SB 215-GASLINE DEV. CORP: IN-STATE GAS PIPELINE  4:32:35 PM CO-CHAIR PASKVAN announced consideration of SB 215. 4:32:38 PM SENATOR JOE THOMAS, sponsor of SB 215, said the route in SB 215 has been studied by Enstar, ANGDA, the ASAP pipeline and others. It is nothing new. It is the southern route using the Parks Highway, which is the route preferred by Enstar and the Alaska Gasline Development Corporation (AGDC) and it could be reconfigured to serve the AGIA line if it ever went to Valdez. Last week, Buccaneer and Furie indicated that a line going to the Interior would be good for the market and that it is also the shortest route. It also has the shortest timeline and probably the most reasonable cost. He said that the Resources Committee knows exactly what is going on in the state with gas and this southern portion would dramatically increase the opportunity for gas exploration and development in the Interior basins some of which have been explored for decades. There is a fair amount of potential, but no way to move the gas. This route would also reduce costs for natural resource development in Southcentral, and the Upper Kuskokwim and Interior regions of the state. SENATOR THOMAS said the Donlin Creek Mine is planning on building a pipeline which would almost parallel this one and there is some potential for a partnership there even though their line would veer to the west at some point. There is also great potential in the Interior with the new International Tower Hills Mine. If the gas does prove up in the Cook Inlet, it would only make sense to build at least the southern portion of the line. 4:35:45 PM JOE DUBLER, Vice President and CEO, Alaska Gasline Development Corporation (AGDC), said he prepared a precursor to a fiscal note, a rough thumbnail shot at what the cost would be on SB 215. He said Black and Vetch provided a very sophisticated tariff model that cost $50,000 to run. For it he estimated the capital expenditures that a tariff would support in two different scenarios. One was just the tariff and the other was tariff plus the gas. It compared Cook Inlet to Fairbanks route (southern) and the North Slope to Fairbanks route. The North Slope to Fairbanks numbers came from their July 1 report as did the southern route numbers to make it easy for the readers to determine what costs went towards which tariffs and which destinations. For the tariff in the first column they used the estimated costs from the North Slope to the Fairbanks City Gate (including the lateral from the main line and the straddle plant) and came up with $6.45 (not including the estimated cost of gas at $2 or the estimated $2 distribution cost). 4:38:28 PM SENATOR FRENCH asked why they used that number and if it would be the same amount going south to north. MR. DUBLER replied that they were trying to come up with an estimated CAPEX that could be supported by that tariff. CO-CHAIR PASKVAN said he understood that the tariff in the ASAP report to Fairbanks was $10.80 and asked he came up with $6.45. MR. DUBLER responded that adding the $2 cost of gas on the North Slope and the $2 distribution cost in the Fairbanks area to the $6.45 gets you $10.45. Then they figured an average 60 mmcf/d and number of days per year (adding a quarter of day for leap years) and came up with an allowable cost recovery per year of $141,351,750 and when that is multiplied by 20 years you get a CAPEX of $2.827 billion. The bottom of the spreadsheet showed the pipeline would cost $1.565 billion to build from Big Lake to Dunbar. The report had $1.999 billion but he backed out the Cook Inlet NGL extraction plant because that didn't belong there and some compression station costs. CO-CHAIR PASKVAN said he thought the fractionation plant in the ASAP report was $954 million by itself. MR. DUBLER replied he got those numbers from page 5-35 of the report; and the Cook Inlet NGL extraction facility was $410 million. CO-CHAIR PASKVAN said something at the southern end of the line was $954 million. MR. DUBLER said he would help him figure it out. SENATOR WIELECHOWSKI asked if the gas is different coming from Cook Inlet such that it doesn't have to be processed in the same way gas from the North Slope does. MR. DUBLER replied yes; that is why the North Slope facility (to extract HS, HO and COat a cost of $1.840 billion) is not 222 included in any of these costs. SENATOR STEDMAN said he found the spreadsheet a little confusing and asked if it compares two alternatives why a conditioning plant wouldn't be included on the North Slope if one was needed. MR. DUBLER replied that the conditioning plant is included in the $6.45 number going from the North Slope down, but the conditioning facility isn't relevant on the Big Lake to Dunbar route. 4:43:14 PM SENATOR WIELECHOWSKI asked what the equivalent tariff would be to build a line from Cook Inlet to Fairbanks. MR. DUBLER replied that he didn't run that number, but he had converted tariffs to CAPEX for comparison. He offered to pay the consultant to do another run if that's what the committee wanted. 4:43:57 PM CO-CHAIR PASKVAN said he was looking for the tariff figure to the Big Lake area. MR. DUBLER said the total tariff at Big Lake was $5.63 and he didn't include the straddle plant in Fairbanks and the lateral line. CO-CHAIR PASKVAN asked the tariff between Big Lake and Dunbar. MR. DUBLER replied the capital cost for a pipeline from Dunbar to Big Lake is $1.99 billion and he didn't have the tariff for that number handy, but said he would get it. 4:48:11 PM MR. DUBLER said page 3-10 of the report had the estimated tariff build up case with no inflation: the gas conditioning facility was $1.42, the pipeline from the North Slope to Dunbar was $2.56, and the pipeline from Dunbar to Big Lake was $1.65. These equal the $5.63. CO-CHAIR PASKVAN said he assumed the tariff from Big Lake to Interior Alaska would be the same under either pipeline. MR. DUBLER replied that is not a valid assumption; many things go into a tariff and capital expenditures is only one. His spreadsheet showed that it's $412 million cheaper to run from south to north, because you don't have the straddle plant, an off-take facility or the conditioning on the North Slope. Throughput on the line is another consideration. Gas going south is 500 mmcf/d and on gas going north is only 60 mmcf/d. While the numerator gets smaller, the denominator gets a lot smaller; so, the tariff gets bigger. CO-CHAIR PASKVAN asked if the ASAP tariff of $1.60 and the tariff from Big Lake to Dunbar of $1.65 was accurate (on page 3- 10). MR. DUBLIER replied that was correct. 4:50:34 PM SENATOR FRENCH asked how big of a pipe is needed to carry 60 mmcf/d. MR. DUBLER replied their engineers estimated getting by with 12 inches and maybe smaller. The issue with the wording in SB 215 is that they are prebuilding for an in-state line so it would have to be bigger and more expensive. SENATOR STEDMAN said the spreadsheet is hard to follow and he wanted more footnotes or explanations. MR. DUBLER replied this is just a brief shot at coming up with a thumbnail sketch of where they are. He asked for a few more minutes to explain the rest of the spreadsheet. 4:52:48 PM CO-CHAIR PASKVAN said they wanted him to do that, but the point is that at 24 inches this line going from Cook Inlet north could operate as the lateral serving Southcentral if there ever is a 48-inch line that would go to Valdez and if Cook Inlet goes dry in the future. Otherwise the line could be smaller. MR. DUBLER said he was correct. He continued the report's listing of costs: $1.565 billion for the pipeline less the noted deductions; $60 million for the lateral line; $80 million for a Cook Inlet compressor station (less than the $140 million compressor station for the 24-inch, 2500 psi line). Going from south to north with a smaller volume of gas instead of going from the North Slope south (where the 500 mmcf is chilled to well below freezing so it doesn't melt the permafrost) they had to add a chilling unit at Cantwell (the limit where engineers estimated the permafrost would begin) for a cost of $20 million; annual operating costs were estimated at $690 million over the 20 year term (roughly 2 percent of CAPEX); that was a total cost of $2.4 billion (south to north). Compared to the estimated $2.8 billion for the north to south route, it's $412 million cheaper. 4:55:26 PM CO-CHAIR PASKVAN asked if the $954 million for the fractionation plant was included in the 2 percent annual CAPEX for the ASAP project. MR. DUBLER replied no; a fractionation plant would process the liquids in Cook Inlet; it would be built by a third party and would not be included in the cost of this project. It would be at Big Lake closer to the pipeline. CO-CHAIR PASKVAN asked if there would be no liquids shipped out of the Cook Inlet facility under the ASAP project. MR. DUBLER replied that was correct and it would alleviate the need for a straddle plant in Fairbanks. 4:57:17 PM SENATOR STEDMAN asked if the $6.45 tariff includes the gas processing plant on the North Slope. MR. DUBLER replied yes. He estimated the total capital costs to be recovered through the tariff at $2.8 billion (North Slope to Fairbanks including a pro-rata portion of the processing plant). SENATOR STEDMAN asked if the $2.8 billion line goes just to Fairbanks and where the line goes south stops in his analysis. MR. DUBLER replied the $2.8 billion is just for the North Slope to Fairbanks' "city gate" and all the facilities in between. That includes the processing plant on the North Slope, the pipeline from North Slope to Dunbar and the straddle plant at Dunbar to take the liquids off and re-inject them in the main line that runs into Fairbanks. SENATOR STEDMAN said it would be nice to see a summary so they could understand it two months from now. MR. DUBLER said he would do that in the coming days. CO-CHAIR PASKVAN said Mr. Dubler had been very busy and they appreciated him putting this presentation together, but the committee needed more information in a clearer format. [SB 215 was held in committee.]