CS HCR 1 NORTH SLOPE NATURAL GAS PROJECT(WTR)  CHAIRMAN HALFORD called the Senate Resources Committee meeting to order at 3:30 p.m. and announced  CS  HCR 1 (WTR)  to be up for consideration. REPRESENTATIVE RAMONA BARNES, Sponsor, said CSHCR 1 urges the establishment of a stable fiscal and regulatory environment in order to provide the best opportunity for a new LNG project to be economically viable and attractive. She explained that to be viable, 14 million metric tons of gas must be sold per year and the proposed project would transport and market the North Slope gas resources in the Asian Far East Market. It is believed there is an opportunity in 2005 when demand in that market will rise enough to accept the volume of gas which this project will provide. Alaska's huge volume of gas could be displaced from the market if smaller more easily placed projects come on line first. SENATOR LEMAN thanked her for the work in this area and he asked if identification of the leaseholders of rights-of-way or holders of permits could be included. REPRESENTATIVE BARNES replied that this resolution is directed to the holders of the gas of which the State owns 12 1/2%. The leaseholders spoken to in this bill are those major producers and some minor one who hold the lease for the gas in the Prudhoe Bay fields. She thought it inappropriate to identify Yukon Pacific in this particular resolution, although they support the bill, because they don't own a lease at Prudhoe Bay. Number 123 SENATOR LEMAN asked her to clarify why the terms North Slope and Prudhoe Bay were used. REPRESENTATIVE BARNES explained that Prudhoe Bay referred to all the fields in that area and included the surrounding fields as well, like Pt. Thompson. SENATOR SHARP stated in some of the meetings on this issue there was focus on the advisability of State equity ownership in a pipeline and he thought that it was deliberately left as one of the options for the Governor to study. He thought that was covered in lines 28 - 29 on page 4. REPRESENTATIVE BARNES agreed with that and added that all of the State's participation needed to be evaluated. CHAIRMAN HALFORD asked if other benchmarks could be used before the year 2005. He questioned by what date the contracts between the parties were to be drawn up by the Governor and by what date were they to be submitted to the legislature. REPRESENTATIVE BARNES replied that she intentionally did not put a date there, because she didn't want to appear inflexible or unreasonable. She restated that she thought the year 2005 was important because of outside competition and the support they receive when certain parties try delaying tactics like wanting a new route opened up or technological requirements. SENATOR LINCOLN said that Senator Murkowski and others had used the date 2007 and she would like to see an earlier date because it would be better for all Alaskans. She asked how she defined 2005 as the magic date. REPRESENTATIVE BARNES replied that the only people who say 2010 are the oil producers. No one in the marketplace has said that. No one in foreign governments has said that to her. They have all said between 2005 and 2007. Number 279 JEFF LOWENFELS , President and CEO, Yukon Pacific Corporation, said they hold permits to transport North Slope natural gas to tide water at Valdez and hold an export license from the federal government to export 14 million metric tons of LNG over a 25 - 30 year period starting at a date the project begins. He said they support the resolution 100%. He said it was important to move quickly and that 2005 is a crucial date. To suggest that it should be later would be suicide as far as a gas project from Alaska is concerned. CHAIRMAN HALFORD asked when they would actually have to start construction in order to keep the 2005 date. MR. LOWENFELS replied that they had to start in about the next 18 months. He said it would be very difficult, but Yukon Pacific had done a tremendous amount of advance planning. COMMISSIONER JOHN SHIVELY, Department of Natural Resources, said the administration has its own working group with the producers and they have been working with Representative Barnes. They think it is an important step to reach an important goal. CHAIRMAN HALFORD asked if he felt it was important to be in the ground within 18 months in order to reach the 2005 goal. COMMISSIONER SHIVELY responded that he didn't think Mr. Lowenfels meant that we had to be in the ground in 18 months, but that we had to have letters of intent for purchase in 18 months. We should be in the ground between 2000 - 2002. Mr. Lowenfels nodded agreement. SENATOR LINCOLN asked if 2005 was a realistic date that this administration would also push for. COMMISSIONER SHIVELY answered that he didn't think they were as committed to the exact 2005 date as Representative Barnes, although there is no question that a market opportunity starts around then. There is no question, also, that the sooner we get to the market, the better off we are. Number 346 GEORGE FINDLING, ARCO, supported HCR 1. He said that expeditious passage of this resolution will help advance the project. CHAIRMAN HALFORD asked for the ownership breakdown on the gas reserves. REPRESENTATIVE BARNES replied 30, 30, 22. SENATOR LINCOLN asked if 2005 was a realistic date for having the gas line in place and into the market. MR. FINDLING replied if you project everything going well, he thought production wouldn't happen before 2007. But he thought that 2005 was a good target date. Number 376 MARK BENDERSKY , BP, said the interim work done by Representative Barnes was very thorough and comprehensive and they are in full support of the Resolution. SENATOR LINCOLN asked if he thought 2005 was a realistic date. He replied that 2005 is an excellent goal to work toward. He said there is a lot of competition for gas supply and it will be somewhat of a buyers market. Their job would be to make sure Alaska's gas will be as high in the queue of supply projects as possible. Number 395 BEVERLY MENTZER, Business Development Manager, Exxon, said she is responsible for commercialization of the Alaska gas reserves. She emphasized that Exxon is very committed to commercializing Alaska's gas reserves on the North Slope. They are very supportive of this resolution. It is exactly what the project needs for it to move forward at this point. SENATOR LINCOLN asked what she thought about the 2005 date. MS. MENTZER replied that they agree with the statement that there is an opportunity opening up in the marketplace beginning in 2005. They believe the opportunity continues to grow as there is economic development in the far east. In shooting for a date she thought there were two things to remember. One is that it's not currently economically viable and we need to make it economically viable. The work on fiscal terms and cost reductions will help that and continued growth in the market will help. So they are not in total control. Two, the market will ultimately decide which projects go forward and which are developed. They are moving forward and they accept that date as a target. SENATOR LINCOLN asked what she defined as a start-up date. MS. MENTZER replied first gas down the pipeline. SENATOR SHARP asked if she agreed that the critical movement here is to go forward and obtain the consumptive contracts for that period of time as the window opens up as early as possible. MS MENTZER replied that it is critical because the purchasers also have quite a bit of investment to make on their side of the ocean. They need the long lead time, too. SENATOR LEMAN asked her about using Pt. Thompson in the earliest stages as part of the ramp-up recognizing there is a cost to oil left behind. MS. MENTZER replied that they had not done a rigorous relook at Pt. Thompson since August. They have their estimates of impact on oil recovery that are in the financial model that the State currently uses and the economics of it are not significant to the timing of the gas project. They plan to reevaluate it in 1997 and will be getting a new estimate. The key issue to them is if Prudhoe Bay gas can't make the project economic now with all the existing field infrastructure, if you take that same thing and layer all the wells that need to be drilled at Pt. Thompson, you are going in the wrong direction as far as trying to reduce cost. She said they expect that the infrastructure they build would need to support future gas sales from Pt. Thompson and other fields and they are planning that into their design basis. SENATOR TAYLOR noted that the Governor was being requested to do a number of things, but was not getting a copy of the resolution. REPRESENTATIVE BARNES responded that it does address the Governor over and over again, and it is a House Concurrent Resolution which means it is a message to the executive. Number 512 SENATOR SHARP moved to pass the CSHCR 1(WTR) from Committee with individual recommendations. There were no objections and it was so ordered.