I call Senate Resources Committee to order.
Today is January 26th, 2026.
The time is 3.31 p.m.
So, today, members present, Senator Kawasaki,
Senator Clayman, senator Dunbar, and myself,
Senator Giesel.
I believe that Senator Wieckowski
will be along shortly.
Two of the members are delayed today.
Senator Raucher,
Senator Myers, they'll be joining us later.
What we do have a quorum to conduct business.
So, thank you Heather, who is keeping the records for us today
and Renzo and Doug who are helping us out with the audio.
Today, we're continuing a presentation from Gaffney Klein
on LNG, West Coast L&G, the various projects that are out there,
the one that is being proposed for Alaska.
their senior director of gas, LNG, and energy transition.
Mr. Nick Fulford is online,
and he is being joined by Andrew Duncan,
director facilities and costs.
Mr Fulford was with us on Friday afternoon,
and we didn't quite get through the PowerPoint,
his PowerPoint presentation.
We ended at slide seven.
with slide 8, I also have asked Mr. Fulford to discuss briefly the Wood Mackenzie report
that was completed November 19, 2024.
It's entitled Economic Viability Assessment and Economic Value of Alaska LNG Project Phase 1.
We understand that Glenfarn is referencing as a guide to what the state of Alaska would possibly be proposing in terms of tax.
reductions and things like that.
So it would be very beneficial to this committee
to have an overview of that report.
We will at some point have Wood McKenzie presented themselves
but I asked Mr. Fulford if he would
be able to comment on some of the aspects
of That Wood Mackenzie report,
let the record reflect that we are joined
by Senator Wilakowski.
So Mr Fulford, I see you online, welcome.
I will let you begin your presentation wherever you wish.
If the wood Mac or we can continue on with slide eight of your PowerPoint.
Thank you, Chaggy Zil and good afternoon committee.
I think with further delay, I
think it would be useful to proceed with the discussion around the Canadian projects.
framework and governance which may surround the newly configured
AKLNG project, maybe we'll talk then about the Wodamack report and where that sits.
So with that, let's talk about Canada to start with. And for the record, my name
is Nicholas Fulford, apologies, I omitted that. So I think the key thing for
The fundamental economic model which drives LNG Canada, which is up and running, has been
for a year or more, and the other development projects which exist there, the fundamental
economic proposition is very, very similar to that which applies here in Alaska, in the sense that
which in the case of Canada comes broadly speaking from the Montney, shale gas area,
and low-cost shipping, which to all intents and purposes is identical to the shipping cost that
would apply from Alaska. What both sets of projects have in common is typically a very long pipeline
in hospital terrain, which is arguably a more difficult pipeline environment in Canada than it is
here in Alaska. So as you think about, what are the implications for Alaska? Well, I think one of
the key implications is that with those projects out of the border, you have an investable project,
And so it clearly the parallel done exact, but fundamentally, if it works in Canada,
if LNG works on Canada it could work in Alaska. So I think that's helpful to consider.
On the graph here you'll see a projection of the feed gas cost which would go into the
typically referred to as ACO or station one, it's a hub-based gas pricing approach which
is ultimately linked with US wholesale gas prices in the south, but typically has a very
significant discount on Henry Hub which is the wholesale-gas parameter that's usually
So, you can see that the projected cost of gas into those Canadian projects is about $2.53.
And as many of you will be aware from previous discussions, including the Woodnack Report,
a gas price for Alaska has been suggested in this sort of dollar $25 range.
Right from the get-go, you know, Alaska could benefit from a lower cost of gas than that which exists in Canada.
But the Alaskan project has the
dis-benefit of having to construct a large and potentially costly gas processing plant.
But as you think about the parallels, I think
One of the reasons why it's useful to study these Canadian projects in more detail is because of those fundamental comparisons.
Just of note, LNG Canada, which as I say has been operating now for around a year and a bit, the second train came into operation over the summer.
which is the state oil and gas company of Malaysia.
They recently, they had a 25% equity stake,
they recently sold 5% of that stake
to a combination of a US capital fund and Saudi Aramco.
So as you think about the approach that the State of Alaska may take to...
the Alaskan project is worth considering that if that 25% stake option were executed, it's
not necessarily in perpetuity. So, you know, patranas have sold part of their interest,
so could the state if it went forward in that mode, so just a point to remember.
With that, I will move to the next slide, unless there are questions.
Yes, there is a question, Mr. Fulford.
Senator Klayman.
Thank you.
Just for purposes of the parallels, can you tell me where the LNG project is in Canada
and how long the pipeline is involved, because I think they're comparable, but that would
help me to have a little bit more geographic reality?
The LNG Canada project, and we'll go through some of this on the next slide, but the LNG Canada
project it's being built in Kitimat, about halfway down the British Columbia coast,
and the pipeline, it has been built by TransCanada.
for the benefit of the LNG Canada project.
I believe it's just over 400 miles,
so it is shorter than the proposed pipeline from the slope.
But, as I say, slightly more hostile terrain.
Follow-up, Senator Klayman.
Thank you.
I see no further questions, Mr. Fulford.
Okay, well, I think the slide is going on to the next one.
which is a kind of a useful summary where things are. I've started on the top of the slide with
a project. It's called the Exceler Shims LNG project and the reason I have that
at the Top there, two reasons really. One is that its development cycle is not dissimilar
to where the project has reached in Alaska.
potential two millionth un-offtake, Total, another major LNG company also signed up for
two-million-duns plus equity. I think the remarkable thing about this project from
for the purposes of today's committing people at home is that it's literally just a few hundred
yards from the Alaskan border. It's right on the border between BC and Alaska and as the
So, it does kind of emphasize that there's sort of a Pacific coastline from, well, from
the slope really all the way down to Vancouver.
It is quite an actively pursued area from an energy perspective and there are quite a
few projects that, you know, could be developed.
a notable item about the Cassie-Lisham's project is that it's being pursued primarily by a group
of First Nations and with the participation of a Houston-based infrastructure company
and also some gas producers in northern British Columbia. The volume there is 12 million tons per
dissimilar from the Glenfern proposal and certainly significant and perhaps again for the committee
and the audience at home. Rough numbers, the days LNG industry is around 400 million
tons per annum in total. The growth projections generally accepted move it up to about
and most of that growth is coming from Asian markets, so that's another reason why these
Pacific LNG projects are of particular interest. The ability to deliver into Asia is significant
or economic then, for example, the Gulf Coast. So let's move on for a moment to L&G Canada.
the first train of two trains which come to 14 million tons per annum.
The first of those trains start operation a year and a bit ago, the second one, just a few months.
So those vessels are currently being loaded and sailing into into Asia, typically. Although,
again, as a sort of an illustration of how fungible and dynamic gale and g market is these days,
literally just a few days ago was turned around,
sent through the Panama Canal,
and it's being delivered over in Europe.
So, just, a good illustration there, I think.
On the next slide,
I'll talk a little bit more about LNG Canada
and the fiscal construct,
which applies both from a provisional
and from the federal standpoint.
And,
you know, because again, I think that has some significance.
There are two other projects, both smaller, Steeda, LNG,
and Woodviber as you go further south.
The parallels with Alaska are quite not quite so marked,
but nevertheless, it's a good example of two
other project that are making good progress
They're well on their way to to completion
Um, so if there are no questions, I will move on to the next slide
Mr. Fulford, i had a question. Um
You mentioned on almost all of well all these term formal stability mechanism. Could you elaborate on that meaning?
Yes, thank you checkies all
We've touched on it, I think, in maybe in the earlier parts of this presentation,
and I, think Pegasus spoke about it as well on Friday, which is this question of fiscal stability,
which, you know, ultimately what we're talking about is a fiscal framework and government
very large capital sums are recovered with these long-term tariffs.
So, the Elegi Canada project
was the subject of considerable dialogue over four or five years with government.
And in the sort of run up to FID,
the federal government gave the project what they called nation-building status.
And part of that was it was sort of a broad
assertion that the fiscal tax framework around the
project with its status as a nation building project would not be changed.
While it fell short of a formal fiscal stability agreement, which you do find in LNG projects,
the project developer's primary shell and the major lenders behind the projects took
the view that that was enough of the fiscal guarantee to lower the risk around the investment
and generally support the product.
But LNG Canada does, and that's what led to the comfort around fiscal stability.
Thank you.
Senator Klayman has a question.
So when you're describing the fiscal
stability for L&G Canada, it sounds like you are describing
the physical stability from the government tax structure standpoint, as opposed to internal
analysis about the company's
dollar analysis about whether this is going to work or not.
Thank you, Senator Clayman, through the chair. Yes, that's correct. The fiscal stability
in this context is the tax framework around the project, both upstream and midstream,
An investor in an LNG project is typically entirely exposed to, for example, L&G commodity
prices, which may themselves be linked to oil prices.
So, in that sense, there is considerable risk on part of the investor, but it's risks
that they are comfortable with as opposed to the risk of changes in government tax.
So...
Follow-up, Cinder Klayman.
Thank you, Madam Chair.
to the investor side, not the tax side was LNG Canada disclosing more to
the local governments or the provincial governments than we're seeing from Glenn
Farn. That's an excellent question sent to
is not broadly speaking available publicly,
but the evolution of the fiscal framework
for LNG Canada took place over about five years.
And during that time,
the provincial government in particular changed
the tax regime for the project very substantially.
And as you'll see when we get on to that,
the sort of front-end loading, in other words, taxes which apply from day one were
considerably mitigated in favor of long-term revenue. So given that amount of
time and the dialogue which took place, I think it would be surprising if there
discussion around the project economics.
I see no other questions, Mr. Fulford. Thank you.
Okay. Uh, thank you, Chair Geese. Hello. I can continue with the next, uh, the
next slide. So it isn't, it's an interesting case study for A.K. L.D. given, given the similarities
The initial approach of the provincial government in British Columbia, who were presented with multiple
major LNG project development proposals,
was to, you know, take a high-level examination of
the gas prices, which applied in the money of perhaps two, three dollars, and
the landed prices. For example, in Japan, it appeared much higher. So there was an assumption that
The project could sustain quite significant additional corporate income taxes and so two bills were passed through the B.C. Parliament, one relating to an L.N.G. tax, the other relating
to kind of framework agreements which applied and in the event both those taxes were repealed.
So, in the period from the start of the dialogue to the end, there was not only a repealing
of these additional taxes which had been produced, but a tax credit was introduced for corporate
income tax.
It effectively reduced the rate of tax corporate income from about 12 percent to around 9 percent,
It's now very similar to that, which would apply in Alaska.
There was a deferment of provincial sales tax, obviously sales
tax doesn't apply quite the same way in Alaskia, but it's useful as you think about the dialogue
Self-tax deployment was about $450 million, that's effectively a sort of a 20 year interest
free loan.
So the province will collect that money in the long term, but obviously with no interest
and significantly delayed.
On the federal side, the major contribution to avoid that front end loading was accelerated
depreciation.
So, basically, taxes were alleviated quite considerably
in the short term, but then obviously kicked in in
the long term.
And interestingly, we talked on Friday of property tax
in Louisiana, Texas, and indeed in Maryland.
property tax does apply in Canada and Kitty Mat, but it's orders of magnitude less than it than
it is in Alaska. So, LNG Canada, I think, pays a rising property
tax which started at around $2 million per annum in the first year of construction.
It will move, it's essentially a pilt currently.
It'll move to conventional property tax in about, well, in
about 2035, I think,
in which case it could be a little higher.
But in a way, their approach to provincial sales tax was a
little bit like what appears to be being requested on the
So, the other thing is actually to remark on carbon tax, obviously Alaska doesn't have
a carbon-tax, British Columbia does, it's a fairly significant element of provincial
policy, but it was capped at a relatively low level for perpetuity, so again it is a much
feature for them to consider so as we move forward it may be worth doing a
much more rigorous analysis around LNG Canada and the different taxes that
apply but for today's hearing I think that's maybe a helpful summary. Mr.
Palford, Senator Wilkowski has a question. Thank you Madam Chair. At this point
changes. We haven't seen a bill yet, at least I can recall. I think this is probably something
we'll spend quite a bit of time on, though, if such a request comes. But I'm curious in Canada,
a couple of things. Number one, was the gas line and LNG export facility built by an
independent producer, similar to what's being suggested here? And who requested the tax breaks?
tax breaks to produce gas, was it tax
breaks, to build the line, the LNG plant,
what was the hold-up that required tax
breaks?
Thank you, Senator Wilakowski.
Interestingly, back in
2013, when this initial dialogue started,
LNG project to LNG Canada, which was being pursued by Schell and Mitsubishi primarily.
But both companies were quite vocal in their feedback to both provincial and federal government,
which is that under the tax regime that would have applied, especially with these additional
And so for quite a few years there was a kind of an impasse where the developers insisted that the tax arrangements predominantly for the LNG exporting entity as opposed to the upstream would need to be significantly amended for those projects to go ahead.
arguably a bigger push from federal government to encourage LNG exports into the Pacific,
and equally a more enlightened view, perhaps, within the provincial government, that's
when these concessions were made.
So, and incidentally, the BC fact and royalty mechanism for the upstream hasn't really
Obviously, there have been amendments and tweaks, but fundamentally, the upstream wasn't touched,
and it was essentially the corporate income tax and carbon tax that was the focus.
But to answer the first part of your question, LNG Canada was primarily Shell.
competing project was Petronas and Malaysia, who had already acquired a Canadian upstream
producing gas company. So they'd already acquire, if you like, the gas to put into the LNG project,
but they just needed to build the liquefaction.
So in the end, in last stages of L&G Canada, Petranas essentially abandoned their projects and
through their equity in with Shell, the Mitsubishi and Kogas into LNG Canada.
Yes, Senator Dunbar has a question. Thank you, Madam Chair.
Thank You for this presentation. Continuing on with Canada L&G
How much, and I know it's not exactly analogous, is 400 miles our project would be significantly
longer, but what ended up being the all-in cost for LNG Canada and who paid for it?
So you're mentioning Shell leading the way,
but was it privately financed? Did the government also provide, besides from these tax benefits,
do they provide direct capital into the project?
The pipeline was built primarily by TransCanada,
and they entered into a arms-length negotiation or a contract
with the Energy Canada sponsors, a lead of which would be Shell,
to build the pipeline and essentially collect a tariff on it.
So, unlike the...
broader implications of phase one in Canada in Alaska, sorry, which involve
supplying gas to gas and power customers in South Central. There was no real
state involvement in L&V Canada and no particular guarantees or concessions
were given by the provincial government or indeed the federal government to any
Cost escalation risk, which turned out to be quite significant with the coastal gasoline pipeline. I think there was
almost a doubling in in the
Actual cost of construction versus the budget
but that was all absorbed by the
by
On one hand by transit Canada one imagines and equally by shell and the
The way that cost overrun was treated will have been pre-negotiated.
Follow up, Senator Dunbar.
Doubled to what?
Where did it end up costing?
40 billion, 50 billion.
I used to have this number at my fingertips and apologies.
I've misplaced the number.
It could have be an 11 billion for 22.
Canadian dollars, but I'll be able to check on that in just a moment.
Quick follow-up, I'm Chair.
Follow-ups in September.
But I guess that 11, let's say it's 22 billion, that's just for the pipeline,
not an LNG facility, is that correct?
That's correct. That was just the Pipeline.
So the L&G facility would have been more.
cost of the LNG side of equation would have been about 20 billion US. That's based on
the sort of accepted range of construction cost for L&G liquefaction.
Senator kosaki. Thank you
So in the discussion about the property taxes has come up. I looked at some old records like an old wood Mac
PowerPoint slide and it talks about Louisiana and Texas being having a
typical property tax rate between 0 and 0.5 percent and
It says Alaska's LNG would be at the 0 point 2 percent or 20 mils
Then I'm looking at Canada
particularly Albert and Saskatchewan and their tax rate appears to be somewhere
between 0.5 and 2. 5% or 50 mill and 250 mill.
Are you saying that that's incorrect or there were some other some
other changes that were made to the tax system specifically for that project?
I'm looking at these tax rates because we were told that we're going to get a bill on tax
rates at some point in time to zero them out and I am looking so the tax rate is in Canada
for oil property taxes is between 0.5% and 2.50%,
which is 50 mill to 250 mill.
So my question is,
is there, am I getting the wrong information from somewhere?
Thank you, Senator Kawasaki and through the chair.
I'm not familiar with property,
we're talking property tax rates here.
I think I am not familia with how they work
in those provinces.
In B.C., the example I gave, the sole beneficiary of property taxes is the kiddimat city, which
is one of the reasons why the numbers are so much lower.
But in terms of mill rate, I'm not sure how those would apply.
The number is a little less than I had remembered.
The initial estimate for the coastal gas link pipeline
was 6.6 billion Canadian and the eventual cost was 14.4.
So thank you just to clarify that.
And Senator Kosaki follow up.
Yeah Madam Chair thank
you and just
to to clarify so the current petroleum property tax rate
in the state is 20 mils or 0.2 percent.
And I was just comparing that to what I've read is the current
fiscal regime in Saskatchewan and Alberta where oil tax is closer to
0.5 and 2. 5 percent
Thank you senator Kawasaki
As I say
That that may well be correct
I'm I am not aware of property tax
arrangements in those provinces and how they apply to oil and gas. I could follow
up on that if you wish. Sure. That would be helpful. Mr.
Fulford, Senator Myers has a question now. Thank you.
Mr Fulford, at the time that they hit FID for LNG Canada, and see if I'm
the initial plan was 14 million tons per year.
At the time of FID, how much of that
was under take or pay binding contracts?
Thank you, Senator Mahes.
Actually, that's a very interesting observation.
The answer is all of it.
LNG Canada operates under what is typically termed an equity marketing arrangement.
So each of the equity partners in the project, that will be Shell, Mitsubishi, Kogast, well
Petronast.
They each, the parent company of each those entities, or at least an L&G trading entity
signed up for basically a hundred percent of their entitlement.
And so, in effect,
the sort of credit risk for the project was passed entirely back into the
parent company's balance sheet. And it's a very convenient and effective way of
financing LNG projects because typically lenders will look at that
and they'll look the credit worthy entities on the end of it and
and offer relatively low cost payments.
I see no further questions.
Mr. Fulford, you can move on to the next slide
or complete your comments on that slide.
I think, as I say, LNG Canada is a perhaps example
to look at in more detail, but for today, let's move onto.
So let us look
at the comparison with the previous.
I'm going to deal with the second slide first, which relates to the SB138, sort of project
concept versus what's being dealt with currently.
Mr. Fauffer, just one moment, so for the audience listening, that's slide 14.
Go ahead, Mr Fauxffer.
Yes, I think there's question around project structure warrants a few minutes before we
go back to the question of both the Woodback report indirectly and the broader questions
around the roadmap from here.
And there is one fundamental difference between what was contemplated 10 years ago and what's
In effect, one of the advantages of
the SB138 concept, if I can call it that,
was the completely integrated and aligned nature of all the parties,
as you move down the supply chain from production right down to producing LNG.
the state's entitlements to gas through royalty and kind and taxes gas.
And obviously, then there was never a final determination as to whether those options
would be triggered.
But ultimately, there's a general understanding, I think, that if they were, it would create
roughly a 25% equity interest for the State all the way down through the pipeline.
through the LNG.
And effectively, the state would have contributed capital along with the other stakeholders
in exactly the same proportion.
The key feature, though, is that for that concept, there never was going to be a kind
of a transfer price at the upstream.
So as the gas moves from essentially from the well right down through pipeline to the
The only point at which that gas was valued would be ultimately when the LNG leaves Nokiski.
As I say, it had a lot of elegance to it, but one of the features that was essentially
removed from that occasion by the state-taking, thanks to gas and all-team kind, was this
The concept that exists today, as I understand it,
so we move from an integrated structure on the left
and diagram to a merchant structure
on right, and obviously with that move
and with the change of concept, gas is being sold
by various stakeholders, potentially, into the project
and there will indeed be a transfer price.
And, for example, in the Woodmark report,
transfer price was nominally estimated at a dollar just I think for illustrative purposes
with a note that there could be a $1.25 variable particularly if the gas came from Point Thompson.
So a couple of things first of all that has implications for the state because
obviously with there being a transfer price at the upstream, that there will also be a
backed and royalty generated. And the other feature, which would warrant, I think, further
investigation as time goes on, is that depending on how the profitability within the LNG plant
or within L&G scheme is allocated between the upstream and the midstream, the government take
changes as well. So as a general rule of thumb, the more
LNG profitability that's transferred into the upstream through a higher
transfer price, uh the greater the uh state
tax take would be. That element of the dialogue around
where profit resides didn't, it wasn't a material feature of
old LNG project but it will be in the new one and it's as the project continues it something to
consider. So as I say I'm happy to take questions on that but with that I see a question from Senator
This slide and what you just testified to really hits on a core question that we as a legislature have will lead your guidance from and that is has this project morphed into something materially different than what was contemplated in Senate bill 138 back in 2014.
Such that it needs updated legislative direction.
And if so, what would you as our console and recommend.
Thank you, Senator Wieckowski. Obviously, there's a lot in that question, which I'm sure will
develop and pursue in the coming weeks. But I think you're correct in saying that this slide
speaks to a material difference in structure between the SB138 concept and then the ones on
you know even the issue which I alluded to briefly which is that the government
take will change depending on how profit is allocated between upstream and
midstream even that I think requires a fresh look at how the state may wish to
approach the question of taxation for the LNG project and I
changes recommended from how the project was being looked at 10 years ago.
Further questions on this slide?
Seeing none, Mr. Fulford, were you going to go back now to slide 13?
Yes, thank you, Chair.
I think, you know, with that introduction to the change,
sense now to think about what the questions would be and what
the comparisons would
be. So Senate Bill 138, it called for a heads of agreement and
subsequently much more detailed arrangements between the
could have transpired, had the project continued.
But as you look back to what was agreed, there are a number of key sections,
I think, which warrant further consideration.
First of all, who are now the appropriate parties
to any kind of framework agreement?
Is it purely the LNG development company?
Does it include the upstream companies or not?
And, you know, other questions about that thought which,
you have a material effect on how things unfold.
The enabling legislation,
which may be needed to put these things into effect,
again, could change markedly.
And I think following up on Senator Wieckowski's remarks,
Production tax and royalty in so far as the impact on the upstream may warrant further
examination given the way in which profit will flow to the state through taxes.
And then the other features which will clearly be material and were essentially envisaged
is the pricing of gas, obviously, to Alaskans as part of the phase one, and another feature
which was baked into the HOA that applied between the original four partners,
and this is jobs for Alascans and Alaska in higher agreement, clearly in last week's announcements,
which obviously I think everyone's still taking in. There were a number of undertakings around
local employment, in fact, a number of Alaskan companies involved with that, but all the
same, it stops short, I think, of what was in the original HOA.
The other feature which had begun to be defined under SB 138 and the HWA is the way in which
And, obviously, the fundamental question of state participation and indeed supply points
for the interior.
These were all things that were dealt with in some detail in the original heads of agreement,
which would have to be re-examined and reintroduced, I think, but with this different framework
in mind.
terms which evolve over the next few months, they will clearly involve a lot of material
considerations for the state as well as the private investors. So, I'll pause that.
Well, while committee members are pondering your last statements,
I will make a comment. These are the kinds of things that we've been considering.
as we've seen statements from Glenn Farn and of course it raises the question of how they could
have could have reached agreements from buyers and contractors and not known what the state of
Alaska would be asking for in answering these questions on this slide. There was nothing that
public announcements about a project labor agreements, for example.
There it was nothing there about the supply of gas to Fairbanks.
We know there's probably a takeoff point, but what about the pipe that goes from that
takeoff to the city of Fairbanks?
How will that be financed?
I mean, these are all open questions at the average Alaskan who saw this project before
would be asking.
So this slide is very relevant.
All right, I'll let you move on. Mr. Fulford.
Okay, thank you, Jegis. Also, at this point,
I will pause and say a few words about the Wood Mac report that you referred to,
which deals with the economics of the project.
Before you go ahead, Mr. Fulford, pause for just a moment.
Remember, as a public, that report will be found under the documents section for this
committee meeting today.
It has been publicly posted.
Go ahead.
Mr Fulford.
Okay.
Thank you, Chair Giesel.
Yes.
So, for people referring to that, on page 13, you will see a reference to...
a fairly significant economic breakdown of particularly how the the gas line phase one tariffs
could work and the sensitivity to different things. And a number of these assumptions speak to
essentially change or not change as it feels appropriate.
One of the significant ones on there is on about the fourth line of that sheet which
people can refer to.
20 mils down to 2 mil. So it's a 90% reduction in property tax, which applies across the
economic projection.
So as Jagieszil has mentioned, I believe this is something that Glenn Farn have referenced
indications from government that that would necessarily be a valid assumption
whether it's state government or municipalities. So my understanding is
that this has been simply an assumption that was put there for the purposes of
an economic illustration and I certainly have nothing more that I can add to that
as things go forward. So I suspect that's an area which will require some discussion.
As I said on Friday at the discussion, there was a lot of work done following SB 138 on a
pilt, but nothing was ever enacted or formally proposed. Did I hear a question,
The other features of this analysis, you know, one of them relates to the period
over which the gas pipeline would be depreciated, that there's a relatively long depreciation
life offered up to 2071, so there are sensitivities there regarding an earlier potential economic
But fundamentally the tariff, which would apply through the pipeline and the assumptions
which have the greatest effect, are essentially the property tax and, you know, the cost sensitivity
and other features.
not directly taxed, but relates to the federal loan guarantee, which, as we've
noted previously, makes quite a significant difference to
the project economics,
but remains to be seen whether that will be available or not.
So, in summary, I think the Woodmack Economic Analysis is a robust analysis
but I'm not aware of any correlation between that and any agreement or indications provided by
the state government. Thank you. Any questions for Mr. Fulford?
It is my intention to have Wood Mack actually come and go through this
So if members would just look it over consider questions
All right, mr. Fulford looks like we're ready to go back to your slide deck slide 15
Okay, thank you. Check easily at this point. I will hand over to my colleague Andrew Duncan who is
Well qualified I think to talk about this topic and I'll let him guide you through the slides
Thank you.
Welcome, Mr. Duncan.
Thank very much, Nick and Chair Keasel.
For the record, my name is Andrew Duncan, I'm dialing in from the Gaffney Klein Singapore
office.
for large material projects.
These slides were prepared prior to the Glenfern announcement
that doesn't undermine their relevance,
but it does, let's say,
I think Glenn Varner are doing and how they are progressing the project.
So if we could have the next slide.
To take a final investment decision, and I'm emphasizing the final of final
investment decisions, that being the decision to proceed with the high
capex, high expenditure part of the project as opposed to preparatory
phases, which I'll come back to in a second.
Just recognize a few features of the Alaska LNG project that are
Are unique to this project and of course every major project has got its own
distinguishing features
As you know, we have a phase one which
Transports pipeline gas to the state domestic market
We have
low gas availability risks or low subsurface risk with the gas volumes that will supply
the project being to a great extent proven.
And facilities capital costs are a large and dominant part of this project.
We'll need to provide coverage to all the project work streams
before
Commitment to proceed into the into execution of the Project
Next slide, please
As a bit of background on let's call it project management theory a
Project final investment decision is, is reached through is typically reached
through a stage gate process and a generic stage
gate processes illustrated here on the slide and essentially it's,
it is a series of project activities interspersed with what are term decision gates.
The project proponents and the project governance system take a look at where the
project is and take the conscious decision to proceed to the next stage of the
project and that may well be linked to a funding decision
to pursue to that stage the projects it could include some contingencies.
that be willing to proceed to the next stage, but dependent on certain other activities.
At each gate, at each stage of the project, the full scope of project is reviewed in the level of detail that it's available at that time.
And that's not only the Project Technical Scope.
But also looks at the cost and schedule of the project, the organizational aspects of
the projects, so how it's going to be executed.
Project management team, project governance and so forth of particular relevance here
It needs to be in place, obviously the commercial framework, how the project is going to make
money and which leads through to the financing framework as where the capital to execute the
project, is gonna come from and whether the projects is significantly robust to support
the lending arrangements. And finally, and by all means, not lowest in priorities is stakeholder
management. For a project like Alaska LNG, which will have a transformational effect on the state
economy, stake holder management probably should be at the top of the list rather than the bottom.
There will be, there are a lot of people interested in this project and there will
be a strong thread of information flow and let's call it political management to support
progress of the project.
Next slide, please.
Before you go on, Mr. Duncan, let's pause for a moment.
Sorry.
Many members, any questions?
Senator Wilkowski.
Thank you.
The front page of the Anchorage Daily News today
says Alaska LNG says it expects to start laying pipe
as early as December.
Does that seem realistic under this framework, this FID?
We're hearing FED decisions are imminent.
What's your assessment of that?
Okay. Now, when I look at the wording of the Glenfern announcement, I do see a lot of
conditionality in it. There are conditional awards, there are provisional commitments,
for the early stages of a large project in my next couple of slides,
and we'll take a look at where I think they are based on the public domain information.
But just to talk about building project momentum in the
early stage as a project, there is a lot that can be done.
to prepare for a project and to build momentum, which
is useful to the eventual execution of the project.
But let's say it's relatively low cost in comparison
to be the total project cost.
And you also see this in large projects.
And I'm thinking, for example, of construction site works,
so things like access roads, work camps, and things
like that, so the site temporary works.
Lenfarn have made an announcement
around the supply of steel.
That kind of a of
Securing supply of key long-aid items is is prudent
Of course, I haven't seen the details of those orders, but a
An appropriate risk management approach might be to include cancellation clauses in in those order
in the event that the project doesn't go ahead,
but still to start to align suppliers to the idea
of having to supply these materials when they are required.
Renfarn have also secured or built
the early stages of contractual relationships
with a number of construction companies.
that's a prudent approach to start to signal mobilization of resources and to
start engage with companies to get them to be thinking about how to mobilize the resources to
constructive and are being actioned in order to secure the schedule of the project while
whether Pite Lake and started in December I would need to take a more
thorough look at the project to comment on that. I have seen certainly Glen
And I think what is more critical than a start of a certain activity is being able to see the pathway through to successful completion of the project in a
Let's say sort of as a structured way of of having a thorough look at the project and
That we know how the Project is is going to be completed
Before we start significant commitments to to two to commencing the projects
Follow-up senator Wilkowski
So mr. Duncan
As I look at the project management framework that you've laid out here, it looks very
much like what we heard from the industrial mega projects author.
So you point out the decision gates along this continuum.
At what decision gate do you perceive Glenfarn being at?
Okay, I will touch on that in a couple of slides, but quickly I think they are probably
the development phase, which they certainly haven't shared publicly, but I would expect
that they know where they're going.
So thank you for that.
So final investment decision, again I'm recalling back to the Industrial Mega Project presentations
appeared to occur at decision gate four when class three level cost estimates
were solidified is that somewhat accurate yes I would agree with that okay thank
you I'll let let me see if there's any other questions senator Kawasaki thank
you and I don't know if you can clarify this or not but we've heard a lot about
And I'm wondering where exactly a notice to proceed in what in
what stage gate is that?
Because yeah, go ahead.
The notice
to proceeds will relate to a set of project activities
that are the subject of that notice and
If the project developer is acting to safeguard the Project Schedule and to carry out the early works on long lead items or early preparatory works,
A notice to proceed could be issued very early on in the project provided the activities
that a notice proceed relates to our contributory to the final version of the
Notice to proceeds on major projects issued when the scope of the final project really wasn't known,
but the resources that were needed to go into the project were clear,
and their project developer had confidence that the
but they didn't just quite know exactly what it was going to look like at the stage.
In this case, there is quite an extensive project definition scope which is available
And, you know, talking about pipeline routes, pipeline right away, there's an extensive
amount of permanent and regulatory work that's been done.
And we also know that Glenfarn have had quite some time to mature the project further.
based on that preparatory work that they inherited when when they took over the
project. We see from their public announcement that
they have been focusing on securing construction resources, making preliminary
agreements with with gas suppliers. So they
taking useful action to to progress the project, but there does seem to be an
assumption within that that the Project will go ahead. So I can see the framework
So far, I haven't seen anything that I would consider to be inappropriate.
Much of what they're doing is building momentum with the project and taking the early steps for execution phase.
As I said earlier, whether that's going to lead to a start of a full-scale pipeline in December,
I think that a more detailed scope and readiness review would be a better position to comment on that.
Thank you. Thank You very much, Mr. Duncan. I see no other questions on this slide.
I'll let you move on to slide 19.
Okay, on slide 19, we've seen references to cost estimate class, and I just wanted to,
let's say, provide a bit of the basis as to where the mixture comes from and a first-class
assessment of where we might be based on the public domain information available.
So there's an association called the American Association of Cost Engineers, and they produce a range of standards around cost estimation framework.
But when illustrated here is related to pipeline transportation and infrastructure,
and I would say it's the appropriate standard to cover this project.
Next slide, please.
Now, within that document, there's a table of cost estimate classes and these range from
class 5, which is a screening level estimate.
You might call it a rule of thumb and typically those of it on pipelines, those are estimates
that are drawn driven by concepts like dollars per inch mile and things like that.
the estimate class gradually moves from class 5 to 4 to 3 based on the amount of detailed
engineering work that supports that estimate. And as we mentioned earlier, typically a final
Where are we now?
Graphically it's shown here as a as the rhetorical question
but in in the next slide I
I
Let's say attempt to to answer that
Just one more point on this on slide 20 before we leave it in
the bottom right the estimate classes are
shown
related to a sort of a graphical illustration of the uncertainty range in the estimate.
And the basic concept is that as you mature the estimates, the amount of uncertainty in both
cost and schedule reduces and associated with that uncertainty is the level of contingency
to carry you through to start up of the project.
May I move on to the next slide, or were there questions?
I see no questions, Mr. Duncan.
Okay, let's move to slide 21, then please.
Okay. Again.
from the same document, which is available online.
I've pulled up their project input checklist
and I stress that I have tried to summarize
where we are based on the public domain information
that i have.
and that's primarily the Alaska LNG website. And as I mentioned earlier, there has been a lot
of information, a lots of work done on pipeline routing, pipeline right-of-way, and permits
sound thorough work provided that's what is going to be executed at the end of the day.
If the project survives in its current scope, and there's no reason to think that it won't,
final project. So what I've done here is I just taken a first pass guess at where the project is
on these various aspects of the the Project Technical scope. I won't go through each in detail but
a robust Class 5, early Class 4 estimate.
Although the AAC framework doesn't talk very much about the commercial and financing basis of a project,
definition of the project. If we could move to slide 22, please. Yes.
Okay. The slide twenty two is is continuation of slide 21 and it's again a review of of
Based on the public domain, the current status is robust class five, early class four, but I do stress that this is not a comprehensive review of project readiness.
I used to do project, readiness reviews for a living. So I'm, I know what a co-prehensive review looks like.
the comments and the open questions and recommendations from the Pegasus presented
in their presentation last week. And I think we're both talking from
the same song sheet. Very good. Mr. Duncan, Senator Myers has a question.
Thank you, Madam Chair. Sir, Mr Duncan looking at these two slides together here.
I'm a little bit concerned here, so, you know, they're telling us that they think they can have an FID by the, I think it was end of March, last we heard, and,
you, know so if we're supposed to be at class three at that point,
you would expect to look at what you're circling here and say, oh, okay,
you now, half of it be class 3,
half a big class 4, something along those lines,
just saying maybe a third of it or so in class four that concerns me a little bit and I think
they're I'm hearing from you know what we've seen from Glen Farning kind of some
a few public statements it sounds like they they think they are a
little further along than what you're indicating here but I I am trying to figure out if you are
what's more likely is your guesstimate off or are they just not nearly as far along as they
Yes, through the chair's center. You're quite correct that
My
guest of it
is based on the public domain information
that was posted on
The Alaska energy website and it just primarily relates
to the body of work that Glenn Farn inherited
when they first took over the project.
Now, I'm confident that the Glenn Harn
have matured that work in the meantime,
and they are certainly further ahead
than what I've circled here.
We know from public domain that
They have carried out a costing review with Worley, who are a very credible engineering
and project management company. The results of that costing
review have not been made public, so I can't comment on that.
So yeah, I stress this is number one, not a comprehensive review,
based on what's in the public domain.
OK, thank you. Senator Wilakowski.
Thank you, and maybe you said this and I just missed it. But can you?
Am I understanding this correctly? We're at the top. It says maturity level of project.
And then class five is zero to two percent. Class four is one to 15 percent and then you've got
some circles there and it and does that mean if it's class four that it is 15% complete?
between one and 15% complete?
Okay, thank you for the question and through the chair.
This is the zero to 15%,
is The percentage of engineering definition
as opposed to the percentage
of project completion.
Can you explain that?
I don't understand.
Okay.
I'm not an engineer.
Yeah.
Okay, so the whole project will include a technical engineering phase at the front end
to define what is going to be built. Then it will
include the procurement phase where the project materials are purchased, line pipe and so forth.
And then a construction phase where the project is actually constructed.
Typically, the engineering phase of the
project could be, what, 5%, 8%, 10% of
the total project cost.
And these percentages relate to the completion of
Now, the way I've expressed it is as sequential phases, which, of course, they are not.
The project phases overlap with each other.
So the engineering definition will progress along the early stages of procurement and
and a key part of project management is to keep all those activities contributing to the same
final scope and progressing in a way that the deliverables of the early phases are available
for the later phases to begin on time.
Can we walk through one here?
There's technical deliverables,
there's hydraulic design,
you've got S, P on class 4, and then you got C, C.
So you're saying you think you are at class four.
I don't know what S means, I
don what P means I
don t what C means and what D means.
What do those things mean?
Okay. So P is preliminary,
NR is not required.
And P, C, or C in that is that the deliverable is completed.
And S is started. So it means the work is commenced.
Okay.
Further questions on these two slides.
somewhat explained a bit more on slide 20 where the classes are somewhat
described a little bit. The coding, of course, wasn't. I appreciate your question,
Senator Wilkowski, the S, P, N, R. But you can see how the A, C, E, cost estimate
Needless to say, the underlying message here is it's complicated, a bit more complicated
than perhaps just press releases.
But that's my comment.
Any further questions, Senator Myers?
Yes, thank you, Madam Chair.
So, you know, question is kind of a little bit of what stage are we at and we're hoping
we are rapidly approaching FID.
So the question, if we aren't as far along as we think we
we still have a FID made here, let's say in March. Obviously, the major concern,
the Major Risk is potential massive cost overrun at some point. Are there any other risks besides
that that we need to take into account? Hand in hand with cost over run, of course, goes schedule
The, the other risks that are associated with a, let's say, incomplete project definition or particularly schedule overrun and Pegasus also alluded to these are together with schedule over run some of the enabling permits and so forth.
may, yeah, there may be time limited permitting, so they might need to be renewed, and conditional
project awards. So let's say conditional awards for material supply conditional
Those kind of agreements may also include a time factor that sets a limit on the validity
of those agreements related to time.
They all tend to ramp up to cost and schedule risks, and related to that, of course, is project
credibility.
So if a project is initiated and then stalls for whatever reason, then there is a...
a confidence building measure that would need to be
gone through to to re-mobilize and to
re implement the project.
Thank you, Mr. Duncan. I'm going to address the committee now for a moment. We're at 5pm,
which is our usual adjournment time. Mr Duncan, of course, still taking questions on those two slides.
There's two more left. Is the Committee okay with continuing? Looks okay.
Mr, Duncan do you have time to continue the discussion a bit longer?
Certainly I do.
very good. Thank you. Senator Dunbar has a question.
Thank You Madam Chair and I was going to mention that. I'm not sure what time it is in Singapore,
but thank you for being here with us. So my question is actually about the next two slides.
which are not up on our screens right now, but have to do with pre-FID and measures to assure FID.
But what I wanted to know as we approach those two slides is we discuss them. What do you actually
mean when you say F ID? What are we talking about? Are we talk about F I D in late March?
Does that mean there will be an investment decision and an announcement where they say,
here are investors, or it'll be more like what you described, I think you're describing on
Here is our proposal for investors to invest in.
Here's the support package.
And if that's, the case, is FID more a process
than a moment, how long does that process typically take?
Well, okay, there's a lot in that question
and through the chair.
A final investment decision
what it actually entails
a process or a
assessing document
varies a lot
by the management processes
of the project sponsor.
I have seen final investment decisions
where they are
By a letter from the project operator to the Project Joint Venture Partners, almost a legal document, which says, you know, against this background, we have agreed to take a final investment decision to a project of the scope, and it's very succinct, it is very detailed and thorough in its description.
and that is the sort of classic project final investment decision where everybody
can point to a document on the date that says that's when it happened.
At the other end of the scale, you have the typically fast track projects,
are managed by a series of commitments to, as I said earlier,
mobilize resources to contribute to the final implementation of the project.
as a progressive FID or a final investment decision process and against that kind of a background,
the decision is made over a period of time and the commitment to the final scope and final
taken a number of years after the initial stages of the project are commenced.
Sometimes those extended processes are driven by outside effects. It changes in geopolitics,
Oh, and any number of things.
But the key part is that the project manager behind the
project is managing those activities and managing the
scope of the activities, the commitment within the
the final project scope without unnecessary and wasted investment.
An example of that might be a project which is broken into phases where an initial phase
might contribute to the initial objective of the project.
Let's say, for example, the last domestic gas supply, and the later phases of the project,
compression stations, L.A.G. plant, contribute to a later development of
the projects, but the decisions taken in the early stages of
And, yeah, it takes a great deal of project management skill to keep a project like that
on track and keep all the activities aligned with the view to the long-term objectives.
So that was a long way of saying that finally investment decision can be a process or it
a distinct point in time and I think it would be useful and again this is echoing something
that Pegasus have said, it will be used to thoroughly review what this process is and
Yes, thank you, Mr. Duncan, you know, I reflect back on your slide 18, where you call out
the framework of pre-FID, and one of the bullet points is stakeholder management, which you
alluded to, would be the state of Alaska.
The stakeholder engagement, which would, of course, affect regulatory frameworks, legal issues, cost with taxes and so forth.
So, yes, it must be proceeding as a process, though that seems like a very risky way to proceed.
Are we on slide?
I think Senator Dunbar moved us to slide 23.
Is there anything further you wanted to cover
on Slide 23 or 24?
Mr. Duncan.
So just casting my eye over Slide 20, 3.
I Think we've discussed.
many of the aspects there. We've talked about the duration of of
the pre-FID face. So I don't see any points to add on that. Perhaps if we may
skip to slide 24. All right, we're there? Yep.
So we've touched on on staker of management and transparency which is
critical issue. I just want to add a final word on uncertainty management and the techniques
that are available to manage that within a project management framework. At any stage
And the techniques that are available to do that,
they're generally attempt to quantify the risks and uncertainties
in the project and the impact that those uncertainties could have
on the final cost and schedule outcome of the
And the results of those kind of reviews are expressed in terms of a probability distribution in cost and schedule.
And typically project sponsors, predict developers will use those to assess the financial provisions that they need to make.
to ensure that the project can be carried through to completion.
And what the technical cost estimate usually provides is a base estimate,
so that's the cost of the known components of that project.
And then based on those risk assessments,
a level of contingency is applied to...
We're bringing the cost estimate up to generally a 50-50 estimate, or indeed, if you're talking to a party that wants an even higher degree of assurance around the estimate and that typically might be a bank or a lender,
to bring the estimate up to a higher level of assurance.
And I raised this partly to identify
that these techniques are available
and that there are mechanisms to deal with uncertainty.
And that those kind of techniques
are baked into project management processes.
I think with that, that's the end of my remarks.
If there are further questions?
Yes, Senator Dunbar.
Thank you, Madam Chair.
And I was handed a note that it's
a little after 10 in the morning tomorrow in Singapore.
So I hope Tuesday is nice.
So, I understand from your remarks that you know,
Decision which is a singular action and also a process much like much
Like light is both the you know a particle and a wave I can accept that but what I really want to know is
Should we expect in March, if they reach FID, that we will understand where the money is
coming from?
That to me is the central question in all of this, is where is finance actually coming
from.
So should we go to F ID in march, they will say here are the financial commitments, you
know, the loans we have secured or the investments that have been made by, I think it would be
private entities at this point.
a
Sorry, yes through through the chair. Sorry
Yes, please mr. Duncan
Yeah, I
Would expect there to be
Certainly clear guidance on
where
funds or
Guarantees of funds are coming from
Typically, financial provisions are defined subject to a final investment decision being
taken.
So the financing processes and the final
investment decisions processes are linked.
developer is seeking to fund the project from borrowed money. If the
project is funded off the proponent's own balance sheet, then they have a bit more flexibility.
But implicit in that is who is taking the risk of
in that context, there also needs to be a strong understanding of who is carrying what risks
in the project. And I alluded in slide 24 to a range of risk management mechanisms that are
how the project is going to be funded,
and the Project Risk and Allocation of Risk
should also be addressed at that point, thank you.
Thank you, further questions for Mr. Duncan?
Yes, Senator Kosaki.
Thank-you, Mr Duncan.
So, how will a company know what the actual costs are without knowing something like what
the state's tax is going to be at that point, or will that just be put into somewhere in
the risk category of the decision-making at an FID?
fiscal stability mechanisms that Nick was speaking of earlier.
The final commercial structure of the project, of course,
will need to include the
obviously costs and sales revenue. The project developer
may decide to accept some fiscal risk. I think Nick alluded to this on the Canada LNG project
initial undertakings on fiscal stability,
which perhaps fell short of an ironclad agreement.
But there was directionally an undertaking,
which was acceptable for the project proponents and the projects lenders.
What risks with whether the the project developers is willing to
Accept those
Those particular risks
Thank you, thank you senator Klayman
On the same topic about risks and guarantees and if we're
particularly looking at the lenders, much of what Glen Farm is doing is,
or Glen Farne is going is confidential and we don't get to see it,
but it seems to me that even in the world of private lenders if the lending for the project
is all coming from private lenders and not some public entity, that too ends up being something
In contrast, of course, if there's a federal loan or a
federal guarantee to loan because that's
a Federal process, then we'd actually get to see
whatever that is, and if
there are tax changes in terms of property tax,
we get see what that
is. But once you step into the private side
of loans, that seems like we run into
the same challenge we're already having about
these are confidential. We don't get
to
see them. Am I missing something?
Confidentiality and disclosure can extend from public domain, which, of course, is full
disclosure of all aspects that are put into public domains, through to company confidential,
where information is not allowed to go outside of certain people within the company.
There's a range of levels of confidentiality within that, a disclosure structure that might apply
in loan agreements and so forth may involve aspects of the project being disclosed to
a limited group of parties under a non-disclosure agreement and this is
something that we're often involved in in providing assurance to to lenders
or assurance, to our client, where commercially confidential aspects of the
in so far as those are needed to provide assurance to, in my illustrative example, to lenders and those kind of disclosure processes are acceptable to both parties.
They usually involve an intermediary party like a law firm or a consultancy such as ours to
receive and evaluate that information and prepare a report for the interested parties.
techniques like that are available, and I understand we're also used in SB 138, so that might be a way forward to provide information flow to the legislature without it being commercially compromising to to
Thank you. I'm not seeing any other questions from the committee.
I want to thank Mr. Fulford and Mr Duncan for spending time with us today. It was a very robust presentation
Lots of helpful information
This will conclude our meeting for today the next meeting will be Wednesday January 28 at 3 30
We're going to hear a presentation from The Department of Transportation related to the impacts from
the gas pipeline project and if there's time following that will you will
Here again for a second time Senate bill 180 LNG import facilities
So at this time the meeting will stand adjourned let the record reflect the time is 5 23 p.m