ALASKA STATE LEGISLATURE  HOUSE SPECIAL COMMITTEE ON ENERGY  February 21, 2023 10:16 a.m. DRAFT MEMBERS PRESENT Representative George Rauscher, Chair (via teleconference) Representative Tom McKay Representative Josiah Patkotak Representative Mike Prax Representative Calvin Schrage Representative Ashley Carrick MEMBERS ABSENT  Representative Stanley Wright OTHER LEGISLATORS PRESENT    Representative Jesse Sumner COMMITTEE CALENDAR  PRESENTATION(S) UPDATE FROM ENERGY SUPPLIERS - HEARD PREVIOUS COMMITTEE ACTION  No previous action to record WITNESS REGISTER LUKE SAUGIER, Senior Vice President Hilcorp Alaska Houston, Alaska POSITION STATEMENT: Gave a PowerPoint titled,- "Hilcorp: House Energy Committee," during the presentation "Update from Energy Suppliers." LORALI SIMON, Vice President of External Affairs Usibelli Coal Mine Juneau, Alaska POSITION STATEMENT: Gave a PowerPoint titled,- "Hidden in Plain Sight: Alaska's Affordable Energy," during the presentation "Update from Energy Suppliers." BENJAMIN JOHNSON, President and CEO Blue Crest Energy Juneau, Alaska POSITION STATEMENT: Gave a PowerPoint titled,- "Cook Inlet Basin Overview and Characterization; Energy Supply/Demand Challenge; Cosmopolitan Tyonek Gas Opportunity," during the presentation "Update from Energy Suppliers." JOHN HENDRIX, President Furie Operating Alaska Juneau, Alaska POSITION STATEMENT: Gave a PowerPoint titled,- "Furie Operating Alaska LLC: House Energy Committee Presentation," during the presentation "Update from Energy Suppliers." ACTION NARRATIVE 10:16:19 AM CHAIR GEORGE RAUSCHER called the House Special Committee on Energy meeting to order at 10:16 a.m. Representatives Patkotak, Carrick, Schrage, Prax, McKay, and Rauscher were present at the call to order. [Chair Rauscher handed the gavel to Representative Patkotak]. ^PRESENTATION(S) UPDATE FROM ENERGY SUPPLIERS PRESENTATION(S) UPDATE FROM ENERGY SUPPLIERS      [Contains mention of HB 50.]   10:16:44 AM REPRESENTATIVE PATKOTAK announced that the only order of business would be a presentation titled, "Update from Energy Suppliers." 10:18:27 AM LUKE SAUGIER, Senior Vice President, Hilcorp Alaska, gave a PowerPoint titled, "Hilcorp: House Energy Committee" [hard copy included in committee packet] during the presentation "Update from Energy Suppliers." He began on slide 2 and showed a map with Hilcorp's holdings on the North Slope and Cook Inlet. MR. SAUGIER continued to slide 3 and stated that Hilcorp is the largest operator in the state of Alaska. The company has approximately 1,500 employees in the state, 75 percent of whom are Alaska residents, a percentage that decreased after Hilcorp's acquisition of BP Alaska that it excepts to increase with the company policy of hiring Alaskans almost exclusively. He stated that Hilcorp has 1,700 oil and natural gas wells in the state. Hilcorp has over 700 partnerships with Alaska businesses, which has generated over $750 million in spending with those businesses. He said that Hilcorp has contributed over $17 million to different philanthropic causes in the state chosen by the employees. 10:21:40 AM MR. SAUGIER continued to slide 4, which shows a map of Hilcorp's operations in Cook Inlet and the Kenai Peninsula. Hilcorp provides over 62 billion cubic feet (Bcf) of natural gas, which amounts to approximately 80 percent of natural gas used in Alaska. He stated that there are two points of entry for natural gas into the city of Anchorage, Alaska, which are operated by ENSTAR Natural Gas Company. The four largest natural gas fields in Cook Inlet are: Ninilchik, Kenai, North Cook Inlet, and Beluga River, which produced a combined 45 Bcf of the natural gas produced by Hilcorp. He added that of the 17 natural gas platforms in Cook Inlet, 15 are owned by Hilcorp. 10:27:02 AM MR. SAUGIER added that there are four natural gas storage facilities in Southcentral Alaska, three of which are owned and operated by Hilcorp, and one of which is owned and operated by the Railbelt Utilities. He said that the Kenai Gas Field has a gas storage capacity of 540 Bcf. The two things to consider for natural gas storage are capacity and the speed in which the natural gas can be taken out and distributed. He continued that Swanson River gas storage facility has a capacity of 3 Bcf, and it is considered to be the "emergency" storage facility due to its increased ability to pump out gas at a faster rate. The third storage facility owned by Hilcorp is the Pretty Creek, and it is the only facility on the north side of Cook Inlet. 10:33:37 AM MR. SAUGIER continued to slide 5 and stated that Hilcorp has spent nearly $1 billion in capital projects to build new wells and maintain and repair existing wells. Hilcorp's primary focus is natural gas in Cook Inlet; all new wells being drilled have been for natural gas and have drilled over 80 wells between 2012-2021. MR SAUGIER continued to slide 6 and stated that Hilcorp plans to spend a fourth of its budget on exploration to find new natural gas fields in Cook Inlet. He said that Hilcorp will used four different rigs in 2023 to drill new wells, the names of which are: Monopod, Bruce, Hilcorp 147, and Hilcorp 169. Hilcorp will also be plugging 41 wells it plans to close as part of its clean-up process. 10:39:15 AM MR. SAUGIER continued to slide 7 and stated that Hilcorp was the only bidder in the Alaska and federal lease sale in December 2022. Hilcorp will be trucking natural gas from the North Slope to Fairbanks, Alaska, which is a first. He added that Hilcorp would be interested in a natural gas pipeline from the North Slope, and that Hilcorp is interested in the potential for using its platforms for renewable energy generation. 10:41:39 AM CHAIR RAUSCHER asked whether HB 50 would give Hilcorp any interest in sequestration of carbon dioxide into the ground. MR. SAUGIER answered that Hilcorp would look into using its oil platforms to do so. 10:43:16 AM REPRESENTATIVE CARRICK asked if trucking natural gas would still be used to move natural gas to Fairbanks if a pipeline were to be built. MR. SAUGIER answered that Hilcorp moves the natural gas to a storage facility on the North Slope and is not responsible for the trucking. In response to a follow-up question, he stated that Hilcorp's policy is to hire Alaska residents almost exclusively, and it has not faced many challenges finding Alaskan workers other than the occasional hire in a highly specialized position. He added that the biggest challenge to reaching 100 percent Alaska residency among its employees is because some people choose to move out of state due to the unique 2 weeks on, 2 weeks off schedule of the North Slope. 10:47:18 AM REPRESENTATIVE MCKAY asked why Hilcorp announced that it would no longer sign any long-term natural gas contracts. MR. SAUGIER answered that fossil fuels such as natural gas and oil are non-renewable, and Hilcorp is contracted for all of the gas it can sell. He added that other companies have reduced their presence in Cook Inlet, causing a drop in the supply. 10:51:45 AM REPRESENTATIVE PRAX asked whether there are currently any price ceilings on natural gas that could be disincentivizing new drilling. MR. SAUGIER answered that there are not. 10:53:29 AM The committee took an at-ease from 10:53 a.m. to 10:55 a.m. 10:55:00 AM LORALI SIMON, Vice President of External Affairs, Usibelli Coal Mine, gave a PowerPoint titled, "Hidden in Plain Sight: Alaska's Affordable Energy" [hard copy included in committee packet.] She added that coal remains "very strong" as a source of energy in the face of declining natural gas supply. She continued to slide 2 and stated that Usibelli Coal Mine is the only coal mine in the State of Alaska and has been operating for over 80 years and is on its third generation of family leadership. MS. SIMON continued to slides 3 and 4 and stated that Usibelli Coal Mine produces 1 million tons of coal on an annual basis that powers all of the state's coal-fired power plants. Usibelli Coal Mine, Inc. spends over $30 million annually with 300 different Alaska suppliers. She stated that a report from 2021 shows that coal saves ratepayers approximately $300 million annually in Alaska's Interior. 11:00:37 AM MS. SIMON continued to slides 5 and 6 and stated that half of the Interior's energy generation is powered by coal. The six coal-fired power plants in Alaska are: University of Alaska Fairbanks, Fort Wainwright Army Post, Eielson Air Force Base, Aurora Energy, GVEA Healy 1, and GVEA Healy 2. MS. SIMON continued to slides 7 and 8 and stated that Usibelli Coal Mine is "hidden in plain sight." She stated that coal is plentiful, affordable, and reliable, and improving technology will allow the usage of coal while still meeting carbon reduction goals. She emphasized the importance of coal being an "Alaskan" source of energy that is produced in Alaska and provides jobs for people in Alaska. MS. SIMON continued to slides 9 through 11 and stated that the primary factor in air quality issues within the Interior of Alaska is from woodsmoke and not coal-fired power plants. She added that burning drier wood would reduce the amount of polluting smoke, and Usibelli Coal Mine, Inc. created Aurora Energy Solutions to provide dry wood to the Interior. 11:04:38 AM MS. SIMON continued to slides 12 and 13 and stated that Usibelli Coal Mine, Inc. is involved in efforts to study carbon capture, utilization, and storage (CCUS). She added that a "healthy" mining industry supports renewable resources, as the materials needed to create objects such as solar panels have to be mined. She stated that moving away from fossil fuels entirely is not "realistic" for Interior Alaska, and that they will continue to be needed while waiting for improvements to renewable energy technology. MS. SIMON moved to slide 14 and stated that coal supports military readiness. The supply of coal has 400 years of proven reserves and there is enough coal stockpiled to supply energy for 90 days without any additional coal being added. 11:08:19 AM REPRESENTATIVE PRAX asked what the percentage of the market is being provided wood from Usibelli's wood kilns. MS. SIMON answered that she is not sure of the percentage, but Usibelli provides 5,000 cords of wood annually, which it hopes to double if it is able to create a second wood kiln. In response to a follow-up question, she answered that Usibelli is involved in the coal gasification project occurring at the University of Alaska Fairbanks. REPRESENTATIVE PRAX asked about the possibility of smaller coal plants being used to power some of the remote villages. MS. SIMON answered that it would be possible, but there would need to be more coordination between Usibelli and those communities. 11:11:19 AM REPRESENTATIVE SCHRAGE asked what climate goals had previously been referenced. MS. SIMON answered that several of the past administrations going back to Governor Sarah Palin have discussed carbon reduction goals. In response to a follow-up question, she answered that coal power plants have relatively low effects on air quality in the Interior and mentioned the possibility of using waste steam from power plants to heat hot water. 11:16:08 AM CHAIR RAUSCHER asked for the names of the six coal-fired power plants in Alaska. MS. SIMON reiterated that they are: University of Alaska Fairbanks, Fort Wainwright Army Post, Eielson Air Force Base, Aurora Energy, GVEA Healy 1, and GVEA Healy 2. 11:17:41 AM REPRESENTATIVE CARRICK asked what opportunities Usibelli sees in renewable energy. MS. SIMON answered that even if coal were to stop being used for electricity generation, it would still be needed to create steel for wind turbines, among other examples of mining minerals being necessary for making renewable energy work. She added that 37 percent of Usibelli's employees are multi-generational. 11:22:22 AM The committee took an at-ease from 11:22 a.m. to 11:23 a.m. 11:23:50 AM BENJAMIN JOHNSON, President and CEO, Blue Crest Energy, gave a PowerPoint presentation titled, "Cook Inlet Basin Overview and Characterization; Energy Supply/Demand Challenge; Cosmopolitan Tyonek Gas Opportunity" [hard copy included in committee packet]. He began with slide 2 and showed a map marking the locations of oil and gas fields in Cook Inlet. The Cosmopolitan Tyonek gas field is proven but undeveloped. He said that production will fall below demand unless a new source of natural gas is utilized, and renewable energy development or importing natural gas are both expensive options. 11:25:54 AM MR. JOHNSON continued to slides 3 and 4 and stated that the chart showing natural gas in Cook Inlet running out by 2027 does not include the potential of the Cosmopolitan Tyonek gas field. There is 8-10 years' worth of proven natural gas in that field, with the possibility of it lasting longer. He stated that the field includes oil and is offshore three miles. He added that the way the gas and oil would be recovered would make a spill very unlikely. MR. JOHNSON continued to slides 5 and 6 and showed a diagram on how Blue Crest would recover the oil and gas from the Cosmopolitan Tyonek field. He added that wells have already been drilled that provide the data he is working with, including seismic data. 11:31:46 AM REPRESENTATIVE SCHRAGE asked what the dots on the slide represent. MR. JOHNSON answered that the green dots represent oil tests, and the red dots represent natural gas tests. 11:32:21 AM MR. JOHNSON continued to slide 7 which he explained is a three- dimensional (3D) map of the oil and natural gas sands in the Cosmopolitan Tyonek field. MR. JOHNSON moved to slide 8 and stated that a small platform would need to be built to access the natural gas in the Cosmopolitan Tyonek field. Blue Crest is currently working on the engineering for the project and has already conducted the initial research. 11:34:14 AM REPRESENTATIVE PRAX asked about the State of Alaska's role in the permitting process. MR. JOHNSON answered that Blue Crest has been working on the permitting process for three years and expects things to continue without any issues. In response to a follow-up question, he said that the whole process has been ongoing for eight years. 11:35:46 AM REPRESENTATIVE MCKAY asked if either bill involving carbon storage or carbon credits being considered by the legislature would be helpful in attracting investment for the project. MR. JOHNSON answered that environmental concerns are a hurdle in attracting investment, and that those bills could potentially play a role in alleviating those concerns. 11:36:54 AM REPRESENTATIVE CARRICK asked if the project could be completed in time to avoid a gas shortage. MR. JOHNSON stated that the project would be completed in time if an investor were found. In response to a follow-up question, he stated that there is natural gas available in the current oil sands being worked by Blue Crest that could add several years to the amount of natural gas available. He added that the combined efforts of different companies should be able to prevent a natural gas shortage. 11:39:51 AM REPRESENTATIVE PRAX asked what amount of conditioning would be needed for the natural gas that would be produced by this project. MR. JOHNSON answered that it is very clean and would require little conditioning. 11:40:54 AM REPRESENTATIVE SCHRAGE asked if there are any examples of carbon sequestration legislation aiding in investment for natural gas projects. MR. JOHNSON answered that based on conversations with investors, such legislation makes natural gas projects "safer" investments. 11:43:34 AM The committee took an at-ease from 11:43 a.m. to 11:44 a.m. 11:44:18 AM JOHN HENDRIX, President, Furie Operating Alaska, gave a PowerPoint presentation titled, "Furie Operating Alaska LLC: House Energy Committee Presentation" [hard copy included in committee packet]. He began on slides 3 and 4 and stated that Furie is Alaska's only locally owned and operated natural gas exploration and production company. He gave some background information on the operations of the company, including the headquarters of Anchorage, Alaska. 11:47:40 AM MR. HENDRIX continued to slides 5 and 6 and gave an overview of potential new explorations and developments for Furie. He stated that a large portion of 2023 will be spent on repairing two of the current wells owned by Furie, and it plans to increase production in 2024. There are also potential delays in shipping, along with rising costs, and the work can be affected by unpredictable weather and the sand in Cook Inlet. 11:53:13 AM MR. HENDRIX continued to slide 7 displaying a map comparing natural gas and oil activity in 2015 vs. 2022. MR. HENDRIX continued to slide 8 and gave an overview of different actions the legislature could take to help natural gas production. He stated that Furie pays 12.5 percent of gross revenue in royalties on top of existing taxes. He said that the State of Alaska takes too long to interpret and make available seismic data. He stated that Alaska should accelerate the permitting process for oil and natural gas production. 11:58:59 AM MR. HENDRIX continued to slides 9 through 12 and gave an overview of natural gas prices in Alaska and around the U.S. He stated that natural gas prices are roughly the same as they were in 2009, even without adjusting for inflation. The proximity of the natural gas being produced keeps the price from increasing greatly due to transportation costs. He stated that there is still no overarching plan to make a complete switch to renewable energy. 12:01:48 PM REPRESENTATIVE PRAX asked where the property tax number comes from for natural gas platforms. MR. HENDRIX answered that the number is issued by the State of Alaska. In response to a follow-up question, he said that any manpower issues come from the service company side. He added that one of the companies employs only Alaskans, while the other does fly some people up from the contiguous U.S. 12:03:55 PM REPRESENTATIVE MCKAY asked if any imports being made by Furie were due to unavailability in Alaska. MR. HENDRIX answered affirmatively. 12:05:16 PM REPRESENTATIVE SCHRAGE commented that he appreciates Furie's work to provide natural gas to Southcentral Alaska. He added that although oil and natural gas demand will peak in the next decade, it will start to decrease as more renewable energy technologies are adopted at a faster pace than they previously have been. REPRESENTATIVE PRAX responded that he believes that much of the demand for renewable energy is due to federal subsidies more than any other factor. 12:10:01 PM ADJOURNMENT  There being no further business before the committee, the House Special Committee on Energy meeting was adjourned at 12:10 p.m.