HOUSE SPECIAL COMMITTEE ON OIL & GAS February 2, 1999 10:08 a.m. COMMITTEE CALENDAR ORGANIZATIONAL MEETING TAPE(S) 99-1, SIDE(S) A & B CALL TO ORDER Representative Jim Whitaker, Chairman, convened the House Special Committee on Oil & Gas meeting at 10:08 a.m. PRESENT Committee members present at the call to order were Representatives Whitaker, Dyson, Ogan, Harris, Kemplen, Brice and Smalley. Representatives Porter and Phillips were excused. SUMMARY OF INFORMATION CHAIRMAN WHITAKER introduced staff, Shannon Grynkewich, and stated that the committee will be meeting on Tuesdays and Thursdays at 10:00 a.m., unless otherwise noted. Committee packets will be delivered to offices by noon the preceding day of a meeting. A quorum of five is necessary to take action. The general order of business pertaining to bills will be as follows: testimony by the sponsor, testimony by the Administration, testimony from the public and committee discussion. CHAIRMAN WHITAKER further noted that he expects a busy session relating to oil and gas issues. He cited the following meetings: February 4, 1999 - ARCO Alaska, Incorporated February 11, 1999 - BP Exploration (Alaska) Incorporated February 16, 1999 - Exxon Company, U.S.A. February 23, 1999 - a sponsor group for a liquefied natural gas (LNG) pipeline CHAIRMAN WHITAKER further stated that his approach for this committee is to be goal oriented. The committee will function as a catalyst for the continued and expanded utilization of Alaska's vast oil and gas resources. Alaska's oil industry is experiencing a new depression because of extraordinarily depressed oil prices, a situation that the committee can do little to affect. Alaska's fledgling gas industry, on the other hand, provides an opportunity to serve as a catalyst for expansion of this vital industry. Alaska currently accounts for 1 percent of world gas production all of which is produced from Cook Inlet by Phillips Petroleum and exported to Japan. Alaska's North Slope contains over 100 trillion cubic feet of natural gas, some used to utilize oil recovery, none of which has been sent to market, however. It is a huge commodity resource, therefore, it is important to determine if it can be taken to market feasibly. The committee will take the following path: 1. Determine the current status of LNG; 2. Determine the current status of gas-to-liquid (GTL) processing; 3. Develop an understanding of the comparison between LNG and GTL and their markets; 4. Determine relative value to the state of LNG and GTL; 5. Provide an endorsement for a course of action, based on the relative value (LNG, GTL, or a combination of both); 6. Determine the effects of the merger between Exxon and Mobile on the state, north slope gas to market, and competition for additional oil production. CHAIRMAN WHITAKER further noted that the committee will not be antagonistic towards the oil and gas industry, the backbone of Alaska's economy. The committee will do all that it can to assist them in their endeavor to flourish their industries. Nonetheless, it is the committee's duty to protect the state's interest when there are divergences. Number 258 REPRESENTATIVE SMALLEY suggested scheduling a discussion from the state and industry in regards to the pipeline leak on the Kenai Peninsula. Chairman Whitaker so noted his suggestion. Number 268 REPRESENTATIVE DYSON replied the leak on the Kenai Peninsula was a corrosion problem. He suggested an update on corrosion detection, especially from Alyeska in regards to the pipeline and terminal. Chairman Whitaker so noted his suggestion. Number 304 REPRESENTATIVE HARRIS stated that he hopes the committee does everything that it can to enhance and develop the oil and gas industry. He is interested in seeing a gas pipeline/GTL project; it not only would effect his district but the entire state. Number 328 REPRESENTATIVE OGAN stated the committee has a big job ahead of it knowing that there is a storm ahead. In nautical terms, the state needs to batten down the hatches and plan a strategy to get around the storm. Number 355 REPRESENTATIVE KEMPLEN agreed that there is a need for planning. He would like to see the committee explore and examine the industry to enhance the industry's engine. Number 380 CHAIRMAN WHITAKER announced that the committee is bipartisan. A good idea is a good idea; it doesn't depend on which side of the isle it comes from. Chairman Whitaker called on former Representative Mark Hodgins to explain the committee's actions during the last legislature. Number 395 FORMER REPRESENTATIVE HODGINS explained the main focus of the House Special Committee on Oil & Gas the last legislature was to facilitate the progress of a gas pipeline project. The stranded gas bill sent the message that Alaska is willing and wanting to work with customers to build a gas pipeline. FORMER REPRESENTATIVE HODGINS further noted the other issues the committee covered. They were as follows: the makeup of the North Slope ownership in regards to a gas pipeline; Point Thomson in regards to a gas pipeline; other technologies pertaining to GTL; the impact of a gas pipeline on communities; spurs of a gas pipeline into Southcentral; the gasification of the communities along a gas pipeline corridor(s); the Kiroshima (ph) spill in Dutch Harbor in regards to 470 funds and the Alaska Chadux Corporation; and low-sulphur diesel in regards to air quality. Number 559 REPRESENTATIVE OGAN asked former Representative Hodgins to explain 470 funds and the Alaska Chadux Corporation. FORMER REPRESENTATIVE HODGINS replied the 470 funds is a nickel- per-barrel tax on all oil from the North Slope to Valdez up to a $50 million threshold. Agencies were using the proceeds for operations, however, so it never got to the $50 million level. Therefore, the nickel was split - 3 cents goes to the fund and 2 cents goes to the Department of Environmental Conservation (DEC) for spill response equipment and supplies. Alaska Chadux is a spill response team around the state. It was able to respond quickly in Dutch Harbor because it was better prepared than any other group. Alaska Chadux, however, was not on the response list for the DEC indicating that the state is not ready for a spill. Number 612 REPRESENTATIVE OGAN noted further that the Kiroshima (ph), one of many ships that don't have a contingency spill plan, was not a member of the Alaska Chadux organization. Number 626 CHAIRMAN WHITAKER asked former Representative Hodgins whether the low-sulphur-diesel exemption is from the Environmental Protection Agency. Former Representative Hodgins replied yes. Chairman Whitaker asked him whether ancillary costs have been identified inherent to not having an exemption. Former Representative Hodgins replied MAPCO Alaska Petroleum Incorporated, Northstar and Tesoro testified that they could supply low-sulphur diesel sufficient enough for the road system in Alaska, but not the entire state. The conversion costs would be prohibitive for all refineries in the state because there is not that much of a market causing a high price. Number 681 CHAIRMAN WHITAKER asked former Representative Hodgins whether the exemption is area or statewide. Former Representative Hodgins replied it is statewide. He further stated that an area exemption has been discussed for rural Alaska. Number 689 CHAIRMAN WHITAKER asked former Representative Hodgins to comment on the exemption time periods. Former Representative Hodgins replied the current exemption will go away in June or July of this year and urged the committee to address the issue with the Department of Environmental Conservation. Number 702 REPRESENTATIVE HARRIS noted the largest spill response service group works out of Valdez. TAPE 99-1, SIDE B Number 000 REPRESENTATIVE HARRIS continued. He suggested looking at relieving the legal responsibilities of these organizations so that they can respond to cruise ship spills, for example. CHAIRMAN WHITAKER stated it is important to know the direct lines of responsibilities in regards to a cruise ship spill. REPRESENTATIVE BRICE suggested inviting the Department of Environmental Conservation and the Coast Guard for an overview of responsibilities and spill scenarios. Chairman Whitaker noted his suggestion. REPRESENTATIVE DYSON noted that a response to a spill is exceptionally important and since the state deals with foreign bottoms it would be wise to require a vessel to inform the state what it is prepared to do in the event of a spill. Chairman Whitaker noted his comments. COMMITTEE ACTION The committee took no action. ADJOURNMENT The meeting adjourned at 10:58 a.m. NOTE: The meeting was recorded and handwritten log notes were taken. A copy of the tape(s) and log notes may be obtained by contacting the House Records Office at 130 Seward Street, Suite 211, Juneau, Alaska 99801-1182, (907) 465-2214, and after adjournment of the second session of the Twenty-first Alaska State Legislature, in the Legislative Reference Library.