Legislature(2025 - 2026)ADAMS 519
01/28/2025 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Alaska Gasline Development Corporation Update | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
HOUSE FINANCE COMMITTEE
January 28, 2025
1:52 p.m.
1:52:59 PM
CALL TO ORDER
Co-Chair Josephson called the House Finance Committee
meeting to order at 1:52 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Andy Josephson, Co-Chair
Representative Calvin Schrage, Co-Chair
Representative Jamie Allard
Representative Jeremy Bynum
Representative Alyse Galvin
Representative Sara Hannan
Representative Nellie Unangiq Jimmie
Representative DeLena Johnson
Representative Will Stapp (via teleconference)
Representative Frank Tomaszewski
MEMBERS ABSENT
None
ALSO PRESENT
Frank Richards, President, Alaska Gasline Development
Corporation; Matt Kissinger, Venture Development Manager,
Alaska Gasline Development Corporation.
PRESENT VIA TELECONFERENCE
Randy Ruaro, Executive Director, Alaska Industrial
Development and Export Authority.
SUMMARY
PRESENTATION: ALASKA GASLINE DEVELOPMENT CORPORATION UPDATE
Co-Chair Josephson reviewed the meeting agenda. He noted
that the Office of Management and Budget (OMB) director had
discussed the Alaska Gasline Development Corporation (AGDC)
component the previous day and there was an associated
increment in the fast track supplemental.
^PRESENTATION: ALASKA GASLINE DEVELOPMENT CORPORATION
UPDATE
1:54:57 PM
FRANK RICHARDS, PRESIDENT, ALASKA GASLINE DEVELOPMENT
CORPORATION, requested to have his colleague Matt Kissinger
join him at the table. He introduced a PowerPoint
presentation titled "House Finance Committee Meeting,"
dated January 28, 2025 (copy on file). He relayed that the
presentation would review an update of the Alaska Liquid
Natural Gas (AKLNG) project. The presentation would also
include an overview of an independent third-party
evaluation of the project and the gross value added to the
state, which the legislature had directed AGDC to
undertake. Additionally, the presentation included
information about interest from a private developer to lead
the project through to execution.
1:56:17 PM
Mr. Richards began on slide 2 and shared that AGDC had been
created by the legislature in 2013 when Cook Inlet was
facing difficult production challenges. There had been a
desire by the legislature for a state corporation to look
at monetizing and delivering natural gas from North Slope
to Alaskans and with the passage of SB 138 to market the
gas for international markets. The primary focus of AGDC's
creation was about delivery of gas to Alaskans. He detailed
that AGDC was currently the sole owner of AKLNG. Previously
in AGDC's partnerships with ExxonMobil, BP, and
ConocoPhillips, AGDC represented a 25 percent interest by
the State of Alaska. He elaborated that in 2017, the entire
project had been handed to AGDC and it had been moving the
project forward since that time.
Mr. Richards turned to slide 3 titled "Alaska LNG
Overview." The project was founded on the 40 trillion cubic
feet (Tcf) of gas reserves in Prudhoe Bay (PBU) and Point
Thomson (PTU). He detailed that in PBU about 8.5 billion
feet of gas came up with the oil production and was
compressed and reinjected back into the reservoir. He
explained that PTU was a gas condensate field that was
producing a small amount of gas where the gas volumes were
known. The goal was to develop PTU for gas offtake and
natural gas liquids, which would generate revenue to the
state. Across the North Slope basin there was 122 Tcf of
proved producing reserves. The information was derived from
the independent Energy Information Agency (EIA). He noted
there were tremendous resources on the North Slope that had
been lacking an opportunity to get to market for decades.
He relayed that PBU gas contained a fairly high amount of
carbon dioxide (CO2), which had to be removed in order to
be sold in the market; therefore, an Arctic carbon capture
gas treatment facility had been designed. After treatment,
the gas would meet the specifications for liquified natural
gas (LNG) production.
Mr. Richards continued to address slide 3. The natural gas
pipeline would run 807 miles from Prudhoe Bay to Nikiski.
There would be a liquefaction facility located in Nikiski.
He explained that the pipeline would have offtakes for
Alaskan communities and Alaska natural resource
developments as they became available or were interested in
energy off the gas.
1:59:22 PM
Representative Johnson asked for the name of the other
individual at the table.
MATT KISSINGER, VENTURE DEVELOPMENT MANAGER, ALASKA GASLINE
DEVELOPMENT CORPORATION, introduced himself.
Co-Chair Josephson asked if the offtakes along the 807-mile
gasline were part of the working agreement with Glenfarne.
Mr. Richards responded that Glenfarne knew that ADGC's
mission was to deliver gas to Alaskans at the lowest cost
and to commercially viable locations via offtakes.
Representative Galvin stated her understanding that the
pipeline would end in Nikiski instead of Valdez. She asked
when it broke apart.
Mr. Richards agreed. He elaborated that the start of the
pipeline was located near the gas processing unit located
in PBU. The line would run parallel to the Dalton Highway
and the Trans-Alaska Pipeline System (TAPS) for
approximately 404 miles to Livengood where the line would
run south through Minto Flats to Nenana where it would
connect to the right-of-way near the Alaska Railroad and
Parks Highway.
Representative Galvin asked for the number of miles.
Mr. Richards replied it was about 404 miles from Prudhoe
Bay to Livengood paralleling TAPS. From Livengood, TAPS ran
southeast to Fairbanks and on to Valdez.
Representative Galvin surmised that about 403 miles of the
project would go on its own course from Nenana to Nikiski.
Mr. Richards agreed.
2:02:34 PM
Representative Tomaszewski asked if any part of the deal
was for importing gas.
Mr. Richards replied that the project was about bringing
North Slope gas to Alaskans with opportunities for export.
The line would include offtakes to communities including
Fairbanks, located at the Chatanika River.
Representative Hannan asked where the other anticipated
offtakes were located.
Mr. Richards replied that in addition to Fairbanks,
communities along the line could identify a need and
commercial viability. He relayed that the Denali National
Park was interested in an offtake to provide gas for
conversion of its vehicle fleet from fuel oil to natural
gas. The proposed line would tie into the Enstar system on
both the north and south sides of Cook Inlet. He detailed
that as the project moved forward and work was defined
during the front end engineering and design (FEED), AGDC
anticipated communities would identify their interest in
having offtake from the project.
Representative Hannan asked for details on the term
commercial viability. She asked if the offtake cost would
have to be borne by subentities. She thought the Fairbanks
offtake would be about 50 miles and that Fairbanks
utilities would be responsible for paying the cost. She
asked who would pay for the offtake pieces.
Mr. Richards answered that an offtake was a pressure
reduction opportunity that would cost about $1 million
depending on its size. Specifically pertaining to
Fairbanks, there was a lateral line that would lead from
the Chatanika River over Murphy Dome. He detailed that AGDC
designed the line and had it permitted under the Alaska
Stand Alone Pipeline (ASAP) project. The cost of the
specific project was currently estimated at roughly $200
million. He elaborated that there were entities downstream
that had the financial wherewithal to be able to sign the
contracts that would pay the tolls coming off and through
lateral lines into their communities. The offtake to
Fairbanks had been designed for large [population] growth
with potential use by military bases and conversion from
coal to natural gas, the community of Fairbanks, and
potentially the University [of Alaska Fairbanks]. He
relayed that it would be a commitment by the utility in
Fairbanks for the offtake from the pipeline to provide to
customers. He noted it was similar to an offtake Enstar
would have for its customers in Southcentral.
2:06:44 PM
Representative Hannan asked if the offtake agreements would
require Regulatory Commission [of Alaska] action by a
utility prior to signing and agreeing to a utility offtake.
Mr. Kissinger replied it was anticipated the Regulatory
Commission of Alaska (RCA) would have a regulatory role for
instate sales.
Mr. Richards concluded with slide 3. He relayed that the
AKLNG facility [to be located in Nikiski] was designed to
produce 20 million tons per annum of LNG. The latest
estimate in 2023 was a total cost of $44 billion. In early
2020, the project cost had been projected at $38 billion.
When the project had been provided to AGDC by the producers
in 2017, its value was approximately $43 billion. He stated
AGDC had seen the benefits of optimizing the project, but
the impacts of inflation and transportation costs had
occurred since that time. He noted that the getting through
FEED would enable AGDC to update the figure for 2025.
Co-Chair Josephson asked for verification that the cost for
phase 1 of the project was nowhere near that amount.
Mr. Richards agreed.
Representative Galvin referenced Mr. Richards' statement
that offshoots would be installed if commercially viable.
She recalled Mr. Richards had stated the cost for an
offshoot was about $1 million. She assumed it depended on
the size and location of the offshoot. She believed Mr.
Richards had stated that there was something already built
into the design for Fairbanks that would cost $200 million.
She asked why it was $200 million for Fairbanks and $1
million for other locations.
Mr. Richards explained that along the mainline pipeline
where there was an interest to offtake gas there would be
an interconnection point, which would cost about $1 million
to install. From that point, entities would develop lateral
smaller diameter pipelines that would deliver gas from the
interconnection point to a community. He clarified that the
Fairbanks lateral line would extend 32 miles from Chatanika
River over Murphy Dome to the University of Alaska and
Fairbanks.
Co-Chair Josephson asked if the $200 million was part of an
ASAP project (HB 4).
Mr. Richards agreed that it had been designed and permitted
under the ASAP project.
Co-Chair Josephson asked for verification that no
infrastructure had been built; only a permit had been
received.
Mr. Richards confirmed that it was permitted only.
2:10:34 PM
Representative Allard asked for clarification on what Mr.
Richards meant when he used the words "close to" or "about"
when referring to the dollar amounts. She asked if he was
talking about a difference of pennies or millions of
dollars.
Mr. Richards replied that he was talking about hundreds of
millions of dollars.
Representative Allard understood that. She asked what Mr.
Richards meant when he said, "close to $44 billion." She
asked if he meant within $1 million of $44 billion.
Mr. Richards recalled that the overall cost estimate was
$43.8 billion.
Representative Allard asked about the number of phases in
the project.
Mr. Richards answered that he would begin to talk about the
phases on slide 4.
Representative Bynum remarked that Mr. Richards had
discussed known reserves of gas at the beginning of the
presentation. He asked if all the financial assumptions
were based off of what was actually known and did not
assume any future exploration in the region.
Mr. Richards responded that the foundation of the project
was going forward with proven gas reserves in Prudhoe Bay
and Point Thomson. The project was not contingent on new
finds or associated new developments.
2:13:02 PM
Mr. Richards turned to slide 4 titled "Phase 1 of Alaska
LNG." He referred to AKLNG as an integrated project,
meaning the permits AGDC received was for all of the design
associated with the project including gas treatment,
pipeline, and liquefaction. He detailed that when AGDC
presented the project to the Federal Energy Regulatory
Commission (FERC) it had been with the anticipation that
there would be phases in construction of the gas treatment
plant, liquefaction, and the pipeline. He relayed that the
long-lead item was the gas treatment plant on the North
Slope because it required sea lift modules to move
everything into Prudhoe Bay. He relayed that AGDC talked
with the legislature in 2024 about the option of moving
forward with phase 1, which included the pipeline portion
of the project leading from North Slope with an offtake in
Fairbanks and tying into the existing Enstar distribution
system in Southcentral Alaska. He explained that the
project provided the opportunity to deliver gas to the Cook
Inlet energy crisis currently facing the state. He
elaborated that AGDC understood it would not necessarily
meet the timelines of when the initial shortfall would
occur, but moving forward with FEED meant the project could
likely be installed and operating in 2031.
Mr. Richards detailed that the pipeline would be a 42-inch
diameter buried line running from Prudhoe Bay running 747
miles south to tie into the existing Enstar Beluga pipeline
on the north side of Cook Inlet. The concept would not
include compression because the initial head compression at
the start of the line would result in gas flowing the 747
miles. Once the pipeline was built and delivering gas to
Alaskans, the second phase of the project could commence.
Phase 2 would be construction of North Slope gas treatment,
liquefaction in Nikiski, and the completion of the pipeline
across Cook Inlet and from Point Thomson to Prudhoe Bay,
and installing compressor stations necessary to flow the
volumes to meet the liquefaction need.
2:15:59 PM
Representative Hannan asked if Enstar had given AGDC a
price point at which Enstar was willing to go to the RCA to
ask for the authority to use the gas in its regulated
costs. She wondered when the state would know if Enstar
would enter a long-term contract for gas coming off the
North Slope.
Mr. Richards answered that the contracts with Enstar would
be needed at the time of final investment decision (FID),
which would follow FEED when costs were updated. He
explained that once costs were updated AGDC would be able
to provide Enstar with the gas and delivery costs.
Representative Hannan asked if the state would be bound to
the price it shared with Enstar. She stated that Enstar
would have to go to the RCA with predicted rate change from
what it was currently paying. She considered that if a
price was set at the end of FEED whether the state would be
bound to deliver the gas at the specified price.
Alternatively, she wondered if the price increased over the
course of a $43.8 billion build whether the state would
still have to deliver the gas to Enstar at the set price.
Mr. Richards answered that Enstar would enter a contract
with the pipeline developer at a cost that would underpin
the financing. He detailed that it would likely include the
cost of inflation. He stated that the beauty of the phasing
approach, as there was additional demand or offtake from
the project, the price Alaskans paid would decrease. He
explained that due to the volume discount there would be
more energy flowing down the pipe with offtakes that would
help underpin the cost, which would reduce the cost of the
tariff Alaskans paid. The ultimate goal was to bring the
price lower than the current price paid in Cook Inlet.
Co-Chair Josephson asked if there was any risk of having a
stranded import LNG facility without any assurance there
would be gas treatment and liquefaction. He asked if there
could be a scenario where the state's domestic supply had
been met, but the project never reached phase 2 and the
state was left with an expensive Nikiski plant that had no
particular value.
Mr. Kissinger replied that AGDC believed the issue was
highly mitigated because the import solution was a prebuild
of most of the export facilities. He detailed that very
little of it would be considered stranded provided there
were exports. He elaborated that during the FEED phase on
the pipeline, the project would also be advancing LNG
exports and entering into agreements for LNG sales into
Asia. He relayed that by the time FID was reached there
should be much more certainty that an export solution was
coming. He expounded that the phasing approach meant the
project was no longer bound to a 20 million ton per annum
plant. He stated that the ability to build in increments
was a game changer for advancing exports because it meant
the state could market packets of 6.5 million tons per
annum, which was quite doable to the state's allies in the
Pacific.
2:20:16 PM
Representative Jimmie asked which communities were seen as
commercially viable. She asked if communities that were not
commercially viable would qualify for any gas delivery
benefits.
Mr. Richards answered that when the legislature created
AGDC it had included the Alaska Energy Relief Fund in
statute. He explained that the fund was established to
allow for communities without direct access to the pipeline
to gain some benefit of the pipeline revenues coming into
the state. He elaborated that some of the royalties the
state would be receiving would go into the fund that could
be used in communities off of the pipeline route. The
question around commercially viable would mean a community
would have to come forward with a plan for distribution of
the gas into the community and the mechanism to be able to
pay for the gas. He elaborated that it would be a
commercial arrangement entered into at the time the
community identified it wanted the gas.
Co-Chair Schrage stated that communities would have to come
forward for AGDC to make a determination as to whether they
were commercially viable. He believed the state had some
sense as to the size of community that would be needed to
have enough offtake to be considered commercially viable.
He cited Denali and Fairbanks as examples. He asked if
there were other communities that could meet the threshold.
Mr. Richards replied that the pipeline would run down the
middle of the state and unfortunately it did not connect
with a substantial number of communities. He highlighted
Nenana, Healy, Denali National Park, and Cantwell as
potential candidates. He identified Minto as another
potential community, but noted the lateral line going to
Minto would be fairly long for a small community. He
relayed that south of Cantwell the line would connect into
the existing Enstar system.
2:22:47 PM
Mr. Richards moved to slide 5 titled "2024 Legislative
Intent Language." The legislature had provided AGDC with
intent language in 2024 after it had come to the
legislature with the concept of the phase 1 pipeline. The
opportunity to move forward meant that AGDC would have to
engage a credible pipeline company with the wherewithal to
design, construct, and operate the project. He stated that
in conversations with "them, they've identified their
willingness to go forward and fund the front end
engineering and design." He elaborated that because the
project was initially based on the offtake for Alaskans,
the company wanted the ability to be paid through a
backstop agreement if the project did not take FID. The
legislature directed AGDC to hire an independent third-
party consultant to look at the project, commercializing it
for Alaska's needs and comparing it to the price of
imported LNG, and to determine the positive economic value
to the state. Wood Mackenzie had been contracted to do the
analysis and its report to AGDC had been distributed to the
committee. The report showed positive results and the price
of gas defined by the independent third-party would meet or
beat the price of imported LNG. He stated a positive
economic value to the state had been identified, even on
phase 1 of the pipeline.
Representative Tomaszewski remarked that the directive to
AGDC from SB 138 also asked it to work with the Department
of Revenue (DOR) and Department of Natural Resources (DNR).
He asked if DOR and DNR had been active in the negotiation
and process.
Mr. Richards asked if Representative Tomaszewski was
speaking about the independent evaluation by Wood Mackenzie
or the project development.
Representative Tomaszewski clarified he was asking about
the initial SB 138 in 2014 that started the process and the
law directing AGDC to consult with DOR and DNR on the
project. He asked if the departments and their
commissioners had been part of the process.
Mr. Richards replied that he met with and talked with the
commissioners of DOR and DNR regularly. He elaborated that
AGDC had apprised the commissioners on progress being made.
He recognized AGDC had a consultation obligation under
statute referenced in SB 138 and it would continue to meet
with the departments as the project development agreements
advanced.
2:26:14 PM
Mr. Richards turned to slide 7 and discussed the Wood
Mackenzie study. The purpose of the report was to have an
independent third-party economic analysis of phase 1 of the
pipeline. He detailed that Wood Mackenzie had received
specific guidance to look at the cost of imported LNG and
to identify the economic benefits to the state including
the jobs. He briefly turned to the Wood Mackenzie analysis
on slide 8. The bar on the left side of the chart reflected
the total LNG import cost range. He explained that Wood
Mackenzie had built up what the cost of imported LNG would
be; it included the cost of buying LNG on the market
somewhere in the Pacific Basin and the transportation of
the LNG into Cook Inlet including the cost and development
of the associated contracts. He explained that the analysis
did not include the onshore reception cost for the dock,
loading berth, and associated pipelines to move the LNG
from a floating storage and re-gas unit into the pipeline
distribution system within Southcentral Alaska. He pointed
to a red arrow next to the left bar indicating an unknown
cost that could range from $50 million to $700 million. He
explained that Wood Mackenzie had not been able to define
the cost and had left it as a future cost. The cost
represented LNG into Alaska from $10.21 to $13.72 per
million btu.
Mr. Richards continued to review slide 8. The right side of
the chart showed the results of the Wood Mackenzie analysis
that looked at four cases for the price of gas from a phase
1 project. The baseload case looked at the current
consumption rates in Southcentral at a price of $12.80
(within the range of imported LNG). The Wood Mackenzie case
looked out into the future and indicated that Alaska
utilities had a desire to reduce their gas consumption and
carbon footprint and they were looking to install
renewables; therefore, the consumption rate would decrease.
The analysis also considered some of the existing needs
within Southcentral Alaska including industrial demand such
as the refinery at Marathon where they had been using their
own propane instead of natural gas. He stated that it
resulted in a lower long-term consumption rate with a cost
of gas at $11.20. He pointed to the third case reflecting
additional industrial demand from existing industries such
as the Agrium ammonia plant, a new ammonia plant, a data
center, mine, or another development that wanted additional
offtake. Under the third case scenario, the price would go
down to $8.97. He stated that the price benefit to Alaskans
from more consumption of gas off the pipeline would mean
lower cost of energy. The fourth case reflected a scenario
where the full AKLNG project was in production and
producing 20 million tons for export and 500 million
standard cubic feet for instate needs.
2:30:42 PM
Co-Chair Josephson stated that according to Enstar and the
other utilities the likelihood of needing to build an
import facility was present. He asked how it factored into
the analysis.
Mr. Richards answered that the red arrow on slide 8
represented the piece of infrastructure that would need to
be developed at Nikiski. The developer of the project would
bear the cost, which would be borne on the contracts the
developer entered into with utilities for offtake.
Representative Tomaszewski imagined there would be long
term contracts involved with the construction of an import
facility. He asked if it would reduce the likelihood a
gasline would be built.
Mr. Richards responded that the import facility would be
based on long-term contracts with utilities that wanted
offtake in Southcentral. He relayed that AGDC's effort and
motivation was to build the pipeline to bring large volumes
of gas to Alaskans at a lower cost. There would be a
contract for import initially but there would be an out
clause specifying that when pipeline gas showed up they
could convert from import to pipeline gas at a lower cost.
Mr. Kissinger elaborated that almost all of the facilities
were part of the export facility. There would be a short
period of time where there may be pipeline gas coming "and
you're still bearing some cost on those facilities." The
price would still be below what it was when importing LNG.
Once it was converted to the export facility, the costs
would be borne by exporters. There would even potentially
be a payment back for the temporary use of the facility
associated with the import project.
2:33:33 PM
Representative Tomaszewski was excited about a gas
pipeline, but he likened the scenario of Alaska importing
gas to Columbia importing coffee. He stated it went against
his feelings on the subject.
Mr. Richards understood.
2:34:04 PM
Mr. Richards turned to slide 9 titled "Phase 1 Jobs." He
relayed that Wood Mackenzie had been directed to look at
the job differential between an imported LNG facility
versus a pipeline. The two job categories considered were
"construction phase" and "operations phase" both broken
into direct and indirect jobs. The study found that 2,271
direct and indirect jobs would be created in Alaska during
the initial phase of the project that would happen over a
three to four-year period. The project would utilize civil
and pipeline contractors in Alaska with the equipment and
wherewithal to accomplish the work. He detailed that much
of the work included civil work such as road building
project putting utility in the ditch. He believed Alaskans
would fill the vast majority of the jobs, which would keep
the money in the state. The study found there would be
1,138 direct and indirect jobs created during the
operations phase of the project.
Representative Hannan heard a lot from contractors about
not being able to get employees. She referenced Mr.
Richards' statement that 2,000 Alaskans would be working on
the project. She highlighted that some of the work was very
specialized. She wondered how many contracting firms in
Alaska had the capacity to bid to do the work.
Mr. Richards agreed that Alaskan contractors were finding
it difficult to fill jobs across the spectrum in trades,
retail, and hospitality; however, there were existing jobs
being filled by Alaskans on the North Slope. He explained
that the skillsets could be transferred from the oil and
gas fields to the construction fields. The specialty work
associated with building the pipeline was around welding.
He remarked that Alaska was not experienced building large
scale pipelines; therefore, the expertise would likely be
brought in. He noted that potentially individuals would be
trained in Alaska prior to beginning work on the project.
He noted there had been technological advances that enabled
the use of automatic welders, meaning the number of welders
required would be lower. He believed Alaskans had the skill
set to do the civil work including construction of rights
of way, material sites, hauling gravel, and digging the
trench. Whether it would be a drill and shoot [excavation]
or a train trencher would be determined during FEED. He
stated his goal to articulate to the public, labor unions,
and contractors that AGDC wanted them to have the access
and ability to construct the project.
2:37:59 PM
Representative Hannan stated that contractors in Alaska
were required to have bonding when they were doing projects
for the public. She asked what kind of bonding capacity a
contractor building the pipeline would be required to have.
She asked if they would need to have $1 billion in bonding
in order to work on the project. She had heard there were
not any Alaskan contracting firms large enough to do the
big work on the project. She understood there were many
contractors in the state with the ability to move gravel
and do the civil work, but there were only a few in the
country that were large enough to do the work envisioned
under the project. She was hearing Mr. Richards say that
was not true.
Mr. Richards answered that ultimately the contracts would
be borne by the project developer. He noted that AGDC was
trying to entice a private sector developer to take the
project on. He would follow up with information on what the
bonding requirements would be. The 747-mile pipeline would
likely be comprised of four construction spreads, meaning
four major contractors would be hired to do the work on
each of the spreads including a pipeline contractor and a
civil contractor.
Representative Bynum thought it sounded like a tremendous
opportunity for workforce development. He wondered if there
had been an evaluation done to look at how the construction
phasing could happen to ramp up workforce production from
within Alaska.
Mr. Richards replied that a workforce development plan for
the AKLNG project was developed in an effort led by
ExxonMobil. He explained that the plan would have to be
updated during the FEED stage. He relayed that AGDC was in
communications with labor unions and contractors about the
number of individuals and skill sets that would be needed
to construct the project. He hoped to work on the
development on ensuring there would be trained and skilled
workforce to construct the project.
2:41:01 PM
Representative Bynum viewed it as a tremendous opportunity
to create a workforce in Alaska. He looked forward to
seeing the plan as the project moved forward.
Mr. Richards advanced to the economic impact on slide 10.
He stated that the positive economic impact to Alaska for
AKLNG phase 1 was 7 to 10 times larger than imported LNG.
He detailed that for phase 1, the instate economic impacts
represented about $10.3 billion.
Mr. Kissinger discussed the evolution to private developers
on slide 12. He relayed that had been producer-led at the
start by ExxonMobil, ConocoPhillips, BP, and the State of
Alaska. He noted the state had taken quite a bit of risk at
the time as a 25 percent paying equity owner. He detailed
that the producers were never well situated for building
the mid-stream infrastructure due to the high cost of
capital. He explained it was the conclusion that was
reached in 2016. Producers had hired Wood Mackenzie to look
at what the project should do at the time, and the Wood
Mackenzie recommendation was to lower the cost of capital
through pursuing things like project financing. He relayed
that the emergence of much more nimble developers in the
Gulf of Mexico was becoming apparent at the time. Wood
Mackenzie had recommended bringing on those types of
developers, which also had lower costs of capital.
Mr. Kissinger continued reviewing the evolution to private
developers on slide 12. The project had been handed to the
state and there was a period of time where the project
continued to be held together as a large integrated project
trying to follow the Gulf of Mexico model where LNG was
underpinned by selling LNG into Asia. He noted the large
size of the project. In 2019, the importance of further of
attracting more nimble developers had been determined and
the state had decided to segment the project and to find a
specific pipeline company, a more specific LNG developer,
and a more specific Arctic carbon capture developer. The
decisions ultimately led to the "developer-led" or the
"alignment first" model. He explained that parties involved
had to align and the risks had to be allocated properly in
order to move forward on an economic project. The work had
been taking place over the past two years and AGDC had
brought a major North American pipeline company to the
table that had been with the project for several years. He
elaborated that the company brought depth and was large in
size. He relayed that in the past year AGDC had begun
working with Glenfarne, which fit more of a "quarterback"
role. He noted that additional depth teamed up with the
company would be needed and the parties would carry the
project forward.
2:45:07 PM
Representative Galvin appreciated information on the
differences of the approach [historically]. She asked about
the language on slide 12 "transition to world-class private
parties." She remarked that the state was still getting
money from the existing [TAPS] oil pipeline and was happy
about it because money was used for schools and other
things. She asked if transitioning the project to private
parties meant the state would get a lower share. She
appreciated the concept and importance of lower energy
costs for Alaskans, but she wondered if the state would
also see revenue to help fill budgetary holes.
Mr. Kissinger replied that the state started with holding
25 percent of the bag and it was now holding 100 percent.
He explained that AGDC was providing the state with the
opportunity to continue holding 25 percent, but not the
obligation. Under the framework AGDC was aiming for with
Glenfarne the developer would pay the state's cost through
to FID. He elaborated that FID the state would have to
decide whether it wanted to make the 25 percent investment
into the project.
Representative Galvin asked about the acronym FID.
Mr. Kissinger answered that FID stood for final investment
decision.
Representative Galvin stated her understanding that the
state was being asked if it wanted to stay at the table by
contributing to the cost in order to receive more revenue.
She wanted to understand the terms and how much money the
state was expected to contribute in order to remain at the
table.
Mr. Richards highlighted a list of acronyms that the end of
the presentation for members' reference.
Co-Chair Josephson stated that when he had looked at the
project in 2013 there had been $12 billion in the CBR and
$2 billion in the Statutory Budget Reserve (SBR) and
theoretically the state could have written a check to cover
the cost of investment. He noted that AKLNG was a $10
billion to $11 billion project in phase 1. He asked for
verification that the state would be responsible for $2.5
billion to $3 billion. He asked how the state would pay for
the cost.
Mr. Richards answered that the FEED stage would provide the
updated information and would enable contracts to be put in
place in order to make FID. He noted there was a slide
later in the presentation that addressed everything that
would need to be put in place. He explained that AGDC was
reserving up to 25 percent ownership rights for the state
if it chose to be an equity participant. He clarified that
it was not an obligation, but a right. He noted the
decision would be a policy call for the legislature and
administration. There would be an updated cost estimate as
the project moved forward and AGDC would come back to the
legislature asking whether it wanted the state to be a
partner in the project.
2:50:16 PM
Representative Johnson referenced reports by Wood
Mackenzie. She stated they were looking at a $50 million
fast track supplemental for the project, which was the
first decision the legislature would have to make. She
remarked that the winds had changed in Washington D.C. She
wanted to hear about what may be going on at the federal
level that may have an impact. She was thinking about
potential state exposure. She wanted to hear how Enbridge
was different than a number of other deals. She referenced
the phrase "there's a gasline in Alaska's future and there
always will be." She hoped it was not true. She believed
the project was a good thing for the state, but she wanted
to make sure to get to something concrete. She stated the
funds allocated to the project had been depleted and now
there was another $50 million request for FID. She was
interested to hear what may be different currently versus
in the past due to federal change.
Mr. Richards remarked on the change at the federal level
with the recent inauguration of President Trump and the
support for Alaska resource development and AKLNG in the
president's executive orders. He relayed that President
Trump had been very supportive of the project in his first
term. He detailed that the project's authorizations,
permits, and rights of way were granted during that time.
The project retained all of the permits and authorizations
under President Biden. He noted that President Biden and
the Department of Justice fought for the authorizations in
the U.S. District Court. President Trump and the Department
of Justice would see through the final hearing on the
Department of Energy authorization. He elaborated that
President Trump's executive orders came out in specific
support stating they would put the full faith in credit of
the U.S. government behind the project. He explained that
the engagement with the federal government was about the
utilization and access to the federal loan guarantees. In
2004, there were $18 billion in loan guarantees written
into the Alaska Natural Gas Pipeline Act written by Senator
Stevens. He noted that the act had an inflation factor;
therefore, the loan guarantees were currently in excess of
$30 billion.
2:54:03 PM
Mr. Richards explained that the project needed regulations
from the U.S. Department of Energy in order to access the
funds. He stated that AGDC's primary ask of the Trump
administration was to get the regulations promulgated by
the Department of Energy in order for developers of the
project to utilize the loans and bring down the cost of
debt financing because of the full faith and credit of the
U.S. government backing the financing and benefit the
overall construction and cost to Alaskans. The loan
guarantees would help bring down the cost of Alaskan gas.
Representative Johnson remarked that Enbridge is a Canadian
firm and the state had dealt with plenty of Canadian firms
when it came to gas. She thought it was the case with
Enstar. She remarked that there was a lot of talk, things
were moving rapidly, and they did not know about tariffs
and what it would be like dealing with a foreign company.
She referenced the Trump administration and asked if Mr.
Richards had any sense of the differences of dealing with a
foreign company versus a U.S. company.
Mr. Richards replied that he had not heard any negative
talk about working with enterprises from other countries.
He stated that the primary goal would be to sell the
liquefied natural gas to Asian countries, which would
ultimately help the trade imbalance. He elaborated that
there would likely be a $10 billion positive impact on the
trade imbalances from selling into the Asian countries
wanting the LNG.
Co-Chair Josephson recommended holding off on questions to
allow the presentation to continue.
Mr. Richards continued to slide 13 titled "Equity Offer for
Investors." He relayed that AGDC had been out marketing the
project as an [attractive] investment because it had the
best economics of any North American project, all major
permits, beneficial equity terms, and local support. He
addressed the AGDC equity offer highlights on the lower
half of the slide:
Majority ownership and control of Alaska LNG in exchange
for:
• Funding development costs to FID
• Commitment to move Alaska LNG forward on fast
timeline
• Preferential in-state gas supply
• Opportunity for Alaska to invest
Mr. Richards noted that one of the roles SB 138 gave to the
Department of Revenue was to create a mechanism for
Alaskans to invest.
2:58:00 PM
Mr. Kissinger turned to slide 15 titled "Glenfarne Mission
and Vision." He detailed that Glenfarne was a global energy
transition specialist that started just over ten years ago
buying power plants and adding solar energy to create a mix
of renewable and grid stability/natural gas fired energy
across different countries in South America. He elaborated
that Glenfarne was a multibillion dollar asset company with
sufficient cash to take AKLNG through FID. He noted AGDC
estimated that cost to be $150 million. The company had
about 800 employees operating its facilities and was
headquartered in New York and Houston. Additionally, the
company held onto assets; it still had ownership of every
asset it had taken hold of, which aligned with AGDC's
vision for AKLNG.
Co-Chair Josephson asked if it was an American company.
Mr. Kissinger responded affirmatively. The company was
headquartered in New York and Houston with operations all
over. He moved to slide 17 titled "Glenfarne Term Sheet."
He noted that binding agreements would come later on. He
relayed that Glenfarne had committed to capitalize the
project in the term sheet to take it all the way to FID. He
explained that Glenfarne would obtain a 75 percent equity
position and would use it to bring in other investors. He
explained it was important to AGDC that the project did not
stall; therefore, the agreement would include milestones to
ensure the project continued moving forward. He noted that
the process set the whole project up through FID.
3:00:52 PM
Mr. Richards addressed the FEED backstop and phase 1
development. He explained that a backstop agreement was a
commercial arrangement where the initial costs of work
covered by the pipeline development company would only be
reimbursed if the project did not take FID. He explained
that if FID did not occur it was because something happened
such as the doubling or tripling of the project cost making
the project no longer economic. He explained that if the
project did not take FID, the development company would be
reimbursed up to a maximum amount of $50 million.
Mr. Richards turned to slide 19 and discussed the AKLNG
corporate structure. He discussed that AGDC, as a state
corporation, was marketing the project and had an
interested investor. He relayed that as a state
corporation, AGDC could not divest itself; the State of
Alaska was full owner of AGDC, but it had given AGDC the
right to create subsidiaries. He detailed that AGDC had
created 8 Star Alaska, LLC as a vehicle for bringing in
third-party investment and control of AKLNG. He pointed to
a diagram on the slide showing 8 Star Alaska with three
separate LLC subprojects underneath including carbon
capture, the pipeline, and the liquefaction facility. He
explained that all of the permits were incorporated into
the integrated AKLNG project, which was the reason all of
the assets were all held within 8 Star Alaska. He
elaborated that AGDC was reserving the right for the state
to invest up to 25 percent in each of the three
subprojects.
3:03:35 PM
Mr. Richards moved to the FEED backstop timeline on slide
20. He relayed that after hiring Wood Mackenzie and
determining there was positive economic value to the
project, AGDC began talking with the Alaska Industrial
Development and Export Authority (AIDEA) as a sister
corporation to determine whether the project would meet its
investment criteria. The idea was to initiate FEED as
quickly as possible to get ultimately to FID and operation.
After consultations with AIDEA, AGDC had applied through
the AIDEA process. In a December 4 board meeting, AIDEA
adopted a resolution authorizing its executive director to
negotiate binding agreements with AGDC on the FEED
backstop. The process would involve a development finance
agreement between 8 Star Alaska and AIDEA. Additionally, 8
Star Alaska would enter into an agreement with a pipeline
company to execute FEED and backstop agreement. He
explained that AIDEA would put money in an interest earning
account that would only be used as a backstop if the
project did not take FID.
Co-Chair Josephson stated that AIDEA was in a position of
cash and investments exceeding $600 million. He thought he
had read that AIDEA would backstop the funds without
general funds. He asked if it would be an option for the
legislature to authorize. He did not recall whether AIDEA
could do it without authority.
Mr. Richards deferred the question to AIDEA.
3:06:47 PM
RANDY RUARO, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY (via teleconference),
stated his understanding of the question.
Co-Chair Josephson agreed.
Mr. Ruaro clarified that the amount would be up to the
amount actually required by AIDEA to pay for the backstop.
He explained that the amount for the FEED work and a
trigger of the backstop could be significantly lower than
$50 million. The $50 million exposure to AIDEA was the
maximum amount the board authorized. He suggested that the
language associated with the appropriation should probably
be adjusted to reflect only the actual amount AIDEA would
be required to pay if any. He underscored that AIDEA did
not want to make a profit off of the appropriation. He
stated the appropriation should not be larger than the
amount AIDEA was exposed to. He added that at the time the
request was made, the timing of FEED completion and the
availability of different credit facilities was unclear. He
noted that it was clear from slide 30 and other discussions
that FID would not be taken until 2027. He relayed that FID
was what would trigger any liability for AIDEA to pay the
backstop. He reasoned that the timing meant it was likely
not necessary to have the appropriation in a fast track
supplemental. He suggested the appropriation could likely
be run through the regular capital budget.
Mr. Ruaro answered that AIDEA could go forward without an
appropriation. He relayed that AIDEA was starting to get
stretched on its resources. He elaborated that it had
roughly $400 million in its revolving fund account. The
board had approved $200 million in projects for Alyeschem,
Hex Furie, the Aviator Hotel, and AKLNG. Additionally,
AIDEA was hoping to keep $100 million in reserve in case it
needed to bond for a large project. The combined items
brought AIDEA's available cash to a much lower level. He
clarified that AIDEA had funds invested in fixed income
investments, but some of the investments were on a six-year
horizon and had been negatively impacted by previous
interest rate policies and other things. He relayed that
AIDEA may incur some realized losses if those investments
were moved to cash. He noted that AIDEA was also working on
determining its liquidity. He stated that the appropriation
could be amended and placed in the capital budget and AIDEA
could go forward without an appropriation. He relayed that
AIDEA would like to be able to keep its liquidity at a high
level and was putting funds to work in the state per its
mission; it was running at an 8 to 10 times average over
previous years. The agency had hundreds of millions of
dollars in projects before it.
3:11:50 PM
Representative Josephson asked what would happen if the
legislature advanced $50 million in general funds in the FY
26 capital budget for FID in June of 2027. He asked if it
would indicate a lack of enthusiasm that would concern
AIDEA.
Mr. Richards stated his understanding of the question. He
asked if in addition to the ongoing negotiations with AIDEA
for the $50 million in backstop funding, an increment would
be included in the FY 26 budget. He did not believe it
would be viewed negatively by the market in terms of timing
of the backstop. He stated it was really about the impact
to AIDEA's ability to utilize funds for its mission of
creation of jobs and the economy.
Representative Allard asked if AIDEA had a breakdown of its
total funds.
Mr. Ruaro replied that AIDEA's detailed financial
statements were available on its website. The authority had
roughly $400 million in cash and $200 million of the total
was committed to various projects. Additionally, AIDEA
liked to keep $100 million in reserve for bond authority.
He elaborated that AIDEA had a loan participation portfolio
of roughly $400 million, partial access of the Red Dog road
and other hard assets, and roughly $400 million invested in
fixed income.
Representative Allard asked if they were looking at selling
the LNG to countries like Japan or China in the future.
Mr. Richards answered affirmatively. He relayed that
markets for the LNG would all be in the Pacific Basin
including countries like Korea, Japan, and Southeast Asia
including China. He explained that the countries had keen
interest in buying the LNG, similar to buying Alaskan fish
and other Alaskan products.
Representative Allard wanted to make sure that Alaskans
came first. She thought it was a bit alarming the state
would sell its LNG. She wondered how much China would
undercut everything.
Mr. Richards replied that the focus was on gas to Alaskans
first and bringing it at the lowest cost. The contracts for
the LNG offtakes would be developed knowing the countries
and the actions they had undertaken to ensure Alaska would
be covered in terms of the financial commitments to move
the project with offtake agreements.
3:16:24 PM
Representative Hannan stated her recollection from the
budget overview by the Office of Management and Budget was
that the fast track supplemental $50 million backstop was
unrestricted general funds.
Co-Chair Josephson replied affirmatively.
Representative Hannan had heard during the current meeting
from Mr. Richards and Mr. Ruaro about AIDEA agreements and
funding the backstop. She remarked that Mr. Ruaro was
describing AIDEA as a little cash pressed, which committee
members may also be feeling. She thought Mr. Richards'
discussion about continuing to discuss the FEED backstop
with the AIDEA board, which she thought implied using
AIDEA's funding.
Mr. Richards confirmed that AGDC was negotiating with AIDEA
for utilization of ADIEA funds to set aside for FEED
backstop.
Representative Hannan asked if there was a sense of how
much the FEED totality could be. She referenced Mr.
Richards' use of the 75/25 state risk. She wondered if the
entire backstop risk for the FEED decision was to the
state. She asked if none of the private parties took any
risk if FID was not reached.
Mr. Richards relayed that the FEED backstop was for the
phase 1 pipeline. The entire AKLNG project to get to FID
was estimated to be $150 million. He relayed that the
backstop would assist with bringing the pipeline first for
Alaskans use. The private developer coming into the project
would have the commitment to do all of the remaining work.
Representative Hannan asked if the anticipated cost up to
the point of potentially needing to fill the backstop was
up to $50 million.
Mr. Richards clarified that for the phase 1 pipeline there
was a maximum of up to $50 million.
Representative Allard asked if AGDC did not agree that
AIDEA should be funding the backstop fully.
Mr. Richards answered that the proposal AGDC took to AIDEA
was for the phase 1 pipeline. The agreement was for AIDEA
to provide the backstop for the design of the pipeline
only. The other phase of the project, which included two
plants and the remainder of the pipeline and compressor
stations would be paid for by the private developer.
Co-Chair Josephson suggested getting through slide 24 and
addressing slide 32.
3:20:12 PM
Mr. Richards moved to slide 23 titled "Conditions to Enter
FID." He asked Mr. Kissinger to review the slide.
Mr. Kissinger reviewed slide 23. He spoke about
underpinning the full LNG project. He explained that AKLNG
would place its LNG into the market with credit worthy
counterparties. The agreements with credit worthy counter
parties could be taken to the bank along with other equity
investors to do the debt financing and equity financing.
Additionally, the North Slope gas supply was needed because
the project had to be able to sell and liquify the gas. He
stated there may be gas offtake agreements to the
industrial users and there would be gas offtake within
Alaska to utilities. That credit support would only be
under phase 1 and the Asian credit support would come into
place under the remainder of the project phases. He relayed
that the project had all of the permits required for the
project. Additionally, a Class 3 and Class 4 cost estimate
was needed. He noted that the project had the Class 4 cost
estimate. He noted that FEED generally went from a Class 4
to a Class 3 cost estimate. Finally, a project was required
to have a signed EPC [engineering, procurement, and
construction] contracts with a contractor or multiple
contractors in the case of AKLNG. The elements listed on
slide 23 allowed the equity investors to release their
funds into the project, which took place at FID.
3:22:17 PM
Mr. Richards turned to slide 24 and discussed the North
Slope gas supply for phase 1 of the project. He relayed
that AGDC had entered into a gas agreement with a new
developer Great Bear Pantheon at a low cost of less than
$1.00 per MMBtu. He detailed that if the company was
successful in getting to development, it would provide the
state with a significant amount of gas at a very low cost.
He added that the location was directly along the pipeline
corridor and Dalton Highway, which was close and adjacent
to the pipeline. He elaborated that Great Bear was looking
to move forward to get to production, but a backup supply
was important. He shared AGDC had continued to have
conversations about a backup supply with unit owners in
Point Thomson, Prudhoe Bay, and in Prudhoe Bay satellite
fields.
Mr. Richards moved to slide 26 showing the federal
executive orders and the prioritization of the AKLNG
project. He highlighted support for AKLNG expressed by
[Secretary of the Interior] Doug Burgum and Chris Wright
from the Department of Energy.
Co-Chair Josephson stated that the TransCanada proposal had
been an exclusive agreement with TransCanada for some parts
of the project. He remarked that when the state had not
been prepared to move forward there had been a deadline on
buying out TransCanada's interest. He noted the legislature
spent a month in special session addressing the issue in
the middle teens. He was concerned about the exclusivity
provision. He asked if the state's investment surrendered
would be $50 million if the current proposal did not move
forward. Alternatively, he wondered if the state would be
required to buy out Glenfarne's interest or Enbridge's
interest.
Mr. Richards clarified that what was described in the
presentation was vastly different than the AGIA [Alaska
Gasline Inducement Act] agreement the state gave to
TransCanada. He elaborated that in the case of AGIA,
TransCanada sought reimbursement from the State of Alaska
for all of the development work to advance the project. He
detailed that TransCanada partnered with ExxonMobil and he
believed the ultimate bill was close to $500 million. Under
the current proposal, AGDC was asking Glenfarne as a
private developer to commit its own dollars without asking
the state to pay to advance to FID. He explained that one
of the fundamental differences [from AGIA] was that
Glenfarne was stepping forward with its funds because it
saw the value of benefit and economic upside of the
project.
Co-Chair Josephson asked relative to the TransCanada
license if Glenfarne carried more risk in that situation
than the state did.
Mr. Richards agreed. He detailed that Glenfarne would have
the risk in terms of the development. He elaborated that
Glenfarne would seek other partners to come into the
project that had expertise in various areas such as
liquefaction, gas treatment, or pipeline in order to help
try to mitigate the risk and to share in the risk profiles.
He noted that Glenfarne would likely be in Juneau in a
couple of weeks, and he hoped to have the opportunity to
introduce him to legislators.
3:27:32 PM
Co-Chair Josephson noted that AGDC had been asked by the
Senate about its working closely with Goldman Sachs and
that they were invested in making sure the financial
support for the project was there. He asked if the
committee should be concerned about their absence under the
current arrangement.
Mr. Richards replied that AGDC still had a working
relationship with Goldman Sachs. He relayed that AGDC was
meeting with the lead party Michael Sachs the following
day. He expounded that AGDC and Goldman had been out on the
world market seeking developers and investors to come into
the project.
Representative Tomaszewski asked how much capital AGDC had
raised for the project so far.
Mr. Richards answered that AGDC was seeking to raise $150
million to take the project through FEED to FID. He
reported that AGDC was currently negotiating project
development agreements with Glenfarne to move forward.
Representative Tomaszewski asked for verification that AGDC
created 8 Star Alaska, LLC.
Mr. Richards agreed.
Representative Tomaszewski asked who would own 8 Star
Alaska.
Mr. Richards replied that AGDC was currently the sole owner
of 8 Star Alaska. When AGDC entered into the project
development agreement with Glenfarne, it would gain 75
percent ownership rights of 8 Star Alaska.
Representative Tomaszewski asked for verification that
Glenfarne would own 75 percent of 8 Star and 8 Star would
own all three components of AKLNG including the carbon
capture, pipeline, and LNG.
Mr. Richards answered it would be a 75/25 split.
Co-Chair Josephson interjected that it would be with
further state investment.
Mr. Richards confirmed that the state's right [to 25
percent ownership] would be reserved.
Representative Tomaszewski asked for verification that
there was no current agreement on phase 2 of the project,
which would depend on many factors.
Mr. Richards clarified the agreement was for the full
project. He explained that phase 1 was a priority to get
gas to Alaskans, but phase 2 was extremely important to be
able to ultimately commercialize North Slope resources in
order for Alaskans to get the volume discount and the state
received revenues from income taxes, royalties, production
taxes, property taxes etcetera.
3:30:45 PM
Representative Tomaszewski was excited about a gas
pipeline. He wanted to see DOR and DNR's take on the
th
pipeline. He noted that the original SB 138 in the 28
legislature dictated the terms. He believed it was the
state's fiduciary responsibility to have all parties
involved. He suggested hearing from all of the entities in
a future committee meeting.
Co-Chair Josephson indicated that the opportunity would be
provided.
Representative Bynum asked if the 25 percent share was
limited to that amount. Alternatively, he asked if the
state chose to make a better investment, it would have the
ability to own a larger share.
Mr. Richards answered that AGDC was currently reserving the
option of up to 25 percent. He noted it did not mean there
could not be negotiation on the matter in the future.
Co-Chair Josephson reviewed the schedule for the following
day.
ADJOURNMENT
3:32:12 PM
The meeting was adjourned at 3:32 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AGDC House Finance Presentation - January 28, 2025.pdf |
HFIN 1/28/2025 1:30:00 PM |