Legislature(2013 - 2014)ANCH LIO Rm 220
05/30/2013 10:30 AM Senate RESOURCES
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| Lng Update and Report on the 17th International Conference And|| Exhibition on Liquefied Natural Gas | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
JOINT MEETING
SENATE RESOURCES STANDING COMMITTEE
HOUSE RESOURCES STANDING COMMITTEE
May 30, 2013
10:30 a.m.
MEMBERS PRESENT
SENATE RESOURCES
Senator Cathy Giessel, Chair
Senator Fred Dyson, Vice Chair
Senator Click Bishop
Senator Anna Fairclough
HOUSE RESOURCES
Representative Dan Saddler, Co-Chair
Representative Peggy Wilson, Vice Chair
Representative Mike Hawker
Representative Kurt Olson (via teleconference)
Representative Paul Seaton
Representative Geran Tarr
Representative Chris Tuck
Representative Craig Johnson
MEMBERS ABSENT
SENATE RESOURCES
Senator Peter Micciche
Senator Hollis French
Senator Lesil McGuire
HOUSE RESOURCES
Representative Eric Feige, Co-Chair
OTHER LEGISLATORS PRESENT
Representative Gabrielle LeDoux
COMMITTEE CALENDAR
LNG UPDATE AND REPORT ON THE 17TH INTERNATIONAL CONFERENCE AND
EXHIBITION ON LIQUEFIED NATURAL GAS
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
LARRY PERSILY, Federal Coordinator
Alaska Natural Gas Transportation Projects
Washington, D.C.
POSITION STATEMENT: Presented information about changes in the
global LNG market.
DAN SULLIVAN, Commissioner
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Presented information related to
commercializing Alaska LNG.
JOE BALASH, Deputy Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Presented information related to
commercializing Alaska LNG.
DAVE ROBY, Senior Reservoir Engineer
Alaska Oil and Gas Conservation Commission (AOGCC)
Anchorage, Alaska
POSITION STATEMENT: Presented information related to AOGCC's
role in approving gas sales.
FRANK RICHARDS, Manager
Pipeline Engineering and Government Affairs
Alaska Gasline Development Corporation (AGDC)
Anchorage, Alaska
POSITION STATEMENT: Presented information related to the Alaska
Gasline Development Corporation project.
STEVE BUTT, Project Manager
South Central LNG Working Group (SCLNG)
ExxonMobil
Anchorage, Alaska
POSITION STATEMENT: Presented information related to the Alaska
SCLNG project.
MARY ANN PEASE, Vice President and General Manager in Alaska
Resources Energy, Inc.
Anchorage, Alaska
POSITION STATEMENT: Presented information related the REI
Feasibility Study.
YUTAKA NAGASHIMA, Officer and Vice President
Resources Energy, Inc.
Tokyo, Japan
POSITION STATEMENT: Presented information related the REI
Feasibility Study.
PAUL FUHS, Lobbyist
Anchorage, Alaska
POSITION STATEMENT: Presented information related the REI
Feasibility Study.
ACTION NARRATIVE
10:30:38 AM
CHAIR CATHY GIESSEL called the joint meeting of the Senate and
House Resources Standing Committees to order at 10:30 a.m.
Present at the call to order were Senators Dyson, Fairclough,
Bishop, and Chair Giessel.
Co-Chair Dan Saddler introduced the members of the House
Resources Committee. Present at the call to order were
Representatives Hawker, P. Wilson, Seaton, Olson (via
teleconference), Tuck and Co-Chair Saddler.
^LNG Update and Report on the 17th International Conference and
^Exhibition on Liquefied Natural Gas
LNG Update and Report on the 17th International Conference and
Exhibition on Liquefied Natural Gas
10:33:13 AM
CO-CHAIR SADDLER welcomed members of the committee and public.
He stated that Alaskans are justly proud of their record of
providing energy to the state, nation, and world. He pointed out
that global natural gas markets are changing and evolving, and
it is important for the legislature to keep up with developments
related to LNG.
CHAIR GIESSEL noted the arrival of Representative Geran Tarr.
10:34:41 AM
CHAIR GIESSEL reported that she attended the 17th International
Conference & Exhibition on Liquefied Natural Gas (LNG 17) in
Houston last month. She shared several of the takeaways of the
conference. Alaska is in a race with Mozambique for exporting
natural gas. The Panama Canal renovation is nearly complete,
which will make the Gulf of Mexico export facilities more
accessible to Asia. She noted that British Columbia recently
elected a pro-development government and is advocating for
natural gas export out of Kitimat. She emphasized that this is
Alaska's competition, and another reason for the meeting today.
She directed attention to maps on display in the room showing
importing and exporting countries, pipelines, and tankers. She
described the format for the meeting and highlighted that the
presentations were on BASIS under the Senate Resources
Committee.
CHAIR GIESSEL announced that the first presenter would be the
federal coordinator from the Office of the Federal Coordinator
for Alaska Gas Line Projects. She welcomed Mr. Persily and noted
that he, too, attended LNG 17.
10:36:43 AM
LARRY PERSILY, Federal Coordinator, Office of the Federal
Coordinator for Alaska Gas Line Projects, stated that he would
brief the committees on what is happening in the global LNG
market, and what that could mean for Alaska. He warned that any
line that brings gas from the North Slope to a liquefaction
plant at tidewater in Southcentral will be more expensive than
the gas that has been coming out of Cook Inlet for the past 40
years. Whether Alaska sells any LNG from the North Slope to
overseas markets will depend on the cost of getting Alaska's gas
to market and finding buyers willing to pay for it on a long-
term basis. Because there are many options for LNG worldwide,
Alaska gas has to be cost competitive, he said.
10:38:33 AM
MR. PERSILY directed attention to a quote he enjoys from a
Japanese official who is brutally honest about playing one
country against another so that Japan can get the steepest
discounts for gas.
He reviewed statistics about the world market, and noted that
the total worldwide LNG demand in 2012 was about 32 billion
cubic feet per day. The big players that Alaska is looking at
are in Taiwan, India, China, South Korea, and Japan. Some of
those markets are relatively small compared to North America
which is close to 80 billion cubic feet per day (bcf/day), but
they are the preferred market today given price and growth
potential.
MR. PERSILY reported that since about 2006 gas consumption in
China has outpaced production. Starting in 2009, they imported
pipeline gas from Turkmenistan. Today about half China's
imported gas comes by pipeline and about half by LNG. He
directed attention to a chart showing that in 2011, 69 percent
of China's energy came from coal. He emphasized the huge growth
potential if China decides to address air quality by turning to
a cleaner burning natural gas.
10:40:39 AM
MR. PERSILY talked about Alaska's competitors. Qatar is the
largest supplier of LNG in the world with more than 10 bcf/day
capacity or 30 percent of the global demand in 2012. Qatar
profited with oil linked prices when Japan shut down its nuclear
plants following the Fukushima disaster in 2011, but they have
no new projects planned. Australia brought a new plant on line
and seven more are under construction, bringing their export
capacity to $200 billion. By the end of this decade they will
overtake Qatar as the world's largest LNG supplier, judged by
capacity. Angola has a 700 mcf/day LNG project scheduled to come
on line this summer with Chevron, Total, Eni, and BP as
partners. Papua New Guinea has a 900 mcf/day LNG plant that is
scheduled to come on line in 2014 with Exxon and Papua New
Guinea as partners.
He continued to discuss Alaska's competition. Russia has one LNG
export terminal at Sakhalin and three more are proposed. Gazprom
is looking at Vladivostok in the Soviet Far East; a competitor
of Gazprom is looking at another project in Sakhalin; and
NOVAREK and Total are looking at an LNG export project in Yamal.
Off the east coast of Mozambique and Tanzania 120 tcf of gas has
been discovered. The explorers there include Anadarko, Eni,
Statoil, BP Group, ExxonMobil and others. Between Israel and
Cyprus 40 tcf of gas has been discovered offshore in the Eastern
Mediterranean. Production started this year and the gas is piped
into Israel. Although there is talk of an export plant for LNG,
nothing is under construction.
In Canada, several LNG plants have been proposed for Kitimat and
Prince Rupert on the British Columbia coast. BP Group is looking
at Prince Rupert; Shell along with partners Mitsubishi,
PetroChina, and Korea Gas are looking at Kitimat; Petronas is
looking at Prince Rupert; a partnership of Chevron and Apache
has started site preparations at Kitimat. These British Columbia
LNG export projects are all in different stages, but none have
everything they need: export approval, construction, permits,
final investment decision, financing, and customers.
10:44:00 AM
CHAIR GIESSEL recognized that Representatives Andy Josephson and
Craig Johnson had joined the committee.
MR. PERSILY related that in the past decade billions of dollars
of import terminals were built in the Lower 48 when it appeared
that North America was going to need to import gas. Shale gas
was subsequently produced and those regasification terminals are
sitting unused. Operators would like to convert those facilities
to export terminals and Cheniere Energy will start production
from its Louisiana liquefaction unit in late 2015. It took nine
months for the Energy Department approval. On May 17, 2013 the
U.S. Department of Energy approved an export project at Freeport
Texas, but this approval took 30 months. These two terminals
will have capacity to liquefy and export 3.6 bcf/day of gas,
which is more than 10 percent of global demand last year.
Chenier Energy has fully subscribed the output from the four
production units and has buyers in India, U.K., Korea, and
Spain. Freeport has fully subscribed production from its first
two LNG trains.
He noted that there are 19 more applications awaiting Energy
Department approval. Some have preliminary off-take agreements
with buyers, but they're all conditional on getting Energy
Department approval, a FERC certificate for the plant itself, a
final investment decision, and financing. In testimony before
the Senate Energy Committee the department hinted it will try to
resolve one application every 60 days, including an assessment
of the cumulative impacts of each succeeding request. He
acknowledged that not all of these projects will be built
because there isn't the demand worldwide. Analysts estimate that
5.6-8 bcf/day of Lower 48 export capacity will be built by 2020,
half of which has already been taken by Cheniere and Freeport.
He noted that these estimates generally do not include what may
or may not come from Alaska.
10:47:45 AM
MR. PERSILY stressed that all the competing projects have
problems such as high cost overruns, politics, environmental
concerns, concerns about domestic prices, expensive pipelines,
distance to markets, long development times, and domestic energy
needs. He gave examples.
MR. PERSILY said that Australia has tremendous cost overruns on
construction. Three projects under construction have cost
overruns of 43 percent, 25 percent, and 15 percent.
Environmental concerns about water quality are building over the
production of coal-seam gas, which will feed half the projects
under construction. Domestic consumers worry that higher price
deliveries to Asia will drive up domestic prices for gas, and
producers fear that the government will require production set
asides for domestic users. Unions and politicians are starting
to complain about jobs potentially going overseas for the
construction of modules for liquefaction plants and floating LNG
processing ships.
10:51:29 AM
MR. PERSILY discussed Canada's problems. Shale plays to feed the
export plants in Kitimat and Prince Rupert are undeveloped,
remote, and very expensive. One estimate is that gas from the
Montney shale play in British Columbia could cost $3.50-$4.50
per thousand cubic feet (million BTU) to produce at a 10 percent
internal rate of return. This does not include the leasehold
acquisition or exploration costs. It's also problematic that the
proposed pipelines have to cross two mountain ranges. PETRONAS
has selected TransCanada to build a 470 mile pipeline from its
fields into Prince Rupert at an estimated cost of $5 billion
plus an additional $1 billion plus for the connecting lines.
Spectra Energy has been selected to build a 290 mile pipeline to
Kitimat for about $1.5 billion. He emphasized that project
developers consistently have said they need oil-linked pricing
in Asia to pay development costs in British Columbia. First
Nations have raised concerns about coastal tanker traffic and
air quality; there is concern that opposition to oil sands
pipelines could spill over to natural gas pipelines; and
"fracking" opponents are raising questions about shale gas
production in British Columbia.
10:54:59 AM
MR. PERSILY described Russia's LNG problems. Gazprom has the
export monopoly for Russian gas and has little interest in price
restructuring. The Russian government depends on Gazprom for
revenues and they're falling as Gazprom loses market share in
Europe. Buyers may like Russian gas but they don't entirely
trust Russian politics. Russian gas is largely remote and costly
to develop. Gazprom has proposed building a 2,000 mile pipeline
to take Siberian gas to an LNG terminal in Vladivostok and on to
China. That project, called Power Siberia, is estimated at $50
billion. The Yamal project envisions taking LNG tankers to Asia
in the summer and to Europe the rest of the year. That project
would be dependent on government-supported icebreaker escorts.
Although Russia and Japan are talking about gas deliveries, they
have unresolved disputes from World War II over islands. He
noted that China and Russia also have trust issues.
10:57:24 AM
MR. PERSILY discussed East Africa's problems. There is a lot of
gas, but little infrastructure in Tanzania and Mozambique. The
Tanzania government wants to adopt upstream oil laws by 2014 and
a proposal includes national oil and gas companies and a gas
revenue fund. Recently the citizens of Tanzania protested the
gas pipeline plan, demanding more local benefits. The World Bank
ranked Tanzania 134th and Mozambique 146th out of 186 nations in
its "Doing Business 2013" report. Statoil admits that a final
investment decision on doing business in East Africa would be at
least three years away. Furthermore, the voyage from East Africa
to Japan or China is farther than it would be from Alaska.
He mentioned that although Israel has 40 tcf of gas, it also has
serious energy security concerns.
10:58:40 AM
MR. PERSILY detailed problems in the Lower 48, including long,
costly tanker runs from the Gulf Coast to Asia. The voyage is
three times as long as from Alaska. Tariffs will be
substantially higher (with some estimates as high as $4 per
million BTU) to tanker gas from the U.S. Gulf Coast into Asia.
The Panama Canal expansion project is more than $5 billion and
those tolls will reflect the cost of repaying that debt. Going
through the Panama Canal will still be cheaper than around South
America and that will dictate their prices. If U.S. gas costs
$5, it will be $12-$13 by the time it reaches Asia. He noted
that Goldman Sachs recently reported that to compete in Europe
U.S. gas would need to stay under $5 to be competitive. There
are fears in Washington that if too much gas is sent overseas it
will drive up costs to U.S. manufacturers and utilities, but if
U.S. gas is too expensive the buyers won't take the cargos.
They'll pay the reservation fee for the liquefaction plant
capacity, but they won't take more LNG than they can sell at a
profit.
Other problems include the 19 applications awaiting approval by
the Energy Department and the warning that fracking opponents
will oppose all LNG export projects. Litigation will delay
development and raise costs.
MR. PERSILY discussed Alaska's advantages. It is closer to Japan
than the U.S. Gulf Coast and East Africa, British Columbia, and
Russia. Gas production costs are lower than undeveloped fields
in other plays. There are proved reserves. Oil is paying the
bills for the North Slope infrastructure, and Alaska has a known
political and legal structure.
He said Alaska's disadvantages are obvious: 800 miles of
multibillion-dollar steel pipe across the Arctic, buried in
permafrost, high construction costs, seasonal restrictions on
construction, limited window for barge deliveries to the North
Slope, and stronger environmental laws than most countries.
MR. PERSILY discussed LNG pricing. He said the grip of strict,
oil-linked pricing is slipping, and there is pushback in Asia
against that linkage. They are looking for price and delivery
flexibility and perhaps a blend of oil linkage and gas market
pricing. Japan and the European Union have the same problem and
are meeting June 7 to discuss a joint study on LNG pricing and
markets.
11:04:21 AM
MR. PERSILY highlighted the "what ifs" that matter. Will China
get into the shale gas business? Will their demand for energy
build or slow down? Will they decide that pipeline gas is
cheaper? Will China and Russia come to agreement on a pipeline?
Will China continue to want to clean up air quality and burn gas
instead? Will Japan restart some or all of the 50 nuclear power
plants that are still shut down? Will Europe develop shale gas
and will their energy demand increase. Will Gazprom discount its
gas to preserve market share? In China, India, Malaysia, the
Philippines and elsewhere in Asia the government sets prices on
natural gas. If the governments let prices rise to market level,
will demand decline?
He concluded that Alaska can get into the LNG market and it can
be competitive, but it has to compete on price with all the
other suppliers going after the same buyers. He stressed that
Alaska has to be realistic about its financial expectations for
a project to succeed. He warned that it's necessary to judge an
LNG project not just by the benefits of tax and royalty dollars,
but by the benefits of having gas available to Alaskans and
extending the life of the North Slope as both a gas and oil
play.
11:07:47 AM
SENATOR FAIRCLOUGH referenced the time limit restrictions on
export permits placed by the Department of Energy. She asked if
Alaska's old export license is still usable.
MR. PERSILY said there was no time limit when the Yukon Pacific
export application was granted 20 years ago. He offered his
understanding that the license was for a specific project, and
if someone wanted to build an onshore project now they'd need a
new approval. He added that the good thing about Alaska is that
it is completely separate from the Lower 48 and not part of that
export debate. Thus, the application and approval process would
be much cleaner.
11:09:43 AM
SENATOR DYSON asked if unconventional gas production has the
profound production decline as tight sands.
MR. PERSILY replied there is a steep decline rate on shale gas
wells, but there is plenty of known gas and Lower 48 drilling
costs are relatively low. He cited Pennsylvania as an example.
SENATOR DYSON asked if it's still largely true that fertilizer
plants can't compete on market price on gas.
MR. PERSILY said there is a resurgence of petrochemical
manufacturing in the Lower 48, and an Egyptian company is
building a large fertilizer plant in Iowa.
SENATOR DYSON asked if the experts think Southeast Asia will
move away from coal.
MR. PERSILY replied the supporters of clean air hope that is the
case.
11:12:28 AM
CO-CHAIR SADDLER asked him to amplify the warning that the
benefits of LNG for Alaska may go beyond taxes and royalties.
MR. PERSILY said there is not as much profit in natural gas, but
it's still possible to get some money and decades of affordable
gas and help extend the life of the oil and gas industry. He
noted that the administration is preparing to discuss fiscal
terms with producers and the Department of Natural Resources put
out a request for proposals (RFP) to assemble more information
on royalty regimes worldwide. Alaska wants a fair share on tax
and royalty, but it really needs the project.
CO-CHAIR SADDLER asked about the window for deciding on the best
deal.
MR. PERSILY offered his view that the windows never close
permanently. It's a matter of how soon you want it and how hard
you want to work at it, he said.
11:15:17 AM
REPRESENTATIVE JOHNSON inquired about the world capacity of ship
building.
MR. PERSILY opined that companies would have sufficient time to
have tankers available when they are needed.
REPRESENTATIVE JOHNSON asked about the potential for
liquefaction on board.
MR. PERSILY said that Shell has a contract with a South Korean
shipyard to build a floating LNG facility. There is also some
discussion of floating LNG in the U.S. Gulf Coast. In some cases
it avoids the controversy of onshore facilities, and provides
maneuverability.
REPRESENTATIVE JOHNSON clarified that he was referring to a
self-propelled ship that has liquefaction capability, not a
barge that needs to be towed. He asked if those were in the
works.
MR. PERSILY said the floating LNG facilities he is aware of are
not self-propelled, although they have bow thrusters. He added
that there are LNG tankers that regasify the liquid on the ship
then pipe the gas into the distribution system that's ashore.
This avoids the expense of regasification facilities ashore.
11:19:08 AM
CO-CHAIR SADDLER offered his understanding of the Shell contract
with South Korea.
MR. PERSILY clarified that the vessel would be towed and
positioned over an offshore gas field where it would operate for
as long as it's economical.
CHAIR GIESSEL thanked Mr. Persily and introduced Dan Sullivan
and Joe Balash.
11:20:28 AM
DAN SULLIVAN, Commissioner, Department of Natural Resources
(DNR), introduced himself.
JOE BALASH, Deputy Commissioner, Department of Natural
Resources, introduced himself.
COMMISSIONER SULLIVAN thanked the committee for the opportunity
to present information on commercializing Alaska LNG. He
explained that the presentation would have three parts: an
update on natural resource and energy issues since the end of
the legislative session; discussion of LNG 17; and federal/state
regulatory issues. He thanked the legislature for its productive
accomplishments this last session, and complimented Mr. Persily
for his work and close cooperation with the state.
He explained that last week the Oil and Gas Resource Evaluation
and Exploration Proposal for the Arctic National Wildlife Refuge
(ANWR) 1002 Area was presented in Washington, D.C. at a press
conference. He noted it is a 200-page scientific, document that
looks at an exploration proposal and highlights issues specific
to Alaska. He termed it a modest proposal that seeks bipartisan
support.
He highlighted the legislative component to this proposal.
Governor Parnell, in a letter to Interior Secretary Jewell,
pledged to request up to $50 million from the Alaska State
Legislature to help fund the 3D seismic program for the 1002
Area.
11:25:52 AM
COMMISSIONER SULLIVAN said he and others posed the question,
"Why wouldn't you want to know?" to federal officials in
reference to the ANWR 1002 area.
He turned to information about recent activity in Cook Inlet. He
spoke of a successful lease sale in May, and stressed that Cook
Inlet is a useful, instructive model when considering the North
Slope. He described the process, aggressive advocacy, and
legislative work that led to the Cook Inlet renaissance. He said
he sees this as a bridge to a big gas pipeline. He further noted
that the legislature provided DNR with more tools to incentivize
production, HB 129 and HB 198.
11:30:00 AM
COMMISSIONER SULLIVAN talked about the Interior Energy Plan,
Alaska Industrial Development & Export Authority (AIDEA)
financing, and shipping possibilities. He emphasized the ongoing
due diligence on potential sites and locations. He mentioned, in
particular, the potential to access gas by extending the
existing line south about 28 miles through the Department of
Transportation's Chandalar Shelf.
11:32:31 AM
COMMISSIONER SULLIVAN turned to the 17th International
Conference & Exhibition on LNG. He emphasized that the
conference was an important chance to highlight Alaska. He
displayed a picture of conference attendees.
He talked about a memo of understanding with the Department of
Energy, and the keynote speaker's comments about continued
cooperation and research funding on unconventional hydrocarbons
and how to get them to market.
11:36:55 AM
COMMISSIONER SULLIVAN briefly reviewed the LNG 17 presentation
he made at the conference, which included updates on the
projects and the comparative advantages relative to the
competition. He focused on the theme of government backing and
support with regard to the Alaska Pipeline Project (APP) and the
Alaska Gasline Development Corporation (AGDC). He emphasized
that integrating efforts is key.
COMMISSIONER SULLIVAN mentioned the significant progress in
producer alignment, the Point Thomson Settlement, timelines,
concept selection, and Alaska's comparative advantages relative
to the competition. He emphasized that only Alaska can say there
is essentially zero resource risk.
He directed attention to a map that illustrates the comparative
advantage of shipping from Alaska to Asia. It avoids the
complications of the Panama Canal or other strategic choke
points.
COMMISSIONER SULLIVAN briefly touched on regulatory permitting
issues. He spoke of positive meetings with senior federal
officials and the permitting advantages Alaska has. He talked
about the interactions with the Department of Energy.
11:47:54 AM
COMMISSIONER SULLIVAN expressed cautious optimism that
stakeholders, markets, and key players are beginning to align.
If one of those entities is not aligned, it becomes more
difficult. He voiced appreciation for the work during the most
recent legislative session.
COMMISSIONER SULLIVAN concluded that the strategic vision/goal
is two big lines full of North Slope oil and gas.
11:52:15 AM
CHAIR GIESSEL spoke of the need for exports in order to provide
Alaskans with affordable energy. She said that's the goal that
motivates most legislators.
SENATOR DYSON said he was disappointed to hear Cook Inlet
described as just a bridge. He maintained that there is enough
resource in that basin for many years. He inquired what happened
to change the perception that Cook Inlet could be a long-term
supply.
COMMISSIONER SULLIVAN clarified that he emphasized the bridge
because he didn't want the good news in Cook Inlet to cause a
loss of focus on a gas pipeline from the North Slope.
SENATOR DYSON asked how Alaska will know that the major
producers on the North Slope are willing to sell gas. He gave an
example of an Asian buyer, and wondered about assurance of the
supply.
COMMISSIONER SULLIVAN replied that all players are included in
the discussion in order to make North Slope gas cost effective.
It should be cost competitive and able to compete on global
markets.
11:59:06 AM
SENATOR DYSON restated the question. Before any project goes
forward there has to be some point at which the producers have
to say they will or will not sell the gas. He emphasized the
required components are customers, a delivery system, and a
willing seller.
MR. BALASH stated that there is a deeply held desire on the part
of Alaska to see North Slope gas commercialized. The
administration has called on the parties to meet the milestones
and show Alaskans that they are serious. He said he is not aware
of anyone who has a credible offer on the table, but he remains
optimist.
SENATOR BISHOP requested a follow-up during lunch regarding a
line extension through the Chandalar Shelf.
REPRESENTATIVE TARR asked about the second part of the proposal
regarding the state's investment in the exploration of the 1002
Area.
COMMISSIONER SULLIVAN reiterated that the State of Alaska
proposal is a detailed, scientific document. [In addition to the
federal laws mentioned,] there is the opportunity additionally
in federal law to put forward an exploration plan. He estimated
that it would be a month or so before the plan would be ready.
REPRESENTATIVE SEATON said his interest is piqued by the
pipeline extension south through the current corridor. He asked
if DNR is looking at that as an option to get gas to Fairbanks.
COMMISSIONER SULLIVAN replied a whole range of options are being
considered, most of which have complications and technical
issues.
12:06:56 PM
CHAIR GIESSEL thanked the presenters and expressed appreciation
for the department's creative approach.
She introduced Dave Roby and asked him to review the process
AOGCC goes through to sell gas.
12:07:32 PM
DAVE ROBY, Senior Reservoir Engineer, Alaska Oil and Gas
Conservation Commission (AOGCC), introduced himself and read the
following into the record: [Original punctuation provided.]
The AOGCC is a quasi-judicial regulatory agency that
is tasked with overseeing certain aspects of oil and
gas and geothermal activity on all lands within the
State of Alaska. The AOGCC's authority includes
issuing permits to drill wells and perform work on
existing wells, regulating the injection of fluids for
enhanced recovery, underground storage, and some waste
disposal operations, and regulating operations to
prevent waste and maximize ultimate recovery.
That last part is what is of relevance to today's
discussion. The AOGCC has a statutory obligation to
ensure that oil and gas resources are not wasted and
that total hydrocarbon recovery is maximized for
fields and pools. I'm going to talk today a little
about what the AOGCC has done in the past, is doing
today, and will do in the future in regards to gas
offtake and ensuring we meet our mandate to prevent
waste and increase ultimate recovery. I will focus on
gas offtake from oil fields because by far the two
largest known accumulations of conventional gas in the
state, Prudhoe Bay and Point Thomson, are classified
by the AOGCC as oil fields.
On June 1st, 1977, the AOGCC issued Conservation Order
No. 145 establishing pool rules for the Prudhoe Oil
Pool and set maximum offtake rates of 1.5 million
barrels of oil per day and 2.7 billion cubic feet of
gas per day, which was to cover the field's fuel gas
needs and provide 2 BCFPD for gas sales that were
expected to begin about 5 years after oil production
commenced. Obviously, those initial plans changed.
Over the years the pool rules for the Prudhoe Oil Pool
have been amended several times, but the offtake rates
have never been modified and are still in effect
today.
About 8 years ago the AOGCC began to seriously look
into whether the gas offtake rate for the Prudhoe Oil
Pool should be revised. This ended up being a multi-
year process that involved the AOGCC hiring a
contractor to help us evaluate the reservoir model
that the Prudhoe Bay working interest owners have
developed and various gas sales scenarios that were
run through the simulation model. In a nutshell we
found that there is a large variation in the total
hydrocarbon recovery between the various scenarios and
some of the key factors are when the gas sales start,
what the rate of gas sales are, and what is done to
accelerate oil production prior to commencement of gas
sales. On July 10th, 2007, the AOGCC issued a decision
that no revision to the gas offtake rate was necessary
at that time. A key conclusion from that decision was
that there was "insufficient information on which to
justify increasing the offtake rate above 2.7 bscfd,
but [the Prudhoe Oil Pool Gas Offtake Study] concluded
that an early, high rate gas sale could result in the
loss of a substantial volume of hydrocarbons, but even
greater volumes could be lost if gas sales are too
delayed." The AOGCC still believes this conclusion to
be valid and we don't believe there's any point in
looking in to revising the offtake rate until a firm
plan can be presented since there are so many
variables to consider when determining if a gas
offtake plan is a good one or a bad one.
Additionally, it has been the AOGCC's position that
any gas sales plan from Prudhoe, even one that called
for gas offtake rates less than the 2.7 BCFPD
currently "authorized" would require AOGCC review
because the conditions and assumptions that the 2.7
BCFPD rate were based on are no longer valid. For
example, the Prudhoe Oil Pool is now expected to
produce around 14 billion barrels instead of the 9
billion that was originally expected, the reservoir
pressure is now significantly lower than it was then,
the gas composition has changed due to cycling gas
through the reservoir, and the method of field
development has changed from a waterflood to an
enhanced oil recovery process using miscible gas
injection.
There are actually numerous small sales of gas
occurring on the North Slope that the AOGCC has
authorized because either the rates involved are de
minimis, this includes the "sale" of gas from the
Colville River Unit to the village of Nuiqsut that was
necessary to meet a contractual obligation to provide
the village with free gas and sales of fuel gas from
the Kuparuk River Unit to the Oooguruk and Nikaitchuq
Units, or because it was expected that the sale from
one field to another would allow for a net increase
total hydrocarbon recovery, this includes gas shipped
from Prudhoe Bay to the Kuparuk River and Northstar
Units that is used for enhanced oil recovery purposes.
In order to receive a gas offtake allowable an
operator must make an application to the AOGCC and
provide supporting documentation that shows that waste
will be prevented and that ultimate recovery of
hydrocarbons will be maximized. The AOGCC will then
schedule a hearing on the matter and provide the
opportunity for public comments and testimony. We will
then review all the information available to us and
make a decision on whether or not to grant a gas
offtake allowable, and if so what rate to authorize.
The amount of time it would take the AOGCC to complete
its review is dependent on many factors. Generally
speaking, the larger the gas offtake volume requested
and the larger the volume of hydrocarbons in the field
the more complex, in depth, and time consuming the
AOGCC review process will be. The AOGCC's review
process will also be impacted by the completeness and
quality of the application received from the operator.
In anticipation of someday receiving applications for
very high gas offtake rates for the Prudhoe Bay and
Point Thomson fields the AOGCC undertook reservoir
studies of both fields so that we would have a better
understanding of the impacts that major gas sales
might have on those fields. The study of Prudhoe Bay
was completed in 2007 and the Point Thomson study is
ongoing but nearing completion. Both of these studies
were multi-year projects, so completing them ahead of
an application for a gas offtake allowable should
allow for the AOGCC to act upon those applications
much more quickly than would otherwise be possible.
12:14:21 PM
REPRESENTATIVE SADDLER asked if legislators and others should
refrain from drawing any conclusions about potential offtake
rates.
MR. ROBY replied the AOGCC's position is that the 2.7 bcf/day
offtake is based on inaccurate assumptions that are no longer
applicable.
12:15:33 PM
CHAIR GIESSEL asked how to equate tonnes versus mcf or bcf.
MR. ROBY suggested she ask Mr. Persily because he didn't know
the conversion.
REPRESENTATIVE TARR asked if AOGCC would communicate with the
Resources Committees when the Point Thomson reservoir study is
complete.
MR. ROBY said that once the study is finished there will be a
public information version made available. It will likely be
introduced in a hearing in June. He didn't know if there would
be direct communication with the legislature.
REPRESENTATIVE SADDLER asked for his thoughts or reactions, as
the AOGCC reservoir engineer, about the seismic program that DNR
is proposing for the 1002 Area.
MR. ROBY said his personal opinion is that it's a very good
idea. His preference is for the plan to include 30-40 wells for
exploration work.
12:18:18 PM
At ease from 12:18 p.m. to 12:36 p.m.
12:36:45 PM
CHAIR GIESSEL reconvened the meeting. She said the afternoon
session would include presentations from the two pipeline
projects and a discussion with a company that is interested in
buying Alaska's LNG.
She welcomed Frank Richards and asked him to provide an update
on the AGDC project and the effect of the new statutory
authority.
12:37:38 PM
FRANK RICHARDS, Manager, Pipeline Engineering and Government
Affairs, Alaska Gasline Development Corporation (AGDC) provided
an outline of his presentation. He would discuss what AGDC has
accomplished on its pipeline project since the end of the
legislative session and the passage of HB 4; federal legislation
by Senator Lisa Murkowski on a pipeline route through Denali
National Park; and the latest information obtained through
state-sponsored programs that will benefit the Alaska Stand
Alone Gas Pipeline (ASAP) and all pipeline projects.
He said Governor Parnell signed HB 4 last week surrounded by
legislators and the primary sponsors, Speaker Chenault and
Representative Hawker. This momentous occasion granted AGDC the
authority to advance the in-state natural gas pipeline project
[also known as Alaska Stand Alone Pipeline (ASAP)] to provide
natural gas energy to Alaskans to help with the high cost of
heating and electrical generation. He said the project must be
developed quickly, but it must be economic.
MR. RICHARDS discussed the key components of HB 4. It provides a
new regulatory framework for contract carriers. This was an
issue for the AGDC gas pipeline project and other potential
natural gas pipelines. [Contract carrier status allows AGDC to
enter into long-term contracts.] It provides the ability to
enter into confidential agreements in commercial negotiations.
It allows a new Regulatory Commission of Alaska (RCA) statutory
regulation for contract carriers with a review of the initial
recourse tariff, the prescient agreements, and the final
recourse tariff as the project moves forward. It grants the
ability to work with potential partners to develop the ASAP
ownership structure. The model to advance the project could
range from a fully privatized company, to partial state
ownership, to full state ownership. AGDC has the authority to
determine what will result in a successful outcome. HB 4
establishes a new state corporation under the Alaska Department
of Commerce, Community and Economic Development. The Alaska
Housing Finance Corporation (AHFC) Board of Directors will serve
as a transition board until the Governor appoints a new, seven
member Board of Directors. There will be five public members and
two cabinet members. The legislature identified the
qualifications for the board members to include expertise in oil
and gas, natural gas transmission, natural gas financing, large
project development, and marketing, among others. The new board
will also have the authority to hire a new executive director to
guide AGDC.
MR. RICHARDS described the key components of the federal
legislation by Senator Lisa Murkowski. S. 157: Denali National
Park Improvement Act authorizes the Secretary of the Interior to
issue a right-of-way for a natural gas pipeline through Denali
National Park. This effort was initiated by ENSTAR for a natural
gas pipeline from Prudhoe Bay to Cook Inlet. The National Park
Service supports the legislation because it allows the
construction of distribution and transmission pipelines for use
by the Park. It is a clean energy source for heat, power, and
transportation.
As currently envisioned, the pipeline would parallel the Parks
Highway. That provides the opportunity to use an existing,
cleared right-of-way. The existing bypass alignment cuts across
the river and would potentially create an eyesore, making it a
less desirable alternative. If S. 157 passes, AGDC will redesign
the project to go through the Park.
MR. RICHARDS discussed the challenges associated with the
legislation. Title 11 of the Alaska National Interest Lands
Conservation Act (ANILCA) says that a project must apply for all
federal authorizations and one time. These are generally
acquired in a stair-step process so a hiccup in any
authorization could essentially halt the project. The President
of the United States is the only avenue for dispute resolution.
The legislation requires compliance with the National
Environment Policy Act, and subjects the project to the terms
and conditions that the Secretary of the Interior deems
necessary. S. 157 passed out of the Committee on Energy and
Natural Resources, and passage from the Senate is expected.
Representative Don Young is carrying a companion House bill.
12:46:55 PM
MR. RICHARDS described the funnel "stage gate approach" to the
project. With the authority granted under HB 4 and the funding
provided in the capital budgets, AGDC can advance to the next
goal, which is an open season in late 2014 to 2015.
He described the work that is underway, starting with the
preparations for the new AGDC organizational structure. This
includes drafting the business and project execution plans along
with the guiding policies and procedures. They have initiated
commercial confidentiality agreements and most recently have
been working to site the gas conditioning facility on the North
Slope. This must be worked in concert with Prudhoe Bay operators
so there is no interference between that site and any existing
pipelines or facilities on the North Slope.
The major 2013 work activities include advancing to FEL-2 (Pre-
FEED) facilities and pipeline engineering. AGDC is currently
soliciting for a program management contractor and open season
management contractor, and is beginning to look at construction
planning and major logistics associated with the pipeline.
Importantly, AGDC is working with the regulatory agency the
Pipeline Hazardous Materials Safety Administration (PHMSA) for a
special permit. The intent is to have 2013 summer/winter field
programs.
12:52:01 PM
MR. RICHARDS described the 2013 field program. It includes 444
geotechnical boreholes from the Yukon River to Point MacKenzie.
They are looking the Minto Flats area and areas along portions
of the Parks Highway, all of which are south of Livengood to
avoid duplication of effort. These are. AGDC completed a
geotechnical borehole program in April to look at the Yukon
River crossing. The findings show that the ground conditions are
conducive to horizontal directional drilling under the river.
The early concern that there might be a fault trace at the
crossing was unsubstantiated, but caution is still warranted.
Geohazard investigations are being done using DNR's Division of
Geophysical and Geologic Surveys looking at known faults that
will be bisected along the line. Work is being done to update
the terrain unit mapping program from Prudhoe Bay to Point
MacKenzie. Cultural resource surveys are being advanced and
route surveys are being reviewed to ensure that pipeline
placement is optimal.
He displayed a map to show the geotechnical boreholes starting
with 24 at the Yukon River crossing. There have been no
geotechnical surveys in the Minto Flats area and there is
concern about areas that have land forms that may cause problems
for the pipeline. He continued to describe plans for boreholes
from Nenana to Rex and the Nenana Crossing near Healy. Boreholes
initially were planned for the Denali Bypass, but some boreholes
may be initiated through Denali National Park, depending on the
federal legislation. Boreholes will also be conducted along the
road and rail from the Parks Highway to Point MacKenzie and to
the terminus at Willow.
MR. RICHARDS described what the Division of Geological and
Geophysical Surveys (DGGS) is doing which will culminate with
characterization, locations, and relative activity of geologic
hazards. Maps and reports will evaluate potential effects of
hazards to pipeline route feasibility, design, and construction.
12:57:09 PM
MR. RICHARDS displayed pictures of the Castle Mountain fault
area, which runs through the Matanuska Valley and extends across
the Susitna lowlands. Lidar images of this fault helped DGGS
determine that the ground moves up to five meters in some places
so mitigation efforts for the pipeline will be necessary.
He reviewed the ASAP schedule, which shows the sequence for AGDC
moving forward. They are in the advanced engineering FEL Phase 2
and money will be available on July 1. Open season is now
projected to be late 2014 or early 2015, and will include the
RCA review of the initial recourse tariffs. If open season is
successful and people are willing to commit to shipping, the
project will enter FEL 3 stage leading to a project sanction in
late 2015 or early 2016. At that point there will be an
ownership model determination on how to proceed and meet the
goals to provide gas at the lowest possible cost. This will lead
into the execution phase and construction with first gas flowing
in 2019.
He discussed FEL 2 and FEL 3 manpower projections. He directed
attention to a bell curve showing what AGDC envisions it will in
need and how spending will occur over the next three years. He
noted that engineering will ramp up over the next year peaking
at approximately 550 people, followed by a ramp down at the end
of FEL 3. Depending on the success of the open season and the
ownership model, this would potentially advance into the next
stage of the project.
1:02:28 PM
REPRESENTATIVE SADDLER asked if open season and construction
management companies are solicited in Alaska only.
MR. RICHARDS replied that it's open to all qualified firms that
have the specific expertise.
REPRESENTATIVE SADDLER asked what kinds of companies do this and
questioned whether the committee would recognize any names.
MR. RICHARDS stated that a Boston firm called Concentrics is
helping with tariff modeling. He offered to follow up with
information about other applicants. He added that they're
looking for world-class expertise for program management, and
there are firms in Alaska that have this capability.
REPRESENTATIVE TUCK asked if there is a backup plan if the
federal Denali Park bill doesn't pass.
MR. RICHARDS replied the Denali bypass is in the final EIS and
that is authorized.
CHAIR GIESSEL thanked Mr. Richards and commented on the new
technology. She asked what kind of mitigation is available for
crossing an earthquake fault.
MR. RICHARDS explained that the TAPS design was elevated and
essentially on skids. The zigzag shape allows expansion
capability through a curve both horizontally and longitudinally.
CHAIR GIESSEL asked if the same would be done for a buried gas
pipeline.
MR. RICHARDS replied all available technologies will be
considered, but it is unlikely that the line will be in a frozen
trench in areas of fault crossings. In those areas the pipeline
will probably be brought above ground and it may be encapsulated
in gravels that would allow the pipe to move and shift without
constraint.
1:06:20 PM
CHAIR GIESSEL introduced Steve Butt who would present
information about the South Central LNG Working Group and its
progress to date.
1:06:51 PM
She noted that Representative LeDoux joined the committees.
1:07:48 PM
STEVE BUTT, Project Manager, South Central LNG Working Group
(SCLNG), ExxonMobil, stated he was representing BP, Conoco
Phillips, ExxonMobil and TransCanada. This consortium has been
working for about 18 months to figure out how to move the gas
project forward. He said he would focus on updates.
He presented information related to the Alaska SCLNG project. He
explained that about 300 people work on the project. They are
building on the work that has been done over the last decade. He
named the contractors.
MR. BUTT described the key issues of the concept work starting
with the Integrated Basis of Design. The gas treatment plant
(GTP) will be located on the North Slope, and the gas from
Prudhoe Bay will be integrated with gas from Point Thomson. The
pipeline size and routing options will cover more than 800
miles. The gas off-take capacity is sufficient to provide a
secure Alaska fuel supply within the Interior. This mega project
will require $45 to $60 billion in 2011 dollars. He explained
that a mega-project has challenges simply because of its size.
There are commercial and fiscal issues associated with the
project as well as uncertainty related to permitting, timing,
and securing equipment.
MR. BUTT said forward plans include planning for the 2013 summer
field season, the use of the "phased/gated" to advance the
project; and continuing cooperation to optimize the design.
1:18:02 PM
MR. BUTT displayed a video to show how to build a module and
move it to a barge for transport. It is then moved to the
location where it will be used. This is called "plug and play."
He described the conceptual layout and location of the facility.
He discussed the project work at Point Thomson that will have a
peak workforce of 1,500 people. The initial production system
(IPS) project is in progress and startup is projected in 2016.
He highlighted the hard work to integrate with Prudhoe Bay; it
has about 75 percent of the gas for the project and two gas
plants. He recognized some of the BP engineers in the room. He
explained that a current challenge is how to leverage the CO
2
using existing injection systems as appropriate. He explained
that there are other impurities that the gas treatment plant on
the North Slope is designed to remove.
MR. BUTT described the gas pipeline and compression stations. It
will move 3-3.5 bcf/gas/day. Each of the eight compressor
stations are rated at 30kHP. He discussed the pipeline design to
manage continuous and discontinuous permafrost regions, the
compression process, and moving LNG to market. It is
advantageous to make the LNG in Alaska because of the cold
temperature, he said. This offsets some of the fundamental
disadvantages.
MR. BUTT discussed the 2013 summer field work, which is ready to
initiate in early June. He noted that about 70 percent of the
work force is from Alaska. About 150 people have been hired to
study the key elements of a pipeline, focusing on the section
between Prudhoe Bay and Livengood that includes a challenging
crossing over the Yukon River.
He reviewed the scope of the 2013 summer field season. The work
will take place on 6,500 acres to look at 37 streams, 17 lakes,
and 20 fisheries. Additionally, traditional knowledge,
subsistence, and ethnographic surveys will be conducted.
MR. BUTT asked if there were questions.
REPRESENTATIVE SEATON asked what the red represents on slide 1.
MR. BUTT explained that those are areas that have been studied
and are geotechnically appropriate to place an LNG plant.
CHAIR GIESSEL questioned whether the summer field work between
Prudhoe Bay and Livengood would duplicate work that AGDC has
already done.
MR. BUTT said AGDC is focusing its work south of Livengood this
summer and the SCLNG project is focusing north of Livengood
where it doesn't have data. There is no intent to have
redundancy.
CHAIR GIESSEL asked if CO could be used on the North Slope for
2
enhanced oil recovery like it is in the Lower 48.
MR. BUTT explained that places in west Texas and Colorado use
miscible flooding, but Prudhoe Bay isn't a candidate for that
because of volumetric issues. It's more of a pressure support
depletion mechanism. Additionally, CO has a lot of energy and it
2
should be used in the reservoir to benefit all the stakeholders
in Prudhoe Bay.
1:37:42 PM
SENATOR BISHOP commented on how noteworthy it is to have 90
percent Alaska hire of the 1,200 people on the Point Thomson
project.
MR. BUTT said the work went very well overall.
SENATOR BISHOP highlighted that ExxonMobil and Doyon are doing
procedure testing at the pipeline training center, and over 40
students from rural Alaska are in training there. He also
commented that he's often thought the 3,500 to 5,000 number for
the main line spread is a little low.
MR. BUTT said it's a topic that's given a lot of attention. He
explained that labor is moved to the places where it's easiest
to do the work as smartly as possible. He emphasized that it
presents problems to have too many people working too closely
together.
CHAIR GIESSEL expressed appreciation for the substantial Alaska
hire. She thanked Mr. Butt for the presentation.
CHAIR GIESSEL introduced Yutaka Nagashima and Mary Ann Pease.
1:42:53 PM
MARY ANN PEASE, Vice President and General Manager in Alaska,
Resources Energy, Inc., introduced herself, Mr. Nagashima, and
Mr. Fuhs.
1:43:45 PM
YUTAKA NAGASHIMA, Officer and Vice President, Resources Energy,
Inc. (REI), discussed the key events that brought Japan to
examine Alaska LNG. He explained that his company started the
Feasibility Study after the Fukushima disaster in March 2011.
REI was appointed to study and make recommendations about
whether it made sense to build power plants in individual
localities to augment existing supplies from utility companies.
At the time of the disaster, Japan depended on nuclear power for
30-50 percent of its electrical needs. Because of both the
nuclear power failure and natural growth of the economy, Japan
is likely to fall short of meeting its electrical needs in the
near future. Utility companies are working hard to make up the
short fall, but they need to secure a long-term commitment with
competitive pricing by LNG suppliers. He said that REI views
Alaska LNG as the best source for Japan due to proximity and
price competitiveness. He commented on the competition worldwide
and emphasized that timing is critical. He opined that this
could be a symbolic national project to enhance the strategic
alliance between the U.S. and Japan. He stated that REI is
confident it can build an LNG plant in Alaska at tidewater and
ship the gas to Japan. The expectation is to build 4-16 LNG
propelled vessels to ship the gas. In conclusion, he asked the
Alaska government to support securing the gas and building the
pipeline to tidewater to supply the LNG plant that REI is
planning to build.
MS. PEASE reviewed the history of REI's involvement in Alaska,
starting with the 40 years of LNG shipments from the
ConocoPhillips plant in Kenai. She said that REI started
discussions with the Department of Energy, moved on to the
Alaska Natural Gas Development Authority (ANGDA), and did a pre-
investigation report, but the true work started with the
cooperation agreement that was signed with DNR at the end of
December 2012. Immediately thereafter, the team started an
extensive Feasibility Study that focused on all aspects of the
project, but the main focus was the LNG plant, terminal, and
vessels to deliver LNG to Japan. The consortium of investment
partners will be finalized in the next 30-90 days for this
potential project.
She highlighted the objectives of the Feasibility Study. These
are: to verify the feasibility and viability of the project for
investors; to verify Alaska as a long-term, stable, and cost
competitive source of LNG delivered to Japan; and to verify the
benefits of a U.S. and Japan natural resources alliance.
MS. PEASE said that REI found that Valdez and Nikiski are the
two most feasible sites for an LNG plant. She explained that
Nikiski is a realistic alternative because of its proximity to
the existing LNG plant and the fact that the AGDC pipeline comes
toward Southcentral. Valdez is a probable alternative depending
on the location of the main pipeline. She clarified that REI is
interested in an investment in the eventual pipeline, but not
being the lead. Their focus is acquiring gas supply and also
ownership, operation, and competitive financing of the LNG
plant. She described the two scenarios. For Valdez, the size of
the LNG train will start at 5 million tons/year and increase
over 5 years to 20 million tons/year. The latter represents
about 2.7 bcf/day. For Nikiski, the size of the LNG train will
start at 3.75 million tons/year, growing over 5-7 years to 15
million tons/year.
She emphasized that the project in Alaska is a win-win, because
the investors in Japan are interested in conventional gas that
can be available over a long period of time.
1:55:47 PM
PAUL FUHS, Lobbyist, Anchorage, Alaska, interjected that this
potentially means a direct investment in gas field development
in Alaska.
MS. PEASE described the three scenarios REI looked at for a gas
supply: 1) acquisition to the rights of gas reserves; 2) farm-in
to the owner's lease or purchasing owner's share; and 3) gas
purchase and sales agreements with the owners at wellhead. She
highlighted that the Japanese market is very interested in the
Foothills project. To that end, REI has entered into a
confidentiality agreement with Anadarko and is looking at
investment opportunity in Foothills to see if that gas supply
could work with this project. She noted that REI has met with
all three gas producers, but has not signed any agreements.
She displayed a chart illustrating the 7-year trend of
electrical generation in Japan before and after the Fukushima
disaster. She emphasized the need to fill the gap that was
created with the loss of nuclear generation.
1:58:11 PM
MS. PEASE reviewed the tariff assumptions for the Valdez and
Nikiski LNG plant sites that the team in Japan is conveying to
potential investors. The Valdez scenario of 20 million tons/year
shows a total tariff of $7.31. The Nikiski scenario of 15
million tons/year shows a total tariff of $8.58. She noted that
the costs are slightly higher for the Nikiski LNG plant and that
there's an additional cost of pipeline interconnection from the
end of the AGDC line to the potential site at Nikiski.
MR. FUHS added that while Nikiski isn't as efficient as Valdez,
it is better than initially anticipated. The ships and trains
are smaller but they're still feasible. Furthermore, the numbers
that resulted in these tariffs are very consistent with the
assumptions of the producer study that's been published. The
estimate is about $45 billion.
2:01:52 PM
MS. PEASE discussed the timeline for the project and described
2020 as the dropping off point. She noted the Feasibility Study
showed the price of LNG delivered to Japan at about $9-$10 per
MMBTU. The construction maximum is 6 years and the permission
and regulatory is 3 years. She said that the thing that is
different about this project is that the 20 million ton demand
is standing at the front door, and Alaska benefits from this
export component because it lowers the tariff for instate use.
She said REI understands the 500 million cubic feet/day limit on
the AGDC pipeline, but not how these projects align. She
emphasized that following the timeline is important, because the
opportunity for this consortium will have closed by 2025 due to
investments in other projects around the world.
She summarized the next steps for the LNG project: discuss the
Feasibility Study details with potential consortium members in
Japan; solidify the financial participants to enable the FEED
phase; clarify the pipeline alignment; and secure natural gas at
upstream and wellhead locations. She highlighted that REI's key
focus is a major ownership share in the LNG plant, but they
welcome other investment into the project.
MS. PEASE named the main market constituents in Japan. They are
electric utilities, city gas companies, municipal and private
power sectors, and industrial users.
She concluded that Alaska is the optimal partner for Japan.
2:06:20 PM
MR. FUHS emphasized that REI is a very serious group that is
making an honest and legitimate offer to Alaska. He noted that
the timeline fits with AGDC and suggested that entity could
partner with TransCanada under AGIA to get around the 500
mcf/day limitation.
2:09:20 PM
REPRESENTATIVE HAWKER offered his belief that the greatest
challenge to get a project moving is to think that the
legislature will micromanage a project into existence. He then
asked if the tariff charts for Valdez and Nikiski are presented
as comparable charts.
MS. PEASE said yes. She explained that the costs for the LNG
plants account for the bulk of the difference. Marine conditions
require dredging in Nikiski, but not Valdez.
REPRESENTATIVE HAWKER emphasized that the legislature should
stay out of the way and let the market determine the proper
locations, destinations, capacities, and other things.
MR. FUHS added that Representatives Hawker and Chenault said in
Senate Finance they wanted to make sure that the legislature
establishes a framework that can move a project forward.
2:12:07 PM
REPRESENTATIVE TARR asked when the legislature will learn more
about the investment that will potentially be made.
MS. PEASE said it will probably be after the 30-90 day period
when the large industrial users join the consortium. Under this
model the industrial users will own a part of the value chain to
have some control over the delivered price in Japan.
MR. FUHS added that it's also a new model that the Japanese
government is looking at deregulating a lot of the electrical
generation.
CHAIR GIESSEL commented that the delivered price of $9-$10
dollars seemed low and definitely wasn't linked to oil.
MS. PEASE said $10 isn't cheap, but it's delinked to oil and is
definitely lower than today's spot market cargos.
CHAIR GIESSEL thanked the presenters, and asked Mr. Persily to
make closing remarks.
2:15:32 PM
MR. PERSILY said he had three things to mention. First, he
explained that one million metric tons of LNG is equivalent to
48.7 billion cubic feet of gas. Second, he suggested visiting
the website arcticgas.gov to access the reports his office has
prepared on all aspects of LNG projects. Any requests for new
reports would be added to the list. Finally, he said that in
full disclosure he wanted to mention that when Congress
established the Office of the Federal Coordinator in 2004 it was
given one statutory role, which is to assist in coordinating
permits for a North Slope natural gas pipeline to bring gas to
North American markets. Because that project isn't going
anywhere due to shale gas production, Senator Begich and Senator
Lisa Murkowski are looking at how to change that law so that
when the time comes to work on permit coordination the office
hopefully will have the statutory authority to do so.
CHAIR GIESSEL thanked Mr. Persily.
2:18:55 PM
There being no further business to come before the committees,
Chair Giessel adjourned the joint meeting of the Senate
Resources Standing Committee and House Resources Standing
Committee at 2:18 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Jt. Resources Federal Coordinator Persily LNG 2013 0530.pdf |
SRES 5/30/2013 10:30:00 AM |
LNG Update |
| Joint RES DNR LNG UPDATE-Sullivan 2013.05.30.pdf |
SRES 5/30/2013 10:30:00 AM |
|
| AGDC Update SRES HRES 2013 0530.pdf |
SRES 5/30/2013 10:30:00 AM |
JT RES |
| Joint RES SCLNG-Butt 2013.05.30.pdf |
SRES 5/30/2013 10:30:00 AM |
|
| Joint RES Resources Energy Inc. 2013.05.30.pdf |
SRES 5/30/2013 10:30:00 AM |
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| DNR Media Release-DNR DOE Sign Agreement 2013.04.16.pdf |
SRES 5/30/2013 10:30:00 AM |
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| DOE Seeks Accelerated Development of AK Resources 2013.04.16.pdf |
SRES 5/30/2013 10:30:00 AM |
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| AOGCC Testimony of David Roby 2013 0530.pdf |
SRES 5/30/2013 10:30:00 AM |