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