Legislature(2003 - 2004)
01/28/2004 03:35 PM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 241-APPROP: NATURAL GAS DEVELOPMENT AUTHORITY CHAIR SCOTT OGAN announced SB 241 to be up for consideration. MR. HAROLD HEINZE, CEO, Alaska Natural Gas Development Authority (ANGDA), emphasized the importance of timing right now in terms of finishing the charge that is provided under ballot measure 3. About four months are left in ANGDA timeline. His motives for finishing on time have to do with the law and with the LNG market, which is evolving dramatically. He explained: If we're going to play, if we're going to have a chance, we have to decide to make some movement and to show that the project has legs.... The study in June will provide those legs, if they are there, and then you can look at it and make whatever judgments you want as to whether we proceed or not. Remember, the funding here is the funding to finish that. The rest of the...funding would come from the financial markets, not from the State of Alaska....If the project is viable, we believe we can raise the money. We are at a crucial point. Very frankly, if we don't have funding in a matter of weeks here, our ability to execute a quality feasibility study for you is greatly diminished. We're up against the wall now in terms of getting all this work done.... CHAIR SCOTT OGAN said he had worked for a gas producer and usually gas is sold by entering into a memorandum of understanding (MOU) or something similar. He asked Mr. Heinze how he saw ANGDA's role in the marketplace. MR. HEINZE replied that he has finessed ANGDA's approach to the producers as commercial and knows he can make a deal with them. If there is an economically viable transportation project, he believes they would want to ship gas on it. The first thing he would do following a determination of feasibility is go to the open season type process where one offers up the transportation capability. People who are interested in it come forward. The two recent stranded gas applications promise the exact same kind of treatment as a very early step. It is anticipated that all three gas companies would come forward with the stranded gas applications, but just one company coming would make sufficient economics to make its project work. If no one came forward during the open season, he would offer to buy the producer's gas or work to have a down- stream market buy it. CHAIR OGAN asked if the Authority would be the transporter of the gas and noted that trucking companies usually don't buy something to sell down the line. He asked who buys and who sells under his scenario. MR. HEINZE replied that the ballot measure gave ANGDA broad authority, but ideally the state would provide only a portion of the transportation or maybe just the liquefaction plant. "We were given a mission to help the project." The Authority is having conversations with various down-stream companies and hopes to continue them. On the up-stream side, the producers have said that they would consider an offer to buy their gas and have also said they would consider shipping it. In fact, that would be their preference. He is not concerned about whether they do it, but when they do it. He hadn't seen anything from the producers' side that accelerated the timeline. CHAIR OGAN noted that the language under "Powers of the Authority" said "acquire natural gas supply" and asked him where ANGDA would get the money. MR. HEINZE replied that it is fairly normal in these types of projects to enter into a whole series of interlinking contracts with terms and contingencies; everything falls into place at once. SENATOR ELTON said he is frustrated about not getting anything [in terms of the $2.15 million general fund appropriation from the Department of Revenue in SB 241] and asked if removing "ANGDA" would mitigate some of the reluctance DOR has to support the request. MR. HEINZE replied that is a constructive suggestion, but his main concern is that one of the unique abilities the Authority brings to the project is its tax-exempt status. He suggested that putting the governor and his chief of staff in control of the organization might neutralize that status. SENATOR ELTON recapped that Mr. Heinze said time is of the essence and asked if having another six months to accomplish the job instead of three would take some of the pressure off ANGDA and assure a better quality product. MR. HEINZE replied that he didn't want to speak for the board, but its members have presented themselves clearly. They would prefer to have an answer now, even if it's the one they don't want to hear. Second, the Authority has a broad role to play and feel it would be best to fulfill its current mission by June so that it could become an effective force in whatever considerations of the other routes. He advised: If we don't look at the LNG route through Valdez, nobody else will and we'll never know if it offered Alaska benefits that far exceeded the benefits of any other project. This is the one time to look at it; the one and only shot at it. And if we don't look, we'll never know. If we wait until next year or the year after to look and let the timing be driven by the highway project, I think we will have lost the opportunity for the LNG project to be meaningful in that regard. There may be some things in the Authority's structure that would fit happily with the choice that's been made and the choice will have been made to go down the Highway.... SENATOR ELTON asked if he plans to do a bifurcated report - one in June and then a supplemental report on a highway route six months later. MR. HEINZE replied that it is his intention to meet the statutory requirement. If [the Legislature and governor] are undecided about whether to pursue the project by the middle of the year, they might as well concede the LNG marketplace for an extended period of time. Many valuable pieces of information will be contained in the report that the Legislature may want in front of it as it considers the Stranded Gas Act applications. SENATOR ELTON said he is sympathetic to ANGDA's request and wanted to know why the administration wasn't responding. CHAIR OGAN inserted that he should ask the administration. SENATOR ELTON retorted that he had, but had received no answer. SENATOR SEEKINS asked if ANGDA had had any conversations with the producers to date as to whether or not they would ship their gas on a pipeline if it existed and was a state-owned asset. MR. HEINZE responded that the producers had been asked that question numerous times and have responded in the affirmative. He has been reluctant to have that conversation with them formally, because the Authority has not determined the feasibility of the project and wants to be fairly certain the answer would be yes. SENATOR SEEKINS asked if ANGDA could at some point sell futures to pay for construction of the line. MR. HEINZE replied that the gas is available - about 8 bcf per day. The only speculation would be on the cost of transport and whether there is a market down-stream. Then ANGDA could borrow money. TAPE 04-4, SIDE B 4:30 p.m. SENATOR SEEKINS asked if he would view a legislative decision to not fund ANGDA's request now to be the will of the Legislature to not proceed with the initiative's mandate. MR. HEINIZE replied that he would rather hear right now if that is the Legislature's decision. Members of the Authority could move on, but he thought it would be a big disappointment for the state. You would have lost a look down a project that may hold some very interesting benefits for Alaska that you'll never realize any other way....You will have lost an opportunity to look at some interactions with another project that could represent how the states contribute towards it with federal money rather than state money....Very frankly, those benefits are pretty considerable.... In June, I am not going to have spent or done the work that the producers did with $100 million. What I would ask you to think about is how much of the $100 million do you know about. What do you know? I will suggest in June; I will give probably 10 to 100 times more information than they are going to give you. That might be worth something to you right there to just have the insights as to how these projects work, how it interrelates and all those other things. CHAIR OGAN commented that the charge of the committee is not to necessarily see how the project fits in with all the other finances, but whether it is necessary for the good of the people and commercializing gas. He noted there were no further comments. SENATOR SEEKINS moved to pass SB 241 from committee with individual recommendations. There were no objections and it was so ordered. SENATOR ELTON suggested that the Chair send a message to the Finance Committee about Mr. Heinze's concern with timeliness.