Legislature(2009 - 2010)BUTROVICH 205
02/20/2009 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Overview: Securing a New Supply of Natural Gas for Southcentral and Interior Alaska (bullet Line and Spur Line) | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 20, 2009
3:36 p.m.
MEMBERS PRESENT
Senator Bill Wielechowski, Co-Chair
Senator Charlie Huggins, Vice Chair
Senator Hollis French
Senator Thomas Wagoner - via teleconference
MEMBERS ABSENT
Senator Lesil McGuire, Co-Chair
Senator Bert Stedman
Senator Gary Stevens
OTHER LEGISLATORS PRESENT
Senator Joe Thomas
Senator Gene Therriault
COMMITTEE CALENDAR
Overview: Securing a new supply of natural gas for Southcentral
and Interior Alaska (bullet line and spur line)
Palin Administration, Joe Balash
Enstar Natural Gas Company, John Lau
Alaska Natural Gas Development Authority (ANGDA), Harold Heinze
PREVIOUS COMMITTEE ACTION
No previous action to consider
WITNESS REGISTER
JOE BALASH
Special assistant to the Governor
POSITION STATEMENT: Commented on Southcentral natural gas
issues.
JOHN LAU
Enstar Natural Gas Company
POSITION STATEMENT: Commented on Southcentral natural gas
issues.
HAROLD HEINZE
Alaska Natural Gas Development Authority (ANGDA)
POSITION STATEMENT: Commented on Southcentral natural gas
issues.
ACTION NARRATIVE
3:36:00 PM
CO-CHAIR BILL WIELECHOWSKI called the Senate Resources Standing
Committee meeting to order at 3:36 p.m. Present at the call to
order were Senators Huggins, French, and Wielechowski.
^Overview: Securing a new supply of natural gas for Southcentral
and Interior Alaska (bullet line and spur line)
3:36:46 PM
JOE BALASH, special assistant to the Governor, said he works on
energy and resource issues and would talk about instate
pipelines.
He referenced a letter sent by the Deputy Commissioner of the
Department of Natural Resources (DNR) to Representative Ramras
dated April 1, 2008 about a pipeline from the North Slope to
Cook Inlet. He summarized that the Palin administration's policy
has been to pursue commercialization of Alaska North Slope (ANS)
gas through the largest possible pipeline and to carry that gas
to market while insuring that Alaskans have access to it.
The question as to the timing of a large diameter pipeline
moving to market and how it relates to the needs for gas in
parts of the state that haven't enjoyed access to gas,
particularly in the Cook Inlet basin, brings into question the
need to deliver a smaller volume of gas to the Southcentral
region as well as other regions. He said the state would first
look to the private sector to allow that to happen under current
laws and if necessary, lend some support to that. However a
number of questions would come into play if the state did lend
support. The foremost is whether or not a public entity would
construct, own and operate a pipeline or any other energy
project or whether private entity would receive some form of
assistance. Ultimately, the biggest question is if support is
needed for one project, is that the best project or are there
other choices to satisfy the energy demands of the state that
may not necessarily be a pipe line. This goes to questions
surrounding exploration and development costs, importation or
alternatives for generating electricity.
MR. BALASH said at this point, there is interest from private
sector parties, Enstar as a potential pipeline builder and
Anadarko as a potential supplier, for a bullet line. The state
has been in talks with them to find out what regulatory
structures would be needed to facilitate a project like that.
Also he said the state has been pursuing collaboration on the
part of the regional utilities in the Railbelt region for a
couple of years and legislation will be introduced soon to
enable that collaboration. As part of this effort, the state has
begun the process of putting a contractor into place through the
Alaska Energy Authority (AEA) that will conduct a regional
integrated resource plan. It will take all the various potential
energy supply components and find which ones are going to best
serve the needs of the region. Initial drafts of the plan would
be available in the third quarter of this year and that work
would then be turned over to this regional electric company to
pick up and move on with the decisions that need to be made.
3:42:37 PM
SENATOR FRENCH asked for the name of the plan.
MR. BALASH replied the title of the organization they are hoping
to enable this year is the "Greater Railbelt Electric
Transmission Corporation" and the second is a "Regional
Integrated Resource Plan."
3:43:49 PM
SENATOR FRENCH asked if the organizations would be "lashed
together" or independent.
MR. BALASH answered the Regional Integrated Resource Plan will
have a contractor who is selected and paid by AEA; that work
will be completed. The question then is who will pick up the
ball and do something with it. If the enabling legislation to
establish the Regional Electric Corporation is secured, then it
would pick up that work product and begin the process of making
the necessary arrangements and securing progress on a given or
multiple project fronts.
SENATOR FRENCH said he thought this was a good idea, but
questioned the extent of a regional company's ability to build a
bullet line or a hydro project or drill for new gas reserves in
Cook Inlet. "Trying to force the producers to drill for gas in
Cook Inlet, I think, is impossible," he said.
MR. BALASH said he suspected you could get a whole lot of
producers to drill in Cook Inlet by offering them $20/mcf
guaranteed for 20 years to drill there. The question is how to
figure out what the right price is and if the market can be
structured to make that happen.
3:47:31 PM
The price is an important consideration in the Plan. You have to
come up with the capital to build the project and then ask how
much the energy will cost delivered and the Plan would outline
that vision.
3:49:03 PM
SENATOR HUGGINS asked Mr. Balash to share that vision with them
and to "fill in the blank" around the contractor piece. And
second, he wanted the thoughts of some of the key players from
the Railbelt on this matter.
MR. BALASH said he didn't have any of the documents related to
the solicitation for the contractors on the Integrated Resource
Plan, but he would get and deliver them to his office.
3:50:30 PM
He said the solicitation has been developed in building off of
the work that was done by the Railbelt Electrical Grid Authority
Study Group (REGA) that was funded by an appropriation out of
the Railbelt Energy Fund in 2006. The study was conducted by the
AEA; their lead contractor was Black and Vetch. A very large
advisory group was assembled consisting of each of the utility
cooperatives, the municipal utilities and many of the other
stakeholders that rely on electricity in the Railbelt region.
They looked at the options for moving forward and planning the
next generation of electricity generation and transmission on
the Railbelt where much of the existing generation
infrastructure needs to be replaced. At the end of the day, the
mission is to provide reliable power at the lowest possible
price to all consumers on the Railbelt grid.
3:53:54 PM
SENATOR HUGGINS said he still hadn't put this concept in a
timeline for "first energy" or indicated where the milestones
are and he wanted to know if the contractor had used the REGA
study elements as a point of departure or were they collating
and integrating it into a plan.
3:54:47 PM
MR. BALASH replied that the nature of the discussion since the
completion of the REGA report has centered on how to transition
and he stated:
There is no easy way to snap your fingers and bring
the assets of each utility into some separate entity,
particularly when you have municipal entities involved
and particular covenants on the debt instruments that
they have used to acquire facilities in the past. Some
of the efforts that Chugach and ML&P have undertaken
to consider a merger - they have discovered quite a
lot of intricacy and difficulty that that would
require. So what we have been working with, a working
assumption as it were, is that the unified corporation
would be enabled this year and then pursue the
necessary transition agreements and commitments in a
shorter period of time. But the actual transition to
participating in the corporation and being availed of
the benefits of the corporation would not necessarily
be completed for as long as 10 years. In some cases
there are assets that need to live out their useful
life; and so there needs to be enough time for that to
occur before the complete transition would take place.
3:57:00 PM
SENATOR HUGGINS said the other part is what the contractor would
do with the REGA study product in shaping it for the Integrated
Resource Plan.
MR. BALASH replied that the final REGA report identified the
various options: maintaining the status quo where six separate
entities continue to transmit and distribute power; and then
looked at various ways to consolidate and otherwise aggregate
the loads and delivery of service. It didn't come out with "you
should do X." It came out with "here are the benefits of doing
W,Y and Z." From that, the AEA has been conducting meetings with
the general managers of the six utilities and chairs of the
boards of directors of the utilities to develop a "white paper"
and getting as much consensus as possible. From there, going to
a drafting stage; from drafting, meeting with the utilities on a
very regular basis and discussing what it needs now and what it
needs later.
At this point in the discussion, he said, they need to enable
the formation of a corporation that would consist of a board of
directors that is representative of each of the utilities that
is participating. That corporation would hire the staff
necessary to start doing the transition agreements for each of
the individual electric utilities, and identify which assets can
be transferred most quickly and which ones need time to just
live out their useful life. He stated:
That process would take place if we're able to
convince the legislature that that legislation is
worthy. If that were to pass this session, the ideal
would be that those transition agreements would start
to be negotiated out - worked out - and available to
understand in time for the next legislative session.
Other issues that need to be specified to the degree
they can be are the ones surrounding financing, in
particular. This history of state corporations in
Alaska is that some are pure start ups that go out and
enter into a business arrangement all on their own and
there are some like AHFC that were capitalized on the
front end. And exactly how this organization will
start out is going to be dependent in large part on
the commitment and willingness of each of the
respective utilities to get with the program.
4:01:13 PM
The policy, as it were, from Governor Palin has been
that it's not appropriate to spend additional state
dollars on the utilities for their benefit until they
start working together. We all know we're all better
off working together as opposed to at ends, and that
if we want to achieve the efficiencies of scale that
are available to all of the rate payers on the grid,
that that kind of collaboration and joint planning and
paying needs to take place.
CO-CHAIR WIELECHOWSKI said when he and Senator McGuire set this
meeting up, the idea was taken from a lot of other legislators -
that Southcentral is running out of gas. Everyone has competing
ideas about how to solve the problem - a bullet line, a spur
line off the large diameter line, import gas from Asia, or drill
in Nenana Basin or Cook Inlet for new gas. They wanted a public
discussion to find out where the administration stands on these
things. He asked Mr. Balash to talk a little bit about what the
best course is. How do they get the lowest cost, most abundant
supply gas to Cook Inlet consumers and the Interior?
4:02:55 PM
MR. BALASH answered that there is a role for government to play,
but the administration's view is that the private sector can
best make those choices. One of the impediments to development
of additional gas resources in the Cook Inlet Basin is the
ability to place that gas into a market. In Southcentral, the
primary markets have been the various utilities, and they have
enjoyed very long contracts that provided most of their service
for a very long period of time - at presubscribed and prescribed
rates. Only in the last decade have people seen the need to
start finding additional supplies to supplement those contracts
that are beginning to run out.
One of the first issues the administration faced in 2007 was the
question of whether or not to support the extension application
of ConocoPhillips and Marathon for their LNG export facility.
Initially the administration wanted to impose a number of
conditions that surrounded the supply of gas to Alaska's
domestic markets on that license. One of the things they
ultimately resolved with the owners of that facility was to make
a portion of its capacity available to third parties who have
gas, the idea being that in order to first encourage people to
find gas, they need to be able to count on a place to sell it.
The terms of the settlement with ConocoPhillips and Marathon on
that point made a segment of their capacity at the plant
available in the two-year extension. If they were going to apply
for another extension, it would be for a five-year extension and
in that five-year extension even more of the plant would become
available to third-party access. The idea was that looking
further out, you create more opportunity in the market place for
someone to place gas if they were to go out and find it.
4:08:11 PM
SENATOR FRENCH asked if access to the LNG plant for those who
drill was added to the export license or would it get added next
time.
MR. BALASH answered that it is a provision in the settlement
agreement between the state and the owners of the facility. It's
not in the export license, itself. It's in effect now, and it
will grow if they apply for another extension.
4:09:01 PM
SENATOR FRENCH said some folks have said it won't be long before
we have to import LNG. He asked if imports would be subject to a
different set of jurisdictional authorities than exports.
4:09:41 PM
MR. BALASH replied that his understanding is when it comes to an
export facility you need permission from the Department of
Energy. If it's an import facility it needs permission from the
Federal Energy Regulatory Commission (FERC).
SENATOR FRENCH asked if the facility could export gas in the
summer and import it in the winter.
MR. BALASH replied that it's hard to say.
SENATOR HUGGINS asked on a scale of one to ten, what is the
likelihood of Cook Inlet gas going to Fairbanks in the next five
years.
MR. BALASH qualified his answer for existing proven reserves to
be a one. If, however, in the next two to three years someone
"breaks their bid off" on 3 tcf/gas, then there's a greater
chance that Cook Inlet gas would go to Fairbanks.
4:12:33 PM
SENATOR HUGGINS said all but one person he has talked to in all
the forums he has been to in that area have said it was
feasible. He reminded them that last year the legislature passed
a resolution saying that instate gas is a priority. Then he
recalled, subsequent to that, there was a news conference that
talked about a public/private entity. Up until that time, they
heard from Enstar that it was going to build a pipeline from the
north down to Southcentral for $3.3 billion. The news conference
said that potentially the prevailing course was taking gas to
the north as a spur off of the big pipeline. He asked if that
was accurate so far.
MR. BALASH responded that he missed a step. At the end of the
session, the governor's office submitted a budget amendment
request for $10 million to go to the Office of Management and
Budget (OMB) for the purpose of "RSAing" to the respective
agencies that could do the work necessary to understand the best
way to deliver gas instate. A particular scope of work was
associated with that and the question was, should the folks at
DNR, the folks at AEA or should the folks at ANGDA do that. The
administration wanted the flexibility to be able to direct that
money as he identified who had the capacity to do the work the
soonest.
At the end of the day, the result was that $4 million went
directly to ANGDA. The administration did not receive any
additional dollars to conduct any sort of work along those lines
beyond what was appropriated for existing agencies and their
existing responsibilities. After the $4 million went to ANGDA in
April, discussions were had between Enstar and ANGDA and the
administration thought there was an agreement in principal to
get everybody working together towards the same ends. But
progress has not been what they had hoped.
4:15:49 PM
SENATOR HUGGINS said he thought there was one other step. When
they were back here in the summer time, there was a $25 million
line item that was being pushed by the administration for ANGDA.
MR. BALASH replied that request was submitted on December 15 for
$5 million; he wasn't sure what happened this last week.
SENATOR HUGGINS said the amount varies depending on what
document you look at.
MR. BALASH agreed and explained that the $25 million to ANGDA
was a request that had been developed in the course of seeking
AGIA license approval in the special sessions. One of the
fundamental questions about AGIA was how Alaskans would get
access to the gas, he explained. They knew the big pipe would
make access available at the off-take points required under the
terms of the license, but the question was how that gas would
get to the markets in-state. He explained further:
At the time, the expectation was that for lack of a
private sector party stepping up and saying they would
do it, that we needed to enable ANGDA to take the
steps necessary to go out and do the permitting and
early design work until such time that there would be
a private sector party to take over. And so that's why
the $25 million at that time was requested. And as the
session completed, there was not any additional
dollars appropriated to ANGDA in the special session.
As we approached the coming legislative session in
putting together the FY10 budget, we really had to
scrub numbers down as best we could, and the decision
was to come in with a smaller bite on ANGDA to make
sure that they could still continue to make progress,
but recognizing that we couldn't necessarily get the
full bite given the state of the price of oil at that
time, which deteriorated further over time.
4:18:15 PM
SENATOR HUGGINS responded:
And we're really getting to what I hope we can improve
upon because I think it's important for the state - is
you're describing some things which are important, but
it's new news to me. And I mean I just challenge
myself, you and the other members and anybody else
that's listening that has a party to this that we
start working together to emerge in these. And the
same thing with developing the process, so that when
you give us legislation we can hit the ground running
and not read the legislation for the first time as the
concept. That is hugely important.
I'll say it one more time - that we need to work
together in the development, at least as information
flow, so that when we receive something we are
prepared to begin the execution phase of it, not just
the education phase of it.
Now, but let me get back on point for my final
question on this - is okay - so there was a news
conference in April or correction, in July, not what
ANGDA has done and not what Enstar has done, what has
the administration done on in-state gas since that
news conference?
MR. BALASH replied:
The administration has continued to work with the
parties in understanding their plans, how they fit
together, how they don't. And in the fall,
particularly, there was quite a bit of activity
relating to the treatment of unit agreements in Cook
Inlet in particular leases - and trying to see if
there was something that could be done to get people
in that part of the state, and in a particular area
over on the west side of the Inlet there, to work
together collectively to make sure that a jack up rig
would actually make it to the Cook Inlet.
It's been a while since a jack up rig has been
available there. I don't remember off the top of my
head exactly what the timeline is, but with regards to
exploration in the Inlet there are some prospects that
could be drilled if a jack up rig were available. And
there would probably be enough work to keep it busy
for a couple of years. The question is who is going to
pay to mobilize it and bring it up, and then guarantee
that it will be returned to whence it came. And the
idea that ultimately came out of some of the disputes
in the Inlet were to try and get various unit holders
and unit operators to work together so that they could
coordinate their activities and assets to make that
happen.
4:21:25 PM
SENATOR HUGGINS said:
It appears to me that the trend in Cook Inlet is just
the opposite - that when you look at Cosmopolitan as
an example and others, and you listen to the people
that are the 'producers' there that they're reducing
their expenditures and they're saying we're not going
to do things because of the economics. But I may be
wrong, but help me out if I am.
MR. BALASH said he isn't wrong, but the question about
activities and expenditures in Cook Inlet depends on what
resource you're talking about. If you're talking about oil, yes
reductions are occurring; people are putting off work if not
cancelling it. Gas has some efforts under way.
4:22:37 PM
SENATOR THOMAS said he gets a lot of questions in Fairbanks from
people along the same lines; they read the paper and some
actually watch "Gavel to Gavel" so they see testimony by various
folks. They watched the state geologists last week saying that
in 10 or 11 years the Cook Inlet supply of gas will be depleted
regardless of what the reserves are. So it seems that getting
the plan evaluated would be a good idea. It's important to get
that rig in there and take the six most probable locations to at
least evaluate. Who's going to pay for it is something
different. If the gas industry thought it was likely that they
were going to find a lot of gas down there, they would probably
be doing it and trying to talk the administration into
supporting a greater export license, because that's where the
market has been.
Also, people are concerned that the pipeline won't get built.
Senator Murkowski's remarks yesterday also caused people to
become even more concerned that the potential for coal bed
methane throughout the U.S. surrounding the area that supposedly
this gas goes into is getting is getting greater all the time.
The question he gets mostly is, "What are you guys going to
do....are we going sit around and wait another two years till
the open season?" He asked what the legislature and the
administration is doing to move forward on supplying a source of
gas which is supposed to be the short term fix.
4:26:32 PM
MR. BALASH responded that with regard to existing resources in
the Cook Inlet, the RCA kicked off a series of conversations in
January regarding gas supply planning for the various pieces of
infrastructure. However, he emphasized that reserves and
deliverability are very different issues and it's important to
understand the differences. Reserves might not be able to
deliver out to the peaks needed on particular cold days even
though they may last for many years. Regulators are doing what
they can to get all of the participants in the system to talk
with each other, but getting a reliable supply of resource to
tie into the Southcentral system is a "tricky question," Mr.
Balash said.
Let's imagine that a bullet line would tie into the
Southcentral system, and it's going to do so on
December 31, 2014. If it's going to deliver 500
mmcf/day on that day, that's going to be a shock to
the system. There's not going to be a light switch
that gets flicked, and you're not just going to shut
down everything in Cook Inlet on that day either.
So, how all of that takes place is something that is
no easy feat, and is one that, in large measure, will
be worked out through and with the various commercial
parties involved - the utilities that consume the gas,
those who might export and those who will deliver. And
all of those things can be accommodated in reasonably
commercial ways when we get nearer to that point, but
that is an issue that has to be taken into
consideration as the various parties needed to make
commitments to actually make a project happen sort
through those issues.
4:30:09 PM
SENATOR HUGGINS said he hit on an important point when he said
"it gets closer for the commercial customers," but it made him
nervous. One of the best things the state could be doing now is
enhancing the commercial customer base, and he emphasized, "We
can't wait." He asked Mr. Balash to explain what he meant by
"closer to it" in getting to first gas.
MR. BALASH replied, if December 31, 2014 is when you want first
gas to be coming from a North Slope pipeline into Southcentral,
the question is how long it will take to construct the pipe. The
people he has talked with suggest that it's going to take three
seasons; that would indicate the year 2011 for what would be a
"sanctioned decision where people sign on the dotted line and
everything gets going." Then the question becomes who needs to
be involved in those discussions and who are the parties going
to be. "Who will deliver the gas? Who will construct the pipe?
Who is going to supply the gas? And who is going to buy the gas?
Those are all elements necessary to make a project real."
4:32:33 PM
SENATOR HUGGINS remarked, "Precisely;" and his said his thought
is very simple:
The state should be facilitating the commercial base
that puts the demand that shines a bright light on the
economics that whoever is going to build the pipeline,
whoever is going to have the gas source has some
confidence that in fact it works - so we can push. And
until we do that, and start creating some certainty
it's always going to be uncertain. It's the same
reason we never built a gas pipeline.
We continue to have these meetings, but we never build
one because we're going to do it later. Everything is
going to be later. I can tell you, the people in
Fairbanks - what I heard from them - and tell me what
did the task force had to say - I'll digress for a
moment. What did the task force find about gasifying
Fairbanks?
MR. BALASH recalled the task force that FedCo put together
called for support for an in-state bullet line type of project.
4:35:35 PM
SENATOR HUGGINS asked what the task force thought about the line
coming from south to north.
MR. BALASH answered he read an earlier draft of the report
briefly, but the conclusion was that it was unlikely that gas
from Cook Inlet would be moving north.
SENATOR HUGGINS asked when the study indicated Fairbanks would
get gas.
MR. BALASH said he couldn't remember what the report said
precisely on that point. He remembered they identified the FNG
project as a potential solution to a lot of the issues that face
the Interior. In terms of a project that has a known supply, of
all the ones they have talked about today, his understanding is
that they are the only ones who do have a supply contract in
hand.
SENATOR HUGGINS said one of the things in Mr. Balash's memo is
the 500 mmcf/day limit on instate gas. It's his thought they
grossly violate that number because every statistic he has
heard, particularly for commercial use, will lower the tariff
and make the gas more economical for his neighbors. What was his
perspective on that.
MR. BALASH responded that the 500 mmcf/day issue is imbedded
within AGIA to make sure the state is perfectly free to do what
it wants to deliver natural gas to residents of the state. The
500 mmcf/day exception in AGIA relates to a competing project
meaning one that is designed to deliver more than 500 mmcf/day
to market, and the state would be in violation of its agreement
with TransCanada Alaska if it extends preferential royalty or
tax treatment or grant of state money to another person. "So, if
the private sector wants to put together a project that is going
to deliver more than 500 mmcf/day and there is no preferential
tax or royalty treatment or grant of state money involved, no
problem."
4:38:13 PM
SENATOR HUGGINS said it appears to him that they have now moved
through the private piece and the center piece of the news
conference said the marketing issue is a "public/private
partnership." He asked Mr. Balash, "Didn't you go down to
Chicago or someplace with Enstar and talk to them?"
4:39:08 PM
MR. BALASH replied that he went down in January with Deputy
Commissioner Rutherford and met with Enstar's executive
leadership and their holding company.
SENATOR HUGGINS said he assumed elements of that were talk about
a "public/private partnership."
MR. BALASH responded the questions they discussed there are what
Enstar saw as the barriers to them pursuing a project, and in
the course of the conversation they described some things that
they thought, after conferring with their lawyers, needed to be
changed in state law. Enstar was under the impression it needed
a specific change in statute to allow for a conditional right-
of-way from the DNR. But they didn't need to do that. For
instance, Mr. Heinze obtained a conditional right-of-way across
the Glenn Highway for the ANGDA project.
Enstar described other things that they saw in state law that
did not necessarily allow a project that they would like to
pursue happen. The issues are ones that appear in the Right-of-
way Leasing Act, the Pipeline Act and the Utility Act.
4:40:25 PM
SENATOR HUGGINS said he heard in a news conference that part of
the concept potentially is using an entity that would have a
bonding authority with tax benefits - potentially an arm of
state government. Does that fall under the provisions of state
participation? Would that put the state in violation of the AGIA
provision?
MR. BALASH responded: "The question is whether or not the state
provides preferential tax or royalty treatment or grant of state
funds. That's what the statute says."
4:41:24 PM
SENATOR HUGGINS agreed and went on, if ANGDA did the financing
for the pipeline and other aspects of it, would Enstar or a
surrogate build the pipeline, and would that be in violation?
MR. BALASH said he was sure some lawyer somewhere would disagree
with whatever answer he provided, so he didn't want to answer.
SENATOR HUGGINS said, "What's your answer, though. You're the
advisor."
MR. BALASH said he wouldn't give him an answer to a hypothetical
question.
SENATOR HUGGINS said the legislature needs to know if that is a
violation.
MR. BALASH responded, "The question I would ask is what would be
the purpose of answering a hypothetical question at this point
when there's not a question in front of the legislature to grant
bonding authorization to an entity to go build a pipeline that
may be more than 500 mmcf/day that may be a competing project
under the terms of AGIA?"
SENATOR HUGGINS asked him to assume that all of those are true.
MR. BALASH said he was not prepared to make that assumption
today.
4:42:58 PM
JOHN LAU, Enstar Natural Gas Company, said he liked Mr. Balash's
explanation of the difference between deliverability of gas and
gas reserves. He thought the lines would intersect in 2013/14.
He commented that even though you may produce as much as you
can, you do not have total annual capacity to fit the needs. At
that point, imports will be needed along with already-installed
storage. These concepts marry well with a pipeline project
because Cook Inlet needs as much storage as is economically
feasible. As to the ramp up issue, it's important to understand
that when the pipeline is "turned on" it runs at as a high a
capacity as it can right away.
4:44:43 PM
SENATOR THOMAS said that several demand studies for the state
had been done; the most recent comprehensive one was done when
Agrium was still operating. The study considered doubling
Agrium's consumption over a period of time, it didn't consider
any more exports. It considered every utility that has a coal
generating facility would be converted to gas, and that there
would be gas into areas, but there was no real consideration of
how it would get there - it was used as an expansion. It also
included discussion about computer-server warehouses as a new
industry and a variety of other uses - and at that point, 500
mmcf/day would be the state's need - in 2020. He asked what the
administration foresees as the need and how that would impact
the economics of Enstar's gasline should the Gubik gas become
available in 2016.
MR. LAU said that was an old study, and that Enstar, ML&P and
Chugach Electric are amending their 10-year gas deliverability
plan. He said there has to be a change within one year because
their current contracts will no longer be in place in two years.
Deliverability can be hobbled together for a few more years and
then they will get to the point of no longer being able to
provide peak deliverability in the winter on the coldest day.
4:49:36 PM
HAROLD HEINZE, Alaska Natural Gas Development Authority (ANGDA),
said Mr. Balash had very completely, fairly and accurately
summarized the events that are on the table.
4:51:29 PM
SENATOR WAGONER wanted Mr. Balash to talk about the RCA's denial
of two contracts for gas supply that have been negotiated over
the last three year period and the negative impacts those are
having on gas exploration throughout Cook Inlet.
4:52:35 PM
MR. HEINZE said when he talks about instate gas, he is talking
about citizen consumers; they are the ones who pay and are at
risk. Their consideration when they are the dominant players of
public private partnership is probably entirely appropriate.
When it's dominated by industrial customers, they make less
sense. Scott Baliss is currently doing a study that looks at the
very basic ideas of public/private partnership as they apply to
an instate gas pipeline and he will share those with them.
He also reminded them that the Denali and AGIA open seasons are
scheduled for the summer of 2010. Background information says
that the FERC process that both will operate under if the state
doesn't participate in the form of its utilities seeking long-
term commitments to ship gas, we are at a tremendous
disadvantage beyond that initial open season. So, one of ANGDA's
main focuses has been on that and that is their highest
priority.
Finally, he visualized three or four months from now that
somebody in the Nenana Basin, Cook Inlet, Gubik, or somewhere
would find gas. "All we need is one success in any one of those
places and the dynamics of all this change instantly." A lot of
stuff is in play over the next two years; the state needs to
keep its options open and he looks forward to the continued
guidance from the administration on how to advance on as many
fronts as they can.
4:55:55 PM
CO-CHAIR WIELECHOWSKI said he personally agreed with the RCA's
decision and asked Mr. Balash if he wanted to comment on Senator
Wagoner's question.
MR. BALASH said he wanted to comment on something Mr. Heinze
just mentioned in terms of the need for the utilities in
question to make commitments at the initial open season on the
big pipeline projects. He couldn't speak for Denali, but for the
AGIA licensed project, one of the commitments made by the
licensee was to solicit demand every two years and to provide
service along the pipeline to instate destinations. If our
utilities aren't prepared to make a very large financial
commitment on the close of the open season in July 2010, there
will be another opportunity just two years later.
4:58:16 PM
With regard to the RCA ruling, he observed as a person who had
once worked with the legislature, that the last contracts that
were approved were in 2002. In the preceding events and actions
that have taken place, the term of the contract, the price
offered by the producers in question and the range of service
offered by the producers in question have all in some ways
deteriorated. The term has gotten shorter; the price has gotten
higher and the service has gone from all requirements and full
service to peak and load pricing.
That's not to say these things are bad or shouldn't be taking
place, he said, but one of the things he has heard is a point of
frustration for the members of the Commission is that they can
only make a decision based on the record in front of them.
Perhaps the administration can do more with regard to completing
that record with options and other considerations that might be
useful as they weigh the given components of a given contract.
5:00:58 PM
SENATOR WAGONER said the main point of his question was to bring
out the fact that although people are trying to explore for gas,
if they can't find a market to sell it into, they will take
their money and go elsewhere. Therefore, if they can't find a
solution to the RCA problem and gas producing problem, they
won't have anybody who wants to drill in Cook Inlet. "Actually,
they want to drill for oil and maybe find gas."
5:01:54 PM
CO-CHAIR WIELECHOWSKI thanked everyone for their comments and
adjourned the meeting at 5:01.
| Document Name | Date/Time | Subjects |
|---|