HOUSE SPECIAL COMMITTEE ON OIL AND GAS February 3, 2000 11:04 a.m. COMMITTEE CALENDAR Presentation by BP on Gas Commercialization TAPE 00-9, SIDES A and B CALL TO ORDER Representative Whitaker, Chairman, convened the House Special Committee on Oil and Gas meeting at 11:04 a.m. PRESENT Committee members present at the call to order were Representatives Dyson, Smalley, Porter, Green and Kemplen. Representatives Harris, Phillips and Brice arrived as the meeting was in progress. SUMMARY OF INFORMATION CHAIRMAN WHITAKER announced that this meeting was part of the committee's continuing effort to determine the status of the efforts being made to commercialize North Slope gas. He then introduced Mr. Ken Konrad of BP/Amoco. KEN KONRAD, Business Unit Leader, Alaska Gas Business Unit, BP/Amoco, began his presentation by describing British Petroleum's position in the gas industry as a result of the merger with Amoco. He stated that BP/Amoco is committed to growing its gas business, which will be driven by a gas and power division with revenues exceeding $5 billion annually. He explained the company's view of the overall trend of energy consumption, describing a rise of about 2 percent per year, and said that the global gas and power economy is about twice the size of the global oil economy. As gas is emerging as the preferred hydrocarbon source, it is catching up with oil in BP/Amoco's business priorities. MR. KONRAD said that most of BP/Amoco's gas resources are ideally located close to the world's major gas markets, with Alaska being the exception. BP/Amoco has established a business unit with the sole priority of investigating options to commercialize Alaska gas, including export of liquefied natural gas (LNG) to the Far East, gas pipeline options exporting gas to the North American market, and conversion to liquids and transport down the Trans Alaska Pipeline System (TAPS). MR. KONRAD then went on to describe the volumes of oil and gas estimated to remain on the North Slope, mentioning Prudhoe Bay and Point Thomson and efforts by various owners to seek commercial solutions to developing the more challenging fields. Mr. Konrad explained the importance of gas in the recovery of oil, describing the process and amounts of gas currently used in that effort. He pointed out that until they are able to export gas from the North Slope, oil producers there will continue to use gas to improve oil recovery. MR. KONRAD described efforts to achieve a major North Slope gas sale, dating back to the 1970's, including a number of LNG studies, gas-to-liquid (GTL) studies and various pipeline options. He explained that all the options are still in play because of a recent convergence of events resulting in a new opportunity to commercialize Alaskan gas. One of those events is a technology push that lowered overall project costs. The second event is market pull, and the third is that governments are working with industry to support gas developments. MR. KONRAD then moved on to where BP/Amoco is today in its effort to move Alaskan gas to market. He described their resource position with 26 trillion cubic feet of known Prudhoe Bay gas, Alaska's politically stable environment, and BP/Amoco's involvement in the Alaska North Slope Liquefied Natural Gas Project Sponsor Group. BP/Amoco still faces the challenge of distance from market, resulting in the company's interest in multiple commercialization options including GTL's, LNG export, and other pipeline projects. MR. KONRAD stated that BP/Amoco will locate its global gas technology center in Anchorage after approval of the company's merger with Atlantic Richfield Company (ARCO). He then explained the work BP/Amoco is doing with syngas technology, including engineering for a $70 million pilot facility in Alaska. ARCO has an operating GTL pilot facility at the Cherry Point, Washington, refinery, and completion of the merger would allow the companies to share their technologies. He stated that ultimately, a GTL project could be pursued in conjunction with an LNG project or gas pipeline project. MR. KONRAD told the committee that BP/Amoco didn't see a window for LNG sales to the Far East, but rather, believed there would be a steadily growing demand. With regard to a gas pipeline to the Lower 48, he described two major routes, a southern route following the Alaska Highway through Fairbanks and continuing on to Canada, commonly known as the "ANGTS" line, and a northern route following the Alaskan coastline to the Mackenzie Delta and then south through Canada. He said the northern route is generally considered to be less expensive with costs around $6 billion, but the southern route may have existing permits and potential synergies with an LNG export option. MR. KONRAD closed by reiterating that BP/Amoco is committed to growing its gas business, working to mature a range of gas commercialization options, and driven by a clear understanding of what is possible. He then made himself available for questions from committee members. REPRESENTATIVE WHITAKER thanked Mr. Konrad, complimenting him on an excellent presentation. REPRESENTATIVE PHILLIPS asked Mr. Konrad for more detail regarding the pilot test facility project and on whether the timing depended on the merger. MR. KONRAD replied that they were conducting front-end engineering, which they hoped would be finished in several months, and that they would pursue that project upon completion of the ARCO merger. REPRESENTATIVE GREEN asked whether BP/Amoco was negotiating with Exxon Mobil Corporation to come together with the two companies' GTL technology, and whether the outcome of the merger effort would have a bearing on their decision. MR. KONRAD answered that the company was continuing to work as a member of the gas pipeline sponsor group, talking with Exxon about their progress with GTL, and talking with various pipeline project companies. REPRESENTATIVE DYSON asked that they, (Mr. Konrad and the committee members), not speak in code, saying that people who are not familiar with the industry vernacular would not understand the information. REPRESENTATIVE KEMPLEN asked if it was the intent of BP/Amoco to contract with the university to do applied research. MR. KONRAD said they were starting to do that. REPRESENTATIVE KEMPLEN asked when the gas technology center would be open. MR. KONRAD said it was well under way, but full completion would not occur until the BP/Amoco merger with ARCO was complete. REPRESENTATIVE HARRIS asked if there was a time projected when it would no longer be cost effective to re-inject gas. MR. KONRAD answered that oil producers will always inject gas while they are producing the reservoir, unless there were a major gas sale, at which point they would have to find some other liquid to inject. REPRESENTATIVE SMALLEY agreed with Representative Dyson's comment about the use of industry vernacular, and requested a copy of Mr. Konrad's presentation. REPRESENTATIVE PHILLIPS asked Mr. Konrad if he could foresee a pipeline going to the Lower 48 without Alaska being part of it. MR. KONRAD said conceivably yes, but that there was plenty of resource for many different projects. REPRESENTATIVE DYSON asks Mr. Konrad to define "netback" and "TAPS," then expressed dissatisfaction with the vernacular used in Mr. Konrad's answer. He then asked how much gas BP/Amoco controls in Canada, and followed up by asking whether BP/Amoco would tend to make more money from the sale of its Canadian gas than from Alaskan gas, and whether BP/Amoco is now producing from all of its gas holdings. He also asked Mr. Konrad whether the production of gas would diminish the amount of oil production at Prudhoe. MR. KONRAD said BP/Amoco was the largest gas producer in Canada and went on to point out that the North American market is not bottomless, but very big, indeed. As to the gas profitability, he said each project is judged on its independent economics as opposed to comparing economics with another project. He also said to the best of his knowledge, BP/Amoco was currently producing from all of its gas holdings in Canada. As to the production of gas affecting oil production, he said it would, and that economics would drive the decision. REPRESENTATIVE KEMPLEN asked if a project to develop coal reserves near the North Slope would be feasible. He also asked if Mr. Konrad thought a pipeline coming down to Fairbanks, and branching off to the lower 48 and then down to either Valdez or the Cook Inlet was feasible. He also asked if it were possible for the "consortium" he represents to serve as a pipeline manager for a port authority. He went on to ask if, given the level of risk in the security of Indonesian gas, those customers may look for a more secure source of supply, such as Alaska. MR. KONRAD said he did not know about the economics of North Slope coal, and regarding the feasibility of the pipeline branching off, he thought it could be done. He also said that with regard to the market seeking a more secure supply of gas, he thought that it would. COMMITTEE ACTION The committee took no action. ADJOURNMENT The meeting adjourned at 11:50 a.m. NOTE: The meeting was recorded and handwritten log notes were taken. A copy of the tape and log notes may be obtained by contacting the House Records Office at 129 6th Street, Suite 229, Juneau, Alaska 99801-2197, (907) 465-2214, and after adjournment of the second session of the Twenty-first Alaska State Legislature this information may be obtained by contacting the Legislative Reference Library at 129 6th Street, Suite 102, (907) 465-3808.