillips just went through a process to extend its export
license, hopefully for up to two years; even with concurrence of
the administration, that extension still hasn't occurred. He
asked how long this export license is supposedly good for, as
well as what it would take to get USDOE to provide a letter
saying that export license is still valid and is renewable.
MR. LEWIS said he'd have to do some research; he'd hoped to call
on Jeff Lowenfels, who'd been involved in that to an even
greater degree. Mr. Lewis said he wasn't aware of any
expiration date on that export license, but he would check.
4:52:47 PM
MR. LEE showed the final slides on why the LSCC project is best,
with the following points:
8. The "Alaskans First Gas Pipeline" will not be
controlled by China.
- The pipeline will be an ALASKAN owned company.
- Chinese workers will not be imported to build the
pipeline, but will be used in the design phase only
for 5.5% of the work.
- China will not own or control any of the gas fields
in Alaska.
- China only seeks to have a reliable source of energy
for its exploding economy.
- China is willing to sign agreements to buy LNG from
Alaska for years to come.
- Alaskan LNG will help make China's coal-heavy energy
industry greener, a benefit for all the world.
MR. LEE spoke to the concern that "the Chinese are coming, the
Chinese are coming." He said they're not coming. There will be
no Chinese skilled or unskilled labor allowed on this job.
4:54:23 PM
MR. LEE showed a slide of the people signing the teaming
agreement with Sinopec. He then showed a spreadsheet of income
comparisons for LSCC's project without PPT, Alaska's tax known
as both the petroleum production tax and the petroleum profits
tax. At a $12 price, for example, annual revenue would be $18
billion; the U.S. government would get $3.76 billion; the state
would get $3 billion, the North Slope producers would get $6
billion; and the pipeline operator, LSCC, would get $0.59
billion.
MR. LEE discussed the lower part of the spreadsheet, which
compares LSCC's project versus TransCanada's in terms of
lifetime pipeline income, with a 25 percent PPT tax. He said if
one goes by the real costs, using federal EIA figures of $20 per
Mcf, revenue would be almost $30 billion a year, with the U.S.
government getting $7.3 billion, the state getting
$10.47 billion, the North Slope producers getting $6.8 billion,
and LSCC getting $0.59 billion as the operator. In 30 years,
the total revenue would be $896 billion, with the U.S. share at
$290 billion, the state share at $314 billion, the North Slope
producers at $204 billion, and LSCC at $17.7 billion.
MR. LEE referred to TransCanada's proposal at page 2.10-10. He
noted the U.S. share would be $52 billion with a PPT tax, far
less; that would be over 25 years, to his understanding. The
State of Alaska would get $131 billion, compared with
$314 billion under the LSCC plan for 30 years.
4:57:59 PM
SENATOR WIELECHOWSKI asked whether Mr. Lee had talked with the
North Slope producers to see if they'd sell gas to LSCC.
MR. LEE explained that he was so confident about passing the
first cut in the AGIA process, he'd asked to go to Beijing and
meet with Sinopec as well as the China representatives for
ConocoPhillips, ExxonMobil, and BP. Sinopec had said it could
set up a meeting. ConocoPhillips is doing a 50-50 joint venture
with China Oil in a field where they get about 300,000 gallons
of oil a day; there are other joint ventures too. ExxonMobil
has a $5 billion refinery and petrochemical project, teaming
with Sinopec. And noting BP bought out ARCO, he mentioned ARCO-
China joint ventures in the Yellow Sea and South China Sea oil
fields; he said they are working there. They talk to each
other, as BP talks to ExxonMobil in Alaska. However, his
project hadn't made the short list and so he'd requested that
all meetings be canceled.
MR. LEE added that the oil companies make lots of money but are
good to Alaska. Their businesses provide 80 to 90 percent of
the state budget. They sponsor symphonies and charities. They
hire lots of Alaskans. They've done their part, as far as he's
concerned. Mr. Lee said his company worked for ARCO ten years,
helping to develop the Kuparuk oil field. He characterized them
as nice people, cautious and honest and paying him on time.
MR. LEE suggested everyone can work together. Sinopec is a big
company and has joint ventures in other countries. It isn't the
enemy. Natural gas is everywhere. China is buying gas and oil
from all over the world because it needs the energy to make
things and ship them to America. He highlighted globalization
and figuring out how to make money so it benefits everyone.
5:03:59 PM
MR. LEE said he would work with any of the other interested
companies, inviting them to bid to do work on LSCC's project and
saying it's an open process. He would hire a big American
management firm during construction, a company like CH2M Hill or
Bechtel to run the project so everything is done correctly, on
time, and within the budget. He emphasized that Sinopec would
provide the funding and wants the gas. He surmised with Sinopec
they'd be able to work out any disagreement among parties.
MR. LEE, in response to Chair Huggins, said his proposal asks
for a federal guarantee. He referred to the AGIA guidelines and
mentioned the open season. He said he'd recently been told if
gas is transported from Prudhoe Bay to Valdez, there is no need
for an open season or the Federal Energy Regulatory Commission
(FERC). If his proposal is selected, he'd buy the gas at the
wellhead; he has a customer to buy it.
MR. LEE referred to the spreadsheet, which shows that over
30 years the producers would receive $204 billion. He said that
is without having to invest any money in his project or take any
risk. For stockholders' benefit, the producers should take this
deal. He added, "We are the one taking all the risk."
5:07:35 PM
SENATOR WIELECHOWSKI said another organization had claimed it
was pressured not to apply under AGIA. He asked whether Mr. Lee
had experienced anything like that.
MR. LEE replied no. He'd only had three weeks to write the
proposal, and he hadn't contacted anyone.
5:08:44 PM
MR. LEWIS added that although he hadn't been involved, it
strikes him that the AGIA application requirements weren't
written for an LNG project. It presupposes things like open
seasons. Saying he didn't mean it in a pejorative way, he
characterized it as a tortured fit and remarked of Mr. Lee,
"I don't know how he got it in as well as he did."
MR. LEWIS said he's been around LNG for 15 years. One great
benefit of an LNG project is that it isn't a commodity market.
He suggested thinking of an LNG project as a regional shopping
center where the strength of a company like Sinopec as an anchor
tenant is something that never has been available before, for an
LNG project or any other. Sinopec brings so much heft to a
project that it doesn't require any federal or state help. It
is a stand-alone deal.
MR. LEWIS said he knew why Mr. Lee had submitted an AGIA
proposal, although they hadn't known each other. Mr. Lewis
noted he and his partner, Jeff Lowenfels, are volunteering their
time because they see the synergies between 15 years of work
already in place by YPC and what is in front of legislators, "a
greatest hits version of that work."
MR. LEWIS alluded to YPC's handouts about its permits. He
emphasized that this work dramatically diminishes the risk in
the project and the time to build it. Calling it a royal flush
of permits, authorizations, export licenses, right-of-way
agreements, and so on, he surmised there has been a
misunderstanding.
MR. LEWIS said while there has been no marriage yet between
LSCC's proposal and the holders of these permits, it is so
logical; the permits have no value without a project, but they
have tremendous value, to all the players, with a project. He
offered to bring Jeff Lowenfels into the discussion by phone and
said they're always available to expand on what has been
provided here. Mr. Lewis said this portfolio of permits and so
on streamlines the project in a way that is unmatched in any
other way. The anchor tenant exists, as well as the design; a
lot of engineering work is already in place in support of these
permits and authorizations.
5:12:20 PM
CHAIR HUGGINS referred to a message to the committee from former
Governor Hickel that he interpreted as follows: There is a need
to look at potentially restarting the process, and he supports
AGIA but it may need to be amended. He asked Mr. Lewis to
suggest potential amendments, after giving it some thought, that
might be appropriate with respect to LNG. He added that former
Governor Hickel got the State of Alaska to buy into a baseline
comparison between the Canadian course of action and LNG, which
some folks had been pushing for unsuccessfully. He asked
whether anything besides the open season came to mind
immediately with regard to how AGIA isn't crafted for LNG.
MR. LEWIS said that's the one that comes to mind, although there
likely are others. The AGIA process seems to contemplate a
standard pipeline transmission system that charges a tariff to
shippers. He added, "Whatever you buy at the wellhead, you're
your own shipper." Mr. Lewis said thinking in terms of tariffs
and so on doesn't work, because at the end of the pipeline is an
LNG plant, not a market.
CHAIR HUGGINS thanked Mr. Lewis for pointing that out. He told
Mr. Lee he'd brought a lot to the table and it wasn't over yet.
5:14:57 PM
MR. LEWIS remarked that this project is one of the most
astonishing things he has ever heard of. An entrepreneurial
citizen has brought in a serious overture that deserves a lot of
attention because of the weight of this buyer.
CHAIR HUGGINS said it clearly is out of the box as far as
planning. He asked whether Mr. Lee had any closing comments.
MR. LEE noted LSCC had submitted a letter to the Governor Palin
and the commissioners, asking for reconsideration of the AGIA
application. He pointed out that nothing could be added to the
application with respect to the commitment. But page 12
mentions giving the state extra commitments, which LSCC did,
giving them the buyer and financing. He surmised his additional
commitment had been confused with the original commitment and
thus the application was denied because of a misunderstanding.
MR. LEE offered to provide a copy of LSCC's letter, submitted
last Friday. He opined that if the Department of Law reviews
it, it will find merit. He closed by giving some personal
history in Alaska and emphasizing his desire for children who
grow up in Alaska to be able to remain.
CHAIR HUGGINS thanked participants and closed the hearing.
There being no further business to come before the committee,
Chair Huggins adjourned the Senate Resources Standing Committee
meeting at 5:18:52 PM.
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