Legislature(2015 - 2016)BUTROVICH 205
01/21/2015 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Overview of the Alaska Gasline Development Corporation | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
January 21, 2015
3:30 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Mia Costello, Vice Chair
Senator John Coghill
Senator Peter Micciche
Senator Bert Stedman
Senator Bill Stoltze
Senator Bill Wielechowski
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Andy Josephson
Senator Charlie Huggins
Representative Mike Chenault
COMMITTEE CALENDAR
Overview of the Alaska Gasline Development Corporation
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
DAN FAUSKE, President
Alaska Gasline Development Corporation (AGDC)
Anchorage, Alaska
POSITION STATEMENT: Provided overview of AGDC activities.
FRANK RICHARDS, Vice President
Engineering and Program Development
Alaska Gasline Development Corporation (AGDC)
POSITION STATEMENT: Provided overview of AGDC activities on the
ASAP and AKLNG projects.
JOE DUBLER, Vice President
Commercial Operations
Alaska Gasline Development Corporation (AGDC)
POSITION STATEMENT: Provided overview of AGDC activities on the
ASAP and AKLNG projects.
DAVE HAUGEN, Senior Project Manager
Alaska Stand Alone Pipeline (ASAP) Project
Alaska Gasline Development Corporation (AGDC)
POSITION STATEMENT: Provided update on the ASAP project.
ACTION NARRATIVE
3:30:00 PM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:30 p.m. Present at the call to
order were Senators Costello, Micciche, Stedman, Coghill,
Wielechowski, and Chair Giessel. Senator Stoltze joined the
committee shortly after.
^Overview of the Alaska Gasline Development Corporation
Overview of the Alaska Gasline Development Corporation
3:31:59 PM
CHAIR GIESSEL introduced committee members and support staff.
She related that her goal for this committee is to craft policy
and possibly remove some policy that will make Alaska an even
more productive place to live for its citizens. She wanted to
make sure our valuable assets - water, rocks, forests, tundra,
and mountains - were used responsibly. There is an expectation
of access and a responsibility to develop these resources, which
allowed Alaska to become a state, and the committee is charged
with continuing that legacy.
CHAIR GIESSEL welcomed Dan Fauske, President, Alaska Gasline
Development Corporation (AGDC), to the table.
3:34:32 PM
DAN FAUSKE, President, Alaska Gasline Development Corporation
(AGDC), Anchorage, Alaska, said many technicians, engineers, and
senior staff put a lot of this work together and that he had
worked together with a number of them on other projects. He said
the AGDC is a public corporation in Alaska with a legal
existence separate and independent of the state. It was created
in AS 31.25.010. Its main objectives are to:
-develop a natural gas pipeline and an Alaska LNG project and
other natural gas transportation projects in-state for the
maximum benefit of Alaskans,
-finance, construct, and potentially operate natural gas and
other non-oil, energy transportation systems,
-provide economic benefits and revenue to the state,
-assist Department of Natural Resources (DNR) and Department of
Revenue (DOR) in maximizing the value of the state's royalty and
taxed gas,
-hold the state's equity interest in the liquefaction component
of the AKLNG Project (currently where most of their energy is
going), and
-advance an in-state pipeline capable of delivering North Slope
natural gas to Fairbanks, Southcentral, and other communities
within the state at the lowest possible cost.
3:36:55 PM
AGDC's objectives are to:
-commercialize North Slope gas resource, secure a stable,
affordable long-term energy supply for Alaskans,
-generate revenue, jobs and economic growth,
-facilitate further oil and gas development, and
-maximize the overall benefit to Alaskans.
MR. FAUSKE said Dave Haugen, Project Manager, Alaska Stand Alone
Pipeline (ASAP), had done an outstanding job, but the rest of
them are working on the AKLNG Project. They work on both sides
of the projects. For instance, recently Mr. Richards, who was
primarily doing the engineering oversight on the ASAP Project,
is now working on the AKLNG side. One of the goals in hiring
people was for them to be able to handle cross-over. They didn't
want to develop a huge bureaucracy, because the idea is that
there aren't going to be two pipelines. Their job now is to
utilize the information and the work they have to try to fold
everything into one project without duplication.
3:39:25 PM
FRANK RICHARDS, Vice President, Engineering and Program
Development, Alaska Gasline Development Corporation (AGDC), said
they are essentially the state's gasline pipeline corporation,
and as such, have developed and brought on board a team of
world-class experts to advance these projects. He would give
them an overview of where the AKLNG and ASAP Projects stand and
then identify what the teams have done and are doing to be able
to work those projects.
He said the authorities under ASAP were granted in HB 4 that
said to advance an in-state natural gas pipeline for energy
relief for Alaskans, a key distinction between the two projects.
The AKLNG Project is really about the commercialization of the
North Slope resources for world-class markets and to provide for
energy relief for Alaskans. AGDC also has the responsibility to
help deliver some energy to communities off the road system
either by rail or by barge or however else it can be used to
transport it.
The project sponsor for ASAP is essentially the State of Alaska;
100 percent of the funding appropriated by the Alaska
Legislature was placed into the In-State Natural Gas Pipeline
Fund and has been used to advance the project to its current
state, which is essentially completion of the class 3 work
estimate. While the AKLNG Project is a combination of funding
with private sponsors, major producers - ExxonMobil, BP, and
ConocoPhillips, TransCanada (representing a portion of the
project for the State), and AGDC representing the 25 percent
ownership in the LNG plant, solely.
In regards to the design objectives, Mr. Richards explained, the
AKLNG line is for an LNG export project, which means the gas has
to be conditioned to a much lower level of CO (approximately 50
2
ppm CO), while the ASAP has been designed as a lean gas concept,
2
which would allow for up to 3 percent CO, which is essentially
2
the Enstar spec. It goes from a gas conditioning facility
located in Prudhoe Bay down to Southcentral tying into the
Enstar Beluga pipeline, and then flow out to homes and power
generation facilities.
The AKLNG project is a gas conditioning facility on the North
Slope with a pipeline leading to an LNG export facility at
Nikiski - essentially three mega-projects in one - whereas ASAP
is a major gas conditioning facility, and then a pipeline
leading to existing infrastructure.
3:42:33 PM
He said that the AKLNG Project is a 42-inch diameter high-
pressure pipeline while ASAP is a 36-inch 1480 psi pipeline;
very small differences in diameter, but the volumes are
considerably different. ASAP was designed in accordance with
what was then the AGIA statutes and the AGIA license agreement
with TransCanada to be capped at 500 mcf/day.
3:43:21 PM
MR. RICHARDS said they had just completed a new estimate in
December 2014 of approximately $10 billion for the ASAP,
compared to the $45-65 billion for the AKLNG Project. The work
forces are fairly similar, but the times to construct are
different owing to the three-component aspect of the AKLNG
Project. With the work they have done and the schedule delay
they are now working towards, that means that ASAP won't be
fully constructed until 2024. They didn't want it to compete
with AKLNG, which will provide the most benefit for all
Alaskans, while making sure that the work done on ASAP will be
beneficial to AKLNG.
CHAIR GIESSEL asked if they had slowed down on the ASAP line so
as to not compete.
MR. RICHARDS answered they had completed front end engineering
and design (FEED) for the ASAP project, essentially 30 percent-
plus design of the project, and are ready to take it out to the
commercial market to see if there is interest. However, the
AKLNG project is in pre-FEED stage and will hopefully make a
determination to go into FEED early next year.
SENATOR MICCICHE emphasized that AGIA is no longer in existence
and the reason for ASAP's progress is to be able to understand
all the options available to Alaskans. He asked him to explain
the expansion capacity potential of the 36-inch line.
MR. RICHARDS explained that the ASAP Project was designed with a
single gas conditioning facility on the North Slope with the
compressor station co-located within that facility. No
intermediate compressor stations were needed to flow the 500
million standard cubic feet (MMscfd). Compressor stations could
be added all along the line which could ultimately flow 1.6
Bcf/day if using the same design concept.
3:46:48 PM
CHAIR GIESSEL recognized that Representative Andy Josephson was
in attendance since the beginning of the meeting.
MR. RICHARDS explained that essentially the Legislature gave
them a mission: to advance the ASAP Project and with that they
have been accumulating items that will benefit the state as an
owner or a participant in the natural gas pipeline. For
instance, with passage of HB 369, the state was told to work
with AGDC and provide a state right-of-way. So, they have
acquired 413 of state rights-of-way, which were granted
unconditionally that are all transferable to the project that
will proceed forward.
In October of 2012 the final Environmental Impact Statement
(EIS) for the design concept was completed for a 24-inch, high-
pressure, 2500 psi rich (gas containing natural gas liquids that
would have been able to be used for export as well as providing
gas for the home heating and power generation for Alaskans)
gasline. But at the end, the legislative mandate of easy and low
cost access for Alaskans would have required "straddle plants"
to remove natural gas liquids.
He explained that a straddle plant would cost the City of
Fairbanks $250 million, and that is why they decided it is
better to change the gas composition to meet the intent of the
Legislature, which is easy access for Alaskans. That was planned
in early 2016, which meant initiating a new National
Environmental Protection Act action called a Supplemental
Environmental Impact Statement (SEIS), which was initiated early
this year. A new plan of development was created that are key
documents required by the federal and state agencies. The EIS
has gone through the first round of public scoping.
3:50:49 PM
MR. RICHARDS said they hit 16 communities up and down the state,
and folks came out in support of the project. The additional
environmental and engineering work getting done over the last
few years includes looking at all the river and stream
crossings, and looking at the mechanisms to be able to advance
the pipeline through those areas. They have done cultural
resource surveys up and down the project and have made
determinations on high/low/medium-value wetlands and gotten a
jurisdictional determination from the Army Corps of Engineers,
all major steps need for any project that will be advanced.
MR. RICHARDS reported that AGDC had done a tremendous amount of
bore holes as well. He explained that they knew the project from
Prudhoe Bay to Cook Inlet would parallel the TransAlaska
Pipeline System (TAPS) and that the work done by the producers
in other iterations of large diameter natural gas pipelines was
considerable. A wealth of information was available north of
Livengood and, therefore, their efforts were focused on areas
south of Livengood across the Minto Flats down through Denali
National and State Park areas, and down to Cook Inlet. Those
assets are part of what AGDC now holds for the State and with
those assets they have been able to negotiate a trade with the
AKLNG partners to be able to share information (theirs being
from Livengood north to Prudhoe Bay), thus saving the State tens
of millions of dollars.
AGDC has also completed the air quality monitoring at the gas
conditioning facility on the North Slope; that site is the same
site that will be used for both the AKLNG or the ASAP Project.
He said the strength-based design pipe must be able to withstand
the rigors of discontinuous permafrost; it will have to stretch
to be able to handle frost heave or frost settlement. The
metallurgy had to be designed, which meant purchasing 12
segments of pipe from three manufacturers around the world -
Germany, Japan, and India - because there weren't mills in the
U.S. that could produce this high-strength pipe. That pipe is
now being tested to make sure it will meet the design standards
of these particular areas. Specifications for those areas of
non-discontinuous permafrost were developed. They have also been
working with the Federal Pipeline and Hazardous Material Safety
Administration (FPHMSA) on pipeline regulations to make sure
that the pipelines are built and operated safely.
He said most recently, they had completed a project execution
plan, a very detailed document that identifies not only how they
are going to continue to finish the design work for the
pipeline, but how it will be constructed, and ultimately how it
will be operated. This is a key asset for AKLNG Project as well,
because of Mr. Haugen's previous expertise used in building the
TransAlaska Pipeline System (TAPS).
MR. RICHARDS said they had built a very robust, graphical
information system that represents everything put into place and
completed the class 3 estimate that will clearly define what the
level of cost will be for completing the project.
3:56:20 PM
CHAIR GIESSEL asked if it was true that the Park Service was
hoping the pipeline would be built through Denali National Park,
because they want access to this gas, too.
MR. RICHARDS answered yes, and explained that Senator Lisa
Murkowski drafted a bill that was signed into law last year
allowing for a high pressure natural gas pipeline to go through
Denali National Park along the Parks Highway corridor. This was
started prior to inception of AGDC as an organization by the
original project developers, Enstar, because they thought access
to the park was needed. Their concept was to build a pipe as
close to or within the Department of Transportation and Public
Facilities (DOTPF) and Alaska Railroad rights-of-way as
possible, but found that building within the DOTPF rights-of-way
required more steel, because of safety considerations involved
in being next to a transportation corridor.
Further, he said that if a project was built within Denali
National Park, it must comply with another federal law, Alaska
National Interest Lands Conservation Act (ANILCA). Title 11 in
ANILCA requires that all federal authorizations must be applied
for simultaneously. That is a problem, because one would apply
for federal authorizations in a sequential timeframe for a
project like this and be gathering information to meet those
permit requirements as the project was developed. Bringing them
all back to a single simultaneous application would delay
advancement of the project. Provisions also say that any federal
agency has the authority to essentially veto the project with
only the possible exception being a presidential override.
SENATOR STOLTZE asked for a characterization of the fish habitat
issues in his summary.
3:58:43 PM
MR. RICHARDS answered that fisheries experts have looked at all
the 468 river and stream crossings, specifically the anadromous
fish streams, because the crossing mechanisms must be considered
when building it. That means that winter versus summer time
construction must be considered. They now have an inventory of
essential fish habitat.
SENATOR STOLTZE stated that the Mat-Su Borough has been the
leader within the state on habitat restoration, especially with
culverts.
4:00:47 PM
MR. RICHARDS said 55 percent of the land ownership is state land
that has been granted to them through the right-of-way and
almost 30 percent of it is federal. The outcome of the
Supplemental Environmental Impact Statement will be a record
decision, because with that granting will come the federal
right-of-way across those federal lands. Hopefully, this asset
will be completed by fall 2015.
4:01:33 PM
JOE DUBLER, Vice President, Commercial Operations, Alaska
Gasline Development Corporation (AGDC), explained that the AKLNG
Project is made up of basically four resource owners: the three
main producers on the North Slope and the State of Alaska. The
state royalty is about 12.5 percent, and it is considering
receiving the production tax as gas instead of in-value. Equal
ownership with the producers assures alignment throughout the
project. At this point, the State has approximately 25 percent
interest in the project. That coincides with the percent of gas
that the state would own through the tax as gas and royalty in
kind.
He explained that the State's interest is currently represented
by TransCanada in what is called the Mid-stream, which includes
two major projects: the gas treatment plant and the pipeline.
AGDC is the state's corporation and it would own 25 percent of
the LNG facility and marine terminal at Nikiski. It's important
to keep this continuity throughout the project.
4:04:16 PM
MR. RICHARDS explained that they have been directed by both the
Legislature and the prior administration to not spend the
state's money twice. So, the two projects signed a cooperation
agreement in October 2014, which resulted in the first exchange
of geotechnical data in which historic TAPS information - bore
hole information, work from the Alaska Pipeline Project, and the
Denali Pipeline Project (north Livengood) - were granted to
AGDC, and AGDC was able to share the bore hole information from
Livengood south with the AKLNG Project. That met the intent of
working collaboratively together and eliminating duplication of
work between the two projects.
AKLNG had not brought folks on as timely as they had hoped but
AGDC has in many instances. It has technical consultants and the
authority granted by the Legislature for expedited permit
review. So, this month they are working cooperatively on both
projects under the auspices of AGDC; this will ultimately save
tens of millions of dollars in terms of project cost
development. He reported that civil work is proceeding forward
and that hydrologic, fisheries, and metallurgic work is also
being shared between projects. He said they are also working
with TransCanada and the producers on the pipeline and gas
treatment facility.
4:07:10 PM
MR. DUBLER related that the AGDC board approved $39.8 million
for calendar year 2015 for work on the AKLNG Project. This
includes both the capital contributions in the form of cash
calls, staff time, and consultants. They have held a joint
workshop with AGDC on sharing data and engineering and have
already exchanged some historical data; they are coordinating
future activities for next year's field season.
He said they are particularly proud that 79 percent of the 250-
person work force hired for the AKLNG 2014 field season are
Alaskans. The project is actively soliciting additional Alaskan
content through a list on its website where contractors can
enter their names for future bidding.
4:09:18 PM
MR. DUBLER said that engineering contracts have been awarded to
United Research Services (URS), based out of San Francisco, to
do design work for the North Slope gas treatment plant. They are
also getting help from Chicago Bridge and Iron (CBI) based in
Houston, and Arctic Slope Regional Corporation Energy Services
(AES), based in Alaska. That work is being done in Denver. The
pipeline is being designed by Worley Parsons in Calgary, Canada.
The LNG plant is being designed by CBI (with Chiyoda (Yokahama)
and AES) in Houston. Marine facilities - Nikiski jetties and
docks - are being designed by CH2M Hill in Houston and
Anchorage. The subcontractors (subs) these people hire are
looking for Alaskan content, as well.
4:11:15 PM
He said the Department of Energy (DOE) authorized LNG exports to
free trade countries several months ago, and the Federal Energy
Regulatory Commission (FERC) approved a pre-filing request in
September allowing the FERC employees to start working with the
project for a filing at some later date. The project has already
filed resource reports 1 and 10 for the EIS and are working on
the others for a total of 11 reports. The reports are on the
FERC website. They have conducted over 60 public meetings up and
down the alignment from Nikiski to the North Slope and did a
media tour through the Nikiski site on October 9.
CHAIR GIESSEL said report number 5 is the socio-economic impact,
which is how it will impact Alaskans and asked when the rest of
the reports will be out.
4:13:02 PM
MR. DUBLER answered soon.
4:13:29 PM
MR. RICHARDS said initial drafts will go to the Federal Energy
Regulatory Commission (FERC) in February and go through a public
process; then another set of drafts will be done in 2015,
allowing multiple opportunities for comment.
4:14:10 PM
DAVE HAUGEN, Senior Project Manager, ASAP Project, explained
that the class 3 estimate was prepared and delivered to the
board prior to the end of the year. Earlier estimates were a
combination of class 4 numbers; these are accuracy terms that
deal with just how rigorous the estimating work is done. Some of
the 2012 estimating work for the pipeline portion of the project
had progressed further than for the gas conditioning facility at
Prudhoe Bay and some "factored estimates" used best available
knowledge.
The current estimate reflects a full class 3 re-estimate for
both the gas conditioning facility and the pipeline. On the
pipeline portion of the project, civil estimates were done by
Peter Keywood, the Bryce Company out of Fairbanks, and Alaska
Frontier Constructors as if they were actually bidding the work.
Similarly, on the pipeline portion of it: Doyon Associated,
Price Gregory, the Michaels Corporation, and Rockford
Corporation. Because of that, the class 3 estimate is much more
accurate than the class 4. The class 3 estimate will progress to
a class 2 estimate, which provides a reasonable degree of
certainty that the project will actually come in on budget,
before the sanctioning of the project.
4:18:44 PM
In addition to the total install cost number of just under $10
billion, further calculations were done on operations and
maintenance (O&M), again using real world expertise of people
from Alyeska Pipeline. It was found that the 2012 estimate, as a
factored estimate, wasn't far off the mark.
The thing not estimated before was dismantlement, restoration,
and recovery (DRR): end of life costs that are part of the
project. The gas pipeline project would require removal of all
the facilities like the gas conditioning facility, intermediate
compressors stations, the above ground part of the project, will
have to be taken away and the sites restored. The pipe itself
will probably be purged and capped and left in place. Those
costs will come at the end of the project and doesn't amount to
much in today's dollars; but it does get incorporated into the
tariff rates.
Finally, Mr. Haugen said, the State of Alaska's money, the $353
million, is in the capital cost estimate for the project. He
noted that almost one-third of the cost of the project is on the
North Slope, because the gas needs lots of conditioning to make
it usable.
4:22:05 PM
MR. RICHARDS noted that these numbers are represented in
thousands of millions, so they are talking about billions of
dollars.
4:22:29 PM
SENATOR STEDMAN said several years ago, some members attended a
mega project seminar that classified a mega-project as over $1
billion; a vast majority of them go over-budget and very few
under. Going over budget by 20 percent is considered a success.
In this case, if you think it's going to cost $10 billion and it
costs $12 billion, that's considered a success. He asked how
policy makers factor in large over-budget figures.
MR. HAUGEN responded that they are very cognizant of that
effort. In fact, the independent project analysis (IPA) is their
bible as well as using the stage gate methodology. They are
still in phase 2 of front end engineering and design (FEED). The
whole idea is that every time you do another estimate, you try
to get the numbers even tighter. However, it doesn't account for
elements out of their control like inflation, the future costs
of the major components, the steel or major equipment; those are
world market type activities.
4:25:05 PM
He said if one of these projects does get developed, it will be
up against other market conditions, which can also cause the
project to go over budget.
In some cases, the regulatory environment is still dependent
upon a reasonable amount of oversight, but it can't be
controlled. The new Federal Pipeline Hazardous Materials and
Safety Organization has a mandate from Congress to be very
specific about regulations on the pipeline itself, and he
doesn't have a good feel for what that oversight will end up
costing the project.
4:27:04 PM
SENATOR MICCICHE asked him to explain the spectrum in their cost
analysis.
MR. RICHARDS explained that they used a P-75 risk-based Monte
Carlo analysis for the nearly 8,000 line items in the estimate.
A P-85 would be a higher contingency level and P-50 would be
lower.
SENATOR WIELECHOWSKI shared Senator Stedman's concern with costs
going up in the course of a year and asked what the plan is for
paying the costs that are over-budget.
MR. DUBLER answered that the tariff could be adjusted; typically
the shipper, which would be Enstar, that is purchasing the gas
on the other end, would take some of the risk and the pipeline
company could take some of it; it would be a negotiation. A
higher number like P-90 would give them more comfort that the
numbers are a little harder than a P-75 would be.
4:30:36 PM
CHAIR GIESSEL recognized Representative Chenault and Senator
Huggins in the audience.
SENATOR STOLTZE asked them to comment on the cost of wetland
permits and mitigation as budget cuts are discussed. He asked if
it would be worthwhile for the State to invest in primacy.
MR. RICHARDS answered in regards to wetlands mitigation, this
means that the wetlands (high, medium or low value) the federal
government identified as having a national interest should have
a monetary mitigation paid for by the project sponsors. In
Alaska, those costs are going up quite high and their 10,000
acres of wetlands impact that would cost about $200 million for
mitigation. The large program office within DNR that has the
responsibility for shepherding large projects suggested using
land banks instead of paying for mitigation, which would save
literally hundreds of millions of dollars, and he hoped to have
those discussions this year in the legislative process. The cost
of mitigation for any large project is becoming a major factor.
SENATOR STOLTZE asked if primacy affects the state at all.
MR. RICHARDS answered that he was not an expert on primacy, but
that Mr. Ruaro in Senator Stedman's office had been working on
that issue.
4:34:58 PM
SENATOR MICCICHE asked where folks are now in terms of a level
of confidence for a final investment decision (FID).
MR. HAUGEN answered that getting to an FID will in most cases
require a class 2 estimate - within a range of plus or minus 10
percent - which would be what shippers would look to as being a
reasonable amount of variation that they would feel comfortable
enough to tender their gas subject to their negotiations for the
risk-sharing element, because that will still be part of the
tariff negotiations.
SENATOR MICCICHE asked if he was involved in the construction of
TAPS and if a P-90 of building a trans-Alaska pipeline in 2019
will be more accurate than a P-90 in the late 70s.
MR. HAUGEN replied he was on the Alyeska Project at the
beginning and its original concept at the 1968 discovery well
was a buried pipeline and the estimate was based on a
conventionally buried oil pipeline. Nothing was known at that
time about the technology required to actually be able to get a
hot oil pipeline across permafrost areas. So when construction
actually began there was a completely new design and over half
of the project had to be an elevated pipeline. Along with that
was that it was the first major project built after the National
Environmental Protection Agency (NEPA) was instituted, and no
one knew of the implications that would call into play. That is
why it went from an estimated $800 million to $8 billion for
actual construction. Any time designs change, he said, design
premises change, and other change conditions occur, re-estimates
need to be redone, and carefully, because the history of major
projects is not a good record.
4:39:43 PM
CHAIR GIESSEL remarked that the lead folks on the AKLNG Project
actually brought a project on line, on budget, and on time,
which is encouraging.
4:40:29 PM
MR. DUBLER said that MMBtu stands for thousands of British
thermal units, a measure of energy it takes to raise the
temperature of one pound of water (about a pint) by one degree.
MMscfd stands for millions of standard cubic feet per day. So,
the 2014 tariff rate in Fairbanks is $5.50-6.75. The range is
used, because the cost of gas is unknown until an open season is
held and they can find out what people are willing to sell gas
for. The tariff passes through the project and gets paid by the
end users.
The local distribution costs in Anchorage run about $1.50 for
Enstar and $4.00 in Fairbanks, because IGU has to build out the
whole system. That is why the burner tip cost is about $11.50-
14.00 and currently they are paying around $21. So, this would
be a substantial reduction. The tariff rate to Anchorage,
because of the longer distance, would be $8.00-9.75, which is a
burner tip cost of $11.50-14.50, a little bit more than now, the
issue being certainty of supply. The North Slope has certainty,
but in Cook Inlet it depends on who you believe.
MR. RICHARDS said 2014 numbers include the O&M costs, the DRR, a
20-year depreciation, and the cost of capital. In 2012 they used
a 30-year depreciation life and the cost of capital is higher
now. So, they feel these are conservative numbers.
4:43:24 PM
SENATOR WIELECHOWSKI asked him to explain the range for burner
tip costs.
MR. DUBLER answered that the tariff is in the range of $11.50-
14.00, and if it is $5.50, the $6.00 difference between those is
the $4.00 local distribution for Fairbanks and the $2.00 cost of
gas. The range on the cost of gas is $2.00-3.30. So, the range
on the upper side is $7.30, which is the $3.30 and the $4.00.
They quote a range, because saying it's going to cost a certain
number implies a level of accuracy that just doesn't exist now.
SENATOR WIELECHOWSKI asked if he was assuming the cost could be
off by 20 percent.
MR. DUBLER answered that part of the estimate allowed for the
actual construction cost factor and then the cost of gas.
SENATOR STEDMAN asked what capital structure they are
considering.
MR. DUBLER answered they are considering a debt/equity ratio of
70/30.
SENATOR STEDMAN asked how sensitive these figures are if the
state decides to put more money into the project.
4:46:25 PM
MR. DUBLER answered that equity is the higher cost of the two
different cost of funds. Equity is assumed to cost 12 percent
and debt 5.7 percent. This is because equity investors typically
require a higher return than a bond holder. If the state were
to just contribute money, say the $400 million it put in up
front, for every billion dollars that would reduce the tariff by
about $.50.
SENATOR STEDMAN said equity infusion is one of the ways the
State has the ability to get cheaper gas to Alaskans.
SENATOR WIELECHOWSKI asked if the 70/30 split assumes the state
will contribute 30 percent from the general fund and the 70
percent will be bonded.
MR. DUBLER answered that the only state contribution is the $353
million. The 30 percent equity is assumed to be contributed by
an owner/builder/operator who would get the 12 percent return.
4:48:05 PM
SENATOR STOLTZE asked if they were factoring in potential
conversions of the military installation at Ft. Wainwright and
the possible reopening of Flint Hills in the tariff projections.
MR. DUBLER answered no. The tariffs were calculated as if a
pipeline company was building it. If Enstar brings gas to a
subdivision, they don't pay to convert folks' oil-fired stove to
a gas stove.
SENATOR STOLTZE said he was thinking about the demand.
MR. DUBLER said they are currently looking at business
developments and what communities could be hooked up to this
project up and down the line.
SENATOR STOLTZE commented that people are probably non-committal
when they don't see a gasline.
MR. DUBLER admitted that was an issue.
4:50:22 PM
SENATOR STEDMAN asked why there isn't a gasline company pounding
the table to build this project with just the 12 percent return
on equity without a substantial state equity infusion?
MR. DUBLER answered that is why the state is putting $400
million in at the beginning, because they believe a company will
put their capital up and build it once the numbers are seen.
They have been talking with an owner/builder/operator that is
very interested in building this project.
SENATOR STEDMAN said the reason he brought it up is because it
was one of the backstop arguments of the original bill that got
this ball rolling. The state is trying to stimulate this
project, because we couldn't get a gasline company to come in
and put that down to find out if the project is feasible or not.
4:52:58 PM
MR. RICHARDS said slide 14 provided a history of why the ASAP
project was designed to a 500 MMscfd throughput. It was really
due to the Alaska Gasline Inducement Act (AGIA) and the AGIA
statutes (2008) that limit any competing in-state natural gas
pipeline to less than 500 MMscfd. Termination of the AGIA
license in June 2014 made the cap go away. The work that was
under way was far enough along that they weren't going to change
design parameters and it was completed in December 2014. They
are no longer statutorily constrained to 500 MMscfd, and the
project size can be changed with changes in compression, pipe
strength, and treatment capacity.
4:53:57 PM
SENATOR WIELECHOWSKI asked what sort of interest they are
getting, because 500 MMcsfd makes the tariff extremely high.
4:54:18 PM
MR. DUBLER replied that the only real solicitation they had done
was a non-binding expression of interest in 2011, and they got
500 MMscfd, which happened to coincide with the line, which at
least gave them confidence to continue forward with that number.
They haven't gone out again with tariff numbers or tried to
project tariffs at higher volumes because they don't have the
engineering to back it up. To the extent they will do an open
season in the future they would have indicative tariffs at the
higher volumes to see if it brought in additional interest.
4:55:19 PM
MR. RICHARDS continued saying that slide 15 represents the spend
plan through sanction for a $353 million project; $149 million
of that is left. With passage of SB 138 and signing of the joint
venture agreement, AGDC saw that the AKLNG Project was going to
be the state's priority and that any work being done for the
ASAP Project should be done to keep the project viable and
durable so that it could potentially be transferable as a state
asset to the AKLNG Project. They saw ASAP wasn't going to open
season in the near term, really until the AKLNG Project decides
on whether or not to proceed into FEED, a decision that is
slated for the first quarter of 2016. So, the spend plans were
revised down. Deciding to proceed or not with the AKLNG Project
will be a watershed moment for the ASAP project. Should AKLNG
proceed into FEED, then the ASAP Project would fall back; if the
decision is to not proceed, then the assets of the ASAP Project
would advance.
SENATOR COGHILL asked what projects ASAP would be dealing with
in the 2015-16 timeframe.
MR. RICHARDS replied that they will complete the SEIS, which
would result in a federal right-of-way grant to AGDC; they will
continue the metallurgy work for the 36-inch, 1,480 psi pipeline
to be able to make sure the pipe will be able to withstand the
rigors, continue the work efforts for the FPHMSA to better
understand their requirements for the execution of the project
as well as its operations, and they would look at optimizing the
gas conditioning plant and reducing its cost. They will also
look at long lead-time items for their construction, maintenance
and inspection programs to shave off months if not years of pre-
development work.
SENATOR COGHILL remarked that the $60 million would get them
there, but the $149 million would have gotten them to an open
season.
MR. RICHARDS added that they would have gone to an open season
and then made modifications based on what the shipper
requirements were, and then gone to a final investment decision.
4:59:40 PM
MR. RICHARDS said the revised schedule aligns the ASAP Project
to the AKLNG FEED decision timeframe. If the AKLNG Project were
not to proceed, they would look to their commercial interest by
defining optimal throughput for this project, enter into a
redesign, and then start the regulatory process with the
Regulatory Commission of Alaska (RCA) for a recourse tariff and
go to an open season and ultimately project sanction with first
gas, now, being in third quarter of 2024 (three years later than
the original timeframe).
The work identified as non-discretionary work was included in
the work package presented to the Office of Management and
Budget in the regards to AO 271.
5:01:15 PM
MR. FAUSKE, continued that the corporate focus near-term 2016
was to accelerate cooperation, maximize state resources,
eliminate duplication of efforts, and align work efforts and
routing. With the alignment of the dual projects, one wouldn't
have a recourse tariff filing and no open season, because no one
would bid on it while they have another project in the works.
But if the AKLNG Project is successful, the State will end up
with a much better project in terms of revenues.
He said yesterday ExxonMobil announced anticipation of a $25
billion spend on the British Columbia Project, which he thought
indicated some aggressiveness in world markets. Alaska, also,
represents a huge resource for them and the other companies, so
he remains hopeful. The work has been an "absolutely honest
effort" and a lot of money is being spent to move the project.
He said a valuable asset was added when Fritz Kruzen moved back
to Alaska and who was a global lead on LNG with ConocoPhillips
for 36 years. In the future they will probably assign people
outside rather than fly people back and forth all the time if
they are going to be primarily involved in engineering work at
either Calgary, Denver, or Houston.
5:04:24 PM
He said they want to progress both initiatives to better inform
the State's ultimate policy and investment decision making and
maintain the State's leverage for building assets that it can
bring to either project. He noted that their estimate was
staying within the range considering that inflation is about
$250 million per year and that time is not necessarily a friend
unless market conditions change to the point that it's moving in
the right direction.
He explained that their two benchmarks are: can we beat or equal
the price of imported LNG and keeping the Fairbanks tariff
within a certain range considering it was originally factored
using about 16 MMscfd, but they are currently at 20-25 MMscfd.
Alaskans use 250 MMscfd of gas on the Railbelt and they want to
expand that on a worst day. That means selling 250 MMcfd of gas
and he wasn't' sure the tariff even for 500 MMscfd was
competitive, and the only way to compensate for that is to
increase volumes. He wasn't advocating that, but pointing out
there is also a sweet spot that must be met. He said the ASAP
Project is still very viable as a fallback position and that the
$25 million worth of work that has been done on the other
project will also benefit this one.
5:06:57 PM
He said one of the greatest things that ASAP brings to the table
is the leverage that shows the state does have options and
stated "The cost of doing nothing gets pretty expensive, too."
MR. FAUSKE said SB 138 also directs collection and compiling of
existing gas demand data to be done showing the potential of new
users/communities, modeling of realistic demand
scenarios/estimates, as well as estimating usage and cost of
service, variations in usage/storage requirements, and
identifying the best delivery mechanism.
5:10:15 PM
SB 138 also directs them (under the AKLNG Project) to figure out
where the flanges for off-takes on the pipe will go, design the
equipment, develop detailed cost estimates for the equipment,
and to coordinate with the Alaska Energy Authority (AEA), the
Alaska Industrial Development and Export Authority (AIDEA), and
DNR regarding policy and infrastructure issues associated with
increasing in-state gas access.
5:10:56 PM
MR. DUBLER said the AKLNG Project is fully funded now through
the FEED stage; $69.8 million was appropriated last year and
that will be spent through FY16.
MR. RICHARDS explained that two funds were set up for AGDC to
administer the projects: the AKLNG Project Fund and the other
for the in-state project, ASAP. The Legislature has appropriated
approximately $119 million to AGDC for advancement of the ASAP
Project; $120 million had been expended through FY14 and an
additional $98 million will be spent through the end of FY15. A
majority of that goes towards the class 3 estimate and the
engineering deliverables they talked about earlier. In FY16 an
additional $51 million will be spent leaving a balance of $150
million to be used for advancement of the natural gas pipeline
project.
5:12:56 PM
SENATOR STOLTZE said the governor put a freeze on this project
and asked him to describe that impact.
MR. FAUSKE replied that AO 271 made them make a decision on
discretionary versus non-discretionary spending, and they had
already started that process months ago as they were aligning to
the AKLNG schedule (the route is 98 percent aligned). The AO
also said to "continue working until further notice." They were
not told to "cease and desist." He felt the $60 million spend
drop, by $90 million, was certainly in compliance with that
order. Their spend plan had been submitted and they are now
waiting to hear some definitive answers.
He also said they went through a Request For Proposal (RFP)
process and selected Enbridge as the owner/builder/operator.
According to HB 4 it was always designed for an
owner/builder/operator to come in. With passage of SB 138, they
have had lots of meetings with Enbridge and others who were
interested in the project, but he felt it was unfair to have
them spend the money at the time.
5:18:11 PM
CHAIR GIESSEL found no further questions and thanked them for
the briefing. She adjourned the Senate Resources Committee
meeting at 5:18 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2015 01 21 AGDC Senate Resources Committee.pdf |
SRES 1/21/2015 3:30:00 PM |