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  • Town hallppp

    1. 1. Town Hall Meeting March 26, 2014 Fairbanks, Alaska 1
    2. 2. Voter mandate to AGPA: The Voters Were Exactly Right! Build or cause to be built a large diameter gas line from Prudhoe Bay to Valdez- for in state gas use and LNG export. •Board Members: – Chairman, Dave Cobb – City of Valdez – Vice-Chairman, Bert Cottle– City of Valdez – Secretary, Steve Haagenson – Fairbanks North Star Borough – Treasurer, Merrick Peirce – Fairbanks North Star Borough – Board Member, Dave Dengel – City of Valdez – Board Member, Jim Whitaker – Fairbanks North Star Borough •Project Manager / General Counsel, Bill Walker – Walker Richards, LLC 2
    3. 3. AGPA Timeline 3 1999 2000 2003-2005 Creation by North Slope Borough, Fairbanks North Star Borough & Valdez ASIA Market Valdez LNG Summit / Amended Federal Legislation to include LNG Federal Loan Guarantee Began working with Yukon Pacific Corporation Sempra Sempra JDA SGDA Bechtel Corporation – SFO Board of Director Governor’s Highway Policy Council “My Way is the Highway” Protocol Agreement w/State; Meeting with Gov. Murkowski Tax Exempt IRS Ruling Sempra Offers to purchase gas from XOM/CP/BP then withdraws
    4. 4. AGPA Timeline 4 2006-2008 2009-2011 2012 PTU – challenge Option on YPC Permits Bechtel Withdraws FNG / GVEA JDA – Sempra & Mitsubishi McDowell Group Safeguard Marine LLC Lloyd Engineering OHA-Office of Hawaiian Affairs; Wood MacKenzie Mitsubishi & Sempra to JNU Korea: KOGAS; SK Energy; GS Energy; KEPCO; POSCO Sinopec / Tokyo Gas / Tokyo Electric/MC Corp. Hawaii Meetings Northern American Gas Forum (DC) Japan: Resource Energy; Nippon Oil & Energy AGIA process / withdrawn partners World LNG Summit (Rome) Presentations in Asia World Gas Conference; Hawaii; POSCO visits AGPA; LNG Summit Valdez & AGIA Open Season Nominations
    5. 5. The Gasline Route Voters Asked For • Voters asked for a gasline Route that runs from the North Slope to Valdez. • The Voters picked the only route that makes sense • The route through Fairbanks- not around us- ensures PROXIMATE (CHEAP) gas to this community and the major industrial users- like GVEA, Flint Hills, Petro Star, Eielson AFB, Pogo Mine, Ft. Greely. • Richardson Highway routing ensures low cost gas for future mines in that region. Dr. Paul Metz of the University of Alaska has documented significant resource potential there.
    6. 6. Cheap, Clean Energy • Fairbanks would see a reduction in heating costs by 80% with proximate access to a large pipeline with economy of scale. PDC Harris Study, AGPA 2011. • With distance sensitive tariffs Fairbanks would have the cheapest gas in Alaska. • Cheap gas and a cost of service model for getting that gas to homes (IGU) would ensure Fairbanks would have clean air.
    7. 7. Affordable, clean energy will solve our air quality issues. 7
    8. 8. AGIA Had Two Options Under the Alaska Gasline Inducement Act, passed in 2007, two concepts were to be studied. 1. A large diameter gasline to convey gas to Canada and the Lower 48. 2. A Gas pipeline to Valdez for LNG export. Years of time and hundreds of millions of dollars was spent on a gasline to the Lower 48 study that never made any economic sense. The shale gas revolution ensures that it will always be cheaper to provide gas to customers with local gas that has a fraction of the capital expenditure, and a fraction of the operational expense to deliver to customers.
    9. 9. Rex Tillerson, ExxonMobil CEO, Charlie Rose interview. 3/6/2013
    10. 10. What ExxonMobil Knew • Rose asked Tillerson when Exxon knew about the massive amounts of natural gas being discovered. Tillerson responded that Exxon knew (of the gas) a decade ago. (11 years ago now). Exxon, our AGIA "partner" was content to see Alaska spend years of time and considerable money studying a pipeline project (to the Lower 48) that Exxon knew four years BEFORE AGIA was signed into law made no economic sense.
    11. 11. Alaska’s Competition for Asian Markets ExxonMobil – Qatar – North Field – Papua New Guinea – Australia – Golden Pass (U.S. Gulf Coast) ConocoPhillips – Qatar – Australia and Timor-Leste BP – Trinidad (Atlantic LNG) – North West Shelf (Australia) – ADGAS (Abu Dhabi) – Tangguh (Indonesia) – Bontang (Indonesia) 11
    12. 12. Incredible Foresight, And Wisdom • A little more than a half century ago, Bob Bartlett had this to say: "The first, and most obvious, danger is that of exploitation under the thin disguise of development. The taking of Alaska’s mineral resources without leaving some reasonable return for the support of Alaska governmental services and the use of all the people of Alaska will mean a betrayal in the administration of the people’s wealth.
    13. 13. Bob Bartlett, continued “The second danger is that outside interests, determined to stifle any development in Alaska which might compete with their activities elsewhere, will attempt to acquire great areas of Alaska’s public lands in order NOT to develop them until such time as, in their omnipotence and the pursuance of their own interests, they see fit. If large areas of Alaska’s patrimony are turned over to such corporations the people of Alaska may be even more the losers than if the lands had been exploited."
    14. 14. What does Alaska own for the $300 million spent under AGIA? Zip. $300 million is a staggering amount of money. To have nothing to show for it is inexcusable. For perspective, $300 million would buy: 1. 12,000 new pick up trucks. (At $25,000 each). 2. 2,000 new homes. (At $150,000 each). 3. It would more than pay for the FNSB budget for two years. (No property taxes due for two years). 4. It would have bought two Flexsteel pipelines that could convey gas to Fairbanks from Cook Inlet- so Fairbanks had gas below $10 per MMBTU. Yet, the Parnell administration has nothing to show for our money. Now, under SB-138 that want more money, and more authority.
    15. 15. Redundant? "The Department of Natural Resources is asking for almost $9 million next budget year, including close to $2 million to create a highly paid team of in-house experts whose main job would be marketing Alaska's gas. Four team members would make about $200,000 a year and one would earn $250,000, DNR Commissioner Joe Balash said. Team members might travel four time a year to Asia, DNR says."
    17. 17. AGPA’s Aggregated Volume for ExxonMobil’s Non-Binding Solicitation of Interest KOGAS (Korea) POSCO (Korea) GS Energy (Korea) PTT International (Thailand) PGN LNG (Indonesia) East-West Power Co. Ltd. (Korea) Total Export: 2.8 bcf/d In-state: .250 mcf Total 3.05 bcf/d (Not all of the above companies have designated off-take volumes) 17
    18. 18. 18
    19. 19. Point Thomson Issues • Point Thomson contains about 1/4 of known North Slope gas resources • Exxon and other owners have refused since 1965 to develop the field • Governors Murkowski and Palin sought to reclaim it • Governor Parnell returned Point Thomson back with limited work commitments (2 wells) • Exxon gave Rosneft an option to take a 25 percent share in Point Thomson
    20. 20. Russia is a competitor • Rosneft- a Russian corporation- has a option for a 25% interest in Pt. Thomson- a gas field critically important to a gas line. • Russia has an economic interest to: Develop its own gas and oil reserves. Maintain high prices by limiting supply into the world markets (as does OPEC). Russia needs oil at an estimated $117 dollars per barrel to maintain a balanced budget. Economic sanctions against Russia for its invasion of a sovereign country will impact Pt. Thomson development, but to what degree? Igor Sechin, Vladimir Putin.
    21. 21. Alaska’s Financial Situation SB-21 went into effect January, 2014. This legislation ensures that in times of windfall profits (high oil prices) Alaska will not derive the revenues we enjoyed under ACES. Because of ACES we have about $10 billion more in savings than we would otherwise have. Alaska would have approximately $6 billion in state savings accounts instead of the $16 billion we hold today. The budget deficit for this Fiscal Year- 2014 is estimated to be close to $3 billion. Next year it could be $4 billion. If not for ACES we would be out of money in the next fiscal year. Thousands of jobs will be lost as the capital budget will be decimated. Voters could approve the SB-21 referendum this August. It they do so, we will return to ACES and Alaska will enjoy significantly more revenue- in accordance with Art. VIII when oil prices are very high. It is clear that Alaska must have a diversified revenue stream, and the only significant, new source of substantial revenue will be from a gasline, LNG export project.
    22. 22. 22
    23. 23. ANGDA and AGDC What happened? • ANGDA. Alaska Natural Gas Development Authority. Created by voter initiative in 2002. 138,000 votes "yes" passed by a 2 to 1 margin. • Frank Murwkoski told the board, as reported by ANGDA Project Manager Harold Heinze: • Heinze: “About September 2003, when we got started, was also when the newly-elected Gov. Frank Murkowski was starting to deal with the producers and other people, and he said, "I don't want you to do the LNG thing because it makes them (the producers) mad." • Sean Parnell further sabotaged their work by refusing to meet with the board, or to appoint board members when board member's terms expired. Parnell then finally killed the voters initiative when he signed legislation last year that killed ANGDA. • Alaska Gasline Development Corp. AGDC. Proposed “bullet line” gasline project limited to 500 MCF/D with no economy of scale. Capital cost is estimated at approximately $8 billion. • Is this something we can afford? • 72/25 debt to equity. 12% equity return on $2 billion = $240 MM per year. 6% interest on $6 billion = $360 million per year, for a total of $600 million per year. $1,800 to $2,000 dollars per capita cost of each Alaskans in the Railbelt using this gas. The cost of the gas is extra!
    24. 24. AGDC Compensation While the administration has created multi-billion dollar budget deficits- lavish compensation. • Pres- $576,434 • VP- $346,840 • Pipe Dir. $339,927 • PR $285,525 • Admin. Dir. $237,936 • Gas Mkt. $405,406 • An. Gas M. $301,962 • Fin. Dir. $294,006 • Hum Res. $285,131 • IT Mgr. $183,743 • PR Spec. $150,629 • Plus a dozen others compensated over $100,000 per year. • DCCED FY2015
    25. 25. Building A Pipeline Is Not Hard Except in Alaska. • Rockies Express Pipeline was built in 3 years- from first permit filing to completion. $6 billion dollars. 1,679 miles. 42" maximum diameter, 2 BCF/D max throughput. Crosses six US states. Number of miles of gas transmission pipeline USA? 305,000 miles. (Its not hard)
    26. 26. Gas Transmission Pipelines- USA Source EIA
    27. 27. 2828
    28. 28. SB-138- No equal treatment under the law. Your home or business will be assessed at full market value. The property of trans-national corporations will not. • This amendment OFFERED IN THE SENATE • TO: CSSB 138(RES) (v. 28-GS2806O) Was REJECTED: • (B) may not change the taxation of property taxable under AS 29.45 or AS 43.56 except that used exclusively for a North Slope natural gas project if the change is consented to by the municipality in which property used exclusively for a North Slope natural gas project is located;"
    29. 29. SB-138 • Since the 1990’s the ANS producers have refused to allow Alaska gas resources to be developed until we rewrite our laws • They demand “fiscal certainty” • This means Alaska: – Reduces and locked in tax and royalty payments on oil and gas – Cedes the right to regulate Alaska infrastructure – Dispute resolution outside of Alaska courts
    30. 30. SB-138 • In 2006 the leaseholders and Murkowski Administration agreed to a global deal to accomplish fiscal certainty • It was a bad deal for Alaska – About 10% of our legislature was convicted in related corruption charges • In 2014 the Parnell Administration reintroduced SB 138 to allow it to negotiate a similar deal
    31. 31. SB-138 • Idea is meet leaseholder demands: – negotiate Alaska’s share of oil and gas revenues down; – lock in tax structure for life of project; and – waive parts of Alaska lease rights and oversight role. • Two major problems with SB 138 – “Alignment” as contemplated by SB 138 does not work – “Alignment” as demanded by the ANS producers is unconstitutional and is unlikely to result in pipeline construction
    32. 32. SB-138 • The ANS producers want to “align” State participation as a contractual partner and not as a regulating/taxing entity • This approach is a common global model, although not in North American leasing/taxing regimes • SB 138 fails to achieve alignment - Upstream - TransCanada • Contractual alignment unconstitutional in Alaska and other states - Alaska Const. Art. IX, § 1 – “The power of taxation shall never be surrendered.”
    33. 33. SB-138 • The better approach is to bring in other international energy companies to build the infrastructure – AGIA attempted to do this, but was fundamentally flawed • Asian buyers have offered to purchase the full capacity delivered, or build it themselves – But ANS producers won’t sell them gas… • So what are we going to do about it?
    34. 34. 17 Attempts to Assert State Sovereignty were offered on the Senate floor. All were rejected. • Senate Minority Gasline Amendments (3/18 Floor Debate) • Amendment #2 Issue: Sovereignty and control • Require 51% state ownership of project. (4-16) Amendment was a simple “shall not unless.” This could also be done with a 44% gas production tax. • Amendment #3 Issue: Sovereignty and control • Enforce the “duty to develop” in existing oil and gas leases. (5-15) • Amendment #4 Issue: TransCanada relationship • Require competitive bidding for the state’s pipeline partner. Specifically, the AGIA licensee can’t be a party to a contract negotiated under this paragraph unless it is competitively offered (7-13).
    35. 35. Republican Senator Bert Steadman explains why he voted against SB-138 Some excerpts: • “A sole source, non-competitive bid resulting in a multi-generational contract with TransCanada is not in the state’s best interest.” • “…our own legislative consultants hired by the Legislative Budget and Audit Committee warned, “In its totality, however, the proposal will result in a radical departure from the State’s historical position and role as a Sovereign, as a Royalty Owner, as a Taxation Authority and as a Regulator which raises a number of issues and presents substantial risks.” • “the Legislature should put SB 138 on the shelf and work on it over the interim.”
    36. 36. Thank You! Your Questions?