Legislature(2009 - 2010)SENATE FINANCE 532
01/27/2009 01:00 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Transcanada Update | |
| Denali Update | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
January 27, 2009
1:11 PM
MEMBERS PRESENT
Senator Lesil McGuire, Co-Chair - via teleconference
Senator Bill Wielechowski, Co-Chair
Senator Charlie Huggins, Vice Chair
Senator Hollis French - via teleconference
Senator Bert Stedman
Senator Gary Stevens
MEMBERS ABSENT
Senator Thomas Wagoner
OTHER LEGISLATORS PRESENT
Senator Gene Therriault
Senator Joe Thomas
COMMITTEE CALENDAR
Update on Natural Gas Pipeline
Presentation by Tony Palmer, Vice President, Alaska Development,
TransCanada
Presentation by Bud Fackrell, President, Denali - The Alaska Gas
Pipeline LLC
PREVIOUS COMMITTEE ACTION
No previous action to consider
WITNESS REGISTER
TONY PALMER, Vice President
Alaska Development, TransCanada
POSITION STATEMENT: Presented TransCanada's gasline update.
BUD FACKRELL, President
Denali - The Alaska Gas Pipeline LLC
POSITION STATEMENT: Presented Denali's gasline update.
SENATOR GENE THERRIAULT
State Capitol
Juneau, AK
POSITION STATEMENT: Asked questions on gasline update.
ACTION NARRATIVE
1:11:59 PM
CO-CHAIR BILL WIELECHOWSKI called the Senate Resources Standing
Committee meeting to order at 1:11:59 p.m. Present at the call
to order were Senators Huggins and Wielechowski. Senators
McGuire and French were on teleconference.
1:13:24 PM
^TransCanada update
TONY PALMER, Vice President, Alaska Development, TransCanada
(TC) Corporation, showed a slide of the project and what a gas
pipeline right-of-way looks like. The pipe is buried four feet
deep and vegetation is allowed to grow back on top of it. He
said TC has done the work to be able to include the potential
for both instate bullet lines in 18 months.
1:15:07 PM
Slide 3 focused on the elements of a successful project for
TransCanada. He said while the project's economics have to be
good that gas prices are volatile and difficult to forecast. So,
that is not their focus; rather it is on the competition from
various sources of natural gas - conventional Lower 48 and WCSB
(Western Canadian Sedimentary Basin), global LNG, shale and
coalbed methane. They all compete for market share. Shale gas
has made significant progress over the last few years. Some of
those basins look very prospective at gas prices around $6-7;
others are unknown.
1:17:10 PM
CO-CHAIR WIELECHOWSKI asked if the large shale gas finds in
Texas and the northeast Atlantic Coast impact this gasline.
MR. PALMER replied that it's too early to say. The Texas fields
have had positive results, but the other fields are still being
proven up. Also, this project is still 9.5 years away. This
project will have to compete with conventional gas and LNG.
Alaskan gas will compete with all other sources of gas. The
focus of this project is to drive forward by maintaining costs
at a low level and maintaining the schedule - both things they
have control over. He said if the capital cost is higher by $1
billion that means $.10 is added onto the toll each day for 25
years; that toll would amount to $160 million/year - for
customers and government. Their current toll estimate prepared
in fall/2007 is $2.76 from Prudhoe Bay to the Alberta Hub. They
think it is critical to keep the toll under $3. Even at today's
low prices, producers and government have a modest margin under
$3.
1:20:53 PM
Slide 4 indicated that this project needs the support of
governments and communities, and they need commercial contracts
with shippers as well. He related that TC has had discussions
since August with potential customers who want delivery in
Alaska, in Alberta on the way to the Lower 48 and to Asia. These
discussions are ongoing; however he can't reveal who TC is
speaking to and what the nature of the discussions are until
they have a deal. That would normally come about at the end of
the open season.
He showed a pipeline right-of-way on the same slide that had
revegetated. He restated that TC is a proven project developer
with a 50-year successful track record.
1:22:51 PM
Slide 6 showed TC's project schedule, which is the same that he
presented to the Legislature all through last summer. The only
change is that they had hoped the license would be issued in
August of 2008 and the actual date was December 5. Their target
date of July 31, 2010 to conclude the open season is unchanged
and they see nothing that would change that.
1:23:37 PM
SENATOR STEDMAN joined the committee.
1:23:54 PM
Slide 7 showed TC's key objectives through the open season phase
with the legislative phase concluded. They now want to develop a
Class IV cost estimate, a higher quality one than they put
before them in the AGIA process, and that should take one year.
They would then go to the open season phase.
1:25:03 PM
The project status for August 2008 - January 2009 is to develop
detailed plans for technology development, engineering,
construction infrastructure, logistics and cost estimating.
MR. PALMER said they need to identify the specific pipeline
roading in Alaska and have already done that in Canada. They
also need to execute the preliminary environmental activities.
He next walked them through an update the Legislature had
requested on what specific things they had concluded since
August and what they propose to do in the next two quarters.
MR. PALMER explained that after legislative approval of the
project under AGIA in early August, they knew that in order to
maintain the target schedule they could not wait until the
issuance of the license. So, they spent their own money in the
period between August and December 5 to try to maintain that
schedule.
1:26:47 PM
MR. PALMER said aerial photography for Alaska was completed to
the Canadian border and to Valdez using a camera mounted on the
bottom of a helicopter that can take 360 degree video. It is
used for design so that if individual engineers want to examine
a particular location, they can stop the camera and turn it on
their individual computers. This will be done along the Alaska
route once it has been specified.
They plan to do the winter geotechnical field program with a
small two-man drill and to collect frost heave information as
well. For the remainder of the next two quarters they will
complete the terrain mapping, do the winter geotechnical field
program in Alaska, continue route reconnaissance and do a pre-
FEED for the gas treatment plant (GTP). However, he pointed out
that owning the gas treatment plant is still not their
preference, but since no one else is doing it, they need to do
the work to continue to maintain the schedule.
1:27:10 PM
On the environmental front, Mr. Palmer said, they have
established a global information system that supports
environmental planning and permitting. They have completed the
preliminary restraints report for the Alaska routing and have
completed the initial route update in Canada. They will complete
the environmental information needs analysis and commence the
development of an RFP for TC's environmental contractor (for the
next phase) in the next two quarters. That will go out in the
third quarter of this year.
Slide 9 showed a picture of an open cut river crossing which
they do many of every year. You can see fish swimming on either
side of the river during the cut, he explained, and then after
it's closed they can swim north and south again.
1:28:54 PM
Regulatory and permitting strategy has been done for both Alaska
and Canada, he reported; and all permit applications have been
submitted to support the winter geotechnical program to the
borough, state and federal agencies. The permitting needs to be
done by March for the geotechnical work.
They are continuing FERC discussions and will commence
discussions with individual agencies about the environmental
needs analysis. He met with Drue Pearce's office that
coordinated a meeting with all the federal agencies on January
6; then they came to Anchorage and Fairbanks with follow up
discussions with federal and state agencies either in person or
on the phone. So those people know exactly what TC intends to do
for the next two years.
1:30:18 PM
On the commercial side, Mr. Palmer said, they have had
discussions and this spring they will have to select a
contractor for the instate gas study and continue developing
plans for the open season. Slide 12 showed a picture of a
compressor station and Mr. Palmer said there would be six of
them to the Lower 48 or one every 120 miles. The station's
footprint is 1000 x 1000 ft.
1:32:14 PM
SENATOR THERRIAULT said it appears that about a third of the
land doesn't have any structures on it and asked if they are
required by regulations to have that as a buffer.
MR. PALMER replied he didn't think so. This area would be fenced
and they look to provide for future development in the need of
another compression station.
1:33:15 PM
Slide 13 on the administrative front indicated TC leased an
Anchorage office space and that they already had dedicated
office space in Calgary. He explained that TC is running this
project on an integrated basis and has a very small dedicated
staff that works on a part time basis only, charging into the
project for the hours they are actually working.
In terms of the reimbursement, because TC received the license
on December 5, it will not be submitting its first invoice to
the state until the end of the first quarter. It will cover the
first three months of this year plus the 26 days in December.
They had to execute reimbursement agreements with the BLM
agencies and the state to do the geotechnical and other field
activities.
1:35:12 PM
SENATOR THERRIAULT said blogs indicate a misperception that the
state just wrote TC a check for $500 million. But in fact, Mr.
Palmer just said the company decided to do work before the
license was actually issued that won't be reimbursable and the
$30 million the legislature appropriated last year hadn't been
totally reviewed yet and they haven't been reimburse for
anything yet. So clearly the state is not giving them a pile of
cash; it is only paying for its portion of the work as it is
done. No profit accrues to his company under that mechanism.
1:37:08 PM
MR. PALMER agreed. He emphatically stated that TC has not
received a penny from the state to this date and it will only
get 50 percent reimbursement on its expenditures after
appropriate audit and review by the state.
1:38:24 PM
SENATOR THERRIAULT asked if anything allows TC to make a profit
from the reimbursement agreement.
MR. PALMER replied no. He added that he is in the process of
hiring an office manager.
1:39:43 PM
SENATOR HUGGINS asked what size staff would be in his Anchorage
office.
MR. PALMER replied one full-time person as early as next week
and then as needed.
SENATOR HUGGINS agreed that some people are skeptical of the
$500 million reimbursement and asked how much he anticipated
being reimbursed by the state in 2009.
MR. PALMER replied $84 million through the open season; the
state's reimbursement would be $42 million.
1:41:51 PM
SENATOR HUGGINS emphasized that the reimbursement was for 50
percent before open season and 90 percent after open season.
1:42:18 PM
MR. PALMER agreed. He explained that even though they will have
only a single full-time individual in the Anchorage office, they
had retained a number of Alaskan contractors for this project to
date.
1:43:57 PM
He summarized the update saying the legislative phase had been
completed; the license has been approved and there will be an
open season. They have retained Alaskan contractors and have an
Alaskan office in place. Keeping tolls under $3 would be an
imperative and they would have a new cost estimate for the
legislature in 12 months.
1:46:09 PM
SENATOR FRENCH said he was pleased to see him emphasize the
date.
1:46:51 PM
SENATOR THERRIAULT said he had been frustrated with TC's lack of
communication a few times, but he now realizes that is how the
company works. He asked what other things it was doing to keep
costs under control.
1:47:50 PM
MR. PALMER replied that they have just one person in the
Anchorage office and while significant numbers of Alaskans have
worked on the project, they are paid only for the hours that
they work on it. TC's record of maintaining low costs in
constructing large diameter pipelines indicate they run 25-30
percent cheaper than any other pipeline company. Regulatory
matters, land and these types of things are what drive costs up.
1:52:23 PM
CO-CHAIR WIELECHOWSKI asked if the shale plays in the Lower 48
will have an impact on TC's open season.
MR. PALMER replied the shale plays have proved to be very
prolific, but in a high priced gas environment. They are now in
a low price environment and at $4.50 you can't make much profit.
1:54:52 PM
CO-CHAIR WIELECHOWSKI asked if he had met with the new
presidential administration and if it supported this gas
pipeline.
MR. PALMER replied he had not yet met with the new US
administration, but he expected they would when it was up and
running. He was pleased that the TC project was on the
transition website as a green project.
1:56:07 PM
CO-CHAIR WIELECHOWSKI asked if the state should reform its gas
taxes to have a successful open season.
MR. PALMER responded that he wouldn't ever comment on that
subject; rather he would be an interested observer.
1:57:02 PM
SENATOR THERRIAULT said some press said the Canadian government
was concerned about the Mackenzie project getting shut in if the
Alaska project went first. And he asked what assurance they have
that Canada will not play games in the regulatory process.
1:58:00 PM
MR. PALMER replied the government of Canada has supported both
projects for a long time. In fact, Canada and the US have a
treaty specifically for this project. Under that treaty, the
governor of Canada has committed to expedite this project for
the benefit of both countries. It has a single-window regulatory
agency specifically for this project that was passed under a
specific piece of legislation. It has been used over the past 30
years to develop that project. More than a quarter of the Alaska
pipeline in Canada is in the ground and has been operational
since 1981. The governor of Canada is doing what is necessary to
reactivate that agency.
He noted that TC is different from any other project proposal in
that it already holds an NEB certificate for it. He has seen no
reservations on behalf of the Canadian government officials to
shirk its commitments; just the opposite.
2:00:10 PM
SENATOR THERRIAULT asked if they had done the work to include
the line from Delta to Valdez in the open season in case the
market would be there. Also he wanted to know if anyone had
expressed interest in taking gas at tide water.
2:01:01 PM
MR. PALMER replied yes; they had started the work for the
engineering, environmental and right-of-way there. And yes they
had talked to parties who would have the full opportunity to
commit their gas either to Fairbanks, Valdez, Alberta and other
locations in Alaska. This work is being done parallel with the
Lower 48 line through Alberta. The reason the Valdez route is
dotted on the map is that they didn't know if it would be
completed.
2:02:09 PM
SENATOR STEVENS joined the committee.
2:03:39 PM
CO-CHAIR WIELECHOWSKI thanked him for his presentation and
called an at-ease.
2:06:21 PM
CO-CHAIR WIELECHOWSKI called the meeting back to order and
recognized some people from Fairbanks. He then announced the
Denali Gasline update.
^Denali Update
BUD FACKRELL, President, Denali Gas Pipeline, said Denali is on
track for success and their timelines had been met so far. Their
first major milestone is conducting an open season that starts
in 2010 and they are preparing a quality cost estimate for that.
The last estimate was completed in 2002. A lot has changed since
then.
2:08:52 PM
MR. FACKRELL said the economy had not changed their focus and he
intended to give them an update to his July presentation. In
2008, Denali will have spent $55 million, what he called "risk
money" from their two owners.
They formed a project team (slide 4). The executive team
averages around 25 years of experience per person and have deep
Alaska, Arctic and international experience. About 100 other
people are working on this project full time. That number will
increase as they move forward with the project. They have
already filed a right-of-way on federal BLM lands; in addition
they have received approval from FERC on their pre-filing.
2:10:18 PM
MR. FACKRELL said Denali had opened up its Canadian office in
Calgary and its Anchorage headquarters where it has a multi-year
lease on three full floors of a Northern Lights office building.
2:12:22 PM
Denali has had a series of outreach meetings in both Alaska and
Canada. They have established a program with the University of
Alaska Fairbanks to work with training Alaskans to work on the
project. They are a member of the Department of Labor and
Workforce Development (DOLWD) workforce development team.
2:13:34 PM
MR. FACKRELL reported that the summer field program was very
successful. They had an outstanding safety record with no loss-
time injuries or recordable injuries. They opened an office in
Tok focusing on surveying the 200-mile corridor between Delta
Junction and the Canadian border and 200 miles of wetlands; they
investigated 70 archeological sites and now have to decide if
they will excavate those sites or move the pipeline route around
them. They have shot over 1700 miles of ortho-photograhpy from a
fixed-wing aircraft - virtually the entire route into Alberta.
They have also shot 730 miles of immersive video on the Alaska
portion. They investigated over 538 potential stream/river
crossings, performed route reconnaissance critical to the design
of this pipeline. They identified a number of contaminated sites
along the route - old military diesels dumps. Over 80 people
were in the field in the summer.
2:16:56 PM
He showed a clip of the Yukon River Bridge using 360 degree
video technology that would save millions in design costs. He
listed teams he had met with and said the Canadian National
Energy Board (NEB) process is alive and well and that he
couldn't see any roadblocks at all.
2:19:49 PM
In 2009, Mr. Fackrell said they are going to tripling their
investment and go beyond just field programs. They will award
the preliminary engineering contract for the gas treatment plant
and a contract for the preliminary engineering design on the
pipeline itself both in Alaska and Canada. They will have an
ongoing engagement with the federal agencies and continue field
work in Alaska and workforce development. They will start field
work in Canada to the Alberta mainline. They already have had
significant engagement with the First Nation and aboriginal
groups already, and noted that the First Nation groups that seem
to be the hindrance in the Mackenzie project. They will also
engage with the Native groups in Alaska and already have a close
relationship with some of them. Finally, they need to do an
instate gas study, which will be concluded in 2009.
2:22:27 PM
MR. FACKRELL emphasized that this project is an engine for
development for Alaska - because it's an open-access pipeline.
The pipe will have access points and once it is in place, it
will spur exploration up and down its route. The industry that
takes place on the back of this pipeline will spur more
exploration.
2:23:54 PM
In conclusion, he said, Denali has a good foundation to deliver;
it has decades of Alaskan and Canadian experience along with
proven worldwide technical capabilities. The "majors" are often
called upon to build basin-opening, large-scale difficult
projects around the world. Their plan is to triple their $55
million investment in 2009 and to conduct an open season in
2010.
2:26:02 PM
SENATOR HUGGINS went to slide 12 and asked him to elaborate on
the instate gas study.
MR. FACKRELL replied before shipping gas outside the state, FERC
requires them to do an instate gas needs study. They would
contract with a third party to do that. Their focus is on
building the big pipe, but they will work with anyone else who
has a project instate.
2:27:44 PM
SENATOR STEDMAN asked him to comment on the current price of gas
relative to a potential tariff and how are they dealing with the
cost of commodities.
MR. FACKRELL replied that economic conditions are uncertain now
making the project risky and the shippers have to bear those
risks. The price will go up and down during the 10 years of the
project.
SENATOR STEDMAN said he also wanted his comments on impacts of
shale gas on the project or its open season.
2:29:43 PM
CO-CHAIR WIELECHOWSKI echoed that question adding to it whether
the shell plays or the LNG imports have a significant impact on
the open season in 2010.
MR. FACKRELL replied that shale gas in the past two years has
occupied a large percentage of Lower 48 supply. What will happen
in the future with shale gas is a big question. Even though it
has been a cold winter, the economic crisis has caused demand to
shrink. Forecasts are often wrong. Denali is pushing to get to
an open season by controlling the things they can control. One
of those things is having a real quality cost estimate so that
shippers know it's valid. Fundamentally, they think the project
still has a place in supply/demand in the Lower 48 markets.
2:32:06 PM
SENATOR STEDMAN asked if Denali anticipated having to import any
or much of the work force and when would he expect that the
Alaskan workforce would be ready to meet the demands of his
project.
2:32:50 PM
MR. FACKRELL replied up to this point Denali's workforce is
primarily Alaskan. That would change a bit in 2009 when they
will be issuing contracts with big engineering firms, one on the
gas treatment plant and one on the gas pipeline. That expertise
is not available here and it's standard around the world to use
those types of engineering companies. Their program in 2009 will
be much broader and deeper than in 2008. He also mentioned that
some of the children who had parents who worked on TAPS and are
long-term Alaskans work for them now.
2:34:39 PM
SENATOR THERRIAULT asked if companies were scaling back their
commitment on capital this year because of the low gas price.
Would that impact this project and do they have corporate
commitments for the capital they need to go through this
calendar year.
MR. FACKRELL replied that their budget, which has almost tripled
from 2008, is already endorsed by their two shareholders, BP and
ConocoPhillips. The team feels it is sufficient and puts them in
a good position for having a quality cost estimate by the end of
the year.
SENATOR THERRIAULT asked if it was any less than was proposed
last year.
MR. FACKRELL replied they are on track with the spending they
dictated when they opened up their project.
2:37:04 PM
CO-CHAIR WIELECHOWSKI thanked everyone for their comments and
adjourned the meeting at 2:37 PM.
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