HB 369-IN-STATE PIPELINE/ MANAGER/TEAM  5:02:04 PM CO-CHAIR MCGUIRE announced HB 369 to be up for consideration [CSHB 369(FIN) AM was before the committee]. REPRESENTATIVE CHENAULT, sponsor of HB 369, offered that he is a "hands on kinda guy" and he wants to start "turning dirt." He explained that this bill forms a joint in-state gas development team (JIGDT). It would be found in the Office of the Governor and consist of the chief executive officer (CEO) of the AHFC as chair, the CEO of Alaska Railroad or his designee, the commissioner of the Department of Transportation and Public Facilities (DOTPF) or his designee, the CEO of the ANGDA, and the in-state gas line coordinator or project manager. 5:03:31 PM The bill also describes the duties of the in-state gasline coordinator in statute and sets the deadline of July 1, 2011 to assure that a project plan is presented back to the legislature. The project plan would specify how an in-state line can be designed and built made operational by December 31, 2015. These are aggressive dates, but they won't get to completion of a project without a timeline. The project plan must also include specific plans to coordinate and facilitate the construction, ownership, operation and management of a gasline. They tried to leave these as loose as they could, because he has found that when the politicians get involved in projects like this, they tend to be the problem. He said the development team is to prepare plans and designs necessary for construction, to coordinate with the entities qualified to build, own or operate a pipeline, and select the route; the route is to be the most economical, provide gas to residents at a reasonable cost, and to use state lands and rights-of-way to the maximum extent possible. It also establishes an expedited process for information access and cooperation among the state entities. It outlines the duties of the development team, but gives them some flexibility to determine what actions are necessary to complete the project without politicians being involved. 5:05:51 PM REPRESENTATIVE CHENAULT said he feels the need to combine the efforts to move an in-state gas line forward not only for the funding purposes but to gather information and studies and to share them in order to turn dirt. REPRESENTATIVE CHENAULT said the in-state gas line would provide economic opportunity for Alaska and will supply the energy needs for Alaskans for many years. 5:06:54 PM CO-CHAIR MCGUIRE said they are trying to figure out how many captains and who is going where with what intent, and she looked forward to his input. 5:07:55 PM REPRESENTATIVE CHENAULT agreed that one of the big problems is too many chiefs and not enough Indians. This project needs a strong leader who can make those determinations. It has to have a supportive administration and the legislature behind it. He thought it imperative that they consider that the state has tried for over 30 years to try to secure Alaska's energy needs and it no longer has the luxury of discussing it. It is time to turn it over to experts. 5:09:51 PM SENATOR HUGGINS agreed with Speaker Chenault's opinion that they need to get a strong leader and let him do the job. 5:10:42 PM REPRESENTATIVE CHENAULT said we have some of the best minds in the state; there is no reason a project can't be brought back. CO-CHAIR MCGUIRE agreed and said she looked forward to working with him. She conceded that the timelines are aggressive but she believed Alaskans want something to move forward now. 5:11:48 PM SENATOR WIELECHOWSKI referred to Mr. Heinze presentation that estimated the tariff at 250 mmcf/d would be $9.24 plus $1.50-$2 for the gas treatment plant. Bumping it up to 500 mmcf/d, you still have a $6 tariff plus the cost of the gas. He asked how HB 369 deals with a possible $10 tariff a couple of years down the road. 5:12:44 PM REPRESENTATIVE CHENAULT said he didn't have a good answer to that. The question can be asked what do they tell their constituents in 2018 when they have no gas. He had no reason to doubt Mr. Heinze's numbers, but he wanted to see what the project looks like. As the numbers change so do the opportunities. He would like to build a bigger line but he thought that should be left to the experts. 5:14:43 PM SENATOR FRENCH said they will have the estimates by July 1 and asked why the current structure is not sufficient to get this going. REPRESENTATIVE CHENAULT answered that they have heard for a number of years through different agencies; ANGDA for instance was ready to go forward but then the legislature chose not to fund him on certain issues. They didn't think they were getting anywhere and that is how they came up with the in-state pipeline coordinator, and that agency has been in turmoil even though he respects Mr. Noah. The legislature needs to continue to keep "our thumb on" the task that not only the administration but the departments are tasked with, then what they get in July may be the answers they are looking for, but maybe not. The 2011 date could get pushed out further. He wasn't interested in hurting the AGIA project's chances to go through, and he didn't see it being derailed by an in-state gas project such as this. 5:18:12 PM SENATOR HUGGINS agreed with Representative Chenault. Who deserves the gas first? Alaskans! Spending the money on AGIA is fine, but he was willing to spend the same amount to get gas to Alaskans. CO-CHAIR MCGUIRE said she thought the speaker was right; the legislature needed to set milestones in order to keep this on track. They both put July 1, 2011 in the bill out of respect for the governor but she wanted to have further talks with the engineers because they are saying more field work needs to be done in the summer. REPRESENTATIVE CHENAULT agreed, but said that if they leave a project totally up to the engineers nothing will ever get done. Engineers look for perfection and, while he respects that, there was not going to be perfection. He thought that others need to be working with them to make the decisions. CO-CHAIR MCGUIRE agreed that a team is needed. With that, she set HB 369 aside and said they would hear from Larry Persily. ^Presentation by Larry Persily, Federal Coordinator for Alaska  Natural Gas Transportation Projects 5:22:57 PM LARRY PERSILY, Federal Coordinator, Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects, said he had two presentations, one about the rules dealing with an export license that you have to get from the federal government if you're going to send natural gas overseas, and the other that talks about is going on in the world LNG markets. MR. PERSILY stated that since 1938 exporting natural gas from the United State required an export license issued by the US Department of Energy (DOE). It must show that sending your gas overseas is consistent with the public interest. You have to show basically that there is a surplus, that it is available and not needed domestically. The DOE license for export at the Kenai plant was last issued in 2009 with a two-year renewal and is valid until March 31, 2011. It took almost 1.5 years to get. Initially in 1996 when the plant owners filed for a renewal it took 2.5 years. He said the state originally opposed the last renewal (2007) and later dropped its protest. Chugach Electric opposed the renewal as did others. The state initially asked for trial-type procedures with discovery - as did Tesoro which also wanted evidentiary trial-type proceedings. Chugach Electric was in negotiation with the producers at that time for supply contracts and wanted the state to continue opposing the export permit so as to strengthen their hand as they negotiate supply contracts with Marathon and ConocoPhillips. All that is to say that, without protests you can get an export license a lot sooner than 1.5 years. MR. PERSILY explained that it is an administrative action, not congressional. It is the second export license that exists in Alaska. Twenty-one years ago the DOE approved an export permit for Yukon Pacific which at that time envisioned an LNG project. That export permit specified the gas could go to Japan, South Korea or Taiwan. (Export licenses granted by the Department of Energy actually specify which countries it can be sent to.) That license in 1989 was for a specific project, with specific owners, at a specific time. A change in ownership of the license would require Department of Energy approval - his opinion, not the Office of Federal Coordinator - but considering the changes in market conditions, supplies, economics and such in the 21 years, it's doubtful the DOE would simply okay the transfer of that license to a new owner who would have to go back through the process. SENATOR FRENCH asked the volume allowed under that permit. MR. PERSILY said he didn't remember. Even though export licenses for natural gas are administrative, politics do come into play. He remembered when the TAPS legislation went through Congress it banned the export of Alaska oil for more than 20 years. And when a Chinese oil company tried to buy Unocal a few years ago, nation-wide political pressure killed the deal. 5:26:29 PM MR. PERSILY continued that back in his office, the Alaska Natural Gas Pipeline Act of 2004 includes a "sense of Congress" language that says the Lower 48 states will need Alaska gas in the coming decades. He commented that it would certainly be ironic and somewhat politically problematic if just as the president is elevating the Alaska gasline to a national interest project and just as the state's congressional delegation is trying to win approval to increase the loan guarantee to $30 billion, if at that same time they change direction and try to send the gas overseas. He said the federal loan guarantee, the accelerated depreciation on the pipeline, the federal tax credits for the North Slope gas treatment plant, even the very assistance of the Office of Federal Coordinator and Federal Job Training Funds - none of that is available under current law for an export project. The 2004 Act defines the Alaska natural gas transportation project as a pipeline system that carries gas to the border between Alaska and Canada, and then eventually heads south. 5:27:44 PM MR. PERSILY said in terms of what is going on in LNG market, there is a lot of competition in the Asian market. China and India have local gas; China and the US are working together to develop shale gas. China and India, in addition to some local gas, also have the option of pipeline gas from Russia, Turkmenistan. In terms of existing LNG producers or countries with LNG plants being built, you have Australia, Papua New Guinea, Sakhalin, Indonesia, Malaysia, Brunei, Qatar, the Middle East (a swing supplier that can go to the Atlantic Basin or to the Pacific). In fact, Japan most recently was getting 10 percent of its spot sales from the Atlantic based suppliers rather than just Pacific Rim. Currently there is an oversupply of gas in the world. He said Shell is also looking at floating LNG production and has contracted with Samsung to build essentially a huge ship bigger than an aircraft carrier that parks over an offshore field; it produces, it liquefies, and then ships it out. When they are done they move to a different spot. MR. PERSILY said that people who think of the export market look at pricing, because in the past just about all gas in Asia was tied to oil prices, when oil was $80-$100. Those are attractive gas prices and the buyers figured it out. Lately, about 20 percent of Asian LNG trade is going to spot market. The price was tied to oil will still be in the majority, but it is not the vast majority as it used to be. Something else to consider, he said, is that 2007 numbers show that 73 percent of the gas consumed in world was consumed in the country where it was produced; about 19 percent of the gas consumed in the world was delivered to the consuming country by pipeline; and only 8 percent of the gas that was consumed was delivered by LNG tanker. It is a small piece of the market, even though it is an attractive market. To keep it in perspective, Mr. Persily said, the North American natural gas market on a daily basis consumes about three times the gas of India, China, Japan, Korea, and Taiwan combined. He summed up that there are opportunities in the LNG market, but it is very competitive; there is a lot of gas in the Pacific Rim and a lot of LNG projects. It is a much smaller market than North America. 5:31:12 PM CO-CHAIR MCGUIRE asked if he had seen Representative Young's letter to Secretary Chiu regarding the extension of the LNG export license. MR. PERSILY replied yes; but he hadn't any feedback on it. 5:31:45 PM SENATOR WIELECHOWSKI asked if he had any thoughts on whether the DOE would extend the Nikiski plant license. MR. PERSILY answered if ConocoPhillips and Marathon, owners and operators of the plant, determine that they have enough gas to meet local needs and that they have some surplus, it would help to have some place to send the gas in the summer, and if no one protested it, they would have a pretty good shot at getting an extension. SENATOR WIELECHOWSKI explained that he asked that question because one of his newsletters said there was zero chance. MR. PERSILY clarified that was for a new export license for a project that was totally dedicated to something. 5:33:14 PM SENATOR WIELECHOWSKI said they keep hearing that the President is interested in elevating his position and making this a project of national interest and he asked what that means to the project and the likelihood of it getting completed through the AGIA process. MR. PERSILY said he didn't know. He had had one meeting at the White House and it was discussed. They haven't quite figured out what they can contribute along with the state and the pipeline developers and producers to help, but the President said he has to think of something. He mentioned that Tokyo Gas Company, one of the Kenai plant's customers and is the largest gas supplier in Japan, recently signed a contract with British Gas (BG) that is developing a project in Australia; they signed a 20-year deal starting in 2015 and it would cover 11 percent of their needs for 20 years. 5:35:29 PM CO-CHAIR MCGUIRE apologized that she couldn't get to the other presenters and adjourned the meeting at 5:35 p.m.