Legislature(2009 - 2010)BUTROVICH 205

04/01/2010 03:30 PM Senate RESOURCES

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03:36:17 PM Start
03:36:34 PM SB143
03:42:05 PM Overview from Administration on In-state Gas
04:08:05 PM Overview: Export License Issues
05:02:04 PM HB369
05:22:57 PM Presentation by Larry Persily, Federal Coordinator for Alaska Natural Gas Transportation Projects
05:35:29 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview from the Administration on TELECONFERENCED
In-State Gas
+ Overview from Experts on Export License TELECONFERENCED
+ Update from ConocoPhilips on Gas Export TELECONFERENCED
<Above Item Removed from Agenda>
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSSB 143(RES) Out of Committee
             HB 369-IN-STATE PIPELINE/ MANAGER/TEAM                                                                         
5:02:04 PM                                                                                                                    
CO-CHAIR  MCGUIRE announced  HB 369  to be  up for  consideration                                                               
[CSHB 369(FIN) AM was before the committee].                                                                                    
REPRESENTATIVE CHENAULT, sponsor of HB  369, offered that he is a                                                               
"hands on  kinda guy" and  he wants  to start "turning  dirt." He                                                               
explained that this  bill forms a joint  in-state gas development                                                               
team (JIGDT).  It would be  found in  the Office of  the Governor                                                               
and consist of  the chief executive officer (CEO) of  the AHFC as                                                               
chair,  the  CEO   of  Alaska  Railroad  or   his  designee,  the                                                               
commissioner  of  the  Department of  Transportation  and  Public                                                               
Facilities (DOTPF)  or his  designee, the CEO  of the  ANGDA, and                                                               
the in-state gas line coordinator or project manager.                                                                           
5:03:31 PM                                                                                                                    
The  bill  also describes  the  duties  of the  in-state  gasline                                                               
coordinator in statute  and sets the deadline of July  1, 2011 to                                                               
assure that a project plan  is presented back to the legislature.                                                               
The  project plan  would  specify  how an  in-state  line can  be                                                               
designed and built  made operational by December  31, 2015. These                                                               
are  aggressive dates,  but they  won't  get to  completion of  a                                                               
project without  a timeline. The  project plan must  also include                                                               
specific  plans to  coordinate and  facilitate the  construction,                                                               
ownership, operation and  management of a gasline.  They tried to                                                               
leave these  as loose as  they could,  because he has  found that                                                               
when the  politicians get  involved in  projects like  this, they                                                               
tend to be the problem.                                                                                                         
He  said the  development team  is to  prepare plans  and designs                                                               
necessary  for  construction,  to coordinate  with  the  entities                                                               
qualified to  build, own  or operate a  pipeline, and  select the                                                               
route; the  route is to  be the  most economical, provide  gas to                                                               
residents  at a  reasonable  cost,  and to  use  state lands  and                                                               
rights-of-way   to  the   maximum   extent   possible.  It   also                                                               
establishes  an  expedited  process for  information  access  and                                                               
cooperation among the  state entities. It outlines  the duties of                                                               
the  development  team,  but  gives   them  some  flexibility  to                                                               
determine  what actions  are necessary  to  complete the  project                                                               
without politicians being involved.                                                                                             
5:05:51 PM                                                                                                                    
REPRESENTATIVE CHENAULT  said he  feels the  need to  combine the                                                               
efforts to  move an in-state  gas line  forward not only  for the                                                               
funding purposes  but to  gather information  and studies  and to                                                               
share them in order to turn dirt.                                                                                               
REPRESENTATIVE CHENAULT said the  in-state gas line would provide                                                               
economic opportunity for Alaska and  will supply the energy needs                                                               
for Alaskans for many years.                                                                                                    
5:06:54 PM                                                                                                                    
CO-CHAIR  MCGUIRE said  they are  trying to  figure out  how many                                                               
captains and who is going where  with what intent, and she looked                                                               
forward to his input.                                                                                                           
5:07:55 PM                                                                                                                    
REPRESENTATIVE CHENAULT  agreed that one  of the big  problems is                                                               
too  many chiefs  and not  enough Indians.  This project  needs a                                                               
strong leader who  can make those determinations. It  has to have                                                               
a  supportive administration  and the  legislature behind  it. He                                                               
thought  it imperative  that  they consider  that  the state  has                                                               
tried for  over 30 years to  try to secure Alaska's  energy needs                                                               
and it no longer  has the luxury of discussing it.  It is time to                                                               
turn it over to experts.                                                                                                        
5:09:51 PM                                                                                                                    
SENATOR HUGGINS agreed with Speaker  Chenault's opinion that they                                                               
need to get a strong leader and let him do the job.                                                                             
5:10:42 PM                                                                                                                    
REPRESENTATIVE CHENAULT  said we have  some of the best  minds in                                                               
the state; there is no reason a project can't be brought back.                                                                  
CO-CHAIR MCGUIRE  agreed and said  she looked forward  to working                                                               
with him. She conceded that  the timelines are aggressive but she                                                               
believed Alaskans want something to move forward now.                                                                           
5:11:48 PM                                                                                                                    
SENATOR  WIELECHOWSKI referred  to Mr.  Heinze presentation  that                                                               
estimated the tariff  at 250 mmcf/d would be  $9.24 plus $1.50-$2                                                               
for the  gas treatment plant.  Bumping it  up to 500  mmcf/d, you                                                               
still have a $6 tariff plus the  cost of the gas. He asked how HB
369 deals with  a possible $10 tariff a couple  of years down the                                                               
5:12:44 PM                                                                                                                    
REPRESENTATIVE  CHENAULT said  he didn't  have a  good answer  to                                                               
that.  The  question  can  be  asked  what  do  they  tell  their                                                               
constituents in 2018  when they have no gas. He  had no reason to                                                               
doubt  Mr.  Heinze's numbers,  but  he  wanted  to see  what  the                                                               
project   looks  like.   As  the   numbers  change   so  do   the                                                               
opportunities.  He would  like  to  build a  bigger  line but  he                                                               
thought that should be left to the experts.                                                                                     
5:14:43 PM                                                                                                                    
SENATOR FRENCH  said they will have  the estimates by July  1 and                                                               
asked why  the current  structure is not  sufficient to  get this                                                               
REPRESENTATIVE  CHENAULT  answered that  they  have  heard for  a                                                               
number of  years through different  agencies; ANGDA  for instance                                                               
was ready  to go forward  but then  the legislature chose  not to                                                               
fund him on  certain issues. They didn't think  they were getting                                                               
anywhere and that is how they  came up with the in-state pipeline                                                               
coordinator, and that  agency has been in turmoil  even though he                                                               
respects  Mr. Noah.  The legislature  needs to  continue to  keep                                                               
"our thumb on" the task that  not only the administration but the                                                               
departments are  tasked with, then what  they get in July  may be                                                               
the answers  they are looking for,  but maybe not. The  2011 date                                                               
could get  pushed out  further. He  wasn't interested  in hurting                                                               
the AGIA  project's chances to go  through, and he didn't  see it                                                               
being derailed by an in-state gas project such as this.                                                                         
5:18:12 PM                                                                                                                    
SENATOR   HUGGINS  agreed   with  Representative   Chenault.  Who                                                               
deserves the gas  first? Alaskans! Spending the money  on AGIA is                                                               
fine, but he was  willing to spend the same amount  to get gas to                                                               
CO-CHAIR  MCGUIRE said  she thought  the speaker  was right;  the                                                               
legislature needed  to set  milestones in order  to keep  this on                                                               
track. They both put July 1, 2011  in the bill out of respect for                                                               
the  governor but  she  wanted  to have  further  talks with  the                                                               
engineers because  they are  saying more field  work needs  to be                                                               
done in the summer.                                                                                                             
REPRESENTATIVE CHENAULT  agreed, but  said that  if they  leave a                                                               
project totally up  to the engineers nothing will  ever get done.                                                               
Engineers look for perfection and,  while he respects that, there                                                               
was not  going to be perfection.  He thought that others  need to                                                               
be working with them to make the decisions.                                                                                     
CO-CHAIR MCGUIRE  agreed that  a team is  needed. With  that, she                                                               
set HB 369 aside and said they would hear from Larry Persily.                                                                   
 ^Presentation by Larry Persily, Federal Coordinator for Alaska                                                             
              Natural Gas Transportation Projects                                                                           
5:22:57 PM                                                                                                                    
LARRY  PERSILY,  Federal  Coordinator,   Office  of  the  Federal                                                               
Coordinator for Alaska Natural  Gas Transportation Projects, said                                                               
he had  two presentations,  one about the  rules dealing  with an                                                               
export license that  you have to get from  the federal government                                                               
if you're going to send natural  gas overseas, and the other that                                                               
talks about is going on in the world LNG markets.                                                                               
MR. PERSILY  stated that  since 1938  exporting natural  gas from                                                               
the  United State  required an  export license  issued by  the US                                                               
Department of  Energy (DOE). It  must show that sending  your gas                                                               
overseas  is consistent  with the  public interest.  You have  to                                                               
show basically that there is a  surplus, that it is available and                                                               
not needed domestically. The DOE  license for export at the Kenai                                                               
plant was  last issued  in 2009  with a  two-year renewal  and is                                                               
valid until  March 31,  2011. It  took almost  1.5 years  to get.                                                               
Initially in  1996 when the plant  owners filed for a  renewal it                                                               
took 2.5 years.                                                                                                                 
He said the state originally  opposed the last renewal (2007) and                                                               
later dropped  its protest. Chugach Electric  opposed the renewal                                                               
as  did   others.  The  state  initially   asked  for  trial-type                                                               
procedures  with discovery  -  as did  Tesoro  which also  wanted                                                               
evidentiary  trial-type  proceedings.  Chugach  Electric  was  in                                                               
negotiation with the producers at  that time for supply contracts                                                               
and wanted  the state to  continue opposing the export  permit so                                                               
as to  strengthen their hand  as they negotiate  supply contracts                                                               
with  Marathon  and ConocoPhillips.  All  that  is to  say  that,                                                               
without protests you can get an  export license a lot sooner than                                                               
1.5 years.                                                                                                                      
MR. PERSILY  explained that it  is an administrative  action, not                                                               
congressional. It  is the  second export  license that  exists in                                                               
Alaska. Twenty-one  years ago the  DOE approved an  export permit                                                               
for Yukon Pacific  which at that time envisioned  an LNG project.                                                               
That export  permit specified  the gas could  go to  Japan, South                                                               
Korea or  Taiwan. (Export licenses  granted by the  Department of                                                               
Energy actually specify which countries  it can be sent to.) That                                                               
license  in  1989  was  for a  specific  project,  with  specific                                                               
owners, at a specific time. A  change in ownership of the license                                                               
would require  Department of Energy  approval - his  opinion, not                                                               
the Office of  Federal Coordinator - but  considering the changes                                                               
in  market conditions,  supplies, economics  and such  in the  21                                                               
years, it's  doubtful the DOE  would simply okay the  transfer of                                                               
that license  to a new  owner who would  have to go  back through                                                               
the process.                                                                                                                    
SENATOR FRENCH asked the volume allowed under that permit.                                                                      
MR. PERSILY said he didn't  remember. Even though export licenses                                                               
for natural gas  are administrative, politics do  come into play.                                                               
He remembered when the TAPS  legislation went through Congress it                                                               
banned the export of Alaska oil  for more than 20 years. And when                                                               
a  Chinese oil  company  tried to  buy Unocal  a  few years  ago,                                                               
nation-wide political pressure killed the deal.                                                                                 
5:26:29 PM                                                                                                                    
MR.  PERSILY  continued  that  back in  his  office,  the  Alaska                                                               
Natural Gas Pipeline  Act of 2004 includes a  "sense of Congress"                                                               
language that  says the Lower 48  states will need Alaska  gas in                                                               
the  coming decades.  He  commented that  it  would certainly  be                                                               
ironic  and  somewhat  politically  problematic if  just  as  the                                                               
president is elevating the Alaska  gasline to a national interest                                                               
project  and  just as  the  state's  congressional delegation  is                                                               
trying  to win  approval to  increase the  loan guarantee  to $30                                                               
billion, if  at that same time  they change direction and  try to                                                               
send the  gas overseas. He  said the federal loan  guarantee, the                                                               
accelerated  depreciation  on  the   pipeline,  the  federal  tax                                                               
credits for  the North Slope  gas treatment plant, even  the very                                                               
assistance of the  Office of Federal Coordinator  and Federal Job                                                               
Training Funds - none of that  is available under current law for                                                               
an export project.                                                                                                              
The  2004  Act  defines  the Alaska  natural  gas  transportation                                                               
project  as a  pipeline system  that  carries gas  to the  border                                                               
between Alaska and Canada, and then eventually heads south.                                                                     
5:27:44 PM                                                                                                                    
MR. PERSILY  said in  terms of  what is going  on in  LNG market,                                                               
there is  a lot  of competition  in the  Asian market.  China and                                                               
India have  local gas; China and  the US are working  together to                                                               
develop shale  gas. China  and India, in  addition to  some local                                                               
gas,  also  have   the  option  of  pipeline   gas  from  Russia,                                                               
In terms of  existing LNG producers or countries  with LNG plants                                                               
being  built, you  have Australia,  Papua  New Guinea,  Sakhalin,                                                               
Indonesia,  Malaysia, Brunei,  Qatar,  the Middle  East (a  swing                                                               
supplier that  can go to the  Atlantic Basin or to  the Pacific).                                                               
In fact, Japan  most recently was getting 10 percent  of its spot                                                               
sales from the Atlantic based  suppliers rather than just Pacific                                                               
Rim. Currently there is an oversupply of gas in the world.                                                                      
He said Shell is also looking  at floating LNG production and has                                                               
contracted with Samsung  to build essentially a  huge ship bigger                                                               
than an  aircraft carrier that  parks over an offshore  field; it                                                               
produces,  it liquefies,  and then  ships it  out. When  they are                                                               
done they move to a different spot.                                                                                             
MR. PERSILY said that people who  think of the export market look                                                               
at pricing,  because in the past  just about all gas  in Asia was                                                               
tied to oil  prices, when oil was $80-$100.  Those are attractive                                                               
gas  prices and  the  buyers  figured it  out.  Lately, about  20                                                               
percent of  Asian LNG trade  is going  to spot market.  The price                                                               
was tied to oil will still be in  the majority, but it is not the                                                               
vast majority as it used to be.                                                                                                 
Something else  to consider, he  said, is that 2007  numbers show                                                               
that 73 percent of the gas  consumed in world was consumed in the                                                               
country  where it  was  produced;  about 19  percent  of the  gas                                                               
consumed in the  world was delivered to the  consuming country by                                                               
pipeline; and  only 8 percent  of the  gas that was  consumed was                                                               
delivered by LNG tanker. It is  a small piece of the market, even                                                               
though it  is an  attractive market. To  keep it  in perspective,                                                               
Mr.  Persily said,  the North  American natural  gas market  on a                                                               
daily basis consumes  about three times the gas  of India, China,                                                               
Japan, Korea,  and Taiwan combined.  He summed up that  there are                                                               
opportunities  in the  LNG market,  but it  is very  competitive;                                                               
there  is a  lot of  gas in  the  Pacific Rim  and a  lot of  LNG                                                               
projects. It is a much smaller market than North America.                                                                       
5:31:12 PM                                                                                                                    
CO-CHAIR  MCGUIRE asked  if he  had  seen Representative  Young's                                                               
letter  to Secretary  Chiu  regarding the  extension  of the  LNG                                                               
export license.                                                                                                                 
MR. PERSILY replied yes; but he hadn't any feedback on it.                                                                      
5:31:45 PM                                                                                                                    
SENATOR WIELECHOWSKI asked if he  had any thoughts on whether the                                                               
DOE would extend the Nikiski plant license.                                                                                     
MR. PERSILY  answered if ConocoPhillips and  Marathon, owners and                                                               
operators of  the plant, determine  that they have enough  gas to                                                               
meet local needs  and that they have some surplus,  it would help                                                               
to have some place  to send the gas in the summer,  and if no one                                                               
protested it,  they would have a  pretty good shot at  getting an                                                               
SENATOR  WIELECHOWSKI  explained  that  he  asked  that  question                                                               
because one of his newsletters said there was zero chance.                                                                      
MR. PERSILY  clarified that was  for a  new export license  for a                                                               
project that was totally dedicated to something.                                                                                
5:33:14 PM                                                                                                                    
SENATOR WIELECHOWSKI  said they  keep hearing that  the President                                                               
is  interested  in  elevating  his position  and  making  this  a                                                               
project of national interest and he  asked what that means to the                                                               
project and  the likelihood of  it getting completed  through the                                                               
AGIA process.                                                                                                                   
MR. PERSILY  said he didn't know.  He had had one  meeting at the                                                               
White House and it was  discussed. They haven't quite figured out                                                               
what they  can contribute along  with the state and  the pipeline                                                               
developers and producers  to help, but the President  said he has                                                               
to think of something.                                                                                                          
He mentioned  that Tokyo  Gas Company, one  of the  Kenai plant's                                                               
customers  and is  the largest  gas supplier  in Japan,  recently                                                               
signed  a contract  with British  Gas (BG)  that is  developing a                                                               
project  in Australia;  they signed  a 20-year  deal starting  in                                                               
2015 and it would cover 11 percent of their needs for 20 years.                                                                 
5:35:29 PM                                                                                                                    
CO-CHAIR MCGUIRE apologized that she couldn't get to the other                                                                  
presenters and adjourned the meeting at 5:35 p.m.                                                                               

Document Name Date/Time Subjects
Potential Infrastructure for In-State Gas - Swenson - April 1, 2010.pdf SRES 4/1/2010 3:30:00 PM
ANGDA - Instate Pipeline Cost Comparison 4-01-10.pdf SRES 4/1/2010 3:30:00 PM