Legislature(2009 - 2010)BARNES 124

04/13/2009 01:00 PM House RESOURCES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Moved Out of Committee
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 163(RES) Out of Committee
HJR 33-RESTART COOK INLET PRODUCTION                                                                                          
1:58:52 PM                                                                                                                    
CO-CHAIR  NEUMAN announced  that the  next order  of business  is                                                               
HOUSE JOINT  RESOLUTION NO.  33, Urging  immediate action  by the                                                               
governor,  the Alaska  Congressional  delegation,  and state  and                                                               
federal agencies  to assist in  the restart of oil  production in                                                               
Cook Inlet that was affected by the eruption of Mt. Redoubt.                                                                    
1:59:04 PM                                                                                                                    
JENNIFER SENETTE, Staff, Representative  Kurt Olson, Alaska State                                                               
Legislature,  introduced  HJR  33  on  behalf  of  Representative                                                               
Olson, sponsor.   She  explained that HJR  33 urges  the governor                                                               
and state  and federal agencies to  assist in the restart  of oil                                                               
production in  the Cook Inlet  that was affected by  the eruption                                                               
of Mt.  Redoubt.   The March  22, 2009,  eruption of  Mt. Redoubt                                                               
shut down the Drift River  Oil Terminal, halting oil transfers to                                                               
the terminal  from intermediate facilities  at "Trading  Bay" and                                                               
"Granite  Point",  as well  as  halting  oil transfers  from  the                                                               
terminal  to   [Tesoro  Alaska's  Kenai  refinery   (Tesoro)]  in                                                               
Nikiski.   This is an economic  issue that is important  not only                                                               
to the Kenai area, but the entire state, she pointed out.                                                                       
MS.  SENETTE  said  closure  of   the  Drift  River  facility  is                                                               
impacting  production throughout  the  Cook  Inlet Basin  because                                                               
crude that  used to go to  the Drift River Oil  Terminal must now                                                               
be stored on platforms which have  a finite storage capacity.  As                                                               
the shutdown  has gone on,  platform storage has become  in short                                                               
supply,  requiring the  platforms to  shut their  wells.   If the                                                               
shutdown continues,  the Tesoro refinery  will be forced  to find                                                               
an oil supply  from somewhere else.  In addition,  the old age of                                                               
the Cook  Inlet wells makes  them very difficult to  restart once                                                               
shut down.   Because it  is expensive  and time consuming  to get                                                               
these  old   wells  re-started,   their  closure   today  affects                                                               
production tomorrow.                                                                                                            
2:02:40 PM                                                                                                                    
MS. SENETTE noted that a  further complication is the drawdown of                                                               
the Drift River  storage tanks since the  eruption.  Transferring                                                               
millions of  gallons of oil  from storage  requires re-ballasting                                                               
of the tanks, which has been  done with sea water, she continued.                                                               
Mixing sea  water with the remainder  oil in the tanks  creates a                                                               
corrosive material that  can potentially damage the  tanks.  This                                                               
material must be removed before oil  can be returned to the tanks                                                               
and will  take months, at great  expense, to do.   This effect on                                                               
current and future  oil production is especially a  problem for a                                                               
region and  state that  depend so heavily  on oil  production, as                                                               
well as for all of the workers in this industry.                                                                                
REPRESENTATIVE OLSON added that the  oil being talked about could                                                               
be as  much as 20-25 percent  of what is going  into "Tesoro" and                                                               
"Tesoro"  will  replace  it  with  either  Trans-Alaska  Pipeline                                                               
System  (TAPS) oil  or  Indonesian spot  market  oil, neither  of                                                               
which is  of the same  quality as Cook  Inlet oil and  which will                                                               
impact the price.                                                                                                               
2:06:06 PM                                                                                                                    
REPRESENTATIVE OLSON,  in response to Co-Chair  Neuman, explained                                                               
that  the  Tesoro  refinery  originally  operated  on  about  100                                                               
percent Cook Inlet oil and this  oil is not coming back nearly as                                                               
fast as it  is needed for the  plant or the state.   The TAPS oil                                                               
ends up  with a waste product  that Tesoro ships out  of state at                                                               
additional expense for asphalt and other uses.                                                                                  
CO-CHAIR  NEUMAN understood  that  Cook Inlet  production is  now                                                               
down to 15,000-20,000 barrels a day.                                                                                            
2:07:08 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG  inquired  whether  something  happens                                                               
structurally to the field when it is shut down.                                                                                 
KEVIN  BANKS, Director,  Division  of Oil  &  Gas, Department  of                                                               
Natural Resources, explained  that sea water was  pumped into two                                                               
of  the Drift  River Oil  Terminal's active  storage tanks  which                                                               
contaminated the  oil remaining in  the tanks.  Before  the tanks                                                               
can be returned to service they  must be drained of the sea water                                                               
and oil mixture  and cleaned.  The contaminated  oil will require                                                               
treatment before it can be used in  a refinery, but he said he is                                                               
unsure  whether  such  treatment   facilities  are  available  in                                                               
MR. BANKS, in regard to  the first whereas and volcanic activity,                                                               
pointed  out  that  the  first   Mt.  Redoubt  volcanic  eruption                                                               
occurred on  March 22, 2009,  but the Alaska  Volcano Observatory                                                               
reported increasing  volcanic unrest as early  as September 2008.                                                               
He said the  committee may therefore want to  consider a revision                                                               
to this part of the resolution.                                                                                                 
REPRESENTATIVE OLSON agreed.                                                                                                    
2:09:40 PM                                                                                                                    
MS. SENETTE, in response to  Representative Kawasaki, stated that                                                               
the Drift River  facility is operated by the  Cook Inlet Pipeline                                                               
Company and owned by Chevron and Pacific Energy Resources, Ltd.                                                                 
REPRESENTATIVE  KAWASAKI asked  whether  the  storage tanks  were                                                               
drawn down in response to the  March 22, 2009, eruption or during                                                               
the period of increased activity before that.                                                                                   
MS. SENETTE said  she believes the drawdown of  the storage tanks                                                               
happened only after the first eruption on March 22.                                                                             
2:10:59 PM                                                                                                                    
REPRESENTATIVE  KAWASAKI, in  relation  to HJR  33's request  for                                                               
immediate action by  the governor and others,  inquired what this                                                               
action would be.                                                                                                                
REPRESENTATIVE OLSON said  the resolution is asking  for any kind                                                               
of expedited  help that is within  reason and legal, such  as any                                                               
permits that will  be needed.  In further  response, he explained                                                               
that permission  will be needed  to start making repairs,  do the                                                               
work, draw  off the salt  water and  oil that are  mixed, inspect                                                               
the tanks  and Drift River facility  to certify that they  can be                                                               
utilized again without any contaminations  to the Cook Inlet, and                                                               
ascertain that the dikes are still able to provide containment.                                                                 
CO-CHAIR NEUMAN  added that,  coupled with  the close  of [Agrium                                                               
Inc.'s Kenai Nitrogen Operations plant  (Agrium)], this is a huge                                                               
issue for the Kenai Peninsula.                                                                                                  
2:13:28 PM                                                                                                                    
REPRESENTATIVE  TUCK understood  the  urgency  and asked  whether                                                               
there  is   any  indication  that  the   governor,  congressional                                                               
delegation,  U.S. Congress,  and state  and federal  agencies are                                                               
not looking  at the  same urgency and  will instead  be hindering                                                               
this in some way.                                                                                                               
REPRESENTATIVE  OLSON  said  he   believes  the  Kenai  Peninsula                                                               
Borough  is  putting in  a  request.    In further  response,  he                                                               
explained that the request is a declaration of emergency.                                                                       
2:14:34 PM                                                                                                                    
REPRESENTATIVE   SEATON   proposed    conceptual   language   for                                                               
discussion  later:    [page  2],  line 19,  at  the  end  of  the                                                               
sentence,  add  "after  the current  eruption  cycle  concludes."                                                               
This would  indicate that the  legislature is not trying  to urge                                                               
people  to  go into  an  unsafe  area,  he  explained.   He  then                                                               
inquired whether  immediate action  to assist  in the  restart of                                                               
oil production  in Cook Inlet  would include a pipeline  from the                                                               
platforms  to  the  Kenai  Peninsula, should  that  be  the  most                                                               
advantageous way to restart those facilities.                                                                                   
REPRESENTATIVE OLSON responded that he does not know.                                                                           
MR. BANKS said  he supposes it would be possible  and feasible to                                                               
build a pipeline across the inlet as  there used to be one in the                                                               
past.   A pipeline would  mean that  the oil production  from the                                                               
west  side  would be  directed  toward  the Tesoro  refinery,  he                                                               
added, which could possibly be a problem for Chevron.                                                                           
2:16:26 PM                                                                                                                    
REPRESENTATIVE SEATON  asked what  the difference is  between the                                                               
produced water  that comes up  with the oil  in the well  and the                                                               
ballast water and oil mixture in the Drift River storage tanks.                                                                 
MR. BANKS  replied that two  storage tanks have oil  and seawater                                                               
in them now  for ballast, and the other tanks  are empty and open                                                               
so that water  could get into them if flooding  occurred and they                                                               
would  not float.    The mixture  of oil  and  produced water  is                                                               
treated   upstream  of   the  terminal,   either  in   production                                                               
facilities  near  the  platforms  onshore  or  on  the  platforms                                                               
themselves.   Thus, the  oil that  is moved  down the  Cook Inlet                                                               
pipeline to the terminal is pipeline ready, saleable crude.                                                                     
REPRESENTATIVE OLSON  said he believes  the old "Amoco  line" was                                                               
shut down  with the  intention of never  bringing it  back online                                                               
MR. BANKS interjected correct.                                                                                                  
REPRESENTATIVE  OLSON   continued,  saying  that   bringing  this                                                               
pipeline back online would not be wanted.                                                                                       
2:18:11 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG  asked whether  there are  protocols in                                                               
place for actions that the Drift  River facility must take in the                                                               
face of volcanic activity.                                                                                                      
MR. BANKS said  he is unsure what kind of  plans or protocols are                                                               
in place,  but he  knows there are  contingency plans  filed with                                                               
the Department  of Environmental  Conservation (DEC).   Following                                                               
the 1989-1990  volcanic activities, Chevron made  improvements to                                                               
the facility to raise the tertiary dikes around the terminal.                                                                   
REPRESENTATIVE OLSON  added that  there are  plans in  place, and                                                               
the plan that attracted the  most attention was keeping the tanks                                                               
over half  full in order to  keep them from floating  away should                                                               
there be a major leak in the dikes.                                                                                             
REPRESENTATIVE  EDGMON recognized  the seriousness  of the  issue                                                               
and inquired whether the sponsor plans  to get HJR 33 through the                                                               
whole  process now  or settle  for  a letter  that members  could                                                               
REPRESENTATIVE  OLSON responded  that  his intent  is  to get  it                                                               
through with Representative Seaton's verbiage.                                                                                  
2:20:16 PM                                                                                                                    
REPRESENTATIVE  KAWASAKI  inquired  as  to  which  agencies  were                                                               
involved in forcing the shutdown.                                                                                               
MR. BANKS explained that the  decisions about the Drift River Oil                                                               
Terminal over  the last couple  weeks, including the  decision to                                                               
shut it  down, were made by  the members of the  Unified Command,                                                               
which  are the  U.S. Coast  Guard, DEC,  and the  leadership from                                                               
Cook   Inlet   Pipeline  Company.      He   clarified  that   the                                                               
aforementioned  contingency plans  on  file with  DEC are  normal                                                               
course-of-business  oil  spill  contingency   plans.    The  U.S.                                                               
Department of  Transportation has  jurisdiction on  the pipelines                                                               
that  go  into  the  terminal   and  the  U.S.  Coast  Guard  has                                                               
jurisdiction on the Christy Lee  Platform and the flow lines from                                                               
the terminal out to that loading platform.                                                                                      
2:22:00 PM                                                                                                                    
REPRESENTATIVE KAWASAKI asked whether  the Unified Command forced                                                               
the closure or suggested the closure.                                                                                           
MR. BANKS replied  that the closure was through  agreement by the                                                               
Unified Command's three bodies.  As  the owner of the "Cook Inlet                                                               
Pipeline terminal", Chevron agreed to those provisions.                                                                         
REPRESENTATIVE OLSON  noted that  he, Representatives  Seaton and                                                               
Chenault,  and   Senators  Waggoner   and  Stevens  are   on  the                                                               
distribution list  and receive emails  several times a  week, and                                                               
sometimes several times a day, about what is being done.                                                                        
CO-CHAIR  NEUMAN  requested  that  this  information  go  to  all                                                               
committee members.  He opened public testimony on HJR 33.                                                                       
2:23:47 PM                                                                                                                    
JACK WILES, Kachemak Bay  Conservation Society, cautioned members                                                               
to take a  more thorough analysis of the situation  because it is                                                               
not as  simple as  it seems  in HJR  33.   For example,  the last                                                               
eruption happened  during what was  considered to be a  low level                                                               
of volcanic  activity.  Workers  onsite when the  volcano erupted                                                               
for  35 minutes  had to  be placed  in a  safe building  and then                                                               
evacuated.   He  related  that  at a  recent  public hearing  the                                                               
Unified Command  said the top  priority is health and  safety and                                                               
the second  priority is  the environment.   While  he appreciated                                                               
the  economic impact  of  oil  production, he  said  what is  not                                                               
mentioned  in HJR  33 is  the significant  economic impact  of an                                                               
environmental  disaster  that  could  occur  from  a  spill.    A                                                               
tremendous amount  of sediment  load has  come down  Drift River,                                                               
which can  be seen in a  recent aerial photo.   The river channel                                                               
is very unpredictable, with the  latest channel right next to and                                                               
threatening  the facility.    He agreed  that  shutting down  the                                                               
terminal  was a  wise  move  and pointed  out  that  it is  still                                                               
precarious with 2.5 million gallons of oil in the tanks.                                                                        
MR. WILES  urged that  HJR 33  be tabled  until testimony  can be                                                               
received from the Unified Command  or, as an alternative, amended                                                               
on  page 2,  line 19,  to include  wording that  says to  examine                                                               
alternative technology to decommission the  tanks and look at the                                                               
feasibility of increased storage  in other locations or platforms                                                               
or to look at the existing pipeline.   If the directive is to put                                                               
the tank  farm back  into production, the  question that  must be                                                               
asked  is, Where  is the  risk  assessment and  who assumes  that                                                               
2:27:17 PM                                                                                                                    
ROBERT ARCHIBALD, Kachemak Bay Conservation  Society, said he has                                                               
worked in  that Cook Inlet  area since  1965 and the  Drift River                                                               
Oil Terminal has  been dodging the bullet since  its inception 42                                                               
years  ago.   He  commended  both  the  Unified Command  for  its                                                               
improved communication  with the public  and the people  who went                                                               
to the  facility to  pull down the  tanks.  He  said there  is no                                                               
capability for  removing the  2.5 million  gallons of  oil sludge                                                               
still  remaining in  the tanks  in  the event  of a  catastrophic                                                               
flood and that  this is unacceptable.  Given that  it can take up                                                               
to six months to clean out  a tank, he asked whether the off-line                                                               
tanks would  have to  be used  should the  facility go  back into                                                               
use.  He urged that all  stakeholders in the inlet be involved in                                                               
the design of a new production  facility that is not located in a                                                               
floodplain of a volcanic river.                                                                                                 
2:30:12 PM                                                                                                                    
CO-CHAIR  NEUMAN inquired  whether the  Drift River  Oil Terminal                                                               
goes through regular inspections to ensure its integrity.                                                                       
MR.  BANKS  answered  that  he  thinks  the  U.S.  Department  of                                                               
Transportation  has  a  routine  schedule  of  inspections.    In                                                               
further  response,  he  noted that  routine  pressure  tests  and                                                               
equipment inspections  occurred prior  to the  terminal beginning                                                               
the pumping of oil to the tanker last week.                                                                                     
2:31:21 PM                                                                                                                    
MR. BANKS,  in response to Representative  Edgmon, explained that                                                               
the   Petroleum  Systems   Integrity  Office   (PSIO)  has   been                                                               
represented in the process of  the past several weeks.  Different                                                               
agencies have  jurisdictions over  the terminal and  the pipeline                                                               
feeding the terminal,  he continued.  Now and in  the future, the                                                               
PSIO  can provide  a coordinated  effort to  ensure there  are no                                                               
gaps  or overlaps  in how  the jurisdictions  work.   An incident                                                               
command  management process  has been  in place  and the  Unified                                                               
Command has been the decision-making  authority over the terminal                                                               
during this particular  incident, but it is not  a permanent kind                                                               
of management  structure.  Should  the volcano  settle, decisions                                                               
about  whether  to  mothball,  remove,  repair,  or  replace  the                                                               
terminal will be made by the  Cook Inlet Pipeline Company and the                                                               
permitting will  be done by  various agencies.  Having  a volcano                                                               
nearby will factor in to how those permits are awarded.                                                                         
2:33:58 PM                                                                                                                    
ELISE WOLF  urged the Drift  River Oil Terminal not  be restarted                                                               
and  encouraged  that  a pipeline  instead  be  constructed  from                                                               
Granite Point  to the east  side.  She  argued that HJR  33 would                                                               
work to  usurp the authority  of the  Unified Command.   She said                                                               
she thinks  HJR 33  is inappropriate  legislation because  if the                                                               
committee was qualified  to be an oversight agency  it would have                                                               
answers to  what the  contingency plans are.   She  proposed that                                                               
instead there be legislation requiring  Chevron to pay for all of                                                               
the workers who have been laid  off and any economic impacts that                                                               
might result from the items listed  in the whereas clauses of the                                                               
resolution.  Chevron has had 42  years to realize that a terminal                                                               
and tanks at the  base of a volcano are a bad idea  and a risk to                                                               
other industries in  the Cook Inlet.  There is  no mention in HJR
33 of the  economic impact of fishing and tourism  and what would                                                               
happen if  these industries  were impacted by  an oil  spill, she                                                               
continued.  This reeks of trying  to find ways to skirt oversight                                                               
and mitigation plans, she charged.                                                                                              
2:38:46 PM                                                                                                                    
WHITNEY LOWE  offered his  belief that  when deciding  whether to                                                               
shut  the   Drift  River  Oil   Terminal,  the   Unified  Command                                                               
considered  the significant  economic impacts  that would  result                                                               
and determined  that the  workers' safety and  the safety  of the                                                               
environment were potential enough  problems to warrant closing of                                                               
the  facility.   It cannot  be  guaranteed right  now that  those                                                               
potential dangers  have dissipated,  he argued, and  it therefore                                                               
seems shortsighted and inappropriate to  now determine it is time                                                               
to re-open  the terminal; the  potential long-term costs  of such                                                               
an  action  must be  looked  at.   He  supported  the  idea of  a                                                               
pipeline across  the east  side so the  terminal could  be closed                                                               
and  agreed  with  Representative  Seaton's  proposed  conceptual                                                               
CO-CHAIR  NEUMAN closed  public  testimony.   He  said he  thinks                                                               
there are  some members  of the public  and the  legislature that                                                               
would  not  mind seeing  the  words  "that  was affected  by  the                                                               
eruption of  Mt. Redoubt"  taken out  [from page  2, line  19] in                                                               
order to get some production of Cook Inlet going.                                                                               
2:41:35 PM                                                                                                                    
REPRESENTATIVE OLSON  said he would like  to take HJR 33  back so                                                               
he  can incorporate  the amendments  suggested by  Representative                                                               
Seaton and  Mr. Banks  into a committee  substitute.   He pointed                                                               
out that the  Drift River Oil Terminal has been  in that location                                                               
for 42  years and  he does not  believe it has  ever had  a major                                                               
leak or spill.                                                                                                                  
CO-CHAIR NEUMAN asked  whether there have been  any safety issues                                                               
at the Drift River facility.                                                                                                    
MR. BANKS said he does not know; he deferred to DEC.                                                                            
CO-CHAIR NEUMAN requested  the sponsor to ask DEC to  come to the                                                               
next hearing on HJR 33 to answer this question.                                                                                 
2:42:51 PM                                                                                                                    
REPRESENTATIVE  KAWASAKI  requested  that  someone  from  Unified                                                               
Command also attend the hearing.                                                                                                
REPRESENTATIVE  OLSON offered  to get  copies to  members of  the                                                               
most recent communications from the Unified Command.                                                                            
CO-CHAIR NEUMAN held over HJR 33.                                                                                               

Document Name Date/Time Subjects
HB 163 04.13.09 Leg Legal Memo.pdf HRES 4/13/2009 1:00:00 PM
HB 163
CSHB163(RES) work draft.pdf HRES 4/13/2009 1:00:00 PM
HB 163
HB 163 Amendment 4.13.09.pdf HRES 4/13/2009 1:00:00 PM
HB 163
HJR 33.pdf HRES 4/13/2009 1:00:00 PM
HJR 33
HB 217.pdf HRES 4/13/2009 1:00:00 PM
HB 217
HJR 33 packet.pdf HRES 4/13/2009 1:00:00 PM
HJR 33
SJR 16 packet.pdf HRES 4/13/2009 1:00:00 PM
SJR 16