HOUSE SPECIAL COMMITTEE ON OIL AND GAS January 13, 2000 10:03 a.m. MEMBERS PRESENT Representative Jim Whitaker, Chairman Representative Fred Dyson Representative Gail Phillips Representative Joe Green Representative John Harris Representative Brian Porter Representative Allen Kemplen Representative Tom Brice Representative Harold Smalley MEMBERS ABSENT All members present COMMITTEE CALENDAR PRESENTATION BY ALASKA NORTH SLOPE LIQUEFIED NATURAL GAS PROJECT PREVIOUS ACTION No previous action to record WITNESS REGISTER STEVE ALLEMAN, Commercial Manager, Alaska North Slope Liquefied Natural Gas Project 700 G Street P.O. Box 100360 Anchorage, Alaska 99510-0360 POSITION STATEMENT: Testified on behalf of the Alaska North Slope Liquefied Natural Gas Project JAMES E. EASON 8611 Leeper Circle Anchorage, Alaska 99504-4209 POSITION STATEMENT: Provided information on fiscal legislation ACTION NARRATIVE TAPE 00-2, SIDE A Number 0007 CHAIRMAN JIM WHITAKER reconvened the House Special Committee on Oil and Gas meeting at 10:03 a.m. Members present at the call to order were Representatives Whitaker, Phillips, Green, Harris, Porter, Kemplen, Brice and Smalley. Representative Dyson arrived as the meeting was in progress. CHAIRMAN WHITAKER introduced Mr. Steve Alleman to present testimony regarding the Alaska North Slope Liquefied Natural Gas (LNG) Project. PRESENTATION Number 0096 STEVE ALLEMAN began by reading prepared remarks: Mr. Chairman, for the record, my name is Steve Alleman. My current assignment is as the Commercial Manager for the Alaska North Slope LNG Project, I reside in Anchorage, and I am employed by Phillips Petroleum Company. Thank you for the opportunity to testify today on behalf of the sponsor group. Number 0167 I am very pleased to be here today to say that the Alaska North Slope project has made considerable progress this year. As you will hear, we have a solid forward plan for commercializing North Slope gas via LNG, and, to our knowledge, no one is applying more resources and money to do so than we are. Number 0177 MR. ALLEMAN continued his testimony: Most recently, the membership in our group has changed. BP Exploration (Alaska) Inc. is now a 12 percent member. This is a very welcome addition, considering BP's extensive North Slope lease position and operations, its world-wide project experience, and its interest in pursuing all options to commercialize Alaska gas. In addition to BP, the other members, of course, are ARCO Alaska, Inc.; Foothills Pipe Lines, Ltd.; Marubeni Corporation; and Phillips Petroleum Company. As we have often stated, and it is even more true today, this is a very experienced and strong group that we believe provides the best chance for commercialization of North Slope Gas via the LNG option. Number 0227 The objective of this group is the same as when we formed in 1998: to develop a competitive LNG export project at the earliest possible time as market conditions warrant. To be competitive, we need to exploit our advantages and overcome our challenges. An Alaska project has several positives, including a developed resource, proximity to the market, and political stability. But it has two significant challenges, the cost of an 800-mile pipeline and the fact that the project needs to be appropriately sized to afford it the best chance to enter the market. Previous state studies and internal studies point to a potential answer to the cost issue. To be competitive, an Alaskan LNG project needs cost reductions unique to Alaska; it needs federal and state fiscal modifications and certainty. Our studies suggest that the combined level of federal and state fiscal relief that is needed may be politically feasible. This is because relief that occurs early in the project can help improve the project economics while still providing federal and state revenues later in the project. Number 0311 MR. ALLEMAN continued his testimony: The issue of project size requires creative thinking and effort. We believe that the marketability and timing of an LNG project improve if it is smaller. History shows that the successful mega-LNG projects serving East Asia started with a small size, then built up in steps. Our analysis convinced us that previously studied projects of 14-15 million tons per year were just too large to be competitive with other market entry projects. Accordingly, over the past year we have worked to improve our chances with the marketplace by reducing the size of our project while at the same time evaluating our opportunities for further cost reductions. We completed an updated and detailed assessment of market conditions. This helped us determine the largest volume project that could enter the market within a reasonable time frame. We are also systematically engineering the project to ensure that the optimum size can be achieved. We are now optimizing our Market Viable Project, or, as we call it, our MVP. This past fall, we announced this MVP as a 7 million ton-per-year, LNG export project, [a size] which has been established as our working basis for further refinement and optimization. This is about half of the project size that has been assumed for more than a decade. Again, our motivation is to develop a project that is appropriately sized to gain a toehold in the market while at the same time having the ability to expand that project as market conditions warrant. Thus, with a projected pre-shipping cost of $5-6 billion, we have significantly reduced our project risk in the areas of market, capital cost, and financing. Number 0440 MR. ALLEMAN continued his testimony: As for the market and what it is telling us about timing and the overall prospects for an Alaska project, there are encouraging signs. While the economic turmoil of the past few years in our target Asian markets has negatively impacted near-term demand for LNG, there seem to be good prospects for substantial, sustained growth in the long term. However, we must face the reality that the competition for market share will be fierce. While the LNG marketplace will favorably view the positive aspects of an Alaskan project that I mentioned earlier, these savvy buyers will ultimately commit to an Alaskan project only when it becomes economically competitive with their best alternatives. Therefore, we think it important to clarify our thinking on two points. As a result of our in-depth analysis and LNG market experience, the sponsor groups does not subscribe to the idea of a "market window" for an Alaskan project. We do believe, however, that once an Alaskan project is economically competitive, then it can legitimately vie for a share of what we project to be a long-term, more sustained growth of demand. Second, we recognize that the affirmative decision that will cause an Alaskan project to happen will come from the market, not from the investors or from government. LNG projects are not like oil development; you cannot afford to "build it and they will come." The market will drive this project and the LNG buyers will need to be enticed to an Alaskan project by making it economically competitive. Number 0545 MR. ALLEMAN continued his testimony: To maintain a continuous market presence, to be available to respond to market questions, and to provide information on our project to these LNG markets, the Alaska North Slope LNG Project announced in September, 1999, its opening of a market liaison office in Tokyo, Japan. This office is located in Marubeni's Tokyo complex and is maintained by Marubeni personnel. As a sponsor group member, Marubeni provides its own project and market expertise complemented by the experience and expertise of the other sponsors, including that of Phillips Petroleum Company, which, as you know, has been marketing LNG to Japan from Alaska for more than 30 years. Number 0588 Often we get the question, "What is the schedule for starting up the project?" In light of my earlier statement, the more relevant question is, "What are the activities and schedule for making the project economically competitive and enticing to the LNG buyers?" In just a moment, I will address that question. But first, I want to discuss the matter of pipeline route and LNG plant site that is sometimes associated with the question of market timing. Number 0566 As we announced this past fall, the project sponsors have narrowed the route and site to two alternatives: first, to Anderson Bay in Prince William Sound and, second, to Nikiski in Cook Inlet. When we narrowed our site selections to two alternatives, we found that neither was clearly better than the other. The Cook Inlet route may offer some cost advantages and more naturally fit with Cook Inlet's role as the center for gas usage in Alaska, while the Prince William Sound route has some existing permitting that may give it a nominal time advantage. But the real question is not where permitting stands today, but what is required to fully permit either alternative to the point at which construction of a project can occur. Based on our sponsors' expertise in actually permitting and then building multi-billion dollar projects as well as from the benefit of external analysis, we determined that other locations require substantial additional permitting and refinement before a project is ready to fund. Therefore, this perceived time advantage could be mitigated with cooperation from the federal and state government. Further, we found that permitting for either alternative was not the pacing item for a market-driven startup. We believe that it is better to identify an economically competitive project first, and then optimize the project for location. Neither site works if the overall project isn't "do-able." Number 0705 MR. ALLEMAN continued his testimony: And now, let me answer the question I posed earlier about our ongoing activities to make the project competitive. As I do so, please keep in mind my earlier comments that an Alaskan project needs cost reductions and fiscal modifications before it can be competitive. The sponsor agreement calls for the completion of the first stage of work on the Alaska North Slope LNG Project about mid-year. At that time, we will have completed the pre-conceptual engineering, the various optimization studies, and the revised cost estimate for the MVP. At that time, we will have a revised understanding of the economics of the project and the information necessary to begin discussions with the LNG markets. We are planning for success. We are developing our specific Stage 2 plan for key work products necessary to move this project beyond Stage 1. We will spend the balance of Stage 1 refining our economics, optimizing our systems and pipeline designs, and preparing to move into Stage 2, if the sponsors so decide. One major factor in this decision is whether the Stage 1 findings in June sufficiently suggest that we have the potential for an economically viable project. Another major factor in the decision will be the level of federal and state government support expected as the project proceeds. On this point, I would quickly point to what an important, positive signal Alaska's 1998 Stranded Gas Development Act, HB 393, gave to the sponsor group when it was organizing for Stage 1. Number 0794 By this summer, we will have completed a variety of commercial initiatives necessary to advance the project. Federal fiscal modifications will be leveraging to the economic viability of the project. The completion of key elements of our first stage of work allows us to provide better definition of the MVP for discussions in Washington, D.C. In the near future, we will finalize an internal draft of a "white paper" on federal issues, which will lay out various ways forward and which will serve as the initial foundation for federal discussions in the coming months. Also, before the end of Stage 1, we plan to submit an application for state fiscal relief under the Stranded Gas Development Act (HB 393). This will begin what we expect will be a multi-year process of negotiating and developing a proposed state fiscal contract. We would not expect that proposed contract to be submitted to the legislature earlier than the 2002 session. Number 0849 MR. ALLEMAN continued his testimony: I would like to use my last topic as the springboard for the sponsor group's legislative interests in 2000. For this session, we hope that the Alaska Legislature will favorably consider legislation in the area of commercial regulation of in-state gas. We have developed a legislative concept that will provide that the in-state gas volumes be regulated on a non-discriminatory basis that does not jeopardize the security of long-term, contracted export volumes. The intent of this concept is first, to be applicable to all stranded gas pipelines; second, to be complementary to a non-discriminatory federal process; third, to clarify state and federal jurisdictions; fourth, to provide the rules for in-state gas transportation and sales; and, finally, to provide needed exemption from public utility designation. This concept would need amendments to the Pipeline Act, Public Utilities Act, and Right-of-Way Leasing Act. Legislation in this area would resolve a key uncertainty in the area of commercial regulation, and we respectfully recommend it to the Legislature. Number 0914 MR. ALLEMAN continued his testimony: In summary, Mr. Chairman, I would like to quickly highlight some, but not all, of the key activities that have been keeping us busy since we last met. Those include: Development and refinement of an economic model specific to the project. Description and definition of our . . . [downsized] . . . Market Viable Project LNG plant site selection analysis and reduction to two preferred locations Pipeline route analysis and reduction to two preferred alternatives Cooling medium analysis and selection for the LNG plant Development of key cost estimating assumptions Development of a contract and technology selection strategy Numerous internal and external pipeline, plants, and system design evaluations and optimizations Opening of our market liaison office in Tokyo Development and drafting of needed pipeline regulatory legislation HB 393 application development for filing this spring Initial discussions and project updates to Alaska's Congressional Delegation, the United States Department of Energy, and United States Department of Commerce in Washington, DC Numerous contacts, meetings, and project updates to the administration and legislators Project updates to the port authority mayors as well as to the Anchorage, Kenai, and Matanuska-Susitna boroughs ... as well as many other previous and ongoing activities. I hope this brief overview of our plans and basic thinking will show the committee that the sponsors are actively trying to commercialize Alaska North Slope gas. At this point, I would like to thank the chairman for the opportunity to testify and would be happy to address the committee's questions. CHAIRMAN WHITAKER invited questions. Number 1026 REPRESENTATIVE PHILLIPS asked if the sponsor group had been approached by other Canadian organizations or businesses that want to be involved or want to change the focus of the project. MR. ALLEMAN replied that they had not, other than the involvement of Foothills Pipe Lines Ltd. [a Canadian firm] as a member of the sponsor group, but that they would be alert to any opportunity for synergies. REPRESENTATIVE PHILLIPS mentioned that she had recently met in Alberta with some members of Parliament and others involved with the oil and gas industry, and they are very interested in the potential project. MR. ALLEMAN said the sponsor group's goals include remaining flexible, open to any alternatives that can be mixed, matched, or otherwise used to share costs. Number 1106 REPRESENTATIVE BRICE asked if downsizing the project from 14-15 tons per year to 7 tons per year meant moving from a 22-inch to a 12-inch pipe, and if that would accommodate future growth. MR. ALLEMAN replied that the sponsor group does not plan to significantly reduce pipe size from the 28- to 30-inch range. He noted that it would be possible to add compression as they proceed. The sponsors, he added, also are looking at reducing the initial size of trains and of the gas treatment facility on the North Slope, both of which can be modularized to expand to increase capacity. 1220 REPRESENTATIVE GREEN said he concurred that downsizing would make the project more marketable, but asked how one can "attack a circle" -- how all pieces such as financing, permitting, buyer commitments, and market awareness of the project fit together so sponsors know they have a viable project. MR. ALLEMAN acknowledged it was a difficult question. First and foremost, he emphasized, the sponsor group needs to have a project defined, a viable project that will be market driven. He said part of the risk is that it will be very late in the process before the group knows whether it will have market commitment. REPRESENTATIVE GREEN continued, asking if sponsors must secure and commit to financing before they can secure a market. MR. ALLEMAN called it a chicken-and-egg situation. He explained that the sponsors have a target they are calling their "big close" -- a date by which they need to have sales and purchase agreements executed and financing in line. He added that "everyone" will include the state. NUMBER 1363 REPRESENTATIVE SMALLEY asked if downsizing would affect not only the amount of liquefied natural gas available for export, but also that for in-state consumption, including value-added production of petrochemicals and plastics. He also wondered if planners had looked at downsizing in relation to enticing other industries to use the gas. Number 1388 MR. ALLEMAN said projected in-state consumption, including that of additional industry, would be a very small part of the total, one that the sponsor group does not see as a problem to serve. As far as considering other gas-type projects, he said the sponsor group would look at anything inside or outside Alaska that might work, remaining flexible in order to make the project viable. Number 1453 REPRESENTATIVE PHILLIPS asked if Marubeni Corporation is actively marketing in Asia. Number 1467 MR. ALLEMAN reiterated that the way the sponsor group is proceeding is to make sure they have a project definition, a viable project. He said they already are inundated with people coming to the marketplace, and that the sponsors are keeping them advised through the new market liaison office in Tokyo. Mr. Alleman said he will be in Tokyo in March and going with Marubeni Corporation personnel to talk to various markets that have expressed interest in the project, but at this point, sponsors are maintaining awareness of the project's progress rather than negotiating sales agreements. Number 1508 REPRESENTATIVE HARRIS inquired about legislation the sponsors have said they would need, federal and state fiscal modifications to help mitigate uncertainty, and asked if the sponsor group is prepared to help draft such legislation. MR. ALLEMAN replied that legislation is being drafted to submit to the resource committees in both houses as early as tomorrow. CHAIRMAN WHITAKER recognized a member of the audience. Number 1560 JAMES E. EASON identified himself as working with the sponsor group. He expressed concern that there may have been a misunderstanding of the question, as he understood Representative Harris to ask about fiscal legislation, and the legislation to which Mr. Alleman referred was not fiscal, but regulatory in nature. Number 1574 MR. ALLEMAN apologized for any confusion. He explained that as he understands the negotiation process under Alaska's 1998 Stranded Gas Development Act (HB 393), it begins with the sponsor group filing an application with the House Resources Standing Committee to be deemed by them as a qualified project. Near the end of the first stage of project development, he continued, sponsors will have a better definition of which areas they want to address. What follows will be a negotiation process with Wilson L. Condon, Commissioner, Department of Revenue, that will take a couple of years during which sponsors will quantify the amount and type of help they need and a give and take process will define what makes sense for sponsors and for the state. He estimated that the resulting contract will be brought to the legislature in 2002. CHAIRMAN WHITAKER clarified that Mr. Alleman was specifically referring to HB 393, Alaska's 1998 Stranded Gas Development Act, and stipulations associated with it. Number 1631 REPRESENTATIVE PHILLIPS asked if the resource committees are working on that legislation needed regarding regulation of in-state gas. CHAIRMAN WHITAKER said yes. Number 1650 REPRESENTATIVE PORTER asked Mr. Alleman if sponsors will need to know the results of their negotiations with the federal government before they can complete their fiscal analysis. MR. ALLEMAN explained that the process will need to proceed in parallel to a point, as sponsors seek both federal and state fiscal relief. He referred again to the "big close" near the end, when everyone wants to see what everyone else is bringing to the table. He said a concern of sponsors regarding the federal government relates to what is called "claw back." That, he said, means that in working out an agreement with the state, sponsors do not want to end up giving back those gains to the federal government. Number 1608 REPRESENTATIVE KEMPLEN referred to the earlier discussion about in-state demand for natural gas. He asked how much in-state demand for natural gas the sponsors had estimated in their modeling. MR. ALLEMAN said he did not know the exact number, but that it is fairly insignificant, about 5 percent of the total output. He offered to provide more specific information. Number 1781 REPRESENTATIVE GREEN noted that hydrocarbon values have been on a roller coaster over many years, and he asked what sort of safeguard is being built into the project to protect against a significant drop. MR. ALLEMAN replied that one would want firm commitments from liquefied natural gas purchasers, long-term commitments historically in the 10-20 year range. He noted that there might be some volatility in demand within the state as gas became available in different places. Number 1840 REPRESENTATIVE BRICE inquired about possible impacts of the proposed merger of the British Petroleum Company (BP/Amoco) with Arco Alaska, Inc., whether or not the merger goes through. MR. ALLEMAN said the sponsor group is happy to have BP Exploration (Alaska) Inc./Amoco as member, and while the merger is a big issue for the state, it is a non-issue from the project standpoint. Number 1875 REPRESENTATIVE BRICE asked if that meant that should the merger fail, the liquefied natural gas project still could proceed. MR. ALLEMAN said yes. Number 1882 REPRESENTATIVE PHILLIPS observed that it may take a huge public relations battle to change the prevailing mentality from the idea that the existence of a market window is the driving force behind the project. MR. ALLEMAN said the sponsor group is more comfortable with the concept of an expanding market over time rather than that of a market window that opens and closes. REPRESENTATIVE PHILLIPS emphasized that she thinks the shift away from a market window mentality is going to be a major issue. Number 1949 REPRESENTATIVE KEMPLEN referred to Mr. Alleman's earlier mention of an expanding market over time, reflecting an increasing demand for natural gas in the global economy. He also referred to Mr. Alleman's statement that in the past, natural gas has needed a firm commitment from purchasers. But, he continued, if the market for natural gas is going to be increasing in the future, does not the probability of a spot market for natural gas also increase, with demand ratcheting up to match that? He further asked how the economics of the project would change if, indeed, a spot market for natural gas develops. MR. ALLEMAN emphasized that although a spot market could be used for expansion, it should not be the basis on which a huge project is moved forward. Number 2024 REPRESENTATIVE HARRIS recalled that in addition to BP Exploration (Alaska) Inc./Amoco joining the group, Yukon Pacific Corp. has dropped out. He asked if that had any negative effect on the project. MR. ALLEMAN said it had not. Number 2045 REPRESENTATIVE BRICE referred to Mr. Alleman's earlier mention of ongoing discussion with Alaska's congressional delegation in Washington, D.C., and work on finalizing a white paper for briefing them. He asked if the committee might have a preview. MR. ALLEMAN replied that the sponsor group would present a multi-faceted, go-forward plan. He said those in Washington, D.C., have raised some of the same issues as had committee members, including "claw back" as well as other government involvement and programs. Number 2104 REPRESENTATIVE BRICE asked if feedback had been positive or negative, from (1) the regulatory, and (2) the political side. MR. ALLEMAN reported that feedback has been very positive, and that those in Washington, D.C., agree that all avenues should continue to be explored until sponsors hone in on one they think is really the answer. He repeated that feedback has been very positive and upbeat, both politically and in the agencies. Number 2143 REPRESENTATIVE DYSON referred to page 5 of Mr. Alleman's prepared remarks, where it says, "Federal fiscal modifications will be leveraging to the economic viability of the project." He asked what that meant. MR. ALLEMAN said it means that federal flexibility will be extremely important to the overall project. He mentioned that the sponsors have said all along that they will need fiscal modifications such as tax changes, tax reductions, tax holidays, or moving taxes to more profitable years. He said the sponsor group would be approaching both state and federal governments about accelerated depreciation and the like. REPRESENTATIVE DYSON asked if that would require changes in federal law. MR. ALLEMAN replied that the answer to that question was not yet known. Number 2202 REPRESENTATIVE DYSON inquired about other states' interests that might be contrary to Alaska's, and therefore prompt those states to mobilize opposition. MR. ALLEMAN said it would be premature to speculate on that. He did not envision anything off the top of his head, but said that does not mean that someone, somewhere, might not oppose it. He added that when one looks at the project in relation to the balance of trade issue, there are potential advantages to the rest of the country. REPRESENTATIVE DYSON mentioned that in talking with some Canadians about pipeline infrastructure, they very candidly had said that cooperating with Alaska could mean a less advantageous market for Canadian gas, and that they would look after their own interests first. Number 2268 REPRESENTATIVE KEMPLEN asked if BP Exploration (Alaska) Inc./Amoco's membership in the sponsor group presents a potential conflict of interest. He recalled that the company has a commitment toward a gas-to-liquids technology and the commercialization of that technology, an option that would use the existing pipeline. He wondered how the sponsor group is planning to deal with this potential competitive use of natural gas from the North Slope, as it might be more economical for the owner of the existing pipeline to use gas-to-oil technology as opposed to the option of creating a liquefied natural gas project. MR. ALLEMAN said the sponsor group does not see a conflict, as there are at least 35 trillion cubic feet of natural gas on the North Slope, which is room for more than one gas facility. Conversely, he continued, if the other group decided to ship natural gas south via tidewater, that would not present competition, but rather an opportunity for shared cost. Number 2348 REPRESENTATIVE PORTER asked if there should be any concern about the project's ability to provide enough natural gas within the state while meeting export expectations. MR. ALLEMAN replied that the sponsor group foresees no problem taking care of in-state needs concurrent with the necessary level of commitment to export. CHAIRMAN WHITAKER asked for further clarification about the potential for conflict between commercial commitments and in-state purchases. MR. ALLEMAN affirmed that there is a need to assure the fulfillment of long-term contracts without jeopardizing in-state needs. He believed the legislation being drafted addresses that concern and anticipates continuing to meet in-state needs if the pipeline is extended in the future. Number 2415 REPRESENTATIVE GREEN asked if the proposed pipeline would serve as a common carrier if another enterprise were to find a deposit and want to ship gas. MR. ALLEMAN, while disclaiming expertise in this area, said his understanding is that the pipeline would serve as a common carrier for delivery within the state, with some type of provision for expansion if additional capacity is needed. REPRESENTATIVE GREEN sought further clarification, asking specifically if another company would be able to use the sponsor group's pipeline to ship gas or if they would have to build their own, supposing that they were both supplying in-state and exporting. TAPE 00-2, SIDE B [Numbers run backward because of tape machine] MR. ALLEMAN reiterated that he thinks the draft legislation includes rules regarding expansion, and that he does not foresee any conflict regarding that issue. CHAIRMAN WHITAKER added that the forthcoming draft legislation addresses those very issues, and that they should soon be discussed in depth. However, he continued, this is an important subject, and he does not wish to limit the number or length of questions. Number 2412 CHAIRMAN WHITAKER directly addressed Mr. Alleman, saying he hoped the sponsors perceived a different tenor this year. "We want to help you," he said. "That is not to say we did not last year, but we are not 'coming at you' this year. I'm not 'coming at you' this year." He said he thinks the sponsor group has made significant progress, and he understands there are uncertainties and questions regarding the hydrocarbon industry in Alaska and does not want to add to that. He expressed the opinion that the forthcoming legislation makes a lot of sense, and no matter which project is built, it is probably necessary. He pledged that he will do all he can to help and said he is sure that committee members will be equally supportive when they understand the nature of the legislation and what it would accomplish. Number 2382 CHAIRMAN WHITAKER alluded to Phillips Petroleum Company having an interest in Point Thomson, and asked about Point Thomson's role in an eventual project. MR. ALLEMAN said the sponsor group hopes Point Thomson's role will be significant. Certainly, he said, Phillips Petroleum Company [his employer] is a working interest holder, and although not speaking for them, he is certain that company is very interested. He said the sponsor group's project will include a nondiscriminatory bid process to permit anyone to bid on gas coming from the North Slope. He stated that current plans neither preclude the use of Point Thomson nor exclusively focus on Prudhoe Bay as the source of gas. CHAIRMAN WHITAKER voiced the opinion that Point Thomson should be an integral part of the project if for no other reason than to gain access to the substantial quantity of liquids there. Number 2316 CHAIRMAN WHITAKER then expressed concern over the possibility that the proposed project might be short circuited or delayed by political regionalism within Alaska. MR. ALLEMAN said it is understandable that people throughout the state are interested in having the pipeline come in their direction, and, further, that the sponsor group has drawn criticism for continuing to consider two routes. However, he emphasized, it makes sense to keep both options open while the group continues to work toward the best combination of factors for a viable project. He concluded by again advocating letting the market and economics drive the project. Number 2239 CHAIRMAN WHITAKER said it is becoming clear that there is potentially, if not probably, a market not only for liquefied natural gas in the Far East, but also for pipeline gas in the Lower 48. He asked if the sponsor group was working on a project of appropriate size and technology to serve both. MR. ALLEMAN confirmed that the group is doing so, saying that the potential market in the Lower 48 provides additional opportunity for shared cost and value. Number 2174 CHAIRMAN WHITAKER concluded by saying he believes that when the project is deemed feasible, it will be a conglomeration of a number of approaches and that he hopes the sponsor group's philosophy continues to be to remain open to all suggestions and approaches. "Again," he said, "we are here to help you. We would rather help you sooner rather than later, and we would rather you build your project . . . sooner rather than later." ADJOURNMENT Number 2146 The House Special Committee on Oil and Gas was adjourned at 11 a.m.