Legislature(2013 - 2014)BUTROVICH 205
01/27/2014 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Presentation on Gasline Issues: Heads of Agreement | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
January 27, 2014
3:31 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Fred Dyson, Vice Chair
Senator Peter Micciche
Senator Click Bishop (via teleconference)
Senator Lesil McGuire
Senator Anna Fairclough
Senator Hollis French
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
PRESENTATION ON GASLINE ISSUES: HEADS OF AGREEMENT-MEMORANDUM OF
UNDERSTANDING
-HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
ANGELA M. RODELL, Commissioner
Alaska Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Provided an overview for the Heads of
Agreement.
JOE BALASH, Commissioner
Alaska Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided an overview for the Heads of
Agreement.
MIKE PAWLOWSKI, Deputy Commissioner
Alaska Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Provided an overview for the Heads of
Agreement.
ACTION NARRATIVE
3:31:11 PM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:31 p.m. Present at the call to
order were Senators Dyson, Fairclough, French, McGuire, and
Chair Giessel.
^PRESENTATION ON GASLINE ISSUES: HEADS OF AGREEMENT
PRESENTATION ON GASLINE ISSUES: HEADS OF AGREEMENT
3:31:41 PM
CHAIR GIESSEL said the committee will begin the discussion of
Alaska gasline issues. She declared that the committee will
review the Heads of Agreement (HOA) document.
3:32:28 PM
CHAIR GIESSEL welcomed Senator Bishop to the meeting via
teleconference.
3:32:34 PM
SENATOR BISHOP announced that he was joining the committee
online from Fairbanks.
3:32:44 PM
ANGELA M. RODELL, Commissioner, Alaska Department of Revenue
(DOR), Juneau, Alaska; said this is a very exciting time for the
state of Alaska. The state has been working for a long time on
figuring out how to bring to bear commercialization of the
state's North Slope gas and to find a way to create opportunity
for Alaskan jobs, gas, and revenue.
COMMISSIONER RODELL explained HOA is an "umbrella" format in
which the state and the parties to the agreements have come
together, including [TransCanada-Alaska Development Inc. (TADI)]
and Alaska Gasline Development Corporation (AGDC). She asserted
that HOA shows the roadmap laid out over the past two years and
provides a framework to address the Governor's gasline bill. She
said today's HOA overview will provide a framework and a basis
for understanding and to answer questions the committee may have
about the specific agreement. She noted that the Memorandum of
Understanding (MOU) with TransCanada will be addressed at a
later meeting. She set forth that DOR wants to work with the
legislature to continue working forward and moving the very
important gasline project to the state's future forward.
3:34:58 PM
JOE BALASH, Commissioner, Alaska Department of Natural Resources
(DNR), Anchorage, Alaska; announced that the state is at a point
in time and in a place with regard of the development of the
Alaska Gasline Project (AKGP) is unique. He noted that there
were a couple of particular things that are unique about AKGP
that has him excited as an Alaskan.
COMMISSIONER BALASH pointed out that with enabling legislation
passage, the state and each of the producer parties are going to
undertake the initial marketing efforts that will hopefully
result in the sales and purchase agreements of North Slope
Liquid Natural Gas (LNG). He said over the past couple of
decades many fine Alaskans have gone out and attempted to sell
Alaska LNG in the Asia marketplace without gas or agreements to
procure gas. He asserted that the current gasline proposal is
quite different.
He addressed HOA and noted that the approach taken with the
other parties is a phased approach where each set of parties can
make commitments that are commensurate with those commitments
being made by the others. He summarized that the intent is a two
year commitment and tens of millions of dollars on the state's
part. He explained that all of the chips are not being placed in
one hand and no one is being asked to sign up for a 30 year
contract. He said what is being asked for are a couple of key
things that will enable the state to engage the market and
really test whether the state has a project that can fulfill all
of the goals that Alaskans have had for so many years.
3:37:22 PM
He explained the key differences in considering an LNG pipeline
project as opposed to a North America based overland project. He
said there are differences in the market, regulatory
jurisdiction, and types of contracts involved. The biggest
difference is there has to be a buyer at the other end of the
contract for an LNG project. When the project pursued a North
America based project, gas was to be taken from the North Slope
fields through highly regulated infrastructure, all the way to a
very deep, liquid, and transparent market place. He said the
question was not whether the gas could be sold, but how much the
gas could be sold for. He continued that the big contract in
question was the shipping contract, typically taken out by the
producer.
COMMISSIONER BALASH said when analyzing LNG arrangements, having
a buyer in place is required. He said the basis for an LNG
project is the Sales and Purchase Agreement (SPA), a daisy-chain
of contracts. He explained that an LNG buyer is typically from a
country that does not have domestic energy supplies of its own;
therefore they are highly interested in energy security and
check every link in the chain, all the way up the reserves that
they are buying.
He said knowing that there were differences with an LNG project
caused a need to know more. He recounted that DNR commissioned,
with the assistance of DOR, a study to engage in an
investigation of all the differences in LNG to understand how
the state can maximize its value.
3:39:34 PM
He found that due to some differences in the regulatory
authority that would govern an LNG project, the liquefaction
charges that might be levied against Alaska's gas as royalty
owners could be quite high. He noted that there were memories of
what had gone on with pipelines in the past and the memories
caused pause to reflect on why the state has had challenges and
problems with the producers over the years. He asserted that the
challenges and problems came down to a misalignment of
interests. He said the question of tolls and tariffs is to
minimize their impact in order for the state to maximize its
royalty revenue in addition to the desire to see the barrier to
entry as low as possible. He said at the end of the day the
state is going to pay for its share of the infrastructure
through tariffs and tolling arrangements on the liquefaction. He
purposed taking a look at what would happen if the state was to
pay for its share of the infrastructure upfront and take an
equity position in the project. What the DNR found in the study
and the conclusions fed into the thinking on HOA and the
approach to take going forward.
3:41:36 PM
He said regardless of whether the discussion addressed an
overland project or an LNG project; there are some key things
that matter greatly to Alaskans:
· Getting gas to Alaska's homes, communities, and businesses;
· Making sure Alaskans get the jobs available from
construction and operation, as well as work for that
state's businesses;
· Making sure that Alaska maximizes its resource value,
incentivizes additional exploration, and develops the
incredible bounty of natural gas resource that is present
on the North Slope.
COMMISSIONER BALASH set forth that today's presentation will
show that the material has "checked the box" and some very good
things have been accomplished for the people of Alaska at the
initial development stage of the agreements that will follow. He
remarked that the DNR worked hard over the provisions being
presented and is eager to explain them to the committee.
3:43:04 PM
MIKE PAWLOWSKI, Deputy Commissioner, Alaska Department of
Revenue (DOR), Juneau, Alaska; said the purpose for the
presentation is to give the public, legislators and their staff
the ability to read the HOA in the appropriate context,
understand the terms, and how the terms relate to each other. He
set forth that the DNR and DOR will provide their perspectives
on what is seen as valuable pieces that support the state's
interests.
MR. PAWLOWSKI explained that the Heads of Agreement (HOA) is not
a binding legal agreement or contract. HOA is a good faith
effort, a first step in alignment of principals, and a guidance
document for the parties as they start to pursue binding legal
agreements. The HOA process was an effort to put together a
plan, not just for the legislature, but for the public on how
the project will proceed with all of the parties aligned behind
the plan. HOA is saying, "Under these terms we will all
progress." He asserted that HOA is not locking-in and not
shutting down opportunity, but provides a guidance and pathway.
He said from an Alaskan's perspective, what is uniquely exciting
about the HOA effort is that the agreement exhibits a title page
that shows an agreement among and by the Administration, AGDC,
TADI, ExxonMobil Alaska Production Inc. (EMAP), ConocoPhillips
Alaska, Inc. (ConocoPhillips), and BP Exploration (BP). The HOA
was the visionary alignment where for the first time the state
sees the groups and parties working together for solutions
rather than fighting over divisive things. HOA was really the
effort that is going to push a very complex and large scale
project forward.
3:45:16 PM
MR. PAWLOWSKI said he intends to give members of the committee
and the public a picture of what is so different about the
Alaska LNG Project (AKGP). He referred to a letter that was
addressed to Governor Parnell in October 1, 2012; noted as
Exhibit 1B of the HOA. The letter shows that AKGP is more than
just the treatment plants and the pipelines that Alaskans are
familiar with. He explained that AKGP includes the addition of
the liquefaction plant which in any measure is a world-scale
investment. He detailed that the liquefaction plant build-out
will require between 100,000 and 150,000 tons of steel in
addition to employing a workforce between 3,500 and 5,000 people
on 400 to 500 acres. The liquefaction plant is a massive
addition to AKGP and supplements the already large undertakings
of a pipeline, treatment plant, storage facilities, load
facilities, and the work in the producing fields that initially
includes Prudhoe Bay and Point Thomson. He said AKGP's current
estimates run $45 to $65 billion. He set forth that AKGP is a
world class effort being undertaken by world class parties.
He explained that HOA's organization is comprised of 16
segments. The first segment opens with recitals of recent events
with understandings between the parties about happenings for
past, present, and future. There are 13 articles that govern
specific guidelines for the development of projects, the role
and responsibilities of the individual parties to the agreement,
and how the parties will work under different regulatory and
expansion frameworks going forward. He noted that Appendix A
articulates the key expansion and access. He addressed an
exhibit that references three letters to Governor Parnell
regarding the process that the state has been under for the past
several years regarding transitioning away from the overland
project under the Alaska Gasline Inducement Act (AGIA) license
to what the plan is in HOA going forward.
3:47:32 PM
He noted the importance to first recognize who is being
referenced in HOA. He said there are four terms that define
different roles and responsibilities throughout the HOA document
and noted as follows:
1. Administration: applies broadly to the Department of
Natural Resources (DNR) and the Department of Revenue
(DOR); the state agencies that are charged with managing
both the royalty interests and the taxing interests have
a specific place in the project as fiduciaries and as the
agencies charged with managing the resources. There will
be references to "Commissioners" that pertain to DNR and
DOR. References to "State" applies when there are
appropriate regulatory capacities for the state that are
separate and apart from what are specifically addressed
in HOA directly for the project.
2. Parties or Party: is used to imply the Administration;
The Alaska Gasline Development Corporation (AGDC) or an
appropriate subsidiary; TransCanada Alaska Development,
Inc. (TADI); ExxonMobil Alaska Production, Inc. (EMAP);
ConocoPhillips Alaska, Inc. (ConocoPhillips); and BP
Exploration-Alaska, Inc. (BP). The "Parties" or "Parties"
refers to everyone including the Administration.
3. Alaska LNG Parties: is a much more specific term that
includes the Alaska Gasline Development Corporation
(AGDC) or an AGDC subsidiary, TADI, EMAP, ConocoPhillips,
and BP. The Administration in not included. The reason is
an attempt to help separate the agencies' appropriate
roles for both shorter and longer terms. The agencies
have an interest in managing Alaska's resource, but not
necessarily an interest in being in the operational day-
to-day efforts of a project; those are appropriately
separated from regulatory functions and taxing
authorities of the state to TADI or AGDC to carry on day-
to-day commercial work in the project. As the project
moves forward the intent is to remove the agencies from
the day-to-day commercial operations and allow the
business to be the business as long as the interests of
the state are protected. Alaska LNG Parties is
specifically those with an interest in the ownership of
the infrastructure and the capacity created by that
infrastructure, that being separate than the ownership
gas in the infrastructure, which is where the
Administration has an interest.
4. Producer Parties: have interest in the producing fields.
There is a lot of work that will have to happen between
the Administration and the Producer Parties to setup how
gas is delivered to the state or the project. There are
places where the Producer Parties are separate from the
Administration and from the Alaska LNG Parties.
3:51:41 PM
MR. PAWLOWSKI addressed "Key Recitals" in pages 2 through 4 of
the HOA. He explained that the purpose of the Recitals Section
is to describe the context for the agreement, recent events, and
articulate certain goals and direction for the Alaska LNG
Project. He pointed out that "Key Recitals" recognize the
following:
1. Changed circumstances: Governor Parnell called for a
change in direction under the AGIA License in the
development of North Slope Gas Project to an LNG Project;
that process started several years ago and has led to the
development of the HOA document.
2. Funding by the State under AGIA: provided support for key
activities for the LNG Project that both the
Administration and TADI believe that transitioning from
AGIA to a more commercial relationship was appropriate.
The Summer Field Season conducted north of Livengood in
2013 is an example of a key activity.
3. AGDC is pursuing the Alaska Stand Alone Pipeline (ASAP)
Project: the two parties intend to cooperate with the
Alaska LNG Project. The Governor made reference to the
recognition during his State of the State address as
Alaska's "ace in the hole."
4. Alaska LNG Parties: wish to ramp up the Pre-Front End
Engineering and Design (FEED) phase of the LNG project,
which is estimated to cost over $400 million during the
next 12 to 18 months.
3:53:50 PM
MR. PAWLOWSKI said Article 1 of the HOA goes from pages 4 - 7 of
the agreement. He noted that Article 1 provides key definitions.
He explained that capitalized terms have very specific meetings.
He noted key terms used in the agreement as follows:
1. Enabling Legislation: describes the key components of the
legislation necessary to advance the project. Enabling
Legislation as constructed in the statute will be
compared with what is envisioned in HOA. The documents
will be matched up going forward.
2. Memorandum of Understanding (MOU): refers to the
agreement, referenced in Article 5.4, between the state
and TransCanada. The MOU allows for the transition from
the AGIA license into a more traditional commercial
relationship of a shipper-transporter.
3. Pre-FEED: means the Pre-Front End Engineering and Design
work and activities for the Alaska LNG Project that are
sufficient to support filings for the Federal Energy
Regulatory Commission (FERC).
4. Royalty in Kind (RIK): is what is described in Article
8.1.1. Alaska can take its share of gas produced in lieu
of receiving payment for its royalty value.
5. Tax as Gas (TAG): used where there is an opportunity for
certain production tax obligations to be paid with
"molecules" instead of in value.
3:56:07 PM
MR. PAWLOWSKI addressed "Key Provisions" from "Principles and
Benefits" set out in Articles 2 and 3. The Key Provision for a
principle set out in Article 2 is as follows:
Recognizes that if enabling legislation is passed that
the Parties, including the Administration, would
negotiate contracts that would incorporate the principles
in the agreement; this is consistent with the phased-
approach where the HOA provides the guiding principles
that will then inform the work on much more detailed
agreement in and amongst the different parties to the
HOA.
He explained Article 3 regarding the Key Provisions for benefits
of the Alaska LNG Project as follows:
1. Gas to Alaskans,
2. Jobs for Alaskans,
3. Revenues to Alaska,
4. Opportunities for additional gas development.
He referred to Commissioner Balash's statement that the
interests for the state have not changed. He asserted that the
HOA process positively demonstrates parties working together to
solve problems and support benefits going forward.
He said Article 4 is a key article in HOA and describes the work
that will be conducted during the Pre-FEED stage. The Pre-FEED
stage is expected to take between 18 and 24 months. After Pre-
FEED is done, each party will reevaluate the project, the stage
of the project, and make the individual decision to advance. The
Governor described the process as a "staged approach." He
explained that measured and methodical steps will be taken to
advance the Alaska LNG Project through the stage-gates as more
is learned and each party's commitment grows.
He explained "Key Activities" described in Article 4 about the
Pre-FEED stage as follows:
1. The development of sufficient information for evaluating
the technical, cost, and schedule aspects of the Alaska
LNG Project; this is comparable to the development of a
blue-print.
2. The development of key project services agreements for
Alaska's gas with TransCandada and AGDC or subsidiary.
State agencies and Administration will have to enter into
agreements for the movement of gas through the pipeline
and through the liquefaction facility by working with the
agencies' counterparties and agents in a transparent way
to protect Alaska's value.
3. The Parties will work to develop mutually agreeable gas
offtake and balancing agreements.
MR. PAWLOWSKI noted a previous reference of how gas comes into
AKGP and how the state takes possession of the gas; that is a
key contractual and development work that has to happen during
the Pre-FEED period. He said there are two fields that are
initially underpinning the Alaska LNG Project at the beginning:
Point Thomson and Prudhoe Bay. He said Point 3 in key Article
4's "Key Activities" addresses how the state is taking its share
from Point Thomson and Prudhoe Bay combined as delivered into
the LNG Project and then taken out as LNG.
3:59:36 PM
He remarked about the Royalty Study that was issued by DNR and
referenced by Commissioner Balash as a key piece of work that
identified some deep concerns the state had in engaging in
taking gas in-kind. One of the key concerns was the State's
inexperience in marketing. In Article 8.3.3 there is a
commitment by the State and Producer Parties to work together
with each producer to individually develop agreements for the
disposition of a portion of Alaska's LNG. During the Pre-FEED
stage the State will have the opportunity, not the requirement,
to pursue joint-marketing with each producer individually for a
share of the LNG; that goes a long way to solving the State's
inexperience in engaging in the LNG market where the Producer
Parties participate on a daily basis.
SENATOR DYSON addressed Point 3 and asked if "mutually
agreeable" includes a decision by the Alaska Oil and Gas
Conservation Commission (AOGCC).
MR. PAWLOWSKI answered that AKGP and production of gas at
Prudhoe Bay and Point Thomson will have to go through the AOGCC.
He said the provision noted in Point 3 is not contemplating how
to work with the AOGCC; they are a separate entity and will
define what needs to be done to protect Alaska's hydrocarbons.
He set forth that the provision is in reference to the State
working with the Producer Parties to develop how the State gets
gas and manages balancing of the different streams to meet
Alaska's obligations. AOGCC will maintain a completely separate
review process.
SENATOR DYSON asked to confirm that AOGCC will not be involved
in the Pre-FEED stage. He assumed that AOGCC will be involved
with the outcome from Point 3 and will do its job to protect the
people of Alaska's interests.
4:02:21 PM
MR. PAWLOWSKI answered correct. He said AOGCC will be involved
at a later date to protect Alaska's interests.
COMMISSIONER BALASH disclosed that DNR shares a concern with the
in-kind approach in that the State does not control which field
is produced and what amount; it really matters to the State due
to varying royalty rates between Prudhoe Bay and Point Thomson.
He asserted that the State does not want to be stuck short or
long because of a decision made by AODCC as to which field can
or should be produced first or last. He explained that the off-
take agreements will speak to how much of the gas that is
produced comes to the State and the balancing agreements will
help to make sure the State does not windup short or long either
in a moment or over any given period of time. He continued that
Point 3 refers to agreements between DNR-DOR and the Producer
Parties as to what amount of the gas will come to the State as a
function of production, AOGCC's overlay is not addressed.
SENATOR DYSON asked for further clarity in Commissioner Balash's
comments.
CHAIR GIESSEL noted clarification has occurred later in prior
testimonies that she attended.
4:04:11 PM
SENATOR FRENCH addressed Point 3 and asked if AOGCC will or will
not be involved.
MR. PAWLOWSKI specified that AOGCC is above any decision that
gets made between parties. AOGCC is a separate approval process
that is designed to protect the state's resource in hydrocarbons
and maximizing hydrocarbon recovery. He specified that AOGCC has
a role to play, but not within Point 3.
SENATOR FRENCH noted that AOGCC is thought of as setting the
offtake from the North Slope; what is safe to be produced from
Prudhoe Bay, Point Thomson, and Kuparuk. He said the rate AOGCC
has set so far is far below what is eventually believed a gas
pipeline will deliver. He asked when the AOGCC's decision will
be revisited.
COMMISSIONER BALASH replied that the operator at each field will
need to submit an application to AOGCC for setting the allowable
offtake that will very likely come in the Front End Engineering
and Design (FEED) stage of development. He noted an interesting
tension will occur prior to gas offtake regarding the
possibility for added investment for oil recovery.
4:06:26 PM
MR. PAWLOWSKI addressed the phased stages of development. He
noted that the State and the Parties are finalizing the Concept
Selection Stage of the project; at that point there is a stop-
and-go decision whether to move AKGP into the Pre-FEED stage. He
declared that the Parties believe that there is an opportunity
for Alaska gas to compete globally in the LNG market. The next
step is to go through the ramp-up of the Pre-FEED stage. Once
the Pre-FEED stage ends in 18 to 24 months, a stop-and-go phase
occurs to decide whether to move on to the FEED stage, each
party makes that decision for themselves. The investment in the
Pre-Feed stage is hundreds of millions of dollars, the FEED
stage is in the billions, and the Engineering Procurement and
Construction (EPC) phase is in the tens of billions. The
commitment to AKGP and the investment grows during stage gate
advancement. The HOA is the governing document for how to
advance through the Pre-FEED stage; that is the decision on the
table. He said there will be lots of other agreements that will
come back to the legislature and the public as AKGP moves to the
FEED stage. He noted that increased commitment by all of the
parties will occur in order to move AKGP forward.
4:08:21 PM
He addressed Article 5 and noted that the article describes how
the State would participate in AKGP and recognizes some "key
provisions" and elements of state participation as follows:
1. State participation in the AKGP could yield significant
benefits to Alaska as follows:
A. Maximizing the value of the state's resources for
the people of Alaska.
B. Delivering gas to Alaskans.
C. Public transparency of the state's approval process.
D. An opportunity for additional state revenues; with
that investment in infrastructure comes a return on
the investment.
E. Access and pro-expansion principles for AKGP that
the state achieves by being an owner in the Project
and having access to the rights, not the obligation,
but the rights to expand AKGP.
F. Improving alignment of interests between the State
and the Producer Parties.
G. Reducing valuation and other potential disputes that
Alaska is used to over the last several decades.
Again, having people work together to solve
problems, rather than fighting over AKGP.
2. State participation in the infrastructure by
entering into agreements with TransCanada and a
subsidiary of AGDC to carry the state's interest in the
infrastructure.
3. State's interest should be consistent with the state's
share of the gas.
MR. PAWLOWSKI said Article 5 describes the state's share of the
gas as a combination of the state's royalty interest and
production tax interest. The HOA contemplates a range somewhere
between 20 and 25 percent, something mutually agreeable to move
the project forward through pre-FEED.
4:10:22 PM
He said Article 6 describes the regulatory framework and
references some of the access and expansion principles that will
govern AKGP not just during the Pre-Feed stage, but through the
life of the project. He explained four "key provisions" in
Article 6 as follows:
1. At least five Alaskan offtake points for Alaskans to
get access to their gas.
2. Locations of offtake points will be developed in
consultation with AGDC. AGDC's work on ASAP by working
with Alaskans and planning for the development of in-
state gas really adds value to AKGP. AGDC's open season
work going through the first quarter of 2015 matches up
on the calendar to the Pre-FEED work being conducted by
AKGP. There is a lot of potential for synergy and
cooperation that we have not identified and would be
premature to identify at this point; this is one we saw
right out the gate that provided real benefits to
Alaskans and AKGP.
He said the regulatory framework recognizes that there is an
opportunity because FERC, Section 3, provides the availability
of what can be a tailored regulatory framework where the State,
working with the Parties, can develop commercial terms that meet
the regulatory needs of the state to protect the state's
interest and provide access to other producers into the project.
He set forth that the regulatory framework has led to the third
key provision in Article 6 as follows:
3. Each Party's shares in the capacity of the infrastructure
are managed by each party on a "live and let live"
basis.
MR. PAWLOWSKI explained that Key Provision 3 provides a real
opportunity for the State to make sure upfront that its
capacity, working with TransCanada and AGDC, can operate as
noted in the fourth key provision:
4. AGDC and TransCanada's shares of capacity in the Project
are committed to provide access to third parties on terms
developed with the state.
He summarized that Key Provision 4 does not say that other
parties won't manage theirs to provide the noted benefits, but
the opportunity is upfront and clearly existing on the state's
share of the infrastructure.
4:12:42 PM
He explained why the expansion principles are important as
follows:
1. Alaska has significant gas resources on the North Slope.
2. Current known reserves are 35 trillion cubic feet (TCF).
The USGS estimates of technically recoverable
conventional gas resources in the Arctic are more than
240 TCF. The AKGP needs to be about opening up the
opportunity for the North Slope gas, in addition to the
state's gas, to find an avenue and way to market.
3. Pro-expansion principles guarantee Alaska land beyond
Prudhoe Bay and Point Thomson continue to be explored for
gas and that gas will get into the line to benefit
Alaskans.
He addressed "Appendix A: Pro-Expansion Principles" in Article
6. He explained that the Parties will be committed to some very
core principles. He specified that each owner of a component or
a share of a component has the right, but not the obligation, to
expand or participate in the expansion. He pointed out in
Appendix-A that the bias is towards expansions proceeding; as
long as those are developed on a sole risk basis. The
opportunity exists to open the infrastructure to more parties to
come in. He emphasized that all of the Parties have agreed to
the process for initiating expansion and providing the
opportunity of each of the owners to participate. The owners
participate in the expansion by making the expansion bigger. He
asserted that the expansion provision is a critical piece to the
HOA and movement under the regulatory principles in Article 6 is
as follows:
You see attention in connection between Article 6 and
the state's willingness and interest in advancing,
under FERC Section 3, through that tailored regulatory
framework, to the development of the commercial
principles detailing what these pro-expansion
principles are saying today.
4:15:00 PM
SENATOR MCGUIRE stated her appreciation towards the "Big Three"
producers, but noted previous discussions on the limitations
presented by the way the Unit Operating Agreement was drafted in
a way that has materially prevented opportunities for one party
or independents from doing things they want to do that might
benefit Alaskans. She noted the "legalize" language in HOA and
asserted that there are always attorneys willing to defend both
sides of an agreement. She set forth her desire to have some
discussion to know that the thought exists to really think
through that the HOA is pro-Alaska. She said she is aware the
gasline will be operated as a contract carrier and understands
the desire to protect the Parties, but noted the future
necessity for Alaska to provide an opportunity to expand. She
remarked seeing circumstances where someone could argue that
expansion could materially affect a company's bottom line and
precipitate a stance against expansion.
MR. PAWLOWSKI replied that there are caveats to any expansion
policy that are contained within HOA. He continued as follows:
One of the things from my experience and I believe
Commissioner Balash shares as well in working through
this document is especially in the development of
these pro-expansion principles, we really saw one of
the benefits that TransCanada as a partner brings to
the table. Remember why TransCanada was engaged during
the AGIA process, there were many Alaskans that
thought having a pipeline company being able to
operate as an independent pipeline company brought
benefits because their bias was always towards
expansion. The flip side of that is that their
interest is in the expansion not necessarily keeping
costs down in the same way that the producers want to
in defending the value of their gas. So there was
always that tension. But on the expansion side in
being able to operate as a third party pipeline
company; we saw this as enabling that and I encourage
you as TransCanada comes before this committee as a
panel, asking them about do they see these expansion
principles providing them the opportunity to really
have those expansions and there are some "terms of
art" here, but they represent some very clear
decisions at the federal level around how expansions
work and we'll be able to get into that detail with
the committee in the future.
4:17:54 PM
SENATOR MCGUIRE asked to clarify that "terms of art" specifies
FERC rulings and languages specifically related to expansions.
MR. PAWLOWSKI replied that Senator McGuire is referring to the
"Panhandle Decision."
He addressed "enabling legislation" referenced in Article 7 in
HOA. He explained that Article 7 describes the necessary
components of enabling legislation that the Parties believe is
necessary to advance the project through Pre-Feed. Article 7
describes the two-stage process that the Governor articulated in
the State of the State Address. The HOA asks the legislature to
take a look at setting general take-terms today and enabling the
Administration, AGDC, and TransCanada to really get to work
crafting some of the more detailed agreements by testing the
markets, seeing if there is a viable project, and then having
the contracts come back to the legislature as the project
advances through Pre-FEED. More detailed design work will be
received and better project estimates provided before a decision
in the FEED stage is made. He explained that the legislation was
developed by the Administration and the committees will need to
engage all of the parties to match the legislation up to the
necessary components of HOA.
4:19:46 PM
He explained the advancement timeline through enabling
legislation as follows:
· April 2014: Legislature passes enabling legislation.
· 2014 - 2015: Administration and Alaska LNG Project
Parties develop project enabling
contracts.
MR. PAWLOWSKI noted that unlike previous efforts, there is not
the belief that one contract will make AKGP go forward. He said
there are multiple agreements with the market, service
providers, and producers that are going to need to be developed
to govern an LNG project. He pointed out that multiple
agreements are one of the challenges of an LNG project that are
different than an overland pipeline project.
He continued to address the advancement timeline as follows:
· 2015: Legislature considers project enabling
contracts.
· 2015 - 2016: Parties decide whether to advance to FEED.
4:20:55 PM
He addressed Article 8 and explained that the article describes
the royalties and production tax mechanisms that will provide
the type of clarity needed for parties to know what the state's
share is in addition to other Parties in each element of the
infrastructure. He referenced the State Participation Provisions
and noted that the state's participation in the infrastructure
needs to be consistent with the state's share of the gas. He
specified that the state's share of the gas is derived from a
combination of royalty plus production tax.
He explained some "Key Provisions" in the Royalty Section as
follows:
1. Alaska Statute AS 38.05.182(a) provides that "Royalties
on oil and gas shall be taken in-kind unless the
commissioner (DNR) determines that the taking in money
would be in the best interest of the state;" that is the
law of the land directing the Commissioner to gas in-
kind.
2. The November 2013 "Alaska North Slope Royalty Study"
performed by Black & Veatch identified potential issues
related to Alaska taking in-kind, primarily those
associated with marketing risk. What Article 8 really
recognizes is that we see real opportunities in-kind and
we see some risks, but we need to work together with all
of the parties to minimize those risks and maximize those
benefits. We believe some of the terms that they agreed
to in the HOA provide the first material step to solving
those problems.
3. In Article 8.3.3 the Producer Parties commit, if asked by
the state to "Negotiate separately with the state in good
faith to enter into an agreement with the state regarding
the purchase or other disposition of a portion of the LNG
that is made from the state's deliveries (RIK + TAG) of
natural gas to the Alaska LNG project." That willingness
to step up and work with the State on the marketing issue
provides an avenue to start to solve some of that in-kind
concern.
MR. PAWLOWSKI explained that Article 8 additionally covers the
concept of taxes-gas. He said as legislation moves forward there
is an opportunity to provide the ability to pay production taxes
with molecules instead of money, just as royalty would be paid
with molecules instead money; those molecules will be sold
through contract converted into revenues flowed back to the
state. He set forth that as the legislation continues, the
committee will see the way DNR and DOR are structured to work
together to manage the flow back to the General Fund and defend
the interest. He summarized as follows:
The HOA provides, given resolution of some of the
issues and risks that we see, that this is an
opportunity to maximize the state's value and we see a
chance here to move forward. We look forward to
working with all of the parties to advance under this
agreement.
4:23:45 PM
SENATOR DYSON referenced Article 8 and noted a previous issue
with oil and gas producers in dealing with "fiscal certainty."
He summarized that the proposal in Article 8 is kind of a "back
door" way of having production taxes around the principle of
future legislators not being bound by present actions.
COMMISSIONER BALASH replied that what Senator Dyson is touching
on is something that is going to be a very important facet of
the negotiations and contracting that takes place over the next
few months. There is going to be a number of things that the
parties have to sit down and work through in answering the "what
ifs." He noted that one "what if" is going to be what if the
legislature changes taxes, up or down, and what opportunities or
challenges will be presented. He pointed out that the State will
have multiple commercial relationships and interconnections by
and among the Parties. He continued to address the question
regarding fiscal uncertainty as follows:
Ultimately how we resolve that question is going to
receive an inordinate amount of scrutiny in 2015. We
aren't certain how that's going to be solved today.
What I can tell you is that the desire, fundamentally,
for some measure of predictability as to our share of
the gas and the duration of the terms for the state
will become very important because if we're going to
take out capacity on our infrastructure for 20 plus
years, we're going to want some certainty from the
upstream parties that they're going to provide gas.
We're also going to have the need for understandings
around the market against the sale of the LNG itself.
The manner by which all of the Parties achieve those
elements of certainty that allow them to get
comfortable with the decision to invest is going to be
one ultimately based on some interdependence.
4:27:10 PM
SENATOR DYSON asked if there is a mechanism whereby future
legislatures would be precluded from changing production,
profit, or windfall taxes someway related to getting payment in
molecules instead of dollars.
COMMISSIONER BALASH replied that his expectation is not a "thou
shalt not." He explained that the question is what will happen
"if."
SENATOR DYSON clarified that Commissioner Balash is saying that
the intent is trying to structure the agreement so that if an
irresponsible legislature or administration in the future tried
to kill the "golden goose," the trip-wires within the contract
would make it demonstrably not in their interest to kill the
goose.
MR. PAWLOWSKI offered that moving on to the next topic touches
on the question Senator Dyson raised.
He addressed Articles 9 and 10 in HOA that detailed other terms
that are necessary to advance a project. He continued to
describe Articles 9 and 10 as follows:
At the stage we are at in this project, we
collectively, not just state, don't know what is
necessary to advance the project. When you talk about
durability or frameworks and how long the contracts
are going to be, we don't have the answers to those
yet. There's an important difference between trying to
do something through a back-door rather than saying,
"They're going to have to be sufficient duration to
contracts to make a project work;" those are all going
to be done in the light of public and part of a public
discussion over the next several years, it's not a "We
should make that decision today." We need to continue
to work for, not just what the other Parties need, but
what the state does. Article 9.2 talks about some key
criteria for duration. There can be durability, but it
is for specific reasons and it is to support
investment decisions, permit realization of a
competitive economic return to enable necessary
financing, and to support gas and LNG sales. There's
going to be reasons why things need to have
durability, not durability for durability's sake. One
of the things we talk about is if there is not gas
committed, what is the durability around that. We have
to work through those problems, they are going to be
big problems, but that is part of the phased stage-
gated approach to this project. As commitments from
both sides build, the level of commitment of both
sides build until we have a project.
4:30:45 PM
SENATOR DYSON declared that he should not have used the phrase
"back door." He asserted that he did not mean sneaky, but a
really different way of approaching the stability in limiting.
He asserted that some of Mr. Balash's statements sound almost
like production tax as being part of the royalty framework.
MR. PAWLOWSKI replied that the attempt with the production tax
as "gas concept" is to, from an economic perspective, get closer
to the royalty and there are a number of reasons why to do that.
He explained that production tax is a cost, if a producer is
looking at marketing gas it is a cost. He pointed out that the
carve-out for Cook Inlet's tax ceiling was largely because
changes in the production tax at the time flowed through to the
rate payers in the contract. The end result was a carve-out for
Cook Inlet taxes to protect the gas market in Cook Inlet. Having
the production tax shift over to something that is similar to
royalty will remove that as a cost from the perspective of a
producer who is trying to market. He noted that some important
nuances regarding the production tax shift will be addressed in
later legislation. He said everything is about how cheaply all
of our gas gets to compete with British Columbia, Russia, and
the Australian projects that are trying to chase the same
market. There are still costs in the state-take, but by shifting
production tax to something that is supported by state
investment, we don't have to cut the tax to the same way, yet we
can allow the gas to be competitively priced.
4:32:34 PM
SENATOR FRENCH asked to clarify that Alaska's production,
royalty, and property taxes will all be collapsed into one
payment which will come to the state in gas rather than money.
MR. PAWLOWSKI replied that a key difference is that the property
tax is not included. He explained that the state gas share is a
combination of the royalty plus the production tax. The property
tax and the corporate income tax are separate considerations
that are outside of the state's gas share.
He continued with Articles 9 and 10, calling attention to Point
1 regarding property tax. He said property tax on a $45 to $65
billion piece of infrastructure is a major cost to the project.
There are substantial property tax revenues derived from an
infrastructure investment the size of AKGP. He explained that
Alaska's property tax is shared with municipalities in local
jurisdictions. He asserted that the Administration was not going
to come to the table with a proposal for property tax without
engaging in a consultative process with the tax paying and tax
jurisdictions, in addition to municipalities that are not
directly related to the project. He said in HOA is the idea that
in consultation with local governments, another thing that will
be pursued is the development of a payment in lieu of tax system
and impact payments to govern the project. There is a lot of
opportunity to help, we have seen many bills introduced the
years to suspend property taxes during construction, as
incentives to move the project forwards. He asserted that the
state needs to work together with communities who are going to
share the taxing jurisdiction to develop what is the best way to
benefit them and the state to move the project forward; that is
a whole separate substantial revenue stream to both the state
and municipalities for the project.
4:34:57 PM
SENATOR FRENCH asked where corporate income tax was being
addressed.
MR. PAWLOWSKI replied that there is no contemplation of anything
related to corporate income tax. He noted that corporate income
tax will be addressed in HOA and specified in the statutes
introduced to the legislature that there is a key part of
including the production tax gas in the apportionment factor for
the calculation of corporate income tax to be sure we are doing
the apportionment factors correctly for corporate income tax.
There is no real changes to corporate income tax that are
necessary.
4:35:33 PM
MR. PAWLOWSKI continued to address "key provisions" in Articles
9 and 10 that included: the development of infrastructure;
local, state, and federal permitting requirements; and the
continuation of a healthy, long term oil business. He said the
development of gas and the competitiveness of gas will depend on
how the cost of the Prudhoe Bay and North Slope infrastructure
are being borne. He summarized that a healthy, long term oil
business is key to moving gas forward.
He addressed Article 11 and explained that the provision
provides key principles that are guidance for the project going
forward that are very important to Alaskans. He set forth that
AKGP's estimated cost is $45 to $65 billion with a peak
construction workforce of 9,000 to 15,000 jobs. He noted that
the exciting part of an LNG project is the long term operational
jobs that exist in Alaska. He explained that pipelines have a
smaller operational workforce than an LNG plant; current AKGP
estimates show 1,000 long term jobs in the operations stage. He
noted the importance in understanding the need to be sure that
AKGP was supporting key principles to Alaskans by:
· Hiring Alaska residents,
· Contracting with Alaska businesses,
· Participating with the Alaska Department of Labor
Workforce Development to update training plans,
· Providing training for potential Alaskans to work on the
project,
· Committing to negotiating in good faith for project labor
agreements.
He said all of the previously mentioned key principles provide a
mechanism for Alaskans to participate in and benefit from AKGP.
He set forth that AKGP is a multigenerational economic
opportunity for the state.
He referenced Point Thomson and noted the importance in the
Administration's efforts to work together with the working
interest owners to come to an amicable settlement. He asserted
that the Point Thomson Settlement jump-started and served as a
foundation in the development of AKGP. He detailed that the
reserves of gas at Point Thomson are critical to moving AKGP
forward with the Prudhoe gas. He mentioned a quotation from a
letter dated October 2012 to Governor Parnell as follows:
While North Slope gas commercialization is
challenging, working together, we can maintain the
momentum toward our shared vision for Alaska.
MR. PAWLOWSKI noted the difference made from the Point Thomson
Settlement as follows:
When I think as Alaskans we find so different about
this effort is that it provides a mechanism in the
Heads of Agreement in going forward for the parties to
work together instead of fighting over a project that
is going to be critical to Alaska's future.
4:38:58 PM
He revealed that a website [www.dnr.alaska.gov/AKgas.htm] will
be accessible for the legislature and public to follow additions
to the supportive information and documents provided for AKGP.
SENATOR FAIRCLOUGH noted that Alaskans will want to know why
TransCanada.
COMMISSIONER BALASH explained that the State has been working
with TransCanada in the AGIA framework and the proposed project
is a step forward and continuation. He set forth that the State
is leaving the AGIA license behind with TransCanada and
continuing to move forward with TransCanada. He explained that a
presentation on terms with TransCanada will be presented to the
committee at the following meeting. He specified that the terms
with TransCanada will be a more traditional commercial
relationship. He said the presentation will highlight for the
committee and the public the reasons why it makes sense for the
state from a commercial and quantifiable standpoint. He
explained that qualitatively there are a couple of things he can
point to regarding TransCanada:
1. Preeminent pipeline company in North America,
2. Knows how to operate in the Arctic,
3. Demonstrated to be a worthy partner with DNR,
4. Shouldered up with the other Parties and found solutions
to problems.
COMMISSIONER BALASH declared that at the end of the day what the
DNR sees as the real value is to have a company that is going to
be able to do the following:
1. Step in and operate like an independent pipeline company,
2. Knows the state,
3. Has been in Alaska and is familiar with issues that are
important to Alaskans,
4. Not going to face a steep learning curve.
He explained that the Administration considered strongly whether
to continue forward with TransCanada and the fact that
TransCanada was prepared to meet Alaska's terms was no small
thing. He revealed that DNR will get into the specific
combination of the terms, the debt to equity ratio, and some of
the options that will be held by the state.
4:42:21 PM
SENATOR FAIRCLOUGH set forth for the departments to be prepared
to answer why TransCanada would put U.S. interests in front of
Canadian interests when Canada has a project that is trying to
compete specifically with the same market that Alaska is going
after. She said she would like the people of Alaska to hear the
safeguards that are in place to make sure Alaskan interests are
in front of Canadian interests in reference to AKGP.
SENATOR MICCICHE stated that he finds Section 9.3 interesting,
especially 9.3.1(b) in reference to impact payments during
construction. He asked if Mr. Pawlowski could explain impact
payments and if the costs could be incurred as an additional
service prior to there being any taxable value.
MR. PAWLOWSKI replied that DOR has not delved into impact
payments when consulting with local communities. He explained
that impact payments are traditionally meant to substitute for
what would be the property tax value during the construction
period. He said assets are put into place with taxable value
during the construction period. He continued to address working
with communities to determine impact payments as follows:
How exactly the impact payments and the payment in
lieu of taxes are structured is going to depend a lot
on the needs of the project in terms of net present
values and the needs of the communities for revenue
before construction. As you know there is a major
impact on communities of an influx of workers, of the
needs of the infrastructure, so there's got to be a
balance somewhere of how those impact payments are
supporting those very real needs at the local level
while providing an opportunity for the project's
sponsors, which in this case would also include the
state, to achieve a strong value on the
commercialization of the project going forward. We
don't have an answer, we have not predetermined what
the numbers should look like, and we look forward to
the process of working with communities to get there.
As in the Pre-FEED stage, we know more about what the
needs are going to be at the community levels.
4:45:16 PM
SENATOR MICCICHE declared as a former small town mayor that he
believes it is an excellent consideration to have an agreement
and is glad to see it. He remarked that communities will be
comforted to know that they are being looked out for pre-
construction completion. He said he will be working with the
Department of Labor on the legal constraints for Alaska hire. He
noted testimony on gas to Alaskans, jobs to Alaskans, and
revenue to the state. He asserted that "jobs to Alaskans" is
something that he would like to revisit pertaining to the extent
of the constraints. He asserted how AKGP is received will vary
dramatically and depend on opportunities existing for young
Alaskans.
COMMISSIONER BALASH replied that the intent is to deal with
"jobs to Alaskans" in a new way and wait until right before
construction begins in order to not allow lawyers enough time
before jobs are available.
SENATOR DYSON commented that there is an awful lot that is not
being said during the overview. He mentioned being in the
legislature for 18 years and noted two issues regarding labor
agreements:
1. Construction unions with bylaws that do not allow Alaskan
hire if out of state union members are on the membership
rolls.
2. Senator Bishop will provide great help to the committee
to support an Alaskan who is qualified and can be
licensed under state law can become a bargaining unit
member. Bargaining units should have Alaskans on their
books in other jurisdictions.
MR. PAWLOWSKI added that through settlements and contracts there
are a lot more things that can be done about Alaska-hire than
through statutes. He noted that the departments can assist the
committee in providing guidelines for contractual development.
He asserted that HOA has captured the Alaska-hire principal and
noted the importance of structuring the agreement going forward.
4:48:30 PM
SENATOR FAIRCLOUGH noted Senator Dyson's concerns. She specified
that one of the issues on a project labor agreement for her
consideration is going to be retirement portability. She
referenced the period during the Trans-Alaska Pipeline System
(TAPS) and noted that many people left without seeing the
benefit from their work in savings accounts without funds. She
addressed Senator Micciche's consideration for negotiations on
social impacts and noted during TAPS construction the increase
in rape and domestic violence in smaller communities. She said
she hoped that the particular social impacts noted will not go
unnoticed. She noted that those directly involved in TAPS may
not have known about the social impacts, but the state did
pickup quite a bit of cost in placing support facilities across
Alaska to support individuals that were traumatized, taken
advantage of, and had their lives changes.
She inquired from an Alaskan perspective if individuals will
have an opportunity to participate in AKGP. She specified that
other bills addressed distributing a "permanent fund" so there
is investment cash flow coming into some households that allow
Alaskans to be a part of a long term pipeline investment. She
expressed her desire for the ability for Alaskans to invest or
at least be able to buy shares in one of the participating AKGP
entities. She noted the importance of affordable energy
throughout Alaska and addressed AKGP's offtake points. She asked
if there will be added cost for smaller communities receiving
low pressure gas from the offtake points.
MR. PAWLOWSKI replied that Steve Butt, AKGP Project Manager will
address the technical aspects with the committee at a future
meeting. He noted that the Administration has been focusing on
LNG opportunities beyond the project's traditional route. He
noted an example of micro-scale LNG delivered on the water and
Alaska's potential future benefits from small scale LNG.
He addressed investment participation and noted DOR's
commissioner is aware of the complications that come along with
investment by Alaskans. He said DOR will work with the committee
to address investment challenges and opportunities.
4:53:21 PM
SENATOR FRENCH asked about Alaska's relationship with the other
HOA members between now and whenever it wraps up. He inquired
how the State works with the other members. He asked about the
$400 million cost for AKGP's Pre-FEED phase and Alaska's share.
COMMISSIONER BALASH replied that the $400 million is a total
figure and Alaska's share would be a fraction of that. He
reiterated that the percentage for the state will be somewhere
between 20 to 25 percent and the state's share will be $80 to
$100 million. He pointed out that the agreement with TransCanada
will not require Alaska to front any cash or meet cash calls
during the Pre-FEED phase or subsequent phases so long as the
state maintains a relationship with TransCanada. He detailed
that the state's share is actually going to be a fraction
further of the $80 to $100 million. He explained that the costs
will be reviewed during the course of the fiscal note analysis
in making sure that the State's subsidiary is sufficiently
capitalized to meet the expected cash call needs during the Pre-
FEED phase.
SENATOR FRENCH addressed the election between Royalty in Kind
(RIK) and Royalty in Value (RIV) as something Alaska has always
treasured and enjoyed being able to exercise. He said RIK and
RIV are one of Alaska's prerogatives of being sovereign. He
asserted that HOA and enabling legislation will surrender RIK
and RIV to producers by letting them make a onetime and
irrevocable choice. He asked why Alaska should give up something
that the state enjoys using for multiple years in the oil area.
4:55:46 PM
MR. PAWLOWSKI replied that the choice on tax as gas is not given
to the producer. He specified that the choice of tax as gas
depends on the DNR initially making modifications to specific
leases. The option for tax as gas only becomes available if the
state elects to do so and then the tax as gas option becomes
available.
SENATOR FRENCH asked about the royalty side.
4:57:03 PM
COMMISSIONER BALASH addressed the recent Royalty Study that
specified legitimate commercial complaints with regard to the
state's ability to switch back and forth from RIV to RIK. He
noted that the state's ability to switch back and forth does not
always create problems, what matters is how much of the gas in
question is being committed to Sales and Purchase Agreements
(SPA). He explained that Prudhoe Bay has 24 trillion cubic feet
of gas and if the collection of SPAs total 16 trillion cubic
feet of gas, the state's ability to switch is not going to
create a complication for the buyer, seller, and relationship.
He stated that a commercial hardship may occur if the state
decides to switch when the SPAs necessary to underwrite AKGP add
up to 24 trillion cubic feet. He noted the challenge for a
seller to tell a buyer that gas is available for 20 years unless
people in Alaska decide to switch. He remarked that the choice
to keep RIV and RIK switchable is going to impact the state's
value one way or the other. He continued to explain as follows:
Whether we feel it in the value we realize or whether
we make a long term commitment to one form or the
other, there is a choice to be made here and we can
choose to keep it on a switchable basis, but it is
going to impact our value one way or the other and
that is something that when we do get to the
legislation you will see we are not asking for a
choice to be made and left, it is going to depend upon
the circumstances that we face based on the lessee
that is approaching us. Again, going back to the
question of whether or not the SPAs involved are
committing all of the gas, or just some of the gas.
4:59:37 PM
SENATOR FRENCH replied that he looked forward to the
conversation.
CHAIR GIESSEL asked how Commissioner Balash would respond to
people who asked why AKGP will go forward when so many have
failed.
COMMISSIONER BALASH remarked about the collection of parties
that have signed on to HOA has not existed over the past 10 to
15 years. He said the collection of parties alone is not the
answer and a commensurate commitment level will be required for
AKGP to proceed during development. He set forth that the State
is going to reserve certain prerogatives and choices by
maintaining its "ace in the hole" through AGDC and the ASAP
Project. He noted that the impact from the Point Thomson
Settlement (PTS) goes directly to the producers' commercial
interests. He explained that PTS resulted in an obligation on
the part of the lessees to do certain things to hold their
leases. The lessees acknowledged that the land is the state of
Alaska's and doing nothing will result in lessees losing their
leases. He said first along the way to development at Point
Thomson is the initial production system; a relatively small
cycling project that will kick out 10,000 barrels a day of
liquids and needs to be brought online by early 2016. He
explained that the working interest owners at Point Thomson will
be able to keep some of their acreage if the small cycling
project is brought online by 2016 and the rest may be kept if
the field is more fully developed. He detailed three ways for
the Producers to meet their PTS obligation by 2019:
1. Expand the cycling effort,
2. Blowdown Point Thomson and move gas over to Prudhoe Bay
and recover more black oil,
3. Sanction a major gas sale project.
COMMISSIONER BALASH addressed the scheduled progression form
Pre-FEED to FEED to Final Investment Decision (FID) and the
associated timelines. He noted that FID is projected to occur in
2017 or 2018, beating the 2019 date. He asserted that retaining
Point Thomson lease positions, staying on plan, and committing
to sanction before 2019 is important to the lessees.
5:03:16 PM
He pointed out an issue that has confounded folks who want to
commercialize Prudhoe Bay and that is the gas impact consequence
on oil. He explained that Prudhoe Bay is both an oil and gas
field. He said for many years the Prudhoe Bay gas has been
reinjected in order to recover more oil. He revealed that every
time gas is reinjected, less oil is recovered and a point of
diminishing returns is reached in terms of using up the energy
to recycle gas. He asserted that there is ultimately a tipping
point, a point at which there is no longer a loss associated
with gas blowdown at Prudhoe Bay. He said estimates based on a
limited set of data suggest that the tipping point is going to
arrive somewhere in the early part of the next decade, which
coincides with the first dates that come out of the AKGP
timelines. He noted that BP, the operator, has access to more
detailed information and can provide the committee with
additional information about when the tipping point might occur.
SENATOR DYSON set forth that as Prudhoe Bay development moves
towards trying to harvest heavy oil, carbon dioxide (CO2)
stripped from the gas is almost like magic in lifting heavy oil.
He asserted that there will be a "sweet spot" in CO2 use that
will add to the economics of the gas treatment plant and
facility.
5:05:27 PM
COMMISSIONER BALASH replied that Senator Dyson's observation is
a very true statement.
MR. PAWLOWSKI added that he looks at what is different today and
in the future. He noted recent activity with an office opening
and land acquisition in Kenai. He said land is in place or at
least a good assessment of land rights in order to file an
export license. He set forth that people are actually doing the
work that needs to be done to move AKGP forward and the work is
happening now. He stated that he does not just look at what is
driving the longer term, but are the parties doing what is
necessary today to advance the project and the answer is clearly
yes due to the work that started a few months ago.
5:06:22 PM
CHAIR GIESSEL announced that TransCanada will be attending the
next committee meeting to address the Memorandum of
Understanding (MOU).
5:06:47 PM
There being no further business to come before the committee,
Chair Giessel adjourned the Senate Resources Committee at 5:06
p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SRES Heads of Agreement Presentation Rodell, Balash, Pawlowski revised 20140127.pdf |
SRES 1/27/2014 3:30:00 PM |
|
| SRES Heads of Agreement 20140129.pdf |
SRES 1/27/2014 3:30:00 PM |
|
| SRES Memorandum of Understanding 20140127.pdf |
SRES 1/27/2014 3:30:00 PM |