This meeting of the House Resources Committee will now come to order.
It is now 1.02 PM Wednesday, January 21st, 2025 in Capital Room 124.
Members present are Representative Fields, Representative Gloam,
Representative Hall, representative Mears,
Representative Prox,
Representative Elam,
Representative Sadler,
co-chair of Representative Dibert,
and myself, co chair Representative Freer.
Let the record reflect that we have a quorum to conduct business.
Please take this time to silence your cell phones
for the duration of the meeting.
Thank you.
I'd also like to thank Cheryl Cole from Records
and Zach Lawhorn from the Juneau LIO
for staffing the committee today.
And of course, a warm welcome to Representative Prox
who newly joined the Committee.
On today's agenda, we have a presentation
from Gaffney Klein who will share a summary
of a report that they prepared on the Alaska LNG project
for The Legislative Budget and Audit Committee,
copies of the report and today's presentation are available outside the
room and online. Presenting today in the room is Mr. Nick Fulford of Gaffney
Klein who is the lead author of The Report and joining us virtually we'll
also have Mr Andrew Duncan also from also of gaffey Klein and a
contributing author. Mr Fulford welcome to House Resources and thank you for
being here. Please join us at the table and begin your presentation.
Okay. Thank you very much, co-chair Freya. For the record, my name is Nicholas
Fullford. I'm Senior Director at Gaffney Klein Energy Consulting.
I always welcome the opportunity to be able to speak about LNG, in my own
association with the industry goes back really to the 1980s. When, of course, it
During my career I've seen billions of dollars of value being created through
LNG projects around the world of which there are now multiple examples from
which we can learn today. And in my
career, I have been involved with commercial structuring, selling purchase
agreements and a whole range of features. So my involvement with the Alaska L&G
more than 12 years now, in the days just following SP 38 with the original sort of concept that
existed in those days. My exposure to Asker actually goes back even further than that to the
days of the Nikiski project when I was working for British Gas. I worked on the purchase of
for redeployment elsewhere within British Gas.
So, as I say, it's a real pleasure.
I always enjoy the opportunity to talk about LNG,
and hopefully today I can put some of the features
of a project in context for you.
If I may, I'd like to ask my colleague Andrew Duncan
in Singapore to introduce himself
and provide a little bit of background.
Absolutely, Mr. Duncan.
Yes.
Yeah, good morning.
And, yeah, again, for the record,
I'm dining in from Gaffney Clyde's Singapore office.
I've been working here with Gefney
Clyde for the last 12 years.
By background, I have been in the New oil and gas industry
for over 45 years, all of that time in
the upstream sector, and focusing on facilities engineering
and project management.
first 20 years of my life, I was with with Shell in international roles, and then in general management
with a Middle Eastern University, then laterally managing an Indonesian upstream operating company.
With Captain Kline, my work has involved a range of gas and LNG projects.
In Indonesia, Australia, Mozambique, I'm currently in the latter stages of supporting
a final investment decision for a large LNG project in Southeast Asia.
So a lot of the issues that are current and being discussed with Alaska LGG are familiar
territory in other projects.
Nick, back to you.
And so as we move forward, you'll recognise this basis of opinion statement from the
preface of our report.
And before starting our presentation today, I'd like to offer a brief statement about
the scope of studies and in particular the measures that we take to ensure that our analysis
and the reports and recommendations that make remain independent, objective and reliable.
So as an energy consulting company, we've got nearly 70 years of experience in this industry now.
The integrity of our work is a core requirement and indeed a competitive strength.
Since Gaffney-Cline was acquired by Baker Hughes in 2008, safeguards have been in place to ensure that,
for example, client data, project analysis carried out by Goffney Cline are restricted.
They're accessible only to the Gaft declined team members directly engaged on supporting a client.
Now, as some of you are aware, some nine days prior to
the first presentation that we gave on the LNG project on November 19th,
Baker Hughes announced that it had entered into an agreement with Glenn Farn related to
the Alaska LNG project.
So, I'd like to emphasize that due to the established procedures and the separation measures
we have in place, none of the GAFT client personnel responsible for preparing a report
or conducting the analysis we're involved in or even aware of, the discussions between
Baker Hughes and Glen Farm, and no additional communications have occurred since that announcement.
So, in short, Catholic line affirms that the preparation of this report has been conducted
independently and without any input or influence from other business units or affiliates within
Baker Hughes.
And more of a known information contained in our study has being shared with or derived
from any other entity within Baker Hues corporate group except where expressly required under
applicable law or contractual obligations.
So, given the reliance on our advice at this and, in fact, other committees, we firmly
believe it's essential to be fully transparent about these circumstances and obviously we
welcome any questions that you may have regarding our work, our processes or the safeguards
that ensure the independence and objectivity of our analysis.
questions which may arise. I don't see any questions from the committee, please proceed.
Okay, thank you.
So today's discussion covers a very wide range of, in fact, very material features for the state
and inevitably we can't go into all of them in detail. So really the discussion today is
Work progresses through this legislature this legislative session and indeed subsequent ones
But a couple of kind of important points from the outset for consideration by the committee
first of all
any
Examples or costs or revenues that we include in our presentation today or indeed in the report
purely for illustrative purposes
our knowledge of the project in terms of
the progress that Glenn Fauna making along with AGDC.
It's the same as yours, we listen to the presentations and we
read what we do in the press.
So, obviously, I'm sure if there are any aspects of our analysis that would benefit from a different perspective,
I am sure AGDC or Glenfarn will take the opportunity to provide that clarification.
But I just wanted to really emphasize that the work we are seeing today is illustrative.
It is not intended to reflect any actual project economics or anything of that sort.
quite a bit of commentary in the press lately, is that in some of the analysis that we'll
talk about globally, sometimes there's two layers of government as here with the state
government here in Alaska and the federal government, same in Canada with provincial
government and federal governments there, and sometimes, you know, there are examples
But one of the key features that will affect the project
here is the extent to which the federal government take
action to assist or financially support the
project.
Now, obviously, that's another area where we don't know
anything yet.
There have been indications from Washington about favorable
or subsidies, but until we kind of know what that is,
it remains to be seen.
So as I say, there's a lot to
be defined,
but equally there is a
lot that I think the committee can start to think about
as we go forward.
So really the agenda for today,
the first question for the
agenda is well, why, you know,
why does the state need to take action?
Why does it need
I'm kind of useful to get that out of the way to start with because it will feature
not only in today's discussion but subsequently.
We're going to talk a little bit about state participation in LNG projects and what leads
to success.
I think it's really helpful to look at examples just south of us here in Canada.
it's very close by. And then, of course, another factor which is, you know, important for the
committee here, and I know for at least some of the members, for example, the SPIR line to Fairbanks
will be significant here is the question of gas pipeline quite apart from the LNG project itself.
So even just the gas pipeline, it's own is a major project.
It has many features to it, which we'll talk about a little bit.
Andrew, as you've heard, Andrew is actively working on many
of the FID-related issues which apply here in Alaska today.
and indeed has a long track record. So Andrew will help us with that part of the conversation.
And then I wanted to finish off with some more detailed commentary about the federal government
and the action that they might take. With that, if there are no questions, I will
Okay, so I think just dwelling on this slide for a few minutes will help to put the rest
of today's discussion into context because, you know, the question, first question is
why the state needs to involve itself in what is ultimately a commercially driven gas project.
And some of the reasons for that come out in more sort of analytical terms.
But the starting point with any LNG project is an alignment between the project sponsors
and the hosting government.
And that alignment stems from the fact that if there is no project, then there's no value
for anybody, the state or the investors.
you know, the host state and the project developers are incentivized to create an environment where
the Project can succeed and indeed represents a profitable investment.
So it's a question one, perhaps, is, you
know are there changes to policy or fiscal framework needed to ensure that outcome?
typical, if not a consistent part of an LNG project, that it would start with a dialogue
with government and that typically the project developer will request or negotiate with the
government to change certain features of the fiscal arrangements or other features
of policy or regulatory controls.
as you read around the subject.
This initial dialogue with government is a consistent feature,
which happens typically early on in the project.
There are examples, perhaps smaller projects or less complex ones,
which happily move ahead without any involvement from the state at all.
But typically, LNG projects aren't among them.
So that's question one, you know, have there been approaches or might there be approaches from the developers saying,
well, can we change this or can We alter that in order to create an investable framework for the project?
Now, so that is one question, but the second question which is perhaps more relevant to this committee
and its constitutional responsibilities to
ensure that the state's assets are properly monetized and that value is developed is well
does the State need to change things in order to properly reflect the immense value really
tied up in all that gas on the North Slope. So as we go through today and as you continue
Those are really the two things to think about are there steps needed to make the project
go that the developer requires?
But more than that, is the state getting its suitable recompense from facilitating the
project?
So as we look at examples for a project developer, they may ask, for example,
lower tax rates, they may ask the state to share in gas price downside, for example,
so that their investments are protected. But typically, and then again, this is a theme
that will recur in today's discussion, typically the focus of those asks is short term, well,
short-term in the context of LNG. Let's say the first 10 years of the project.
Now, for the state and for
the host government where frankly you're looking at
a project that will be supporting hospitals,
roads, schools, 20, 30, 40 years from now,
the perspective is more likely to be in the longer term.
This is an equation that you see popping up again and
again with an allergy project.
providing incentives that get the project going, but typically there's a
balance involved in securing long-term value for the state. So spend a little
bit of time on that slide but I think understanding these concepts and applying
them to the dialogue today will be very helpful.
Thank you through the chair, Mr. Fulford.
Nice to see you again, thank you for being here.
In the Gaffney Klein executive summary,
you estimate project revenues would exceed 20% of Alaska,
GDP potentially, and I think one thing I'll be curious
going forward is trying to track with the tax write-offs
or reductions that Glenn Farn is asking for,
how much does that reduce what?
you all have estimated as a potential revenue and for how long and that may be a moving target
and I'm not sure I fully understand all the tax reductions that Glenn Farn has asked for
but tracking the relationship between those is one of the things that I would like to do and
I don't feel like I have all that information to that yet. Thank you Representative Fields and
through the chair. So the next slide actually starts to address this but
I think just to emphasize, we are at a very early stage in the project.
I have been high-level discussions and suggestions as to changes to property tax, for example.
And part of our scope, I is likely to start focusing on a more analytical approach looking
that there are a number of other features of the project, which are quite relevant,
including, for example, the transfer price from the upstream to the midstream,
that that has significant tax implications for the state.
And, you know, I'm sure there'll be others, but
as I say the numbers are so large and the implications
for this state are, so great that
I think it would behove this committee and the legislature more generally to ensure that that very detailed
analysis takes place.
Thank you.
Thank You. A representative Prox.
Thank, you, through the chair.
It doesn't let Gaffney Klein have an Excel spreadsheet model or something.
You could give us, so when we do the arithmetic,
we're doing the arithmetic correctly.
So thank you, Representative Prox, and through the chair.
The answer is basically yes.
We do quite a bit of modeling of LNG projects.
For SB 138,
and obviously things have moved on considerably since then,
it's a different project, different stakeholders.
But for SB138, there was a thing called an open book economic model or an OBEM,
which is a common feature of jointly developed LNG projects.
So potentially that might be something that is developed this time around. If it isn't,
We could we could do our own model. It wouldn't be as detailed or as reflective as as an as
an actual open book economic model, but these are things for the future.
I guess what I'm thinking one of the things I am thinking of is, is that available as
an Excel spreadsheet so we don't have to wait two or three days to get an answer from
talking amongst ourselves and doing scenarios.
Is that available for us to use?
So through the chair, I think, Representative Prex,
the relatively high level spreadsheet,
which can be used for scenario planning and so forth,
I mean, that could be made available relatively quickly.
The difficulties come when modeling complex taxes and the implications of
different changes in sort of gas price and
You know, sensitivities to capital cost it becomes complicated quite quickly and
My recommendation would be that as the project
Characteristics begin to emerge
maybe even over the next few weeks or months that you know we start with a sort of a fundamental
what do the economics of this project look like we kind of know what the value of the
gas is likely to be in Asian markets we know how much it costs to move it in the ship
what we don't know yet is the investment in infrastructure and so forth and as
As we talk about on the next slide, and certainly it will be a feature of all the discussions,
ultimately the capital cost is probably the most important feature here.
Thank you, Representative Meers.
Thank You through the chair.
I have got a background in construction, so understanding some of those capital numbers and how that works into a model.
I know some of the questions I have and answers that I want but would like some support on
some other aspects of project financing and other variables so that support for what questions
that we should be asking is helpful.
Good. Well noted. Thank you.
Seeing no further questions, please proceed.
we've already touched a little bit on the significance of the project in the
context of The Alaskan Economy. It's useful I think to reflect on some of
the numbers because as you do so it helps to put the
project into perspective which is that it's probably one of
gas infrastructure projects ever proposed it involves a huge capital
investment but ultimately it drives very high revenue numbers as well and as the
committee sort of thinking about financials and revenues and so forth
The delivered gas to Asia is about a billion MMBTUs per annum.
So if you use a round number of $10 in M&BTU,
it's slightly less than that in Asia right now,
but it has typically been more.
So right there, that gives you a $ 10 billion per anum
revenue for the project as a whole.
Bill in actually I see it says he a therms on the slide it should say MMB to you
I'm sorry. Oh, sorry I was reading
Representative sadly, thank you, Madam Chair. Mr. Fulford question
I Was kind of surprised to see the request from the administration that apparently gapping clients are actually at the Glenfords request to get the property tax
Reduction that seems to me to be one of many
levers or knobs that we can turn to adjust the fiscal conditions for this line.
My question to use this, would this be the only one we're likely to see coming from Glenn
Farm? Is the one fiscal adjustment we would look for?
Is it part of a basket that are likely
to seek? I'm just fearful that you're going to be asked to give up too much, too firm,
too soon. Thank you, Representative Sadler, and through the chair.
is that the dialogue around tax and fiscal frameworks will probably fairly rapidly become
more complex and it will start to encroach on other aspects of tax. So I refer back to my previous slide.
You are potentially going to be asked for tax concessions and then the other question
is, well, what in a sort of balanced negotiation,
what upsides might you expect to see as a result of giving those concessions?
The ultimate measure, of course, is that everyone wants the project to go forward and to
So I think to look at it just as tax concessions is is probably you know a little too
Focused on on one area
I'm concerned. We're going to be interested entering the bazaar for negotiations
And there's gonna be a lot of factors a lotta give and get and so forth
So, I just concern that we don't focus on this one is the only concession or the
Negotiating grounds we have and try to make this thing go work in the short term and long term. Thank you
Representative sound they're representing the fields. Oh, thank you. Um
Through the chair, I have a related question.
So foregone taxes are in a way, from a state perspective,
the same as spending money or investing money.
So we may be asked to invest money in that way
and through the property tax, right often,
potentially through an equity investment.
If we're being asked
to make an investment, what would the minimum
financial information be that you would advise
a legislature?
to review before making an investment.
I mean, I would never invest in a company
if I didn't have some very detailed financial information
about their business plan.
We haven't received anything like that yet,
but if we're thinking about what's the kind of detailed
information we should review
before make an investments, what should we be looking for?
Thank you.
Thank You for the question, Representative Fields,
and through the chair.
that the state can benefit from,
if contemplating a financial stake in the project,
is that a project like this would be funded
through maybe 60 or 70% off balance sheet project finance
non-recourse debt.
And the banks, the lead banks
and the consortium of banks involved
Could be 30 40 billion dollars of debt
They they will want to go through every last detail of the project in an immense detail and you know
with a lot of rigor
So, you, know the Project economics the capital cost the EPC contract
The revenue stream and where it comes from all these things are
Basic building blocks for some of those banks. So I would say that the state's requirements
In deciding about an investment would be no different from one of these big banks
Representative Prox
Yes, thank you through the chair
A question came up on the taxing policy our constitution has
perhaps some limits on the ability for us for a legislature to
Bind another or contract away the taxing authority or something like that. Have you looked into that at all?
Thank you
Representative Prox and through the chair
We haven't looked in to it, but I do recall that when SB 138 was
under discussion
The Alaska Department of Law and others did did
look into some of these features in quite a lot of detail.
All right.
Do you want to follow up?
Representative just quick one SB 38.
I think you said 138.
What year was that?
Um, two thousand thirteen.
beginning of 14. It would have been, yeah, in the legislative session that year, 2014.
Thank you. Okay, so just to perhaps finish off fairly briefly on the rest of the slide,
you know, when we look at the effect of a project of that sort, Texas, Louisiana,
There are dozens of LNG projects being developed on the Gulf Coast.
Some of them are operating, some of the Rwanda construction,
some are gone through FID, others are yet to be concluded.
But in the context of economies of those states, they don't really move the needle.
You can look at Alaska with the LNG project and without it, and the two outcomes look very different.
So because of that, you know, the discussion we're having today,
and dialogue that you'll be having subsequently, is that more, that bit more important?
Again, just in terms of numbers,
there are different, it depends which quote you use, but
35 trillion cubic feet of proven gas on the slope, that equates to a delivered value of about
400 billion dollars. There's a lot of upside in that number. So, you know, ultimately,
you're potentially looking at a one, two trillion dollar number of Alaskan gas being delivered to
requirements to appropriately monetize that. The number is a very big one. And because of that,
the diligence that you'll want to give to this is probably more than practically any other
project that we've looked at. So last point, we talk about it being an LNG project, but ultimately
It's a carbon capture project, pipeline, liquefaction.
So really, all that is kind of stealing the ground.
It is planting equipment.
And it happens to be carrying gas.
But the real value and the financial drivers for the project
really arise from that huge capital investment.
They don't really rise from the gas
One of the benefits for Alaska is of course that you know with the huge amounts of investment and the infrastructure on the slope
the
You know the gas can be produced relatively easy. I mean it's being produced today. It's just being reinjected
so
But in the context of an LNG project what that means is that that up front investment
And that capital is is a much bigger proportion of delivered cost of gas
And the subsequent slide kind of illustrates that, but as you compare with the Gulf Coast
project where, you know, a big part of the cost is Henry Harb, its wholesale gas input.
With this one, it's a kind-of-a-one-shot investment which then relies, of course, on
So, in that sense, it's different to a Gulf Coast project and it is much more akin to
something like LNG Canada, which has the same kind of equations, a long pipeline, you
know, big investment and relatively low-cost gas.
So the final point on this slide which I'm sure will return to is that the pipeline element
As well as being an essential part of the LNG export, it is solving or potentially solves
a major strategic economic imperative for the state, which is addressing the long-term
gas shortages that I think the committee will be well aware of.
Seveen pass or you know wherever it happens to be in Texas
And the answer is that you that's yet another reason. So really if you take these sort of five features here
I think it'd be no exaggeration to say that it's almost a unique set of
Circumstances when you look at global LNG and global gas
Representative fields
Thank you through the chair one area where I would
Like to get more information or feel like I haven't incomplete information is the economics around
domestic gas
With a first phase of the project. I have no idea what that gas would cost and how affordable it would be relative to
Cook-in-line natural gas, which is of course insufficient supply
But I also don't have the information to say well would it actually be cheaper just as phase one domestic supply only
relative, to the imported natural, gas
projects that of course go in for itself and Hillcorp are taking on through
CEA and I don't know if you or we have the information to even have a ballpark
of those numbers but I would like to understand this thank you. Thank you
Representative Fields and we touch upon this a little bit in the full report
which I'd refer you to but ultimately you know that the state has number of
The gas industry in Alaska has a number of tools at its disposal to address the gas shortage.
One is to continue to invest in the cookinglet in what are essentially more and more expensive assets to produce.
But it's still an option.
It will drive the price of gas up.
Another option is fuel switching.
So obviously a big chunk of generation in the state relies on gas.
And so renewables, coal with carbon capture,
there's a host of potential options there, none of which are quick or easy to deliver.
And that one is perhaps one of the easier ones to quantify.
I think the capital investment required for one or other of
the LNG regas proposals, you know, probably,
you could take a pretty good guess at that, I
think, based on work elsewhere.
And then the other question is what happens to L&G prices
and where might it come from?
So so the one which is obviously the most difficult to quantify is is a 42 inch line all the way down from the slope
Glenfahner know working very hard on updating the cost estimate for that pipeline
once
A number is
Is put out there it'd be relatively to work out the tariff
Uh, follow up representative fields, but I do, I
do want to note that we're 40 minutes in and like, yeah, three slides in.
And is that the worldly analysis that's not held yet?
I, that that is what I was referring to.
Thank you.
Thank
you, uh, represented.
Thank
you I just had a quick question.
And it may be not that quick,
but what does it look like from the, the state?
perspective when we start talking about being a partner in this level of a project,
owning a section of pipeline or owning part of the pipeline and the
pipeline project that infrastructure, you know, that seems like a significant responsibility.
I'm not sure what that looks like from a state perspective and then,
you Know, because I do know that we don't own any of TAPs and so it's kind of
Thank you, Representative Elam, and just being respectful of time, I'll keep the answer fairly brief if I may.
So I think the bottom line is, if the project works for the private investors,
then broadly speaking, it should work for state,
particularly given the cost of capital and the discount rate, which is likely to apply.
for governments to take some level of equity interest in the project that they're hosting.
And it's a way to incrementally build on the value that the state can generate.
It all hinges on risk appetite, because ultimately if you're taking an investment in
the product, you are also taking on some risk.
Thank you.
I was promised a quick question by Representative Meers.
Thank you through the chair.
Mr. Fulford, you'd mention that a project
with such a large capital investment
needs to operate for decades.
In the global LNG market,
what is a typical or range of contract length?
Thank-you, Representative Mears.
And again, I'll keep the answer short.
15 to 20 years might be a typical long-term sale and purchase agreement, but if the question
is more, what's the life of an allergy project, then it's much longer, particularly in the
case of Alaska because you know those gaps there. Some allergy projects like Trinidad,
Perfectly functional liquefaction capacity, but they're just lacking the gas to put through it doesn't apply in Alaska
so you could
easily see this project having a life of 40 or 50 years as
as they have in Brunei
Brune I started up almost exactly the same as time as Nokiski and it's still producing today
Representing fields
Through the chair, I guess one of the things I'm
trying to think through is the initial phase would have domestic gas is this there's an area
where subsequent phases might not get a positive FID and we might have a pipeline that supplies
domestic gases and if so what then would be the financial implications for that gas and
perhaps the state had invested something what would the cost of that GAS be and I just hope this
you can help us understand these different economic implications we also explore well
what if we do phase one but the second phase is not there what is that cost that gases
financial risk with which the state would be saddled.
Obviously, we don't want to get there,
but we want understand what that risk is.
Thank you.
Thank You, Representative Fields, and through the chair,
it's an excellent question.
And if you knew that the LNG project,
the export project wasn't going to follow,
clearly you would address that gas line.
with a completely different set of criteria, it would be smaller.
So the quick answer is that without the LNG project, there is a risk that gas and power
rate pairs in South Central and indeed elsewhere could be paying more for their energy than
they would have done.
Then you would expect to see a very substantial drop in energy costs for South Central and indeed fair banks
Okay, thanks
I think maybe in the interest time I'll go through this slide fairly quickly because it just illustrates
what I was saying earlier that
you know if you look at the
delivered price of gas, and you look at the cost of the gas. And again, I emphasize these
are purely theoretical numbers. But in this example, for the Alaska project, 84% of
the delivered cost to gas to Asia arises from the capital investment. LNG Canada is probably
about 75%, but for any of The Gulf Coast projects, it's about a third. So again it just emphasizes
the capital investment is for Alaska and how it affects things in terms of telemed cost.
But with that, I could move on.
Yes.
Okay.
So on this slide we talk about some of the different objectives of
the state of developer and actually a lot of discussion we've already had today has sort of
Again, I'll go through it fairly quickly, but in terms of state objectives, and I've
mentioned it a few times because I know it's very much a priority of this committee, which
is ensuring that the natural resources of the state, you know, an asset belonging to
the citizens of a state are appropriately dealt with and monetized.
goal that the state will have. Obviously, the revenues that come from the project, if it were
to happen, you know, can be utilized in a range of ways and clearly quite outside this committee
or anything else. There's been a lot of discussion about the Alaskan budget and how the money gets
allocated. So clearly that discussion would change quite materially if this project went ahead.
heard about more recently is the question of energy security, clearly a
domestic source, a domestic to Alaska, source of gas is a benefit to everybody.
It reduces risk, it reduces dependence for example on LNG supplies from elsewhere.
So again that energy
security is going to be a big thing and although we haven't already talked
One of the clear benefits of, for example, the in-state gas line compared to LNG imports
and so forth is that it would bring a very large investment in jobs, industry, and
so-forth.
And then, of course, there's a need to ensure that environmental standards and regulatory
features are met with.
make sure that you get an appropriate level of shareholder return, ensure that the product
can be sold competitively in the long term, and depending on the stakeholder, if you are
a major Asian buyer of LNG, then your goal will be to ensure your customer base is appropriately
but if you're a seller of LNG or a trader,
then clearly the motivations are a little bit different.
But the one I'd probably finish off on
because it sets the scene for the next couple of slides
is that it needs to generate a reliable business case
and reliable forecasts.
So the fiscal understanding
and knowing how that may or may not change over time,
for a project like this where you're sinking billions of dollars
into the investment and you are absolutely exposed to that revenue stream that arises. So
fiscal stability is key for any LNG project and that's what I wanted to talk about next.
It can mean anything really from a fiscal stability agreement or FSA, which contractually
sets out the rights and obligations of the state and the investor, and will typically
heavily constrain what can happen in terms of tax changes and so forth going forward.
a kind of a general undertaking or assurance provided by government, but somewhere within
that spectrum, any LNG investor and made the point earlier about lenders, lenders too
So these fiscal spillage agreements,
they come really in two categories usually.
First is kind of fixed terms, you know,
categas one and two,
in, when they were establishing
the potential of the LNG resource in Qatar,
very little history of investment.
And so they went for the fixed term.
So they set a set of fiscal
standards for the project and they said okay we're never going to touch them that's what it's
going be and off we go. So of course from an investor point of view and from a lender point
of you that is what they want to hear really. Another way of looking at it is to talk about
economic equilibrium. If a tax changes in one element there's a subsequent change in another
such that the economics that formed the initial investment are broadly retained.
So that can be another way of doing it.
But again, from an Alaskan point of view,
and I know this was looked at with SP138,
matching that with the constitutional requirements not to commit future administrations and so forth.
It's quite a kind of subtle dialogue, but ultimately,
fiscal stability is absolutely a given for LNG projects.
The question is, to what degree they're being offered?
So if there are no questions, I will carry on.
So I'm going to talk about property tax next.
create some questions.
So, put some numbers on here to, you know, illustrate the implications of property tax.
At the moment, based on the statute, as amended, I think by HB4,
already, there's been some amendment assuming that HP4 does apply to this project. I don't
know if it does or not. But, you know, if you assume the capital cost investment is $50
billion, then very easy math. The initial tax burden would be around $1 billion in year
the cost of property tax on the delivered value of the gas to Asia is about a dollar per million BTU.
So based on today's delivered price that represents about
a 10% cost burden if you like and not surprisingly that is one of
the key focuses of dialogue going forwards as it was in back in 2014.
In 2014, a working party was established with the various boroughs impacted and various
concepts of payment lieu of tax were discussed.
I don't believe they got to the point where anything was agreed or any bills were introduced.
But ultimately, the implications of property tax for the LNG project I think have been
So I think it's inevitable if you like that they will resurface for this one.
So, exactly what those changes to property tax look like remains to be seen as a matter for the legislature to debate.
But again, coming back to what I was saying earlier,
the question is, well, if a property-tax concession is offered on the one hand,
then what might be the balancing feature,
That would compensate for it and I've got a few more comments on the next slide which
Speak to discount rate and the effect of that
So just for illustrative purposes
If you if you look at a 20-year depreciation starting at $1 billion per annum
The net present value or NPV of the cost of a project is
About $6.3 billion
If, on the other hand, you were to take exactly that same cash profile and reverse it.
So instead of starting at a billion dollars and going down to zero,
you start at 50 million dollars, and you go up to a
billion.
Because of the effect of discount rate on those cash flows, the 6.3 billion becomes
3.5 and the difference is 2.8.
The purpose of this slide is just to illustrate how project investor economics and perhaps
state economics will look different depending on how you present the way in which these cash flows
work. And I would say, in general, leveraging these differences in approach with government
low cost of borrowing low discount rate versus investor high discount
rate considerable focus on the first few years of the project leveraging that
and working out ways in which it can deliver value to both the Project
developer and the state is is a key feature.
So if we don't deal with the property tax issue if there's no reduction in that that would basically
Bring up the cost of the gas to Alaskans. I mean that cost would roll down hell or do you feel like it would kill the project?
Thank you for the question representative Coulomb and through the chair
Because because we didn't yet know exactly what the economics of a project are
It's hard to answer that question, but the way in which property tax works with its emphasis
on very high initial tax burden, it does not fit with the sort of typical way
in what people look at LNG project economics.
Capital cost estimates and so forth it's conceivable that the project could still be profitable even if prodigy taxes left unamended
But you would like you wouldn't assume that if it still profitable that those costs would go down to the rate payer eventually in tariffs or
Other way it would end up being
Well, there's two ways of looking at it.
One is what happens to that gas as it's being sold in Asia.
And for the most part, that's a market price.
So the property tax in the context of LNG sales would have to be absorbed by the project
somehow, out of profits or whatever.
is determined which would apply to South Central,
then property tax would be part of that.
It would have to be collected.
Okay.
All right, thank you.
Thank you, Madam Chair.
I'm sure that a reread of the report might illustrate this answer to my question, too.
So, property tax is one of
the financial levers we can deal with.
The others will be investment credits, capital credits.
Property tax, excuse me, production tax rates.
Corporate income tax rate, royalty rate relief, those are some of
the others.
lever on the finances of the project.
Thank you, Representative Satterland, through the chair.
The property tax is probably the biggest and most obvious
target for reappraisal.
As I say,
it's not just the level.
It's the way in which it is applied in the early years of The Project.
But, you know, production tax, royalty, corporate income tax.
You know all these things and obviously we're not there yet, but you
know when we come to Look at LNG Canada for example.
You now all of these factors went into essentially a broad package of measures that was agreed
including things like corporate income tax.
Seeing no further questions, Mr. Fulford?
Thank you.
So we're going to switch topics here a little bit,
and we are going talk about the broad production dynamics
that exist on the slope,
which I know this committee will be very familiar with and indeed
You know, I'm sure many on the committee have a first-hand experience of looking at some of these things.
So, the Printer Bay is a gas cap reservoir.
It's very well understood these days.
There's been very high volumes of gas re-injection for many, many years.
It's partly that there's no current market for the gas, but it's also to maintain oil production
so one of the
questions as we go forward is
If if that gas is no longer
Reinjected or if some of it is, no, longer injected then how does that affect the broad sort of oil?
production
forecast for, the state
All i would say is that this is a exceptionally
complex topic, which certainly the leaseholders in Prudhabe point Thompson, so forth, I'm
sure will have modeled in some detail.
The upside from the oil point of view is that if you do have an LNG project that's producing
Obviously that then has an impact on the economic life of the fields it enables oil production to continue longer
but I would expect that
An element of dialogue around the fixing of
The price and in fact the structure of how that gas works its way into the lng project
Could be heavily influenced by some of these factors
I'm sorry, I represent mirrors first and represents that.
Thank you through the chair.
So something I've been muddling and want to get a little bit more into is understanding
better the life of the North Slope and the economics of oil production versus gas production.
If we get into, and I don't have the numbers in my head,
I think we've looked at that specifically.
In the future, that oil is non-economic to come out of the North Slope anymore.
Does the gas production end?
Or is there still a value in that gas
production that lives longer than the oil?
Thank you, Representative Mears.
Full disclosure, I'm not.
My professional qualifications don't really
address the details of subsurface.
My understanding is that there would continue to be considerable gas potential and the question
is, well, what are the actual costs of producing the oil?
If the costs are producing, the oils are dollars per barrel, then that's a good example of
where the presence of the gas in the LNG could continue
to generate volumes, even in very low oil prices.
Representative Sather.
Thank you, Madam Chair.
Yeah.
I know you're here to deliver a presentation and report, and this is useful to let us ask
a lot of questions on a lotta aspects.
So some of these are maybe outside the level of scope of your report but um...
You mentioned AOGCC's involvement.
AogCCs off take approval several years past
in the restlope was kind of the initial gatekeeping
to making a gas pipeline project feasible.
I don't spend a lot of years now.
And until we get the details of this proposal,
I'm not sure if there's need to change.
But the question is, will that approval need
to be reconsidered and maybe modified?
And again, that's not your bailiwick,
I understand it's one of issues.
Even from my own knowledge of Prudhoe Bay in the North Slope,
you know, the understanding of that reservoir and its complexities
and the different producing strata has continued to evolve quite materially.
12 years ago, there was an expectation that Prude Bay would have to move
to a gas blowdown mode at some point by now.
And obviously, it hasn't. It's still producing oil.
AOGCC would want to look at this quite carefully at the very least.
I'll just be a little pying to a lot of the answers to the questions that many of us are
asking are all contingent to have to hang back until we wait and see what the finances
turn out to be.
So thanks for pairing the question as well.
Representative Prox.
Yes.
Well, I guess it's just a comment.
Mistake was made the last time we a valley or I was involved in one of these 25 years ago and and
Oops just got a thing the gentleman from
My plan for every
It evolves over time and I would imagine that they have
Looked at that. Absolutely. They need to report to us
Thank you represent Prox
Representative Hall
Thank you, Madam co-chair through the co chair am I reading between the lines correctly or understanding what you're you are sharing that
if the economic like
Is is a potential reason why the producers on the North Slope have not engaged to our knowledge and awareness when it comes to a klng?
Because the economics from their perspective
Work more in favor of the oil production on The North slope versus the gas
Thank You representative all through The Chair
It's a hard question to comment on, other than the oil and gas interaction is exception
and complex, and producing the gas instead of re-injecting it will change the nature
of those fields and their production.
this to be part of any dialogue between the gas or oil producers and Glen Farn in the context of the project
and it will probably surface in any dialog around transfer pricing.
Is there no further questions?
Okay, thank you.
One of the biggest features of The LNG Project is the need to clean the gas before it goes into the pipeline,
up to extremely high standards.
And one of significant elements that LNG projects can't cope with is any degree of carbon dioxide.
As many of you will be aware, I'm sure many
of your were involved in HB 50 two years ago now
that provide the framework for carbon capture.
And much as carbon
capture will potentially be relevant in the state
in other applications by far the biggest application
of carbon-capture technology which would
would be the gas treatments plant proposed as part of the LNG project. So even way back,
I think we're talking of an investment of more than $10 billion in that.
So the CO2 has a role. It could be used for enhanced oil recovery, although again,
Suitability of CO2 in the context of those oil reservoirs on the slope
You know that that's a question which need to be answered
but
So the two benefits one one is that the CO 2 could be used to
Enhance oil production and the other is the currently there's A federal
for so that even if it's not permanent geological sequestration, if
it is used for EOR, it still $85 a ton.
So that relates to about $0.17 in Btu, again, on the delivered price.
So you've got property tax that represents a dollar.
And it remains to be seen how long those federal benefits remain in place,
but the fact that Alaska has an established legislative framework for CCS is a benefit.
And of course, the intangible part of this is that you've got the Japanese, for example,
looking at net zero LNG and various features of that sort. So the CGS feature.
of the project has a kind of an intangible value add for the gas as it's sold elsewhere.
Representative Fields. Through the chair, do we have any sense of how much it costs to sequester
the CO2 from natural gas production? For example, on the North Slope. Like would companies make
additional money or would they basically break even? Maybe we don't know. Thank you.
We actually provided some testimony two years ago for HB 50 where we went into this, but
certainly gas processing is one of the lower-cost areas where, you know, carbon dioxide capture
is quite feasible, proven technology, and at $85 per ton of CO2, it's proving a viable
Okay thank you. Representative Sather. Thank you the Chair. We've heard that one of the potential
sources, initial sources of gas would be the Great Bear Deposits which is a different quality
of gases which may or may not require much CO2 scrubbing. So my question is is there
would there be any necessary investment in the carbon capture for the initial phase one
or even the first half of phase 1? Thank You Representative Sadler and I have heard
comments which I think were from Glenfarn which speculated that some of the initial phases of
the LNG project could proceed without the full CO2 capture plant which obviously would save quite
considerably on the investment. Thank you. Seeing no further questions?
Okay, so with respect to the committee's time, I think it'd be good if we could get
to FID discussion with Andrew in due course, but before we get there, just a few minutes
spent on some of the Canadian Pacific Coast projects would be helpful.
broadly very, very similar, low-cost gas,
low cost shipping to Asia, but the core infrastructure is costly.
So, LNG Canada, Xila Shems, they both rely on
quite significant gas pipelines across the Rocky Mountains, so
probably more adverse terrain than exists arguably between the slope and
So, a couple of general observations.
The LNG Canada, so Shell Project with co-investors from Asia and elsewhere, it reached FID 2018.
Phase 1 started delivery about a year ago.
So, already several Kargos have left for Asia, starting to generate quite significant cash
flows, the expansion phase for LNG Canada is being talked about right now.
So the sort of confidence that I get from that is that for a project that's broadly
it's got the backing of a major international energy company, it has been financed and it
is up and running. So in that sense, although a lot hinges on the economics and so forth,
the sort of broad principle of does the Alaska business model work, I think the answer is
yes because it is working today, just a little bit south of us.
Just to give you an idea, we talked about low-cost gas, so LNG Canada and the other projects,
they get the gas from the Montney, from that part of Northern BC, which has a long delivery
chain down to Henry Hub.
So it's traded at a very significant discount on Henry hub.
And certainly the forecast is $2.50, et cetera.
Obviously, there are other elements that go into AKLNG like the CO2 removal plant and
so forth, but ultimately it's conceivable that the cost of gas for the Alaska project
could be less than $2.50, numbers have been put out there in the $1.1 $50 purely speculative
It entirely hinges on the value to the producers and the dialogue there.
But interesting comment from the CEO of Shell, in his mind, the particularly attractive
features about LNG Canada is the differential between ACO and Henry Hub and approximately
two Asia.
Well, same thing applies differential, essentially the cost of producing gas on
Henry Hub is significant and it's getting bigger. December saw some
quite material increases in Henry hub and there are signs that Henry
Hub's moving up and so you know for every dollar movement in
Henry HUB that's an extra dollar of competitive strength for Alaska and
is of increasing base cost of raw gas and certainly in the short to medium term lower
LNG prices, particularly in Europe.
So, you can take a lot of comfort from these projects in Canada, from the fact that they're
being invested in, one of them at least has gone to FUD in construction, and there are
others being talked about.
This is just a list of some of the projects which apply.
I find it interesting that the Xilishim's project, which is driven partly by First Nations
involvement, is literally a few hundred yards from Alaska.
It's on a canal which divides Alaska from British Columbia, it's just 60 miles from
than the planned volumes from Alaska, but certainly comparable.
Shell have signed up for two million tonnes per annum of output,
at least on the basis of an MOU,
and Total have sign up to plus equity.
So that's a project which is moving ahead
and has a long way to go,
but nevertheless,
credible players
are looking at that very carefully, and from that I take a lot of encouragement
in terms of where AKLNG sits today. The other two on here, Cedar LNG,
it's a smaller project, wood fibre, they're both moving ahead,
but perhaps not quite so comparable on scale.
So, with that, just some of the lessons learned from LNG Canada, it took about five years
to agree the fiscal package.
So this was a dialogue which went on for some time.
The fiscal passage, I would say, was one of a very last building blocks between sort of
The fiscal package was agreed in March 2018 and followed very quickly by the FID in October.
One of the reasons for that is that there was considerable alignment
between the Canadian federal government and the provincial government
and in order to facilitate the dialogue with the sponsors with Shell.
Basically, the federal government and the provincial government kind of teamed up,
they sat down and rewrote a whole suite of taxation and fiscal requirements,
and they came out with a package which ultimately was acceptable and, you know,
created the project that we see here today. So to get in it, one of the questions we've asked
Why does the state need to get involved?
So this is an example where state involvement
and indeed federal involvement was really
a pivotal part of reaching FID
and what we have today is a very successful project.
So with that, I'll carry on and talk a little bit
about the Phase 1 gas pipeline.
And then I'll invite Andrew to pick up from that and talk about some of the FID considerations.
So first of all, just a little bit of a comparison.
AKLNG 800 or miles a bit less if it's to some the alternate gas supplies.
LNG Canada was over 400 miles 48 inch, and I was talking to my colleague Andrew about
this yesterday, he was pointing out, I think it's a useful takeaway from this slide, that
the cost estimate, which if you work out per pipeline inch per mile, it is kind of inversely
Coastal Gaslink already built a significant cost overrun for, you know, some well-documented
reasons including building the pipeline during COVID. You've got ACLNG sitting in somewhere
in the middle based on the previous estimate, and then you've the SELICEMS project which
is seemingly a lower cost. Part of that pipeline exists today which might be some of the reasons
But other than that, there are comparisons.
While we talk about the in-state gas line,
there is some fundamental differences,
though, that come out of this slide.
So the coastal gas link pipeline being developed
by TC Energy, TransCanada, and the tariff equation,
commercial balance purely a function of the negotiation between LNG Canada and
TransCanada. So it doesn't involve any gas or power rate
players, doesn t involve many utilities. It's purely arm's length negotiation
between those two. Same with Xilishim's Lng. The function
of that pipeline is solely to move gas to the L&G project.
So, from a Canadian regulatory oversight perspective, it's treated as any other sort
of privately funded pipeline.
A.K.L.N.G. very different.
Certainly for the early years of the project, ultimately that pipeline will be providing
gas to South Central, and we hope Fairbanks and other places in the interior as well.
that type of pipeline would require a rate case
in the ruling by the RCA.
Conceivably, there could be a legislated outcome for that,
but, you know, obviously that's not being talked about yet,
or it's no clear how that would happen.
This is another area where federal input
and federal grants could have an effect.
But ultimately, compared to the other two pipelines on this sheet,
setting an appropriate tariff for the initial phase one gas line is a much
more detailed and challenging feature simply because it will directly or
potentially depending on federal input and everything else it could
potentially affect you know what people throughout Alaska pay for their energy.
As a result it will get that bit more of oversight
Representative Mears
Thank you through the chair on the back on that slide we were based on yep
So
The cost for a klng estimated capital cost I
That's correct.
And when we were given that presentation
in an interim resources meeting, there
was a cost of a number of different projects
and their cost overruns.
And the LNG Canada project was definitely
an outlier at the time.
The final costs were even higher than that.
If I recall correctly, the original cost estimate
was half of that, so.
I guess this is just a thought as we're looking at numbers that we don't have yet.
Some more information about the,
you know, what were the factors in LNG Canada?
What are our risk assumptions in a KLNG?
Twice is a lot when we're looking at construction costs and it's kind of funny when people talk about you know
Like this these rough conditions of construction in Canada. I'm like have have you been here?
So I guess I don't really have a question in here
It's just a caution that you you that is the significant thing that we need to be thoughtful about is cost overruns and how
Pre-planning can help lower those costs. And that was some of our conversation and resources last year about planning for large projects and the and
the potential for cost over runs
So, uh, representatives through the chair, just a couple of comments as well.
Um, you know, obviously with Shell and their kind of world-class project management expertise
behind that project, it's a good example of how it doesn't matter how good you are at managing the project.
Things can still escalate.
building it during COVID was, you know, quite chaotic.
And one of the other features of that pipeline is that it required 17 or 18
agreements with First Nations whose land it came through.
And I think at the sort of initial FID, the vast majority of those First
with the pipeline developer but some hadn't and that turned out to be, you know, quite
impediment to building the pipelines. It had to stopped and restarted. But all this to say,
particularly, if we're talking about a tariff that is being funded by gas and electricity rate
And who's liable for any cost escalation between FID and construction?
That's that's a highly important feature, particularly, you know, for Alaskan energy users
Okay, oh I one more question representative. Thank you, Madam co-chair through the co chair. I'm curious what are
some measures that project leaders can undertake to manage the potential for risk
when it comes to cost overruns, especially the ones that are beyond their control.
Thank you Representative Hall. And I might defer this question to my colleague in Singapore
who's quite experienced with these matters and perhaps I could ask him to address that question then.
obviously later on we'll get into a more general discussion but the way in which
EPC contracts are let and so forth it's you know there's a lot to it so and
Andrew if you're still with us with the permission of the co-chairs perhaps I
could ask you to respond. Mr Duncan are you on the line? Yes I am and thank you
very much for the question. Through the chair there there is an
body of, let's say, techniques and review approaches to assess the level of project definition,
project maturity, prior to taking a final investment decision.
is formally taken in your question you you referred to events outside their
control and of course those those kind of events and I'm thinking of the of
the COVID kind events are outside of anyone's control
a robust risk assessment approach, but many of the aspects that came up in LNG Canada
or, going back even further in time, problems that arose during the building of taps, are
can be addressed in the pre-FID project definition phase.
However, there are always schedule pressures that is put on that. It takes
time to work these questions up. And so there's always a conflict between
the urge to take FID and get on with the project
to go back to the LNG Canada example to conclude those final landowner agreements or to conduct
a tendering exercise to determine what the final price is.
So short answer is yes, there are established approaches to try to identify a minimized
they do take schedule time and they require some project discipline to implement them.
I hope that answers your question.
Thank you.
Seeing no further questions, Mr. Food.
Okay, thank you, so we'll move on and talk about the tariff considerations.
We've touched on some of these previously so, we don't need to
In terms of setting a tariff, that ultimately the pipeline users will have to take the capital,
the operating costs, escalation risk.
These are features which need to be understood in some detail, as Andrew has pointed out.
for the initial phase, if the tariff is being supported only by in-state demand, then clearly
that will drive a very different set of calculations than compared to using it to export LNG.
And the whole host of other features will need to be dealt with.
the way in which they would typically deal with a pipeline tariff, which is intended for consumers.
They, I think, would have a remit to look at capital cost, operating costs, financing,
cost of capital, a whole range of things which would ultimately feed into a tariff
but would require a fairly detailed understanding of the project and access to,
I'm sure, series of documents.
But, you know, as I think Representative Fields was pointing to in his earlier question, the
difference, at the end of the day, in-state demands about 300 million standard cubic feet
per day.
The LNG project would require about three BCF a day so there's a tenfold difference
in the amount of cash required.
project requires additional turbines and compressors and so forth.
But at the end of the day, you're trying to support a 42-inch line
with about 10% of what the gas that can come through it,
albeit there's the compression question.
So a whole raft of tariff-setting issues
which will need to be addressed in some detail.
the pipeline, as I say, unless there's some kind of
legislated or federal solution. You know, because the revenue for the
pipeline is supported entirely by
in-state demand, you know lenders and
project sponsors, everyone would need to know exactly how that would work.
So I think I'll go through this slide fairly quickly as well because we talked about a lot of this,
but obviously some huge benefits of building the pipeline.
They've been talked even since the ASAP days and other ways to bring North Slope gas down to South Central and to the interior.
But as a stepping stone towards significantly lower cost energy for the state,
If that LNG export project does come to fruition, then, you know, right there you have a much
more robust sort of energy supply base for the state.
In terms of things that need to be addressed, there's gas supply and agreements, the time
You know, another area which I think has been talked about and subject to the dialogue and I
think even an agreement between AGDC and Glenfarn is what's typically termed the Alaska
Advantage Principles, which, I believe, broadly say that Alaskan citizens will be treated equally
you know, taking those principles and working them into a contractual framework, I think
will probably take some effort.
Okay, that's a question.
I've got representing mirrors, then representing fields.
Thank you through the chair.
I think another consideration is when the local gas supply is.
So, MEA just extended their contract.
They just had a rate filing to extend their contact with Hillcoat for another year,
so that puts them from 2028 to 2029.
Chugach Electric, of course, has got the blue-gof-field in partnership,
so they don't have a cut-off date since they are in operation in that field.
And of, course we know there's curves and slopes and not like a jump off.
on some of that. And then, and sorry, I believe it was 2033. So when we're
looking at the startup of, you know, when the needs are, it's not all of it day one.
There's other things going on and then also looking
at people doing, if it is available, then people do conversions and
then other demand changes with people changing their processes.
So I think that's another thing that we need to keep in mind and features to
Thank you, Representative Mearsen, and through the chair.
Yeah, that's an excellent point,
and probably two different sets of criteria,
one which applied to the established gas infrastructure
in South Central and another set of considerations
which apply to interior.
So, just as an example, probably 20 years ago now,
to to a significant kind of gasification of their economy and
Exactly the same thing who's starting from essentially no natural gas infrastructure or demand through to you know building it up
so, you Know
these
More strategic gas evocation projects have have happened in the past
sometimes they
invite funding from
NGOs and and other
institutions that can see the benefits of introducing low cost energy. So yeah, that's a good point.
Representative Fields, then Representative Sather.
Thank you through the chair. Yeah, I just wanted to ask Mr. Fulford for a little help
understanding the conditions in which gas and phase one would be more economic
for South Central. We haven't seen the contract with AGDC.
and Glenfarn, but to my knowledge, there's no guarantee that GlenFarn sell gas to sell central
customers at any certain price point, any percentage price, point relative to
global markets or anything like that. So my assumption is they're going to
sell it to sale central if that maximizes profits.
So, you know, help us think through like a company would.
presumably to build a gas line at all.
They have actual firm binding commitments overseas,
which allow them to finance it.
So then we would be competing with those
and then I would assume that the company assumes
they will sell some of the gas on the spot market
at higher prices.
I don't know what percentage of that might be.
So maybe if it's a profit maximizing company,
we might pay somewhere between the long-term contracts
spot market price where they get a higher per unit yield, can you help us think through
what is profit maximizing for Glenfarn and how does that inform what we might pay and whether
that is affordable relative to say the gas that N star is buying from hex today just to name one
example. Yeah thank you Representative Fields and through the chair you're right to kind of
start a discussion around those features, because they are central to the whole business
case of the pipeline. Typically, gas transportation agreements, for example, with, you know, chugacha
and still somebody, they would be long-term in nature. They would have a ship or pay obligation.
so that the revenue for the pipeline operator is known and predictable.
And allied to that would be the actual gas supply element.
So there's two elements really.
There's a commitment to pay a tariff for pipeline and there is a
commitment by the gas.
The commitment for
then the commitment to buy the gas, given the capital costs involved, but because one
consideration with gas infrastructure is once you're down to the distribution end, operationally
you can't switch it off. The difficulties of interrupting a gas supplier such that it's
rarely have ever done.
So, what happens in terms of spot sales to Asia and so forth, I don't think that would
really have any implications because once a commitment is made to supply in-state demand,
I think it would be a long-term commitment and in some of the tariff and pricing.
following up from the earlier remarks, given that you couldn't overnight switch 300 million
cubic feet of gas demand from one supplier to another, that
you've got the ramp up, there's a host of things there, which is
Representative Sandler.
Thank you.
Through the chair, Mr. Norford, the third point on the features to address gives me some
concern of the potentially complex tariff and rate filing.
So my question is, you know, we hear that Glenfern wants to make their final investment
decision quickly and begin to deliver and construct a gas line phase one, but what are
deliberates deliberately, and it might not be able to produce a decision that would benefit our desired timeline.
So give me your thoughts on the assessment of the risks of regulatory delay to phase one.
Thank you, Representative Sadler,
and I'll stop the answer and then perhaps ask Andrew to comment.
But before you answer, I just want to do a time check we've got about.
16 minutes left and I would like to power through the rest of the slides if possible.
I know there's a lot of information and we'll death yeah go ahead I'll hold you in advance.
Okay, thank you. Maybe if we could get that in an email and then we can distribute it to you?
Okay yeah we will do that. So I think at this point I will finish off on the gas line and
the FID timeline and how that will work. So, Andrew, if I can pass over to you and
just be mindful of the guidance from the the coach and off we go.
Mr Duncan. Yes, thank you very much. And sorry, the image is not exactly clear on my screen,
Okay. So, I mentioned earlier and that was kind of setting up the topic on process and
techniques to take a final investment decision. And the point I want to make very strongly
engineering definition and cost question, it's multi-dimensional. It's looking at the overall business
case of the venture. So I'm referring to some points here that that you know phase one is a
pipeline to domestic market, and Nick has touched on some of the complexities that that adds.
We have low subsurface risk, yet there are subserface aspects.
We spoke earlier about the complexity of all the interaction between oil production
the operational aspects of producing that, and the cost of production will still need to be worked up,
and that will impact the transfer price. And as we mentioned, the facilities capital costs
If we could move to the next slide, please.
Large project will, virtually all significant upstream projects are managed in a typical
stage gate process, which I've illustrated here, and I believe the committee has been
But at each stage leading up to the final investment decision at the end of the development decision,
all aspects of this project are scrutinized in increasing levels of detail.
Of course the hand is the project technical scope and cost and schedule.
But then, aspects like the organizational structure is the contracting plan in place,
is management plan, in-place, are the permits and regulatory aspects in
place.
There's been extensive discussion around legislative framework and so forth, and of
course those processes will impact the readiness to proceed.
We have a flow of gas and funds from upstream to midstream to domestic consumers,
ultimately to the LNG plant and to overseas buyers, and all those different contracts
will need to be compatible and aligned.
financing. We mentioned earlier in this discussion the scrutiny that finance
providers will will make to the project and yeah they can be very demanding and
stakeholder management the aligning the the public and another involved
It is a multi-dimensional process and requires equal care on all aspects to keep it moving forward on old fronts.
May I move to the next slide please?
Yes please.
And in my experience, the free FID schedule can be strongly a function of the economic
attractiveness of a project.
I've seen projects that have moved, upstream projects, that are moved from discovery to
a final investment decision in four years.
very commercially attractive Gulf of Mexico deep water oil developments. And
there the developer consciously took the decision to progress forward to a
final investment decision because studying the project for longer woody
road value. So they just got on with it. At the other end of the scale there are
still being studied and talked about after 50 years and haven't made it because they are
marginal and I think it's a general observation that the more
marginal a project the longer it takes to study the risks refine the risk and
To get the level of assurance that all the various parties to the final investment decision
are looking for before they commit to the project.
So I believe that's a very quick run-through
on the points that I wanted to raise
around a final investment decision.
Were there questions, please?
No, there are no questions at this time.
Okay, thank you, Andrew.
I will carry on with just a quick summary.
I think in terms of legislative action likely needed prior to FID, we've talked about property
tax a little bit, other potential duties and levies, corporate income tax and so forth.
And the question is whether there's any kind of LNG specific permitting and regulatory
oil and gas production tax and royalty, particularly in the context of this interaction that we
talked about between the products. Obviously on the pipeline, establishing a tariff for
South Central and the interior seems to me to be a priority which the legislature I think
the state might be asked to stand behind some aspects of the credit, for example, with the
tariff payments and so forth, and clearly that, you know, will be a major debate on its own.
And then talking about the Alaska advantage principles, which I referred to earlier, turning
that deals with the transition and any tariff changes as the project moves from domestic only
to export, that I think will require further definition. So with that, just to finish off
very quickly on federal policy implications, in a nutshell,
LNG projects often used to start with a government-to-government dialogue and potentially part
of a treaty.
In fact, the Nikiski project was really sort of facilitated by a Treaty that existed between
the U.S. and Japan about building trade.
So we're kind of almost back to that kind concept.
So knowing that there were assurances at a government level was typically seen as pretty key.
And certainly in the early days of the LNG industry, fuel switching was very challenging.
So if your LMG didn't turn up, you had very few options.
You know, obviously we've all read about the trade discussions that have gone on at a federal level with various Asian parties.
So, you know we talked about $10-11 billion revenue that would accrue from the LNG project.
That number is about a quarter of the value of car imports from Japan.
It's about third for Korea.
It represents over 10 million smartphones and laptops.
In the context of those trade discussions,
we're talking about a number that can balance out
some of these trade imbalances quite materially.
I represent fields.
Maybe the chair, Mr. Fulford, could go back three slides
to the legislative action.
And I think my question is kind of looking forward
Again, we haven't seen any detailed information from Glenfarne.
So before personally, I would vote for any kind of investment,
whether that's direct investment tax reductions and so on.
I wouldn't need to see that information to
see it is a compelling case for state investment and the state
investment is necessary for the project to move forward.
So your continued assistance bird-dogging,
that would be appreciated.
Look at other what are the other alternatives so ten point seven billion dollars comes out to
About that. Well more than twenty five thousand dollars per individual person in
Anchorage in the Matzoo. Let's generously assume they all use gas, which of course they don't
Hundred thousand for my household. So I think we should be doing comparisons. I mean shoot for that much money shoe got your electric good
build a bunch of hydro and I could install a heat pump in my house and run it forever,
potentially at a lower rate. So I just think we need to look at the alternatives and make sure
we're making ultimately the best decision for consumers and businesses and your assistance
will continue to be needed for that. Thank you.
Thank You. We have four minutes representing Stanley.
Yeah, kind of jumping before we get to the deadline. I'm just curious to have
Is your contract with the state through Albany and they one and done is this report the end of
it or will you continue to be available for consultation and analysis of further development
site the previous question just said. Yeah thank you representative Sadler our contract is a
rolling contract it was renewed I think in June it'll come up renewable again this this June unless
Okay, well, thank you, co-chair. I think we're pretty well at the end of our dialogue.
The very last slide of all dealt with federal loan guarantees.
Again, just a quick summary of the potential implications.
As I'm sure everyone on the committees are aware, there have been comments made at a
cabinet level concerning the financial availability of
it makes a big difference to cost of debt and that difference flows through to the cost
of delivered gas somewhere between 30 and 45 cents per MBTU. So loan guarantees on its own
are a major help for the project and obviously any kind of other
federal subsidy or loan will potentially have a material effect as well so it remains to be seen.
how this would evolve, but they're important.
Thank you, thank you so much, Mr. Fulford.
And if there are any further questions,
I'd ask committee members to please email them,
and then we can get them distributed out
to the rest of the committee.
Representative Prox, do you have a quick one?
Just a quickly, have you thought about,
kind of when we need to make a decision?
Is there, are there some deadlines we
need think about?
Thank you, Representative Braxton, through the chair.
I think the timeframe and the deadlines have yet to be established.
Thank You.
This isn't the last minute.
Seeing no further questions, again, if there are any further
Please email them, we'll try to get them out and distribute it to committee members.
With that, thank you Mr. Fulford.
That completes our agenda for House Resources Committee meeting today.
Thank you again to our presenter.
Our next House resources meeting is Friday, January 23rd at 1 PM,
where we will hear updates on the production in the North Slope and
cook inlet from the Department of Natural Resources Division of Oil and Gas.
The time now is 2.59 PM and this hearing of the House Resource's Committee is now adjourned.