HOUSE SPECIAL COMMITTEE ON OIL AND GAS March 23, 2000 5:15 p.m. COMMITTEE CALENDAR OVERVIEW: TRANS-ALASKA GAS LINE PERMITS/YUKON PACIFIC CORP. TAPE 00-20, SIDE A CALL TO ORDER REPRESENTATIVE WHITAKER convened the meeting at 5:15 p.m. PRESENT Members present at the call to order were: Representatives Harris, Kemplen, Green and Chairman Whitaker SUMMARY OF INFORMATION CHAIRMAN WHITAKER stated that the purpose of the meeting was to get an update from Yukon Pacific Corporation (YPC), a company that has committed itself to taking North Slope gas to market. MR. JEFF LOWENFELS introduced himself as President and Wayne Lewis as Executive Vice President of YPC. MR. LOWENFELS presented new cost estimates, the result of work conducted by Kellogg Engineering and Wilbros (William Brothers) to "re-cost" the Trans-Alaska Gas System. These numbers replace previous estimates developed in 1986. This new cost estimate contains three sets of numbers starting out with a project of 9 million metric tons, increasing to 13.5 million metric tons, and then going up to 18 million metric tons. The numbers include the conditioning facility, the pipeline, the compressors, the Liquefied Natural Gas (LNG) facility in Valdez, the marine terminal in Valdez and ships to take the gas to Asia. The numbers are based upon a "permitted project," allowing them to complete the economic model, with the variable in the economic model being the wellhead price. These numbers represent the three-phase expansion for a 36-inch pipeline carrying very high- pressure gas from Prudhoe Bay through Fairbanks to Valdez. He compared the 1986 cost estimate on a 14 million metric ton project at $15 billion, with the cost for their 13.5 million metric ton project at $10.42 billion. The reduction in cost comes from technological advances in construction, decreased labor costs, lower cost of pipe, etc. CHAIRMAN WHITAKER asked if it was necessary to include the costs of ships within the project estimate. Mr. Lowenfels responded that the ships had to be included in order to have an "apples to apples" cost comparison with other projects around the world. The ships may or may not be a part of the ultimate project. MR. LOWENFELS, in response to a request by Chairman Whitaker, described the nature of the companies, saying Kellogg is a major construction company in the area of LNG facilities and Wilbros is a large engineering company, formerly a part of Williams Company. REPRESENTATIVE KEMPLEN asked why, considering that there is already a large gas conditioning facility on the North Slope, would they include such a facility in their cost estimate. MR. LOWENFELS responded that the nature of the facilities is different. The facility currently on the North Slope separates the gas from the oil and puts it back into the ground, whereas the conditioning facility in the cost estimate would be one that takes the gas and "cleans it up" to provide almost pure methane to send down the pipeline. MR. LOWENFELS turned to permitting and explained the documents included in the packet he had presented to the committee, describing the time spent in obtaining the permits. He said the state has jurisdiction over about 23 percent of the permitting and the federal government has 77 percent. He proceeded to show the breakdown between permitting agencies which are within the Joint Pipeline Office (JPO), and those that are outside it. He also mentioned that there are documents to show which permits are required only for an LNG project, and described the backgrounds of the respective persons who worked on obtaining those permits. Mr. Lowenfels commented on a chart in the packets that showed the amount of time spent in obtaining the 8 major permits for the projects, and explained why he feels that it would be extremely difficult if not impossible to obtain such permits for a different project. He pointed to language in the documents provided to committee members, which states that, "all other routes are hereby rejected." MR. LOWENFELS said they are continuing to work on the wetlands permit, and that a project of this type requires some 860 individual permits, but the 12 permits listed in the documents are the ones "that really make the project." REPRESENTATIVE HARRIS asked what it would take to overturn the environmental impact statement or permit a different route. MR. LOWENFELS said he did not think it would not be possible, but that the process would be to apply for a federal right of way permit. He explained that one would have to convince the agencies that they had made a mistake in permitting the route to Valdez. While he does not believe it is possible to permit a different route for the pipeline, he does believe that it would be possible to get additional permits for a spur line from Glenallen to Wasilla. MR. LOWENFELS, in response to further questions from Representative Harris, stated that his company (YPC) would object and fight efforts to permit another route for a gas pipeline, and that could delay a pipeline project by up to nine years. REPRESENTATIVE GREEN asked about the expiration dates of the permits, to which Mr. Lowenfels replied that any of the permits could expire well after the time when such a project could be built. He also stated that their project could be sized large enough to perhaps provide export quantities of gas to the Kenai area through a spur line. MR. LOWENFELS, in a lengthy exchange with Representative Green, discussed YPC's position regarding a relationship with a pipeline to the Lower 48, and estimated the size of the market for LNG in Asia. MR. LEWIS stated that in his analysis, between the years 2005 and 2010, there will be a 40 million metric ton shortfall in LNG. MR. LEWIS, in response to a question by Representative Kemplen, clarified that the cost estimate is not an economic model and does not include taxes. MR. LOWENFELS commented on YPC's relationship with the Alaska Gasline Port Authority, saying that they continue to have conversations and YPC hopes its permits and expertise will be used on the Port Authority's project. He explained why YPC had left the Alaska North Slope Gas Sponsor Group, and said if the Sponsor Group decided to use the Valdez route for its project, YPC would be happy and eager to sit down and discuss with them how they could work together on it. MR. LOWENFELS, in response to a question by Representative Kemplen, stated that if a project using the Valdez route were not viable, some of the YPC permits could be used for another route, but only where the new route followed the one that was already permitted. He also discussed the potential impact on the YPC project of the resolution of the BPAmoco/ARCO buy out, and the role Phillips Petroleum may play in it because Phillips does not have competing projects around the world as does BPAmoco holds. Also, Phillips has been delivering to the two largest LNG buyers in the world and has a very solid relationship with the Asian market. MR. LOWENFELS, in discussion with Representative Kemplen, stated that there is the possibility of a public/private ownership scenario with regard to an LNG project or one that includes a pipeline to the Lower 48. He also said he thinks the price would need to be $3 per cubic feet in order to make such a project viable. REPRESENTATIVE HARRIS asked Chairman Whitaker about the validity of the permits as presented to the committee by Mr. Lowenfels. Chairman Whitaker said he would continue to seek affirmation. ADJOURNMENT CHAIRMAN WHITAKER adjourned the meeting at an unspecified time. 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 Room 229, Terry Miller Legislative Office Building, 129 Sixth Street, 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.