Legislature(2013 - 2014)Anch Temporary LIO
09/29/2014 01:00 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| Introduction by Joe Balash, Commissioner, Alaska Department of Natural Resources (dnr) | |
| Alaska Lng Project Update by Steve Butt, Project Manager | |
| Progress from the State's Perspective - Commissioner Balash & Commissioner Rodell | |
| Report of Money Obligated to a Third Party: Commissioner Balash | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
JOINT MEETING
SENATE RESOURCES STANDING COMMITTEE
HOUSE RESOURCES STANDING COMMITTEE
September 29, 2014
1:02 p.m.
MEMBERS PRESENT
SENATE RESOURCES
Senator Cathy Giessel, Chair
Senator Fred Dyson, Vice Chair
Senator Click Bishop - via teleconference
Senator Peter Micciche
HOUSE RESOURCES
Representative Eric Feige, Co-Chair
Representative Dan Saddler, Co-Chair
Representative Peggy Wilson, Vice Chair
Representative Mike Hawker
Representative Craig Johnson
Representative Kurt Olson
Representative Paul Seaton
Representative Geran Tarr
Representative Scott Kawasaki - via teleconference
MEMBERS ABSENT
SENATE RESOURCES
Senator Lesil McGuire
Senator Anna Fairclough
Senator Hollis French
HOUSE RESOURCES
All members present
OTHER LEGISLATORS PRESENT
Senator Charlie Huggins
Representative Sam Kito III
Representative Andy Josephson
Representative Chris Tuck
COMMITTEE CALENDAR
INTRODUCTION BY JOE BALASH - COMMISSIONER~ ALASKA DEPARTMENT OF
NATURAL RESOURCES (DNR).
- HEARD
ALASKA LNG PROJECT UPDATE BY STEVE BUTT - PROJECT MANAGER.
- HEARD
PROGRESS FROM THE STATE'S PERSPECTIVE - COMMISSIONER BALASH &
COMMISSIONER RODELL.
- HEARD
REPORT OF MONEY OBLIGATED TO A THIRD PARTY: COMMISSIONER BALASH.
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JOE BALASH, Commissioner
Alaska Department of Natural Resources
Juneau, Alaska
POSITION STATEMENT: Provided an update for the Alaska LNG
Project.
STEVE BUTT, Project Manager
Alaska LNG Project
Anchorage, Alaska
POSITION STATEMENT: Provided an update for the Alaska LNG
Project.
JACK BEATTIE, Pipeline Manager
Alaska LNG Project
Anchorage, Alaska
POSITION STATEMENT: Addressed construction questions for the
Alaska LNG Project.
ANGELA RODELL, Commissioner
Alaska Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Addressed financing and revenue questions
for the Alaska LNG Project.
ACTION NARRATIVE
1:02:54 PM
CHAIR SENATOR GIESSEL called the joint meeting of the Senate and
House Resources Standing Committees to order at 1:02 p.m.
Senators present at the call to order were Vice-Chair Dyson and
Chair Giessel; Representatives present at the call to order were
Representatives Seaton, P. Wilson, Olson, Johnson, Tarr, Hawker,
Co-Chair Saddler, and Co-Chair Feige. Senator Micciche joined
the meeting as it was in progress. Senator Bishop and
Representative Kawasaki joined the meeting via teleconference as
it was in progress.
CHAIR GIESSEL recognized other legislators in attendance were
Senator Huggins, Representative Kito, and Representative
Josephson. She noted that Janak Mayer & Nikos Tsafos from
Enalytica were in attendance.
^Introduction by Joe Balash, Commissioner, Alaska Department of
Natural Resources (DNR)
Introduction by Joe Balash, Commissioner, Alaska Department of
Natural Resources (DNR)
1:03:04 PM
CHAIR GIESSEL announced that the first item on the agenda would
be an introduction from Joe Balash, Commissioner of the
Department of Natural Resources.
JOE BALASH, Commissioner, Department of Natural Resources (DNR),
Anchorage, Alaska, explained that a provision in SB 138 requires
that a public presentation and update on the Alaska Liquefied
Natural Gas Project (Alaska LNG Project) be held three times a
year. He noted that the signing of SB 138 in May dictated that
the first presentation be held in September.
COMMISSIONER BALASH called attention to the sharing of
information with the Legislature. He explained that SB 138 set
out the broad terms of an arrangement where the details need to
be filled in. He noted that DNR and the Department of Revenue
(DOR) were given authority to enter into confidential
discussions and certain types of agreements. He said that DNR
has developed an agreement between the agencies and the other
project sponsors that has involved confidential information
access protocols and personnel training for the executive
branch. He informed the committees that DNR is developing
similar confidentiality agreements between the agencies and the
legislative branch.
1:05:56 PM
COMMISSIONER BALASH noted that a draft confidentiality agreement
had been sent the previous week to the Division of Legal and
Research Services for review. This confidentiality agreement
will allow information access for individual legislators and
their agents that would not be presented at a public meeting. He
pointed out that as an equity participant in the Alaska LNG
Project, the dollars and cents involved has everything to do
with expenditures and costs pertaining to dealing with
contractor bidding. He asserted that the intent should be not to
put the Alaska LNG Project at a negotiating disadvantage with
contractors and engineering firms.
He added that the other side of the equation pertains to buyers.
He pointed out that buyers are going to take every opportunity
to drive sales prices lower. He stated that discussions will
occur in executive session to protect Alaskan's resource
interest, royalty value, production tax, and ultimately the
treasury.
1:07:59 PM
CO-CHAIR FEIGE asked what the timeline is for confidentiality
agreements and training.
COMMISSIONER BALASH replied that he would not try to predict the
timeline. He explained that DNR and DOR spent a couple of months
going back and forth with the Department of Law and the other
project parties, and now the confidentiality agreement is just a
matter of getting the legislative and state attorneys on the
same page.
CHAIR GIESSEL recognized that Representative Tuck joined the
meeting via teleconference.
^Alaska LNG Project Update by Steve Butt, Project Manager
Alaska LNG Project Update by Steve Butt, Project Manager
1:09:42 PM
STEVE BUTT, Project Manager, Alaska LNG Project, Anchorage,
Alaska, shared his work experience as follows:
· 30 years of experience with oil and gas projects.
· Worked in South America building a few projects.
· Worked in West Africa for 8 years.
· Worked most recently in Qatar on the world's largest LNG
facilities as well as the world's largest gas treatment
plant.
He explained that the opportunity presented itself for the
companies to come together and work on the Alaska LNG Project.
He stated that it was a privilege to have this opportunity
because Alaska has been worked and looked at for a long time.
1:12:02 PM
MR. BUTT noted that one of the key questions everyone asks is
what makes this effort different. He explained that he was
representing the parties that signed the Joint Venture Agreement
(JVA) at the end of June. This was a landmark agreement to
create a Pre-Front-End Engineering Design (Pre-FEED)
organization to progress the design and regulatory work required
to build and understand what would be required to build the
Alaska LNG Project.
He said in 2012 the phrases "unprecedented challenges" and
"unprecedented opportunities" were used to characterize the
Alaska LNG Project because by any metric, it is one of the
largest projects in the world. He pointed out that the term
"mega project" has been used to define projects between $1
billion to $5 billion. He said the Alaska LNG Project has been
forecast to range from $45 billion to $65 billion. It
encompasses five mega-projects and the term "giga project" has
been used to describe it. He set forth that the Alaska LNG
Project is the first true giga-project. It is one of the largest
projects ever executed and the largest project in U.S. history.
He added that bigger LNG plants, pipelines, and gas treatment
plants have been built, but there has never been a standalone
project built with all three at once. He said his presentation
would provide a progress report for an unprecedented project,
challenge, and opportunity.
1:14:14 PM
MR. BUTT stated that what separates the Alaska LNG Project from
others is the amount of public engagement a higher level of
transparency without compromising project competitiveness. He
asserted that "transparency" and "competitiveness" are the core
elements.
He summarized the update agenda as follows:
· Safety overview-executive summary:
A key principal is to ensure a safe environment where
everybody goes home safely and nobody gets hurt.
· Schedule status:
The schedule is the one that's been talked about in
public forums so as to give everybody a sense of the
progress that's been made and some of the steps ahead.
· Project components-recent progress:
Specifics about the design and construction
characteristics.
· Team status-build-up:
The Pre-FEED leadership team and the Pre-FEED project
management team are actually executing this work.
· Regulatory status-LNG export permit application:
This was submitted to Department of Energy (DOE) and
posted to the Federal Register, which is the way DOE
accepts and opens public comment. Public comment is
open through November.
· Regulatory status-National Environmental Policy Act (NEPA)
pre-file accepted:
NEPA is the enabling legislation behind the U.S.
Environmental Protection Agency (EPA) on the
Environmental Impact Statement (EIS). The first step
in the process is called the pre-file and this
document has been submitted. It notifies the federal
government about the project need for help in
obtaining a permit, which is necessary before any work
can be executed. It's the law. A project cannot
undertake work or disturb the environment without a
document from the federal government or an EIS that
indicates that the project has done the work required
to mitigate any potential environmental damage and
that any environmental damage it the least possible.
This is called LEDPA. It's critical to have this
document and permits in hand before moving forward.
· Cooperation framework with the Alaska Gasline Development
Corporation (AGDC):
This is to ensure alignment to be as efficient as
possible.
· 2014 Summer Field Season:
Included are pictures of the 2014 summer field work to
provide some background on some of the things that
have been found and some of the work that was done. He
noted that he had had the privilege of hosting some
committee members at the site.
· Website:
One of the key messages is to promote discussion with
the broader public in Alaska. The website provides a
way for corporations to register, express interest in
working with the project, ask questions, and find out
about community engagement sessions.
1:18:18 PM
MR. BUTT asserted that the ideas presented on page 3 are the
philosophical underpinnings that will differentiate a successful
project from a project that can't move forward.
He stated that there have been no health or environmental
incidents to date. Over the course of three years, 210,000 to
220,000 person hours of field work and 50,000 to 80,000 person
hours of work of office has been executed. The total is in
excess of 300,000 person hours of work. He revealed that was one
minor medical treatment incident during the 2014 summer field
season. A field worker removed his safety glasses to better read
the tablet where he enters data for the permit and his eye was
scratched by an alder branch. This required some medication, but
he was able to return to work within a matter of hours. This
incident captured the importance of "personal protective
equipment" (PPE) and has been used subsequently as a teaching
tool.
1:20:53 PM
SENATOR MICCICHE joined the meeting.
MR. BUTT reviewed the Executive Summary. He explained that the
Pre-FEED team consists of 27 key leadership positions that were
staffed from all the project owners. This team has in excess of
800 years of experience. In addition, about 102 more team
members were added and there are plans to add about 7 more. This
brings the total to 130 to 135 people working fulltime. The
project is moving from the concept stage to what is called pre-
phase-FEED stage. The core team will be responsible for working
with a wide range of contractors involving several thousand
people to ensure the broader work gets done to progress
regulatory filings and design work required to de-risk the
project and make sure it's viable.
He continued to explain that, to date, the project spending
exceeds $100M on concept, regulatory work, and the Pre-FEED
commitment is about five times this amount. The $100 million
includes gathering regulatory data in the field over the last
two summers, the preliminary design work to finish the NEPA pre-
file, and the DOE export permit application. He noted that the
export permit application is 200 pages.
The Pre-FEED contracting is progressing with good support from
primary contractors that have demonstrated success in similar
projects. He acknowledged that while a lot of work has been done
on Pre-FEED contracting, the presentation is a little light on
this because the project team is currently in the middle of
awarding the contracts. He asked for latitude to provide more
information on contracting at the next update, but that he did
have information on what it means for Alaska hire. Once the key
contractors have been identified they would hold open-houses to
make sure Alaskan corporations know how to plug into the
project. Now some of these contractors are Alaskan corporations
and some are not. Given the scope and complexity of the project,
most of the contracting arrangements will be with multiple
companies to make sure that they can handle the complexity of
the project. If one company has strength in one area and
weaknesses in another, the idea is to find a complementary
company that can offset the weaknesses and augment the
strengths.
CO-CHAIR SADDLER asked if it was possible to provide information
on how many contractors were Alaska based.
MR. BUTT answered that the Alaska LNG Project has had a lot of
success with companies that are Alaska based, but he would
rather not identify the specific contractors. He noted that with
every single contractor contact, there is a technical evaluation
process to identify a contract group's strengths. One of the key
areas of the evaluation process includes: the amount of Alaska
hire, how the contractor leverages local resources, and how the
contractor works within communities.
1:26:41 PM
MR. BUTT continued to discuss the Executive Summary. He reported
that the NEPA, pre-file request was approved by the Federal
Energy Regulatory Commission (FERC) on September 12, 2014 and
that triggers the EIS process. This is a fundamental document
that allows the project to engage FERC and work with its third-
party consultant, Natural Resource Group (NRG) to coordinate all
federal regulatory agents. This very important milestone
triggers a community engagement process, which is posted on the
website. He noted there have been about 50 community meetings
and more will occur over the next six months. FERC attends and
is involved in those meetings, clarifying that this community
and stakeholder engagement process is done under the umbrella
and auspices of FERC.
MR. BUTT advised that DoE posted export application to Federal
Register on September 17, 2014 - process to secure right to
export LNG. This is the process to secure the right to export
LNG and the fact that the application has been accepted and
posted it to the Federal Register in a very timely manner
indicates that this project is moving along and that very
thorough and bonafide work has been done.
1:29:26 PM
REPRESENTATIVE KAWASAKI and SENATOR BISHOP joined the meeting
via teleconference.
MR. BUTT turned to the Key Messages in Recent Meetings. He
reported that there have been 50 community meetings that have
been very well attended; 300 people came to talk to the project
team at Dena'ina Center. One of the most important messages the
team tries to share at these meetings is that the Alaska LNG
Project participants are the owners of 99 percent of the gas on
the North Slope. This is the State of Alaska plus the producers
who purchased the right to produce the oil and gas from the
North Slope leases in the 1960s and 1970s, it's not any one
group. He emphasized that the state has a seat at the table as
an equity participant; the state is an owner of gas.
MR. BUTT opined that as owners of the gas, it is important to
ask "What is the best thing to do?" From that framework, he
suggested committee members speak on behalf of all Alaskans,
because it shapes the discussions with buyers. He noted that
Commissioner Balash alluded to this. Buyers have a different
view than sellers on how to structure the deal owners probably
view thing more like a seller than a buyer. He said that
paradigm is critical and it helps to get to what he calls the
first leg of the "arc-of-success," which is alignment.
Mr. Butt explained that ARC is a quick acronym for the three
touchstones to answer questions about the project. How does
something influence alignment, how does something influence
risk, and how does something influence cost?
Alignment - Mr. Butts said it may be simplistic to say that
anything that increases alignment is good and anything that
undermines alignment is bad, but almost all questions come back
to this point.
Risk reduction - He described Pre-FEED as all about identifying
and mitigating uncertainty. Some of the things that might get in
the way of the project are labor challenges, weather
construction challenges, and challenges to get 250,000 tons of
steel to the North Slope over four sealifts 8,000 tons at a
time. These are technical issues and Pre-FEED is about ensuring
that all of these risks are understood beforehand and mitigating
steps taken before something goes wrong. He highlighted the
importance of acquiring a sufficient number of the right barges
to move safely all materials, crews and equipment. These things
are risks and uncertainties that are identified during Pre-FEED
so there is confidence that the project will work in an aligned
manner, if the owners choose to put up all the money to build
the project. The investment decision isn't whether the project
will work if the owners put up the money. The question is
whether all the risks have been considered and mitigated
sufficiently so the owners can be told "Yes, if we put up the
resources required to do this work, we will be able to generate
revenues and the benefits we have all forecast from this work."
1:36:33 PM
Cost reduction - Mr. Butts explained that gas is a commodity and
Alaska must be careful to ensure that it is able to sell its gas
molecules at a price that is low enough to attract buyers. That
means that the project must be designed to minimize what is
called the "cost of supply." This is driven by the amount of
money that it takes to build the infrastructure such that it can
be recovered over time. This project will cost between $45
billion and $65 billion and the owners won't get any money in
excess of that until their investment is recovered. It's about
being competitive. The only projects that survive are the ones
that can continue to deliver energy at a cost below their
competition.
He highlighted the structural advantages of the project that
help drive down costs and pay for some of the infrastructure
that other LNG projects don't need, like a very long pipeline
and a very large gas treatment plant. He said these advantages
and disadvantages become the background that is used to analyze
the cost of supply, which is the fundamental parameter that
defines whether or not a project can be competitive. "If it's
not competitive, it can't survive." He summarized that the
Alaska LNG Project can be successful if the partners work as
owners and they figure out how to stay aligned, how to reduce
risk, and how to reduce cost.
MR. BUTT explained that the Alaska LNG Project is more than a
pipeline. It is a pipeline plus two large facilities: a gas
treatment facility at the top that is required to remove and re-
inject CO and other non-hydrocarbon impurities, and a
2
liquefaction facility at the south-end which makes the gas small
enough to efficiently sell and ship overseas. The pipeline
allows for gas delivery to local markets and its LNG facility
allows for gas delivery to the world. He asserted that this
project can provide energy to improve standards of living if
costs can be driven down through economies of scale. He
explained that the Alaska LNG Project provides economy of scale
because its large size puts a lot of gas through one pipeline.
This drives down costs.
He remarked that he will continue to use words like "ownership,"
"alignment," "risk reduction," and "cost reduction," because
most questions can be answered through these four lenses. "What
would an owner do, does it help alignment, does it reduce risk,
and does it reduce cost?"
1:41:19 PM
MR. BUTT reviewed the Alaska LNG Project Work Plans/Key Decision
Points (October 2012) [page 4]. He explained that he addressed
the Legislature in early 2012 to talk about the Alaska LNG
Project and wade through the skepticism. He recounted that the
first hurdle was to test the concept and make sure it worked. He
explained that project viability was examined as follows:
· Technically, is there enough understanding of the
project to ensure that it will work?
· Can the project get adequate government support?
· Can the project get the necessary permits that will
help provide confidence to move into Pre-FEED?
He reported that the Alaska LNG Project moved into Pre-FEED in
June 2014. The $100 million that was spent prior to Pre-FEED
will be leveraged up to five times that amount to advance the
regulatory and design work required to test whether or not to go
to the Front-End Engineering & Design (FEED) stage.
He highlighted the key questions that go into the FEED decision.
· Can we build the Alaska LNG Project?
· Can we make the Alaska LNG Project work?
· Do we have support from the permitters?
· Do we continue to have the kind of support we need
from the government, both at a federal level on the
export permit and the NEPA process for the EIS?
· Are we confident that we would have the permits
required to move into construction?
MR. BUTT drew an analogy between the Pre-FEED process and a
hurdle race. He said you never start a hurdle race and quit
halfway through; you want to jump all the hurdles. Similarly,
it's important to have confidence that the Alaska LNG Project is
technically viable, that federal permits can be obtained and
that there is support from the state and other owner parties to
put money in a frontend investment decision, which is flagged
after FEED as money that would be well spent. He advised
committee members that they want to be able to look at their
constituents and all the other owners and say that this will
work, that the structure is durable and predictable and that the
owners will derive benefit from their investments. "You put up
all the money upfront and you get the benefits over time, so you
want to have tremendous confidence up front."
He also drew an analogy between the Pre-FEED process and
building a house. He said you don't build a house unless you are
confident that it's on a solid foundation, you can get a
mortgage at a reasonable interest rate and you know what the
structure will look like and that it will be suitable for your
family over the next 30 years or so.
MR. BUTT noted the additional project challenges listed on page
4, and asserted that the Alaska LNG Project was so intertwined
with the regulatory and state processes that maintaining owner
alignment and confidence had to continue.
1:45:35 PM
MR. BUTT reviewed the One Team-World Class Project Management
[page 5]. He noted that a conversation was framed with each of
the project owners for statements on their approach for safety,
values, and project management. He pointed out that all of the
companies involved share a very similar view of safety. It is a
core principal for all participants. He asserted that the Alaska
LNG Project wants to execute in a safe and environmentally
responsible manner. He remarked that additional information has
been provided on making sure the project has a successful
structure that provides energy to help people have a better
standard of living.
He pointed out that all parties, including the Alaska Gasline
Development Corporation (AGDC) and TransCanada (TC), have very
common language about how to move things forward for the Alaska
LNG Project. He shared with the committee that AGDC and TC are
working on behalf of the state to represent the state's
participating equity in the Alaska LNG Project. He remarked that
the Alaska LNG Project parties have some challenges in staying
aligned, but the parties have a philosophical commonality and
common ground to work from.
MR. BUTT reviewed the Development Concept Summary [page 6].] He
stated that the intent of the Alaska LNG Project is to
commercialize the North Slope gas resource. He explained that
the PTU/PBU gas source has up to 35 trillion cubic feet (TCF) of
gas. Within the export permit application and some of the NEPA
filings there is supporting information from reservoir
consultants, DeGolyer & MacNaughton, that this is thousands of
years of gas for state use and hundreds of years of gas for
state use if it is done in conjunction with export. It is one of
the largest single gas resources in North America and the world.
The resource has been under production for decades at Prudhoe
Bay and the development is moving forward at Point Thomson.
MR. BUTT explained that gas will be treated at the North Slope
Gas Treatment Plant (GTP) near Prudhoe Bay Central Gas Facility
(CGF), and carbon dioxide (CO) and hydrogen sulfide (HS) will
22
be re-injected in the Prudhoe Bay Unit (PBU) to support
pressure. There will be 800 miles of 42" pipe that is able to
withstand 2075 pounds of force per square inch. Eight compressor
stations are required to move the gas north to south. At
minimum, there will be 5 domestic gas off-takes along the
pipeline route for instate use.
1:47:48 PM
The development concept calls for an LNG plant in East Cook
Inlet in the Nikiski area. Three LNG trains will have the
capability of 20 million tons per annum (MTA) to accommodate
peaks during cold weather, although the average will be closer
to 17-18 MTA. Also included in the development concept are 3
165,000 cubic meter storage tanks and a single jetty with 2
berths for LNG and support vessels. Having 2 berths will allow
loading every 36-48 hours; while one ship is being loaded,
another will be moving out.
MR. BUTT reviewed the strengths of the development concept [page
6]. He related that there is high resource confidence in Prudhoe
Bay and Point Thomson. The gas at Prudhoe Bay has been
reinjected three times, so it's a known entity. This is a
critical differentiator because with other projects in the world
that are trying to find the gas to underpin the liquefaction.
This is a key factor in risk reduction. "Here in Alaska that
resource risk is pretty minimal, and that is good news."
1:49:42 PM
Another development strength is the opportunity to integrate
with Prudhoe Bay. Because it has been operating for
approximately 40 years, a lot of the frontend compression has
already been built. He noted that the Prudhoe Bay operator has
done an excellent job of maintaining and operating those
machines and they can probably provide feed-gas to this project
for another 50 years. This is a great cost reduction and it goes
back to the ARC of Success. "We don't have to pay for that
compression on the frontend, it already exists. It allows us to
kind of piggyback on the oil business, so that healthy oil
business is really important to us."
He said that yet another resource strength is the potential to
deliver domestic gas through the rail corridor for Alaskans.
This is where most of the population resides, but a good thing
about LNG is that when it is liquefied, it can be put on a boat
and delivered to any port city. The other characteristic of
resource strength, he said, is the potential to provide LNG to
the world. Alaska is closer to Asian markets than the Gulf Coast
and does not require transit through the Panama Canal, which is
very expensive. The distance from the Middle East to the Far
East is farther, and to move gas from the Middle East to Europe
is extremely expensive because it has to go through the Suez
Canal so market proximity is very important. Finally, the
ambient temperature increases relative thermal efficiency.
1:52:12 PM
MR. BUTT set forth that the development concept strengths
underpin the project, but the strengths are offset by some
significant development concept challenges. One challenge is
having to build in the harsh, tough environment on the North
Slope. A tremendous amount of fuel and equipment will move in
and out of that environment, and it has to be moved on water,
which creates another risk. Another challenge will be to manage
uncertainty and cost while securing the required permits. He
recapped that spending to date is about $100 million, and about
another $500 million has been committed. This is $600 million
Pre-FEED. He noted that a quote to the governor in a 2012 letter
was that a number of parties had invested somewhere on the order
of $700 million prior to that, so the real number prior to
getting to FEED is $1.3 billion so the spending will probably be
north of $2.5 billion the final investment decision in Alaska.
He emphasized that this is a tremendous investment risk so it's
important to get things right from the onset.
He also stressed the importance of addressing commercial and
fiscal uncertainties. He said LNG is a tough business and buyers
all want to pay as little as possible. It is therefore important
to think as an owner and work to develop a predictable and
durable fiscal environment.
1:54:20 PM
MR. BUTT advised that there are some issues in the process
design and execution of an 800 mile pipeline across three
different terrains. The pipeline and treatment facilities will
require 2.2 tons of steel so putting all the pieces together is
a challenge. "They don't come together like a kit; you've got to
weld all the pipe together, you've got to bolt all the flanges
together, you've got to make sure that they all come together
just right." He explained that the underpinning challenge is to
ensure that once the project is built that the cost of supply is
globally competitive. "We've got to be able to deliver LNG from
Alaska at a price that can compete with anybody in the world."
MR. BUTT offered his perspective that the strengths give
the project "a really good shot" which is why the owners
elected to increase the investment in the project and move
the concept into Pre-FEED. Moving forward, the talk will
center on feelings about FEED, global competitiveness, cost
of supply, and alignment among owners.
1:56:00 PM
He explained the [page 7] LNG plant and storage facility,
which will be built by 3,500-5,000 people, is modularized
and will have a 20 metric ton capacity. This translates to
about 2.4 billion cubic feet of gas a day or 10 times the
amount currently used for export and domestic use by
Alaskans. He highlighted that the 35 trillion cubic feet at
the top of the system can supply the needs for decades to
come and that this is underpinned by DeGolyer &
MacNaughton. He reminded the members that gas is liquefied
"to make it small" and thus easier to transport. The ratio
is 600 to 1. "If you don't liquefy the gas, you have to
move 600 boats to get a certain amount of gas to a buyer.
If you liquefy the gas, you only have to move one [boat]
and that's why we build these facilities."
1:58:10 PM
MR. BUTT explained the two berth LNG Marine Facility (LNGMF)
[page 8] accommodates LNG motor vessels (LNGMV) that are very
different from crude oil carriers. He outlined the following:
· An LNGMV is a 300 foot "thermos bottle," built with a lot
of good technology and capacity.
· The walls are 4 feet thick of foam, balsa wood and
insulating materials.
· The idea is to keep the LNG in the tank cold.
· The Alaska LNG Project needs 15 to 18 LNGMVs.
· The Alaska LNG Project believes that the LNGMVs will be in
the 160,000 cubic meter range.
· A 160,000 cubic meter LNGMV is called a conventional
He noted that the 160,000 cubic meter LNGMV is called a
conventional LNG carrier with a capacity ranging in size from
80,000 to 265,000 cubic meters. He specified that the very large
265,000 cubic meter carriers are for places in the Middle East
where huge volumes are going long distances. He explained that
when one designs LNG carriers in marine routing, what is
actually being done is inventory management. He detailed that
the objective in managing inventory is keeping the amount of
inventory down. Inventory does not make money and using the
giant LNG carriers places large amounts of LNG in inventory
until delivery. He explained that inventory management entails a
balancing of cost between carrying LNG as inventory versus the
cost of delivering the LNG. He pointed out that Alaska is very
close to market and there is no need to build the large,
limited-market LNG carriers. He asserted that the Alaska LNG
Project needs more conventional, smaller vessels because the
distances are much smaller. He explained that the "conventional"
160,000 cubic meter LNG carrier is considered a sweet-spot that
allows for a larger range of ports of call.
He reviewed the following support required for the LNGMVs:
· Tug boats will be required to manage the LNGMVs.
· Work has been done on how LNGMVs will be handled in the
East Cook Inlet.
· Ice modeling has been done by the Alaska LNG Project marine
team in Gothenburg, Sweden, which has the world's most
advanced ice modeling vessel systems.
· Work has been done with the Alaskan Pilots Association to
make sure they can move the LNGMVs using Alaskan pilot
characteristics and successfully navigate in a range of
ice, current, and wind conditions.
MR. BUTT advised that LNGMVs are subject to wind due to a
shallow, forty foot draft versus crude carriers with a 90 to 95
foot draft. The port requirements are also very different. He
explained that testing and modeling has shown that the east
coast of Cook Inlet can work having had 40 years of success with
LNG. This LNG plant has successfully delivered every scheduled
LNG cargo load, which is a very important data point.
Additionally, the flat land in East Cook Inlet will make land
support less expensive. Finally, the 90-inch average annual snow
load in East Cook Inlet is much lower than the averages in other
parts of Alaska, some of which exceed 300 inches. "Operating an
LNG plant is demanding on a daily basis and almost impossible to
operate in heavy snow conditions."
He said the Alaska LNG Project is still working with the local
community to make the lead site happen. He noted that two or
three alternate sites have also been identified in the event the
lead site does not work. He remarked that the Alaska LNG Project
feels good about moving forward with its design work if the site
requires a little moving around. He explained that the NEPA
process is the trigger on site adjustments. He reminded the
members that this is the process that brings in the federal
regulator and increases community engagement. He asserted that
the Alaska LNG Project feels good about where it is in the site
process and is moving forward.
MR. BUTT explained that the 800 mile pipe will be 42 inches in
diameter and carry an average of 3.3 billion cubic feet per day
(BCFD) [page 9]. He said the reason for a 3.7 BCFD permit
application is to cover Alaska's added cold day demands during
the winter. He specified that the Alaska LNG Project design
allows for 400 to 450 million cubic feet of added gas for
Alaskans when it is cold.
Additional pipeline details include that it will be built
between Point Thomson and the North Slope Gas Treatment Plant
(GTP), 8 compressor stations will be required and the pipeline
will have the capacity to heat the gas during freezing
temperatures. He summarized that a lot of work centers on cost,
schedules, and supporting the federal regulatory work.
2:04:54 PM
MR. BUTT reiterated that the purpose of the Gas Treatment Plant
(GTP) [page 10] is to remove impurities. He explained that all
non-hydrocarbons must be removed before the gas can enter the
pipeline and Prudhoe Bay has a very high, 11 percent, CO
2
content. In the past two years, the Alaska LNG Project has
focused on making the gas treatment plant more efficient and
better able to remove impurities because industry has
historically stayed away from large CO resources due to expense.
2
The effort has been focused on ways to reduce the plant size and
making the trains more efficient. GTP vessels were made more
efficient by changing interior packings and how the gas touches
the liquids that remove the impurities. He noted that the vessel
change has decreased cost estimates by hundreds of millions of
dollars. He pointed out that GTP reactor-tower is 128 feet tall
and the thickness is 12 to 14 inches thick. He added that the
reactor-tower will be fabricated from a 12 to 14 inch thick
piece of steel that is 30 feet by 128 feet. He explained that
the piece of steel will be folded to make a vessel that is
basically a tube with a shell at the top and bottom to handle
the pressures.
MR. BUTT reported that the Alaska LNG Project has done a lot of
work with the PBU-interface focusing on power systems and the CO
2
systems integration. He related that the Prudhoe Bay operator
has done a great job of trying to understand how to take the gas
out and move it so that the gas can be produced in a manner that
does not compromise oil.
2:08:03 PM
He explained that interface work will be staged during
turnarounds to avoid adversely impacting Prudhoe Bay
productivity. He detailed that over the next five years,
compressors will be modified during maintenance to move gas from
Prudhoe Bay to the project at the right pressure and the right
temperature.
MR. BUTT informed the members that the Point Thomson (PT)
operator and the PT working interest owners have invested in
excess of $2 billion building the PTU central pad and ensuring
readiness to export condensate in early 2016. He pointed out
that PTU is a $2 billion facility that will require more than
$1.5 billion to finish the wells and compression. He revealed
that when the current PT team is finished with the initial
production system, the project team will work with the PT
operator to expand the facilities to provide gas exportation
capabilities. He noted that the current facilities at PT can
only export oil so a gas pipeline and compression facility is
needed to move gas. The Alaska LNG Project has been working with
the PT operator and the PT working interest owners in an
integrated manner so that PT accommodates the design
characteristics of the plant. He pointed out the importance in
maintaining gas temperature delivery parameters for better
recovery across the system. He summarized that the project
design decisions are predicated on looking on an integrated
basis and trying to make sure that any design honors the
principles of alignment, risk, and cost. "Molecules are moved
all over the system and the Alaska LNG Project wants to
understand what happens to the molecules."
2:11:10 PM
He related that the Alaska LNG Project team consists of 27
leadership roles with over 800 combined years of experience and,
on average, over 30 years of experience individually. He noted
that the phrase best-players-play was used to describe the way
the project team was assembled. The Joint Venture Agreement
(JVA) calls for each company to select people with the
experience necessary to do all of the work and be successful.
For example the Alaska LNG Project plant manager built the
Qatargas (3) trains and his engineering manager built the RL (2)
trains, the RL (3) trains, the Qatargas (2) trains, the PNG (2)
trains, and personally designed multiple LNG plants. This very
competent manager and his team provide a lot of confidence that
the LNG plant will be designed right. He asserted that this same
level of capability was found in every one of the Alaska LNG
Project teams. He pointed out that most individuals have global
experience and many are Alaska alumni.
2:13:51 PM
He detailed that the Alaska LNG Project teams are co-located,
which means workers are placed where the contractors and work
is. He said the Alaska LNG Project has doubled its office space
in Anchorage with 30 individuals, and it has a new building in
Houston where all the parties can get together and work in a
single project office. The Houston office accommodates work on
really difficult problems in real-time. He noted that the Alaska
LNG Project also has an office in Calgary. Jack Beattie runs
that office this is where all of the pipeline people are
located. He pointed out that taking work to the people is
important due to the many contractors involved in the project.
He related that each team is purposefully integrated with people
from every company to ensure that all views and design
philosophies are represented. He noted that the Alaska LNG
Project is nearly finished with hiring and the current focus is
on contracting.
MR. BUTT reported that the LNG export application was submitted
to the Department of Energy (DOE) on July 16, 2014, with key
requests [page 14]. He explained that this is important because
it underpins the economy of scale that drives down costs. For
this reason, they have worked very hard with DOE over the last 9
to 12 months so all the parties understand and agree what is
needed to make the project successful. "I got this 200-plus page
book [of] the fundamental characteristics that the DOE wants to
understand." DOE wants to understand is does the project
represent the owners of the gas?" DOE wants to know if the
applicant has the experience to build and execute a project like
this and if the experience of the team and the resources are
sufficient to build it.
He advised that the DOE just changed the rules for an export
permit application so that applicants are now required to get
the EIS and show that they are working with the FERS before
submitting their application. The idea is to weed out the
speculators. He related that the DOE Secretary Moniz and his
team has been very helpful.
2:18:39 PM
MR. BUTT related that the Alaska LNG Project has asked for some
very unique permit applications. First, have asked for the right
to export 20 million tons per year (MTA) of LNG for 30 years.
Most export applications are for 15 to 20 years and they asked
for 30 years to have confidence that longer exports would
generate the kind of returns to underpin the investment. He
pointed out that it gets back to mitigating risk and cost. The
federal government has been incredibly supportive and said the
Alaska challenges are great enough and the project is important
enough that they would handle it a little bit differently.
MR. BUTT related that the project also asked for a 12 year
period between receipt of the permit and commencement of
operations, rather that the regular, short construction cycle of
7 to 10 years. This provides more flexibility which is risk
mitigation. "The federal government has been very supportive of
this"
He said the third and most important difference between Alaska
projects and others is confirmation of a 1988 Presidential
Finding that characterized Alaskan gas as stranded and available
for export. They are waiting for confirmation that this finding
is valid, but both DOE and the administration have been very
supportive. In fact, the president's energy advisor
characterized the administration's support for the project as
enthusiastic. "So we're pushing these three issues and we think
that that gives us the right to export the gas."
He stated that one other thing that DOE has offered to the
project is a conditional approval before the FEED decision is
made. This was requested because the costs are so great and DOE
agreed. "We felt that was very supportive and to date we've had
a good relationship with them and we're very hopeful that we can
continue to preserve that goodwill."
2:22:17 PM
MR. BUTT discussed the NEPA Pre-File request that was approved
by FERC September 12, 2014, noting that it triggers ongoing
community consultation and near term activities. He noted that
this first step in getting the EIS went smoothly because of the
work that was already done with the FERC and NEPA.
We really appreciate that they have been proactive and
helpful in guiding us to make sure that we get the
right EIS because that is the most important document
required to get the permits to construct and they have
been very helpful on it, trying to help us make sure
we get the right third party agent, making sure we get
the right stakeholders and interested parties engaged
so that we start doing what's called Resource Reports.
He explained that these reports summarize the work that's been
done to demonstrate that there will be no adverse impact on
cultural resources, soils, land use, air and noise quality as
well as how that particular site compares to all the others
sites. "Which means you have to have looked at all others." This
reduces risk moving toward the EIS and then the final report is
due during FEED. "[This] is an even more detailed process to
make sure that the risks of securing these documents has been
mitigated." Mr. Butt then recapped that FERC coordinates federal
oversight and the interactions with all federal agencies. He
cited the U.S. Army Corps of Engineers as an example.
2:25:10 PM
MR BUTT reported that the Alaska LNG Project has worked
extensively with the Alaska Gasline Development Corporation
(AGDC) to ensure there is alignment with the Alaska Stand Alone
Pipeline (ASAP). The effort is focused on using a common and
making sure that when one project gathers data it's available to
the other project. "We all understand that there's two pipelines
in the same corridor." He continued to say the following:
We are eminently trading data between Livengood and
Prudhoe Bay which some of the parties own through
Trans Alaska Pipeline System (TAPS), Alaska Pipeline
Project (APP), and the Alaska Gas Pipeline (Denali)
with other parties who need that data for their design
work. ASAP in turn is providing data south of
Livengood that they have worked over the last three
years so that as we look at the route south of
Livengood, we're only working on the data once.
MR. BUTT said they worked to have the right framework and the
right confidentiality agreements in place and he would suggest
it's important to put that statement in a competitive context.
"We want to be able to manage the work so that we share it with
the state and the state's agencies, but we don't share it too
broadly." He agreed with Commissioner Balash that the idea is to
be as transparent as possible, while understanding the
importance of confidentiality. This is how risk is managed and
costs driven down.
K
2:27:42 PM
MR. BUTT reviewed the summer field season [page 16]. He advised
that the route between Livengood and Wasilla was surveyed. He
directed attention to a list of the fieldwork that was
accomplished, including the approximately 10,000 acres that were
tested looking for remnants of early human activity. He noted
that most of the anthropological models suggest that early
humans came across the Bering Strait and across this route to
populate North America. He explained the measured process when
the archeologists find something of interest and the steps that
are taken to ensure that the route goes nowhere near anything of
significance. The intent is to catalog and preserve sites that
are of cultural significance and demonstrate in the EIS that
cultural resources or any of the other things listed in the
resource reports are not impacted. "You can see a list of all
the sites that we've worked and all of the different waterways
and lakes and streams."
2:30:45 PM
MR. BUTT discussed the importance of field crew safety [page
17]. He stated that the project is proud of its safety
performance and the cultural caring that the team has built. He
noted that the team has worked in excess of 140,000 hours and
driven 300,000 miles, always with an eye on safe execution. He
highlighted that these crews receive extensive survival and
learn-to-return training because they travel to and work in very
remote areas, sometimes under harsh weather conditions. He
related that another thing that was done this year is something
called "escalation potential." It's a different way of looking
at safety. The idea is to look not only at what did happen but
what could have happened. He cited the example of finding a
helicopter with a bad tail bushing after careful hazard hunts
and maintenance procedures and fixing the problem before it was
put back in service. He continued to explain that the project
has begun to hold "Safety Stand Ups" as a way of recognizing
safe performance. This is opposed to the "Safety Stand Downs"
that take place after someone is hurt and work stops so the
incident can be discussed. Safety Stand Ups are a more positive
approach and build a cultural framework of safety.
MR. BUTTS displayed the list [page 18] of Alaskan business that
are involved in the Alaska LNG Project. He noted that the
spending to date is close to $35 million and will probably rise
to $40 million by the end of the season. Work is expected to
continue until October because it is concentrated farther south.
He noted that the total contractor workforce is 255 about 80
percent of which are Alaskans. Mr. Butt displayed photos of
various workers from the summer field season and noted that
safety coins are presented to individuals executing work to
encourage and promote a positive work environment.
He provided an overview of the Alaska LNG Project's website,
explaining that the website's important characteristics include
the following:
· Allows people to talk directly to the Alaska LNG Project.
· Provides access for contractors interested in work.
· Provides contractors the ability to submit their
capabilities.
· Includes a community session calendar.
· Summarizes the various projects.
MR. BUTT stated that the Alaska LNG Project is at a critical
juncture and continuing a successful trajectory will make
alignment perseverance with all the owners more important. He
remarked that risks and costs must be driven out. He concluded
the presentation an alignment metaphor where people are pushing
and pulling a whipsaw as a team, working under harsh conditions
and with great challenges. It takes the same type of commitment
to work together as a team to build a pipeline.
2:36:25 PM
CHAIR GIESSEL opened the forum to questions.
SENATOR BISHOP asked about using X80 pipe and if there are any
mills in North America that can roll it.
MR. BUTT answered that there are several mills with X80 pipe. He
noted that Jack Beattie's team is looking at possibly using X70
pipe during the Pre-FEED stage.
He explained that X80 refers to a wall thickness of eight tenths
of an inch, (0.814). He stated that the Alaska LNG Project is
looking at a wall thickness that makes the most sense on an 800
mile pipeline built 40 feet at a time. He noted that one option
is to make the pipe wall thickness a little different and that
makes a huge difference. He noted that where the pipe is
purchased determines the pipe quality, cost, and difficulty in
moving. He said the Alaska LNG Project is working hard during
the Pre-FEED process on pipe sourcing with the right
specifications. He detailed the specifications as follows:
To operate at about 2075 pounds per square inch (PSI),
which is called American National Standards Institute
(ANSI) 900 spec, the reason that's important is ANSI-
900 is a very common pipe spec, there's a lot of
different flanges and different valves and equipment
that is readily available. If you go to a higher
pressure, it's a much more specialized piece of
equipment, it requires much heavier walls, it's much
more complex, and even if you can manage the cost
elements you increase the risk.
SENATOR DYSON asked if they anticipate that CO from the GTP will
2
have a monetary value in utilized reservoir pressure lifting
heavy oil.
2:39:14 PM
MR. BUTT answered that enhanced oil recovery benefits from CO
2
reinjection will not be seen in Prudhoe Bay. There will be
pressure benefits, but oil viscosity will not be reduced.
2:40:37 PM
SENATOR DYSON asked if there are existing wells that can be
modified for reinjection.
MR. BUTT answered correct. He explained that Prudhoe Bay has
used what's called the Miscible Injection System (MIS) for the
past 25 plus years to handle the higher end products called
lighter hydrocarbon products (LHP); they cannot be put into the
Trans-Alaska Pipeline System (TAPS).
REPRESENTATIVE P. WILSON noted the need to maintain gas
temperatures in the pipeline and asked if they have taken the
impact from climate change into consideration.
2:42:05 PM
MR. BUTT answered that ambient temperature models indicate that
climate change is very slow. He explained that the intention is
not to contribute or adversely impact climate change. He noted
that another reason for CO reinjection is not to release the gas
2
into the atmosphere.
2:43:29 PM
CO-CHAIR SADDLER expressed appreciation for the presentation and
remarked that he is glad to see a lot of work is being done. He
asked Mr. Butt how he would address advocates who ask to stop
wasting time with studying and start building the project.
MR. BUTT said he understands and respects the sense of
impatience and skepticism and he understands the desire of the
folks in Fairbanks to see affordable energy. However, the
federal government has specific construction regulations for
when a project can begin. He emphasized that any sort of
construction activity prior to receiving the right permits is
illegal, and that the Alaska LNG Project was going through the
required process to generate successful export and EIS
applications. He reiterated his previous statements about making
sure that every archaeological site is found and not adversely
impacted and asserted that doing things right has to be
respected, too.
2:45:54 PM
CO-CHAIR SADDLER noted that skeptics have said that the Alaska
LNG Project is moot if the Alaska Oil and Gas Conservation
Commission (AOGCC) does not give off-take permission.
2:46:10 PM
MR. BUTT answered that the Alaska LNG Project has had some good
meetings with AOGCC. He explained that AOGCC has a mandate to
understand how the state's oil recovery will be maximized. He
noted that AOGCC works on behalf of the Legislature. He said the
Alaska LNG Project has tried to make AOGCC understand why the
project, design, and offtakes make sense. He added that the
Alaska LNG Project will be working with AOGCC's senior staff
over the next several months to address their technical
questions; the Prudhoe Bay operator and the Point Thomson
operator are leading that work because they own the upstream
data and they have relationships with AOGCC. He said the Alaska
LNG Project hopes in the first half of 2015 to be able to have
the right hearings with the commissioners to address their
concerns and demonstrate why producing 30 to 35 trillion cubic
feet of gas over the life of the project makes sense and why the
Alaska LNG Project can do it in the right way to minimize any
adverse impacts on hydrocarbon recovery.
REPRESENTATIVE TARR asked Mr. Butt to address the Pt. Thomson
development. She inquired what part of the remaining work will
be paid by the Alaska LNG Project versus the operator.
MR. BUTT advised that all work at Pt. Thomson is paid for by the
Pt. Thomson working interest owners. He explained that Pt.
Thomson is a unit operation and everything that Pt. Thomson does
to deliver gas to the Alaska LNG Project is through the Pt.
Thomson working interest owners. He added that the Prudhoe Bay
CO system will be done by the Prudhoe Bay operator and paid for
2
through the unit. He said the Alaska LNG Project design work is
done in conjunction so that it works in an integrated and
seamless manner because the working interest owners at Prudhoe
Bay and Pt. Thomson are in the Alaska LNG Project. He continued
to explain the work being done at Pt. Thomson operations as
follows:
The work that the current Pt. Thomson team is doing to
move condensate to the Badami oil field has been
designed with the expectation that, at some time in
the future, gas export will begin. They have built the
system large enough that in the event they begin to
produce more condensate, the pipeline they have built
is properly sized. The wells they are drilling are
properly positioned and designed for both condensate
production and gas production. What's missing is a
couple extra wells to increase gas production and the
compression facilities to move the gas and a pipeline
to move the gas from Pt. Thomson. So everything the
Pt. Thomson working interest owners are doing through
the unit operator, right now, will be used in the
event the Alaska LNG Project goes forward.
REPRESENTATIVE TARR asked if the Alaska LNG Project will bear
the pipeline cost from Pt. Thomson to Prudhoe Bay.
MR. BUTT answered yes.
2:50:22 PM
REPRESENTATIVE KAWASAKI asked if information that was developed
under the Denali Line, TC, and AGDC is being shared so that the
work isn't redundant.
MR. BUTT answered yes. He then directed attention to page 15
shows data exists from the previous TAPS, APP, Denali and ASAP
pipeline projects and the framework that's been developed for
sharing data and coordinating work efforts going forward.
CO-CHAIR FEIGE addressed pipe thickness and noted that Mr. Butt
talked about using different schedule pipe. He asked if the
Alaska LNG Project was looking at different pipe thicknesses at
different points in the line, depending on pressures in the
pipe.
MR. BUTT deferred the question to Jack Beattie.
2:53:27 PM
JACK BEATTIE, Pipeline Manager, Alaska LNG Project, Anchorage,
Alaska, explained that pipeline thickness is generally the same
except in areas with population density, at valve stations and
at compressor stations.
MR. BUTT added that the intent is to always keep the gas
temperature and pressure relatively constant.
CO-CHAIR FEIGE noted that future pipeline expansion has always
been one of the state's long term interest in the project. He
asked if going to Schedule-70 pipe will affect the ability for
pipeline expansion.
MR. BEATTIE replied that pipeline expansion is in the project's
long term interest as well. He explained that he did not know
that the schedule of pipe would particularly affect expanding
the pipeline. He pointed out that going with 42 inch pipe makes
it more likely to obtain pipe in North America.
MR. BUTT added that the system has been very carefully designed
and balanced with expansion firmly in mind. He asserted that the
Alaska LNG Project understands the importance of expansion to
the owners as follows:
I'm going to come back to owners, alignment, cost, and
risk. We understand owner issues around expansion. The
Heads of Agreement (HOA) that was signed in December
has some very good language in there on expansion and
how each owner, individually, has the right to manage
expansion as long as it doesn't adversely impact other
owners; that's a very important characteristic of a
successful agreement where we have preserved alignment
to honor owner issues and mitigate risk and mitigate
cost. The current design is pretty well balanced there
because if I could suggest, on average, we handle
about 3.3 BCF at the top, through 3 gas treatment
plants, we put about 3 BCF into the pipeline to
deliver about 2.4 BCF to the LNG plant, where 3 LNG-
trains process it. The pipeline as its design with 8
compression stations can be expanded 20 to 30 percent,
which is somewhere between 800 million and 1 BCF which
is very nicely one more (GDTP) and one more LNG-train.
So as it stands, it's designed with that in mind, and
with all due respect, it's not an accident.
2:56:46 PM
REPRESENTATIVE HAWKER stated that he looks forward to the
project actually reaching the anticipated FEED decision. He
asked what the major obstacles are for the Alaska LNG Project in
reaching the FEED decision. He asked what the legislators should
be mindful of in order to anticipate and aid the project moving
forward towards FEED.
MR. BUTT replied that he worries about the inherent skepticism
amongst all the parties on whether all the parties are willing
to do the work and pull the "whipsaw" when it is their turn. He
asserted that legislators in both the Senate and House Resource
Committees are the "pointy end of the spear" on how the state
ownership is worked. He said there are some things that the
legislators can do to help in terms of addressing commercial and
fiscal uncertainty as follows:
I know that sometimes when we talk about fiscal and
commercial uncertainty it sounds like one party trying
to get something out of the other party, I would
respectively suggest that is not the case at all. I
would suggest that all of the owners need some durable
and predictable terms so that when they talk to their
constituents or their stakeholders or whatever they
are accountable to, they understand that if they
invest the type of resources required to execute a
project of this magnitude, it will generate the kind
of benefits that will really help them in their
future.
Now I see Enalytica behind us and I know that
publically in previous hearings they suggested this
project can generate $3 billion to $4 billion per year
for the state, it generates some real benefits for the
other parties as well. I hope that what we can do as
owners is preserve alignment so that we can create an
environment where all the owners can reduce risk and
reduce cost and create a successful project.
If we get into situations where we have unilateral
behaviors or drivers and we can't find common ground;
that creates huge risk that ripples through the buyers
and the investors, because the buyers and investors
are looking very closely at the Alaska LNG Project.
The buyers saw what happened with the DOE export
permit application, they saw the ALASKA LNG PROJECT
get posted in a very timely manner, they saw Secretary
Moniz make very favorable comments, they saw the EIS
be accepted, the NEPA pre-file and the FERC agencies,
they saw that and that says to the buyers, 'This is a
place where maybe I can underpin my economy in the
future. Do I have enough certainty that that
environment is durable and predictable, that I'm going
to put my economy at risk and buy LNG from them?' If
I'm an investor, am I going to take the kind of money
required to invest my share of a $45 billion to $65
billion project and have confidence in the long haul?
The esteemed group here is probably the most important
group of all in creating that right framework so that
all of the owners can work together and create that
right alignment and there's lots of specific ways,
Commissioner Balash is probably going to talk about
some in his presentation up next.
REPRESENTATIVE HAWKER replied as follows:
I heard some pretty strong words there, but one of the
words used there was 'unilateralism.' What I really
hear is the need for all of the players to continue to
work together towards a common goal, a common good to
achieve the desired common outcome, it's fairly
simple, but it's a big deal. You have put together big
projects in your life, some at this table put together
big industrial projects; we understand that. I've also
sat on this side of this table since 2003 in at least
one committee or another. I've watched not just you
the commercial parties having unilateral self-interest
issues, but also the State of Alaska. We've kind of
had, in my view, kind of had a habit of about every
two to four years changing horses and changing
directions. I worry personally about the political
risk of the state one more time trying to change
directions again and basically changing our own
philosophy and saying we want to a bigger piece of
this pie, we want more unilateral control over the
outcomes. I am just wondering, what have you as the
commercial parties involved done to insulate yourself
from the possibility that the state steps up again
where one more time there's different people sitting
in these tables and in fact there is a significant
change in the political environment in which you are
working? Frankly, in my opinion, our common objective
is gas to Alaskans, gas to the world, and political
change is inevitable. What are you all doing as
business people in this to mitigate that risk?
MR. BUTT answered as follows:
If I chose words that were too strong, that wasn't my
intent. I wasn't pointing the finger at any one party
when I said that. All these parties as owners have
concerns and issues that are unique to them and the
challenges to find ways for them to be aligned. The
question that I think hear is 'What are the producer
entities doing in the event the state entity somehow
changes tact and that the alignment that is inscribed
in the Heads of Agreement and very carefully defined
in the joint venture agreement is somehow
compromised?'
REPRESENTATIVE HAWKER replied that Mr. Butt's assessment was a
very fair characterization of his question.
MR. BUTT replied as follows:
In that event, the answer is that the gated process is
designed to incrementally increase resource investment
into the project as certainty is built. One of those
fundamental certainties is understanding that the
state party, as both a regulator and as an owner, is
ready to move forward, and that this project is so big
and so complex that without the state in lock-step,
it's going to be very difficult to move from Pre-FEED
to FEED. We'll have done a lot of great work and we'll
have moved this project to a place where it has never
been before, but we will end up in the same place
where it has been before which is stopped. I hope that
doesn't happen, I lose a lot of sleep on that one. I
think with the folks at this table, we have a chance
to try and talk about ways to make the project work
for all the parties in a way that makes sense for all
of the parties and finding that solution-space where
we have an aligned structure that reduces risk and
drives down cost.
3:04:28 PM
SENATOR MICCICHE asked Mr. Butt to talk about the total acreage
footprint of the proposed facility in his district, the
operating versus buffer acreage, the status for acquiring land,
and the probability for an eminent domain situation.
3:05:26 PM
MR. BUTT answered that the LNG plant needs somewhere between 400
and 600 acres. The LNG-trains are very efficient and will take
up no more than 40 acres, but the storage tanks will take a more
space to contain potentially spilled liquid until it returns to
a vapor state. Also, 80 to 120 acres will be required for
berthing and storage, in addition to room for utilities,
warehouses, and offices. He said they want to be a good neighbor
and have durable and fair terms with adjacent landowners and a
large enough footprint to provide a buffer and be able to
operate for 30 to 50 years.
He noted that under the FERC process, the Alaska LNG Project has
sent out letters to everybody that might be near the LNG plant.
Furthermore, NEPA requires the project to engage every landowner
within approximately a half mile from any possible plant site.
He said people are part of the stakeholder and community
engagement processes.
3:08:16 PM
MR. BUTT stated that the Alaska LNG Project hopes not to use
eminent domain, but rather to come up with a fair and durable
deal with landowners. "Having to move a little will be another
part of the puzzle."
SENATOR MICCICHE stated that his community is thrilled about the
potential for the project to be located in the district. He
asked Mr. Butt to address the EIS and concerns about the impact
from thousands of workers during the construction phase.
MR. BUTT answered that the underpinning of the NEPA process in
FERC's engagement is community engagement, making sure that
anybody that has any concerns in the community is heard,
recognized, and addressed. He asserted that the Alaska LNG
Project manages camps and environments so that workers are moved
in and out to limit adverse impact on the community. He
explained that the work camps are designed in the Pre-FEED and
perfected in the FEED to make sure local communities are not
adversely impacted. He said as part of the FERC review process,
the Alaska LNG Project will share the work camp plans with a
local community so that it is comfortable with the plans and
concerns are incorporated. He noted that the Alaska LNG Project
has an office in Kenai where folks can come in and talk if they
have issues. He added that an open house is scheduled for
October 9 in Kenai to answer questions.
MR. BUTT stated that one ongoing is to make sure the Alaska LNG
Project honors transparency and individual information as much
as possible. He noted that people have asked why public
information is not posted about how much the Alaska LNG Project
has paid for every piece of land that is purchased. This
information isn't posted to protect the privacy of individuals
that sold the land. Transparency is important but the project
guidelines dictate two things: 1. all agreements with landowners
have to be fair and durable, 2. the Alaska LNG Project will not
talk about other people's land with anybody else. He reiterated
that the intent is to be a good neighbor.
3:12:44 PM
REPRESENTATIVE JOHNSON noted the upcoming election and that the
composition of the Legislature and these committees might be
very different in January. He asked Mr. Butt if he has
confidence in AGDC's independence, durability, and its ability
to function if one of the partners philosophically changed
direction. He noted his concern about alignment and asked what
would happen if the four producers and TransCanada were without
a partner.
MR. BUTT replied that, to date, AGDC has been an excellent
participant in the project. It was a signatory to the JVA and
helped structure the HOA, both of which framed the path forward.
If the forward path changes all of the parties are going to have
to reexamine it, but the key characteristic is to make sure the
HOA and JVA are honored. He continued to say that understands
the nature of the political process, but believes that the
benefits of the project are great enough and the will of
Alaskans strong enough to move the project forward.
REPRESENTATIVE JOHNSON asked if a partner changing direction
would adversely affect or jeopardize the project.
MR. BUTT replied that he is carefully avoiding words like
"adverse impact" and hesitates to speculate. He continued as
follows:
As long as we act like owners and we preserve the
alignment and we look to the HOA and the JVA for the
structure to move the path forward, we'll be okay. If
we somehow had any party moving away from that, it's
going to be a problem for all of the parties.
REPRESENTATIVE JOHNSON commented that maybe the question was the
answer.
3:16:07 PM
REPRESENTATIVE SEATON noted the September 25 article in the Wall
Street Journal about Australia potentially reserving up to 15
percent of its domestic gas because exporting LNG export would
potentially triple the prices for domestic users. He said he was
trying to figure out how the project was balancing local costs
in Alaska and if they'd be handled by AGDC.
MR. BUTT answered that DNR and DOR are working under the
framework of SB 138 to understand the implications on domestic
gas. He continued as follows:
To the broader kind of economic framework of
alternative value, which is, 'Do I sell this gas here,
or do I sell this gas there?' That is something that
you have to get the owners to look at in an aligned
manner and make sure that you understand how you
reduce the project risk and reduce the project cost so
that you are moving as much gas as you can to export
buyers, which creates the economy of scale to service
Alaskan buyers and then test what is that value. Now,
there is a lot of different philosophies on how to do
that and there are different ways to look it, but I
think it's going to be a critical test of the owners'
ability to come up with an aligned solution that works
for everybody, and with that said, there is no answer
right now. I kind of feel like I'm evading your
question, because there really isn't an answer yet;
but that's something maybe we can owe you an answer on
either through the executive sessions that
Commissioner Balash referenced or through some kind of
future public session because you probably are going
to want to work that hard in executive session to test
it from a lot of different angles and then frame it
the right way that it can be communicated in a
broader, transparent way at the right time.
REPRESENTATIVE SEATON replied that he was specifically asking
the question to make sure that the public understands that that
is being analyzed or will be analyzed by the Alaska LNG Project
and it's not being ignored.
MR. BUTT agreed that in-state pricing was one of the top issues
that the Alaska LNG Project teams were looking at right now, but
that all of the owners were not necessarily aligned in this
area.
3:21:34 PM
SENATOR BISHOP asked about the working relationship between the
project and the regional Native corporations and local village
councils along the route.
MR. BUTT replied that to date, the Alaska LNG Project has had
over 50 community engagement meetings and discussions with many
but not all Native communities, both on and off the route. He
noted that there is a plan in FERC to make sure the Alaska LNG
Project speaks to every Native Alaskan community that expresses
any interest. He maintained that meeting with interested Alaskan
communities was part of the process to make sure the Alaska LNG
Project speaks with everyone. To date, the engagements with
Alaska Native communities has been very positive. They realize
that a $45 billion to $65 billion investment in the state has
some potential benefits for everyone. He noted that a lot of
Native communities have the opportunity to benefit from working
on the project and understand the energy benefits for heating
homes by moving gas from north to south or by moving LNG through
port receivers.
3:23:52 PM
REPRESENTATIVE TARR addressed workforce readiness and noted that
Mr. Butt mentioned where the Alaska LNG Project's 27 member
leadership team came from. She asked about the near term need
for workforce readiness for individuals that will hopefully work
on the project.
MR. BUTT replied that one of the Pre-FEED studies is a labor
study to address the following project workforce questions:
· How do you get all of the folks?
· How do you get all of the right skills?
· How do you balance the skills that Alaskan residents
have versus those skills that you have to bring in
from elsewhere?
He advised that there would be a significant need for folks who
can do specialty work on pipeline welding machines, but that
wouldn't last very long so it wasn't a good place to build local
skills. He said the Alaska LNG Project has a process to look at
labor availability and local skill sets. He revealed that the
Alaska LNG Project has had many meetings with Alaska training
facilities and knows that a significant investment must be made
in the facilities to start building capability. He stated that
workforce readiness was referenced in the HOA. He explained that
coming out of Pre-FEED was the place where workforce skill
development was identified. He set forth that the Alaska LNG
Project knows a lot of people will be needed. He said the Alaska
LNG Project wants to get the long term benefit by getting the
right people in the right place. He pointed out that the obvious
difference was operators and noted that all of the operators
would come from Alaska. He stated that the tougher workforce
hiring challenges related to drivers hauling pipe, heavy
excavation, and activities where skills are not very
transferrable. He acknowledged that balancing the workforce
would take a lot more study than was currently not done.
3:26:09 PM
REPRESENTATIVE P. WILSON asked if the project changes the route
when it coming across a cultural heritage site.
MR. BUTT replied that they have only found a couple of places
that required major reroutes. He explained that the sites that
are found are very exciting and the Alaska LNG Project makes
sure to work with the State Historical Preservation Office
(AHPO) on preservation. He noted that moving the pipeline
earlier in the process is a lot easier than moving it later on.
CHAIR GIESSEL thanked Mr. Butt and noted that his presentation
was robust. She announced that the third agenda item would be to
hear from Commissioner Balash and Commissioner Rodell on the
progress of the project from the state's prospective. She noted
that 61 viewers were watching the meeting on AK Legislative TV.
^Progress from the State's Perspective - Commissioner Balash &
Commissioner Rodell
Progress from the State's Perspective - Commissioner Balash &
Commissioner Rodell
COMMISSIONER JOE BALASH explained that he wanted Mr. Butt to
lead the overview to address the meat-of-the-project and provide
specific information. He remarked that his overview would
address the following:
· The human resources being devoted by the other project
sponsors towards the effort.
· Employee hires and expertise added to the project.
· Project progress to date.
· The provision required by SB 138.
· Touch base on things that were suggested, added, or
strongly hinted at.
He provided a brief summary of the Alaska LNG Project as
follows:
· Heads of Agreement (HOA) signed in January, 2014.
-The HOA outlines a roadmap for the parties.
· SB 138 passed and signed by the Governor on May 8, 2014.
· Terms were reached in a bilateral fashion with TransCanada
in June, 2014.
-Agreement terminated the Alaska Gasline Inducement Act
(AGIA) license.
-Demonstrated the parties' ability to get things done in a
rapid fashion when motivated.
· Joint Venture Agreement (JVA) was executed the end of June,
2014.
· DOE Export License application was filed in July, 2014.
· Pre-file paperwork was filed in early September.
3:32:05 PM
COMMISSIONER BALASH continued that between the accomplishments
previously noted, the Department of Natural Resources (DNR) has
focused on developing the confidentiality agreements (CA)
necessary for the state to be treated as an equal partner in the
Alaska LNG Project. He continued to explain the CA process as
follows:
For the past 40 some odd years, the state's
relationship with the leasees has engendered some
adversarial moments. The sharing of information was
not always in the interests of all parties to
accommodate the state's curiosity or otherwise our
interest, and that has required a change in the way we
think about information moving back and forth between
the other parties and the state. It took a fair bit of
time this summer to work through how we handle that
information so it's not just about getting a CA in
place, but also dealing internally within state
government on the handling of that information and
creating firewalls between those people who will be
making regulatory decisions and those who will be
acting on and in the state's proprietary interests as
owners and managers of the resource. We were able to
complete all of that earlier this month and, as I
mentioned at the beginning of this hearing, have now
turned our attention to getting the legislative branch
papered-up and look forward to completing that here.
COMMISSIONER BALASH noted that actions prior to the HOA were
taken by the State of Alaska and Governor Parnell in particular
to ensure proper communication with the other parties and
partners in the project. He pointed out accomplishments made
prior to 2014 as follows:
· January 2012 meeting with the three CEOs of ConocoPhillips,
BP, and ExxonMobil.
-Resolved Pt. Thomson litigation.
-Moved the project forward with something that Alaskans
could deal with.
He explained that the steps taken with the partners has been
done carefully. He said all parties have grown much more
comfortable with the process moving forward. He pointed out that
progressing from Pre-FEED to FEED will be a step change in the
state's commitment level. He said the state's all-in share for
the Pre-FEED was $125 million and the next step into FEED in
early 2016 would be 3 to 5 times greater. He pointed out that
the state's commitment to FEED will be big and other agreements
will be developed and folded in in the near term.
3:36:36 PM
COMMISSIONER BALASH stated that key personnel were recently
hired to make sure the state's interests were protected and
Alaska's resource values maximized. He noted that contributions
have been made by individuals from DNR, DOR, and the Department
of Law. He said the previously noted agencies have continuously
provided personnel and expertise that has provided a value to
the process that the state was engaged in. He noted that the
contractors Black & Veatch and Gaffney-Cline have assisted the
state agencies. He added that the outside council, Greenberg-
Traurig, has provided commercial expertise to the project. He
asserted that he could not imagine accomplishing everything in
front of the state's agencies without the broad and deep team
that has been assembled.
He pointed out the following key personnel hires:
· Leslie "Fritz" Krusen.
-SB 138 modified AGDC statutes and its board was empowered
to hire an LNG project lead.
-Reports to AGDC's president-CEO.
-Starts in September 2014.
-Has a tremendous background in LNG technology,
construction, and operations.
-AGDC is the state's lead for the liquefaction side of the
project and the state will benefit from Mr. Krusen's
expertise and knowledge.
-Formally with ConocoPhillips.
· Steve Wright
-Worked in Alaska with Chevron.
-Focuses on the resource side of the project, the "Top of
the project."
-Knows the project's oil and gas fields.
-Provides a tremendous benefit when addressing gas-
balancing and off-take agreements.
-Makes sure that the State of Alaska has the right kind of
field information that will ultimately be used at AOGCC
and for the Sales and Purchase Agreements (SPA) for the
project's LNG.
He asserted that not having the right foundation up at the top
causes other things to get a little bit slippery. He said Mr.
Wright has been a fantastic addition to the team.
3:41:11 PM
COMMISSIONER BALASH continued to address personnel hires and
noted an individual that focuses on the project's "midstream"
planning as follows:
· Dave DeGruyter
-2014 hire for the State Pipeline Coordinator's Office.
-Tremendous breadth of experience in dealing with pipeline
projects in other facilities.
-Recently helped complete the facilities for the Keystone
XL Pipeline in the Gulf Region.
-Played a leadership role in pipeline construction in other
parts of the Americas.
He remarked that Mr. DeGruyter's expertise will benefit the
State of Alaska for examining costs that are going to be borne
by the infrastructure owners. He pointed out that the
infrastructure owners consist of the State of Alaska,
represented by AGDC, and TC. He explained that the State of
Alaska will pay TC back for the infrastructure costs over time.
He said the State of Alaska needs someone with a watchful and
experienced eye in the development stage who monitors the
infrastructure expenses. Mr. DeGruyter provides information to
make decisions to incur certain costs and pursue different
design options.
He continued to address personnel hires and pointed out an
individual who focuses on the project's "downstream" and
marketing side as follows:
· Mr. Audie Setters
-Formerly worked at Chevron.
-Helped Chevron grow their LNG business over the past 10
years as one of the top 3 or 4 companies in the world.
-Experience with assembling SPAs.
-Has contacts in the LNG markets.
-Knows what kind of data is required by LNG buyers.
-Will help assist with maximizing the value for the
LNG that gets sold in the marketplace.
3:44:55 PM
· Mr. Steve Swaffield
-Formerly worked with BG Group-Canada in Vancouver.
-Experience with LNG project development.
-Provides an overall broad commercial prospective to make
sure that all of the agreements fit together.
-Will assist the Department of Revenue in keeping track
of the state's value throughout the project.
3:46:03 PM
ANGELA RODELL, Commissioner, Alaska Department of Revenue (DOR),
Juneau, Alaska, stated that SB 138 called upon DOR to do a
couple of things in advance of the 2015 Session. She said SB 138
dictated that DOR work with the Municipal Advisory Gas Project
Review Board (MAGPRB). She added that SB 138 dictated that DOR
address the state's financing plan for the project.
She explained that SB 138 and an Administrative Order (AO) by
Governor Parnell established MAGPRB. She noted that MAGPRB's
board members have been appointed and the board has been
meeting. She remarked that MAGPRB has provided a good avenue for
a number of members to understand where the project is and to
understand with the state will need in terms of framework for
property tax. She revealed that MAGPRB will report their first
recommendations by December 15.
She referenced Mr. Butt's comments on the Alaska LNG Project and
the NEPA process and stated the following:
One of the things we focused early on in this was
giving an understanding of the work that Steve talked
about in terms the NEPA process and the community
outreach, because I think it was important that we not
recreate that process but rather build on what was
going to be learned and organize a property tax
recommendation around all of that. So really focusing
in on the fiscal needs as opposed to all of the
community needs that might be generated as a result of
this project.
She said the other big activity that DOR has started is the
financing plan. She revealed that DOR is required in January
2015 to deliver the first step in a financing plan which goes to
the details as follows:
· What type of credit the state can utilize.
· How the state can get communities, native corporations, and
individuals to participate.
· Look at all of the state's financial resources and what the
best avenues are for the state's participation.
3:48:37 PM
She advised that DOR hired Lazard as financial advisor
consultants. She noted that First Southwest was also hired by
DOR to abide by Independent Registered Municipal Advisor (IRMA)
rules by the federal government. She said DOR has been working
hand-in-hand with the Department of Natural Resources (DNR) to
understand DOR's tax-as-gas responsibility.
3:49:14 PM
COMMISSIONER BALASH reviewed his recent travels to Asia in early
September and detailed the following meetings in Japan:
· Japan's Ministry of Economy, Trade, and Industry (METI);
signed a Memorandum of Cooperation (MOC).
· Japanese Bank for International Cooperation (JBIC).
· Japan Oil, Gas and Metals National Corporation (JOGMEC).
He noted that MOC was similar to a Memorandum of Understanding
(MOU). He explained that a MOU was signed a year ago with JBIC.
He pointed out that JBIC is the bank that has financed more LNG
projects around the world than any other institution. He said
JBIC gets involved in any project that somehow benefits Japan,
whether delivering LNG or employing Japanese engineering firms
in construction companies. He asserted that having an
understanding with JBIC is very important as the state considers
options going forward. He explained that METI's role was more
internal to Japan and the tariffs that are allowed to be charged
by the power companies. He noted that the Japanese were going
through a power deregulation that was creating some changes in
the way Japan gets business done. He asserted that having METI's
insights will prove very valuable so that the state was not
guessing and understood Japan's gas versus power companies over
the next 18 months.
3:52:18 PM
COMMISSIONER BALASH stated that JOGMEC was an interesting entity
that was more likely to be involved in any sort of equity
participation by a company that would also be a potential buyer.
He said having met with METI, JBIC, and JOGMEC, has allowed the
state to dial in on Japan's "three arms" and will basically
effect or enable different Japanese buyers to purchase LNG from
the Alaska LNG Project. He informed the members that the
delegation from Alaska hosted a forum to introduce the Alaska
LNG Project to the Japanese buyers. He noted that hosting the
forum allowed for an exchange of information without antitrust
implications. He said the forum's attendees were very familiar
with Alaska, asked very good questions, and showed tremendous
interest. He noted that the Nikkei Asian Review (NAR) did a
story on the MOC with METI.
3:55:25 PM
COMMISSIONER BALASH continued to review his recent trip to Asia
and summarized his meetings in China as follows:
· Chinese National Offshore Oil Corporation (CNOOC) in
Shenzhen, China.
He detailed that the Alaska delegation flew into Hong Kong and
drove into Shenzhen were the group was able to tour the
receiving terminal that BP co-owns with CNOOC and a handful of
other parties. He said what was really interesting was the
challenge China faces in some parts in dealing with very dense
coastal populations and less dense inland populations. He
explained that the Shenzhen re-gas facility has a large drive-
thru mechanism for filling up LNG tankers that delivers gas
throughout the province. He said close attention will be given
to the Shenzhen re-gas facility as the state find ways to
deliver gas and energy to Alaskans if the Alaska LNG Project is
able to move forward successfully.
COMMISSIONER BALASH noted the final stop his recent trip to Asia
and summarized his meetings in South Korea as follows:
· Korea Gas Corporation (KOGAS).
· Korea Ministry of Trade, Industry and Energy (MOTIE).
He said the Alaska delegation flew to Seoul and met with
officials of KOGAS and MOTIE. He noted that South Korea is not
as big a market as Japan, but South Korea is a concentrated
market through KOGAS. He informed the members that KOGAS is the
world's largest LNG buyer and the Alaska delegation met with
officials from KOGAS to discuss what opportunities there may be
going forward. He noted that the Alaska delegation met officials
from MOTIE. He detailed that MOTIE is basically the arm of the
government that oversees KOGAS. He explained that KOGAS does not
buy beyond the forecast demand levels that are set by MOTIE. He
noted that MOTIE asked about the MOC that was recently signed
with METI. He summarized that the state agencies affiliated with
the Alaska LNG Project was looking forward to continuing to have
a dialog with MOTIE on opportunities set. He revealed that KOGAS
has a very large void in their 2024 portfolio with contracts set
to expire with regimes that do not necessarily enjoy the same
geo-political stability as the U.S.
He summarized that DNR and DOR have been busy and noted their
involved in the upcoming MAGPRB meetings for two days in
Anchorage.
3:58:24 PM
REPRESENTATIVE P WILSON asked exactly who traveled to Asia as
part of the Alaska delegation.
COMMISSIONER BALASH replied that the team consisted of himself,
Commissioner Rodell, DOR; Dan Fauske, AGDC; Ester Tempel, DNR;
Shelly James, Office of International Trade; Janet Weiss, head
of BP-Alaska; Doug Rotenberg, BP, marketing professional, San
Antonio; and Damin Bilbao, BP-Alaska, commercial and marketing
LNG team member.
3:59:32 PM
REPRESENTATIVE TARR recalled that the ability to market Alaska
LNG successful was a deficiency pointed out in previous
testimony. She commented that the recent personnel staffing has
brought on a lot of expertise in addition to DNR and DOR
participating in an international trip to start building sales
relationships. She asked for an explanation on the state's
evolving LNG marketing situation in addition to its ability to
take on the marketing responsibilities.
COMMISSIONER BALASH responded that an evaluation was done based
on a study conducted by Black & Beech. He explained that in
order for the state to feel comfortable, DNR looked at the
differences between royalty in value (RIV) and royalty in kind
(RIK) in order to sort out how to make an equity position with
the state working within the construct of RIV versus RIK. He
asserted that there needed to be some assurance that the state
would not be left deficient or somehow losing value with RIK. He
said one way DNR and DOR got comfortable was in the HOA where
the other parties committed to, upon the state's request,
working with the state on the disposition of its share of the
LNG. He asserted that DNR and DOR have not changed their view on
the marketing strategy. He stated that Mr. Setters and the
others who were brought on would play an important role during
the continued evaluation process over the next 18 months. He
maintained that no decisions would be made without first talking
to legislators in executive session.
COMMISSIONER BALASH called attention to the recent trip to Asia
and noted that BP was making the trip and invited DNR and DOR to
go along. He asserted that DNR and DOR had no arrangements made
with BP. He pointed out that joining BP on the trip to Asia was
another demonstrable item that shows the parties following
through on the statements in the HOA. He said the HOA did
identify that each of the parties would initiate marketing
efforts for Alaska's LNG. He stated that the project's other
parties are in the market every day and noted that the recent
trip to Asia shows with certainty that at least one
participating partner was out in the market specifically talking
to buyers about the Alaska LNG Project.
4:02:58 PM
CO-CHAIR SADDLER referred to the Nikkei Asian Review story and
noted that Japan would start importing field gas in 2016. He
pointed out that the Lower 48 shale gas killed the Lower 48
pipeline route. He asked Commissioner Balash if his risk
assessment was that Lower 48 shale gas or China's shale gas
might again change the Alaska market dynamics.
COMMISSIONER BALASH responded that forward pricing curves for
natural gas in North America are incredibly volatile. He stated
that Asian buyers are looking for stable pricing and noted that
buyers during his recent trip wanted to know what sort of
pricing might be available for the Alaska LNG Project's gas. He
set forth that a number of factors affect the Alaska LNG
Project's competitive position.
He addressed the inquiry on field gas and noted that simply
reserving capacity did not necessarily guarantee that gas would
actually flow through the North American facilities and be
available for off take. He remarked that the reference to field
gas in some ways is more of a hedge mechanism for future pricing
that allows for destination flexibility to either Pacific or
Atlantic markets and allows for renegotiations.
Responding to the inquiry about whether shale gas will undermine
the Alaska LNG Project, he replied as follows:
I'm not sure I would say shale gas specifically, I
think there's no question that we have to compete, and
that competition is one that we can win if we keep a
focus on cost and keep our cost of supply as low as
possible.
4:06:54 PM
CO-CHAIR SADDLER asked if he had heard that Asian buyers were
interested in an equity position in the Alaska LNG Project.
COMMISSIONER BALASH replied that strong interest was expressed
in some of the conversations in Asia, but he was not prepared to
discuss the exact circumstances under which the state would be
willing to take an equity position from a buyer.
4:07:34 PM
COMMISSIONER RODELL added that any benefit from possibly taking
advantage of potential equity partnerships will be an important
component in preparing the state's financial plan. She noted
that Japan, in particular, is under tremendous economic pressure
to continually find lower cost of energy. She added that Japan's
trade deficit is significant. She agreed with Commissioner
Balash that the state must continue to keep the Alaska LNG
Project competitive because Japan does want to do business with
Alaska. She pointed out that Japan has purchased Alaska LNG for
40 years. She added that Japan takes great comfort in the Alaska
LNG Project's transit distance and manageability. She conceded
that Japan needs to do something in the interim. She offered
that from the state's standpoint, Alaska must see contract
diversity as well by not selling all of its gas to the same
buyer. She asserted that selling to the same buyer does not
serve the Alaska LNG Project well. She summarized that Alaska
will be looking to diversify to different sellers and Japan is
looking for diversification of supply.
CO-CHAIR SADDLER commented that he is glad to know that DNR and
DOR is keeping an open mind about financing opportunities.
4:09:26 PM
REPRESENTATIVE OLSON asked if Japan is willing to pay a premium
for the security on both ends on the production end and on the
Cook Inlet end. He pointed out that for 40 years Alaska has had
a strong relationship between Cook Inlet LNG and Tokyo Electric.
He noted that no LNG loads were missed or materially late during
that 40 year relationship. He asked if the successful LNG
history with Japan might give Alaska a bit of a premium.
COMMSSIONER RODELL replied she did not know but it's reasonable
to hope it would bring a premium. She agreed with Mr. Butt that
the scale of this project is immense and that necessitates a lot
of different buyers.
4:10:34 PM
REPRESENTATIVE SEATON asked if there is any other cost to the
state in developing the Alaska LNG Project that is not currently
included. He supplemented his inquiry asking the following:
Other than our RIK and tax portion being taken royalty
and tax taken in-kind, do we have further cost of
either capital credits or net operating losses that
will occur in the development of the project? If you
don't have the answer right now, are those portions
being factored into the value to the state or are we
only looking at RIK?
4:11:28 PM
COMMISSIONER BALASH replied as follows:
A couple of things. First of all, in terms of an all-
in-look, we attempted to do that in our Black and
Veatch work last year. As we go forward, we're going
to continuously monitor and refine the models
associated with all of this, to make sure that we
continue to count dollars the right way. In
particular, that model was based on an oil-only world
and an oil plus gas world. Then subtracting the
differences, we're accounting for those differences so
that you are keeping track of the lease expenditures
incurred under the production tax system and
accounting for potential changes in corporate income
tax and that sort of thing.
Do I think that the outputs of that model are 100
percent correct today as they will be in the future?
No, but that's where the refinements will continue to
take place. In terms of other impacts, costs incurred
by the project that the state has a share of, those
are ones that are currently estimated within a range
and those ranges will change and the specifics of
those costs will change over time to the extent that
any of that is going to hit on our infrastructure
side. DOT is going to need to get involved, there
could be some steps needed there to address. But, at
this point I would say that we are still very
comfortable that the estimates made last year and the
ranges associated with them are correct.
^Report of money obligated to a third party: Commissioner Balash
Report of money obligated to a third party: Commissioner Balash
4:13:21 PM
CHAIR GIESSEL announced that the next agenda item would be a
status report on money obligated to a third party.
COMMISSIONER BALASH stated that a clause in SB 138 that requires
an update on the project also requires the DNR Commissioner to
provide an estimate of any cost incurred under the two year
authority granted. He said he has exercised his authority and
entered into a precedent agreement with TransCanada for the mid-
stream portion of the project's main pipeline, the GTP, and the
transmission lines associated with the project. He advised that
he prepared a report in the form of letter that would be
distributed today to the presiding officers.
CHAIR GIESSEL confirmed that Commissioner Balash's report was
distributed.
4:14:52 PM
CO-CHAIR SADDLER asked if there would be a similar briefing and
report before or after the start of Session.
COMMISSIONER BALASH replied that the reports will occur three
times a year and the duration between updates could change. He
stated that January is the time frame for the next presentation.
He noted that the upcoming gubernatorial election will determine
whether he or someone else will be coordinating the next
presentation. He noted that there certainly could be a meeting
well before Session in the month of January or it could be that
it makes the most sense to wait until Session starts and
everybody is in place. He stated that in the event there is
change, he would not speak for his successor.
4:16:14 PM
REPRESENTATIVE TARR addressed financial obligations and
referenced SB 138's fiscal note. She asked if the Alaska LNG
Project was on track and noted the concern for cost overruns.
COMMISSIONER BALASH replied that the current estimate showed the
Alaska LNG Project to be on track. He noted that AGDC could
comment more specifically as to whether there has been any cash-
calls. He set forth that to his knowledge, there have been no
cash-calls and the project was on track in terms of whether
additional funding or resources on either end was needed.
He called attention to SB 138's fiscal note regarding agency
expenses during the project's current phase. He explained that a
handful of positions have been deemed necessary, but hiring a
marketing staff was not required. He specified that efforts and
resources will be focused on the upstream and downstream experts
who can help design an organization based on the choices DNR and
DOR will make going forward and that information will be flowing
in the right way on the front end. He disclosed that contracts
have been done with retired individuals that do not necessarily
need to be employees.
He noted that he had failed to mention that Don Perrin has been
hired to assist as a bridge between the State Pipeline
Coordinator's Office (SPCO) and the Office of Project Management
and Permitting (OPMP). He detailed that Mr. Perrin's
contribution will address the big NEPA picture by making sure
the state has the right sets of resources in order to pay
attention to the advancement process and avoid regulatory or
advancement problems. He revealed that DNR has used the position
control numbers (PCN) counts and funds differently than what was
projected in the fiscal note; Representative Stoltze confirmed
that the action was made as a onetime item and will be revisited
in the next Session.
4:19:36 PM
REPRESENTATIVE TARR noted that she received an inquiry from a
constituent who felt discomfort after reading a newspaper
article that talked about the project confidentiality agreement
and what would be disclosed to the public. She stated that some
individuals feel that more information should be released to the
public. She noted that she tried to assure her constituents that
the legislature tried to work through the process and included
any strong AGIA language into the bill in order to make sure
that there were folks advocating on their behalf. She asserted
that she did not want any unnecessary hurdles so early and hoped
to work through the confidentiality agreement as quickly as
possible.
4:20:29 PM
COMMISSIONER BALASH replied that he has recommended that
legislators talk to their attorneys.
4:20:46 PM
CO-CHAIR SADDLER commented that he was gratified at the great
turnout for the meeting. He noted that he was encouraged by all
the team's professionals and the good work that has been done.
He stated that the members were excited about the progress and
looked forward to the next meeting.
4:21:05 PM
CHAIR GIESSEL thanked the commissioners and expressed
appreciation to Mr. Butts for his presentation.
4:21:18 PM
There being nothing further to come before the committees, Chair
Giessel adjourned the joint meeting of the Senate and House
Resources Standing Committees at 4:21 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 9.29.14 Sec 77 SB 138 Report to the Legislature.pdf |
JRES 9/29/2014 1:00:00 PM |
SB 138 |
| 9.29.14 Joint Resources DNR Alaska LNG Update.pdf |
JRES 9/29/2014 1:00:00 PM |
|
| AKLNG - Project Update for SoA Legislature FINAL.pdf |
JRES 9/29/2014 1:00:00 PM |