Legislature(2009 - 2010)BELTZ 211

02/27/2009 11:00 AM Senate ENERGY

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSSB 31(ENE) Out of Committee
Moved CSHCR 2(RES) am Out of Committee
Moved HCR 3 am Out of Committee
Moved HCR 4 am Out of Committee
Moved HCR 5 am Out of Committee
11:26:03 AM                                                                                                                   
                   HCR  2-IN-STATE GAS PIPELINE                                                                             
                   HCR  3-IN-STATE GAS PIPELINE                                                                             
                   HCR  4-IN-STATE GAS PIPELINE                                                                             
                   HCR  5-IN-STATE GAS PIPELINE                                                                             
CHAIR  MCGUIRE   announced  the   consideration  of   four  House                                                               
Concurrent Resolutions:  HCR 2(RES) am, HCR  3 am, HCR 4  am, and                                                               
HCR 5 am.                                                                                                                       
MARGARET  DOWLING, Staff  to  Representative  Jay Ramras,  Alaska                                                               
State  Legislature, said  the  resolutions remind  Representative                                                               
Ramras of  how one  eats an  elephant: one bite  at a  time. Each                                                               
resolution attempts  to help  get a  bullet line  with affordable                                                               
natural gas to  hungry Alaskan markets one bite at  a time. HCR 2                                                               
encourages  the  administration  to  promote a  bullet  line;  to                                                               
identify entities in  Gubik or elsewhere on the  North Slope that                                                               
may  have sufficient  quantities of  natural gas  to support  the                                                               
line; and to negotiate a  commitment with that entity for natural                                                               
gas  production  on  commercially  reasonable  terms  that  would                                                               
support the economic viability of  a gasline. HCR 3 addresses the                                                               
demand   end  of   the  gasline   equation  by   encouraging  the                                                               
administration to expedite  the reopening of the  Agrium plant in                                                               
Kenai. The  plant closed  in 2007 because  it lacked  an adequate                                                               
supply  of gas.  It employed  up to  250 people  and manufactured                                                               
fertilizer and  ammonia for local  use and  for export. So  HCR 3                                                               
also supports the farms of  Alaska, which cover over 25,000 acres                                                               
in five boroughs.  There are more than 300 farmers  in the Mat-Su                                                               
borough  and 130  in Fairbanks.  Since the  Agrium plant  closed,                                                               
farmers have  experienced a 400  percent increase in the  cost of                                                               
fertilizer, and farming jobs may decline by 150 positions.                                                                      
11:29:08 AM                                                                                                                   
MS.  DOWLING said  HCR 4  asks the  governor to  advocate for  an                                                               
increase in  the amount of  gas that  may be exported  under U.S.                                                               
Department  of  Energy  licenses  to 60  bcf  per  year.  Current                                                               
licenses are  set to  expire in  2011, and  the Kenai  LNG export                                                               
facility could be  forced to close unless  additional supplies of                                                               
gas are found  in the Cook Inlet. HCR 5  gives the administration                                                               
a timeline  for these projects. It  basically tells it to  lend a                                                               
hand, use the resources  it has, and then get out  of the way. It                                                               
requests that the  governor facilitate the process  for a private                                                               
entity to  make a  final commitment before  November 1,  2010. In                                                               
summary, these  resolutions urge  the administration to  take the                                                               
lead for instate gas. Alaskans  need a cheap, clean, and reliable                                                               
source of fuel, and a bullet  line will do that. The governor has                                                               
the resources  to make  that happen,  and these  resolutions will                                                               
just encourage her to do so.                                                                                                    
11:31:02 AM                                                                                                                   
SENATOR WIELECHOWSKI  said HCR  2 talks  about 180  billion cubic                                                               
feet per  year, and  he asked what  that is per  day. There  is a                                                               
provision in AGIA that "we" can't go over 500 mcf per day.                                                                      
MS. DOWLING said nothing in  these resolutions will conflict with                                                               
AGIA.  The intent  is  that  any pipeline  would  fit within  the                                                               
limitations of AGIA.                                                                                                            
11:31:50 AM                                                                                                                   
SENATOR WIELECHOWSKI  said page  2, lines 13-18,  of HCR  2 talks                                                               
about exporting  natural gas  overseas. If there  are 60  bcf for                                                               
the  Railbelt  and  60  bcf   for  industrial  use,  will  it  be                                                               
sufficient  to  supply  gas  for Alaskans?  He  doesn't  want  to                                                               
support shipping gas overseas if Alaskans aren't taken care of.                                                                 
MS. DOWLING said Representative  Ramras knows about that concern.                                                               
These resolutions  don't have the  force of law.  It is a  way to                                                               
encourage consistent demand so the  pipeline can be viable. There                                                               
will  be many  opportunities to  weigh in  on these  licenses. An                                                               
amendment to HCR 2 puts Alaskans first.                                                                                         
11:33:07 AM                                                                                                                   
SENATOR WIELECHOWSKI said the issue  of the time availability for                                                               
Gubik gas  came up  in a Senate  Resources hearing  several weeks                                                               
ago. Enstar  said it  needs gas  by 2015, and  Gubik won't  be on                                                               
line  until  2016, at  the  earliest.  The  big gasline  will  be                                                               
available  in 2018.  Everyone  wants  to get  gas  as quickly  as                                                               
possible to Alaska consumers, but what about this disconnect?                                                                   
MS.  DOWLING said  there is  an expectation  of other  sources of                                                               
natural gas, and all should  be explored. The resolution mentions                                                               
Gubik and the North Slope, but it isn't meant to be exclusive.                                                                  
CHAIR  MCGUIRE said  page  2 of  HCR 2  refers  to promoting  the                                                               
development of the Gubik area and other North Slope areas.                                                                      
MS.  DOWLING said  it is  not exclusive  to any  one producer  or                                                               
entity. It is to be as broad as possible in finding gas.                                                                        
11:34:56 AM                                                                                                                   
CHAIR MCGUIRE said Senator Wielechowski  has a good point. It was                                                               
disappointing  to  hear of  those  dates  in a  prior  committee.                                                               
Natural  resource exploration  timeframes  can move,  but it  may                                                               
happen sooner. These are good resolutions.                                                                                      
SENATOR STEDMAN said HCR 2 is "the 500 a day." "Close enough."                                                                  
CHAIR MCGUIRE said she has to  be mindful of that 500 million mcf                                                               
limit in  AGIA, but  a lot  of things can  happen. We  don't know                                                               
that a pipeline  will come to fruition under AGIA.  "I would hope                                                               
that  we continue  to be  innovative  in getting  natural gas  to                                                               
Alaskans,  and it  may well  be that  we find  a project  that is                                                               
larger than that for the pure economics of it."                                                                                 
11:36:43 AM                                                                                                                   
SENATOR  WIELECHOWSKI noted  that  HCR 5  talks about  government                                                               
getting out  of the way. That  may be the best  course of action,                                                               
but  what role  will ANGDA  have as  a governmental  organization                                                               
that is working on the exact same thing?                                                                                        
MS. DOWLING said she will ask Representative Ramras.                                                                            
11:37:42 AM                                                                                                                   
LISA PARKER,  Manager, Government Relations, Agrium,  Kenai, said                                                               
the resolutions  are important  for providing  economic stability                                                               
to  Alaska  and  to  get  gas to  consumers  --  residential  and                                                               
industrial. After  40 years  of operation,  Agrium shut  down its                                                               
facility in  2007 due  to a  lack of natural  gas supply  in Cook                                                               
Inlet.  Agrium put  over $350  million per  year into  the Alaska                                                               
economy at  its peak. Agrium supports  a bullet line and  has had                                                               
discussions  with  state  agencies  about  it.  If  the  line  is                                                               
constructed  in the  next 5  to 7  years, Agrium  could put  a $1                                                               
billion  industrial facility  back  into operation  on the  Kenai                                                               
Peninsula. It would provide a stable  tax base and jobs. It would                                                               
help   the   agricultural   industry  and   the   Department   of                                                               
Transportation and Public Facilities for airports that use urea.                                                                
11:39:52 AM                                                                                                                   
SENATOR  WIELECHOWSKI  thanked  her for  her  advocacy.  Everyone                                                               
wants to  get Agrium back. What  price per mcf makes  it feasible                                                               
for Agrium to reopen?                                                                                                           
MS. PARKER said she will provide that.                                                                                          
SENATOR WIELECHOWSKI  said in the  past Agrium was paying  $3 per                                                               
mcf and that was stretching  Agrium's finances. The costs that he                                                               
has heard are  Henry hub, which can fluctuate from  $4 to $12 per                                                               
mcf. Is the bullet line the best  way to get the cheapest gas for                                                               
Southcentral and at a price that Agrium can do business?                                                                        
MS. PARKER said Agrium was paying  "Henry hub plus" in the latter                                                               
years  of operation.  The devil  will be  in the  details of  the                                                               
bullet line and what the price will be.                                                                                         
11:41:46 AM                                                                                                                   
CHAIR  MCGUIRE said  it was  hard  for the  lawmakers who  really                                                               
tried  to  keep Agrium  open.  Her  heart  goes  out to  the  250                                                               
employees. It is a loss.                                                                                                        
CURTIS   THAYER,  Director,   Government  Relations   and  Public                                                               
Affairs,  Enstar, said  he supports  all  four resolutions.  They                                                               
provide  a  foundation  for  the project  to  move  forward.  The                                                               
industrial anchor in  HCR 3 or the  LNG plant in HCR  4 cannot be                                                               
overemphasized  for   providing  a  reasonable  tariff   for  the                                                               
consumers  along  the   Railbelt.  Enstar  thanks  Representative                                                               
Ramras and  other. About 18 months  ago ACES set a  tax rate that                                                               
helped  spur development  in  Gubik, the  Nenana  Basin, and  the                                                               
Yukon  Flats. This  will be  a long  process but  he hopes  to be                                                               
successful in the next five to seven years.                                                                                     
11:43:38 AM                                                                                                                   
TOM  LAKOSH,  Anchorage, asked  the  committee  to recall  SB  31                                                               
because  his  testimony was  blocked  by  the moderator.  He  was                                                               
denied his  constitutional right  to petition his  government. He                                                               
would also like  to voice concerns about the bullet  line as a $4                                                               
billion boondoggle for the following  reasons. Gas producers will                                                               
not  commit to  long-term gas  for  the bullet  line because  the                                                               
tariffs will  be too high. They  will be able to  make more money                                                               
on the main gasline that will follow  in a year or two. More than                                                               
half of  the gasline  will become  obsolete a  year or  two after                                                               
construction because  the mainline will deliver  it more cheaply.                                                               
The  overly optimistic  projections  of the  bullet line  tariffs                                                               
depend  on an  explosion  of use  in  Southcentral. The  proposed                                                               
carbon  tax, energy  conservation measures,  and renewable  power                                                               
projects will  greatly reduce gas use.  The cost per unit  of gas                                                               
will  triple.  The increased  costs  will  cause lower  gas  use,                                                               
further increasing the  per unit cost. He made  the same argument                                                               
to the Bonneville  Power Administration when it  was building the                                                               
whoops power plants [Washington  Public Power Supply System] that                                                               
were  shut  down  because  the cost  of  electricity  became  too                                                               
expensive and the plants were no longer needed.                                                                                 
MR. LAKOSH  said any  near-term shortage  of gas  in Southcentral                                                               
can be quickly remedied by  the cancelation of the export license                                                               
for Cook  Inlet gas that  will lower gas  rates, and if  we still                                                               
need  additional gas  in the  long-term,  we could  then build  a                                                               
shorter spur off  of the main line in Fairbanks  for less than $2                                                               
billion.  The  excuse  that  production  must  be  maintained  to                                                               
prevent  degradation of  the production  is a  flimsy excuse  for                                                               
maintaining  export  where  the  Agrium  plant  can  provide  for                                                               
interruptible consumption  of gas  to maintain  production rates.                                                               
The specific production needs of  each field would be required to                                                               
definitively  ascertain if  degradation would  occur from  slower                                                               
gas  production rates.  In those  fields where  degradation would                                                               
not  occur  from  slower  production,   gas  can  be  stored  for                                                               
exceptional winter needs. Some exhausted  gas fields on the Kenai                                                               
are  being proposed  for this  very purpose.  On-land storage  in                                                               
tanks  in compressed  or liquid  form is  also being  proposed to                                                               
serve  high-use periods,  and production  can be  maintained from                                                               
degrading gas  fields by supplying  those storage  facilities. If                                                               
it is determined that continuous  production from gas fields must                                                               
be maintained for gas conservation,  the production of fertilizer                                                               
and employment  at the Agrium  plant is of  substantially greater                                                               
value to Alaskans  and should be deemed a more  beneficial use of                                                               
Alaska natural  gas. It is  a clear  constitutional justification                                                               
for cancelation of the export license.                                                                                          
11:47:25 AM                                                                                                                   
CHAIR MCGUIRE  asked for  his testimony in  writing. She  said he                                                               
can testify on SB 31 in the Senate Resources Committee.                                                                         
MR. LAKOSH  said cancellation of  the export license for  the LNG                                                               
plant in  Nikiski will force the  oil companies to look  for more                                                               
gas in Cook Inlet  and the spur line won't be  needed at all when                                                               
new gas fields are developed. For  the price of the pipeline, one                                                               
gigawatt  of  renewable  energy  could be  built  at  $3,000  per                                                               
kilowatt and still have $1  billion left over for transmission of                                                               
those alternative energy  sources. He urged the  committee not to                                                               
spur the state to spend a thin dime on this boondoggle.                                                                         
11:49:13 AM                                                                                                                   
CHAIR MCGUIRE said when she was  in the resources committee a few                                                               
years  ago, she  offered an  instate  tax credit  for the  Nenana                                                               
Basin, and there  was discussion on whether  it would incentivize                                                               
natural  gas exploration.  It is  good to  hear Enstar  personnel                                                               
talk about  it. She hopes to  see more development. She  hopes SB
31 will offer such benefits. Tax incentives really do help.                                                                     
SENATOR WIELECHOWSKI  moved to report  HCR 2 from  committee with                                                               
individual  recommendations and  attached  fiscal note(s).  There                                                               
being no objection, HCR 2(RES) am moved from committee.                                                                         
SENATOR WIELECHOWSKI  moved to report  HCR 3 from  committee with                                                               
individual  recommendations and  attached  fiscal note(s).  There                                                               
being no objection, HCR 3 am moved from committee.                                                                              
SENATOR WIELECHOWSKI  moved to report  HCR 4 from  committee with                                                               
individual  recommendations and  attached  fiscal note(s).  There                                                               
being no objection, HCR 4 am moved from committee.                                                                              
SENATOR WIELECHOWSKI  moved to report  HCR 5 from  committee with                                                               
individual  recommendations and  attached  fiscal note(s).  There                                                               
being no objection, HCR 5 am moved from committee.                                                                              

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